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 December 31, 2011
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), other than Form 8-K
Reports, and (2) has been subject to such filing requirements for the
past 90 days. Yes X No ,except for a Form 8-K Report related
to a recent acquisition.
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 Alarge 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 February 6, 2012 was 1,335,712 shares.
TABLE OF CONTENTS
PART I B FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 MANAGEMENT=S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 13
ITEM 4 CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 17
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2011 2011
____________ __________
Current Assets: (Unaudited)
____________ __________
Cash and cash equivalents $ 763,500 $ 907,800
Investment securities 700,900 693,400
Trade accounts receivable, net 660,100 620,000
Inventories 1,955,400 1,639,800
Prepaid expenses and other current assets 177,700 197,700
Deferred taxes 78,000 77,700
__________ __________
Total current assets 4,335,600 4,136,400
Property and equipment at cost, net 199,000 175,100
Intangible assets, net 928,600 112,300
Goodwill 589,900 447,900
Other assets 25,700 25,700
Deferred taxes 112,900 115,800
__________ __________
Total assets $6,191,700 $5,013,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 241,000 $ 128,100
Customer advances 326,900 -
Loan payable, bank 60,000 -
Notes payable, current 74,600 -
Accrued expenses and taxes 261,100 284,300
__________ _________
Total current liabilities 963,600 412,400
Contingent consideration payable 128,000 -
Notes payable, long-term 143,200 -
__________ _________
Total liabilities 1,234,800 412,400
__________ _________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,355,514 and 1,216,379 issued and outstanding at
December 31, 2011 and June 30, 2011 67,800 60,800
Additional paid-in capital 1,962,100 1,558,500
Accumulated other comprehensive loss ( 20,100) ( 21,500)
Retained earnings 2,999,500 3,055,400
___________ __________
5,009,300 4,653,200
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
___________ __________
Total shareholders' equity 4,956,900 4,600,800
Total liabilities and ___________ __________
Shareholders= equity $6,191,700 $5,013,200
=========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
_____________________ ______________________
2011 2010 2011 2010
__________ __________ __________ __________
Net sales $1,197,600 $2,031,500 $2,738,500 $3,286,900
Cost of goods sold 707,200 1,162,200 1,644,200 1,909,000
__________ __________ __________ __________
Gross profit 490,400 869,300 1,094,300 1,377,900
__________ __________ __________ __________
Operating Expenses:
General & administrative 335,100 310,300 626,100 597,000
Selling 160,100 202,900 349,000 343,300
Research & development 78,700 89,900 125,500 177,400
__________ __________ __________ __________
573,900 603,100 1,100,600 1,117,700
__________ __________ __________ __________
Income (loss) from
operations ( 83,500) 266,200 ( 6,300) 260,200
Interest & other
income, net 5,000 6,400 11,800 15,600
__________ __________ __________ __________
Income (loss) before
income taxes ( 78,500) 272,600 5,500 275,800
__________ __________ __________ __________
Income tax expense (benefit):
Current ( 21,800) 87,300 ( 500) 93,900
Deferred ( 1,400) ( 4,300) 2,000 ( 9,900)
__________ __________ __________ __________
( 23,200) 83,000 1,500 84,000
__________ __________ __________ __________
Net income (loss) ($ 55,300) $ 189,600 $ 4,000 $ 191,800
========== ========== ========== ==========
Basic earnings (loss) per common
share $ (.04) $ .16 $ - $ .16
Diluted earnings (loss) per common
share $ (.04) $ .16 $ - $ .16
Cash dividends declared
per common share $ - $ - $ .05 $ .09
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended
December 31, 2011 December 31, 2010
_________________ _________________
Operating activities
Net income $ 4,000 $ 191,800
_________ __________
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 99,300 95,600
Deferred income tax (benefit) 2,000 ( 9,900)
Stock-based compensation 1,000 4,900
Changes in operating assets and liabilities:
Accounts receivable ( 40,100) 614,400
Inventories ( 315,600) ( 105,300)
Prepaid expenses and other current
assets 20,000 12,500
Accounts payable 112,900 ( 113,300)
Customer advances 326,900 190,000
Accrued expenses and taxes ( 23,200) ( 12,400)
__________ __________
Total adjustments 183,200 676,500
__________ __________
Net cash provided by operating
activities 187,200 868,300
__________ __________
Investing activities:
Additional consideration for acquisition of
Altamira Instruments, Inc. - ( 139,900)
Intangible assets acquired in
acquisition (Note 3) ( 260,000) -
Purchase of investment securities,
available-for-sale ( 5,500) ( 6,700)
Capital expenditures ( 61,900) ( 54,900)
Purchase of intangible assets, other ( 1,600) ( 8,600)
___________ __________
Net cash used in investing
activities ( 329,000) ( 210,100)
___________ __________
Financing activities:
Line of credit proceeds 60,000 -
Proceeds from exercise of stock options 9,600 -
Cash dividend declared and paid ( 59,900) ( 107,700)
Principal payments on note payable ( 12,200) -
___________ __________
Net cash used in financing
activities ( 2,500) ( 107,700)
___________ __________
Net increase (decrease) in cash
and cash equivalents ( 144,300) 550,500
Cash and cash equivalents, beginning of year 907,800 632,700
___________ __________
Cash and cash equivalents, end of period $ 763,500 $1,183,200
=========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 3,300 $ 164,000
Non-cash investing and financing activities (Note 3):
Fair value of stock issued for acquisition $ 400,000 $ -
Fair value of note payable issued for
acquisition 230,000 -
Fair value of contingent consideration payable
in connection with acquisition 128,000 -
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, 2011. The results for the three and six months ended
December 31, 2011, are not necessarily an indication of the results
for the full fiscal year ending June 30, 2012.
1. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. ("Scientific", a Delaware
corporation), Altamira Instruments, Inc.("Altamira", a wholly owned
subsidiary and Delaware corporation), Scientific Packaging
Industries, Inc. (an inactive wholly owned subsidiary and New York
corporation) and since October 4, 2011, Scientific Bioprocessing,
Inc., ("SBI", a wholly owned subsidiary and Delaware corporation).
All are collectively referred to as the "Company". All material
intercompany balances and transactions have been eliminated.
2. New Accounting Pronouncements:
In September 2011, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles-
Goodwill and Other (Topic 350)-Testing Goodwill for Impairment (ASU
2011-08), to allow entities to use a qualitative approach to test
goodwill for impairment. ASU 2011-08 permits an entity to first
perform a qualitative assessment to determine whether it is more
likely than not that the fair value of a reporting unit is less than
its carrying value. If it is concluded that this is the case, it is
necessary to perform the currently prescribed two-step goodwill
impairment test. Otherwise, the two-step goodwill impairment test is
not required. ASU 2011-08 is effective for the Company in fiscal 2013
and earlier adoption is permitted. The Company is currently
evaluating the impact of the future adoption of ASU 2011-08 on its
consolidated financial statements.
In June 2011, the FASB "ASU" No. 2011-05, "Comprehensive Income (ASC
Topic 220): Presentation of Comprehensive Income," ("ASU No. 2011-05")
which amends current comprehensive income guidance. This accounting
update eliminates the option to present the components of other
comprehensive income as part of the statement of stockholders' equity
and requires the Company report comprehensive income in either a
single continuous statement of comprehensive income which contains
two sections, net income and other comprehensive income, or in two
separate but consecutive statements. ASU 2011-05 will be effective
for public companies during the interim and annual periods beginning
after December 15, 2011 with early
4
adoption permitted. The Company has not adopted the standard yet and
does not expect that the adoption of ASU 2011-05 will have an impact on
its consolidated results of operations, financial condition or cash
flows as it only requires a change in the format of our current
presentation.
3. Acquisition:
On November 14, 2011, the Company through SBI acquired substantially
all of the assets of a privately owned company consisting principally
of a license and sublicenses under patents held by the University of
Maryland, Baltimore County ("UMBC") with respect to the design,
development and production of bioprocessing methods, systems and
products. The acquisition was pursuant to an asset purchase agreement
("APA") whereby the Company paid to the seller $260,000 in cash, issued
135,135 shares of Common Stock valued at $400,000, issued to UMBC a
$230,000 36-month note payable, and agreed to make additional cash
payments equal to 30% of net royalties received under the acquired
license and sublicenses, estimated at a present value of $128,000
on the date of acquisition. The seller maintained that audited
financial statements could not be provided in connection with the
acquisition. The inability to include the related audited financial
statements as required by the Securities Exchange Act of 1934 in the
related Current Report on Form 8-K filing will result in the inability
of the Company to register securities offerings with respect to the
Company's securities during the one year period ending November 2012.
SBI's revenues and profits, if any, are be derived from royalties
received by SBI under the various sublicense agreements, and revenues
from sales of certain new products being developed under its existing
license. University, government, and industrial laboratories working
primarily in the biotechnology industry worldwide are its targeted
customers.
Management of the Company allocated the purchase price based on its
valuation of the assets acquired, all of which are intangible, as
follows:
Technology, trademarks, and in-process
research & development ("IPR&D") $ 500,000
Sublicense agreements 294,000
Engineering drawings and software 64,000
Non-competition agreements 18,000
Goodwill* 142,000
__________
Total Purchase Price $1,018,000
==========
*See Note 9, "Goodwill and Other Intangible Assets".
The amounts allocated to Technology, Trademarks, and IPR&D and
Sublicense Agreements are deemed to have a useful life of 10 years,
to the remaining intangible assets of 5 years, all of which are being
amortized on a straight-line basis, except for goodwill.
In connection with the acquisition, SBI entered into a research and
development agreement providing for the seller to perform services
with respect to the research and development of bioprocessing methods,
systems, and products pursuant to programs set forth in the Agreement.
The services are to be performed under the supervision of the designated
officer of seller or a qualified replacement. The developer is to
receive a fee of $14,000 per month with SBI to bear all related expenses.
The agreement is for a two year term with SBI having three one-year
extension options. SBI has the right to terminate the agreement in
the event of a failure to achieve the designated product development
terms set forth in the agreement.
The Company reflected the financial results of SBI in its consolidated
financial statements from the date of acquisition which consisted
primarily of research and development expenses and amortization
expenses.
5
Pro forma results
_________________
The unaudited pro forma condensed financial information in the table
below summarizes the combined results of operations of Scientific,
Altamira and SBI on a pro forma basis, as though the companies had been
combined as of the beginning of each of the periods presented, giving
effect to SBI's acquisition of assets in November 2011. The unaudited
pro forma condensed financial information presented below 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 the
commencement of the period presented. In addition, the seller was
unable to provide audited historical financial statements and therefore
the information presented is based on management's best judgment using
the unaudited financial information provided and the effects of the
acquisition including amortization and interest expenses excluding
acquisition related costs incurred of $38,600 and $70,000 for the three
and six month periods ended December 31, 2011:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________ ______________________
2011 2010 2011 2010
__________ __________ __________ __________
Net sales $1,235,100 $2,069,000 $2,813,500 $3,361,900
Net income (loss) ($ 40,700) $ 157,900 $ 6,300 $ 122,800
Net income (loss)
per share - basic ($.03) $.12 $.00 $.09
Net income (loss)
per share - diluted ($.03) $.12 $.00 $.09
4. Segment Information and Concentrations:
The Company views its operations as three segments: the manufacture
and marketing of standard benchtop laboratory equipment for research
in university, hospital and industrial laboratories sold primarily
through laboratory equipment distributors ("Benchtop Laboratory
Equipment"), 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") and the marketing and production of bioprocessing
systems for laboratory research in the biotechnology industry sold
directly to customers and through distributors ("Bioprocessing Systems").
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2011:
Net Sales $1,108,500 $ 89,100 $ - $ - $1,197,600
Foreign Sales 755,100 112,000 - - 867,100
Profit(Loss) 105,200 ( 117,800) ( 32,300) ( 33,600) ( 78,500)
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 4,500 2,800 876,000 - 883,300
Depreciation and
Amortization 12,300 27,800 12,000 - 52,100
6
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Three months ended December 31, 2010:
Net Sales $1,244,900 $ 786,600 $ - $ - $2,031,500
Foreign Sales 705,600 518,600 - - 1,224,200
Profit (Loss) 247,400 43,300 - ( 18,100) 272,600
Assets 2,305,400 1,611,700 - 1,306,800 5,223,900
Long-Lived Asset
Expenditures 34,300 20,700 - - 55,000
Depreciation and
Amortization 14,800 33,500 - - 48,300
Approximately 63% and 70% of net sales of benchtop laboratory equipment
(59% and 61% of total net sales) for the three month periods ended
December 31, 2011 and 2010, respectively, were derived from that
segment's main product, the Vortex-Genie 2(r) mixer, excluding
accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 26% and 36% of the segment's net sales (24% and 22%
of total net sales) for the three month periods ended December 31, 2011
and 2010, respectively.
Sales of catalyst research instruments are generally pursuant to large
orders averaging more than $100,000 per order to a limited numbers of
customers. Sales to one customer during the three month period ended
December 31, 2011 and to four other customers during the three month
period ended December 31, 2010 accounted respectively for 73% and 67%
of the segment's net sales (25% and 26% of total net sales).
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Six months ended December 31, 2011:
Net Sales $2,183,600 $ 554,900 $ - $ - $2,738,500
Foreign Sales 1,363,700 121,100 - - 1,484,800
Profit(Loss) 272,400 ( 176,400) ( 32,300) ( 58,200) 5,500
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 14,000 49,500 876,000 - 939,500
Depreciation and
Amortization 24,300 63,000 12,000 - 99,300
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Six months ended December 31, 2010:
Net Sales $2,267,000 $1,019,900 $ - $ - $3,286,900
Foreign Sales 1,226,100 544,600 - - 1,770,700
Profit (Loss) 379,600 ( 87,700) - ( 16,100) 275,800
Assets 2,305,400 1,611,700 - 1,306,800 5,223,900
Long-Lived Asset
Expenditures 41,000 22,500 - - 63,500
Depreciation and
Amortization 28,600 67,000 - - 95,600
7
Approximately 63% and 68% of net sales of benchtop laboratory equipment
(50% and 47% of total net sales) for the six month periods ended
December 31, 2011 and 2010, respectively, were derived from that
segment's main product, the Vortex-Genie 2(r) mixer, excluding
accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 23% and 32% of the segment's net sales respectively,
and 19% and 22% of total net sales for the six month periods ended
December 31, 2011 and 2010, respectively.
Sales of catalyst research instruments to four different customers,
accounted respectively for approximately 88% and 43% of that
segment=s net sales (18% and 13% of total net sales) for the six
month period ended December 31, 2011 and 2010, respectively.
The Company's foreign sales are principally made to customers in
Europe and Asia.
5. Fair Value of Financial Instruments:
The Financial Accounting Standards Board (AFASB@) 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 described below:
Level 1 Inputs that are based upon unadjusted quoted prices for
identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to be
active or financial instruments for which all significant
inputs are observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and
unobservable.
The following tables set forth by level within the fair value hierarchy
the Company=s financial assets that were accounted for at fair value on
a recurring basis at December 31, 2011 and June 30, 2011 according to
the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Fair Value at
December 31, 2011 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalent $ 763,500 $ 763,500 $ - $ -
Available for sale securities 700,900 700,900 - -
__________ __________ _______ ______
Total $1,464,400 $1,464,400 $ - $ -
========== ========== ======= ======
8
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2011 Level 1 Level 2 Level 3
_______________ __________ _______ _______
Cash and cash equivalents $ 907,800 $ 907,800 $ - $ -
Available for sale securities 693,400 693,400 - -
__________ __________ _______ ______
Total $1,601,200 $1,601,200 $ - $ -
=========== ========== ======= ======
Investments in marketable securities classified as available-for-sale by
security type at December 31, 2011 and June 30, 2011 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At December 31, 2011
Available for sale:
Equity securities $ 7,800 $ 15,300 $ 7,500
Mutual funds 713,200 685,600 (27,600)
_________ _________ ____________
$ 721,000 $ 700,900 $ (20,100)
========= ========= ============
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At June 30, 2011:
Available for sale:
Equity securities $ 7,800 $ 13,300 $ 5,500
Mutual funds 707,100 680,100 (27,000)
_________ _________ ____________
$ 714,900 $ 693,400 $ (21,500)
========= ========= ============
6. Inventories:
Inventories for financial statement purposes are based on perpetual
inventory records at December 31, 2011 and based on a physical count
as of June 30, 2011. Components of inventory are as follows:
December 31, June 30,
2011 2011
__________ __________
Raw Materials $1,139,900 $1,051,300
Work in process 613,900 408,200
Finished Goods 201,600 180,300
__________ __________
$1,955,400 $1,639,800
========== ==========
7. Earnings (loss) per common share:
Basic earnings (loss) per common share are computed by dividing net
income (loss)) by the weighted-average number of shares outstanding.
Diluted earnings per common share include the dilutive effect of stock
options, if any.
9
Earnings (loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________ ______________________
2011 2010 2011 2010
___________ __________ __________ __________
Net income (loss) ($ 55,300) $ 189,600 $ 4,000 $ 191,800
=========== ========== ========== ==========
Weighted average common
shares outstanding 1,265,613 1,196,577 1,231,095 1,196,577
Effect of dilutive
securities - 17,308 14,873 16,360
_________ _________ _________ _________
Weighted average dilutive
common shares outstanding 1,265,613 1,213,885 1,245,968 1,212,937
========= ========= ========= =========
Basic earnings (loss) per
common share ($ .04) $ .16 $ .00 $ .16
======== ======= ======== =======
Diluted earnings (loss) per
common share ($ .04) $ .16 $ .00 $ .16
======== ======= ======== =======
Approximately 2,000 and 1,500 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 six month periods
ended December 31, 2011 and 2010, respectively, and 1,500 were excluded
from the computation for the three month period ended December 31, 2010
because the effect would be anti-dilutive. Approximately 57,000 shares
were excluded from the computation for the three month period ended
December 31, 2011 because it would be anti-dilutive due to the loss for the
period.
8. Comprehensive Income (Loss):
The FASB established 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
investment securities. The components of comprehensive income (loss) were
as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2011 2010 2011 2010
__________ ________ _______ ________
Net Income (Loss) ($ 55,300) $189,600 $ 4,000 $191,800
__________ ________ _______ ________
Other comprehensive income(loss):
Unrealized holding gain
(loss) arising during
period, net of tax 2,300 ( 7,700) 1,400 2,700
__________ _________ _______ ________
Comprehensive income (loss) ($ 53,000) $181,900 $ 5,400 $194,500
========== ========= ======= ========
10
9. Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in connection with the Company's
acquisition of Altamira and SBI's acquisition of assets. Goodwill
amounted to $589,900 and $447,900 as of December 31, 2011 and June 30,
2011, respectively, of which $142,000 relates to the newly acquired
assets of SBI as of December 31, 2011 and $447,900 relates to the
acquisition of Altamira as of the end of both periods.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
_________ _________ ____________ _________
At December 31, 2011:
Technology, trademarks 5/10 yrs. $ 864,000 $ 307,800 $ 556,200
Customer relationships 10 yrs. 237,000 188,600 48,400
Sublicense agreements 10 yrs. 294,000 3,700 290,300
Non-compete agreements 5 yrs. 120,000 102,500 17,500
Other intangible assets 5 yrs. 140,600 124,400 16,200
__________ __________ _________
$1,655,600 $ 727,000 $ 928,600
========== ========== =========
Useful Accumulated
Lives Cost Amortization Net
_________ _________ ____________ _________
At June 30, 2011:
Technology, trademarks 5 yrs. $ 300,000 $ 275,000 $ 25,000
Customer relationships 10 yrs. 237,000 177,200 59,800
Non-compete agreement 5 yrs. 102,000 93,500 8,500
Other intangible assets 5 yrs. 139,000 120,000 19,000
__________ __________ __ ______
$ 778,000 $ 665,700 $ 112,300
========== ========== =========
Total amortization expense was $33,000 and $29,000 for the three months
ended December 31, 2011 and 2010, respectively and $61,300 and $58,400
for the six months ended December 31, 2011 and 2010, respectively. As
of December 31, 2011, estimated future amortization expense related to
intangible assets is $57,100 for the remainder of the fiscal year ending
June 30, 2012, $111,600 for fiscal 2013, $107,800 for fiscal 2014,
$104,200 for fiscal 2015, $108,900 for fiscal 2016, and $439,000
thereafter.
10. Loan Payable, Bank
The Company has a line of credit with its bank, JPMorgan Chase Bank,
N.A.(the "Bank"), providing for maximum borrowings of up to $700,000,
bearing interest at 3.08 percentage points above a defined LIBOR
Index, (3.36% at December 31, 2011) and secured by a pledge of
collateral consisting of the inventory, accounts, chattel paper,
equipment and general intangibles of the Company. Outstanding amounts
are due and payable by June 13, 2013 with a requirement that the Company
is to reduce the outstanding principal balance to zero during the 30
day period ending on the anniversary date of the related note evidencing
the borrowing. As of December 31, 2011, $60,000 was outstanding under
the line. No amounts were outstanding at June 30, 2011.
11
11. Notes Payable
In conjunction with the acquisition described in footnote number 3, the
Company issued a $230,000 promissory note bearing interest at 3.25%
payable in 36 equal monthly installments of $6,700 with the last payment
due October 2014. As of December 31, 2011 the current and long-term
portions of the note were $74,600 and $143,200, respectively.
12
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management=s Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking
information. Numerous unknown factors and future events could cause
such differences, including but not limited to, product demand, market
acceptance, impact of competition, the ability to reach final
agreements, the ability to finance and produce catalyst research
instruments to customers' satisfaction, the ability to develop,
protect and market technological improvements in bioprocessing,
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 $144,300 to $763,500 as of
December 31, 2011 from $907,800 as of June 30, 2011.
Net cash provided by operating activities was $187,200 for the six
months ended December 31, 2011 as compared to $868,300 for the
comparable six month period in 2010, due mainly to higher inventory
balances, and lower income generated during the current six month
period, partially offset by advances from customers of Altamira with
respect to their orders and an increase in accounts payable. Cash
used in investing activities was $329,000 for the six month period
ended December 31, 2011 compared to $210,100 for the six month
period ended December 31, 2010, the increase primarily due to the
acquisition by SBI of intangible assets. Cash used in financing
activities was $2,500 for the six month period ended December
31, 2011 compared to $107,700 for the six month period ended
December 31, 2010 due to a $.04 per share lower dividend declared
and paid this year and borrowings under the bank's line of credit.
On September 13, 2011, the Board of Directors of the Company declared
a cash dividend of $.05 per share of Common Stock which was paid on
November 18, 2011 to holders of record as of the close of business on
September 26, 2011 as compared to $.09 per share paid in the prior
fiscal year period.
The Company's working capital decreased by $352,000 to $3,372,000 as of
December 31, 2011 from working capital of $3,724,000 at June 30, 2011,
mainly due to the asset purchase acquisition by SBI.
Management believes that the Company will be able to meet its cash flow
needs for the next 12 months from its available financial resources,
including its cash and cash equivalents, the line of credit and
investment securities.
13
Results of Operations
_____________________
Financial Overview
__________________
The Company recorded a loss before income tax benefit of $78,500 for the
three month period ended December 31, 2011 compared to income before
income taxes of $272,600 for the comparative period last year, primarily
as a result of lower income for the Benchtop Laboratory Equipment and
the losses for the Catalyst Research Instruments operations and the new
Bioprocessing Systems Operations. For the comparable six month period
ended December 31, 2011 and December 31, 2010, income before income
taxes was significantly lower - $5,500 compared to $275,800, also
primarily due to lower income for the Benchtop Laboratory Equipment
Operations, increased loss for the Catalyst Research Instruments
Operations and the loss for the new Bioprocessing Systems Operations.
As previously reported, during the three month period ended December 31,
2011, the Company acquired substantially all the assets, consisting
principally of licenses and sublicenses of a privately held company with
respect to bioprocessing products and systems under patents held by
UMBC, and consequently, the results for the quarter reflect the
expenses incurred to complete the acquisition and expenses related to
that business segment, mostly in the form of research and development
and amortization related to the newly acquired intangible assets. No
representation can be made that the new operation will produce material
revenues to at least offset the related expenses to be incurred.
The Three Months Ended December 31, 2011 Compared With the Three Months
Ended December 31, 2010
_______________________________________________________________________
Net sales for the three months ended December 31, 2011 decreased by
$833,900 (41.0%) to $1,197,600 from $2,031,500 for the three months
ended December 31, 2010 as a result of decreases of $697,500 in
catalyst research instrument sales and $136,400 in laboratory equipment
sales, the latter principally from decreased orders from U.S. customers.
Sales of the benchtop laboratory equipment products generally are
pursuant to many small purchase orders from distributors, while
catalyst research instruments are sold pursuant to a small number of
larger orders, typically averaging over $100,000 each, resulting in
significant swings in revenues. The bioprocessing systems operation
did not generate any sales revenue during the period. The backlog of
orders for catalyst research instruments was $995,000 as of December
31, 2011, all of which are anticipated to be delivered by fiscal year
end; the back log as of December 31, 2010 was $283,000.
The gross profit percentage for the three months ended December 31, 2011
decreased to 40.9% compared to 42.8% due to higher material costs and
engineering costs incurred for benchtop laboratory equipment product
improvements.
General and administrative ("G&A") expenses for the three month
comparative periods ended December 31, 2011 and December 31, 2010
increased by $24,800 (8.0%) to $335,100 from $310,300 primarily as a
result of expenses related to the asset acquisition.
Selling expenses for the three months ended December 31, 2011 decreased
$42,800 (21.1%) to $160,100 from $202,900 for the three months ended
December 31, 2010, primarily the result of lower commissions for the
Catalyst Research Instruments Operations due to lower sales.
14
Research and development expenses for the three months ended December
31, 2011 decreased $11,200 (12.5%) to $78,700 from $89,900 for the three
months ended December 31, 2010, primarily the result of a reduction in
new product development activity by the both Company's Benchtop
Laboratory Equipment and Catalyst Research Instrument Operations.
Interest and other income net for the three months ended December 31,
2011 decreased $1,400 to $5,000 from $6,400 for the three months ended
December 31, 2010 due to lower cash balances and interest rates.
As a result of the loss for the three months ended December 31, 2011,
the Company recorded an income tax benefit of $23,200 compared to income
tax expense of $83,000 for the three months ended December 31, 2010.
As a result of the foregoing, the net loss for the three months ended
December 31, 2011 was $55,300, compared to net income of $189,600 for
the three months ended December 31, 2010.
The Six Months Ended December 31, 2011 Compared With the Six Months
Ended December 31, 2010
___________________________________________________________________
Net sales for the six months ended December 31, 2011 decreased by
$548,400 (16.7%) to $2,738,500 compared to $3,286,900 for the six
months ended December 31, 2010, due to decreases of $465,000 in
catalyst research instrument sales and $83,400 in benchtop laboratory
equipment sales, the latter reflecting for the segment a decrease in
orders from U.S. customers, which were partially offset by an
increase in foreign sales. Sales of benchtop laboratory equipment
products generally are comprised of many small purchase orders
from distributors, while sales of catalyst research instruments are
comprised of a small number of large orders, typically averaging over
$100,000 each, resulting in significant swings in revenues. The
backlog of orders for catalyst research instruments was $995,000
as of December 31, 2011, all of which are anticipated to be
delivered by fiscal year end; the backlog as of December 31, 2010
was $283,000.
The gross profit percentage for the six months ended December 31, 2011
decreased to 40.0% compared to 41.9% due to higher material costs and
engineering costs incurred for benchtop laboratory equipment product
improvements.
G&A expenses increased by $29,100 (4.9%) to $626,100 for the six months
ended December 31, 2011 from $597,000 for the comparable period last
year, primarily the result of expenses related to the asset acquisition
by SBI. Selling expenses for the six months ended December 31, 2011
increased slightly by $5,700 (1.7%) to $349,000 from $343,300 for the
six months ended December 31, 2010. The Benchtop Laboratory Equipment
Operations incurred higher selling expenses due to its new European
sales consultant, which was partially offset by the reduction in sales
commissions incurred by the Catalyst Research Instruments Operations.
Research and development expenses for the six months ended December 31,
2011 decreased $51,900 (29.3%) to $125,500 compared to $177,400 for the
six months ended December 31, 2010, due to reduced new product
development activity by the Company's Benchtop Laboratory Equipment and
Catalyst Research Instruments Operations.
Interest and other income, net for the six month period ended December
31, 2011 decreased by $3,800 to $11,800 from $15,600 for the six month
period ended December 31, 2010, mainly due to lower cash balances and
lower interest rates.
15
Income tax expense for the six month period ended December 31, 2011 of
$1,500 compared to $84,000 for the comparable period of the prior
fiscal year reflects the substantially lower income.
As a result of the foregoing, net income for the six months ended
December 31, 2011 was $4,000 compared to $191,800 for the six months
ended December 31, 2010.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As of the end of the
period covered by this report, based on an evaluation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934), the Chief
Executive and Chief Financial Officer of the Company has concluded
that the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company
in its Exchange Act reports is recorded, processed, summarized and
reported within the applicable time periods specified by the SEC's
rules and forms. The Company also concluded that information
required to be disclosed in such reports is accumulated and
communicated to the Company's management, including its principal
executive and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There was no
change in the Company's internal controls over financial reporting
that occurred during the most recently completed fiscal quarter that
materially affected or is reasonably likely to materially affect the
Company's internal controls over financial reporting.
Part II B 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:
Report dated August 9, 2011, related to the
death of a member of the Board of Directors.
Report dated September 14, 2011, related to
cash dividend declaration.
Reports dated November 17, 2011, and November
21, 2011 related to the recent asset
acquisition by Scientific Bioprocessing, Inc.
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: February 14, 2012
17