Blueprint
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 September
30, 2017
☐
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)
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Delaware
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04-2217279
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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80 Orville Drive, Suite 102, Bohemia, New York
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11716
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(Address of principal executive offices)
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(Zip Code)
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(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.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐ (Do not check if a smaller reporting
company)
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Smaller reporting company ☒
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Emerging Growth ☐
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Indicate
by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the Act)
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Yes
☐ No ☒
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The
number of shares outstanding of the registrant’s common
stock, par value $.05 per share (“Common Stock”) as of
October 31, 2017 is 1,494,112 shares.
SCIENTIFIC INDUSTRIES, INC.
Table
of Contents
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PART I - Financial Information
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CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Condensed
Consolidated Balance Sheets
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3
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Condensed
Consolidated Statements of Operations
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4
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Condensed
Consolidated Statements of Comprehensive Loss
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5
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Condensed
Consolidated Statements of Cash Flows
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6
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Notes
to Unaudited Condensed Consolidated Financial
Statements
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7
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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13
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CONTROLS
AND PROCEDURES
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14
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EXHIBITS
AND REPORTS ON FORM 8-K
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14
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15
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PART I – FINANCIAL INFORMATION
Item
1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
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Current
assets:
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Cash and cash
equivalents
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$942,900
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$1,025,100
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Investment
securities
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308,200
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295,500
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Trade accounts
receivable, less allowance for doubtful accounts of $11,600 at
September 30, 2017 and June 30, 2017
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972,100
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1,424,400
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Inventories
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2,327,200
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1,961,200
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Prepaid expenses
and other current assets
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170,800
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80,300
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Total current
assets
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4,721,200
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4,786,500
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Property and
equipment, net
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214,800
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199,300
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Intangible assets,
net
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518,600
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579,000
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Goodwill
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705,300
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705,300
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Other
assets
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52,500
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52,500
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Deferred
taxes
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514,500
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505,100
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Total
assets
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$6,726,900
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$6,827,700
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$376,900
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$139,200
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Accrued expenses
and taxes, current portion
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503,600
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491,000
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Customer
advances
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17,000
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-
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Contingent
consideration, current portion
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33,000
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175,700
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Notes
payable, current portion
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6,800
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6,700
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Total current
liabilities
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937,300
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812,600
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Accrued expenses,
less current portion
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60,000
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60,000
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Notes payable, less
current portion
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4,000
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5,800
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Contingent
consideration payable, less current portion
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121,300
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121,300
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Total
liabilities
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1,122,600
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999,700
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Shareholders’
equity:
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Common stock, $.05
par value; authorized 7,000,000 shares; issued 1,513,914 shares
outstanding at September 30, 2017 and June 30, 2017
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75,700
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75,700
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Additional
paid-in capital
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2,522,200
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2,515,900
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Accumulated
other comprehensive loss
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(900)
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(3,500)
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Retained
earnings
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3,059,700
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3,292,300
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5,656,700
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5,880,400
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Less
common stock held in treasury at cost, 19,802 shares
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52,400
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52,400
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Total
shareholders’ equity
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5,604,300
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5,828,000
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Total
liabilities and shareholders’ equity
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$6,726,900
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$6,827,700
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See
notes to Unaudited condensed consolidated financial
statements.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the Three
Month Period Ended September 30,
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For the Three
Month Period Ended September 30,
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Revenues
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$1,280,800
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$1,559,100
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Cost of
revenues
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829,100
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889,500
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Gross
profit
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451,700
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669,600
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Operating
expenses:
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General and
administrative
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428,400
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412,400
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Selling
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201,000
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216,800
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Research and
development
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129,100
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115,400
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Total
operating expenses
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758,500
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744,600
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Loss
from operations
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(306,800)
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(75,000)
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Other income
(expense):
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Interest
income
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400
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200
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Other
income, net
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-
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5,400
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Interest
expense
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(100)
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(200)
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Total
other income, net
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300
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5,400
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Loss
before income tax benefit
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(306,500)
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(69,600)
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Income tax expense
(benefit):
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Current
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(63,700)
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(36,300)
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Deferred
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(10,200)
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15,500
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Total
income tax benefit
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(73,900)
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(20,800)
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Net
loss
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$(232,600)
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$(48,800)
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Basic
and diluted loss per common share
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$(.16)
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$(.03)
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See
notes to unaudited condensed consolidated financial
statements.
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
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For the Three
Month Period Ended September 30,
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For
the Three Month Period Ended September 30,
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Net
loss
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$(232,600)
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$(48,800)
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Other comprehensive
income:
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Unrealized holding
gain
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arising during
period,
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net of
tax
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2,600
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1,100
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Comprehensive
loss
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$(230,000)
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$(47,700)
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See
notes to unaudited condensed consolidated financial
statements.
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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For the Three
Month Period Ended September 30,
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For the Three
Month Period Ended September 30,
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Operating
activities:
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Net
loss
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$(232,600)
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$(48,800)
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Adjustments to
reconcile net loss to net
cash provided by
(used in) operating activities:
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Depreciation and
amortization
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77,100
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95,700
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Deferred income
taxes
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(10,200)
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15,500
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Stock-based
compensation
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6,200
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700
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Changes in
operating assets and liabilities:
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Trade accounts
receivable
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452,300
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80,200
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Inventories
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(366,000)
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(189,000)
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Prepaid and other
current assets
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(90,500)
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(164,100)
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Accounts
payable
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237,700
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(22,000)
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Customer
advances
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17,000
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403,800
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Accrued
expenses and taxes
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12,600
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(323,700)
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Total
adjustments
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336,200
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(102,900)
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Net
cash provided by (used in) operating activities
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103,600
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(151,700)
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Investing
activities:
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Purchase of
investment securities, available for sale
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(9,300)
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-
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Capital
expenditures
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(31,500)
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-
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Purchase of other
intangible assets
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(700)
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(8,400)
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Net
cash used in investing activities
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(41,500)
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(8,400)
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Financing
activities:
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Payments
for contingent consideration
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(142,700)
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(117,400)
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Principal
payments on notes payable
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(1,600)
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(1,500)
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Net
cash used in financing activities
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(144,300)
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(118,900)
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Net decrease in
cash and cash equivalents
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(82,200)
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(279,000)
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Cash
and cash equivalents, beginning of year
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1,025,100
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1,245,000
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Cash
and cash equivalents, end of period
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$942,900
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$966,000
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Supplemental
disclosures:
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Cash paid during
the period for:
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Income
taxes
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$15,000
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$186,000
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Interest
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100
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200
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See
notes to unaudited condensed consolidated financial
statements.
6
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, 2017. The results for the three months ended
September 30, 2017, are not necessarily an indication of the
results for the full fiscal year ending June 30, 2018.
1. Summary of Significant
Accounting Policies
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of Scientific Industries, Inc., Altamira Instruments, Inc.
(“Altamira”), a Delaware corporation and wholly-owned
subsidiary, and Scientific Bioprocessing, Inc. (“SBI”),
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.
Recent Accounting Pronouncements
In
January 2016, the FASB issued ASU No. 2016-01, “Financial
Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities”.
The update addresses certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. For public
business entities, the amendments in this update are effective for
fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Early adoption is permitted only
for certain portions of the ASU related to financial liabilities.
The Company is currently evaluating the impact of the provisions of
this new standard on the consolidated financial
statements.
In
February 2016, the FASB issued ASU No. 2016-02,
“Leases” (Topic 842). The FASB issued this update to
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
updated guidance is effective for annual periods beginning after
December 15, 2018, including interim periods within those fiscal
years. Early adoption of the update is permitted. The Company is
currently evaluating the impact of the new standard.
In
April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers:
Identifying Performance Obligations and Licensing (Topic
606)”. In March 2016, the FASB issued ASU No. 2016-08,
“Revenue from Contracts with Customers: Principal versus
Agent Considerations (Reporting Revenue Gross verses Net) (Topic
606)”. These amendments provide additional clarification and
implementation guidance on the previously issued ASU 2014-09,
“Revenue from Contracts with Customers”. The amendments
in ASU 2016-10 provide clarifying guidance on materiality of
performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and
determining whether an entity’s promise to grant a license
provides a customer with either a right to use an entity’s
intellectual property or a right to access an entity’s
intellectual property. The amendments in ASU 2016-08 clarify how an
entity should identify the specified good or service for the
principal versus agent evaluation and how it should apply the
control principle to certain types of arrangements. The adoption of
ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s
adoption of ASU 2014-09, which the Company intends to adopt for
interim and annual reporting periods beginning after December 15,
2017. The Company is in the process of evaluating the standard and
does not expect the adoption will have a material effect on its
consolidated financial statements and disclosures.
In May
2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers
(Topic 606): Narrow-Scope Improvements and Practical
Expedients”, which narrowly amended the revenue
recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is
effective during the same period as ASU 2014-09. The Company is
currently evaluating the standard and does not expect the adoption
will have a material effect on its consolidated financial
statements and disclosures.
In
August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and
Cash Payments”. This update provides guidance on how
to record eight specific cash flow issues. This update is effective
for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. Early adoption is permitted and
a retrospective transition method to each period should be
presented. The Company is currently evaluating the effect of this
update on its consolidated financial statements.
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic
230)”, requiring that the statement of cash flows
explain the change in the total cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. This guidance is effective for fiscal years, and
interim reporting periods therein, beginning after December 15,
2017 with early adoption permitted. The provisions of this guidance
are to be applied using a retrospective approach which requires
application of the guidance for all periods presented. The Company
is currently evaluating the impact of the new
standard.
In July
2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing
Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815): I. Accounting for Certain Financial Instruments with
Down Round Features; II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception”. Part I of this
update addresses the complexity of accounting for certain financial
instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the
basis of the pricing of future equity offerings. Current accounting
guidance creates cost and complexity for entities that issue
financial instruments (such as warrants and convertible
instruments) with down round features that require fair value
measurement of the entire instrument or conversion option. Part II
of this update addresses the difficulty of navigating Topic 480,
Distinguishing Liabilities from Equity, because of the existence of
extensive pending content in the FASB Accounting Standards
Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable
financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in
Part II of this update do not have an accounting effect. This ASU
is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2018. The Company is evaluating
the effect that ASU 2017-11 will have on its financial statements
and related disclosures.
Adopted Accounting
Pronoucements
In
November 2015, the Financial Accounting Standards Board ("FASB")
issued ASU No. 2015-17, "Income
Taxes: Balance Sheet Classification of Derffered Taxes" (ASU
2015-17") which was effective for fiscal years begining December
15,2016 (fiscal 2018 for the Company). ASU 2015-17 required
that deferred tax assets and liabilities be net and classified as
noncurrent on the balance sheet rather than presenting deferred
taxes into current and noncurrent amounts. The Company
adopted ASU 2015-07 effective for the fiscal quarter of the year
ending June 30, 2018. The Company applied the new guidance on
a respective basis, resulting in a reclassification of current
deferred tax assts totaling $129,000 against long term deferred tax
liabilities in the Company's Consolidated Condensed Balance Sheet
as of June 30, 2017. The adoption of this ASU had no impact
on the Company's Consolidated Statement of Operations.
2. 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”).
Segment
information is reported as follows:
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Benchtop
Laboratory
Equipment
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Catalyst
Research
Instruments
|
|
|
|
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Three Months Ended
September 30, 2017:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$1,199,400
|
$28,700
|
$52,700
|
$-
|
$1,280,800
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
502,300
|
6,400
|
-
|
-
|
508,700
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
(93,900)
|
(184,100)
|
(28,800)
|
-
|
(306,800)
|
|
|
|
|
|
|
|
|
Assets
|
4,041,800
|
1,425,400
|
437,000
|
822,700
|
6,726,900
|
|
|
|
|
|
|
|
|
Long-Lived
Asset Expenditures
|
32,200
|
-
|
-
|
-
|
32,200
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
64,900
|
2,800
|
9,400
|
-
|
77,100
|
|
|
Benchtop
Laboratory
Equipment
|
Catalyst
Research
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$1,456,800
|
$77,500
|
$24,800
|
$-
|
$1,559,100
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
561,200
|
4,800
|
-
|
-
|
566,000
|
|
|
|
|
|
|
|
|
Income
(Loss) From Operations
|
101,400
|
(141,700)
|
(34,700)
|
-
|
(75,000)
|
|
|
|
|
|
|
|
|
Assets
|
4,034,400
|
2,286,700
|
428,100
|
692,200
|
7,441,400
|
|
|
|
|
|
|
|
|
Long-Lived
Asset Expenditures
|
8,400
|
-
|
-
|
-
|
8,400
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
76,700
|
6,600
|
12,400
|
-
|
95,700
|
Approximately
46% and 49% of net sales of benchtop laboratory equipment for the
three month periods ended September 30, 2017 and 2016,
respectively, were derived from the Company’s main product,
the Vortex-Genie 2 mixer, excluding accessories.
Approximately
25% and 26% of total benchtop laboratory equipment sales were
derived from the Torbal Scales Division for the three months ended
September 30, 2017 and 2016, respectively.
For the
three months ended September 30, 2017 and 2016, respectively, two
customers accounted in the aggregate for approximately 15% and 16%
of net sales of the Benchtop Laboratory Equipment Operations (14%
and 15% of the Company’s total revenues). Sales of catalyst
research instruments generally comprise a few very large orders
averaging approximately $50,000 per order to a limited number of
customers, who differ from order to order. Sales to one customer
during the three months ended September 30, 2016 accounted for
approximately 57% of the Catalyst Research Instrument
Operations’ revenues and 3% of the Company’s total
revenues.
3. 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 for 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.
In
valuing assets and liabilities, the Company is required to maximize
the use of quoted market prices and minimize the use of
unobservable inputs. The Company calculated the fair value of its
Level 1 and 2 instruments based on the exchange traded price of
similar or identical instruments where available or based on other
observable instruments. These calculations take into consideration
the credit risk of both the Company and its counterparties. The
Company has not changed its valuation techniques in measuring the
fair value of any financial assets and liabilities during the
period.
The
fair value of the contingent consideration obligations are based on
a probability weighted approach derived from the estimates of
earn-out criteria and the probability assessment with respect to
the likelihood of achieving those criteria. The measurement is
based on significant inputs that are not observable in the market,
therefore, the Company classifies this liability as Level 3 in the
following tables.
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, 2017 and June 30,
2017 according to the valuation techniques the Company used to
determine their fair values:
|
|
|
Fair Value
Measurements Using Inputs Considered as
|
|
|
Fair Value at
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$942,900
|
$942,900
|
$-
|
$-
|
|
Available for sale
securities
|
308,200
|
308,200
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$1,251,100
|
$1,251,100
|
$-
|
$-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$154,300
|
$-
|
$-
|
$154,300
|
|
|
|
Fair
Value Measurements Using Inputs Considered as
|
|
|
Fair Value at June
30, 2017
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$1,025,100
|
$1,025,100
|
$-
|
$-
|
|
Available for sale
securities
|
295,500
|
295,500
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$1,320,600
|
$1,320,600
|
$-
|
$-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$297,000
|
$-
|
$-
|
$297,000
|
The
following table sets forth an analysis of changes during the three
months ended September 30, 2017 and 2016 in Level 3 financial
liabilities of the Company:
|
|
|
|
|
Beginning
balance
|
$297,000
|
$346,300
|
|
Payments
|
(142,700)
|
(117,400)
|
|
|
|
|
|
Ending
balance
|
$154,300
|
$228,900
|
Investments
in marketable securities classified as available-for-sale by
security type at September 30, 2017 and June 30, 2017 consisted of
the following:
|
|
|
|
Unrealized Holding
Gain (Loss)
|
|
At September 30,
2017:
|
|
|
|
|
Available for
sale:
|
|
|
|
|
Equity
securities
|
$37,000
|
$61,900
|
$24,900
|
|
Mutual
funds
|
272,100
|
246,300
|
(25,800)
|
|
|
|
|
|
|
|
$309,100
|
$308,200
|
$(900)
|
|
|
|
|
Unrealized Holding
Gain (Loss)
|
|
At June 30,
2017:
|
|
|
|
|
Available for
sale:
|
|
|
|
|
Equity
securities
|
$37,000
|
$50,800
|
$13,800
|
|
Mutual
funds
|
262,000
|
244,700
|
(17,300)
|
|
|
|
|
|
|
|
$299,000
|
$295,500
|
$(3,500)
|
4. Inventories
|
|
|
|
|
|
|
|
|
Raw
materials
|
$1,423,800
|
$1,373,800
|
|
Work-in-process
|
386,700
|
166,500
|
|
Finished
goods
|
516,700
|
420,900
|
|
|
|
|
|
|
$2,327,200
|
$1,961,200
|
5. 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
acquisitions. Goodwill amounted to $705,300 at September 30, 2017
and June 30, 2017, all of which is expected to be deductible for
tax purposes.
The
components of other intangible assets are as follows:
|
|
Useful
Lives
|
|
|
|
|
At September 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$662,800
|
$559,200
|
$103,600
|
|
Trade
names
|
6 yrs.
|
140,000
|
83,600
|
56,400
|
|
Websites
|
5 yrs.
|
210,000
|
150,500
|
59,500
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
284,800
|
72,200
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
172,700
|
121,300
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
307,500
|
76,500
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other
intangible assets
|
5
yrs.
|
195,200
|
166,100
|
29,100
|
|
|
|
|
|
|
|
$2,353,000
|
$1,834,400
|
$518,600
|
|
|
Useful
Lives
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$662,800
|
$541,100
|
$121,700
|
|
Trade
names
|
6 yrs.
|
140,000
|
77,800
|
62,200
|
|
Websites
|
5 yrs.
|
210,000
|
140,000
|
70,000
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
281,400
|
75,600
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
165,400
|
128,600
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
294,000
|
90,000
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other
intangible assets
|
5
yrs.
|
194,500
|
163,600
|
30,900
|
|
|
|
|
|
|
|
$2,352,300
|
$1,773,300
|
$579,000
|
Total
amortization expense was $61,100 and $77,900 for the three months
ended September 30, 2017 and 2016, respectively. As of September
30, 2017, estimated future amortization expense related to
intangible assets is $182,500 for the remainder of the fiscal year
ending June 30, 2018, $185,800 for fiscal 2019, $65,400 for fiscal
2020, $48,000 for fiscal 2021, $27,000 for fiscal 2022, and $9,200
thereafter.
6. Loss Per Common
Share
Loss
per common share data was computed as follows:
|
|
For the Three
Months Ended September 30, 2017
|
For the Three
Months Ended September 30, 2016
|
|
|
|
|
|
Net
loss
|
$(232,600)
|
$(48,800)
|
|
|
|
|
|
Weighted average
common shares outstanding
|
1,494,112
|
1,489,112
|
|
|
|
|
|
Basic
and diluted loss per common share
|
$(.16)
|
$(.03)
|
Approximately
82,000 and 43,500 shares of the Company's common stock issuable
upon the exercise of outstanding options were excluded from the
calculation of diluted earnings per common share for the three
months ended September 30, 2017 and 2016, respectively, because the
effect would be anti-dilutive.
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of
Operations
Forward-Looking statements. 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,
success of marketing strategy, success of expansion efforts, impact
of competition, adverse economic conditions, and other factors
affecting the Company’s business that are beyond the
Company’s control, which are discussed elsewhere in this
report. Consequently, no forward-looking statement can be
guaranteed. The Company undertakes no obligation to publicly update
forward-looking statements, whether as a result of new information,
future events or otherwise. This Management’s Discussion and
Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Company’s financial statements
and the related notes included elsewhere in this
report.
Overview. The Company reflected a loss before income tax
benefit of $306,500 for the three months ended September 30, 2017
compared to a loss before income tax benefit of $69,600 for the
three months ended September 30, 2016, primarily due to decreased
sales and margins of benchtop laboratory equipment during the
period, and decreased sales recorded by the Catalyst Research
Instruments Operations. The results reflected total non-cash
amounts for depreciation and amortization of $77,100 for the three
month period ended September 30, 2017 and $95,700 for the
corresponding three month period in 2016.
Results of Operations. Net revenues for the three months
ended September 30, 2017 decreased $278,300 (17.9%) to $1,280,800
from $1,559,100 for the three months ended September 30, 2016,
reflecting a decrease of $257,400 (17.7%) in net sales of benchtop
laboratory equipment, due to a lower number of orders from overseas
which sometimes is experienced during summer months, and decreased
orders from Original Equipment Manufacturer (OEM) customers. The
benchtop laboratory equipment sales reflected $307,200 of Torbal
brand product sales for the three months ended September 30, 2017,
compared to $383,400 in the three months ended September 30, 2016.
Sales of catalyst research instruments decreased by $48,800 (63.0%)
with no large orders shipped during the period. As of September 30,
2017, the order backlog for catalyst research instruments, was
$323,900, all of which is expected to be shipped during fiscal year
ending June 30, 2018, compared to $1,167,000 as of September 30,
2016. Revenues derived from the Bioprocessing Systems Operations
which are comprised primarily of net royalties accrued from
sublicensees, while it continues with its product development
efforts, increased by $27,900 (112.5%).
The
gross profit percentage for the three months ended September 30,
2017 was 35.3% compared to 42.9% for the three months ended
September 30, 2016. The current period gross margin for catalyst
research instruments was negatively impacted by the lower sales.
The gross profit percentage for the Benchtop Laboratory Equipment
Operations was lower due to fixed costs on lower sales and the
sales mix.
General
and administrative expenses for the three months ended September
30, 2017 amounted to $428,400 compared to $412,400 for the three
months ended September 30, 2016 due to increased expenses for the
Bioprocessing Systems Operations.
Selling
expenses for the three months ended September 30, 2017 decreased
$15,800 (7.3%) to $201,000 from $216,800 for the three months ended
September 30, 2016, due to lower sales related expenses for the
Benchtop Laboratory Equipment Operations.
Research
and development expenses increased by $13,700 (11.9%) to $129,100
for the three months ended September 30, 2017 compared to $115,400
for the three months ended September 30, 2016, primarily due to
increased new product development costs incurred by the Benchtop
Laboratory Equipment Operations related to the Torbal Scales
Division and the Bioprocessing Systems Operations.
Total
other income was $300 for the three months ended September 30, 2017
compared to $5,400 for the three months ended September 30,
2016.
The
Company reflected an income tax benefit of $73,900 for the three
months ended September 30, 2017 compared to income tax benefit of
$20,800 for the three months ended September 30, 2016, primarily
due to the higher loss incurred in the three months ended September
30, 2017.
As a
result of the foregoing, the Company recorded a net loss of
$232,600 for the three months ended September 30, 2017 compared to
a net loss of $48,800 for the three months ended September 30,
2016.
Liquidity and Capital Resources. Cash and cash equivalents
decreased by $82,200 to $942,900 as of September 30, 2017 from
$1,025,100 as of June 30, 2017.
Net cash provided by operating activities was $103,600 for the
three months ended September 30, 2017 compared to $151,700 used
during the three months ended September 30, 2016. The current
period reflected higher collections of accounts receivable and
higher accounts payable and accrued expenses, partially offset by
increased loss and inventories. Net cash used in investing
activities was $41,500 for the three months ended September 30,
2017 compared to $8,400 used during the three months ended
September 30, 2016 principally due to new capital equipment
purchased during the current year period by the Benchtop Laboratory
Equipment Operations. The Company used $144,300 in financing
activities in the three months ended September 30, 2017 compared to
$118,900 in the three months ended September 30, 2016.
The Company's working capital decreased by $195,900 to $3,907,000
as of June 30, 2017 compared to $4,102,900, as of June 30, 2017 due
to the loss during the period.
The Company has a Demand Line of Credit through December 2017 with
First National Bank of Pennsylvania which provides for borrowings
of up to $300,000 for regular working capital needs, bearing
interest at prime, currently 4.25%. Advances on the line, are
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, 2017 no borrowings
were outstanding under this line.
Management believes that the Company will be able to meet its cash
flow needs during the 12 months ending June 30, 2018 from its
available financial resources including its line of credit, its
cash and investment securities, and operations.
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.
PART II – OTHER
INFORMATION
Item 6. Exhibits and Reports on Form
8-K
|
Exhibit
Number
|
Description
|
|
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
Reports
on Form 8-K: None
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Date:
November 14, 2017
|
SCIENTIFIC
INDUSTRIES, INC.
(Registrant)
/s/
Helena R. Santos
|
|
|
|
Helena
R. Santos
President,
Chief Executive Officer, Treasurer
Chief
Financial and Principal Accounting Officer
|
|