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, 2014
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)
70 Orville Drive, 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), except for a Report on Form 8-K required to
be filed in February 2014 with respect to an acquisition 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 3, 2014 was 1,479,112 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
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 Unaudited Condensed Consolidated Financial
Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 14
ITEM 4 CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
EXHIBITS 19
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2014 2014
_____________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 388,100 $ 493,700
Investment securities 338,000 415,400
Trade accounts receivable, net 795,300 756,700
Inventories 2,282,900 2,309,200
Prepaid expenses and other current assets 184,800 123,100
Deferred taxes 86,700 86,000
__________ __________
Total current assets 4,075,800 4,184,100
Property and equipment at cost, net 249,800 252,100
Intangible assets, net 1,708,900 1,795,900
Goodwill 705,300 705,300
Other assets 53,600 28,200
Deferred taxes 150,300 146,200
__________ __________
Total assets $6,943,700 $7,111,800
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 342,100 $ 373,700
Customer advances 92,800 89,500
Bank line of credit 200,000 -
Notes payable, current portion 6,900 26,700
Accrued expenses and taxes 358,900 442,800
Contingent consideration, current portion 120,000 109,000
__________ __________
Total current liabilities 1,120,700 1,041,700
Contingent consideration payable, less
current portion 281,100 391,000
__________ __________
Total liabilities 1,401,800 1,432,700
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,498,914 and 1,488,914 issued and outstanding at
September 30, 2014 and June 30, 2014 74,900 74,400
Additional paid-in capital 2,445,000 2,420,700
Accumulated other comprehensive gain, unrealized
holding gain on investments 400 1,100
Retained earnings 3,074,000 3,235,300
__________ __________
5,594,300 5,731,500
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,541,900 5,679,100
__________ __________
Total liabilities and
shareholders' equity $6,943,700 $7,111,800
========== ==========
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,
__________________________
2014 2013
__________________________
Revenues $1,662,100 $1,436,100
Cost of sales 1,161,900 841,900
__________ __________
Gross profit 500,200 594,200
__________ __________
Operating Expenses:
General and administrative 326,500 303,000
Selling 295,300 197,000
Research and development 107,100 97,200
__________ ___________
Total operating expenses 728,900 597,200
__________ ___________
Loss from operations ( 228,700) ( 3,000)
__________ ___________
Other income (expense):
Investment income 800 3,100
Other income 6,200 3,700
Interest expense ( 1,200) ( 800)
__________ ___________
Total other income, net 5,800 6,000
__________ ___________
Income (loss) before income tax expense
(benefit) ( 222,900) 3,000
__________ ___________
Income tax expense (benefit):
Current ( 57,200) ( 3,100)
Deferred ( 4,400) 4,000
__________ ___________
Total income tax expense
(benefit) ( 61,600) 900
__________ ___________
Net income (loss) ($ 161,300) $ 2,100
========== ===========
Basic earnings (loss) per common share ($ .11) $ .00
======= ======
Diluted earnings (loss) per common share ($ .11) $ .00
======= ======
Cash dividends declared
per common share $ - $ .08
======= ======
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Month
Periods Ended
September 30,
______________________
2014 2013
__________ __________
Net income (loss) ($161,300) $ 2,100
Other comprehensive loss:
Unrealized holding loss
arising during period,
net of tax ( 700) ( 1,800)
__________ ___________
Comprehensive income (loss) ($162,000) $ 300
========== ===========
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, 2014 Sept. 30, 2013
________________ ______________
Operating activities:
Net income (loss) ($ 161,300) $ 2,100
___________ ___________
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Loss on sale of investments 1,300 -
Depreciation and amortization 110,100 44,200
Deferred income taxes ( 4,400) 4,000
Stock-based compensation 1,000 800
Income tax benefit of stock options
exercised 4,900 -
Changes in operating assets and liabilities:
Accounts receivable ( 38,500) 100
Inventories 26,300 ( 77,800)
Prepaid expenses and other
current assets ( 61,600) ( 46,900)
Other assets ( 25,400) -
Accounts payable ( 31,500) 5,000
Customer advances 3,300 27,500
Accrued expenses and taxes ( 83,900) ( 118,100)
__________ ___________
Total adjustments ( 98,400) ( 161,200)
__________ ___________
Net cash used in
operating activities ( 259,700) ( 159,100)
__________ ___________
Investing activities:
Redemption of investment securities,
available-for-sale 75,000 -
Purchase of investment securities,
available-for-sale - ( 5,700)
Capital expenditures ( 19,700) ( 8,500)
Purchases of intangible assets ( 1,100) ( 1,900)
__________ ____________
Net cash provided by (used in)
investing activities 54,200 ( 16,100)
__________ ___________
Financing activities:
Line of credit proceeds 200,000 -
Payment of contingent consideration ( 98,900) -
Proceeds from exercise of stock options 18,800 -
Principal payments on note payable ( 20,000) ( 19,400)
__________ ___________
Net cash provided by (used in)
financing activities 99,900 ( 19,400)
__________ ___________
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, 2014 Sept. 30, 2013
________________ ______________
Net decrease in cash and
cash equivalents ( 105,600) ( 194,600)
Cash and cash equivalents,
beginning of year` 493,700 927,300
__________ __________
Cash and cash equivalents, end of period $ 388,100 $ 732,700
__________ __________
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 3,500 $ 100,000
Interest 1,200 800
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, 2014. The results for the three months ended
September 30, 2014, are not necessarily an indication of
the results for the full fiscal year ending June 30, 2015.
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. The update is effective for the
Company beginning July 1, 2017. Early adoption is not permitted.
The Company is currently evaluating the impact this guidance may
have on its financial condition and results of operations.
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
the requisite service period. The new standard requires that a performance
target that affects vesting and that could be achieved after the requisite
6
services period be treated as a performance condition. The new standard
will be effective for the Company beginning July 1, 2015, 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.
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 (of which 31,612 are held in escrow for one
year) 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.
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".
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.
7
The Company was unable to obtain audited financial statements of the
business acquired in connection with the acquisition. The inability to
include the related audited financial statements as required by the
Securities Exchange Act of 1934 in the related Report on Form 8-K
filing resulted in the inability of the Company to register under the
Securities Act of 1933, as amended, offerings of the Company's securities
during the one year period ending February 2015.
Pro forma results
The unaudited pro forma condensed consolidated financial information
in the table below summarizes the consolidated results of operations
of the Company including its new Torbal Division, on a pro forma basis,
as though the companies had been consolidated as of the beginning of
the fiscal year ended June 30, 2014. The unaudited pro forma condensed
financial information presented below is for informational purposes
only and is not intended to represent or be indicative of the
consolidated results of the operations that would have been achieved
if the acquisition had been completed as of the commencement of the
fiscal year presented. In addition, the Company was unable to obtain
audited historical information and, therefore the information
presented is based on management's best judgment.
For the Three Month
Period Ended
September 30, 2013
___________________
Net Revenues $1,692,100
Net Loss ($ 32,700)
Net loss per share
- basic ($ .02)
Net loss per share
- diluted ($ .02)
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:
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
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 2013:
Revenues $1,069,700 $ 339,700 $ 26,700 $ - $1,436,100
Foreign Sales 620,800 73,500 2,000 - 696,300
Income(Loss) from
Operations 117,800 ( 104,000) ( 16,800) - ( 3,000)
Assets 2,470,200 1,587,200 890,600 1,101,100 6,049,100
Long-Lived Asset
Expenditures 9,900 - 500 - 10,400
Depreciation and
Amortization 11,000 9,100 24,100 - 44,200
Approximately 46% and 68% of net sales of benchtop laboratory equipment
for the three month periods ended September 30, 2014 and 2013,
respectively, were derived from the Company?s main product, the Vortex-
Genie 2(R) mixer, excluding accessories.
Approximately 19% of total benchtop laboratory equipment sales were
derived from the new Torbal Scales Division for the three months ended
September 30, 2014.
For the three months ended September 30, 2014, and 2013, respectively,
two customers accounted in the aggregate for approximately 13% and 15%
of the net sales of the Benchtop Laboratory Equipment Operations and 9%
and 11% 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 five and three customers during the three months ended September
30, 2014 and 2013, respectively, accounted for approximately 99% and 94%
of the Catalyst Research Instrument Operations' revenues and 33% and 22%
of the Company's total revenues.
The Company's foreign sales are principally to customers in Europe
and Asia.
9
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.
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, 2014 and June 30, 2014 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, 2014 Level 1 Level 2 Level 3
______________ __________ ________ ________
Cash and cash equivalents $ 388,100 $ 388,100 $ - $ -
Available for sale securities 338,000 338,000 - -
__________ __________ ________ ________
Total $ 726,100 $ 726,100 $ - $ -
========== ========== ======== ========
Liabilities:
Contingent consideration $ 401,100 $ - $ - $401,100
========== ========== ======== ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2014 Level 1 Level 2 Level 3
______________ __________ ________ ________
Cash and cash equivalents $ 493,700 $ 493,700 $ - $ -
Available for sale securities 415,400 415,400 - -
__________ __________ ________ ________
Total $ 909,100 $ 909,100 $ - $ -
========== ========== ======== ========
Liabilities:
Contingent consideration $ 500,000 $ - $ - $500,000
========== ========== ======== ========
10
Investments in marketable securities classified as available-for-sale by
security type at September 30, 2014 and June 30, 2014 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At September 30, 2014:
Available for sale:
Equity securities $ 29,300 $ 38,300 $ 9,000
Mutual funds 303,300 299,700 ( 8,600)
_________ _________ ___________
$ 337,600 $ 338,000 $ 400
========= ========= ===========
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2014:
Available for sale:
Equity securities $ 29,300 $ 38,500 $ 9,200
Mutual funds 385,000 376,900 ( 8,100)
_________ _________ ___________
$ 414,300 $ 415,400 $ 1,100
========= ========= ===========
6. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at September 30, 2014 and based on a physical count as
of June 30, 2014. Components of inventory are as follows:
September 30, June 30,
2014 2014
_____________ __________
Raw materials $1,580,500 $1,617,100
Work in process 345,100 366,200
Finished goods 357,300 325,900
__________ __________
$2,282,900 $2,309,200
========== ==========
7. Earnings (Loss) per common share:
Basic earnings (loss) per common share are computed by dividing net income
or loss by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock options, if
any.
11
Earnings (Loss) per common share was computed as follows:
For the Three Month
Periods Ended
September 30,
__________________________
2014 2013
___________ _____________
Net income (loss) ($ 161,300) $ 2,100
=========== =============
Weighted average common
shares outstanding 1,469,112 1,337,663
Dilutive securities - 7,408
___________ _____________
Weighted average dilutive
common shares outstanding 1,469,112 1,345,071
___________ _____________
Basic earnings (loss) per
common share ($ .11) $ .00
======== =======
Diluted earnings (loss) per
common share ($ .11) $ .00
======== =======
Approximately 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, 2014, because the effect would be anti-dilutive
due to the loss for the period.
Approximately 28,500 shares of the Company?s Common Stock issuable
upon the exercise of outstanding stock options were excluded from
the calculation of diluted earnings per common share for the three
months ended September 30, 2013 because the effect would be
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, 2014 and June 30, 2014,
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, 2014:
Technology, trademarks 5/10 yrs. $1,226,800 $ 522,900 $ 703,900
Trade names 6 yrs. 140,000 13,600 126,400
Websites 5 yrs. 210,000 24,500 185,500
Customer relationships 9/10 yrs. 357,000 221,500 135,500
Sublicense agreements 10 yrs. 294,000 84,500 209,500
Non-compete agreements 5 yrs. 384,000 140,400 243,600
IPR&D 3 yrs. 110,000 21,400 88,600
Other intangible assets 5 yrs. 158,500 142,600 15,900
__________ __________ __________
$2,880,300 $1,171,400 $1,708,900
========== ========== ==========
12
Useful Accumulated
Lives Cost Amortization Net
________ __________ ____________ ________
At June 30, 2014:
Technology, trademarks 5/10 yrs. $1,226,800 $ 489,100 $ 737,700
Trade names 6 yrs. 140,000 7,800 132,200
Websites 5 yrs. 210,000 14,000 196,000
Customer relationships 9/10 yrs. 357,000 215,800 141,200
Sublicense agreements 10 yrs. 294,000 77,200 216,800
Non-compete agreements 5 yrs. 384,000 126,300 257,700
IPR&D 3 yrs. 110,000 12,200 97,800
Other intangible assets 5 yrs. 157,400 140,900 16,500
__________ __________ __________
$2,879,200 $1,083,300 $1,795,900
========== ========== ==========
Total amortization expense was $88,100 and $28,100 for the three months
ended September 30, 2014 and 2013, respectively. As of September 30,
2014, estimated future amortization expense related to intangible assets
is $260,200 for the remainder of the fiscal year ending June 30, 2015,
$352,400 for fiscal 2016, $337,100 for fiscal 2017, $323,300 for fiscal
2018, $244,800 for fiscal 2019, and $191,100 thereafter.
13
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 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 decreased by $105,600 to $388,100 as of
September 30, 2014 from $493,700 as of June 30, 2014.
Net cash used in operating activities was $259,700 for the three months
ended September 30, 2014 as compared to $159,100 for the comparable
three month period in 2013, primarily due to the loss for the current
period. Cash provided by investing activities was $54,200 for the
three month period ended September 30, 2014 compared to cash used of
$16,100 for the three month period ended September 30, 2013 due
primarily to the redemptions of investments. Cash provided by
financing activities was $99,900 for the three months ended September
30, 2014 compared to $19,400 used for the prior year period due
primarily to the cash borrowed under the line of credit.
The Company's working capital decreased by $187,300 to $2,955,100 at
September 30, 2014 from $3,142,400 at June 30, 2014, mainly due to
the loss during the period.
The Company has a line of credit with Bank of America Merrill Lynch
which provides for maximum borrowings of up to $700,000, bearing
interest at 3.00 percentage points above the LIBOR Index, 3.16% as
of October 31, 2014 and is secured by a pledge of collateral
consisting of the inventory, accounts, chattel paper, equipment and
fixtures of the Company. Outstanding amounts are due and payable
by November 30, 2015 with a requirement that the Company is to
reduce the outstanding principal balance to zero during the 30 day
period ending on the expiration date of the promissory note. As of
September 30, 2014, $200,000 was due under this 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, and
line of credit.
14
Results of Operations
Financial Overview
The Company recorded a loss of $222,900 before income tax benefit
for the three months ended September 30, 2014 compared to income
of $3,000 before income tax expense for the comparable period last
year, primarily the result of the loss incurred by the Benchtop
Laboratory Equipment Operations due to the lower sales of Genie(TM)
brand products to overseas customers, and lower than expected Torbal(R)
brand product sales, and amortization costs related to the new Torbal
division.
The Three Months Ended September 30, 2014 Compared With the Three
Months Ended September 30, 2013
Revenues for the three months ended September 30, 2014 increased by
$226,000 (15.7%) to $1,662,100 from $1,436,100 for the three months
ended September 30, 2013, primarily as a result of a $211,400 increase
in catalyst research instrument sales. Sales of benchtop laboratory
products increased by $16,700 compared to the same period last year
as a result of sales of Torbal brand products of $211,500 while Genie
brand product sales for overseas customers were lower. 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. The Bioprocessing Systems Operations'
revenues ($24,600) consist primarily of earned royalties. The
backlog of orders for catalyst research instruments was $439,500
as of September 30, 2014, substantially all of which is expected
to be delivered by fiscal year end, as compared to the backlog
as of September 30, 2013 of $513,400.
The gross profit percentage for the three months ended September
30, 2014 decreased to 30.1% compared to 41.4% for the three months
ended September 30, 2013, primarily due to product mix of the
Benchtop Laboratory Equipment Operations which include in the
current year Torbal brand products at lower gross margins and
comparatively lower gross margins for Genie brand products.
General and administrative expenses for the three months ended
September 30, 2014 increased by $23,500 (7.8%) to $326,500 from
$303,000 for the three months ended September 30, 2013, primarily
due to the addition of such expenses incurred by the Torbal
division of the Benchtop Laboratory Equipment Operations.
Selling expenses for the three months ended September 30, 2014
increased $98,300 (49.9%) to $295,300 from $197,000 for the three
months ended September 30, 2013, primarily the result of increased
sales commissions for the Catalyst Research Instruments Operations
and higher expenses incurred by the Torbal division of the
Benchtop Laboratory Equipment Operations.
Research and development expenses for the three months ended
September 30, 2014 increased by $9,900 (10.2%) to $107,100 from
$97,200 for the three months ended September 30, 2013, primarily
the result of increased product development activities by the
Bioprocessing Systems Operations.
15
For the three months ended September 30, 2014, the income tax
benefit was $61,600 compared to income tax expense of $900 for
the three months ended September 30, 2013 due to the loss for
the period.
As a result, the net loss for the three months ended September
30, 2014 was $161,300 compared to a net income of $2,100 for the
three months ended September 30, 2013.
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.
16
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
17
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 13, 2014
18
