UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended September 30, 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 small
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "small reporting company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer Accelerated Filer
______ _______
Non-accelerated filer Smaller reporting company X
______ _______
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
The number of shares outstanding of the issuer's common stock par value,
$0.05 per share, as of November 6, 2009 was 1,196,577 shares.
CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINACIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condesned Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 11
ITEM 4 CONTROLS AND PROCEDURES 13
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
EXHIBITS 16
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2009 2009
------------- ---------
Current Assets: (Unaudited)
Cash and cash equivalents $ 654,500 $ 738,400
Investment securities 638,700 605,500
Trade accounts receivable, net 621,100 806,700
Inventories 1,974,100 1,598,000
Prepaid expenses and other current assets 50,300 91,600
Deferred taxes 71,200 63,400
---------- ----------
Total current assets 4,009,900 3,903,600
Property and equipment at cost, net 228,200 241,200
Intangible assets, net 300,200 330,900
Goodwill 277,000 265,400
Other assets 25,700 25,700
Deferred taxes 71,500 64,200
---------- -----------
Total assets $4,912,500 $4,831,000
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 131,500 $ 137,400
Customer advances 541,700 359,600
Accrued expenses and taxes 243,100 423,500
Dividends payable 71,800 -
---------- -----------
Total current liabilities 988,100 920,500
---------- -----------
Shareholders' Equity:
Common stock, $.05 par value; authorized
7,000,000 shares; 1,216,379 and 1,212,379
issued and outstanding at September 30,
2009 and June 30, 2009 60,800 60,600
Additional paid-in capital 1,520,200 1,514,300
Accumulated other comprehensive loss ( 43,500) ( 79,600)
Retained earnings 2,439,300 2,467,600
------------ -----------
3,976,800 3,962,900
Less common stock held in treasury,
at cost, 19,802 shares 52,400 52,400
------------ -----------
Total shareholders' equity 3,924,400 3,910,500
------------ -----------
Total liabilities and
shareholders' equity $ 4,912,500 $4,831,000
============ ===========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month
Periods Ended
September 30,
--------------------------
2009 2008
---------- ----------
Net sales $1,244,000 $ 972,300
Cost of goods sold 708,200 637,200
---------- ----------
Gross profit 535,800 335,100
---------- ----------
Operating Expenses:
General & administrative 229,600 245,600
Selling 142,200 114,200
Research & development 108,500 96,600
---------- ----------
480,300 456,400
---------- ----------
Income (loss) from operations 55,500 ( 121,300)
Interest & other income, net 4,100 11,200
---------- ------------
Income (loss) before income taxes 59,600 ( 110,100)
---------- ------------
Income tax expense (benefit):
Current 24,500 ( 21,700)
Deferred ( 8,400) ( 10,300)
----------- ------------
16,100 ( 32,000)
----------- ------------
Net income (loss) $ 43,500 ($ 78,100)
========== ============
Basic earnings (loss) per common
share $ .04 ($ .07)
Diluted earnings (loss) per common
share $ .04 ($ .07)
Cash dividends declared
per common share $ .06 $ .08
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2009 Sept. 30, 2008
-------------- --------------
Operating activities:
Net income (loss) $ 43,500 ($ 78,100)
----------- -----------
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 51,700 52,800
Deferred income taxes ( 8,400) ( 10,300)
Income tax benefit of stock options
exercised 400 -
Stock-based compensation 400 700
Changes in assets and liabilities:
Accounts receivable 185,600 6,700
Inventories ( 376,100) ( 339,900)
Prepaid expenses and other
current assets 41,300 22,300
Accounts payable ( 5,900) ( 54,300)
Customer advances 182,100 ( 21,800)
Accrued expenses and taxes ( 84,900) ( 90,200)
----------- ------------
Total adjustments ( 13,800) ( 434,000)
----------- ------------
Net cash provided by (used in)
operating activities 29,700 ( 512,100)
----------- ------------
Investing activities:
Additional consideration for acquisition
of Altamira Instruments, Inc. ( 107,000) ( 144,900)
Purchase of investment securities,
available-for-sale ( 3,800) ( 3,600)
Capital expenditures ( 6,600) ( 5,700)
Purchases of intangible assets ( 1,500) ( 3,400)
----------- ------------
Net cash used in investing
activities ( 118,900) ( 157,600)
----------- ------------
Financing activities,
proceeds from exercise of stock options 5,300 -
----------- ------------
Net decrease in cash and cash
equivalents ( 83,900) ( 669,700)
Cash and cash equivalents,
beginning of period 738,400 1,065,500
----------- ------------
Cash and cash equivalents, end of
period $ 654,500 $ 395,800
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 116,800 $ 75,000
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-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, 2009. The results
for the three months ended September 30, 2009, are not necessarily
an indication of the results of the full fiscal year ending June
30, 2010.
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 June 2009, the Financial Accounting Standards Board ("FASB")
issued the Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles ("GAAP") which became the
single source of authoritative, nongovernmental GAAP in the United
States, except for rules and interpretive releases of the Securities
and Exchange Commission ("SEC"), which are additional sources of
authoritative GAAP for SEC registrants. The Codification did not
change GAAP, but it introduced a new indexing structure for GAAP
literature that is organized by topic in an online research system.
Adoption of the Codification in the three month period ended
September 30, 2009 had no impact on the Company's condensed
consolidated financial statements.
In May 2009, the FASB issued new accounting guidance which
established general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The new
accounting guidance requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date
the financial statements were issued or were available to be issued.
The Company's adoption of this accounting guidance had no impact on
its consolidated financial statements. The Company evaluated
4
subsequent events through November 16, 2009, the date this Quarterly
Report on Form 10-Q was filed.
In April 2009, the FASB issued additional accounting guidance on how
to determine fair value of financial assets and liabilities when the
volume and level of activity for an asset or liability have
significantly decreased and how to identify transactions that are
not orderly in light of the current economic environment. If the
Company were to conclude that there has been a significant decrease
in the volume and level of activity of an asset or liability in
relation to normal market activities, quoted market values may not
be representative of fair value and the Company may conclude that a
change in valuation technique or the use of multiple valuation
techniques may be appropriate. The accounting guidance also
clarified the recognition and presentation of other-than-temporary
impairments of securities to bring consistency to the timing of
impairment recognition, and provide clarity to investors about the
credit and noncredit components of impaired debt securities that are
not expected to be sold. In addition, the accounting guidance
required disclosures about fair value of financial instruments in
annual financial statements of publicly traded companies to also be
disclosed during interim reporting periods. The Company's adoption
of the accounting guidance in the three month period ended September
30, 2009 had no impact on the Company's consolidated financial
statements and only required additional financial statement
disclosures (see Note 5).
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 in cash, and 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 customizable 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 9,
"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 September 30, 2009, the total adjusted aggregate purchase price,
including the additional cash payments of $329,700 which have been
paid or accrued, was allocated to acquired assets acquired and
liabilities assumed as follows:
Current assets $ 734,000
Property and equipment 140,300
Non-current assets 25,100
Goodwill 277,000
Other intangible assets 639,000*
Current liabilities ( 561,900)
-----------
Net purchase price $1,253,500
===========
*Of the $639,000 of other intangible assets, $237,000 was allocated
to customer relationships with an 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
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.
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:
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Three months ended September 30, 2009:
Net Sales $1,011,600 $ 232,400 $ - $1,244,000
Foreign Sales 510,900 145,500 - 656,400
Segment Profit (Loss) 121,500 ( 61,900) - 59,600
Segment Assets 2,161,000 1,693,000 1,058,500 4,912,500
Long-Lived Asset
Expenditures 8,100 - - 8,100
Depreciation and
Amortization 15,900 35,800 - 51,700
6
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Three months ended September 30, 2008:
Net Sales $ 886,600 $ 85,700 $ - $ 972,300
Foreign Sales 480,500 69,200 - 549,700
Segment Profit (Loss) 100,900 ( 211,000) - ( 110,100)
Segment Assets 2,351,100 1,120,800 897,400 4,369,300
Long-Lived Asset
Expenditures 6,500 2,600 - 9,100
Depreciation and
Amortization 14,800 38,000 - 52,800
Approximately 65% and 69% of net sales of benchtop laboratory
equipment for the three month periods ended September 30, 2009 and
2008, respectively, were derived from the Company's main product,
the Vortex-Genie 2 mixer, excluding accessories.
Two customers accounted in the aggregate for approximately 34% (28%
of total sales) and 33% (30% of total sales) of the benchtop
laboratory equipment operations' net sales for the three month
periods ended September 30, 2009 and 2008, respectively. Sales of
catalyst research instruments generally comprise a few very large
orders averaging $100,000 per order to a limited numbers of
customers, who differ from order to order. Sales pursuant to two
customers represented approximately 91% of the Catalyst Research
Instrument Operations' net sales (17% of total sales) for the three
months ended September 30, 2009, and sales pursuant to an order from
a different customer represented 60% of the segment's sales (5% of
total sales) for the three months ended September 30, 2008.
The Company's foreign sales are principally to customers in Europe
and Asia.
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the
amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. Fair value measurements do not include
transaction costs.
The accounting guidance also expands the disclosure requirements
around fair value and establishes a fair value hierarchy of
valuation inputs. The hierarchy prioritizes the inputs into three
levels based on the extent to which inputs used in measuring fair
value are observable in the market. Each fair value measurement is
reported in one of the three levels, which is determined by the
lowest level input that is significant to the fair value measurement
in its entirety. These levels are as follows:
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.
7
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and
unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at September 30, 2009 and June 30, 2009 according to the
valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Fair Value at
September 30, 2009 Level 1 Level 2 Level 3
------------------ ------- ------- -------
Cash and cash equivalents $ 654,500 $ 654,500 $ - $ -
Available for sale
securities 638,700 638,700 - -
---------- ---------- ------ ------
Total $1,293,200 $1,293,200 $ - $ -
========== ========== ====== ======
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2009 Level 1 Level 2 Level 3
-------------- ------- ------- -------
Cash and cash equivalents $ 738,400 $ 738,400 $ - $ -
Available for sale
securities 605,500 605,500 - -
----------- --------- ------ ------
Total $ 1,343,900 $1,343,900 $ - $ -
=========== ========== ====== ======
Investments in marketable securities classified as available-for-sale by
security type at September 30, 2009 and June 30, 2009 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
--------- --------- -------------
At September 30, 2009:
Available for sale:
Equity securities $ 7,600 $ 9,900 $ 2,300
Mutual funds 674,600 628,800 (45,800)
--------- --------- ------------
$ 682,200 $ 638,700 $ (43,500)
========= ========= ============
Unrealized
Fair Holding Gain
Cost Value (Loss)
--------- --------- -------------
At June 30, 2009:
Available for sale:
Equity securities $ 6,200 $ 8,900 $ 2,700
Mutual funds 678,900 596,600 (82,300)
--------- --------- ------------
$ 685,100 $ 605,500 $ (79,600)
========= ========= ============
8
6. 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:
September 30, June 30,
2009 2009
------------- ------------
Raw Materials $1,054,300 $1,068,500
Work in process 715,400 321,000
Finished Goods 204,400 208,500
---------- ----------
$1,974,100 $1,598,000
========== ==========
7. Earnings (loss) per common share:
Basic earnings (loss) per common share are computed by dividing
net income (loss) by the weighted-average number of shares
outstanding. Diluted earnings (loss) per common share include
the dilutive effect of stock options, if any.
Earnings (loss) per common share was computed as follows:
For the Three Month
Periods Ended
September 30,
-------------------
2009 2008
---------- ------------
Net income (loss) $ 43,500 ($ 78,100)
========== ============
Weighted average common
shares outstanding 1,194,534 1,181,352
Dilutive securities 9,895 -
---------- ------------
Weighted average dilutive
common shares outstanding 1,204,429 1,181,352
========== ============
Basic earnings (loss) per
common share $ .04 ($ .07)
===== =======
Diluted earnings (loss) per
common share $ .04 ($ .07)
===== =======
Approximately 22,500 and 66,000 shares of the Company's common
stock issuable upon the exercise of outstanding options were
excluded from the calculation of diluted earnings or loss per
common share for the three months ended September 30, 2009 and
2008, respectively, because the effect would be anti-dilutive.
8. Comprehensive Income (Loss):
The FASB 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 or loss is the net unrealized gain or
loss on securities. The components of comprehensive income
(loss) were as follows:
9
For the Three Month
Periods Ended
September 30,
2009 2008
------------------------
Net income (loss) $ 43,500 ($ 78,100)
Other comprehensive gain (loss):
Unrealized holding gain (loss)
arising during period 36,100 ( 23,100)
---------- -----------
Comprehensive income (loss) $ 79,600 ($ 101,200)
=========== ===========
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 approximately $91,500 on the date of
acquisition which was subsequently adjusted to positive
goodwill of $277,000 and $265,400 at September 30, 2009 and
June 30, 2009, respectively, all of which is deductible for
tax purposes. The related agreement provides for contingent
payments to the former shareholders based on net sales for
five designated periods of the Catalyst Research Instrument
Operations subject to certain limits, which are expected to
be earned and paid. Additional consideration amounted to
$11,600 and $4,200 for the three months ended September 30,
2009, and 2008, respectively.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
------- --------- ------------ ------
At September 30, 2009:
Technology 5 yrs. $ 300,000 $ 170,000 $ 130,000
Customer relationships 10 yrs. 237,000 137,500 99,500
Non-compete agreement 5 yrs. 102,000 57,800 44,200
Other intangible assets 5 yrs. 125,900 99,400 26,500
--------- --------- ---------
$ 764,900 $ 464,700 $ 300,200
--------- --------- ---------
Useful Accumulated
Lives Cost Amortization Net
------- --------- ------------ ------
At June 30, 2009:
Technology 5 yrs. $ 300,000 $ 155,000 $ 145,000
Customer relationships 10 yrs. 237,000 129,200 107,800
Non-compete agreement 5 yrs. 102,000 52,700 49,300
Other intangible assets 5 yrs. 124,400 95,600 28,800
--------- --------- ---------
$ 763,400 $ 432,500 $ 330,900
--------- --------- ---------
Total amortization expense was $30,700 and $34,900 for the three months
ended September 30, 2009 and 2008, respectively. As of September 30,
2009, estimated future amortization expense related to intangible
assets is $90,700 for the remainder of the fiscal year ending June
30, 2010, $109,500 for fiscal 2011, $52,600 for fiscal 2012, $13,000
for fiscal 2013, $9,300 for fiscal 2014, and $25,100 thereafter.
10
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 tocustomers'
specifications catalyst research instruments, 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 $83,900 to $654,500 as of
September 30, 2009 from $738,400 as of June 30, 2009.
Net cash provided by operating activities was $29,700 for the three
months ended September 30, 2009 as compared to net cash used in
operating activities of $512,100 for the comparable three month
period in 2008, due mainly to the income generated during the
current year period, lower accounts receivable balances and
monies received in advance from customers of Altamira for future
orders. Cash used in investing activities was $118,900 for the
three month period ended September 30, 2009 compared to $157,600
for the three month period ended September 30, 2008 due primarily
to a lower amount of contingent consideration paid for the
acquisition of Altamira Instruments, Inc. The only financing
activity was the exercise during the three months ended September
30, 2009 in the amount of $5,300 of stock options.
On September 17, 2009, the Board of Directors of the Company
declared a cash dividend of $.06 per share of Common Stock
payable on December 21, 2009 to holders of record as of the
close of business on October 23, 2009.
The Company's working capital increased by $38,700 to $3,021,800
as of September 30, 2009 from the working capital of $2,983,100
at June 30, 2009 mainly as result of the income for the current
three month period. The Company had available for its working
capital needs, a one-year line of credit of $500,000 with Capital
One Bank which expired November 1, 2009, and is currently under
renewal negotiations for a one-year extension. Advances were
secured by the Company's assets and bore 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 September
30, 2010 from its available financial resources including the
line of credit which the Company believes will be renewed and
its cash and investment securities.
11
Results of Operations
Financial Overview
The Company recorded income before income taxes of $59,600 for the
three months ended September 30, 2009 compared to a loss before
income tax benefit of $110,100 for the three months ended September
30, 2008, primarily because of the improved results, resulting
mainly from higher sales, for the current year period for both
of its business segments. The Company's Benchtop Laboratory
Equipment Operations achieved increases in both domestic and
foreign sales compared to the same period last year, which
resulted in a higher segment profit of $121,500 for the current
year period compared to a segment profit of $100,900 for the
comparable period last year. The Catalyst Research Instrument
Operations recorded a segment loss of $61,900 for the current
period compared to a segment loss of $211,000 for the three months
ended September 30, 2008. As of September 30, 2009, the Catalyst
Research Instrument Operations had an order backlog of $1,100,000,
all of which is expected to be fulfilled by December 31, 2009,
compared to $890,000 as of September 30, 2008.
The Three Months Ended September 30, 2009 Compared With the Three
Months Ended September 30, 2008
Net sales for the three months ended September 30, 2009 increased by
$271,700 (27.9%) to $1,244,000 as compared with $972,300 for the
three months ended September 30, 2008, mainly due to a $146,700
(171.2%) increase in sales of catalyst research instruments and a
$125,000 (14.1%) increase in sales of benchtop laboratory equipment.
Sales of the catalyst research instruments are comprised of a small
number of large orders, typically averaging over $100,000 each,
while benchtop laboratory equipment sales consist of a large number
of small orders usually from stock.
The gross profit for the three months ended September 30, 2009
increased by $200,700 to $535,800 (43.1%) compared to $335,100
(34.5%) for the three months ended September 30, 2008, as a result
of increased sales for both business segments, which allowed for
more absorption of overhead costs, and lower material costs for
the Benchtop Laboratory Equipment Operations.
General and administrative expenses for the three months ended
September 30, 2009 decreased slightly by $16,000 (6.5%) to $229,600
from $245,600 for the comparable period of the prior year, mainly
due to a reduction in such expenses incurred by the Catalyst
Research Instruments Operations.
Selling expenses for the three months ended September 30, 2009
increased by $28,000 (24.5%) to $142,200 from $114,200 for the
three months ended September 30, 2008, due mainly to the
compensation for a new sales manager hired by the Benchtop
Laboratory Equipment Operations in June 2009.
Research and development expenses for the three months ended
September 30, 2009 were $108,500, an increase of $11,900 (12.3%)
from $96,600 for the three months ended September 30, 2008, due
to expenses with respect to the development of a new product for
bioprocessing for the Benchtop Laboratory Equipment Operations.
Interest and other income decreased for the comparative three month
periods by $7,100 (63.4%) from $11,200 to $4,100 mainly as a result
of lower cash and investment balances and lower yields.
The Company reflected income tax expense for the three months
ended September 30, 2009 of $16,100 on income before income taxes
of $59,600 compared to an income tax benefit of $32,000 on a loss
before income tax benefit of $110,100 for the three months ended
September 30, 2008.
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As a result of the foregoing, the net income for the three months ended
September 30, 2009 was $43,500 compared to a net loss of $78,100 for the
three months ended September 30, 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.
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.
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Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive Officer
and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of Chief Executive Officer
and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K:
On August 7, 2009 Registrant filed a Report on
Form 8-K, reporting under Item 1.01.
On September 18, 2009 Registrant filed a Report
on Form 8-K, reporting under Item 8.01.
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
--------------------
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: November 16, 2009
15