UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2008
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
(Exact name of small business as specified in its charter)
Delaware 04-2217279
(State of incorporation) (IRS Employer Identification No.)
70 Orville Drive, Bohemia, New York 11716
(Address of principal executive offices)
(631)567-4700
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of May 5, 2008: 1,181,352 shares outstanding of the
Company's Common Stock, par value, $ .05.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
March 31, 2008
--------------
Current Assets:
Cash and cash equivalents $1,114,300
Investment securities 708,200
Trade accounts receivable, less allowance for
doubtful accounts of $11,600 754,700
Inventories 1,788,600
Prepaid expenses and other current assets 158,900
Deferred taxes 30,300
--------------
Total current assets 4,555,000
Property and equipment at cost, less accumulated
depreciation of $589,000 257,700
Intangible assets, less accumulated amortization
of $265,200 489,200
Goodwill 101,300
Deferred taxes 11,200
Other 46,000
-------------
Total assets $5,460,400
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 177,800
Customer advances 1,270,800
Accrued expenses and taxes 392,900
-------------
Total current liabilities 1,841,500
-------------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,201,154 issued and outstanding 60,100
Additional paid-in capital 1,506,200
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 38,300)
Retained earnings 2,143,300
-------------
3,671,300
Less common stock held in treasury, at cost,
19,802 shares 52,400
-------------
3,618,900
-------------
$5,460,400
=============
See notes to unaudited condensed consolidated financial
statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
---------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Net sales $1,381,800 $1,341,000 $4,727,700 $3,407,200
Cost of goods sold 885,900 826,600 2,955,900 2,017,400
---------- ---------- ---------- ----------
Gross profit 495,900 514,400 1,771,800 1,389,800
---------- ---------- ---------- ----------
Operating Expenses:
General & administrative 234,900 279,500 748,200 651,700
Selling 105,100 114,100 352,800 262,900
Research & development 105,200 66,000 284,800 234,400
---------- ---------- ---------- ----------
445,200 459,600 1,385,800 1,149,000
---------- ---------- ---------- ----------
Income from operations 50,700 54,800 386,000 240,800
Interest & other
income, net 18,900 10,000 48,800 41,800
---------- --------- ---------- ----------
Income before income taxes 69,600 64,800 434,800 282,600
Income tax expense (benefit):
Current 23,900 25,400 166,100 95,000
Deferred ( 3,600) ( 2,400) ( 23,500) ( 900)
----------- ----------- ----------- ----------
20,300 23,000 142,600 94,100
----------- ----------- ----------- ----------
Net income $ 49,300 $ 41,800 $ 292,200 $ 188,500
=========== =========== =========== ==========
Basic earnings per common
share $ .04 $ .04 $ .25 $ .18
Diluted earnings per common
share $ .04 $ .03 $ .24 $ .17
Cash dividends declared
per common share $ - $ - $ .07 $ .07
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended
March 31, 2008 March 31, 2007
Operating activities:
Net income $ 292,200 $ 188,500
--------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale of investments - ( 200)
Depreciation and amortization 163,100 146,600
Deferred income taxes ( 23,500) ( 900)
Stock-based compensation 2,300 -
Income tax benefit of stock options
exercised 14,000 -
Changes in assets and liabilities:
Accounts receivable ( 3,900) (227,000)
Inventories (499,000) 242,700
Prepaid expenses and other
current assets ( 97,700) 46,100
Other assets ( 300) 18,100
Accounts payable ( 54,100) (148,100)
Customer advances 1,123,200 (131,800)
Accrued expenses and taxes 13,900 91,300
----------- ------------
Total adjustments 638,000 36,800
----------- ------------
Net cash provided by
operating activities 930,200 225,300
----------- ------------
Investing activities:
Acquisition of Altamira
Instruments, Inc., net of
cash acquired - (346,500)
Additional consideration for
Altamira Instruments, Inc.
acquisition (102,800) -
Purchase of investment securities,
available-for-sale ( 18,500) ( 17,500)
Redemptions of investment securities,
available-for-sale - 425,700
Capital expenditures ( 60,900) ( 35,500)
Purchase of intangible assets ( 5,100) ( 12,800)
------------ ------------
Net cash provided by (used in)
investing activities (187,300) 13,400
------------ ------------
Financing activities:
Proceeds from exercise of
stock options 62,900 8,000
Cash dividends declared and paid ( 80,200) ( 70,000)
------------ ------------
Net cash used in
financing activities ( 17,300) ( 62,000)
------------ ------------
Net increase in cash
and cash equivalents 725,600 176,700
Cash and cash equivalents, beginning
of year 388,700 227,700
------------ ------------
Cash and cash equivalents, end
of period $1,114,300 $ 404,400
============ ============
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 111,300 $ 99,900
See notes to unaudited condensed consolidated financial statements
3
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-QSB. 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 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-KSB, for the
fiscal year ended June 30, 2007. The results for the
three and nine months ended March 31, 2008, are not
necessarily an indication of the results of the full
fiscal year ending June 30, 2008.
1. 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 and, since
November 30, 2006 (date of acquisition), Altamira Instruments, Inc.
("Altamira"), a Delaware corporation and wholly-owned subsidiary
(all collectively referred to as the "Company"). All material
intercompany balances and transactions have been eliminated.
2. Recent Accounting Pronouncements:
In September 2006 the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS No. 157"). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. SFAS No. 157 will be applied
prospectively and is effective for periods beginning after November
15, 2007. The Company is currently evaluating the effect, if any,
of SFAS No. 157 on the Company's consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including
an Amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No.
159 permits entities to choose to measure many financial
instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been
elected will be recognized in earnings at each subsequent reporting
date. SFAS No. 159 is effective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. The Company
is currently evaluating the effect, if any, of SFAS No. 159 on the
Company's consolidated financial statements.
4
In June 2006, the FASB issued Interpretation ("FIN") No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of
FASB Statement ("SFAS") No. 109." This Interpretation clarifies
the accounting for uncertainty in income taxes recognized in an
entity's financial statements in accordance with SFAS No. 109,
"Accounting for Income Taxes." The interpretation describes a
recognition threshold and measurement attribute for the financial
statement disclosure of tax positions taken or expected to be
taken. It also provides for guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosures and transition. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. On July 1, 2007
the Company adopted FIN 48 and the adoption did not result in any
adjustments to the Company's consolidated financial statements.
3. Acquisition of Altamira Instruments, Inc.:
On November 30, 2006, the Company acquired all of the outstanding
capital stock of Altamira pursuant to a Stock Purchase Agreement
dated the same date. The agreement provided for acquisition
consideration of $400,000 in cash and 125,000 shares of the
Company's Common Stock and contingent consideration consisting of
cash payments (which were not determinable on date of acquisition)
equal to 5%, subject to possible adjustment, of the net sales (no
limit) of Altamira for each of five periods - December 1, 2006 to
June 30, 2007, each of the fiscal years ending June 30, 2008, 2009,
and 2010, and July 1, 2010 to November 30, 2010. Under this
contingency, the additional consideration amounted to $154,000 as
of March 31, 2008.
Under a separate agreement with the sellers, they agreed to permit
the Company to treat the acquisition of Altamira stock as a
purchase of assets for tax purposes in consideration of which the
Company agreed to reimburse them for their resulting additional tax
burden. The reimbursement, which was paid in September
2007 and treated as additional cash consideration (see Note 9),
amounted to approximately $42,000.
Altamira's principal customers are universities, government
laboratories, and chemical and petrochemical companies. Its
products - catalyst research instruments, which are customizable to
the customers' specifications, are sold on a direct basis.
In conjunction with the acquisition of Altamira, management of the
Company valued the tangible and intangible assets acquired,
including goodwill, customer relationships, non-compete agreements,
and certain technology, trade names and trademarks. The carrying
amounts of goodwill and other intangible assets are presented in
Note 9, "Goodwill and Other Intangible Assets". In addition, other
fair market value adjustments were made in conjunction with the
acquisition, primarily adjustments to property and equipment, and
inventory. The acquisition was recorded under the purchase method
of accounting. The net purchase price was allocated to assets
acquired and liabilities assumed based on their estimated fair
market values at the date of the acquisition. The allocation of
the total net purchase price, as adjusted for the items described
above, is as follows:
5
Current Assets $ 734,000
Property and Equipment 140,300
Non-current Assets 25,100
Goodwill 101,300
Other Intangible Assets 639,000*
Current Liabilities ( 561,900)
-----------
Net purchase price $ 1,077,800
===========
* Comprised of $237,000 allocated to customer relationships with a
weighted-average estimated useful life of 10 years, $300,000
allocated to technology including trade names and trade marks with
a useful life of 5 years, and $102,000 allocated to a non-compete
agreement with a useful life of 5 years. The amount allocated to
the customer relationships is being amortized on an accelerated
(declining balance) method and the other intangibles are being
amortized on a straight line basis.
Pro forma results
The unaudited pro forma condensed financial information in the
table below summarizes the results of operations of Scientific
Industries, Inc. ("Scientific") and Altamira, on a pro forma basis,
as though the companies had been combined as of July 1, 2006. The
unaudited pro forma condensed financial information presented below
for the nine month period ended March 31, 2007 is for informational
purposes only and is not intended to represent or be indicative of
the consolidated results of the operations that would have been
achieved if the acquisition had been completed as of that date:
For the Nine Month
Period Ended
March 31, 2007
Net Sales $4,432,600
Net income $ 289,000
Net income per share - basic $ .26
Net income per share - diluted $ .24
4. Segment Information and Concentrations:
As a result of the acquisition of Altamira, the Company views its
operations as two segments: the manufacture and marketing of
standard benchtop laboratory equipment for research in university,
hospital and industrial laboratories sold primarily through
laboratory equipment distributors ("benchtop laboratory equipment
operations"), and 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").
Substantially all of the management and employees of Altamira were
retained following the acquisition.
Segment information as of March 31, 2008 and for the three and nine
months ended March 31, 2008 and 2007 (the 2007 nine month period
includes the catalyst research instruments operation for the period
December 1, 2006 through March 31, 2007, and the 2007 three month
period includes its operations for the full three months) is as
follows:
6
Three Months Ended March 31, 2008
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
----------- ----------- -------- ------------
Total Net Sales $ 945,800 $ 436,000 $ - $1,381,800
Foreign Sales 489,100 60,800 - 549,900
Profit (Loss) 95,000 ( 25,400) - 69,600
Assets as of
March 31, 2008 2,925,800 1,683,600 851,000 5,460,400
Long-Lived Assets
Expenditures 27,600 - - 27,600
Depreciation and
Amortization 13,600 37,900 - 51,500
Three Months Ended March 31, 2007
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
----------- ----------- -------- ------------
Total Net Sales $ 929,100 $ 411,900 $ - $1,341,000
Foreign Sales 466,200 150,000 - 616,200
Profit (Loss) 140,100 ( 75,300) - 64,800
Long-Lived Assets
Expenditures 35,500 - - 35,500
Depreciation and
Amortization 12,400 42,900 - 55,300
Approximately 68% and 69% of net sales of benchtop laboratory
equipment were derived from the Company's main product, the Vortex-
Genie 2 mixer, excluding accessories for the three month periods
ended March 31, 2008 and 2007, respectively. Sales of benchtop
laboratory equipment to two customers, combined, accounted in the
aggregate for approximately 34% of the segment's sales (23% of
total sales) and 36% of the segment's sales (25% of total sales)
for the three month periods ended March 31, 2008 and 2007,
respectively.
Sales of catalyst research instruments are generally comprised of a
few very large orders amounting, on average, to more than $100,000
to a limited number of customers, who differ from order to order.
Sales to three customers, combined, accounted for 84% of the
catalyst research instrument sales (25% of total sales) for the
three months ended March 31, 2008. Three other customers,
combined, accounted for 96% of the segment's sales (30% of total
sales) for the three months ended March 31, 2007.
Nine Months Ended March 31, 2008
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
----------- ----------- -------- ------------
Total Net Sales $2,882,100 $1,845,600 $ - $4,727,700
Foreign Sales 1,475,900 200,800 - 1,676,700
Profit (Loss) 309,000 125,800 - 434,800
Assets as of
March 31, 2008 2,925,800 1,683,600 851,000 5,460,400
Long-Lived Assets
Expenditures 53,600 7,300 - 60,900
Depreciation and
Amortization 42,200 120,900 - 163,100
Nine Months Ended March 31, 2007
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
----------- ----------- -------- ------------
Total Net Sales $2,619,000 $ 788,200 $ - $3,407,200
Foreign Sales 1,265,900 290,100 - 1,556,000
Profit (Loss) 397,600 (115,000) - 282,600
Long-Lived Assets
Expenditures 35,500 - - 35,500
Depreciation and
Amortization 37,200 109,400 - 146,600
Approximately 69% and 70% of net sales of benchtop laboratory
equipment were derived from the Company's main product, the Vortex-
Genie 2 mixer, excluding accessories, for the nine month periods
ended March 31, 2008 and 2007, respectively. Two benchtop
laboratory equipment customers accounted in the aggregate for
approximately 32% and 33% of the segment's sales for the nine month
periods ended March 31, 2008 and 2007, respectively (19% and 25% of
consolidated sales for the 2008 and 2007 periods, respectively).
Sales of catalyst research instruments are generally comprised of a
few very large orders amounting, on average, to more than $100,000
to a limited number of customers, who differ from order to order.
Sales of catalyst research instruments to two customers, combined,
accounted for 45% of that segment's sales (18% of consolidated
sales) for the nine months ended March 31, 2008. Four other
customers accounted for 88% of the segment's sales (20% of
consolidated sales) for the nine month period ended March 31, 2007,
which only included sales of catalyst research instruments for
the period December 1, 2006 through March 31, 2007.
8
5. Inventories:
Inventories for interim financial statement purposes are based on
perpetual inventory records at the end of the applicable period.
Components of inventory are as follows:
March 31,
2008
-------------
Raw Materials $ 950,100
Work in process 701,500
Finished Goods 137,000
-----------
$ 1,788,600
===========
6. Earnings per common share:
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock
options. Earnings per common share were computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
-------------------- --------------------
2008 2007 2008 2007
-------------------- --------------------
Net income $ 49,300 $ 41,800 $ 292,200 $ 188,500
========= ========= ========= =========
Weighted average common
shares outstanding 1,166,011 1,128,641 1,152,261 1,057,089
Effect of dilutive
securities 43,536 67,610 49,907 64,492
--------- --------- ---------- ----------
Weighted average dilutive
common shares outstanding 1,209,547 1,196,251 1,202,168 1,121,581
========= ========= ========== ==========
Basic earnings per
common share $ .04 $ .04 $ .25 $ .18
====== ====== ====== ======
Diluted earnings per
common share $ .04 $ .03 $ .24 $ .17
====== ====== ====== ======
7. Comprehensive Income:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for disclosure of
comprehensive income, which includes net income and any changes in
equity from non-owner sources that are not recorded in the income
statement (such as changes in the net unrealized gains or losses on
securities.) The Company's only source of other comprehensive
income is the net unrealized gain or loss on securities. The
components of comprehensive income were as follows:
9
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
-------------------- ------------------
2008 2007 2008 2007
-------------------- ------------------
Net Income $ 49,300 $41,800 $292,200 $188,500
======== ======= ======== ========
Other comprehensive income
(loss):
Unrealized holding gain
(loss) arising during
period ( 20,000) 500 ( 28,400) 6,700
Plus reclassification
adjustment for gain included
in net income - - - ( 200)
---------- ------- --------- --------
Change in unrealized holding
gain (loss) ( 20,000) 500 ( 28,400) 6,500
----------- -------- --------- --------
Comprehensive income $ 29,300 $42,300 $263,800 $195,000
=========== ======= ======== =========
8. Stock-Based Compensation Plans:
The Company maintains an Incentive Stock Option Plan. Grants
through the fiscal year ended June 30, 2006, under this plan
and a predecessor plan, were accounted for under the recognition
and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Under
this method, no stock-based compensation costs were reflected in
net income, as all options granted under those plans had an exercise
price equal to the fair market value of the underlying common stock
on the date of grant.
Any stock-based compensation transaction subsequent to June 30,
2006 is accounted for using Statement of Financial Accounting
Standards No. 123(R) "Share-Based Payment". This statement requires
compensation costs related to stock-based payment transactions to
be recognized commencing with the first reporting period in our
fiscal year ended June 30, 2007. With limited exceptions, the
amount of compensation cost is measured based on the grant-date
fair value of the equity or liability instruments issued. In
addition, liability awards will be measured each reporting period.
Compensation costs are recognized over the period that an employee
provides service in exchange for the award. Statement 123(R)
replaces FASB Statement No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees. The Company incurred stock-based
compensation costs of $700 and $2,300 for the three and nine month
periods ended March 31, 2008, respectively, and $4,000 for the
three and nine month periods ended March 31, 2007.
9. Goodwill and Other Intangible Assets:
In conjunction with the acquisition of Altamira, management of the
Company valued the tangible and intangible assets acquired,
including customer relationships, non-compete agreements and
technology which encompasses trade names, trademarks and licenses.
The valuation resulted in an initial negative goodwill of
10
approximately $91,500 on the date of acquisition. Goodwill amounted
to $101,300 as of March 31, 2008, mainly as a result of $154,000 of
contingent consideration paid and accrued from date of acquisition
through March 31, 2008 and $42,000 paid as additional consideration
in September 2007. The related Stock Purchase Agreement
provided for contingent future payments to the former shareholders
equal to 5%, subject to certain limits, of net sales (no limit) of
the catalyst research instrument operations, during each of the
five periods described in Note 2.
The components of intangible assets as of March 31, 2008 are as
follows:
Useful Accumulated
Lives Cost Amortization Net
------ -------- ------------ --------
Technology 5 yrs. $300,000 $ 80,000 $220,000
Customer relationships 10 yrs. 237,000 79,100 157,900
Non-compete agreement 5 yrs. 102,000 27,200 74,800
Other intangible assets 5 yrs. 115,400 78,900 36,500
-------- ------------ --------
$754,400 $ 265,200 $489,200
======== ============ ========
Total amortization expense was $34,700 and $39,400 for the three
months ended March 31, 2008 and 2007, respectively, and $112,800
and $59,600 for the nine months ended March 31, 2008 and 2007,
respectively. As of March 31, 2008, estimated future amortization
expense related to intangible assets is $26,600 for the remainder
of fiscal year ending June 30, 2008, $131,000 for fiscal 2009,
$119,300 for fiscal 2010, $107,500 for fiscal 2011, $50,200 for
fiscal 2012, and $54,600 thereafter.
11
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking
information. Numerous unknown factors and future events could cause
such differences, including but not limited to, product demand, market
acceptance, impact of competition, the ability to reach final
agreements, the ability to finance and produce catalyst research
instruments to customers' satisfaction, adverse economic conditions,
and other factors affecting the Company's business that are beyond the
Company's control. Consequently, no forward-looking statement can be
guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
Cash and cash equivalents increased by $725,600 to $1,114,300 as of
March 31, 2008 from $388,700 as of June 30, 2007.
Net cash provided by operating activities was $930,200 for the nine
months ended March 31, 2008 as compared to $225,300 for the comparable
period in 2007, mainly the result of customer advances of $1,270,800
for orders of catalyst research instruments to be shipped in the near
future, and higher income, partially offset by higher inventories. The
Company usually requires advance deposits on orders for catalyst
research instruments. The amount of such deposits at any given time
can fluctuate significantly. Cash used in investing activities was
$187,300 for the nine months ended March 31, 2008 as compared to
$13,400 provided in the nine months ended March 31, 2007, which
reflected significant redemptions of investments used for the November
30, 2006 acquisition of Altamira.
On September 30, 2007, the Board of Directors of the Company declared a
cash dividend of $.07 per share of Common Stock which was paid on
January 14, 2008 to holders of record as of the close of business on
October 18, 2007.
The Company's working capital of $2,713,500 as of March 31, 2008
increased by $253,000 from the working capital of $2,460,500 at June
30, 2007. The Company has available for its working capital needs, a
secured bank line of credit of $200,000 with North Fork Bank with
interest at prime, all of which was available as of March 31, 2008.
The Company has never borrowed under this line of credit. Management
believes that the Company will be able to meet its cash flow needs
during the 12 months ending March 31, 2009 from its available financial
resources which include its cash and investment securities.
12
Results of Operations
Financial Overview
As a result of the Company's acquisition on November 30, 2006 of
Altamira, the Company's consolidated results for the three and nine
month periods ended March 31, 2008 and the three months ended March 31,
2007 include the results of Altamira for the full periods. The
Company's consolidated results for the nine month period ended March
31, 2007 include Altamira's results for the period December 1, 2006
through March 31, 2007. In addition, the depreciation and amortization
expense related to the acquired assets at their fair market value on
date of acquisition is also included in the Company's results from date
of acquisition.
The Company's income before income taxes increased $152,200 (54%) to
$434,800 for the nine month period ended March 31, 2008 from $282,600
for the prior year same period, primarily as a result of the addition
of the income of the Company's catalyst research instruments
operations, which had a loss for the prior year's same nine month
period.
Income before income taxes increased by $4,800 (7%) from $64,800
to $69,600, for the three month comparative periods ended March 31,
2008 and March 31, 2007. The small increase reflected (i) lower
profits for the benchtop laboratory operations due to increased
raw materials and research and development costs, and (ii) the
loss incurred by the catalyst research instruments operations due
to an inability to complete orders because of vendor-caused delays
in delivery of a large order.
The Three Months Ended March 31, 2008 Compared With the Three Months
Ended March 31, 2007
Both segments contributed to the increase in net sales for the three
months ended March 31, 2008 of $40,800 (3.0%) to $1,381,800 as compared
with $1,341,000 for the three months ended March 31, 2007. Sales of the
catalyst research instruments differ from those of the benchtop
laboratory equipment in that sales of the catalyst research instruments
are comprised of a small number of larger orders, typically averaging
more than $100,000 each; hence sales can vary greatly from period to
period. As of March 31, 2008, there was an order backlog of $1,275,000
for catalyst research instruments, of which approximately $1,035,000 is
scheduled to be fulfilled in the fourth quarter.
The gross profit percentage for the three months ended March 31, 2008
decreased to 35.9% from 38.4% for the three months ended March 31,
2007, mainly as a result of (i) lower gross margins for the catalyst
research products resulting from lower sales while incurring certain
fixed costs and (ii) increased basic raw material costs for the
benchtop laboratory equipment operations.
General and administrative ("G&A") expenses for the three months ended
March 31, 2008 decreased by $44,600 (16.0%) to $234,900 from $279,500
for the comparable 2007 period, primarily because the prior year period
reflected higher professional fees, partially offset in the current
year period by costs pertaining to Sarbanes-Oxley Act compliance.
13
Selling expenses for the three months ended March 31, 2008 decreased by
$9,000 (7.9%) to $105,100 from $114,100 for the three months ended
March 31, 2007, as a result of reduced marketing expenses of the
benchtop laboratory equipment operations.
Research and development expenses for the three months ended March 31,
2008 increased by $39,200 (59.4%) to $105,200 from $66,000 for the
three months ended March 31, 2007, due mainly to accelerated research
and development activity for new benchtop laboratory equipment
products.
Interest and other income, net increased by $8,900 (89.0%) from $10,000
to $18,900 for the three month comparative periods ended March 31, 2008
and 2007, mainly as a result of interest earned on customer advances
on orders for catalyst research instruments.
Income tax expense for the three months ended March 31, 2008 was
$20,300 compared to $23,000 for the 2007 comparative period.
As a result of the foregoing, net income for the three months ended
March 31, 2008 increased by $7,500 (17.9%) to $49,300, from $41,800
for the three months ended March 31, 2007.
The Nine Months Ended March 31, 2008 Compared With the Nine Months
Ended March 31, 2007
Net sales for the nine months ended March 31, 2008 increased by
$1,320,500 (38.8%) to $4,727,700 as compared with $3,407,200 for the
nine months ended March 31, 2007 as a result of the inclusion of
revenues of the catalyst research instruments operations for the full
nine months ended March 31, 2008, compared to only four months in the
2007 period, and a $263,100 (10.0%) increase in sales of the Company's
benchtop laboratory equipment. Sales of the catalyst research
instruments differ from those of the benchtop laboratory equipment in
that sales of the catalyst research instruments are comprised of a
small number of larger orders, typically averaging more than $100,000
each; hence sales revenues can vary greatly from period to period. As
of March 31, 2008, there was an order backlog of $1,275,000 for
catalyst research instruments, of which approximately $1,035,000 is
scheduled to be fulfilled in the fourth quarter.
The gross profit percentage for the nine months ended March 31, 2008
decreased to 37.5% compared to 40.8% for the nine months ended March
31, 2007, mainly as a result of (i) lower gross margins for the
catalyst research instruments resulting from lower sales during the
three months ended March 31, 2008, higher sales of peripherals and
additional engineer training costs and (ii) increased basic raw
material costs for the benchtop laboratory equipment operations.
G & A expenses for the nine months ended March 31, 2008 increased by
$96,500 (14.8%) to $748,200 from $651,700 for the comparable period of
the prior year, principally the result of (i) the inclusion in the
prior year period of the catalyst research instruments operations for
only the four months ended March 31, 2007, (ii) increased staffing
costs of the laboratory equipment operations, and (iii) costs
pertaining to Sarbanes-Oxley Act compliance and (iv) increased
directors fees.
14
Selling expenses for the nine months ended March 31, 2008 increased by
$89,900 (34.2%) to $352,800 from $262,900 for the nine months ended
March 31, 2007, as a result of the inclusion of the catalyst research
instruments operations for only four months for the 2007 period,
partially offset by lower marketing expenses of the benchtop laboratory
equipment operations.
Research and development expenses for the nine months ended March 31,
2008 were $284,800, an increase of $50,400 (21.5%) from $234,400 for
the nine months ended March 31, 2007, due mainly to accelerated
research and development activity for new laboratory equipment
products.
Interest and other income, net, increased by $7,000 (16.7%) to $48,800
for the nine month period ended March 31, 2008 compared to $41,800 for
the prior year same period, primarily as a result of interest earned on
customer advances on orders for catalyst research instruments.
Income tax expense for the nine months ended March 31, 2008 increased
by $48,500 (51.5%) to $142,600 from $94,100 for the nine months ended
March 31, 2007, mainly due to the higher income.
As a result of the foregoing, net income for the nine months ended
March 31, 2008 was $292,200, an increase of $103,700 (55.0%) from
$188,500 for the nine months ended March 31, 2007.
Item 3. 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 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.
There was no change in the Company's internal controls over financial
reporting that occurred during the most recent fiscal quarter that
materially affected or is reasonably likely to materially affect the
Company's internal controls over financial reporting.
15
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.
16
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Scientific Industries, Inc.
Registrant
/s/Helena R. Santos
__________________________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: May 15, 2008
17