UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended September 30, 2016___
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________to_________
Commission File Number: 0-6658
__________________________________________
SCIENTIFIC INDUSTRIES, INC.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
80 Orville Drive, Suite 102, Bohemia, New York 11716
______________________________________________ ____________
(Address of principal executive offices) (Zip Code)
(631)567-4700
_________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a small reporting company.
See the definitions of "large accelerated filer," "accelerated filer" and
"small reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated Filer
Non-accelerated filer Smaller reporting company (X)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the issuer's common stock par value,
$0.05 per share, as of October 31, 2016 was 1,489,112 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income Loss 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 13
ITEM 4 CONTROLS AND PROCEDURES 15
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 17
EXHIBITS 18
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2016 2016
___________ __________
Current assets: (Unaudited)
Cash and cash equivalents $ 966,000 $1,245,000
Investment securities 292,100 290,100
Trade accounts receivable, net 1,151,700 1,231,900
Inventories 2,601,100 2,412,100
Prepaid expenses and other current
assets 211,300 47,200
Deferred taxes 125,500 140,600
__________ __________
Total current assets 5,347,700 5,366,900
Property and equipment at cost, net 233,200 251,100
Intangible assets, net 828,100 897,600
Goodwill 705,300 705,300
Other assets 52,500 52,500
Deferred taxes 274,600 275,900
__________ __________
Total assets $7,441,400 $7,549,300
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 320,400 $ 342,400
Customer advances 403,800 -
Notes payable, current portion 6,500 6,400
Accrued expenses and taxes, current
portion 526,000 849,700
Contingent consideration payable,
current portion 161,800 136,500
_________ _________
Total current liabilities 1,418,500 1,335,000
Notes payable, less current portion 10,800 12,500
Contingent consideration payable, less
current portion 67,100 209,800
Accrued expenses, less current portion 60,000 60,000
__________ __________
Total liabilities 1,556,400 1,617,300
__________ __________
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
1,508,914 outstanding at
September 30, 2016 and June 30, 2016 75,400 75,400
Additional paid-in capital 2,499,200 2,498,500
Accumulated other comprehensive income 2,000 900
Retained earnings 3,360,800 3,409,600
__________ __________
5,937,400 5,984,400
Less common stock held in treasury,
at cost, 19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,885,000 5,932,000
__________ __________
Total liabilities and
shareholders' equity $7,441,400 $7,549,300
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
For the Three Month
Periods Ended
September 30,
_______________________
2016 2015
__________ __________
Revenues $1,559,100 $1,444,500
Cost of revenues 889,500 849,400
__________ __________
Gross profit 669,600 595,100
__________ __________
Operating expenses:
General and administrative 412,400 408,200
Selling 216,800 167,000
Research and development 115,400 85,400
__________ __________
Total operating expenses 744,600 660,600
__________ __________
Loss from operations ( 75,000) ( 65,500)
__________ __________
Other income (expense):
Investment income 200 400
Other income (expense) 5,400 ( 4,700)
Interest expense ( 200) ( 8,100)
__________ ___________
Total other income (expense), net 5,400 ( 12,400)
__________ ___________
Loss before income tax expense (benefit) ( 69,600) ( 77,900)
__________ ___________
Income tax expense (benefit):
Current ( 36,300) -
Deferred 15,500 ( 17,800)
___________ __________
Total income tax benefit ( 20,800) ( 17,800)
___________ __________
Net loss ($ 48,800) ($ 60,100)
=========== ==========
Basic and diluted loss per common share ($ .03) ($ .04)
======== ========
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Month
Periods Ended
September 30,
___________________
2016 2015
_________ _________
Net loss ($ 48,800) ($ 60,100)
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax 1,100 ( 3,800)
__________ __________
Comprehensive loss ($ 47,700) ($ 63,900)
========== ==========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2016 Sept. 30, 2015
______________ ______________
Operating activities:
Net loss ($ 48,800) ($ 60,100)
___________ ___________
Adjustments to reconcile net loss
to net cash used in operating activities:
Loss on asset disposal - 2,700
Depreciation and amortization 95,700 105,200
Deferred income taxes 15,500 ( 17,800)
Stock-based compensation 700 600
Changes in operating assets and liabilities:
Accounts receivable 80,200 344,300
Inventories ( 189,000) ( 130,100)
Prepaid expenses and other
current assets ( 164,100) ( 76,700)
Accounts payable ( 22,000) ( 26,500)
Customer advances 403,800 17,100
Accrued expenses and taxes ( 323,700) ( 203,100)
__________ ___________
Total adjustments ( 102,900) 15,700
__________ ___________
Net cash used in
operating activities ( 151,700) ( 44,400)
__________ ___________
Investing activities:
Capital expenditures - ( 6,500)
Purchases of intangible assets ( 8,400) -
__________ ___________
Net cash used in
investing activities ( 8,400) ( 6,500)
__________ ___________
Financing activities:
Line of credit proceeds - 200,000
Payment of contingent consideration ( 117,400) ( 100,900)
Principal payments on note payable ( 1,500) -
__________ ___________
Net cash provided by (used in)
financing activities ( 118,900) 99,100
__________ ___________
See notes to unaudited condensed consolidated financial statements
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2016 Sept. 30, 2015
______________ ______________
Net increase (decrease) in cash and
cash equivalents ( 279,000) 48,200
Cash and cash equivalents,
beginning of year` 1,245,000 482,000
__________ __________
Cash and cash equivalents, end of period $ 966,000 $ 530,200
__________ __________
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $186,000 $ 18,500
Interest 200 4,400
See notes to unaudited condensed consolidated financial statements
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim condensed consolidated
financial statements are prepared pursuant to the Securities
and Exchange Commission's rules and regulations for reporting
on Form 10-Q. Accordingly, certain information and footnotes
required by accounting principles generally accepted in the
United States for complete financial statements are not
included herein. The Company believes all adjustments
necessary for a fair presentation of these interim statements
have been included and that they are of a normal and
recurring nature. These interim statements should be read in
conjunction with the Company's financial statements and notes
thereto, included in its Annual Report on Form 10-K, for the
fiscal year ended June 30, 2016. The results for the three
months ended September 30, 2016, are not necessarily an
indication of the results for the full fiscal year ending
June 30, 2017.
1. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of Scientific Industries, Inc., Scientific Packaging Industries, Inc.,
an inactive wholly-owned subsidiary, Altamira Instruments, Inc.
("Altamira"), a Delaware corporation and wholly-owned subsidiary, and
Scientific Bioprocessing, Inc. ("SBI"), a Delaware corporation and
wholly-owned subsidiary, (all collectively referred to as the
"Company"). All material intercompany balances and transactions have
been eliminated.
2. New Accounting Pronouncements:
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock
Compensation(Topic 718): Improvements to Employee Share-Based Payment
Accounting" (ASU 2016-09). Areas for simplification in this update involve
several aspects of accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. ASU
2016-09 is effective for interim and annual reporting periods beginning after
December 15, 2016, with early application permitted. The Company is currently
evaluating the timing, impact and method of applying this guidance on its
consolidated financial statements.
In February 2016, the FASB issued authoritative guidance that requires
lessees to account for most leases on their balance sheets with the
liability being equal to the present value of the lease payments. The right-
of-use asset will be based on the lease liability adjusted for certain costs
such as direct costs. Lease expense will be recognized similar to current
accounting guidance with operating leases resulting in a straight-line
expense and financing leases resulting in a front-loaded expense similar to
the current accounting for capital leases. This guidance becomes effective
for the Company's fiscal 2020 first quarter, with early adoption permitted.
This guidance must be adopted using a modified retrospective transition
approach for leases that exist or are entered into after the beginning of the
6
earliest comparative period in the financial statements, and provides for
certain practical expedients. The Company is currently evaluating the timing,
impact and method of applying this guidance on its consolidated financial
statements.
In November 2015, the FASB issued new guidance simplifying the balance sheet
classification of deferred taxes. The new guidance requires that deferred
tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. The current requirement that deferred tax
liabilities and assets of a tax-paying component of an entity be offset and
presented as a single amount is not affected by the new guidance. The
guidance is effective for public companies for interim and annual reporting
periods beginning after December 15, 2016, with early adoption permitted as
of the beginning of an interim or annual reporting period. The new guidance
may be applied either prospectively to all deferred tax liabilities and
assets or retrospectively to all periods presented. The Company does not
expect the adoption to have a material impact on its financial condition,
results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory: Simplifying the
Measurement of Inventory", that requires inventory not measured using either
the last in, first out (LIFO) or the retail inventory method to be measured
at the lower of cost and net realizable value. Net realizable value is the
estimated selling prices in the ordinary course of business, less reasonably
predictable cost of completion, disposal and transportation. The new standard
will be effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years, and will be applied
prospectively. Early adoption is permitted. The Company does not expect the
adoption to have a material impact on its financial condition, results of
operations or cash flows.
In May 2014, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with
Customers amending revenue recognition requirements for multiple-
deliverable revenue arrangements. This update provides guidance on how
revenue is recognized to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for the goods or services. This
determination is made in five steps: (i) identify the contract with the
customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price
to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. In July 2015,
the FASB deferred the effective date to fiscal years beginning after
December 15, 2018 and early adoption of the standard is permitted, but not
before the original effective date of December 15, 2017. The Company is
evaluating the effect this guidance will have on the consolidated financial
statements and related disclosures.
3. Segment Information and Concentrations:
The Company views its operations as three segments: the manufacture and
marketing of standard benchtop laboratory equipment including the balances
and scales by its Torbal Scales Division for research in university,
hospital and industrial laboratories sold primarily through laboratory
equipment distributors and on a direct basis ("Benchtop Laboratory
Equipment"), the manufacture and marketing of custom-made catalyst research
7
instruments for universities, government laboratories, and chemical and
petrochemical companies sold on a direct basis ("Catalyst Research
Instruments") and the design and marketing of bioprocessing systems for
laboratory research in the biotechnology industry sold directly to
customers and through distributors and related royalty income
("Bioprocessing Systems").
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 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
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 2015:
Revenues $1,263,000 $ 153,000 $ 28,500 $ - $1,444,500
Foreign Sales 599,000 7,800 - - 606,800
Income (Loss) from
Operations 54,700 ( 82,000) ( 30,100) ( 8,100) ( 65,500)
Assets 4,056,400 1,613,200 730,700 564,400 6,964,700
Long-Lived Asset
Expenditures 6,500 - - - 6,500
Depreciation and
Amortization 73,800 6,900 24,500 - 105,200
Approximately 49% and 47% of net sales of benchtop laboratory equipment
for the three month periods ended September 30, 2016 and 2015, respectively,
were derived from the Company's main product, the Vortex-Genie 2(R) mixer,
excluding accessories.
Approximately 26% and 21% of total benchtop laboratory equipment sales were
derived from the Torbal Scales Division for the three months ended September
30, 2016 and 2015, respectively.
8
For the three months ended September 30, 2016, and 2015, respectively, two
customers accounted in the aggregate for approximately 16% and 13% of net
sales of the Benchtop Laboratory Equipment Operations (15% and 11% of the
Company's total revenues). Sales of catalyst research instruments generally
comprise a few very large orders averaging at least $100,000 per order to a
limited number of customers, who differ from order to order. Sales to one
customer (who differed from period-to-period) during the three months ended
September 30, 2016 and 2015, accounted respectively, for approximately 57%
and 76% of the Catalyst Research Instrument Operations' revenues and 3% and
8% of the Company's total revenues, respectively.
4. 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.
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, 2016 and June 30, 2016 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, 2016 Level 1 Level 2 Level 3
______________ __________ _______ ________
Assets:
Cash and cash equivalents $ 966,000 $ 966,000 $ - $ -
Available for sale securities 292,100 292,100 - -
__________ __________ _______ ________
Total $1,258,100 $1,258,100 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 228,900 $ - $ - $228,900
========== ========== ======= ========
9
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2016 Level 1 Level 2 Level 3
______________ __________ _______ ________
Assets:
Cash and cash equivalents $1,245,000 $1,245,000 $ - $ -
Available for sale securities 290,100 290,100 - -
__________ __________ _______ ________
Total $1,535,100 $1,535,100 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 346,300 $ - $ - $346,300
========== ========== ======= ========
The following table sets forth an analysis of changes during the three months
ended September 30, 2016, Level 3 financial liabilities of the Company:
Beginning balance, June 30, 2016 $346,300
Payments (117,400)
_________
Ending Balance, September 30, 2016 $228,900
=========
Investments in marketable securities classified as available-for-sale by
security type at September 30, 2016 and June 30, 2016 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At September 30, 2016:
Available for sale:
Equity securities $ 29,300 $ 41,500 $ 12,200
Mutual funds 260,800 250,600 (10,200)
__________ _________ __________
$ 290,100 $ 292,100 $ 2,000
========== ========= ==========
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2016:
Available for sale:
Equity securities $ 29,300 $ 40,700 $ 11,400
Mutual funds 259,900 249,400 (10,500)
__________ _________ __________
$ 289,200 $ 290,100 $ 900
========== ========= ==========
5. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at September 30, 2016 and based on a physical count as
of June 30, 2016. Components of inventory are as follows:
September 30, June 30,
2016 2016
_____________ ___________
Raw materials $1,502,800 $1,529,800
Work in process 774,000 425,300
Finished goods 324,300 457,000
__________ __________
$2,601,100 $2,412,100
========== ==========
10
6. Loss per common share:
Basic loss per common share is computed by dividing net loss by the
weighted-average number of shares outstanding. Diluted earnings per
common share include the dilutive effect of stock options, if any.
Loss per common share was computed as follows:
For the Three Month
Periods Ended
September 30,
___________________________
2016 2015
_____________ _____________
Net loss ($ 48,800) ($ 60,100)
============= =============
Weighted average common
shares outstanding 1,489,112 1,489,112
========= =========
Weighted average dilutive
common shares outstanding 1,489,112 1,489,112
========= =========
Basic loss per
common share ($ .03) ($ .04)
======== ========
Diluted loss per
common share ($ .03) ($ .04)
======== ========
Approximately 43,500 and 38,500 shares of the Company's Common Stock
issuable upon the exercise of outstanding options were excluded from the
calculation of diluted loss per common share, for the three months ended
September 30, 2016 and 2015, because the effect would be anti-dilutive due
to the loss for each period.
7. Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the fair value
of the net assets acquired in connection with the Company's acquisition of
Altamira and SBI's acquisition of assets. Goodwill amounted to $705,300
as of September 30, 2016 and June 30, 2016, all of which is expected to be
deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
_________ __________ ____________ _________
At September 30, 2016:
Technology, trademarks 5/10 yrs. $ 722,800 $ 489,900 $ 232,900
Trade names 6 yrs. 140,000 60,200 79,800
Websites 5 yrs. 210,000 108,500 101,500
Customer relationships 9/10 yrs. 357,000 269,200 87,800
Sublicense agreements 10 yrs. 294,000 143,300 150,700
Non-compete agreements 5 yrs. 384,000 253,200 130,800
Intellectual Property, Research
and Development(IPR&D) 3 yrs. 110,000 94,700 15,300
Other intangible assets 5 yrs. 186,300 157,000 29,300
__________ __________ __________
$2,404,100 $1,576,000 $ 828,100
========== ========== ==========
11
Useful Accumulated
Lives Cost Amortization Net
_________ __________ _____________ _________
At June 30, 2016:
Technology, trademarks 5/10 yrs. $ 722,800 $ 468,800 $ 254,000
Trade names 6 yrs. 140,000 54,400 85,600
Websites 5 yrs. 210,000 98,000 112,000
Customer relationships 9/10 yrs. 357,000 261,600 95,400
Sublicense agreements 10 yrs. 294,000 136,000 158,000
Non-compete agreements 5 yrs. 384,000 239,100 144,900
Intellectual Property, Research
and Development(IPR&D) 3 yrs. 110,000 85,500 24,500
Other intangible assets 5 yrs. 177,900 154,700 23,200
__________ __________ _________
$2,395,700 $1,498,100 $ 897,600
========== ========== =========
Total amortization expense was $77,900 and $86,300 for the three months
ended September 30, 2016 and 2015, respectively. As of September 30, 2016,
estimated future amortization expense related to intangible assets is
$219,400 for the remainder of the fiscal year ending June 30, 2017, $288,500
for fiscal 2018, $210,600 for fiscal 2019, $45,100 for fiscal 2020, $43,500
for fiscal 2021, and $21,000 thereafter.
12
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical facts,
but are forward-looking statements that are based upon various assumptions
about future conditions. Actual events in the future could differ materially
from those described in the forward-looking information. Numerous unknown
factors and future events could cause such differences, including but not
limited to, product demand, market acceptance, impact of competition, the
ability to reach final agreements, the ability to finance and produce to
customers' specifications for catalyst research instruments, and to develop
marketable bioprocessing systems, adverse economic conditions, and other
factors affecting the Company's business that are beyond the Company's control.
Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $279,000 to $966,000 as of September 30,
2016 from $1,245,000 as of June 30, 2016.
Net cash used in operating activities was $151,700 for the three months ended
September 30, 2016 as compared to $44,400 for the comparable three month period
in 2015, reflecting lower accounts receivable balances, increased prepayments
to vendors, decreased accrued expense items, partially offset by increased
advances from customers for catalyst research instrument orders. Cash used in
investing activities was $8,400 for the three month period ended September 30,
2016 compared to $6,500 for the three month period ended September 30, 2015.
Cash used in financing activities was $118,900 for the three months ended
September 30, 2016 compared to cash provided of $99,100 for the three months
ended September 30, 2015 because of the proceeds received under the line of
credit in the prior year.
The Company's working capital decreased by $102,700 to $3,929,200 at September
30, 2016 from $4,031,900 at June 30, 2016.
The Company has two lines of credit through June 2017 with First National Bank
of Pennsylvania - an Export-Related Revolving Line of Credit which is
guaranteed by the Export-Import Bank of the United States which provides for
export-related borrowings of up to $200,000, bearing interest at prime plus 1%
and an annual fee of 1.75% and a second one-year Demand Line of Credit
which provides for borrowings of up to $300,000 for regular working capital
needs, bearing interest at prime, currently 3.50%. Advances on both lines 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, 2016 no borrowings were outstanding under either line.
Management believes that the Company will be able to meet its cash flow needs
during the next 12 months from its available financial resources which include
its cash and investment securities, lines of credit, and operations.
13
Results of Operations
Financial Overview
The Company incurred a loss of $69,600 before income tax benefit for the three
months ended September 30, 2016 compared to a loss of $77,900 before income tax
benefit for the comparable period last year, the improvement is primarily due
to higher sales and margins generated by the Benchtop Laboratory Equipment
Operations. The result included non-cash amounts for depreciation and
amortization of $95,700 and $105,200 for the three months ended September 30,
2016 and 2015, respectively.
The Three Months Ended September 30, 2016 Compared With the Three Months Ended
September 30, 2015
Revenues for the three months ended September 30, 2016 increased by $114,600
(7.9%) to $1,559,100 from $1,444,500 for the three months ended September 30,
2015, primarily as a result of a $193,800 increase in benchtop laboratory
equipment sales. Sales of catalyst research instruments, and bioprocessing
revenues decreased by $75,500 and $3,700 respectively. Catalyst research
instruments are sold pursuant to a small number of larger orders, typically
averaging over $100,000 each, resulting in significant swings in revenues, and
the Bioprocessing Systems Operations' revenues consist primarily of earned
royalties. The backlog of orders for catalyst research instruments was
$1,167,000 as of September 30, 2016, substantially all of which is expected to
be delivered by fiscal year end, as compared to the backlog as of September 30,
2015 of $2,944,000.
The gross profit percentage for the three months ended September 30, 2016
increased to 42.9% compared to 41.2% for the three months ended September 30,
2015, primarily due to higher sales for the Benchtop Laboratory Equipment
Operations.
General and administrative expenses for the three months ended September 30,
2016 amounted to $412,400 compared to $408,200 for the three months ended
September 30, 2015.
Selling expenses for the three months ended September 30, 2016 increased
$49,800 (29.8%) to $216,800 from $167,000 for the three months ended September
30, 2015, primarily the result of increased advertising expenses for benchtop
laboratory equipment and trade show expense for the Catalyst Research
Instruments Operations.
Research and development expenses for the three months ended September 30, 2016
increased by $30,000 (35.1%) to $115,400 from $85,400 for the three months
ended September 30, 2015, due primarily to increased new product development
activity by the Benchtop Laboratory Equipment Operations.
Total other income was $5,400 for the three month period ended September 30,
2016 compared to $12,400 expense for the three month period ended September 30,
2015 due to miscellaneous income items in the current year and reduced interest
expense.
For the three months ended September 30, 2016, the income tax benefit was
$20,800 compared to income tax benefit of $17,800 for the three months ended
September 30, 2015.
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As a result, the net loss for the three months ended September 30, 2016 was
$48,800 compared to a net loss of $60,100 for the three months ended September
30, 2015.
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.
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Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
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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: November 14, 2016
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