Attached files
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, 2015
TRANSITION REPORT UNDER 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 as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
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 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 small reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"small 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, 2015 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 13
ITEM 4 CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 17
EXHIBITS 18
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2015 2015
_____________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 530,200 $ 482,000
Restricted cash 300,000 300,000
Investment securities 277,000 281,800
Trade accounts receivable, net 737,400 1,081,700
Inventories 2,343,800 2,213,700
Prepaid expenses and other current assets 145,300 68,600
Deferred taxes 118,000 114,200
_________ _________
Total current assets 4,451,700 4,542,000
Property and equipment at cost, net 222,800 235,200
Intangible assets, net 1,363,000 1,451,900
Goodwill 705,300 705,300
Other assets 52,500 52,500
Deferred taxes 169,400 154,500
__________ __________
Total assets $6,964,700 $7,141,400
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 201,100 $ 227,600
Customer advances 93,500 76,400
Bank line of credit 200,000 -
Notes payable, current portion 200,000 200,000
Accrued expenses and taxes 316,800 519,900
Contingent consideration, current portion 128,900 106,800
__________ __________
Total current liabilities 1,140,300 1,130,700
Contingent consideration payable, less
current portion 137,300 260,300
__________ __________
Total liabilities 1,277,600 1,391,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,508,914 outstanding at
September 30, 2015 and June 30, 2015 75,400 75,400
Additional paid-in capital 2,487,300 2,486,700
Accumulated other comprehensive loss ( 7,100) ( 3,300)
Retained earnings 3,183,900 3,244,000
___________ __________
5,739,500 5,802,800
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,687,100 5,750,400
__________ __________
Total liabilities and
shareholders' equity $6,964,700 $7,141,400
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
For the Three Month
Periods Ended
September 30,
2015 2014
__________ __________
Revenues $1,444,500 $1,662,100
Cost of revenues 849,400 1,161,900
__________ __________
Gross profit 595,100 500,200
__________ __________
Operating expenses:
General and administrative 408,200 326,500
Selling 167,000 295,300
Research and development 85,400 107,100
__________ __________
Total operating expenses 660,600 728,900
__________ __________
Loss from operations ( 65,500) ( 228,700)
__________ __________
Other income (expense):
Investment income 400 800
Other income (expense) ( 4,700) 6,200
Interest expense ( 8,100) ( 1,200)
__________ __________
Total other income (expense), net ( 12,400) 5,800
__________ __________
Loss before income tax benefit ( 77,900) ( 222,900)
__________ __________
Income tax benefit:
Current - ( 57,200)
Deferred ( 17,800) ( 4,400)
__________ __________
Total income tax benefit ( 17,800) ( 61,600)
__________ __________
Net loss ($ 60,100) ($161,300)
========== ==========
Basic loss per common share ($ .04) ($ .11)
======== ========
Diluted loss per common share ($ .04) ($ .11)
======== ========
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Month
Periods Ended
September 30,
2015 2014
__________ __________
Net loss ($ 60,100) ($161,300)
Other comprehensive loss:
Unrealized holding loss
arising during period,
net of tax ( 3,800) ( 700)
__________ __________
Comprehensive loss ($ 63,900) ($162,000)
========== ==========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2015 Sept. 30, 2014
______________ ______________
Operating activities:
Net loss ($ 60,100) ($ 161,300)
___________ ___________
Adjustments to reconcile net loss
to net cash used in operating activities:
Loss on sale of investments - 1,300
Loss on asset disposal 2,700 -
Depreciation and amortization 105,200 110,100
Deferred income taxes ( 17,800) ( 4,400)
Stock-based compensation 600 1,000
Income tax benefit of stock options
exercised - 4,900
Changes in operating assets and liabilities:
Accounts receivable 344,300 ( 38,500)
Inventories ( 130,100) 26,300
Prepaid expenses and other
current assets ( 76,700) ( 61,600)
Other assets - ( 25,400)
Accounts payable ( 26,500) ( 31,500)
Customer advances 17,100 3,300
Accrued expenses and taxes ( 203,100) ( 83,900)
___________ ____________
Total adjustments 15,700 ( 98,400)
___________ ____________
Net cash used in
operating activities ( 44,400) ( 259,700)
___________ ____________
Investing activities:
Redemption of investment securities,
available-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
___________ ____________
Financing activities:
Line of credit proceeds 200,000 200,000
Payment of contingent consideration ( 100,900) ( 98,900)
Proceeds from exercise of stock options - 18,800
Principal payments on note payable ( - ) ( 20,000)
___________ ____________
Net cash provided by
financing activities 99,100 99,900
___________ ____________
See notes to unaudited condensed consolidated financial statements
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2015 Sept. 30, 2014
______________ ______________
Net increase (decrease) in cash and
cash equivalents 48,200 ( 105,600)
Cash and cash equivalents,
beginning of year` 482,000 493,700
_________ __________
Cash and cash equivalents, end of period $ 530,200 $ 388,100
========= ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 18,500 $ 3,500
Interest 4,400 1,200
See Note 3 for non-cash investing and financing activities
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 months ended September 30, 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 owned
subsidiary and Delaware corporation), Scientific Packaging
Industries, Inc. (an inactive wholly owned subsidiary and New York
corporation) and Scientific Bioprocessing, Inc., ("SBI", a wholly
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-
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.
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.
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 payments based on a percentage of net sales of the business
acquired equal to 8% for the period ending June 30, 2014 annualized, 9% for
the year ending 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
months ended September 30, 2015 and 2014, respectively.
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. 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").
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 2015:
Revenues $1,263,000 $ 153,000 $ 28,500 $ - $1,444,500
Foreign Sales 599,000 7,800 - - 606,800
Income (Loss) from
Operations 54,700 ( 82,000) ( 30,100) ( 8,100) ( 65,500)
Assets 4,056,400 1,613,200 730,700 564,400 6,964,700
Long-Lived Asset
Expenditures 6,500 - - - 6,500
Depreciation and
Amortization 73,800 6,900 24,500 - 105,200
8
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 2014:
Revenues $1,086,400 $ 551,100 $ 24,600 $ - $1,662,100
Foreign Sales 411,100 443,500 - - 854,600
Loss from
Operations ( 118,100) ( 70,200) ( 40,400) - ( 228,700)
Assets 4,074,800 1,507,400 786,600 574,900 6,943,700
Long-Lived Asset
Expenditures 18,300 900 1,600 - 20,800
Depreciation and
Amortization 76,000 9,800 24,300 - 110,100
Approximately 47% and 46% of net sales of benchtop laboratory equipment
for the three month periods ended September 30, 2015 and 2014, respectively,
were derived from the Company's main product, the Vortex-Genie 2(R) mixer,
excluding accessories.
Approximately 21% and 19% of total benchtop laboratory equipment sales
were derived from the new Torbal Scales Division for the three months
ended September 30, 2015 and 2014, respectively.
For the three months ended September 30, 2015, and 2014, respectively,
two customers accounted in the aggregate for approximately 13% of the
net sales of the Benchtop Laboratory Equipment Operations for each period,
11% and 9% of the Company's revenues. 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 one and five customers during the three months ended
September 30, 2015 and 2014, accounted respectively, for approximately
76% and 99% of the Catalyst Research Instrument Operations' revenues
and 8% and 33% of the Company's total revenues.
The Company's foreign sales are principally to customers in Europe
and Asia.
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.
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, 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, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 530,200 $ 530,200 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 277,000 277,000 - -
__________ __________ _______ ________
Total $1,107,200 $1,107,200 $ - $ -
========== ========== ======= ========
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
========== ========== ======= ========
Investments in marketable securities classified as available-for-sale by
security type at September 30, 2015 and June 30, 2015 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At September 30, 2015:
Available for sale:
Equity securities $ 29,300 $ 34,000 $ 4,700
Mutual funds 254,800 243,000 ( 11,800)
_________ _________ ___________
$ 284,100 $ 277,000 $ ( 7,100)
========= ========= ===========
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, 2015 and based on a physical count as
of June 30, 2015. Components of inventory are as follows:
September 30, June 30,
2015 2015
____________ ___________
Raw materials $1,358,600 $1,420,800
Work in process 652,300 442,900
Finished goods 332,900 350,000
____________ ___________
$2,343,800 $2,213,700
============ ===========
7. Loss per common share:
Basic loss per common share is computed by dividing net loss by the
weighted-average number of shares outstanding. Diluted earnings per
common share include the dilutive effect of stock options, if any.
Loss per common share was computed as follows:
For the Three Month
Periods Ended
September 30,
___________________
2015 2014
____________ _____________
Net loss ($ 60,100) ($ 161,300)
Weighted average common
shares outstanding 1,489,112 1,469,112
========= =========
Weighted average dilutive
common shares outstanding 1,489,112 1,469,112
========= =========
Basic loss per
common share ($ .04) ($ .11)
=========== ===========
Diluted loss per
common share ($ .04) ($ .11)
=========== ===========
11
Approximately 38,500 and 51,000 shares of the Company's Common Stock
issuable upon the exercise of outstanding options were excluded from the
calculation of diluted loss per common share, for the three months ended
September 30, 2015 and 2014, because the effect would be anti-dilutive due
to the loss for each period.
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, 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, 2015:
Technology, trademarks 5/10 yrs. $1,215,800 $ 649,400 $ 566,400
Trade names 6 yrs. 140,000 36,900 103,100
Websites 5 yrs. 210,000 66,500 143,500
Customer relationships 9/10 yrs. 357,000 240,900 116,100
Sublicense agreements 10 yrs. 294,000 113,900 180,100
Non-compete agreements 5 yrs. 384,000 196,800 187,200
Intellectual Property, Research
and Development(IPR&D) 3 yrs. 110,000 58,100 51,900
Other intangible assets 5 yrs. 164,100 149,400 14,700
__________ __________ __________
$2,874,900 $1,511,900 $1,363,000
========== ========== ==========
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&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 and $88,100 for the three months
ended September 30, 2015 and 2014, respectively. As of September 30, 2015,
estimated future amortization expense related to intangible assets is
$248,100 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 thereafter.
12
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 to $530,200 as of September 30,
2015 from $482,000 as of June 30, 2015.
Net cash used in operating activities was $44,400 for the three months ended
September 30, 2015 as compared to cash use of $259,700 for the comparable three
month period in 2014, primarily due to a decreased loss and lower accounts
receivable balances. Cash used in investing activities was $6,500 for the
three month period ended September 30, 2015 compared to cash provided of
$54,200 for the three month period ended September 30, 2014 due primarily to
the redemptions of investments in the prior year.
The Company's working capital decreased by $99,900 to $3,311,400 at September
30, 2015 from $3,411,300 at June 30, 2015, mainly as a result of the borrowings
under the line of credit and contingent consideration payments.
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% 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, 2015 $200,000 was outstanding under the Export-Related line and
no borrowings were made under the second line.
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 $77,900 before income tax benefit for the three
months ended September 30, 2015 compared to a loss of $222,900 before income
tax benefit for the comparable period last year, the improvement primarily due
to higher sales and margins generated by the Benchtop Laboratory Equipment
Operations which produced income for the segment compared to a loss last year.
The result included non-cash amounts for depreciation and amortization of
$105,200 and $110,100 for the three months ended September 30, 2015 and 2014,
respectively.
The Three Months Ended September 30, 2015 Compared With the Three Months Ended
September 30, 2014
______________________________________________________________________________
Revenues for the three months ended September 30, 2015 decreased by $217,600
(13.1%) to $1,444,500 from $1,662,100 for the three months ended September 30,
2014, primarily as a result of a $398,100 decrease in catalyst research
instrument sales. Sales of benchtop laboratory products increased by $176,600,
result of increased sales of Torbal brand products, and increased sales of
Genie brand products to overseas customers. 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. The backlog of orders for catalyst research instruments was
$2,944,000 as of September 30, 2015, due to a significant order for export,
substantially all of which is expected to be delivered by fiscal year end, as
compared to the backlog as of September 30, 2014 of $439,500.
The gross profit percentage for the three months ended September 30, 2015
increased to 41.2% compared to 30.1% for the three months ended September 30,
2014, primarily due to lower labor and overhead costs for the Benchtop
Laboratory Equipment Operations and the lower gross profit for the Catalyst
Research Instruments Operations due to lower sales by the segment.
General and administrative expenses for the three months ended September 30,
2015 increased by $81,700 (25.0%) to $408,200 from $326,500 for the three
months ended September 30, 2014, primarily due to an increase in expenses
incurred by the Torbal division of the Benchtop Laboratory Equipment
Operations.
Selling expenses for the three months ended September 30, 2015 decreased
$128,300 (43.4%) to $167,000 from $295,300 for the three months ended September
30, 2014, primarily the result of a decrease in sales commissions for the
Catalyst Research Instruments Operations.
Research and development expenses for the three months ended September 30, 2015
decreased by $21,700 (20.3%) to $85,400 from $107,100 for the three months
ended September 30, 2014, due to a reduction in new product development costs
by the Benchtop Laboratory Equipment Operations due to the release of new
product.
For the three months ended September 30, 2015, the income tax benefit was
$17,800 compared to income tax benefit of $61,600 for the three months ended
September 30, 2014 due to the decreased loss for the period.
14
As a result, the net loss for the three months ended September 30, 2015 was
$60,100 compared to a net loss of $161,300 for the three months ended September
30, 2014.
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
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: November 12, 2015
1
