SCIENTIFIC INDUSTRIES INC - Quarter Report: 2020 December (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

 

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2020

 

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to________

 

Commission file number 0-6658

 

SCIENTIFIC INDUSTRIES, INC.

(Exact Name of Registrant in Its Charter)

 

 

Delaware	04-2217279
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
80 Orville Drive, Suite 102, Bohemia, New York	11716
(Address of principal executive offices)	(Zip Code)

 

 

(631) 567-4700

(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 mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☐No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒Yes ☐No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐(Do not check if a smaller reporting company)	Smaller reporting company ☒
	Emerging Growth ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)

Yes☐ No ☒

 

The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of February 8, 2021 is 2,861,263 shares.

 

 

 

 

 

 

SCIENTIFIC INDUSTRIES, INC.

 

Table of Contents

 

 

 

 

PART I - Financial Information
Item 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
Item 4.	CONTROLS AND PROCEDURES	17
PART II - Other Information
Item 6.	EXHIBITS AND REPORTS ON FORM 8-K	17
SIGNATURE		18

 

 

 

 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

 

	December 31, 2020	June 30, 2020
Current assets:	(Unaudited)
Cash and cash equivalents	$1,111,300	$7,559,700
Investment securities	5,784,800	331,800
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at December 31, 2020 and June 30, 2020	1,554,500	1,064,000
Inventories	2,639,200	2,541,000
Income tax receivable	333,600	334,800
Prepaid expenses and other current assets	316,000	112,400
Assets of discontinued operations	-	793,000
Total current assets	11,739,400	12,736,700
Property and equipment, net	310,700	278,300
Intangible assets, net	128,100	128,700
Goodwill	257,300	257,300
Other assets	57,900	56,000
Deferred taxes	811,100	537,100
Operating lease right-of-use assets	765,100	803,300
Total assets	$14,069,600	$14,797,400

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities:
Accounts payable	$584,000	$334,600
Accrued expenses and taxes	378,400	679,000
Contract liabilities	-	20,000
Contingent consideration, current portion	97,600	111,000
Bank overdraft	225,000	43,100
Liabilities of discontinued operations	151,500	240,900
Operating lease liabilities, current portion	128,000	195,800
Payroll Protection Program loan	563,800	563,800
Total current liabilities	2,128,300	2,188,200
Contingent consideration payable, less current portion	247,000	247,000
Operating lease liabilities, less current portion	711,300	640,800
Total liabilities	3,086,600	3,076,000
Shareholders’ equity:
Common stock, $.05 par value; 7,000,000 shares authorized; 2,881,065 shares issued; 2,861,263 shares outstanding at December 31, 2020 and June 30, 2020	144,100	144,100
Additional paid-in capital	8,745,700	8,608,300
Retained earnings	2,145,600	3,021,400
	11,035,400	11,773,800
Less common stock held in treasury at cost, 19,802 shares	52,400	52,400
Total shareholders’ equity	10,983,000	11,721,400
Total liabilities and shareholders’ equity	$14,069,600	$14,797,400

 

2

 

SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

	For the Three Month Period Ended December 31,	For the Three Month Period Ended December 31,	For the Six Month Period Ended December 31,	For the Six Month Period Ended December 31,
	2020	2019	2020	2019
Revenues	$2,717,400	$2,232,800	$4,736,500	$4,098,300
Cost of revenues	1,311,300	1,052,500	2,273,700	1,942,000
Gross profit	1,406,100	1,180,300	2,462,800	2,156,300
Operating expenses:
General and administrative	536,900	478,400	1,056,100	948,400
Selling	778,900	280,600	1,272,800	535,400
Research and development	329,700	260,000	574,000	496,400
Total operating expenses	1,645,500	1,019,000	2,902,900	1,980,200
Income (loss) from operations	(239,400)	161,300	(440,100)	176,100
Other income:
Other income, net	18,200	2,900	16,200	2,200
Interest income	35,300	9,200	48,900	9,700
Total other income, net	53,500	12,100	65,100	11,900
Income (loss) before income tax expense (benefit)	(185,900)	173,400	(375,000)	188,000
Income tax expense (benefit):
Current	-	-	-	-
Deferred	(47,600)	34,100	(94,100)	52,000
Total income tax expense (benefit) from continuing operations	(47,600)	34,100	(94,100)	52,000
Net income (loss) from continuing operations	(138,300)	139,300	(280,900)	136,000
Discontinued operations (Note 9):
Loss from discontinued operations (including loss on      disposal of $405,400), in 2020 periods	(639,500)	(170,400)	(774,800)	(260,700)
Income tax benefit, deferred	(165,300)	(34,700)	(179,900)	(72,100)
Net loss from discontinued operations	(474,200)	(135,700)	(594,900)	(188,600)
Net income (loss)	$(612,500)	$3,600	$(875,800)	$(52,600)
Basic and diluted (loss) per common share
Continuing operations	$(.05)	$.09	$(.10)	$.09
Discontinued operations	$(.17)	$(.09)	$(.21)	$(.13)
Consolidated operations	$(.22)	$.00	$(.31)	$(.04)

See notes to unaudited condensed consolidated financial statements.

 

 

 

 

SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

 

			Additional				Total
	Common Stock		Paid-in	Retained	Treasury Stock		Shareholders’
Fiscal Year 2021:	Shares	Amount	Capital	Earnings	Shares	Amount	Equity
Balance, July 1, 2020	2,881,065	$144,100	$8,608,300	$3,021,400	19,802	$52,400	$11,721,400
Net loss	-	-	-	(263,300)	-	-	(263,300)
Stock-based compensation	-	-	61,300	-	-	-	61,300
Balance, September 30, 2020	2,881,065	144,100	8,669,600	2,758,100	19,802	52,400	11,519,400
Net loss	-	-	-	(612,500)	-	-	(612,500)
Stock-based compensation	-	-	76,100	-	-	-	76,100
Balance, December 31, 2020	2,881,065	$144,100	$8,745,700	$2,145,600	19,802	$52,400	$10,983,000

 

 

			Additional				Total
	Common Stock		Paid-in	Retained	Treasury Stock		Shareholders’
Fiscal Year 2020:	Shares	Amount	Capital	Earnings	Shares	Amount	Equity
Balance, July 1, 2019	1,513,914	$75,700	$2,592,700	$3,724,700	19,802	$52,400	$6,340,700
Net loss	-	-	-	(56,200)	-	-	(56,200)
Stock options exercised	2,000	100	6,900	-	-	-	7,000
Stock-based compensation	-	-	17,700	-	-	-	17,700
Balance, September 30, 2019	1,515,914	75,800	2,617,300	3,668,500	19,802	52,400	6,309,200
Net income	-	-	-	3,600	-	-	3,600
Stock options exercised	6,661	300	(300)	-	-	-	-
Stock-based compensation	-	-	17,700	-	-	-	17,700
Balance, December 31, 2019	1,522,575	$76,100	$2,634,700	$3,672,100	19,802	$52,400	$6,330,500

 

 

 

 

 

 

  SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

	For the Six Month Period Ended December 31,	For the Six Month Period Ended December 31,
	2020	2019
Operating activities:
Net loss	$(875,800)	$(52,600)
Adjustments to reconcile net loss used in operating activities:
Gain (loss) on sale of investments	(33,300)	(3,100)
Unrealized holding gain (loss) on investments	25,700	(1,200)
Depreciation and amortization	83,000	82,400
Deferred income taxes	(274,000)	(20,100)
Loss on disposal of subsidiary	405,400	-
Stock-based compensation	137,400	35,400
Changes in operating assets and liabilities:	-	-
Trade accounts receivable	(490,500)	161,700
Inventories	(53,500)	(411,500)
Right - of- use assets	38,200	(930,700)
Income tax receivable	1,200	-
Prepaid and other current assets	(205,600)	27,400
Lease liabilities	(28,400)	998,100
Accounts payable	266,900	(94,300)
Contract liabilities	(20,000)	104,000
Bank overdraft	181,900	-
Accrued expenses and taxes	(376,400)	(409,600)
Total adjustments	(342,000)	(461,500)
Net used in operating activities	(1,217,800)	(514,100)
Investing activities:
Redemption of investment securities	544,800	51,900
Purchase of investment securities	(5,990,200)	(61,800)
Proceeds from sale of discontinued operations	342,400	-
Capital expenditures	(82,900)	(34,100)
Purchase of other intangible assets	(31,300)	(7,400)
Net cash used in investing activities	(5,217,200)	(51,400)
Financing activities:
Payments of contingent consideration	(13,400)	-
Proceeds from stock options exercised	-	7,000
Net cash provided by (used in) financing activities	(13,400	7,000
Net decrease in cash and cash equivalents	(6,448,400)	(558,500)
Cash and cash equivalents, beginning of year	7,559,700	1,602,500
Cash and cash equivalents, end of period	$1,111,300	$1,044,000
Supplemental disclosures:
Cash paid during the period for:
Income taxes	$2,500	$37,900
Non-cash financing activities:
Issuance of 6,661 shares of the Company's Common Stock in cashless stock option exercises during the three and six months ended December 31, 2019.

See 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, 2020. The results for the three and six months ended December 31, 2020, are not necessarily an indication of the results for the full fiscal year ending June 30, 2021.

 

1. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Bioprocessing, Inc. (“SBI”) a Delaware corporation and wholly-owned subsidiary, and Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary, and Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary (all collectively referred to as the “Company”). All material intercompany balances and transactions have been eliminated.

COVID-19 Pandemic

The challenges posed by the COVID-19 pandemic on the global economy began to impact the Company’s operations at the end of the third quarter of the year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self -quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. However, if an employee becomes infected in the future, and the Company is forced to shut down for a period of time, it could have a short-term negative impact on operations. At the beginning of the pandemic, the Catalyst Research Instruments and Bioprocessing Systems Operations were shut down due to state mandates, however, the impact on operations was immaterial, and the Company was able to retain its employees without furloughs or layoffs, in part, due to the Company’s receipt of a $563,800 loan under the Federal Government’s Paycheck Protection Program. The Company did not experience and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies that have the ability to pay. However, there were some delays in receiving some accounts receivable due for catalyst research instruments due to customer shutdowns, and there was a material negative impact on the revenues of the Catalyst Research Instruments operations. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, supply chain, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

 

Adopted Accounting Pronouncements

In August 2018, the Financial Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard was effective for fiscal years beginning after December 15, 2019. Early adoption was permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The adoption of this standard on July 1, 2020 did not have a material impact on the Company’s financial statements.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently evaluating the impact of adopting this guidance.

  

2. Revenue

 

The Company records revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, as amended” (“ASC Topic 606”). In accordance with ASC Topic 606, the Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.

 

 

 

 

Nature of Products and Services

 

We generate revenues from the following sources: (1) Benchtop Laboratory Equipment, (2) Royalties, and (3) prior to November 30, 2020 Catalyst Research Instruments.

 

The following table summarizes the Company’s disaggregation of revenues for the three and six months ended December 31, 2020 and 2019.

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Consolidated
Three Months Ended December 31, 2020:
Revenues	$2,507,400	$210,000	$2,717,400
Foreign Sales	1,150,700	206,100	1,356,800

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Consolidated
Three Months Ended December 31, 2019:
Revenues	$1,943,400	$289,400	$2,232,800
Foreign Sales	855,800	289,400	1,145,200

 

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Consolidated
Six Months Ended December 31, 2020:
Revenues	$4,437,600	$298,900	$4,736,500
Foreign Sales	1,782,600	292,400	2,075,000

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Consolidated
Six Months Ended December 31, 2019:
Revenues	$3,519,600	$578,700	$4,098,300
Foreign Sales	1,253,400	578,700	1,832,100

 

 

Benchtop Laboratory Equipment sales are comprised primarily of standard benchtop laboratory equipment from its stock to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment is very short varying from a day to a few weeks. Customers either pay by credit card (online sales) or net 30-90, depending on the customer. Once the item is shipped under the FOB terms specified in the order, which is primarily “FOB Factory”, other than a standard warranty, there are no other obligations to the customer. The standard warranty is typically comprised of one to two years of parts and labor and is deemed immaterial.

 

Royalty revenues pertain to royalties earned by the Company, which are paid on a calendar year basis, under a licensing agreement from a single licensee and its sublicenses. The Company is then obligated to pay 50% of all royalties received to the entity that licenses the intellectual property to the Company. During the year, the Company’s management uses its best judgement to estimate the royalty revenues earned during the period.

 

During the three months ended December 31, 2020, the Company discontinued its Catalyst Research Instruments Operations through the sale of substantially all of its assets on November 30, 2020. Refer to Note 9 for additional information.

 

 

 

 The Company determines revenue recognition through the following steps:

 

	●	Identification of the contract, or contracts, with a customer
	●	Identification of the performance obligations in the contract
	●	Determination of the transaction price
	●	Allocation of the transaction price to the performance obligations in the contract
	●	Recognition of revenue when, or as, a performance obligation is satisfied

 

The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the FASB, in applying ASC Topic 606: 1) all revenues are recorded net of returns, allowances, customer discounts, and incentives; 2) although sales and other taxes are immaterial, the Company accounts for amounts collected from customers for sales and other taxes, if any, net of related amounts remitted to tax authorities; 3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; 4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling expenses; 5) the Company is always considered the principal and never an agent, because it has full control and responsibility until title is transferred to the customer; 6) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer such as is the case with catalyst instruments.

3. Segment Information and Concentrations

 

The Company views its operations as three segments: the manufacture and marketing of standard benchtop laboratory equipment for research in university, hospital and industrial laboratories sold primarily through laboratory equipment distributors and laboratory and pharmacy balances and scales (“Benchtop Laboratory Equipment Operations”), 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 Operations”) and the design and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems Operations”).

 

Segment information is reported as follows:

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Corporate And Other	Consolidated
Three Months Ended December 31, 2020:
Revenues	$2,507,400	$210,000	$-	$2,717,400
Foreign Sales	1,150,700	206,100	-	1,356,800
Income (Loss) From Continuing Operations	568,500	(741,800)	(66,100)	(239,400)
Assets	6,140,400	966,400	6,962,800	14,069,600
Long-Lived Asset Expenditures	13,700	13,800	-	27,500
Depreciation and Amortization	26,400	15,800	200	42,400

 

Approximately $366,900 included in Assets relates to discontinued operations, and $200 in depreciation and amortization relates to discontinued operations.

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Corporate And Other	Consolidated
Three Months Ended December 31, 2019:
Revenues	$1,943,400	$289,400	$-	$2,232,800
Foreign Sales	855,800	289,400	-	1,145,200
Income (Loss) From Continuing Operations	179,400	(18,100)	-	161,300
Assets	5,551,100	1,350,000	1,962,700	8,863,800
Long-Lived Asset Expenditures	14,100	2,900	-	17,000
Depreciation and Amortization	30,800	10,400	200	41,400

 

 

  

Approximately $733,500 included in Assets relates to discontinued operations, and $200 in depreciation and amortization relates to discontinued operations.

 

Approximately 52% and 50% of total benchtop laboratory equipment sales (48% and 43% of total revenues) for the three months ended December 31, 2020 and 2019, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.

 

Approximately 23% and 24% of total benchtop laboratory equipment sales (21% and 21% of total revenues) were derived from the Torbal Scales Division for the three months ended December 31, 2020 and 2019, respectively.

 

For the three months ended December 31, 2020 and 2019, respectively, three customers accounted for approximately 20% and 27% of net sales of the Benchtop Laboratory Equipment Operations (18% and 24% of the Company’s total revenues).

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Corporate And Other	Consolidated
Six Months Ended December 31, 2020:
Revenues	$4,437,600	$298,900	$-	$4,736,500
Foreign Sales	1,782,600	292,400	-	2,075,000
Income (Loss) From Continuing Operations	952,400	(1,274,100)	(118,300)	(440,100)
Assets	6,140,400	966,400	6,962,800	14,069,600
Long-Lived Asset Expenditures	35,500	78,700	-	114,200
Depreciation and Amortization	52,700	29,800	500	83,000

 

Approximately $366,900 included in Assets relates to discontinued operations, and $500 in depreciation and amortization relates to discontinued operations.

 

	Benchtop Laboratory Equipment	Bioprocessing Systems	Corporate And Other	Consolidated
Six Months Ended December 31, 2019:
Revenues	$3,519,600	$578,700	$-	$4,098,300
Foreign Sales	1,253,400	578,700	-	1,832,100
Income (Loss) From Continuing Operations	192,300	(16,200)	-	176,100
Assets	5,551,100	1,350,000	1,962,700	8,863,800
Long-Lived Asset Expenditures	21,900	19,600	-	41,500
Depreciation and Amortization	61,300	20,500	600	82,400