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: March 31, 2015
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________ ____________
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
_______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
80 Orville Drive, Suite 102, Bohemia, New York 11716
______________________________________________ __________
(Address of principal executive offices) (Zip Code)
(631)567-4700
____________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a 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 X No
The number of shares outstanding of the issuer's common stock par value,
$0.05 per share, as of May 1, 2015 was 1,479,112 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income (Loss) 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 14
ITEM 4 CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
EXHIBITS 20
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2015 2014
Current assets: (Unaudited) __________ __________
Cash and cash equivalents $ 354,300 $ 493,700
Investment securities 286,000 415,400
Trade accounts receivable, net 829,600 756,700
Inventories 2,621,300 2,309,200
Prepaid expenses and other current assets 111,200 123,100
Deferred taxes 100,700 86,000
__________ __________
Total current assets 4,303,100 4,184,100
Property and equipment, net 244,500 252,100
Intangible assets, net 1,537,200 1,795,900
Goodwill 705,300 705,300
Other assets 52,400 28,200
Deferred taxes 169,100 146,200
__________ __________
Total assets $7,011,600 $7,111,800
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 325,100 $ 373,700
Customer advances 324,900 89,500
Bank line of credit 100,000 -
Notes payable, current portion - 26,700
Accrued expenses and taxes 429,300 442,800
Contingent consideration, current portion 136,100 109,000
__________ ___________
Total current liabilities 1,315,400 1,041,700
Contingent consideration, less
current portion 265,000 391,000
__________ ___________
Total liabilities 1,580,400 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 March 31, 2015
and June 30, 2014 74,900 74,400
Additional paid-in capital 2,454,200 2,420,700
Accumulated other comprehensive
gain (loss) ( 500) 1,100
Retained earnings 2,955,000 3,235,300
___________ __________
5,483,600 5,731,500
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
Total shareholders' equity 5,431,200 5,679,100
___________ __________
Total liabilities and
shareholders' equity $7,011,600 $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 For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
__________ __________ __________ __________
2015 2014 2015 2014
__________ __________ __________ __________
Revenues $1,729,200 $1,786,300 $5,082,400 $4,970,200
Cost of sales 961,900 1,088,900 3,125,800 2,860,500
__________ __________ __________ __________
Gross profit 767,300 697,400 1,956,600 2,109,700
__________ __________ __________ __________
Operating expenses:
General & administrative 433,900 461,800 1,286,500 1,108,100
Selling 202,200 198,000 726,900 602,800
Research & development 94,500 113,800 317,700 301,900
__________ __________ _________ __________
Total operating
expenses 730,600 773,600 2,331,100 2,012,800
__________ __________ _________ __________
Income (loss) from
operations 36,700 ( 76,200) ( 374,500) 96,900
__________ __________ _________ __________
Other income (expense):
Investment income 1,100 1,000 10,700 19,500
Other ( 4,600) ( 3,700) ( 5,700) ( 7,700)
Interest expense ( 1,600) ( 900) ( 4,300) ( 2,400)
__________ __________ _________ __________
Total other income,
(expense) net ( 5,100) ( 3,600) 700 9,400
__________ __________ _________ __________
Income (loss) before
income taxes (benefit) 31,600 ( 79,800) ( 373,800) 106,300
__________ __________ _________ __________
Income tax expense (benefit):
Current 34,800 ( 1,400) ( 56,200) 40,200
Deferred ( 22,200) ( 18,700) ( 37,300) ( 11,400)
__________ __________ _________ __________
Total income (loss) tax
expense (benefit) 12,600 ( 20,100) ( 93,500) 28,800
__________ __________ _________ __________
Net income (loss) $ 19,000 ($ 59,700)($ 280,300) $ 77,500
========== ========== ========= ==========
Basic earnings (loss) per common
share $ .01 ($ .04) ($ .19) $ .06
Diluted earnings (loss) per common
share $ .01 ($ .04) ($ .19) $ .06
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)(UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
___________________ _____________________
2015 2014 2015 2014
___________________ _____________________
Net income (loss) $ 19,000 ($ 59,700) ($ 280,300) $ 77,500
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax 2,900 10,100 ( 1,600) 7,500
________ _________ __________ _________
Comprehensive income (loss) $ 21,900 ($ 49,600) ($ 281,900) $ 85,000
======== ========= ========== =========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 2015 March 31, 2014
______________ ______________
Operating activities:
Net income (loss) ($ 280,300) $ 77,500
___________ __________
Adjustments to reconcile net income
to net cash used in operating activities:
Loss on sale of investments 4,400 17,300
Depreciation and amortization 327,200 154,000
Deferred income tax (benefit) ( 37,300) ( 11,400)
Stock-based compensation 10,200 14,900
Income tax benefit of stock options
exercised 4,900 -
Changes in operating assets and liabilities,
net of effect of acquisition:
Accounts receivable ( 72,900) ( 319,400)
Inventories ( 312,100) ( 399,700)
Prepaid expenses and other current
assets 11,900 ( 66,900)
Accounts payable ( 48,600) 77,900
Customer advances 235,400 256,000
Accrued expenses and taxes ( 13,500) 19,900
Other assets ( 24,200) -
___________ __________
Total adjustments 85,400 ( 257,400)
___________ __________
Net cash used in operating activities ( 194,900) ( 179,900)
___________ __________
Investing activities:
Cash paid for asset acquisition - ( 700,000)
Redemption of investment securities,
available-for-sale 127,000 450,900
Purchase of investment securities,
available-for-sale ( 3,800) ( 25,000)
Capital expenditures ( 56,500) ( 47,100)
Purchase of other intangible assets ( 4,400) ( 2,900)
___________ __________
Net cash provided by (used in) investing
activities 62,300 ( 324,100)
___________ __________
Financing activities:
Line of credit proceeds 250,000 150,000
Line of credit repayments ( 150,000) ( 70,000)
Payments of contingent consideration ( 98,900) ( 1,100)
Proceeds from exercise of stock options 18,800 6,700
Cash dividend declared and paid - ( 107,400)
Principal payments on note payable ( 26,700) ( 58,500)
___________ __________
Net cash used in financing activities( 6,800) ( 80,300)
___________ __________
Net decrease in cash and cash equivalents ( 139,400) ( 584,300)
Cash and cash equivalents, beginning of year 493,700 927,300
___________ __________
Cash and cash equivalents, end of period $ 354,300 $ 343,000
=========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 3,500 $ 152,100
Interest 4,300 2,400
See Note 2 for non-cash investing and financing activities in
connection with an asset acquisition.
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, 2014. The results for the three
and nine months ended March 31, 2015, 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. In April 2015 the FASB proposed
a one-year deferral of the effective date of the new revenue
recognition standard. If finalized as proposed, the new guidance
will be effective for the Company's fourth quarter of fiscal 2018
and early adoption is 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
5
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 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 and
agreed to make additional cash payment based on a percentage of
net sales of the business acquired equal to 8% for the period
ending June 30, 2014 annualized, amounting to $98,900, 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 precision scales. The products are sold primarily
on a direct basis, including through the Company's
e-commerce site.
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 In
Process Research and Development ("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.
6
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 For the Nine Month
Period Ended Period Ended
March 31, 2014 March 31, 2014
___________________ __________________
Net Revenues $1,969,300 $5,703,200
Net Loss ($ 82,300) ($ 13,800)
Net income (loss) per share
- basic ($ .06) ($ .01)
Net Income (loss) per share
- diluted ($ .06) ($ .01)
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").
7
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 March 31, 2015:
Revenues $1,558,000 $ 144,600 $ 26,600 $ - $1,729,200
Foreign Sales 813,900 81,100 - - 895,000
Income(Loss)from
Operations 120,600 ( 50,400) ( 33,500) - 36,700
Assets 4,165,700 1,506,700 783,400 555,800 7,011,600
Long-Lived Asset
Expenditures 900 - 3,700 - 4,600
Depreciation and
Amortization 74,700 7,900 24,500 - 107,100
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended March 31, 2014:
Revenues $1,177,400 $ 603,900 $ 5,000 $ - $1,786,300
Foreign Sales 604,900 198,800 - - 803,700
Income(Loss)from
Operations 61,400 ( 10,600) ( 58,000) ( 69,000) ( 76,200)
Assets 4,017,100 1,847,900 873,300 674,800 7,413,100
Long-Lived Asset
Expenditures 1,454,700 11,300 1,000 - 1,467,000
Depreciation and
Amortization 32,700 8,500 24,300 - 65,500
Approximately 53% and 57% of net sales of benchtop laboratory equipment
for the three month periods ended March 31, 2015 and 2014, respectively,
were derived from the Company's main product, the Vortex-Genie 2 mixer,
excluding accessories.
Approximately 21% and 13% of total benchtop laboratory equipment sales
were derived from the Torbal Scales Division for the three months ended
March 31, 2015 and 2014, respectively.
Two benchtop laboratory equipment customers accounted for approximately
18% and 22% of the segment's net sales for the three month periods ended
March 31, 2015 and 2014 (17% and 15% of total net sales, respectively,
for the periods).
Sales of catalyst research instruments are generally pursuant to large
orders averaging more than $100,000 per order to a limited numbers of
customers. Sales to two customers in the three months ended March 31,
2015 and two different customers in the three months ended March 31,
2014, accounted respectively for 64% and 94% of the segment's net sales
for each of the periods (5% and 32% of total net sales for the
respective periods).
8
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Nine months ended March 31, 2015:
Revenues $3,891,400 $1,115,300 $ 75,700 $ - $5,082,400
Foreign Sales 1,947,400 840,300 - - 2,787,700
Loss from
Operations ( 64,700) ( 191,200) ( 118,600) - ( 374,500)
Assets 4,165,700 1,506,700 783,400 555,800 7,011,600
Long-Lived Asset
Expenditures 52,400 900 7,600 - 60,900
Depreciation and
Amortization 227,000 26,900 73,300 - 327,200
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Nine months ended March 31, 2014:
Revenues $3,401,200 $1,406,900 $ 162,100 $ - $4,970,200
Foreign Sales 2,049,100 367,100 2,000 - 2,418,200
Income(Loss)from
Operations 299,100 ( 112,500) ( 10,200) ( 79,500) 96,900
Assets 4,017,100 1,847,900 873,300 674,800 7,413,100
Long-Lived Asset
Expenditures 1,474,700 11,300 7,500 - 1,493,500
Depreciation and
Amortization 55,300 26,100 72,600 - 154,000
Approximately 50% and 63% of net sales of benchtop laboratory equipment
for the nine month periods ended March 31, 2015 and 2014, respectively,
were derived from sales of the Company's main product, the Vortex-Genie 2
mixer, excluding accessories.
Approximately 34% and 4% of total benchtop laboratory equipment sales
for the nine months ended March 31, 2015 and 2014, respectively, were
derived from sales since acquisition in February 2014 of the new Torbal
Scales Division.
Two benchtop laboratory equipment customers, accounted for approximately
28% and 21% of the segment?s net sales (13% and 14% of total net sales)
for the nine month periods ended March 31, 2015 and 2014, respectively.
Sales of catalyst research instruments to five customers in the nine
months ended March 31, 2015 and to three other customers in the nine
months ended March 31, 2014 accounted for approximately 69% and 59% of
that segment's net sales (14% and 17% of total net sales) for the
respective nine month periods.
The Company's foreign sales are principally made to customers in Europe
and Asia. The Company also has an arrangement with a supplier for
annual minimum purchase commitments through February 2020 which the
Company has already met for the current year.
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
concerning 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 valuations 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 and liabilities that were
accounted for at fair value on a recurring basis at March 31, 2015
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
March 31, 2015 Level 1 Level 2 Level 3
______________ __________ ________ ________
Cash and cash equivalents $ 354,300 $ 354,300 $ - $ -
Available for sale securities 286,000 286,000 - -
______________ __________ ________ ________
Total $ 640,300 $ 640,300 $ - $ -
============== ========== ======== ========
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 March 31, 2015 and June 30, 2014 consisted of the following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At March 31, 2015:
Available for sale:
Equity securities $ 29,300 $ 35,700 $ 6,400
Mutual funds 257,200 250,300 ( 6,900)
_________ _________ ___________
$ 286,500 $ 286,000 ($ 500)
========= ========= ===========
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:
At interim reporting periods, inventories for financial statement purposes
are based on perpetual inventory records. Components of inventory are as
follows:
March 31, June 30,
2015 2014
__________ __________
Raw Materials $1,476,700 $1,617,100
Work in process 815,200 366,200
Finished Goods 329,400 325,900
__________ __________
$2,621,300 $2,309,200
========== ==========
7. Earnings (Loss) per common share:
Basic earnings (loss) per common share are computed by dividing net
income (loss) by the weighted-average number of shares outstanding.
Diluted earnings (loss) 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 For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
____________________ __________________
2015 2014 2015 2014
_________ ___________ __________ ________
Net income (loss) $ 19,000 ($ 59,700) ($ 280,300) $ 77,500
========= =========== ========== ========
Weighted average common
shares outstanding 1,479,112 1,390,433 1,477,375 1,382,519
Effect of dilutive
securities - - - 9,741
_________ ___________ __________ _________
Weighted average dilutive
common shares outstanding 1,479,112 1,390,433 1,477,375 1,392,260
========== =========== ========== =========
Basic earnings (loss) per
common share $ .01 ($ .04) ($ .19) $ .06
======= ========= ========= =======
Diluted earnings (loss) per
common share $ .01 ($ .04) ($ .19) $ .06
======= ========= ========= =======
Approximately 51,000 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 nine
month periods ended March 31, 2015, because the effect would be anti-
dilutive.
Approximately 61,000 and 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 nine month periods ended March 31, 2014, 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
acquisitions. Goodwill amounted to $705,300 and $589,900 as of
March 31, 2015 and June 30, 2014, respectively, all of which is
deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
________ __________ ____________ _________
At March 31, 2015:
Technology, trademarks 5/10 yrs. $1,226,800 $ 590,400 $ 636,400
Trade names 6 yrs. 140,000 25,300 114,700
Websites 5 yrs. 210,000 45,500 164,500
Customer relationships 9/10 yrs. 357,000 231,600 125,400
Sublicense agreements 10 yrs. 294,000 99,200 194,800
Non-compete agreements 5 yrs. 384,000 168,600 215,400
IPR&D 3 yrs. 110,000 39,700 70,300
Other intangible assets 5 yrs. 161,900 146,200 15,700
__________ __________ __________
$2,883,700 $1,346,500 $1,537,200
========== ========== ==========
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 $86,900 and $47,500 for the three months
ended March 31, 2015 and 2014, respectively and $263,200 and $103,400 for
the nine months ended March 31, 2015 and 2014, respectively. As of March
31, 2015, estimated future amortization expense related to intangible assets
is $87,500 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 $192,100 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 catalyst
research instruments to customers' satisfaction, 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 $139,400 to $354,300 as of March
31, 2015 from $493,700 as of June 30, 2014.
Operating activities used cash of $194,900 for the nine month period
ended March 31, 2015 as compared to the $179,900 used in the nine
month period ended March 31, 2014. In the current year period cash
used in operating activities was negatively impacted by the loss
incurred, and higher amounts of work-in-progress inventories for the
Catalyst Research Instruments Operations, partially offset by advances
received from customers for orders of catalyst research instruments
and a higher amount for depreciation and amortization related to the
asset acquisition. Net cash provided by investing activities was
$62,300 for the nine months ended March 31, 2015 compared to net cash
used of $324,100 for the comparable period last year primarily due to
the cash paid for the asset acquisition last year. Net cash used in
financing activities was $6,800 for the nine months ended March 31,
2015 compared to $80,300 for the comparable prior year period
primarily because of the absence of a dividend this year, partially
off set by the contingent consideration paid with respect to the
acquisition in February 2014 of the Torbal Division assets.
The Company's working capital decreased by $154,700 to $2,987,700 as
of March 31, 2015 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, 3.17% as of
March 31, 2015 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 March 31, 2015,
$100,000 was due under this line.
14
Management believes that the Company will be able to meet its cash
flow needs during the next 12 months from its available financial
resources, including its cash and cash equivalents, the line of credit
and investment securities.
Results of Operations
Financial Overview
The Company recorded, respectively, income before income taxes of
$31,600 and a loss before income tax benefit of $373,800 for the three
and nine month periods ended March 31, 2015 compared to a loss before
income tax benefit of $79,800 and income before income taxes of
$96,900 for the three and nine month periods ended March 31, 2014.
The results included significant non-cash amounts for depreciation and
amortization expenses, of $107,100 and 327,200 for the three and nine
month periods ended March 31, 2015, respectively, compared to $65,500
and $154,000 for the three and nine month periods ended March 31,
2014, respectively, the majority of which pertained to the Torbal
Division assets.
The income for the current three month period increased compared to
the prior year's loss for the same period due to higher sales of
benchtop laboratory equipment, and the absence of acquisition costs
that were incurred in the same period last year. The loss for the
current nine month period resulted primarily from the significant
depreciation and amortization described above and facility moving
costs, along with increased losses from the Catalyst Research
Instruments Operations due to lower sales, and a higher loss by the
Bioprocessing Systems Operations compared to last year which included
an order for a profitable prototype.
The Three Months Ended March 31, 2015 Compared With the Three Months
Ended March 31, 2014
Net revenues for the three months ended March 31, 2015 decreased by
$57,100 (3.2%) to $1,729,200 from $1,786,300 for the three months
ended March 31, 2014 as a result of a $459,300 decrease in catalyst
research instrument sales, partially offset by increases of $380,600
and $21,600 in laboratory equipment sales and bioprocessing systems
revenues, respectively. Sales of benchtop laboratory equipment
products generally comprise many small 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 $1,154,000 as of March 31, 2015, most of
which is expected to be delivered by fiscal year end, as compared to
the backlog of $505,200 as of March 31, 2014. Although typically
there is no significant backlog of orders for the Benchtop Laboratory
Equipment Operations, due to production delays and increased number of
orders during the period, the Company had a backlog of such products
of approximately $300,000 as of March 31, 2015, all of which has been
fulfilled as of the date of this report.
The gross profit for the three months ended March 31, 2015 was 44.3%
compared to 39.0% for the three months ended March 31, 2014, due
primarily to sales mix and higher sales of benchtop laboratory
equipment.
15
General and administrative expenses for the three months ended March
31, 2015 decreased $27,900 (6.0%) to $433,900 compared to $461,800 for
the three months ended March 31, 2014, primarily due to the costs
incurred last year related to the asset acquisition.
Selling expenses for the three months ended March 31, 2015 increased
$4,200 (2.1%) to $202,200 from $198,000 for the three months ended
March 31, 2014, primarily the result of selling expenses incurred by
the Torbal Division of the Benchtop Laboratory Equipment Operations.
Research and development expenses for the three months ended March 31,
2015 decreased to $94,500 from $113,800 for the three months ended
March 31, 2014, primarily the result of decreased new product
development activity by the Benchtop Laboratory Equipment Operations
due to the launch of a new product during the 2015 period.
Total other expense amounted to $5,100 for the three months ended
March 31, 2015 compared to expense of $3,600 for the prior year
period.
The Company recorded income tax expense of $12,600 for the three
months ended March 31, 2015 compared to an income tax benefit of
$20,100 for the three months ended March 31, 2014.
As a result of the foregoing, net income was $19,000 for the three
months ended March 31, 2015, compared to a net loss of $59,700 for the
three months ended March 31, 2014.
Nine Months Ended March 31, 2015 Compared With the Nine Months Ended
March 31, 2014
Net revenues increased by $112,200 (2.3%) to $5,082,400 for the nine
months ended March 31, 2015 compared to $4,970,200 for the nine months
ended March 31, 2014, due to increases of $490,200 in benchtop
laboratory equipment sales; partially offset by decreases of $291,600
and $86,400 in catalyst research instrument sales and bioprocessing
product revenues. Last year the revenues generated by the
Bioprocessing Systems Operations benefitted from a one-time order for
prototype bioprocessing products of approximately $100,000. 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 Benchtop Laboratory Equipment Operations
include since, February 2014, sales of Torbal brand balances and
scales (refer to Note 4 for segment information).
The gross profit percentage for the nine months ended March 31, 2015
decreased to 38.5% compared to 42.4% for the nine months ended March
31, 2014, due principally to product mix of the Benchtop Laboratory
Equipment Operations, which include in the current year Torbal brand
products at lower gross margins.
General and administrative expenses increased by $178,400 (16.1%) to
$1,286,500 for the nine months ended March 31, 2015 from $1,108,100
for the comparable period of the prior year, due to the expenses of
the new Torbal Division of the Benchtop Laboratory Equipment
Operations, and costs associated with the move of the Company's
principal facility in November 2014.
16
Selling expenses for the nine months ended March 31, 2015 increased by
$124,100 (20.5%) to $726,900 from $602,800 for the nine months ended
March 31, 2014, primarily the result of expenses of the new Torbal
Division of the Benchtop Laboratory Equipment Operations, and higher
selling expenses for the Catalyst Research Instruments Operations.
Research and development expenses for the nine months ended March 31,
2015 increased by $15,800 (5.2%) to $317,700 from $301,900 for the
nine months ended March 31, 2014, primarily due to new product
development expenses by the Company's Bioprocessing Systems
Operations.
Total other income decreased $8,700 to $700 for the nine month period
ended March 31, 2015 compared to $9,400, for the nine month period
ended March 31, 2014 due to lower investment income and higher
interest expense.
Income tax benefit for the nine months ended March 31, 2015 was
$93,500 compared to income tax expense of $28,800 for the nine months
ended March 31, 2014 due to the losses generated in the current
period.
As a result of the foregoing, the net loss for the nine months ended
March 31, 2015 was $280,300 compared to net income of $77,500 for the
nine months ended March 31, 2014.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of
the period covered by this report, based on an evaluation of the
Company's disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the
Chief Executive and Chief Financial Officer of the Company has
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in its Exchange Act reports is recorded, processed, summarized
and reported within the applicable time periods specified by the SEC's
rules and forms. The Company also concluded that information required
to be disclosed in such reports is accumulated and communicated to the
Company's management, including its principal executive and principal
financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes in Internal Control Over Financial Reporting. There was no
change in the Company's internal controls over financial reporting
that occurred during the most recently completed fiscal quarter that
materially affected or is reasonably likely to materially affect the
Company's internal controls over financial reporting.
17
Part II B 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:
Filed on January 16, 2015 reporting under Items 1.01 and 5.07.
18
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: May 14, 2015
19