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 December 31, 2013
__________________________
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), 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 smaller
reporting company. See the definitions of "large accelerated filer,"
"Accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer Accelerated Filer ________
Non-accelerated filer 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 [ ] No [ x ]
The number of shares outstanding of the issuer's common stock par
value, $0.05 per share, as of February 2, 2014 was 1,342,663 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 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 13
ITEM 4 CONTROLS AND PROCEDURES 16
PART II B OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 18
EXHIBITS 19
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2013 2013
(Unaudited)
___________ __________
Current Assets:
Cash and cash equivalents $1,109,000 $ 927,300
Investment securities 643,800 908,400
Trade accounts receivable, net 926,800 815,900
Inventories 1,871,200 1,705,600
Prepaid expenses and other current assets 84,300 59,000
Deferred taxes 88,800 86,600
__________ __________
Total current assets 4,723,900 4,502,800
Property and equipment at cost, net 148,800 156,500
Intangible assets, net 719,300 773,500
Goodwill 589,900 589,900
Other assets 24,100 24,100
Deferred taxes 97,200 106,200
__________ __________
Total assets $6,303,200 $6,153,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 151,100 $ 156,800
Customer advances 210,700 15,900
Bank line of credit 50,000 -
Notes payable, current 66,200 78,300
Accrued expenses and taxes 313,600 407,700
Contingent consideration payable, current 19,000 19,000
__________ __________
Total current liabilities 810,600 677,700
Contingent consideration payable,
less current portion 51,600 51,600
Notes payable, less current portion - 26,700
__________ __________
Total liabilities 862,200 756,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized
7,000,000 shares;
1,362,465 issued and outstanding at
December 31, 2013 and 1,357,465 at
June 30, 2013 68,100 67,900
Additional paid-in capital 1,993,700 1,977,100
Accumulated other comprehensive loss ( 16,200) ( 13,600)
Retained earnings 3,447,800 3,418,000
__________ __________
5,493,400 5,449,400
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,441,000 5,397,000
Total liabilities and __________ __________
shareholders' equity $6,303,200 $6,153,000
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________ ______________________
2013 2012 2013 2012
__________ __________ __________ __________
Revenues $1,747,800 $1,876,900 $3,183,900 $3,228,600
Cost of sales 929,700 1,046,600 1,771,600 1,934,000
__________ __________ __________ __________
Gross profit 818,100 830,300 1,412,300 1,294,600
__________ __________ __________ __________
Operating Expenses:
General & administrative 342,900 309,600 645,900 589,200
Selling 207,900 191,100 404,900 347,400
Research & development 90,800 135,100 188,000 255,200
__________ __________ __________ __________
Total operating
expenses 641,600 635,800 1,238,800 1,191,800
__________ __________ __________ __________
Income from
operations 176,500 194,500 173,500 102,800
__________ __________ __________ __________
Other income (expense):
Investment income 5,400 3,100 8,500 5,900
Other 2,200 ( 1,600) 5,900 900
Interest expense ( 1,000)( 1,300) ( 1,800) ( 2,700)
__________ __________ __________ __________
Total other income, net 6,600 200 12,600 4,100
__________ __________ __________ __________
Income before
income taxes 183,100 194,700 186,100 106,900
__________ __________ __________ __________
Income tax expense:
Current 44,800 51,800 41,700 21,200
Deferred 3,200 4,500 7,200 9,500
__________ __________ __________ __________
Total income tax
expense 48,000 56,300 48,900 30,700
__________ __________ __________ __________
Net income $ 135,100 $ 138,400 $ 137,200 $ 76,200
========== ========== ========== ==========
Basic earnings per common
share $ .10 $ .10 $ .10 $ .06
Diluted earnings per common
share $ .10 $ .10 $ .10 $ .06
Cash dividends declared
per common share $ .00 $ .00 $ .08 $ .03
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
___________________ __________________
2013 2012 2013 2012
________ _________ ________ ________
Net income $135,100 $138,400 $137,200 $ 76,200
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax ( 800) 3,300 ( 2,600) 12,900
_________ ________ ________ ________
Comprehensive income $134,300 $141,700 $134,600 $ 89,100
========= ======== ======== ========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 2013 December 31, 2012
_________________ _________________
Operating activities:
Net income $ 137,200 $ 76,200
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on sale of investments 10,500 4,800
Depreciation and amortization 88,500 89,000
Deferred income tax 7,200 9,500
Stock-based compensation 10,200 6,700
Changes in operating assets and liabilities:
Accounts receivable ( 110,900) ( 319,300)
Inventories ( 165,600) ( 221,000)
Prepaid expenses and other
current assets ( 25,300) 81,600
Other assets - 1,600
Accounts payable ( 5,700) 27,500
Customer advances 194,800 257,900
Accrued expenses and taxes ( 94,100) ( 15,700)
__________ __________
Total adjustments ( 90,400) ( 77,400)
__________ __________
Net cash provided by (used in)
operating activities 46,800 ( 1,200)
__________ __________
Investing activities:
Purchase of investment securities,
available-for-sale ( 24,300) ( 710,300)
Capital expenditures ( 24,600) ( 25,200)
Purchase of intangible assets ( 1,900) ( 2,100)
Redemption of investment securities,
available for sale 275,300 717,600
__________ __________
Net cash provided by
(used in) investing activities 224,500 ( 20,000)
__________ __________
Financing activities:
Line of credit proceeds 50,000 -
Proceeds from exercise of stock options 6,700 -
Cash dividend declared and paid ( 107,400) ( 40,100)
Principal payments on note payable ( 38,900) ( 37,600)
__________ __________
Net cash used in financing
activities ( 89,600) ( 77,700)
__________ __________
Net increase (decrease) in cash
and cash equivalents 181,700 ( 98,900)
Cash and cash equivalents,
beginning of year 927,300 769,300
__________ __________
Cash and cash equivalents, end
of period $1,109,000 $ 670,400
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 100,000 $ -
Interest 1,800 2,700
See notes to unaudited condensed consolidated financial statements
4
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, 2013. The results for the three
and six months ended December 31, 2013, are not necessarily
an indication of the results for the full fiscal year ending
June 30, 2014.
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 July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740),
which clarifies the presentation requirements of unrecognized tax
benefits when a net operating loss carries forward, a similar tax
loss, or a tax credit carry forward exists at the reporting date.
The amendments in this ASU are effective for fiscal years, and
interim periods within those years, beginning after December 15,
2013 and should be applied prospectively. The adoption of this ASU
is not expected to have a material impact to the Company's
consolidated financial statements.
5
3. Acquisition:
On November 14, 2011, the Company through SBI acquired substantially
all of the assets of a privately owned company consisting principally
of a license and sublicenses under patents held by the University of
Maryland, Baltimore County ("UMBC") with respect to the design,
development and production of bioprocessing methods, systems and
products. The acquisition was pursuant to an asset purchase
agreement("APA") whereby the Company paid to the seller $260,000 in
cash, issued 135,135 shares of Common Stock valued at $400,000,
issued to UMBC a $230,000 36-month note payable, and agreed to make
additional cash payments equal to 30% of net royalties received under
the acquired license and sublicenses, estimated at a present value of
$128,000 on the date of acquisition.
SBI's revenues are derived from royalties received by SBI under the
various sublicense agreements, net of royalty payments due to UMBC
and revenues from sales of certain products being developed
under its existing license. University, government, and industrial
laboratories working primarily in the biotechnology industry
worldwide are its targeted customers.
Management of the Company allocated the purchase price based on its
valuation of the assets acquired, all of which are intangible, as
follows:
Technology, trademarks, and in-process
research & development ("IPR&D") $ 500,000
Sublicense agreements 294,000
Engineering drawings and software 64,000
Non-competition agreements 18,000
Goodwill* 142,000
__________
Total Purchase Price $1,018,000
==========
*See Note 8, "Goodwill and Other Intangible Assets".
The amounts allocated to Technology, Trademarks, and IPR&D and
Sublicense Agreements are deemed to have a useful life of 10 years,
and to the remaining intangible assets to have a useful life of 5
years, all of which are being amortized on a straight-line basis,
except for goodwill.
In connection with the acquisition, SBI entered into a research and
development agreement providing for the seller to perform services
with respect to the research and development of bioprocessing
methods, systems, and products pursuant to programs set forth in the
Agreement at a fee of $14,000 per month plus all related expenses.
The agreement was terminated in June 2013 as a result of the death
of the seller's chief operating officer.
6
4. 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 ("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 (foreign sales are
principally to customers in Europe and Asia):
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2013:
Revenues $1,154,000 $ 463,400 $ 130,400 $ - $1,747,800
Foreign Sales 823,400 88,900 - - 912,300
Income (Loss)
from Operations 119,800 2,100 64,600 ( 10,000) 176,500
Assets 2,787,400 1,704,400 981,600 829,800 6,303,200
Long-Lived Asset
Expenditures 10,100 - 6,000 - 16,100
Depreciation and
Amortization 11,600 8,500 24,200 - 44,300
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2012:
Revenues $1,164,900 $ 664,900 $ 47,100 $ - $1,876,900
Foreign Sales 747,900 279,800 - - 1,027,700
Income (Loss)
from Operations 157,200 68,200 ( 30,900) - 194,500
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 7,100 700 - - 7,800
Depreciation and
Amortization 11,500 9,200 24,000 - 44,700
Approximately 65% and 73% of net sales of benchtop laboratory equipment
(43% and 46% of total net sales) for the three month periods ended
December 31, 2013 and 2012, respectively, were derived from the Company's
main product, the Vortex-Genie 2(R) mixer, excluding accessories.
7
Two customers accounted in the aggregate for approximately 25% and 24%
of the net sales of the Benchtop Laboratory Equipment Operations and
17% and 15% of total revenues for the three months ended December 31,
2013, and 2012, respectively. Sales of catalyst research instruments
generally comprise a few very large orders averaging at least $100,000
per order to a limited number of customers, who differ from order to
order. Sales to three customers and four customers represented
approximately 91% and 95% of the Catalyst Research Instrument Operations'
net sales, respectively, and 24% and 34% of total revenues for the three
months ended December 31, 2013 and 2012, respectively.
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 31, 2013:
Revenues $2,223,700 $ 803,100 $ 157,100 $ - $3,183,900
Foreign Sales 1,444,200 162,400 2,000 - 1,608,600
Income (Loss)
from Operations 238,100 ( 101,900) 47,800 ( 10,500) 173,500
Assets 2,787,400 1,704,400 981,600 829,800 6,303,200
Long-Lived Asset
Expenditures 20,000 - 6,500 - 26,500
Depreciation and
Amortization 22,600 17,600 48,300 - 88,500
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 30, 2012:
Revenues $2,229,700 $ 949,200 $ 49,700 $ - $3,228,600
Foreign Sales 1,369,600 519,000 - - 1,888,600
Income (Loss)
from Operations 274,800 ( 66,100) ( 105,900) - 102,800
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 9,200 18,100 - - 27,300
Depreciation and
Amortization 22,600 18,500 47,900 - 89,000
Approximately 66% and 68% of net sales of benchtop laboratory equipment
(46% and 47% of total revenues) for the six month periods ended December
31, 2013 and 2012, respectively, were derived from the segment's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 21% and 23% of the segment's net sales for the six
month periods ended December 31, 2013 and 2012, and 14% and 16%, of
total revenues for the six month periods ended December 31, 2013 and 2012,
respectively.
8
Sales of catalyst research instruments to six and four different customers
in each of the six month periods, accounted for approximately 92% and 67%
of the segment's net sales and 23% and 20% of total revenues for the six
month periods ended December 31, 2013 and 2012, respectively.
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the amount that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
Fair value measurements do not include transaction costs.
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 the level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at December 31, 2013 and June 30, 2013 according to the
valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
December 31,
2013 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $1,109,000 $1,109,000 $ - $ -
Available for sale securities 643,800 643,800 - -
__________ __________ _______ ________
Total $1,752,800 $1,752,800 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 70,600 $ - $ - $ 70,600
========== ========== ======= ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2013 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 927,300 $ 927,300 $ - $ -
Available for sale securities 908,400 908,400 - -
__________ __________ _______ ________
Total $1,835,700 $1,835,700 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 70,600 $ - $ - $ 70,600
========== ========== ======= ========
9
Investments in marketable securities classified as available-for-sale by
security type at December 31, 2013 and June 30, 2013 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At December 31, 2013:
Available for sale
Equity securities $ 29,300 $ 37,000 $ 7,700
Mutual funds 630,700 606,800 (23,900)
_________ _________ __________
$ 660,000 $ 643,800 $ (16,200)
========= ========= ==========
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2013:
Available for sale:
Equity securities $ 29,300 $ 33,200 $ 3,900
Mutual funds 892,700 875,200 (17,500)
__________ _________ __________
$ 922,000 $ 908,400 $ (13,600)
========== ========= ==========
6. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at December 31, 2013 and based on a physical count as
of June 30, 2013. Components of inventory are as follows:
December 31, June 30,
2013 2013
__________ __________
Raw Materials $1,358,300 $1,336,800
Work in process 396,300 254,000
Finished Goods 116,600 114,800
__________ __________
$1,871,200 $1,705,600
========== ==========
7. Earnings per common share:
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock options,
if any.
10
Earnings per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Period Ended
December 31, December 31,
_______________________ _____________________
2013 2012 2013 2012
___________ __________ __________ __________
Net income $ 135,100 $ 138,400 $ 137,200 $ 76,200
=========== ========== ========== ==========
Weighted average common
shares outstanding 1,342,663 1,337,175 1,340,163 1,336,444
Dilutive securities 6,327 3,765 6,867 4,463
___________ __________ __________ __________
Weighted average dilutive
common shares outstanding 1,348,990 1,340,940 1,347,030 1,340,907
=========== ========== ========== ==========
Basic earnings per
common share $ .10 $ .10 $ .10 $ .06
Diluted earnings per
common share $ .10 $ .10 $ .10 $ .06
Approximately 5,000 and 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 and six
month periods ended December 31, 2013, because the effect would be anti-
dilutive.
Approximately 40,000 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 each of the three and six month
periods ended December 31, 2012, 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 $589,900
as of December 31, 2013 and June 30, 2013, all of which is deductible for
tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
__________ _________ ____________ _________
At December 31, 2013:
Technology, trademarks 5/10 yrs. $ 865,900 $ 433,600 $ 432,300
Customer relationships 10 yrs. 237,000 207,800 29,200
Sublicense agreements 10 yrs. 294,000 62,500 231,500
Non-compete agreements 5 yrs. 114,000 107,100 6,900
Other intangible assets 5 yrs. 157,400 138,000 19,400
__________ ___________ _________
$1,668,300 $ 949,000 $ 719,300
========== =========== =========
11
Useful Accumulated
Lives Cost Amortization Net
__________ _________ ____________ _________
At June 30, 2013:
Technology, trademarks 5/10 yrs. $ 865,400 $ 402,100 $ 463,300
Customer relationships 10 yrs. 237,000 203,200 33,800
Sublicense agreements 10 yrs. 294,000 47,800 246,200
Non-compete agreements 5 yrs. 114,000 105,900 8,100
Other intangible assets 5 yrs. 156,000 133,900 22,100
__________ __________ _________
$1,666,400 $ 892,900 $ 773,500
========== ========== =========
Total amortization expense was $28,100 and $28,600 for the three months
ended December 31, 2013 and 2012, respectively and $56,200 and $57,400
for the six months ended December 31, 2013 and 2012, respectively. As
of December 31, 2013, estimated future amortization expense related to
intangible assets is $54,600 for the remainder of the fiscal year
ending June 30, 2014, $106,600 for fiscal 2015, $110,800 for fiscal
2016, $95,600 for fiscal 2017, $81,100 for fiscal 2018, and
$270,600 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 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 $181,700 to $1,109,000 as of
December 31, 2013 from $927,300 as of June 30, 2013.
Net cash provided by operating activities was $46,800 for the six months
ended December 31, 2013 as compared to $1,200 used in operating activities
for the six months ended December 31, 2012, due mainly to higher income.
Cash provided by investing activities was $224,500 for the six month
period ended December 31, 2013 compared to $20,000 used in the six month
period ended December 31, 2012, due to redemption in the earlier period
of certain investment securities. The Company reflected cash used in
financing activities of $89,600 in the current year period compared to
$77,700 in the prior year comparable period, primarily due to the higher
dividend in the current year, partially offset by a $50,000 borrowing
under the Company's bank line of credit.
On September 20, 2013, the Board of Directors of the Company declared
a cash dividend of $.08 per share of Common Stock which was paid on
November 4, 2013 to holders of record as of the close of business on
October 11, 2013.
The Company's working capital increased by $88,200 to $3,913,300 as of
December 31, 2013 from working capital of $3,825,100 at June 30, 2013,
mainly due to the income for the period.
The Company has a line of credit with its bank, JPMorgan Chase Bank, N.A.
which provides for maximum borrowings of up to $700,000, bearing interest
at 3.05 percentage points above a defined LIBOR Index. The interest rate as
of December 31, 2013 was approximately 3.22% and any borrowing is to be
secured by a pledge of collateral consisting of the inventory, accounts,
chattel paper, equipment and general intangibles of the Company.
Outstanding amounts are due and payable by June 14, 2014 with a requirement
that the Company is to reduce the outstanding principal balance to zero
during the 30 day period ending on the anniversary date of the promissory
note. As of December 31, 2013 $50,000 was outstanding under the line
and zero at June 30, 2013.
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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.
Results of Operations
Financial Overview
The Company recorded income before income taxes of $183,100 and $194,700
for the three month periods ended December 31, 2013 and 2012, respectively.
The decrease was primarily due to lower sales during the period by the
Company's Catalyst Research Instruments Operations, partially offset
by the profit derived from an order for bioprocessing product prototypes
that had minimal costs associated with the order, since the costs had
been previously expensed as product development costs.
The Company reflected income before income taxes of $186,100 and $106,900
for the six month periods ended December 31, 2013 and 2012, respectively.
The increase was principally due to the profit related to the Bioprocessing
Systems Operations as described above, and lower product development costs
for the Bioprocessing Systems Operations.
The Three Months Ended December 31, 2013 Compared With the Three Months
Ended December 31, 2012
Net sales for the three months ended December 31, 2013 decreased by
$129,100 (6.9%) to $1,747,800 from $1,876,900 for the three months
ended December 31, 2012 as a result of a $201,500 decrease in sales
by the Catalyst Research Instruments Operations and a $10,900 decrease
in sales by the Laboratory Equipment Operations, offset by a $83,300
increase in revenues of the Bioprocessing Systems Operations. Sales of
the benchtop laboratory equipment products generally are pursuant to
many small purchase orders from distributors, while catalyst research
instruments are sold pursuant to a small number of larger orders,
typically averaging over $100,000 each, resulting in significant
swings in revenues. The backlog of orders for catalyst research
instruments was $1,063,900 as of December 31, 2013, all of which are
anticipated to be delivered by June 30, 2014; the back log as of
December 31, 2012 was $1,452,300. The revenues generated by the
Bioprocessing Systems Operations included a one-time order for
prototype bioprocessing products of approximately $100,000, with
the remaining revenues being derived from royalties for the related
products still under development.
The increase in gross profit percentage for the three months ended
December 31, 2013 to 46.8% from 44.2% for the year earlier three
month period was primarily the result of the low costs related to
the bioprocessing products prototype order.
General and administrative expenses for the three month comparative
periods ended December 31, 2013 and December 31, 2012 increased by
$33,300 (10.8%) to $342,900 from $309,600 primarily due to expenses
related to the recently announced proposed acquisition. In December
2013, the Company entered into an agreement in principle to acquire
from a privately held company, its laboratory and pharmacy balance
and digital scale business and substantially all its related assets.
The consideration is to consist of cash, shares of the Company's
Common Stock and commissions based on future sales of the balance and
scale products over a period from closing through June 30, 2017 with an
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aggregate value of approximately $1,700,000. The proposed acquisition
agreement is to contain several conditions to consummation of the
acquisition including the execution by the principals of long term
non-competition agreements, a long-term employment agreement with the
seller's principal manager, and a long-term supply agreement with its
principal supplier of related products. No assurance can be given that
the proposed acquisition will be completed or if completed, on the
foregoing terms.
Selling expenses for the three months ended December 31, 2013 increased
by $16,800 (8.8%) to $207,900 from $191,100 for the three months ended
December 31, 2012, primarily the result of increased selling activities
by the Bioprocessing Systems Operations and dealer-related activities
for the Laboratory Equipment Operations.
Research and development expenses for the three months ended December
31, 2013 decreased $44,300 (32.8%) to $90,800 from $135,100 for the
three months ended December 31, 2012, primarily the result of a
reduction of product development expenses by the Company's Bioprocessing
Systems Operations due to the use of lower cost consultants.
Total other income for the three month period ended December 31, 2013
increased by $6,400 to $6,600 from $200 for the three month period
ended December 31, 2012, mainly due to increased investment income
and miscellaneous income items.
As a result income before income taxes for the three months ended
December 31, 2013, was $183,100 compared to $194,700 for the three
months ended December 31, 2012, and income tax expense was $48,000
compared to $56,300 for the three months ended December 31, 2012.
The Six Months Ended December 31, 2013 Compared With the Six Months
Ended December 31, 2012
Net sales for the six months ended December 31, 2013 decreased by
$44,700 (1.4%) to $3,183,900 compared to $3,228,600 for the six months
ended December 31, 2012, due to decreases of $146,100 in catalyst
research instrument sales and $6,000 in benchtop laboratory equipment
sales, partially offset by an increase in revenues( one order of
approximately $100,000) for bioprocessing products. Sales of benchtop
laboratory equipment products generally are comprised of many small
purchase orders from distributors, while sales of catalyst research
instruments are comprised of a small number of large orders, typically
averaging over $100,000 each, resulting in significant swings in
revenues. The revenues generated by the Bioprocessing Systems
Operations reflected a one-time order for prototype bioprocessing
products of approximately $100,000, with the remaining revenues
being derived from royalties. The related products are still
under development.
The gross profit percentage for the six months ended December 31, 2013
increased to 44.4% compared to 40.1% for the six months ended December
31, 2012, due to increased gross margins for all operations.
General and administrative expenses increased by $56,700 (9.6%) to
$645,900 for the six months ended December 31, 2013 from $589,200 for
the comparable period of the prior year, due to increases in various
expenses, including the proposed acquisition (see above), board meetings,
and related expenses.
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Selling expenses for the six months ended December 31, 2013 increased
by $57,500 (16.6%) to $404,900 from $347,400 for the six months ended
December 31, 2012, primarily the result of increased dealer-related
activities for the Benchtop Laboratory Equipment Operations, and
commissions and exhibitions expense for the Catalyst Research
Instruments Operations.
Research and development expenses for the six months ended December 31,
2013 decreased $67,200 (26.3%) to $188,000 compared to $255,200 for the
six months ended December 31, 2012, primarily the result of a reduction
of product development expenses by the Company?s Bioprocessing Systems
Operations due to the use of lower-cost consultants.
Total other income for the six month period ended December 31, 2013
increased by $8,500 to $12,600 from $4,100 for the six month period
ended December 31, 2012, mainly due to increased investment income
and miscellaneous items.
As a result, income tax expense for the six month period ended December 31,
2013 was $48,900 compared to $30,700 for the comparable period of the prior
fiscal year, and net income for the six months ended December 31, 2013 was
$137,200 compared to $76,200 for the six months ended December 31, 2012.
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
(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.
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(b) Reports on Form 8-K:
Report dated December 2, 2013 reporting under Item 8.01.
Report dated December 13, 2013 reporting under Item 1.01 and 5.07.
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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: February 13, 2014
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