SCIENTIFIC INDUSTRIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY
REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended
December 31,
2019
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
transition period from ________to________
Commission file number 0-6658
SCIENTIFIC INDUSTRIES, INC.
(Exact
Name of Registrant in Its Charter)
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Delaware
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04-2217279
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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80 Orville Drive, Suite 102, Bohemia, New York
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11716
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(Address of principal executive offices)
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(Zip Code)
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(631) 567-4700
(Registrant’s telephone number, including area
code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for
the past 90 days.
☒
Yes
☐
No
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
☒
Yes
☐
No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
☐
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Accelerated filer
☐
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Non-accelerated filer
☐
(Do
not check if a smaller reporting company)
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Smaller reporting company
☒
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Emerging Growth
☐
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Indicate
by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act)
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Yes
☐
No
☒
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The
number of shares outstanding of the registrant’s common
stock, par value $.05 per share (“Common Stock”) as of
February 7, 2020 is 1,502,773 shares.
SCIENTIFIC INDUSTRIES, INC.
Table
of Contents
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PART I - Financial Information
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CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Condensed
Consolidated Balance Sheets
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2
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Condensed
Consolidated Statements of Operations
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3
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Condensed
Consolidated Statements of Comprehensive Income (Loss)
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4
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Condensed
Consolidated Statements of Changes in Shareholders’
Equity
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5
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Condensed
Consolidated Statements of Cash Flows
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6
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Notes
to Unaudited Condensed Consolidated Financial
Statements
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7
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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16
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CONTROLS
AND PROCEDURES
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18
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PART II - Other Information
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OTHER
INFORMATION
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EXHIBITS
AND REPORTS ON FORM 8-K
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18
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19
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PART I – FINANCIAL INFORMATION
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
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December 31, 2019
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June 30, 2019
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Current
assets:
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(Unaudited)
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Cash and cash
equivalents
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$
1,044,000
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$
1,602,500
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Investment
securities
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345,200
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330,900
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Trade accounts
receivable, less allowance for doubtful accounts of $11,600
at
December 31, 2019
and $15,000 at June 30, 2019
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1,812,500
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1,974,200
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Inventories
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3,003,800
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2,592,300
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Prepaid expenses
and other current assets
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62,500
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91,200
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Total current
assets
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6,268,000
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6,591,100
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Property and
equipment, net
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309,400
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318,800
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Intangible assets,
net
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143,200
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175,000
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Goodwill
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705,300
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705,300
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Other
assets
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56,000
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54,700
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Deferred
taxes
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451,200
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431,100
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Operating lease
right-of-use assets
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930,700
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-
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Total
assets
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$
8,863,800
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$
8,276,000
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
474,700
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$
569,000
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Accrued expenses
and taxes
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338,500
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608,300
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Contract
liabilities
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104,000
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-
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Contingent
consideration, current portion
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268,000
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268,000
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Bank
overdraft
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-
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140,000
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Current portion of
operating lease liabilities
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142,700
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-
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Total current
liabilities
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1,327,900
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1,585,300
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Contingent
consideration payable, less current portion
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350,000
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350,000
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Operating lease
liabilities, less current portion
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855,400
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-
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Total
liabilities
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2,533,300
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1,935,300
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Shareholders’
equity:
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Common stock, $.05
par value; authorized 7,000,000 shares; issued 1,522,575 and
1,513,914 shares, and 1,502,773 and 1,494,112 shares outstanding at
December 31, 2019 and June 30, 2019
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76,100
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75,700
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Additional paid-in capital
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2,634,700
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2,592,700
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Retained earnings
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3,672,100
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3,724,700
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6,382,900
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6,393,100
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Less common stock
held in treasury at cost, 19,802 shares
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52,400
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52,400
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Total
shareholders’ equity
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6,330,500
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6,340,700
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Total liabilities
and shareholders’ equity
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$
8,863,800
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$
8,276,000
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2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For
the Three
Month
Period
Ended
December
31,
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For
the Three
Month
Period
Ended
December
31,
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For
the Six
Month
Period
Ended
December
31,
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For
the Six
Month
Period
Ended
December
31,
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2019
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2018
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2019
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2018
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Revenues
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$
2,272,300
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$
2,163,200
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$
4,276,500
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$
4,201,800
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Cost of
revenues
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1,180,800
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1,187,500
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2,204,600
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2,280,400
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Gross
profit
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1,091,500
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975,700
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2,071,900
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1,921,400
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Operating
expenses:
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General and
administrative
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510,100
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462,100
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1,020,300
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878,600
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Selling
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330,500
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248,200
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639,600
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484,300
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Research and
development
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260,000
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109,400
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496,600
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226,700
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Total operating
expenses
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1,100,600
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819,700
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2,156,500
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1,589,600
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Income (loss) from
operations
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(9,100
)
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156,000
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(84,600
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331,800
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Other income
(expense):
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Interest income
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9,200
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2,500
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9,700
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2,800
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Other income (expense), net
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2,900
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(9,300
)
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2,200
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(7,400
)
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Interest expense
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-
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(400
)
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(800
)
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Total other income (expense), net
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12,100
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(7,200
)
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11,900
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(5,400
)
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Income (loss)
before income tax expense (benefit)
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3,000
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148,800
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(72,700
)
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326,400
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Income tax expense
(benefit):
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Current
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-
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24,400
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-
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53,900
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Deferred
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(600
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6,000
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(20,100
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12,000
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Total income tax expense (benefit)
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(600
)
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30,400
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(20,100
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65,900
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Net income
(loss)
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$
3,600
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$
118,400
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$
(52,600
)
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$
260,500
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Basic earnings
(loss) per common share
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$
.00
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$
.08
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$
(.04)
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$
.17
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Diluted earnings
(loss) per common share
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$
.00
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$
.08
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$
(.04)
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$
.17
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Cash dividends
declared per common share
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$
.00
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$
.05
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$
.00
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$
.05
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See
notes to unaudited condensed consolidated financial
statements.
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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For
the Three Month Period Ended December 31, 2019
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For
the Three Month Period Ended December 31, 2018
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For
the
Six Month
Period Ended December 31, 2019
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For
the
Six Month
Period Ended December 31, 2018
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Net income
(loss)
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$
3,600
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$
118,400
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$
(52,600
)
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$
260,500
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Other comprehensive
loss:
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Unrealized holding loss
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arising during period,
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net of tax
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-
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(2,900
)
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-
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(21,000
)
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Comprehensive
income (loss)
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$
3,600
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$
115,500
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$
(52,600
)
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$
239,500
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See
notes to unaudited condensed consolidated financial
statements.
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (UNAUDITED)
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Additional
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Accumulated
Other
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Total
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Common
Stock
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Paid-in
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Comprehensive
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Retained
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Treasury
Stock
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Shareholders’
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Fiscal Year
2020:
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Shares
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Amount
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Capital
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Gain
(Loss)
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Earnings
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Shares
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Amount
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Equity
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Balance, July 1,
2019
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1,513,914
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$
75,700
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$
2,592,700
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$
-
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$
3,724,700
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19,802
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$
52,400
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$
6,340,700
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Net
loss
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-
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-
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-
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-
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(56,200
)
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-
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-
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(56,200
)
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Stock options
exercised
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2,000
|
100
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6,900
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-
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-
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-
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-
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7,000
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Stock-based
compensation
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-
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-
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17,700
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-
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-
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-
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-
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17,700
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Balance, September
30, 2019
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1,515,914
|
75,800
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2,617,300
|
-
|
3,668,500
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19,802
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52,400
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6,309,200
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Net
income
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-
|
-
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-
|
-
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3,600
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-
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-
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3,600
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Stock options
exercised
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6,661
|
300
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(300
)
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-
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-
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-
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-
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-
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Stock-based
compensation
|
-
|
-
|
17,700
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-
|
-
|
-
|
-
|
17,700
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|
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|
|
|
|
|
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Balance, December
31, 2019
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1,522,575
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$
76,100
|
$
2,634,700
|
$
-
|
$
3,672,100
|
19,802
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$
52,400
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$
6,330,500
|
|
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Additional
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Accumulated
Other
|
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Total
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||
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Common
Stock
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Paid-in
|
Comprehensive
|
Retained
|
Treasury
Stock
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Shareholders’
|
||
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Fiscal Year
2019:
|
Shares
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Amount
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Capital
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Gain
(Loss)
|
Earnings
|
Shares
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Amount
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Equity
|
|
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|
|
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Balance, July 1,
2018
|
1,513,914
|
$
75,700
|
$
2,545,900
|
$
1,200
|
$
3,131,800
|
19,802
|
$
52,400
|
$
5,702,200
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect
of the adoption of
|
-
|
-
|
-
|
|
22,000
|
|
|
22,000
|
|
ASU 2016-01 –
Financial Instruments
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
income
|
-
|
-
|
-
|
-
|
142,000
|
-
|
-
|
142,000
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
declared, $.05
|
-
|
-
|
-
|
-
|
(74,700
)
|
-
|
-
|
(74,700
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
loss on investment securities, net of tax
|
-
|
-
|
-
|
(18,100
)
|
-
|
-
|
-
|
(18,100
)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
8,700
|
-
|
-
|
-
|
-
|
8,700
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September
30, 2018
|
1,513,914
|
75,700
|
2,554,600
|
(16,900
)
|
3,221,100
|
19,802
|
52,400
|
5,782,100
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
118,400
|
-
|
-
|
118,400
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
loss on investment securities, net of tax
|
-
|
-
|
-
|
(2.900
)
|
-
|
-
|
-
|
(2,900
)
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
9,500
|
-
|
-
|
-
|
-
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2018
|
1,513,914
|
$
75,700
|
$
2,564,100
|
$
(19,800
)
|
$
3,339,500
|
19,802
|
$
52,400
|
$
5,907,100
|
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the Six Month Period Ended December 31,
|
For
the Six Month Period Ended December 31,
|
|
|
2019
|
2018
|
|
Operating
activities:
|
|
|
|
Net income
(loss)
|
$
(52,600
)
|
$
260,500
|
|
Adjustments
to reconcile net income (loss) provided by (used in) operating
activities:
|
|
|
|
Gain
(loss) on sale of investments
|
(3,100
)
|
5,000
|
|
Unrealized
holding gain (loss) on investments
|
(1,200
)
|
3,300
|
|
Depreciation
and amortization
|
82,400
|
151,900
|
|
Deferred
income taxes
|
(20,100
)
|
7,100
|
|
Stock-based
compensation
|
35,400
|
18,200
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
161,700
|
227,600
|
|
Contract
assets
|
-
|
216,400
|
|
Inventories
|
(411,500
)
|
(456,000
)
|
|
Right - of- use
assets
|
(930,700
)
|
-
|
|
Prepaid and other
current assets
|
27,400
|
(67,900
)
|
|
Lease
liabilities
|
998,100
|
-
|
|
Accounts
payable
|
(94,300
)
|
142,700
|
|
Contract
liabilities
|
104,000
|
50,500
|
|
Accrued expenses
and taxes
|
(409,600
)
|
(162,000
)
|
|
|
|
|
|
Total
adjustments
|
(461,500
)
|
136,800
|
|
|
|
|
|
Net cash provided
by (used in) operating activities
|
(514,100
)
|
397,300
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Redemption
of investment securities
|
51,900
|
75,100
|
|
Purchase of
investment securities
|
(61,800
)
|
(75,200
)
|
|
Capital
expenditures
|
(34,100
)
|
(7,900
)
|
|
Purchase of other
intangible assets
|
(7,400
)
|
(6,300
)
|
|
|
|
|
|
Net cash used in
investing activities
|
(51,400
)
|
(14,300
)
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Proceeds
from stock options exercised
|
7,000
|
-
|
|
Cash
dividend declared and paid
|
-
|
(74,700
)
|
|
Principal
payments on notes payable
|
-
|
(3,300
)
|
|
|
|
|
|
Net cash provided
by (used in) financing activities
|
7,000
|
(78,000
)
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
(558,500
)
|
305,000
|
|
|
|
|
|
Cash and cash
equivalents, beginning of year
|
1,602,500
|
1,053,100
|
|
|
|
|
|
Cash and cash
equivalents, end of period
|
$
1,044,000
|
$
1,358,100
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$
37,900
|
$
39,700
|
|
Interest
|
-
|
800
|
|
|
|
|
|
Non-cash financing
activities:
|
|
|
|
Issuance of 6,661
shares of the Company's Common Stock in cashless stock option
exercises during the three and six months ended December 31,
2019.
|
|
|
See
notes to unaudited condensed consolidated financial
statements.
6
|
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, 2019. The results for the three and six months
ended December 31, 2019, are not necessarily an indication of the
results for the full fiscal year ending June 30, 2020.
|
1.
Summary of Significant
Accounting Policies
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of Scientific Industries, Inc., Altamira Instruments, Inc.
(“Altamira”), a Delaware corporation and wholly-owned
subsidiary, and Scientific Bioprocessing, Inc. (“SBI”),
a Delaware corporation and wholly-owned subsidiary, and Scientific
Packaging Industries, Inc., an inactive wholly-owned subsidiary
(all collectively referred to as the “Company”). All
material intercompany balances and transactions have been
eliminated.
Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No.
2016-02,
Leases
,
which replaces previous lease guidance in its entirety with ASC 842
and requires lessees to recognize lease assets and lease
liabilities for those arrangements classified as operating leases
under previous guidance, with the exception of leases with a term
of twelve months or less. The Company adopted ASU No. 2016-02 on
July 1, 2019 using the additional transition method, which allows
prior periods to be presented under previous lease accounting
guidance. Refer to Note 8, "Leases", for related
disclosures.
R
Recent
Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, "Fair Value
Measurement (Topic 820): Disclosure Framework Changes to the
Disclosure Requirements for Fair Value Measurement", which is part
of the FASB disclosure framework project to improve the
effectiveness of disclosures in the notes to the financial
statements. The amendments in the new guidance remove, modify, and
add certain disclosure requirements related to fair value
measurements covered in Topic 820, "Fair Value Measurement". The
new standard is effective for fiscal years beginning after December
15, 2019. Early adoption is permitted for either the entire
standard or only the requirements that modify or eliminate the
disclosure requirements, with certain requirements applied
prospectively, and all other requirements applied retrospectively
to all periods presented. We are currently evaluating the impact of
adopting this guidance.
2.
Revenue
The
Company records revenues in accordance with Accounting Standards
Codification (“ASC”) Topic 606 “Revenue from
Contracts with Customers, as amended” (“ASC Topic
606”). In accordance with ASC Topic 606, the Company accounts
for a customer contract when both parties have approved the
contract and are committed to perform their respective obligations,
each party’s rights can be identified, payment terms can be
identified, the contract has commercial substance, and it is
probable that the Company will collect substantially all of the
consideration to which it is entitled. Revenue is recognized when,
or as, performance obligations are satisfied by transferring
control of a promised product or service to a
customer.
Nature of Products and Services
We
generate revenues from the following sources: (1) Benchtop
Laboratory Equipment, (2) Catalyst Research Instruments and (3)
Royalties.
7
The
following table summarizes the Company’s disaggregation of
revenues for the three and six months ended December 31, 2019 and
2018.
|
|
Benchtop Laboratory
Equipment
|
Catalyst Research
Instruments
|
Bioprocessing
Systems
|
Consolidated
|
|
Three Months Ended
December 31, 2019:
|
|
|
|
|
|
Revenues
|
$
1,943,400
|
$
39,500
|
$
289,400
|
$
2,272,300
|
|
Foreign
Sales
|
855,800
|
10,200
|
289,400
|
1,155,400
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2018:
|
|
|
|
|
|
Revenues
|
$
1,803,100
|
$
227,200
|
$
132,900
|
$
2,163,200
|
|
Foreign
Sales
|
743,600
|
222,900
|
128,600
|
1,095,100
|
|
|
Benchtop Laboratory
Equipment
|
Catalyst Research
Instruments
|
Bioprocessing
Systems
|
Consolidated
|
|
Six Months Ended
December 31, 2019:
|
|
|
|
|
|
Revenues
|
$
3,519,600
|
$
178,200
|
$
578,700
|
$
4,276,500
|
|
Foreign
Sales
|
1,253,400
|
81,900
|
578,700
|
1,914,000
|
|
Six Months Ended
December 31, 2018:
|
|
|
|
|
|
Revenues
|
$
3,495,100
|
$
444,600
|
$
262,100
|
$
4,201,800
|
|
Foreign
Sales
|
1,379,300
|
365,200
|
257,100
|
2,001,600
|
Benchtop
Laboratory Equipment sales are comprised primarily of standard
benchtop laboratory equipment from its stock to laboratory
equipment distributors, or to end users primarily via e-commerce.
The sales cycle from time of receipt of order to shipment is very
short varying from a day to a few weeks. Customers either pay by
credit card (online sales) or net 30-90, depending on the customer.
Once the item is shipped under the FOB terms specified in the
order, which is primarily “FOB Factory”, other than a
standard warranty, there are no other obligations to the customer.
The standard warranty is typically comprised of one to two years of
parts and labor and is deemed immaterial.
Catalyst
Research Instrument sales are comprised primarily of large
instruments which begin with a standard model and then are
customized to a customer’s specifications. The sales cycle
can be quite long, typically ranging from one to three months, from
the time an order is received to the time the instrument is shipped
to the customer. Payment terms vary from customer to customer and
can include advance payments which are recorded as contract
liabilities. Some contracts call for training and installation,
which is considered ancillary and not a material part of the
contract. Due to the size and nature of the instruments, the
Company subjects the instruments to an extensive factory acceptance
testing process prior to shipment to ensure that they are fully
operational once they reach the customer’s site. Normally,
the Company warrantees its instruments for a period of twelve
months for parts and labor which normally consists of replacement
of small components or software support. Catalyst research
instruments are never returned for repairs.
Royalty
revenues pertain to royalties earned by the Company, which are paid
on a calendar year basis, under a licensing agreement from a single
licensee and its sublicenses. The Company is then obligated to pay
50% of all royalties received to the entity that licenses the
intellectual property to the Company. During the year, the
Company’s management uses its best judgement to estimate the
royalty revenues earned during the period.
The
Company determines revenue recognition through the following
steps:
|
|
●
|
Identification
of the contract, or contracts, with a customer
|
|
|
●
|
Identification
of the performance obligations in the contract
|
|
|
●
|
Determination
of the transaction price
|
|
|
●
|
Allocation
of the transaction price to the performance obligations in the
contract
|
|
|
●
|
Recognition
of revenue when, or as, a performance obligation is
satisfied
|
The Company has made the following accounting policy elections and
elected to use certain practical expedients, as permitted by the
FASB, in applying ASC Topic 606: 1) all revenues are recorded net
of returns, allowances, customer discounts, and incentives; 2)
although sales and other taxes are immaterial, the Company accounts
for amounts collected from customers for sales and other taxes, if
any, net of related amounts remitted to tax authorities; 3) the
Company expenses costs to obtain a contract as they are incurred if
the expected period of benefit, and therefore the amortization
period, is one year or less; 4) the Company accounts for shipping
and handling activities that occur after control transfers to the
customer as a fulfillment cost rather than an additional promised
service and these fulfillment costs fall within selling expenses;
5) the Company is always considered the principal and never an
agent, because it has full control and responsibility until title
is transferred to the customer; 6) the Company does not assess
whether promised goods or services are performance obligations if
they are immaterial in the context of the contract with the
customer such as is the case with catalyst
instruments.
8
3.
Segment Information and
Concentrations
The
Company views its operations as three segments: the manufacture and
marketing of standard benchtop laboratory equipment for research in
university, hospital and industrial laboratories sold primarily
through laboratory equipment distributors and laboratory and
pharmacy balances and scales (“Benchtop Laboratory Equipment
Operations”), the manufacture and marketing of custom-made
catalyst research instruments for universities, government
laboratories, and chemical and petrochemical companies sold on a
direct basis (“Catalyst Research Instruments
Operations”) and the design and marketing of bioprocessing
systems and products and related royalty income
(“Bioprocessing Systems Operations”).
Segment
information is reported as follows:
|
|
Benchtop Laboratory
Equipment
|
Catalyst Research
Instruments
|
Bioprocessing
Systems
|
Corporate
And
Other
|
Consolidated
|
|
Three Months Ended
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
1,943,400
|
$
39,500
|
$
289,400
|
$
-
|
$
2,272,300
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
855,800
|
10,200
|
289,400
|
-
|
1,155,400
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
179,400
|
(170,400
)
|
(18,100
)
|
-
|
(9,100
)
|
|
|
|
|
|
|
|
|
Assets
|
5,551,100
|
1,166,300
|
1,350,000
|
796,400
|
8,863,800
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
14,100
|
-
|
2,900
|
-
|
17,000
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
30,800
|
200
|
10,400
|
-
|
41,400
|
|
|
Benchtop Laboratory
Equipment
|
Catalyst
Research
Instruments
|
Bioprocessing
Systems
|
Corporate And
Other
|
Consolidated
|
|
Three Months Ended
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
1,803,100
|
$
227,200
|
$
132,900
|
$
-
|
$
2,163,200
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
743,600
|
222,900
|
128,600
|
-
|
1,095,100
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
148,600
|
(48,300
)
|
55,700
|
-
|
156,000
|
|
|
|
|
|
|
|
|
Assets
|
4,762,000
|
1,376,100
|
727,300
|
693,300
|
7,558,700
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
10,800
|
1,200
|
-
|
-
|
12,000
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
66,400
|
200
|
9,400
|
-
|
76,000
|
Approximately
50% and 51% of total benchtop laboratory equipment sales (42% and
42% of total revenues) for the three month periods ended December
31, 2019 and 2018, respectively, were derived from the
Company’s main product, the Vortex-Genie 2 mixer, excluding
accessories.
Approximately
24% and 25% of total benchtop laboratory equipment sales (21% and
21% of total revenues) were derived from the Torbal Scales Division
for the three months ended December 31, 2019 and 2018,
respectively.
For the
three months ended December 31, 2019 and 2018, respectively, three
customers accounted for approximately 27% and 21% of net sales of
the Benchtop Laboratory Equipment Operations (23% and 18% of the
Company’s total revenues). Sales of catalyst research
instruments generally comprise a few very large orders averaging
approximately $50,000 per order to a limited number of customers,
who differ from order to order. Sales to one and two customers
during the three months ended December 31, 2019 and 2018, accounted
for approximately 66% and 96% of the Catalyst Research Instrument
Operations’ revenues and 1% and 10% of the Company’s
total revenues, respectively.
9
|
|
Benchtop Laboratory
Equipment
|
Catalyst Research
Instruments
|
Bioprocessing
Systems
|
Corporate And
Other
|
Consolidated
|
|
Six Months Ended
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
3,519,600
|
$
178,200
|
$
578,700
|
$
-
|
$
4,276,500
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
1,253,400
|
81,900
|
578,700
|
-
|
1,914,000
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
192,300
|
(260,700
)
|
(16,200
)
|
-
|
(84,600
)
|
|
|
|
|
|
|
|
|
Assets
|
5,551,100
|
1,166,300
|
1,350,000
|
796,400
|
8,863,800
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
21,900
|
-
|
19,600
|
-
|
41,500
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
61,300
|
600
|
20,500
|
-
|
82,400
|
|
|
Benchtop Laboratory
Equipment
|
Catalyst Research
Instruments
|
Bioprocessing
Systems
|
Corporate And
Other
|
Consolidated
|
|
Six Months Ended
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
3,495,100
|
$
444,600
|
$
262,100
|
$
-
|
$
4,201,800
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
1,379,300
|
365,200
|
257,100
|
-
|
2,001,600
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
324,200
|
(111,300
)
|
118,900
|
-
|
331,800
|
|
|
|
|
|
|
|
|
Assets
|
4,762,000
|
1,376,100
|
727,300
|
693,300
|
7,558,700
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
13,000
|
1,200
|
-
|
-
|
14,200
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
132,700
|
400
|
18,800
|
-
|
151,900
|
Approximately
43% and 50% total benchtop laboratory equipment sales (36% and 41%
of total revenues) for both six month periods ended December 31,
2019 and 2018, respectively, were derived from the Company’s
main product, the Vortex-Genie 2 mixer, excluding
accessories.
Approximately
28% and 25% of total benchtop laboratory equipment sales (23% and
21% of total revenues) were derived from the Torbal Scales Division
for both the six months ended December 31, 2019 and 2018,
respectively. For the six months ended December 31, 2019 and 2018,
respectively, three customers accounted for approximately 25% and
22% of net sales of the Benchtop Laboratory Equipment Operations
for both six month periods ended December 31, 2019 and 2018 (21%
and 18% of the Company’s total revenues),
respectively.
Sales
of catalyst research instruments generally comprise a few very
large orders averaging approximately $50,000 per order to a limited
number of customers, who differ from order to order. Sales to three
and five customers during the six months ended December 31, 2019
and 2018, accounted for approximately 84% and 90% of the Catalyst
Research Instrument Operations’ revenues and 4% and 10% 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.
10
In
valuing assets and liabilities, the Company is required to maximize
the use of quoted market prices and minimize the use of
unobservable inputs. The Company calculated the fair value of its
Level 1 and 2 instruments based on the exchange traded price of
similar or identical instruments where available or based on other
observable instruments. These calculations take into consideration
the credit risk of both the Company and its counterparties. The
Company has not changed its valuation techniques in measuring the
fair value of any financial assets and liabilities during the
period.
The
fair value of the contingent consideration obligations are based on
a probability weighted approach derived from the estimates of
earn-out criteria and the probability assessment with respect to
the likelihood of achieving those criteria. The measurement is
based on significant inputs that are not observable in the market,
therefore, the Company classifies this liability as Level 3 in the
following tables.
The
following tables set forth by level within the fair value hierarchy
the Company’s financial assets that were accounted for at
fair value on a recurring basis at December 31, 2019 and June 30,
2019 according to the valuation techniques the Company used to
determine their fair values:
|
|
|
Fair
Value Measurements Using Inputs Considered as
|
||
|
|
Fair
Value at December 31, 2019
|
Level 1
|
Level 2
|
Level 3
|
|
Assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
1,044,000
|
$
1,044,000
|
$
-
|
$
-
|
|
Investment
Securities
|
345,200
|
345,200
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$
1,389,200
|
$
1,389,200
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$
618,000
|
$
-
|
$
-
|
$
618,000
|
|
|
|
Fair
Value Measurements Using Inputs Considered as
|
||
|
|
Fair
Value at June 30, 2019
|
Level 1
|
Level 2
|
Level 3
|
|
Assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
1,602,500
|
$
1,602,500
|
$
-
|
$
-
|
|
Investment
securities
|
330,900
|
330,900
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$
1,933,400
|
$
1,933,400
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$
618,000
|
$
-
|
$
-
|
$
618,000
|
Investments
in marketable securities classified as available for sale by
security type at December 31, 2019 and June 30, 2019 consisted of
the following:
|
|
Cost
|
Fair
Value
|
Unrealized Holding
Gain (Loss)
|
|
At December 31,
2019:
|
|
|
|
|
Equity
securities
|
$
79,500
|
$
109,500
|
$
30,000
|
|
Mutual
funds
|
251,000
|
235,700
|
(15,300
)
|
|
|
|
|
|
|
|
$
330,500
|
$
345,200
|
$
14,700
|
11
|
|
Cost
|
Fair
Value
|
Unrealized Holding
Gain (Loss)
|
|
At June 30,
2019:
|
|
|
|
|
Equity
securities
|
$
47,100
|
$
72,000
|
$
24,900
|
|
Mutual
funds
|
292,300
|
258,900
|
(33,400
)
|
|
|
|
|
|
|
|
$
339,400
|
$
330,900
|
$
(8,500
)
|
5.
Inventories
Inventories
are valued at the lower of cost (determined on a first-in,
first-out basis) or net realizable value, and have been reduced by
an allowance for excess and obsolete inventories. The estimate is
based on managements review of inventories on hand compared to
estimated future usage and sales. Cost of work-in-process and
finished goods inventories include material, labor, and
manufacturing overhead.
|
|
December 31,
2019
|
June
30,2019
|
|
Raw
materials
|
$
1,927,500
|
$
1,738,300
|
|
Work-in-process
|
340,400
|
106,400
|
|
Finished
goods
|
735,900
|
747,600
|
|
|
|
|
|
|
$
3,003,800
|
$
2,592,300
|
6.
Goodwill and Other
Intangible Assets
Goodwill
represents the excess of the purchase price over the fair value of
the net assets acquired in connection with the Company’s
acquisitions. Goodwill amounted to $705,300 at December 31, 2019
and June 30, 2019, all of which is expected to be deductible for
tax purposes.
The
components of other intangible assets are as follows:
|
|
Useful
Lives
|
Cost
|
Accumulated
Amortization
|
Net
|
|
At December 31,
2019:
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$
663,800
|
$
661,800
|
$
2,000
|
|
Trade
names
|
6 yrs.
|
140,000
|
136,200
|
3,800
|
|
Websites
|
5 yrs.
|
210,000
|
210,000
|
-
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
314,700
|
42,300
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
238,900
|
55,100
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
384,000
|
-
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other intangible
assets
|
5 yrs.
|
229,200
|
189,200
|
40,000
|
|
|
|
|
|
|
|
|
$
2,388,000
|
$
2,244,800
|
$
143,200
|
|
12
|
|
Useful
Lives
|
Cost
|
Accumulated
Amortization
|
Net
|
|
At June 30,
2019:
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$
663,800
|
$
661,700
|
$
2,100
|
|
Trade
names
|
6 yrs.
|
140,000
|
124,400
|
15,600
|
|
Websites
|
5 yrs.
|
210,000
|
210,000
|
-
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
308,100
|
48,900
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
224,100
|
69,900
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
384,000
|
-
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other intangible
assets
|
5 yrs.
|
221,700
|
183,200
|
38,500
|
|
|
|
|
|
|
|
|
$
2,380,500
|
$
2,205,500
|
$
175,000
|
|
Total
amortization expense was $19,800 and $61,300 for the three months
ended December 31, 2019 and 2018, respectively, and $39,300 and
$122,300 for the six months ended December 31, 2019 and 2018,
respectively. As of December 31, 2019, estimated future
amortization expense related to intangible assets is $31,200 for
the remainder of the fiscal year ending June 30, 2020, $54,300 for
fiscal 2021, $31,700 for fiscal 2022, $15,000 for fiscal 2023 and
$11,000 for fiscal 2024.
13
7.
Earnings (Loss) Per
Common Share
Earnings
(loss) per common share data was computed as follows:
|
|
For
the Three Month Period Ended
December 31,
2019
|
For
the Three Month Period Ended
December 31,
2018
|
For
the Six Month Period Ended
December 31,
2019
|
For
the Six Month Period Ended
December 31,
2018
|
|
Net income
(loss)
|
$
3,600
|
$
118,400
|
$
(52,600
)
|
$
260,500
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding
|
1,499,396
|
1,494,112
|
1,496,718
|
1,494,112
|
|
Effect of dilutive
securities
|
58,330
|
18,839
|
-
|
11,368
|
|
Weighted average
dilutive common shares outstanding
|
1,557,726
|
1,512,951
|
1,496,718
|
1,505,480
|
|
|
|
|
|
|
|
Basic earnings
(loss) per common share
|
$
.00
|
$
.08
|
$
(.04)
|
$
.17
|
|
Diluted earnings
(loss) per common share
|
$
.00
|
$
.08
|
$
(.04)
|
$
.17
|
During
the six months ended December 31, 2019, the company did not include
51,269 dilutive shares of Common Stock because the effect would be
anti-dilutive due to the loss during the period. There were
no dilutive shares excluded during the six month period ended
December 31, 2018 as well as for the three months periods ended
December 31, 2019 and 2018.
8.
Leases
On July
1, 2019 the Company adopted the
new
accounting pronouncement as it relates to its leases which requires
a lessee to recognize all long-term leases on its balance sheet as
a liability for its lease obligation, measured at the present value
of lease payments not yet paid, and a corresponding asset
representing its right to use the underlying asset over the lease
term and expands disclosure of key information about leasing
arrangements.
The Company leases certain properties consisting principally of a
facility in Bohemia, New York (headquarters) through January 2025,
a facility in Pittsburgh, Pennsylvania for its Catalyst Research
Instrument Operations through November 2020 and another facility in
Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations
through May 2021. In addition, the Company had a lease for its
Torbal Division of the Benchtop Laboratory Equipment Operations
which was mutually terminated early effective as of October 31,
2019 and a new lease for a similar sales and administration office
was entered into as of November 1, 2019 through October 2022. There
are no renewal options with any of the leases, no residual values
or significant restrictions or covenants other than those customary
in such arrangements, and no non-cash activities, and any rent
escalations incorporated within the leases are included in the
calculation of the future minimum lease payments, as further
described below. All of the Company’s leases are deemed
operating leases.
14
The Company determines whether an agreement contains a lease at
inception based on the Company’s right to obtain
substantially all of the economic benefits from the use of the
identified asset and its right to direct the use of the identified
asset. Lease liabilities represent the present value of future
lease payments and the Right-Of-Use (“ROU”) assets
represent the Company’s right to use the underlying assets
for the respective lease terms. ROU assets and lease liabilities
are recognized at the lease commencement date based on the present
value of the lease payments over the lease term. The ROU asset is
further adjusted to account for previously recorded lease expenses
such as deferred rent and other lease liabilities. As the
Company’s leases do not provide an implicit rate, the Company
used its incremental borrowing rate of 5.0% as the discount rate to
calculate the present value of future lease payments, which was the
interest rate that its bank would charge for a similar
loan.
The Company elected not to recognize a ROU asset and a lease
liability for leases with an initial term of twelve months or less.
In addition to minimum lease payments, certain leases require
payment of a proportionate share of real estate taxes and certain
building operating expenses or payments based on an excess of a
specified base. These variable lease costs are not included in the
measurement of the ROU asset or lease liability due to
unpredictability of the payment amount and are recorded as lease
expenses in the period incurred. The Company’s lease
agreements do not contain residual value guarantees.
The Company elected available practical expedients for existing or
expired contracts of lessees wherein the Company is not required to
reassess whether such contracts contain leases, the lease
classification or the initial direct costs. The Company is not
utilizing the practical expedient which allows the use of hindsight
by lessees and lessors in determining the lease term and in
assessing impairment of its ROU assets. The Company utilized the
transition method allowing entities to only apply the new lease
standard in the year of adoption.
As of December 31, 2019, the weighted-average remaining lease term
for operating lease liabilities was approximately 4 years and the
weighted-average discount rate was 5.0%. Total cash payments under
these leases were $73,400 and $141,800 for the three and six month
periods ended December 31, 2019 of which $74,200 and $142,500 were
recorded as leases expense.
The Company’s approximate future minimum rental payments
under all leases existing at December 31, 2019 through January 2025
are as follows:
|
Fiscal year ending June 30,
|
Amount
|
|
Remainder of 2020
|
$
153,900
|
|
2021
|
265,800
|
|
2022
|
210,600
|
|
2023
|
198,900
|
|
2024
|
195,900
|
|
2025
|
91,600
|
|
Total future minimum payments
|
1,116,700
|
|
Less: Imputed interest
|
118,600
|
|
Total Present Value of Operating Lease Liabilities
|
998,100
|
15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking statements.
Certain statements contained in this report
are not based on historical facts, but are forward-looking
statements that are based upon various assumptions about future
conditions. Actual events in the future could differ materially
from those described in the forward-looking information. Numerous
unknown factors and future events could cause such differences,
including but not limited to, product demand, market acceptance,
success of marketing strategy, success of expansion efforts, impact
of competition, adverse economic conditions, and other factors
affecting the Company’s business that are beyond the
Company’s control, which are discussed elsewhere in this
report. Consequently, no forward-looking statement can be
guaranteed. The Company undertakes no obligation to publicly update
forward-looking statements, whether as a result of new information,
future events or otherwise. This Management’s Discussion and
Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Company’s financial statements
and the related notes included elsewhere in this
report.
Overview.
The
Company reflected income before income tax expense of $3,000 for
the three months ended December 31, 2019 compared to $148,800 for
the three months ended December 31, 2018, primarily due to lower
sales for Catalyst Instruments during the quarter, and
significantly higher operating expenses for the Bioprocessing
Systems Operations, partially offset by increased sales for the
Benchtop Laboratory Equipment Operations. The Company reflected a
loss before income tax benefit of $72,700 for the six months ended
December 31, 2019 compared to income before income tax expense of
$326,400 for the six months ended December 31, 2018 primarily due
to lower sales for the Catalyst Research Instruments Operations and
increased operating expenses for the Bioprocessing Systems
Operations. In the last quarter of the Company’s fiscal year
ended June 30, 2019, the Company began to invest in its
Bioprocessing Systems Operations with staffing, facilities, and new
product development. The results reflected total non-cash amounts
for depreciation and amortization of $41,400
and $82,4
00
for the
three and six month
periods ended December 31, 2019 compared to $76,000 and $151,900
for the corresponding three and six month periods in
2018.
Results of Operations
The Three Months Ended December 31, 2019 Compared With The Three
Months Ended December 31, 2018
Net
revenues for the three months ended December 31, 2019 increased
$109,100 (5.0%) to $2,272,300 from $ 2,163,200 for the three months
ended December 31, 2018, reflecting increased earned royalties of
$156,500 by the Bioprocessing Systems Operations, increased sales
of benchtop laboratory equipment of $140,300, partially offset by a
$187,700 decrease in net sales of catalyst research instruments.
The benchtop laboratory equipment sales reflected $476,100 and
$458,700 of Torbal brand product gross sales for the three months
ended December 31, 2019 and 2018, respectively.
As of
December 31, 2019, the order backlog for catalyst research
instruments was $516,800, substantially all of which is expected to
be shipped during fiscal year ending June 30, 2020, compared to
$617,400 as of December 31, 2018.
The
overall gross profit percentage for the three months ended December
31, 2019 increased to 48.0% compared to 45.1% for the three months
ended December 31, 2018. The Benchtop Laboratory Equipment
Operations reflected lower overhead cost during the three months
ended December 31, 2019 compared to the three months ended December
31, 2018. The gross profit for the Catalyst Research Instruments
Operations was negative during the three months ended December 31,
2019 compared to the three months ended December 31, 2018 due to
low sales during the quarter.
General
and administrative expenses for the three months ended December 31,
2019 increased by $48,000 (10.4%) to $510,100 compared to $462,100
for the three months ended December 31, 2018, due to staffing and
other administrative costs incurred by the Scientific Bioprocessing
Systems Operations.
Selling
expenses for the three months ended December 31, 2019 increased
$82,300 (33.2%) to $330,500 from $248,200 for the three months
ended December 31, 2018, due to new marketing expenses for the
Bioprocessing Systems Operations, increased sales expenses by the
Catalyst Research Instruments Operations and increased online
advertising expenses for the Benchtop Laboratory Equipment
Operations.
Research
and development expenses increased by $150,600 (137.7%) to $260,000
for the three months ended December 31, 2019 compared to $109,400
for the three months ended December 31, 2018, primarily due to the
ramp up in product development activities by the Bioprocessing
Systems Operations which included staffing, facilities, and
materials.
Total
other income (expense), net was $12,100 for the three months ended
December 31, 2019 compared to ($7,200) for the three months ended
December 31, 2018 due to increased interest and dividend income
generated from investment securities.
The
Company reflected an income tax benefit of $600 for the three
months ended December 31, 2019 compared to expense of $30,400 for
the three months ended December 31, 2018 due to much lower
income.
16
As a
result of the foregoing, the Company recorded net income of $3,600
for the three months ended December 31, 2019 compared to $118,400
for the three months ended December 31, 2018.
The Six Months Ended December 31, 2019 Compared With The Six Months
Ended December 31, 2018
Net
revenues for the six months ended December 31, 2019 increased
$74,700 (1.8%) to $4,276,500 from $4,201,800 for the six months
ended December 31, 2018, reflecting an increase of $316,600 in
earned royalties by the Bioprocessing Systems Operations, $24,500
increase in net sales of benchtop laboratory equipment, partially
offset by a $266,400 decrease in net sales of catalyst research
instruments. The benchtop laboratory equipment sales reflected
$998,500 of Torbal brand product gross sales for the six months
ended December 31, 2019, compared to $884,000 in the six months
ended December 31, 2018. The increase in royalty revenues is due to
the expectation of continued increased royalties from sublicenses.
The Benchtop Laboratory Equipment Operations’s sales growth
slowed due to slower order input from Asian markets, particularly
China, and softer sales in Europe and Middle East. The Catalyst
Research Instruments Operations suffered from low order input in
the beginning of the year, particularly from China, however, the
Company appointed a new China sales representative in China at the
end of the period as well as several other sales representatives
around the world. As of December 31, 2019, the order backlog for
catalyst research instruments was $516,800, substantially all of
which is expected to be shipped during fiscal year ending June 30,
2020, compared to $617,400 as of December 31, 2018.
The
overall gross profit percentage for the six months ended December
31, 2019 was 48.4% compared to 45.7% for the six months ended
December 31, 2018. The Benchtop Laboratory Equipment Operations
reflected lower overhead cost during the six months ended December
31, 2019 compared to the six months ended December 31, 2018. The
gross profit for the Catalyst Research Instruments was negative
during the six months ended December 31, 2019 compared to the six
months ended December 31, 2018 due to low sales during the current
six month period.
General
and administrative expenses for the six months ended December 31,
2019 increased $141,700 (16.1%) to $1,020,300 from $878,600 for the
six months ended December 31, 2018 due to staffing and other
administrative costs incurred by the Bioprocessing Systems
Operations and legal and other corporate expenses related to
strategic initiatives.
Selling
expenses for the six months ended December 31, 2019 increased
$155,300 (32.1%) to $639,600 from $484,300 for the six months ended
December 31, 2018, mainly due to new marketing expenses for the
Bioprocessing Systems Operations, increased sales expenses by the
Catalyst Research Instruments Operations and increased online
advertising expenses for the Benchtop Laboratory Equipment
Operations.
Research
and development expenses increased by $269,900 (119.1%) to $496,600
for the six months ended December 31, 2019 compared to $226,700 for
the six months ended December 31, 2018, primarily due to to the
ramp up in product development activities by the Bioprocessing
Systems Operations which included staffing, facilities, and
materials.
Total
other income (expense), net was $11,900 for the six months ended
December 31, 2019 compared to ($5,400) for the six months ended
December 31, 2018 principally due to increased interest income on
investments, compared to realized losses on investment securities
in the prior year period.
The
Company reflected income tax benefit of $20,100 for the six months
ended December 31, 2019 compared to $65,900 income tax expense for
the six months ended December 31, 2018, primarily due to the loss
during the current year period compared to income in the prior year
period.
As a
result of the foregoing, the Company recorded a net loss of $52,600
for the six months ended December 31, 2019 compared to net income
of $260,500 for the six months ended December 31,
2018.
Liquidity and Capital Resources.
Cash and cash equivalents
decreased by $558,500 to $1,044,000 as of December 31, 2019 from
$1,602,500 as of June 30, 2019 primarily due to the loss during the
period, increased investment in the Bioprocessing Systems
Operations, and increased inventories, particularly for a new
product of the Benchtop Laboratory Equipment
Operations.
Net cash used in operating activities was $514,100 for the six
months ended December 31, 2019 compared to net cash provided by
operating activities $397,300 during the six months ended December
31, 2018. The net cash used was primarily a result of the loss for
the period and higher inventories. Net cash used in investing
activities was $51,400 for the six months ended December 31, 2019
compared to $14,300 used during the six months ended December 31,
2018 principally due to an increased capital purchases by the
Benchtop Laboratory Equipment Operations and the Bioprocessing
Systems Operations during the current period. The Company
provided $7,000 in financing activities in the six months ended
December 31, 2019 compared to $78,000 used in the six months ended
December 31, 2018 mainly due to a cash dividend payment in the
prior year.
The Company's working capital decreased by $65,700 to $4,940,100 as
of December 31, 2019 compared to $5,005,800, as of June 30, 2019
mainly due to the loss during the period.
Management believes that the Company will be able to meet its cash
flow needs during the 12 months ending December 31, 2020 from its
available financial resources including the lines of credit, its
cash and investment securities, and operations, unless there is a
material reduction in its cash inflows including expected royalty
streams, or a material increase in expenditures for the
Bioprocessing Systems Operations.
17
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.
As a result of our adoption of the new revenue standard (Topic
606), we implemented controls to ensure adequate evaluation of
contracts and assessment of the impact of the new accounting
standard related to revenue recognition on our financial statements
to facilitate its adoption on July 1, 2018. There were no
significant changes to our internal control over financial
reporting due to the adoption of the new standard, as such term is
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the
period covered by this Quarterly Report or in other factors that
have materially affected, or are reasonably likely to materially
affect, our internal controls over financial
reporting.
As a result of our adoption of the new leases standard (Topic 842),
we implemented controls to ensure adequate review and assessment of
contracts containing leases and calculations of assets and
liabilities related to the Company's leases as well as required
disclosures within the Company's financial statements to facilitate
its adoption on July 1, 2019. There were no significant changes to
our internal control over financial reporting due to the adoption
of the new standard, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f) during the period covered by this Quarterly
Report or in other factors that have materially affected, or are
reasonably likely to materially affect, our internal controls over
financial reporting.
PART II – OTHER INFORMATION
Scientific
Bioprocessing, Inc. a wholly-owned subsidiary of the Company, has
entered into a monthly retainer agreement effective as of January
1, 2020 through December 31, 2020 with Mr. Joseph G. Cremonese, a
Director since November 2002, through his affiliate, Laboratory
Innovation Company, Ltd. The agreement provides for
consulting services as to the operations of Scientific
Bioprocessing, Inc. at a monthly fee of $9,000 plus the issuance of
20,000 stock options to Mr. Cremonese. The agreement
incorporates non-competition and confidentiality
clauses.
Item 6. Exhibits
and ReportsForm 8-K.
|
Exhibit
Number
|
Description
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
Monthly
Retainer Agreement between the Company and Mr. Joseph Cremonese and
affiliates
|
Reports
on Form 8-K:
Report dated December 11, 2019 reporting under item
1.01.
18
S
IGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Date:
February 13, 2020
|
SCIENTIFIC
INDUSTRIES, INC.
(Registrant)
/s/
Helena R. Santos
|
|
|
|
Helena
R. Santos
President,
Chief Executive Officer, Treasurer
Chief
Financial and Principal Accounting Officer
|
|
19
TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4. Controls and ProceduresPart II Other InformationItem 5. Other InformationItem 6. Exhibits and Reportsform 8-k