UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30,December 31, 2015
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________to_________from __________ to_________
Commission File Number: 0-6658
_________________________________________________
SCIENTIFIC INDUSTRIES, INC.
____________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
80 Orville Drive, SuiteSte. 102, Bohemia, New York 11716
______________________________________________ _______________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(631)567-4700
_____________________________________________________________________
(Registrant?s____________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No .__.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smallsmaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated"Accelerated filer" and "small"smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer Accelerated Filer ____
Non-accelerated filer Smaller reporting company X
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the issuer's common stock par
value, $0.05 per share, as of October 30, 2015February 2, 2016 was 1,489,112 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income Loss 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 1315
ITEM 4 CONTROLS AND PROCEDURES 1518
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 1618
SIGNATURE 1719
EXHIBITS 1820
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,December 31, June 30,
2015 2015
_____________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 530,200666,900 $ 482,000
Restricted cash 300,000 300,000
Investment securities 277,000278,200 281,800
Trade accounts receivable, net 737,400870,100 1,081,700
Inventories 2,343,8003,262,500 2,213,700
Prepaid expenses and other current assets 145,30055,600 68,600
Deferred taxes 118,000109,700 114,200
_________ _________
Total current assets 4,451,7005,543,000 4,542,000
Property and equipment at cost, net 222,800206,500 235,200
Intangible assets, net 1,363,0001,281,200 1,451,900
Goodwill 705,300 705,300
Other assets 52,500 52,500
Deferred taxes 169,400190,400 154,500
__________ __________
Total assets $6,964,700$7,978,900 $7,141,400
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 201,100372,100 $ 227,600
Customer advances 93,500110,100 76,400
Bank line of credit 200,000470,000 -
Notes payable, current portion 200,000 200,000
Accrued expenses and taxes 316,800779,500 519,900
Contingent consideration, current portion 128,900 106,800
__________ __________
Total current liabilities 1,140,3002,060,600 1,130,700
Contingent consideration, payable, less
current portion 137,300 260,300
__________ __________
Total liabilities 1,277,6002,197,900 1,391,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,508,914 outstanding at
September 30,December 31, 2015 and June 30, 2015 75,400 75,400
Additional paid-in capital 2,487,3002,487,900 2,486,700
Accumulated other comprehensive loss ( 7,100)8,200) ( 3,300)
Retained earnings 3,183,9003,278,300 3,244,000
___________ __________
5,739,5005,833,400 5,802,800
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,687,1005,781,000 5,750,400
__________ __________
Total liabilities and
shareholders' equity $6,964,700$7,978,900 $7,141,400
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)OPERATIONS (UNAUDITED)
For the Three Month For the Six Month
Periods Ended September 30,Periods Ended
December 31, December 31,
__________ __________ __________ __________
2015 2014 2015 2014
__________ __________ __________ __________
Revenues $1,444,500 $1,662,100$2,028,200 $1,691,100 $3,472,600 $3,353,200
Cost of revenues 849,400 1,161,900sales 1,190,500 1,081,700 2,039,800 2,163,900
__________ __________ __________ __________
Gross profit 595,100 500,200837,700 609,400 1,432,800 1,189,300
__________ __________ __________ __________
Operating expenses:Expenses:
General and& administrative 408,200 326,500395,700 446,400 803,900 852,600
Selling 167,000 295,300227,200 229,400 394,200 524,700
Research and& development 85,400 107,10084,100 116,100 169,500 223,200
__________ __________ __________ __________
Total operating
expenses 660,600 728,900707,000 791,900 1,367,600 1,600,500
__________ __________ Loss__________ __________
Income (loss) from
operations 130,700 ( 65,500)182,500) 65,200 ( 228,700)411,200)
__________ __________ __________ __________
Other income (expense):
Investment income 400 8005,000 7,400 5,400 9,600
Other income (expense)1,400 ( 4,700) 6,2005,900) ( 3,300) ( 1,100)
Interest expense ( 8,100)14,000) ( 1,200)1,400) ( 22,100) ( 2,700)
__________ __________ _________ __________
Total other income,
(expense), net ( 12,400)7,600) 100 ( 20,000) 5,800
__________ __________ Loss_________ __________
Income (loss) before
income tax benefitexpense
(benefit) 123,100 ( 77,900)182,400) 45,200 ( 222,900)405,400)
__________ __________ _________ __________
Income tax benefit:expense (benefit):
Current -40,900 ( 57,200)33,800) 40,900 ( 91,000)
Deferred ( 17,800)12,200) ( 4,400)10,600) ( 30,000) ( 15,100)
__________ __________ __________ __________
Total income tax
benefitexpense (benefit) 28,700 ( 17,800)44,400) 10,900 ( 61,600)106,100)
___________ __________ __________ __________
Net lossincome (loss) $ 94,400 ($ 60,100)138,000) $ 34,300 ($161,300)299,300)
=========== ========== ========== ==========
Basic lossand diluted earnings
(loss) per common share $ .06 ($ .04).09) $ .02 ($ .11)
======== ========
Diluted loss per common share ($ .04) ($ .11)
======== ========.20)
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS) (UNAUDITED)
For the Three Month For the Six Month
Periods Ended September 30,Periods Ended
December 31, December 31,
___________________ __________________
2015 2014 2015 2014
________ __________ ________ __________
Net lossincome (loss) $ 94,400 ($ 60,100)138,000) $ 34,300 ($161,300)299,300)
Other comprehensive loss:
Unrealized holding loss on investments
arising during period,
net of tax ( 1,100) ( 3,800) ( 700)4,900) ( 4,500)
__________ _________ __________ __________
Comprehensive lossincome (loss) $ 93,300 ($ 63,900)141,800) $ 29,400 ($162,000)303,800)
========== ========= ========== ==========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the ThreeSix Month Periods Ended
Sept. 30,December 31, 2015 Sept. 30,December 31, 2014
______________ _______________________________ _________________
Operating activities:
Net lossincome (loss) $ 34,300 ($ 60,100) ($ 161,300)
___________ ___________299,300)
__________ ____________
Adjustments to reconcile net lossincome (loss)
to net cash used in operating activities:
Loss on sale of investments - 1,300
Loss on asset disposal 2,700 -
Depreciation and amortization 105,200 110,100210,800 220,100
Deferred income taxestax benefit ( 17,800)30,000) ( 4,400)15,100)
Stock-based compensation 600 1,0001,200 2,100
Income tax benefit of stock options exercised - 4,900
Changes in operating assets and liabilities:
Accounts receivable 344,300211,600 25,700
Inventories (1,048,800) ( 38,500)
Inventories ( 130,100) 26,300106,900)
Prepaid expenses and other current assets 13,000 ( 76,700) ( 61,600)37,200)
Other assets - ( 25,400)
Accounts payable ( 26,500) ( 31,500)144,500 48,700
Customer advances 17,100 3,30033,700 ( 77,500)
Accrued expenses and taxes 259,600 ( 203,100) ( 83,900)
___________149,200)
____________ ____________
Total adjustments 15,700 ( 98,400)
___________201,700) ( 108,500)
____________ ____________
Net cash used in
operating activities ( 44,400)167,400) ( 259,700)
___________407,800)
____________ ____________
Investing activities:
Purchase of investment securities,
available-for-sale ( 2,700) ( 3,800)
Capital expenditures ( 8,400) ( 52,900)
Purchase of intangible assets ( 5,700) ( 3,400)
Redemption of investment securities, available-for-saleavailable
for sale - 75,000
Capital expenditures ( 6,500) ( 19,700)
Purchases of intangible assets - ( 1,100)
_______________________ ____________
Net cash provided by
(used in) investing activities ( 6,500) 54,200
___________16,800) 14,900
____________ ____________
Financing activities:
Line of credit proceeds 200,000 200,000470,000 250,000
Payment of contingent consideration ( 100,900) ( 98,900)
Proceeds from exercise of stock options - 18,800
Principal payments on note payable - ( - ) ( 20,000)
___________26,700)
____________ _____________
Net cash provided by financing
activities 99,100 99,900
___________369,100 143,200
____________ _____________
See notes to unaudited condensed consolidated financial statements
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the ThreeSix Month Periods Ended
Sept. 30,December 31, 2015 Sept. 30,December 31, 2014
______________ _______________________________ _________________
Net increase (decrease) in cash
and cash equivalents 48,200184,900 ( 105,600)249,700)
Cash and cash equivalents, beginning of year`year 482,000 493,700
___________________ __________
Cash and cash equivalents, end of period $ 530,200666,900 $ 388,100
========= ==========244,000
__________ __________
Supplemental disclosures:
Cash paid during the period for:
Income Taxestaxes $ 18,500 $ 3,500
Interest 4,400 1,200
See Note 3 for non-cash2,700
Non-cash investing and financing activities (Note 3)
See notes to unaudited condensed consolidated financial statements
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim condensed consolidated
financial statements are prepared pursuant to the Securities
and Exchange Commission's rules and regulations for reporting
on Form 10-Q. Accordingly, certain information and footnotes
required by accounting principles generally accepted in the
United States for complete financial statements are not
included herein. The Company believes all adjustments
necessary for a fair presentation of these interim statements
have been included and that they are of a normal and
recurring nature. These interim statements should be read in
conjunction with the Company's financial statements and notes
thereto, included in its Annual Report on Form 10-K, for the
fiscal year ended June 30, 2015. The results for the three
and six months ended September 30,December 31, 2015, are not necessarily
an indication of the results for the full fiscal year ending
June 30, 2016.
1. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. ("Scientific", a Delaware
corporation), Altamira Instruments, Inc.("Altamira", a wholly ownedwholly-owned
subsidiary and Delaware corporation), Scientific Packaging Industries,
Inc. (an inactive wholly ownedwholly-owned subsidiary and New York corporation)
and Scientific Bioprocessing, Inc., ("SBI", a wholly
ownedwholly-owned subsidiary
and Delaware corporation). All are collectively referred to as the
"Company". All material intercompany balances and transactions have
been eliminated.
2. New Accounting Pronouncements:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers amending revenue recognition requirements for multiple-
deliverablemultiple-deliverable
revenue arrangements. This update provides guidance on how revenue is
recognized to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for the goods or services. This determination is
made in five steps: (i) identify the contract with the customer: (ii)
identify the performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. In July 2015, the FASB deferred
the effective date to fiscal years beginning after December 15, 2018, or the
Company's fiscal year ending June 30, 2020, and early adoption of the
standard is permitted, but not before the original effective date of
December 15, 2017. The Company is evaluating the effect this guidance will
have on the consolidated financial statements and related disclosures.
6
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation
(Topic 718): Accounting for Share-Based Payments When the Terms of an Award
Provide that a Performance Target Could be Achieved After the Requisite
Service Period. This update affects reporting entities that grant their
employee's targets that affects vesting could be achieved after
6
the
requisite service period. The new standard requires that a performance
target that affects vesting and that could be achieved after the requisite
services period be treated as a performance condition. The new standard will
be effective for the Company beginning July 1, 2016, and early adoption is
permitted. The Company expects the adoption will not have a material impact
on its financial condition, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory: Simplifying the
Measurement of Inventory", that requires inventory not measured using
either the last in, first out (LIFO) or the retail inventory method to be
measured at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business, less
reasonably predictable cost of completion, disposal and transportation. The
new standard will be effective for fiscal years beginning after December 15,
2016, including interim periods within those fiscal years, and will be
applied prospectively. Early adoption is permitted. The Company is
evaluating the impact that this standard will have on its consolidated
financial statements.
In November 2015, the FASB issued new guidance simplifying the balance sheet
classification of deferred taxes. The new guidance requires that deferred
tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and
presented as a single amount is not affected by the new guidance. The
guidance is effective for public companies for interim and annual reporting
periods beginning after December 15, 2016, with early adoption permitted as
of the beginning of an interim or annual reporting period. The new guidance
may be applied either prospectively to all deferred tax liabilities and
assets or retrospectively to all periods presented. The Company is
evaluating the impact that the new guidance will have on its consolidated
financial statements and related disclosures.
3. Acquisition:
On February 26, 2014, the Company acquired substantially all the assets of a
privately owned company consisting principally of inventory, fixed assets, and
intangible assets related to the production and sale of a variety of
laboratory and pharmacy balances and scales. The acquisition was pursuant to
an asset purchase agreement whereby the Company paid the sellers $700,000 in
cash, 126,449 shares of Common Stock valued at $427,500 and agreed to make
additional cash paymentspayment based on a percentage of net sales of the business
acquired equal to 8% for the period endingended June 30, 2014 annualized, 9% for the
year endingended June 30, 2015, 10% for the year ending June 30, 2016 and 11% for
the year ending June 30, 2017, estimated at a present value of $460,000 on the
date of acquisition. Payments related to this contingent consideration for
each period are due in September following the fiscal year. Contingent
consideration payments made amounted to $100,900 and $98,900 during the three
monthssix month
periods ended September 30,December 31, 2015 and 2014, respectively.
7
The products, which are similar to the Company's other Benchtop Laboratory
Equipment, and in many cases used by the same customers, are marketed under
the Torbal(R) brand. The principal customers are pharmacies, pharmacy schools,
universities, government laboratories, and industries utilizing a precision
scale.scales. The products are sold primarily on a direct basis, including through the
Company's e-commerce site.
Management of the Company allocated the purchase price based on its
valuation of the assets acquired, as follows:
Current assets $ 144,000
Property and equipment 118,100
Goodwill* 115,400
Other intangible assets 1,210,000
__________
Total Purchase Price $1,587,500
==========
*See Note 8, "Goodwill and Other Intangible Assets".
7
Of the $1,210,000 of the acquired other intangible assets, $570,000 was
assigned to technology and websites with a useful life of 5 years, $120,000
was assigned to customer relationships with an estimated useful life of 9
years, $140,000 was assigned to the trade name with an estimated useful
life of 6 years, $110,000 was assigned to the IPR&D with an estimated
useful life of 3 years, and $270,000 was assigned to non-compete agreements
with an estimated useful life of 5 years.
In connection with the acquisition, the Company entered into a three-year
employment agreement with the previous Chief Operating Officer of the
acquired business as President of the Company's new Torbal Division and
Director of Marketing for the Company. The agreement may be extended by
mutual consent for an additional two years.
4. Segment Information and Concentrations:
The Company views its operations as three segments: the manufacture and
marketing of standard benchtop laboratory equipment including the balances
and scales by its Torbal Scales Division for research
in university, hospital and industrial laboratories sold primarily
through laboratory equipment distributors and on a direct basis ("Benchtop Laboratory
Equipment"), the manufacture and marketing of custom-made catalyst research
instruments for universities, government laboratories, and chemical and
petrochemical companies sold on a direct basis ("Catalyst Research
Instruments") and the marketing and production of bioprocessing systems for
laboratory research in the biotechnology industry sold directly to
customers and through distributors ("Bioprocessing Systems").
8
Segment information is reported as follows:follows (foreign sales are principally
to customers in Europe and Asia):
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30,December 31, 2015:
Revenues $1,263,000$1,583,500 $ 153,000414,500 $ 28,50030,200 $ - $1,444,500$2,028,200
Foreign Sales 599,000 7,800764,400 105,500 - - 606,800869,900
Income (Loss) from
Operations 54,700187,700 ( 82,000)10,100) ( 30,100)32,900) ( 8,100) ( 65,500)14,000) 130,700
Assets 4,056,400 1,613,200 730,700 564,400 6,964,7004,352,600 2,319,200 728,800 578,300 7,978,900
Long-Lived Asset
Expenditures 6,5001,900 - 5,700 - - 6,5007,600
Depreciation and
Amortization 73,800 6,900 24,50074,200 7,000 24,400 - 105,200
8
105,600
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30,December 31, 2014:
Revenues $1,086,400$1,247,000 $ 551,100419,600 $ 24,60024,500 $ - $1,662,100$1,691,100
Foreign Sales 411,100 443,500722,400 315,700 - - 854,6001,038,100
Loss from
Operations ( 118,100)67,200 ( 70,200)70,600) ( 40,400)44,700) - ( 228,700)182,500)
Assets 4,074,800 1,507,400 786,600 574,900 6,943,7004,032,700 1,387,900 774,100 585,800 6,780,500
Long-Lived Asset
Expenditures 18,300 900 1,60033,200 - 20,8002,300 - 35,500
Depreciation and
Amortization 76,000 9,800 24,30076,300 9,200 24,500 - 110,100110,000
Approximately 47%53% and 46%50% of net sales of benchtop laboratory equipment
(41% and 37% of total revenues) for the three month periods ended
September 30,December 31, 2015 and 2014, respectively, were derived from the Company's
main product, the Vortex-Genie 2(R) mixer, excluding accessories.
Approximately 19% and 21% and 19% of totalnet sales of benchtop laboratory equipment
sales(15% of total revenues for both periods) were derived from the new Torbal Scales Divisionbrand
products for the three months ended September 30,December 31, 2015 and 2014,
respectively.
For the three months ended September 30, 2015, and 2014, respectively,
twoTwo customers accounted in the aggregate for approximately 13%14% and 18%
of the net sales of the Benchtop Laboratory Equipment Operations for each period,and 11%
and 9%13% of total revenues for the Company's revenues.three months ended December 31, 2015,
and 2014, respectively. Sales of catalyst research instruments generally
comprise a few very large orders averaging at least $100,000 per order
to a limited number of customers, who differ from order to order. Sales
to onethree different customers represented approximately 92% and five customers during the three months ended
September 30, 2015 and 2014, accounted respectively, for approximately
76% and 99%84% of
the Catalyst Research Instrument Operations' net sales, respectively,
and 19% and 21% of total revenues for the three months ended
December 31, 2015 and 8%2014, respectively.
9
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 31, 2015:
Revenues $2,846,500 $ 567,500 $ 58,600 $ - $3,472,600
Foreign Sales 1,363,400 113,300 - - 1,476,700
Income (Loss) from
Operations 242,400 ( 92,200) ( 62,900) ( 22,100) 65,200
Assets 4,352,600 2,319,200 728,800 578,300 7,978,900
Long-Lived Asset
Expenditures 8,400 - 5,700 - 14,100
Depreciation and
Amortization 148,000 13,900 48,900 - 210,800
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 31, 2014:
Revenues $2,333,400 $ 970,700 $ 49,100 $ - $3,353,200
Foreign Sales 1,133,500 759,200 - - 1,892,700
Loss from
Operations ( 185,300 ( 140,800) ( 85,100) - ( 411,200)
Assets 4,032,700 1,387,900 774,100 585,800 6,780,500
Long-Lived Asset
Expenditures 51,500 900 3,900 - 56,300
Depreciation and
Amortization 152,300 19,000 48,800 - 220,100
Approximately 50% and 48% of net sales of benchtop laboratory equipment
(41% and 33% of total revenues) for the Company'ssix month periods ended December
31, 2015 and 2014, respectively, were derived from the segment's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 13% and 16% of the segment's net sales for the six month
periods ended December 31, 2015 and 2014, and 11% of total revenues.
The Company's foreignrevenues for
each of the six month periods ended December 31, 2015 and 2014.
Approximately 20% of net sales are principallyof benchtop laboratory equipment were
derived from Torbal brand products for each of the six months ended
December 31, 2015 and 2014, and 16% and 14% of total revenues,
respectively.
For the six month periods ended December 31, 2015 and 2014, catalyst
research Instruments sales to three and six different customers in Europeeach
of the six month periods, accounted for approximately 88% and Asia.97% of
the segment's net sales and 14% and 28% of total revenues, respectively.
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the amount
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date. Fair value measurements do not include transaction costs.
10
The accounting guidance also expands the disclosure requirements around
fair value and establishes a fair value hierarchy of valuation inputs.
The hierarchy prioritizes the inputs into three levels based on the extent
to which inputs used in measuring fair value are observable in the market.
Each fair value measurement is reported in one of the three levels, which
is determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices for
identical instruments traded in active markets.
9
Level 2 Quoted prices in markets that are not considered to be
active or financial instruments for which all significant inputs are
observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at September 30,December 31, 2015 and June 30, 2015 according to the
valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
September 30,December 31, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 530,200666,900 $ 530,200666,900 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 277,000 277,000278,200 278,200 - -
__________ __________ _______ _________________
Total $1,107,200 $1,107,200$1,245,100 $1,245,100 $ - $ -
========== ========== ======= ======== =========
Liabilities:
Contingent consideration $ 266,200 $ - $ - $266,200
========== ========== ======= ======== =========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 482,000 $ 482,000 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 281,800 281,800 - -
__________ __________ _______ ________
Total $1,063,800 $1,063,800 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 367,100 $ - $ - $367,100
========== ========== ======= ========
11
Investments in marketable securities classified as available-for-sale by
security type at September 30,December 31, 2015 and June 30, 2015 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At September 30,December 31, 2015:
Available for sale:
Equity securities $ 29,300 $ 34,00038,200 $ 4,7008,900
Mutual funds 254,800 243,000 ( 11,800)257,100 240,000 (17,100)
_________ _________ _______________________
$ 284,100286,400 $ 277,000278,200 $ ( 7,100)8,200)
========= ========= ===========
10
============
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2015:
Available for sale:
Equity securities $ 29,300 $ 35,800 $ 6,500
Mutual funds 255,800 246,000 ( 9,800)
__________ _________ __________
$ 285,100 $ 281,800 $ ( 3,300)
========== ========= ==========
6. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at September 30,December 31, 2015 and based on a physical count as
of June 30, 2015. Components of inventory are as follows:
September 30,December 31, June 30,
2015 2015
____________ _____________________
Raw materials $1,358,600Materials $1,439,000 $1,420,800
Work in process 652,3001,510,400 442,900
Finished goods 332,900Goods 313,100 350,000
____________ ___________
$2,343,800__________ __________
$3,262,500 $2,213,700
============ ===================== ==========
7. LossEarnings (loss) per common share:
Basic lossearnings (loss) per common share isare computed by dividing net lossincome
(loss) by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock options, if
any.
Loss12
Earnings (loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended September 30,
___________________Period Ended
December 31, December 31,
____________________________ ______________________
2015 2014 ____________ _____________2015 2014
Net lossincome (loss) $ 94,400 ($ 60,100)138,000) $ 34,300 ($ 161,300)299,300)
============ ============= ========= ===========
Weighted average common
shares outstanding 1,489,112 1,469,112
========= =========1,479,112 1,489,112 1,475,960
Dilutive securities - - - -
__________ __________ __________ __________
Weighted average dilutive
common shares outstanding 1,489,112 1,469,112
========= =========1,479,112 1,489,112 1,475,960
========== ========== ========== ==========
Basic lossand diluted earnings
(loss) per common share $ .06 ($ .04).09) $ .02 ($ .11)
=========== ===========
Diluted loss per
common share ($ .04) ($ .11)
=========== ===========
11
.20)
====== ======== ====== ========
Approximately 38,500 and 51,000 shares of the Company's Common Stock
issuable upon the exercise of outstanding stock options were excluded from
the calculation of diluted lossearnings per common share for the three monthsand six
month periods ended September 30,December 31, 2015 and 2014, respectively, because the
effect would be anti-dilutive due
to the loss for each period.anti-dilutive.
8. Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired in connection with the Company's acquisition of
Altamira and SBI's acquisition of assets. Goodwill amounted to $705,300
as of September 30,December 31, 2015 and June 30, 2015, all of which is expected to be deductible for
tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______________ __________ ____________ _________
At September 30,December 31, 2015:
Technology, trademarks 5/10 yrs. $1,215,800 $ 649,400682,600 $ 566,400533,200
Trade names 6 yrs. 140,000 36,900 103,10042,800 97,200
Websites 5 yrs. 210,000 66,500 143,50077,000 133,000
Customer relationships 9/10 yrs. 357,000 240,900 116,100246,500 110,500
Sublicense agreements 10 yrs. 294,000 113,900 180,100121,300 172,700
Non-compete agreements 5 yrs. 384,000 196,800 187,200210,900 173,100
Intellectual Property,
Research and Development(IPR& Development
(IPR&D) 3 yrs. 110,000 58,100 51,90067,200 42,800
Other intangible assets 5 yrs. 164,100 149,400 14,700169,800 151,100 18,700
__________ __________ __________
$2,874,900 $1,511,900 $1,363,000$2,880,600 $1,599,400 $1,281,200
========== ========== ==========
13
Useful Accumulated
Lives Cost Amortization Net
______________ __________ ____________ _________
At June 30, 2015:
Technology, trademarks 5/10 yrs. $1,226,800 $ 624,200 $ 602,600
Trade names 6 yrs. 140,000 31,100 108,900
Websites 5 yrs. 210,000 56,000 154,000
Customer relationships 9/10 yrs. 357,000 236,200 120,800
Sublicense agreements 10 yrs. 294,000 106,600 187,400
Non-compete agreements 5 yrs. 384,000 182,700 201,300
Intellectual Property,
Research and Development(IPR& Development
(IPR&D) 3 yrs. 110,000 48,900 61,100
Other intangible assets 5 yrs. 164,000 148,200 15,800
__________ __________ __________
$2,885,800 $1,433,900 $1,451,900
========== ========== ==========
Total amortization expense was $86,300$87,500 and $88,100$88,200 for the three months ended
September 30,December 31, 2015 and 2014, respectively and $173,800 and $176,300 for the six
months ended December 31, 2015 and 2014, respectively. As of September 30,December 31,
2015, estimated future amortization expense related to intangible assets is
$248,100$160,600 for the remainder of the fiscal year ending June 30, 2016, $337,000
for fiscal 2017, $324,000 for fiscal 2018, $246,600 for fiscal 2019, $80,400
for fiscal 2020 and $126,900$132,600 thereafter.
1214
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical facts,
but are forward-looking statements that are based upon various assumptions
about future conditions. Actual events in the future could differ materially
from those described in the forward-looking information. Numerous unknown
factors and future events could cause such differences, including but not
limited to, product demand, market acceptance, impact of competition, the
ability to reach final agreements, the ability to finance and produce to
customers' specifications for catalyst research instruments, and to develop
marketable bioprocessing systems, adverse economic conditions, and other
factors affecting the Company's business that are beyond the Company's
control. Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
_______________________________
Cash and cash equivalents increased by $48,200$184,900 to $530,200$666,900 as of September 30,December 31,
2015 from $482,000 as of June 30, 2015.
NetOperating activities used $167,400 of cash used in operating activities was $44,400 for the threesix months ended September 30,December
31, 2015 as compared to cash use$407,800 used during the six months ended December 31,
2014. The current year period reflected significantly higher amounts of $259,700 for the comparable three
month period in 2014, primarily duework-
in-process inventories related to a decreasedlarge impending order for catalyst research
instruments, partially offset by the income generated during the period
compared to a loss and lower accounts
receivable balances.in same period last year. Cash used in investing
activities during the six months ended December 31, 2015 was $6,500 for the
three month period ended September 30, 2015$16,800 compared
to cash provided of $54,200$14,900 for the three monthsix months ended December 31, 2014
primarily due to decreased capital expenditures and no redemptions of
investment securities in the current year period. Net cash provided by
financing activities increased to $369,100 for the six months ended December
31, 2015 compared to $143,200 in the prior year period ended September 30, 2014 due primarily to
increased loan advances under the redemptionsexport-related line of investments incredit to finance the
prior year.export-related inventory purchases of catalyst research instruments.
The Company's working capital decreasedincreased by $99,900$71,100 to $3,311,400 at September
30,$3,482,400 as of December
31, 2015 from working capital of $3,411,300 at June 30, 2015, mainly as a result ofdue to the
borrowings
underincome generated during the line of credit and contingent consideration payments.period.
The Company has two lines of credit with First National Bank of Pennsylvania -
an Export-Related Revolving Line of Credit which is guaranteed by the Export-
Import Bank of the United States which provides for export-related borrowings
of up to $998,500 bearing interest at prime plus 2% (currently 5.50%) and an
annual fee of 1.75%; and a second one-year Demand Line of Credit which provides
for borrowings of up to $300,000 for regular working capital needs, bearing
interest at prime,
currently 3.25%, which is collaterized by a cash collateral account of
$300,000 which will be released upon certain financial criteria being met or
the line being paid and terminated, which ever comes first. Advances on both
lines are also secured by a pledge of the Company's assets including inventory,
accounts, chattel paper, equipment and general intangibles of the Company. As
of September 30,December 31, 2015 $200,000$470,000 was outstanding under the Export-Related line and
no borrowings were made under the second line.
15
Management believes that the Company will be able to meet its cash flow needs
during the next 12 months from its available financial resources which include
its cash and investment securities, lines of credit, and operations.
13
Results of Operations
_____________________
Financial Overview
__________________
The Company incurred a loss of $77,900recorded income before income tax benefitexpense of $123,100 and $45,200
for the three monthsand six month periods ended September 30,December 31, 2015 compared to a loss
of $222,900 before income tax benefit amounting to $182,400 and $405,400 for the comparable period last year, thethree and
six month periods ended December 31, 2014, respectively. The improvement is
primarily due to higher sales and margins generated by the Benchtop Laboratory
Equipment Operations which produced income for the segment compared to a losslosses
last year. The result includedresults reflect non-cash amounts for depreciation and
amortization of $105,200$105,600 and $110,100$210,800 for the three and six months ended
September 30,December 31, 2015 compared to $110,000 and 2014,$220,100 respectively.
The Three Months Ended September 30,December 31, 2015 Compared With the Three Months Ended
September 30,December 31, 2014
______________________________________________________________________________
RevenuesNet revenues for the three months ended September 30,December 31, 2015 decreasedincreased by $217,600
(13.1%$337,100
(19.9%) to $1,444,500$2,028,200 from $1,662,100$1,691,100 for the three months ended September 30,December 31,
2014, primarily as a result of a $398,100 decrease$336,500 increase in catalyst research
instrument sales. Sales of benchtop laboratory products increasedrevenues by $176,600,
result of increased salesthe Benchtop
Laboratory Equipment Operations, which reflected $295,500 of Torbal brand
products and increased sales compared to $256,000 in the prior year comparable period. Sales
of Genie brandthe benchtop laboratory equipment products generally are pursuant to overseas customers. Catalystmany
small purchase orders from distributors, while catalyst research instruments
are sold pursuant to a small number of larger orders, typically averaging over
$100,000 each, resulting in significant swings in revenues, and the
Bioprocessing Systems Operations' revenues ($28,500) consist primarily of
earned royalties.revenues. The backlog of
orders for catalyst research instruments was $2,944,000$3,102,000 as of September 30,December 31,
2015, due to a significant order for export,
substantially allthe majority of which is expectedare anticipated to be delivered by fiscal year end, as
compared toJune 30, 2016;
the backlog as of September 30,December 31, 2014 of $439,500.was $949,000.
The increase in gross profit percentage for the three months ended September 30,December 31,
2015 increased to 41.2% compared to 30.1%41.3% from 36.0% for the year earlier three months ended September 30,
2014,month period was primarily
due to the product mix and lower labor and overhead costs forof the Benchtop Laboratory
Equipment Operations and the lower gross profit for the Catalyst
Research Instruments Operations due to lower sales by the segment.Operations.
General and administrative expenses for the three monthsmonth comparative periods
ended September 30,December 31, 2015 increasedand December 31, 2014 decreased by $81,700 (25.0%$50,700 (11.4%) to
$408,200$395,700 from $326,500 for the three
months ended September 30, 2014,$446,400 primarily due to an increase in expenses incurred byin the Torbal division of2014 period by
the Benchtop Laboratory Equipment Operations.Operations associated with the Bohemia
facility move.
Selling expenses for the three months ended September 30,December 31, 2015 decreased $128,300 (43.4%)by
$2,200 to $167,000$227,200 from $295,300$229,400 for the three months ended September
30,December 31, 2014.
Research and development expenses for the three months ended December 31, 2015
decreased $32,000 (27.6%) to $84,100 from $116,100 for the three months ended
December 31, 2014, primarily the result of decreased new product development by
the Company's Benchtop Laboratory Equipment Operations due to the release of a
new product.
Total other income (expense), net for the three month period ended December 31,
2015 decreased by $7,700 to ($7,600) from $100 for the three month period ended
December 31, 2014 due to increased interest expense.
16
For the three months ended December 31, 2015, income tax expense was $28,700
compared to income tax benefit of $44,400 for the three months ended December
31, 2014 due to the income for the period compared to a loss in the prior year
period.
As a result, the net income for the three months ended December 31, 2015 was
$94,400 compared to a net loss of $138,000 for the three months ended December
31, 2014.
The Six Months Ended December 31, 2015 Compared With the Six Months
Ended December 31, 2014
Net revenues for the six months ended December 31, 2015 increased by
$119,400 (3.6%) to $3,472,600 compared to $3,353,200 for the six months
ended December 31, 2014, primarily due to increases of $513,100 in sales of
benchtop laboratory equipment, partially offset by a $403,200 decrease in
catalyst research instruments sales and an increase of $9,500 in revenues of
the Bioprocessing Systems Operations. The 2015 benchtop laboratory equipment
sales included $565,400 of Torbal brand product sales compared to $467,500 in
the prior year period. Sales of benchtop laboratory equipment products
generally are comprised of many small purchase orders from distributors, while
sales of catalyst research instruments are comprised of a small number of large
orders, typically averaging over $100,000 each, resulting in significant swings
in revenues.
The gross profit percentage for the six months ended December 31, 2015
increased to 41.3% compared to 35.5% for the six months ended December 31,
2014, due principally to product mix and lower overhead costs of the Benchtop
Laboratory Equipment Operations.
General and administrative expenses decreased by $48,700 (5.7%) to $803,900 for
the six months ended December 31, 2015 from $852,600 for the comparable period
of the prior year, due primarily to the expenses in the prior year period for
the Benchtop Laboratory Equipment Operations, associated with the Bohemia
facility move.
Selling expenses for the six months ended December 31, 2015 decreased by
$130,500 (24.9%) to $394,200 from $524,700 for the six months ended December
31, 2014, primarily the result of decreased commissions due to sales mix and
exhibitions expense for the Catalyst Research Instruments Operations.
Research and development expenses for the threesix months ended September 30,December 31,
2015 decreased by $21,700 (20.3%$53,700 (24.1%) to $85,400 from $107,100$169,500 compared to $223,200 for the
threesix months ended September 30,December 31, 2014, due to a reduction inprimarily the result of decreased new
product development costs by the Benchtop Laboratory Equipment Operations and the
Catalyst Research Instruments Operations as new products were launched.
Total other income (expense), net, for the six month period ended December 31,
2015 decreased to ($20,000) from $5,800 for the six months ended December 31,
2014 primarily due to the release of new
product.increased interest expense.
For the three monthssix month period ended September 30,December 31, 2015 the income tax benefitexpense was $17,800$10,900
compared to income tax benefit of $61,600$106,100 for the three months ended
September 30, 2014comparable period of the
prior fiscal year due to the decreased lossincome for the period compared to a loss in the
prior year period.
1417
As a result, the net lossincome for the threesix months ended September 30,December 31, 2015 was
$60,100$34,300 compared to a net loss of $161,300$299,300 for the threesix months ended September
30, 2014.December
31, 2015.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this report, based on an evaluation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934), the Chief Executive and Chief Financial
Officer of the Company has concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in its Exchange Act reports is recorded, processed, summarized and
reported within the applicable time periods specified by the SEC's rules and
forms. The Company also concluded that information required to be disclosed in
such reports is accumulated and communicated to the Company's management,
including its principal executive and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There was no change in
the Company's internal controls over financial reporting that occurred during
the most recently completed fiscal quarter that materially affected or is
reasonably likely to materially affect the Company's internal controls over
financial reporting.
15
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
16
Report dated January 26, 2016 reporting under Item 1.01 and 5.07.
18
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
__________________________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: NovemberFebruary 12, 2015
172016
19