UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2009
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________ _________
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
_____________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ ________________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
70 Orville Drive, Bohemia, New York 11716
______________________________________________________________________
(Address of principal executive offices) (Zip Code)
(631)567-4700
______________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
_______ _______
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer Accelerated Filer
___________ __________________
Non-accelerated filer Smaller reporting company X
____________ __________
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
_____ _____
The number of shares outstanding of the issuer's common stock par value,
$0.05 per share, as of May 4, 2009 was 1,192,577 shares.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2009 2008
---------- ----------
Current Assets: (Unaudited)
Cash and cash equivalents $ 350,100 $1,065,500
Investment securities 580,900 682,400
Trade accounts receivable, less
allowance for doubtful accounts of $11,600
as of March 31, 2009 and June 30, 2008 649,700 454,800
Inventories 1,825,500 1,521,400
Prepaid expenses and other current assets 78,800 84,700
Deferred taxes 60,200 31,400
---------- ----------
Total current assets 3,545,200 3,840,200
Property and equipment at cost, less accumulated
depreciation of $641,100 as of March 31, 2009
and $586,900 as of June 30, 2008 225,600 247,400
Intangible assets, less accumulated amortization
of $400,700 as of March 31, 2009, and $299,900
as of June 30, 2008 362,000 454,600
Goodwill 224,400 158,400
Other 46,000 46,000
Deferred taxes 60,100 30,200
----------- ----------
Total assets $4,463,300 $4,776,800
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 221,100 $ 241,800
Customer advances 177,800 379,300
Accrued expenses and taxes 327,400 442,900
Loan payable, bank 50,000 -
---------- ----------
Total current liabilities 776,300 1,064,000
---------- ----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,205,154 issued and outstanding at March 31, 2009 and
1,201,154 as of June 30, 2008 60,200 60,000
Additional paid-in capital 1,514,800 1,507,000
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 82,400) ( 44,400)
Retained earnings 2,246,800 2,242,600
------------ -----------
3,739,400 3,765,200
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
------------ -----------
Total shareholders' equity 3,687,000 3,712,800
------------ -----------
Total liabilities and
shareholders' equity $4,463,300 $4,776,800
============ ===========
See notes to condensed consolidated financial statements (unaudited)
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
---------------------------------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net sales $1,423,700 $1,381,800 $4,151,000 $4,727,700
Cost of goods sold 866,400 885,900 2,642,900 2,955,900
---------- ---------- ---------- ----------
Gross profit 557,300 495,900 1,508,100 1,771,800
---------- ---------- ---------- ----------
Operating Expenses:
General & administrative 272,000 234,900 767,100 748,200
Selling 114,400 105,100 314,400 352,800
Research & development 103,500 105,200 317,700 284,800
---------- ---------- --------- ----------
489,900 445,200 1,399,200 1,385,800
---------- ---------- --------- ----------
Income from operations 67,400 50,700 108,900 386,000
Interest & other
income, net 4,700 18,900 22,600 48,800
---------- ---------- --------- ----------
Income before income taxes 72,100 69,600 131,500 434,800
---------- ---------- --------- ----------
Income tax expense (benefit):
Current 28,100 23,900 64,500 166,100
Deferred ( 13,000) ( 3,600)( 31,700) ( 23,500)
----------- ----------- ---------- -----------
15,100 20,300 32,800 142,600
----------- ----------- ---------- -----------
Net income $ 57,000 $ 49,300 $ 98,700 $ 292,200
========== =========== ========== ===========
Basic earnings per common
share $ .05 $ .04 $ .08 $ .25
Diluted earnings per common
share $ .05 $ .04 $ .08 $ .24
Cash dividends declared
per common share $ - $ - $ .08 $ .07
See notes to condensed consolidated financial statements (unaudited)
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 2009 March 31, 2008
-------------- --------------
Operating activities:
Net income $ 98,700 $ 292,200
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 155,000 163,100
Deferred income taxes ( 31,700) ( 23,500)
Stock-based compensation 2,700 2,300
Income tax benefit of stock options
exercised 2,000 14,000
Changes in assets and liabilities:
Accounts receivable (194,900) ( 3,900)
Inventories (304,100) (499,000)
Prepaid expenses and other
current assets 5,900 ( 97,700)
Other assets - ( 300)
Accounts payable ( 20,700) ( 54,100)
Customer advances (201,500) 1,123,200
Accrued expenses and taxes ( 36,600) 13,900
------------- ------------
Total adjustments (623,900) 638,000
------------- ------------
Net cash provided by (used in)
operating activities (525,200) 930,200
------------- ------------
Investing activities:
Additional consideration for
Altamira Instruments, Inc. acquisition (144,900) ( 102,800)
Purchase of investment securities,
available-for-sale ( 13,600) ( 18,500)
Redemptions of investment securities,
available-for-sale 50,000 -
Capital expenditures ( 32,300) ( 60,900)
Purchase of intangible assets ( 8,200) ( 5,100)
------------ -----------
Net cash used in
investing activities (149,000) ( 187,300)
------------ -----------
Financing activities:
Proceeds from exercise of stock options 3,300 62,900
Proceeds from line of credit, bank 50,000 -
Cash dividends declared and paid ( 94,500) ( 80,200)
------------ -----------
Net cash used in ( 41,200) ( 17,300)
financing activities ------------ -----------
Net increase (decrease) in cash
and cash equivalents ( 715,400) 725,600
Cash and cash equivalents,
beginning of year 1,065,500 388,700
----------- -----------
Cash and cash equivalents, end of period $ 350,100 $1,114,300
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 125,000 $ 111,300
See notes to condensed consolidated financial statements (unaudited)
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 and in conformity with U.S. Generally
Accepted Accounting Principles applicable to interim
financial statements and on a basis that is consistent with
the accounting principles applied in our Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2008.
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-KSB, for the fiscal
year ended June 30, 2008. The results for the three and
nine months ended March 31, 2009, are not necessarily an
indication of the results for the full fiscal year ending
June 30, 2009.
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 Packaging Industries, Inc., an inactive 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 Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 157,
"Fair Value Measurements," which defines fair value, establishes a
framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurement.
SFAS No. 157 does not require any new fair value measurements. The
provisions of SFAS No. 157 are effective for financial statements
issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. In January 2008, the FASB
deferred the effective date for one year for certain non-financial
assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on
a recurring basis (at least annually). The adoption of this standard
and such application had no impact on the Company's financial
condition, results of operations, or cash flows.
4
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
allows entities to choose to measure eligible financial instruments
at fair value with changes in fair value recognized in earnings of
each subsequent reporting date. The fair value election is
available for most financial assets and liabilities on an
instrument-by-instrument basis and is to be elected on the date the
financial instrument is initially recognized. SFAS 159 is effective
for all entities as of the beginning of a reporting entity's first
fiscal year that begins after November 15, 2007 (with earlier
application permitted under certain circumstances). The adoption of
SFAS No. 159 had no impact on the Company's financial position or
statement of operations.
In April 2008, the FASB issued FSP 142-3, "Determination of the
Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3 amends
the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142, "Goodwill and Other
Intangible Assets." FSP 142-3 is effective for fiscal years
beginning after December 15, 2008. The Company is currently
assessing the impact of FSP 142-3 on its financial position and
results of operations.
3. Acquisition of Altamira Instruments, Inc.:
On November 30, 2006, the Company acquired all of the outstanding
capital stock of Altamira. The acquisition was pursuant to a Stock
Purchase Agreement (the "Agreement") whereby the Company paid to
the sellers $400,000, issued to them 125,000 shares of the
Company's Common Stock and agreed to make additional cash payments
equal to 5%, subject to adjustment, of the net sales 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.
Altamira's principal customers are universities, government
laboratories, and chemical and petrochemical companies. The
instruments are customized to the customer's specifications, and
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 8, "Goodwill and Other Intangible Assets" which represent
the valuations determined in conjunction with the acquisition.
In addition, other fair market value adjustments were made in
conjunction with the acquisition, primarily adjustments to
property and equipment, and inventory.
5
As of March 31, 2009, the adjusted aggregate purchase price of
$1,200,900 was allocated to assets acquired and liabilities assumed
as follows:
Current assets $ 734,000
Property and equipment 140,300
Non-current assets 25,100
Goodwill 224,400
Other intangible assets 639,000*
Current liabilities ( 561,900)
-----------
Adjusted purchase price $1,200,900
-----------
*Of the $639,000 of other intangible assets, $237,000 was allocated
to customer relationships with a weighted-average estimated useful
life of 10 years, $300,000 was allocated to technology including
trade names and trademarks with a useful life of 5 years, and
$102,000 was allocated to a non-compete agreement with a useful life
of 5 years. The other intangible assets are being amortized on a
straight-line basis except that the amount allocated to the customer
relationships is being amortized on an accelerated (declining
balance) method.
4. Segment Information and Concentrations:
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").
Segment information is reported as follows:
Three Months Ended March 31, 2009
-----------------------------------------------------------------------
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Net Sales $ 928,000 $ 495,700 $ - $1,423,700
Foreign Sales 547,400 162,500 - 709,900
Profit(Loss) 93,800 ( 26,400) 4,700 72,100
Segment Assets 2,200,200 1,337,400 925,700 4,463,300
Long-Lived Asset
Expenditures 8,000 - - 8,000
Depreciation and
Amortization 14,500 35,600 - 50,100
6
Three Months Ended March 31, 2008
-----------------------------------------------------------------------
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Net Sales $ 945,800 $ 436,000 $ - $1,381,800
Foreign Sales 489,100 60,800 - 549,900
Profit(Loss) 78,700 ( 28,000) 18,900 69,600
Long-Lived Asset
Expenditures 27,600 - - 27,600
Depreciation and
Amortization 13,600 37,900 - 51,500
Approximately 67% and 68% of net sales of the benchtop laboratory
equipment operation for the three month periods ended March 31, 2009
and 2008, respectively, were derived from the Company's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment operation customers accounted in
the aggregate for approximately 26% of the segment's net sales (17%
of total net sales) and 34% of the segment's net sales (23% of total
net sales) for the three month periods ended March 31, 2009 and
2008, respectively. One of the two customers, a major distributor,
which accounted for approximately 14% and 19% of the segment's net
sales for the three month periods ended March 31, 2009 and 2008,
respectively (9% and 13% of total net sales for the 2009 and 2008
periods, respectively) discontinued the inclusion of the Company's
benchtop laboratory equipment products in its new catalog which was
released in January 2009. While the customer is continuing to sell
the products through its website, Company placed advertisements in
the distributor's interim publications, and directly upon request
from its customers, the Company expects that there will be a
reduction in sales from this customer. To mitigate the possible
material adverse effect of the discontinuance, the Company has
increased advertisements placed in the distributor's interim
publications, and began expanding its selling efforts with a view to
increasing sales to other existing distributors. No assurance can be
given that the Company will be successful in those efforts.
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 new or repeat customers. Sales to three
customers, combined, accounted for 96% of the catalyst research
instrument operation sales (33% of total net sales) for the three
month period ended March 31, 2009. Three other customers, combined,
accounted for 84% of the segment's sales (25% of total net sales)
for the three months ended March 31, 2008.
7
Nine Months Ended March 31, 2009
-----------------------------------------------------------------------
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Net Sales $2,830,400 $1,320,600 $ - $4,151,000
Foreign Sales 1,673,000 254,000 - 1,927,000
Profit(Loss) 293,600 ( 184,700) 22,600 131,500
Segment Assets 2,200,200 1,337,400 925,700 4,463,300
Long-Lived Asset
Expenditures 12,500 19,800 - 32,300
Depreciation and
Amortization 43,900 111,100 - 155,000
Nine Months Ended March 31, 2008
-----------------------------------------------------------------------
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Net Sales $2,882,100 $1,845,600 $ - $4,727,700
Foreign Sales 1,475,900 200,800 - 1,676,700
Profit 267,000 119,000 48,800 434,800
Long-Lived Asset
Expenditures 53,600 7,300 - 60,900
Depreciation and
Amortization 42,200 120,900 - 163,100
Approximately 68% and 69% of net sales of the benchtop laboratory
equipment operation for the nine month periods ended March 31, 2009
and 2008, respectively, were derived from the Company's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment operation customers accounted in
the aggregate for approximately 29% and 32% of the segment's net
sales for the nine month periods ended March 31, 2009 and 2008,
respectively (20% and 19% of total net sales for the 2009 and 2008
periods, respectively). One of the two, the major distributor (which
as discussed above, discontinued the inclusion of the Company's
products in its new catalog), accounted for approximately 15% and
20% of the segment's net sales for the 2009 and 2008 nine month
periods, respectively, (10% and 12% of total net sales for the 2009
and 2008 periods, respectively).
Sales of the catalyst research instruments operation to two
customers, accounted for approximately 27% of that segment's net
sales (12% of total net sales) for the nine months ended March 31,
2009. Sales to two other customers accounted for 45% of the
segment's net sales (18% of total net sales) for the nine month
period ended March 31, 2008.
The Company's foreign sales are principally made to customers in
Asia and Europe.
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, June 30,
2009 2008
----------- ------------
Raw Materials $ 1,186,000 $ 1,037,900
Work in process 411,500 288,600
Finished Goods 228,000 194,900
----------- -----------
$ 1,825,500 $ 1,521,400
=========== ===========
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, if any.
Earnings per common share was computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
------------------- --------------------
2009 2008 2009 2008
------------------- --------------------
Net income $ 57,000 $ 49,300 $ 98,700 $ 292,200
======== ======== ========= =========
Weighted average common
shares outstanding 1,184,730 1,166,011 1,182,461 1,152,261
Effect of dilutive
securities 22,182 43,536 29,071 49,907
--------- --------- --------- ---------
Weighted average
dilutive common shares
outstanding 1,206,912 1,209,547 1,211,532 1,202,168
========= ========= ========= =========
Basic earnings per
common share $ .05 $ .04 $ .08 $ .25
Diluted earnings per
common share $ .05 $ .04 $ .08 $ .24
Approximately 6,500 shares of the Company's common stock issuable
upon the exercise of outstanding options were excluded from the
calculation of diluted earnings per common share for the three and
nine months ended March 31, 2009, because the effect would be anti-
dilutive.
7. Comprehensive Income (Loss):
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for disclosure of
comprehensive income or loss, 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 (loss) were as
follows:
9
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
------------------- ------------------
2009 2008 2009 2008
--------- --------- -------- --------
Net Income $ 57,000 $ 49,300 $ 98,700 $292,200
========= ========= ======== ========
Other comprehensive (loss):
Unrealized holding
loss arising during
period, net of tax ( 400) ( 20,000) ( 48,800) ( 28,400)
---------- --------- ---------- ---------
Comprehensive income $ 56,600 $ 29,300 $ 49,900 $263,800
========= ========= ========== =========
8. Goodwill and Other Intangible Assets:
In conjunction with the acquisition of Altamira, management of the
Company evaluated the tangible and intangible assets acquired,
including customer relationships, non-compete agreements and
technology which encompasses trade names, trademarks and licenses.
The acquisition agreement provides contingent additional payments to
shareholders based on net sales of the catalyst research instrument
operations subject to certain limits, which are expected to be
earned and paid. Additional consideration accrued for the nine
months ended March 31, 2009 amounted to $66,000, which resulted in
an increase of goodwill to $224,400 at March 31, 2009 from $158,400
at June 30, 2008.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
-------- --------- ------------ ---------
At March 31, 2009:
Technology 5 yrs. $300,000 $140,000 $160,000
Customer relationships 10 yrs. 237,000 120,900 116,100
Non-compete agreement 5 yrs. 102,000 47,600 54,400
Other intangible assets 5 yrs. 123,700 92,200 31,500
-------- -------- --------
$762,700 $400,700 $362,000
-------- -------- --------
Useful Accumulated
Lives Cost Amortization Net
-------- --------- ------------ ---------
At June 30, 2008:
Technology 5 yrs. $300,000 $ 95,000 $205,000
Customer relationships 10 yrs. 237,000 90,600 146,400
Non-compete agreement 5 yrs. 102,000 32,300 69,700
Other intangible assets 5 yrs. 115,500 82,000 33,500
-------- -------- --------
$754,500 $299,900 $454,600
-------- -------- --------
Total amortization expense was $31,800 and $34,700 for the three months
ended March 31, 2009 and 2008, respectively and $100,800 and $112,800
for the nine months ended March 31, 2009 and 2008, respectively. As
of March 31, 2009, estimated future amortization expense related to
intangible assets is $30,500 for the last three months of fiscal year
ending June 30, 2009, $119,600 for fiscal 2010, $107,900 for fiscal
2011, $51,000 for fiscal 2012, $11,500 for fiscal 2013, and $41,500
thereafter.
10
9. Line of Credit
The Company has a line of credit with Capital One Bank, N.A.
("Bank"), which provides for maximum borrowings of up to $500,000.
Interest is charged at the Bank's prime rate, which was 3.25% as of
March 31, 2009. The Company had borrowings outstanding of $50,000
under this line of credit as of March 31, 2009.
The line of credit is collaterized by the Company's assets to the
extent borrowed and outstanding and all outstanding amounts are due
and payable on November 1, 2009.
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 decreased by $715,400 to $350,100 as of March
31, 2009 from $1,065,500 as of June 30, 2008.
Net cash used in operating activities was $525,200 for the nine months
ended March 31, 2009 as compared to net cash provided by operating
activities of $930,200 for the comparable nine month period in 2008; the
change was due mainly to the use of a substantial amount of cash
payments on orders received in advance in the prior year period from
catalyst research instruments operation customers, and lower income.
Cash used in investing activities was $149,000 for the nine months
ended March 31, 2009, compared to $187,300 for the nine months ended
March 31, 2008 mainly due to investment redemptions during the current
year period. Net cash used in financing activities increased to
$41,200 compared to $17,300 for the 2008 period due to lower proceeds
from stock option exercises and higher dividends, partially offset by
borrowings under an existing line of credit.
On September 26, 2008, the Board of Directors of the Company declared a
cash dividend of $.08 per share of Common Stock which was paid on
January 15, 2009 to holders of record as of the close of business on
October 27, 2008.
The Company's working capital of $2,768,900 as of March 31, 2009
approximated the working capital of $2,776,200 as of June 30, 2008. The
Company has available for its working capital needs, a one-year line of
credit of $500,000 with Capital One Bank, N.A. expiring in November
2009. The Company had borrowings of $50,000 outstanding under this
line at March 31, 2009. Advances under the line are secured by the
Company's assets and bears interest at the bank's prime rate.
Management believes that the Company will be able to meet its cash
flow needs during the 12 months ending March 31, 2010 from its
available financial resources including its cash and investment
securities, and operations.
12
Results of Operations
---------------------
Financial Overview
------------------
The Company's income before income taxes was $72,100 and $131,500,
respectively, for the three and nine month periods ended March 31, 2009
compared to $69,600 and $434,800 for the 2008 three month periods. For
the comparative three month periods, the benchtop laboratory equipment
operations had an increase in operating income of $15,100 (19%)
principally due to lower research and development expenses, while the
catalyst research instruments operations incurred a loss of $26,400,
approximately the same for the comparative three month periods. For the
comparative nine month periods, the benchtop laboratory equipment
operations' operating income was $26,600 (10%) higher ($293,600 versus
$267,000) due to lower operating expenses. The catalyst research
instruments operations, however, incurred a loss of $184,700 for the
nine months ended March 31, 2009 as compared to a profit of $119,000
for the prior year nine month period. The loss was the result of
lower sales, and, to a lesser extent, increased research and
development expenses for new product development, which was partially
offset by lower sales commissions. Sales by the catalyst research
instrument operations comprise a small number of large orders,
(typically averaging more than $100,000 each) and as a result, the
segment experiences significant swings in its revenues and profits.
As of March 31, 2009, backlog for this segment was approximately
$750,000, (as compared to $1,275,000 as of March 31, 2008)
substantially all of which is expected to be shipped and recognized
in the current fiscal year.
While the slowdown in the nation's economy has had to date only a
limited adverse effect on the Company's operations, no representation
can be made as to the adverse effect and its duration on the Company's
results particularly as to research grants to customers which fund
in part their benchtop laboratory equipment purchases and the
financings of potential customers for the purchase of catalyst
research instruments.
The Three Months Ended March 31, 2009 Compared With the Three Months
Ended March 31, 2008
--------------------------------------------------------------------
Net sales for the three months ended March 31, 2009 increased $41,900
(3.0%) to $1,423,700 from $1,381,800 for the three months ended March
31, 2008 as a result of higher sales of the catalyst research
instruments operations during the current year period compared to the
2008 period. Sales of benchtop laboratory equipment products which are
generally pursuant to many small purchase orders from distributors,
reflected a small decrease of $17,800 (1.9%). The Company learned in
January 2009 that the new catalog of one of its distributors, to which
the Company had sales accounting for 14% and 19% of the segment's net
sales for the three months ended March 31, 2009 and 2008, respectively,
no longer includes the Company's products. The products will continue
to be offered by the distributor through its website, Company-placed
advertisements in the distributor's interim publications, and in
response to telephone inquiries; however, the Company expects that
there will be a reduction in sales from this customer. To mitigate
the possible adverse effect, the Company began increasing its
advertisements in the distributor's interim publications and to
expand its selling efforts to other distributors. No assurances
can be given that such efforts will be successful.
13
Sales of the catalyst research instruments operations are comprised of a
small number of larger orders, typically averaging over $100,000 each;
hence sales revenues are subject to significant swings. As of March 31,
2009 there was a backlog of approximately $750,000 for catalyst research
instruments (substantially all of which is expected to be shipped and
recognized in the current fiscal year) compared to $1,275,000 as of
March 31, 2008.
The gross profit percentage for the three months ended March 31, 2009
increased to 39.1% from 35.9% for the three months ended March 31, 2008,
mainly due to higher sales of the catalyst research instrument
operations for the comparative periods.
General and administrative expenses ("G&A") for the three month
comparative periods ended March 31, 2009 and March 31, 2008 increased by
$37,100 (15.8%) to $272,000 from $234,900 primarily as a result of
higher expenses for the catalyst research instruments operations.
Selling expenses for the three months ended March 31, 2009 increased
$9,300 (8.8%) to $114,400 compared to $105,100 for the three months
ended March 31, 2008, due primarily to an increase in promotional
expenses for the laboratory equipment operations. The Company
intends to further expand its benchtop laboratory equipment sales
efforts to include the engagement of one full-time sales person.
Interest and other income for the three months ended March 31, 2009
decreased by $14,200 to $4,700 compared to $18,900 for the three months
ended March 31, 2008 as a result of the reduction of cash and
investments balances.
Income tax expense for the three months ended March 31, 2009 was $15,100
compared to $20,300 for the three months ended March 31, 2008.
As a result of the foregoing, net income for the three months ended
March 31, 2009 was $57,000, an increase of $7,700 (15.6%) from $49,300
for the three months ended March 31, 2008.
The Nine Months Ended March 31, 2009 Compared With the Nine Months Ended
March 31, 2008
------------------------------------------------------------------------
Net sales for the nine months ended March 31, 2009 decreased by $576,700
(12.2%)to $4,151,000 compared to $4,727,700 for the nine months ended
March 31, 2008, due to reductions in sales of $525,000 by the catalyst
research instruments operations, and $51,700 by the benchtop laboratory
equipment operations. Sales of benchtop laboratory equipment products
generally are comprised of many small purchase orders from distributors.
The Company learned in January 2009 that the new catalog of one of its
distributors, sales to which accounted for 15% and 20% of the segment's
net sales for the nine month periods ended March 31, 2009, and 2008,
respectively, no longer includes the Company's products. The products
will continue to be offered by the distributor through its website,
advertisements placed by the Company in the distributor's interim
publications, and by customer telephone inquiries. To mitigate the
possible adverse effect of lower sales, the Company began to increase
its advertisements in the distributor's interim publications and expand
its selling efforts to other distributors. No assurance can be given
that such efforts will be successful.
14
Sales of catalyst research instruments are comprised of a small number
of large orders, typically averaging over $100,000 each; hence revenues
are subject to significant swings. Although order input for the current
year nine month period has been steady, the average order amounts are
lower than in the prior year, which can be partially attributable to
current economic conditions causing a reduction in funding of large
purchases. As of March 31, 2009 there was a backlog of approximately
$750,000 for the catalyst research instruments compared to $1,275,000
as of March 31, 2008.
The gross profit percentage for the nine months ended March 31, 2009
decreased to 36.3% compared to 37.5% for the nine months ended March 31,
2008, mainly due to lower sales for the catalyst research instruments
operations.
G & A expenses for the nine months ended March 31, 2009 increased
slightly by $18,900 (2.5%) to $767,100 from $748,200 for the comparable
period last year, primarily as a result of higher expenses for the
catalyst research instrument operations.
Selling expenses for the nine months ended March 31, 2009 decreased by
$38,400 (10.9%) to $314,400 from $352,800 for the nine months ended
March 31, 2008, due primarily to lower commissions with respect to
catalyst research instruments sales.
Research and development expenses for the nine months ended March 31,
2009 increased $32,900 (11.6%) to $317,700 compared to $284,800 for the
nine months ended March 31, 2008, primarily the result of an increase in
such expenses by the catalyst research instruments operation.
Interest and other income for the nine month period ended March 31, 2009
decreased by $26,200 from $48,800 for the prior year nine month period
to $22,600 for the nine months ended March 31, 2009, reflecting the
effect of smaller cash and investment securities balances.
Income tax expense for the nine months ended March 31, 2009 was $32,800
compared to $142,600 for the nine months ended March 31, 2008, mainly
due to the lower income for the current year period.
As a result of the foregoing, net income for the nine months ended March
31, 2009 was $98,700, a decrease of $193,500 (66.2%) from $292,200 for
the nine months ended March 31, 2008.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, based on an evaluation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934), the Chief
Executive and Chief Financial Officer of the Company has concluded
that the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company
in its Exchange Act reports is recorded, processed, summarized and
reported within the applicable time periods specified by the SEC's
rules and forms. The Company also concluded that information
required to be disclosed in such reports is accumulated and
communicated to the Company's management, including its principal
executive and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
15
Changes in Internal Control Over Financial Reporting. There was no
change in the Company's internal controls over financial reporting
that occurred during the most recent fiscal quarter that materially
affected or is reasonably likely to materially affect the Company's
internal controls over financial reporting.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(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, 2009
17