Attached files
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, 2010
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 February 4, 2011 was 1,196,577 shares.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
____
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 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 11
ITEM 4 CONTROLS AND PROCEDURES 14
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
------------ ----------
2010 2010
------------ ----------
Current Assets: (Unaudited)
Cash and cash equivalents $1,183,200 $ 632,700
Investment securities 677,000 665,600
Trade accounts receivable, net 880,100 1,494,500
Inventories 1,377,900 1,272,600
Prepaid expenses and other current assets 74,700 87,200
Deferred taxes 74,000 73,800
---------- ----------
Total current assets 4,266,900 4,226,400
Property and equipment at cost, net 211,100 193,400
Intangible assets, net 164,400 214,200
Goodwill 447,900 405,200
Other assets 25,700 25,700
Deferred taxes 107,900 100,100
---------- ----------
Total assets $5,223,900 $5,165,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 114,400 $ 227,700
Customer advances 190,000 -
Accrued expenses and taxes 376,500 486,000
----------- ----------
Total current liabilities 680,900 713,700
----------- ----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,216,379 issued and outstanding at
December 31, 2010 and June 30, 2010 60,800 60,800
Additional paid-in capital 1,542,100 1,537,200
Accumulated other comprehensive loss ( 27,100) ( 29,800)
Retained earnings 3,019,600 2,935,500
------------ ------------
4,595,400 4,503,700
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
------------ ------------
Total shareholders' equity 4,543,000 4,451,300
------------ ------------
Total liabilities and
shareholders' equity $5,223,900 $5,165,000
============ ============
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2010 2009 2010 2009
------------ ---------- ---------- ----------
Net sales $2,031,500 $1,827,500 $3,286,900 $3,071,500
Cost of goods sold 1,162,200 1,055,600 1,909,000 1,763,700
---------- ---------- ---------- ----------
Gross profit 869,300 771,900 1,377,900 1,307,800
---------- ---------- ---------- ----------
Operating Expenses:
General & administrative 310,300 342,700 597,000 572,300
Selling 202,900 134,300 343,300 276,600
Research & development 89,900 80,600 177,400 189,100
---------- ---------- ---------- ----------
603,100 557,600 1,117,700 1,038,000
---------- ---------- ---------- ----------
Income from operations 266,200 214,300 260,200 269,800
Interest & other
income, net 6,400 9,800 15,600 13,900
---------- ---------- ---------- ----------
Income before income taxes 272,600 224,100 275,800 283,700
---------- ---------- ---------- ----------
Income tax expense (benefit):
Current 87,300 72,700 93,900 97,300
Deferred ( 4,300) ( 7,900) ( 9,900) ( 16,400)
---------- ---------- ---------- ----------
83,000 64,800 84,000 80,900
---------- ---------- ---------- ----------
Net income $ 189,600 $ 159,300 $ 191,800 $ 202,800
========== ========== ========== ==========
Basic earnings per common
share $ .16 $ .13 $ .16 $ .17
Diluted earnings per common
share $ .16 $ .13 $ .16 $ .17
Cash dividends declared
per common share $ - $ - $ .09 $ .06
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, 2010 December 31, 2009
----------------- -----------------
Operating activities:
Net income $ 191,800 $ 202,800
--------- ----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 95,600 102,200
Deferred income tax benefit ( 9,900) ( 16,400)
Stock-based compensation 4,900 6,500
Income tax benefit of stock options
exercised - 400
Changes in operating assets and liabilities:
Accounts receivable 614,400 258,000
Inventories (105,300) ( 163,600)
Prepaid expenses and other
current assets 12,500 12,500
Accounts payable (113,300) ( 62,300)
Customer advances 190,000 ( 10,100)
Accrued expenses and taxes ( 12,400) ( 91,700)
----------- -----------
Total adjustments 676,500 ( 35,500)
----------- -----------
Net cash provided by
operating activities 868,300 238,300
----------- -----------
Investing activities:
Additional consideration for acquisition of
Altamira Instruments, Inc. (139,900) ( 107,000)
Purchase of investment securities,
available-for-sale ( 6,700) ( 7,400)
Capital expenditures ( 54,900) ( 10,900)
Purchase of intangible assets ( 8,600) ( 2,500)
----------- -----------
Net cash used in
investing activities (210,100) ( 127,800)
----------- -----------
Financing activities:
Proceeds from exercise of stock options - 5,300
Cash dividend declared and paid (107,700) ( 71,800)
----------- -----------
Net cash by used in
financing activities ( 107,700) ( 66,500)
----------- -----------
Net increase in cash
and cash equivalents 550,500 44,000
Cash and cash equivalents,
beginning of year 632,700 738,400
----------- -----------
Cash and cash equivalents, end of
period $1,183,200 $ 782,400
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 164,000 $ 156,800
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, 2010. The results for
the three and six months ended December 31, 2010, are not
necessarily an indication of the results for the full
fiscal year ending June 30, 2011.
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. 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 at the Closing $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 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.
As of December 31, 2010, the adjusted aggregate purchase price,
allocated to assets acquired and liabilities assumed is as follows:
4
Current assets $ 734,000
Property and equipment 140,300
Non-current assets 25,100
Goodwill 447,900
Other intangible assets 639,000*
Current liabilities ( 561,900)
____________
Adjusted purchase price $1,424,400
============
*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 amounts allocated to other intangible assets are being
amortized on a straight-line basis, except for the amount
allocated to the customer relationships which is being amortized
on an accelerated (declining balance) method.
3. 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 December 31, 2010:
Net Sales $1,244,900 $ 786,600 $ - $2,031,500
Foreign Sales 705,600 518,600 - 1,224,200
Segment Profit 222,900 43,300 6,400 272,600
Segment Assets 2,305,400 1,611,700 1,306,800 5,223,900
Long-Lived Asset
Expenditures 29,000 20,700 - 49,700
Depreciation and
Amortization 14,800 33,500 - 48,300
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Three months ended December 31, 2009:
Net Sales $1,156,800 $ 670,700 $ - $1,827,500
Foreign Sales 680,500 23,500 - 704,000
Segment Profit 190,800 23,500 9,800 224,100
Segment Assets 2,216,100 1,464,700 1,108,000 4,788,800
Long-Lived Asset
Expenditures 5,300 - - 5,300
Depreciation and
Amortization 15,400 35,000 - 50,400
5
Approximately 70% and 74% of net sales of benchtop laboratory
equipment (61% and 47% of total net sales) for the three month
periods ended December 31, 2010 and 2009, respectively, were
derived from the Company's main product, the Vortex-Genie 2(R)
mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the
aggregate for approximately 36% and 24% of the segment's net sales
(22% and 15% of total net sales) for the three month periods ended
December 31, 2010 and 2009, 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 four and three customers who
differed from period to period accounted for 67% and 69% of the
segment's net sales (26% and 34% of total net sales) for the three
month periods ended December 31, 2010 and 2009, respectively.
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
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
Segment Profit
(Loss) 347,900 ( 87,700) 15,600 275,800
Segment Assets 2,305,400 1,611,700 1,306,800 5,223,900
Long-Lived Asset
Expenditures 32,400 22,500 - 54,900
Depreciation and
Amortization 28,600 67,000 - 95,600
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
---------- ----------- --------- ------------
Six months ended December 31, 2009:
Net Sales $2,168,400 $ 903,100 $ - $3,071,500
Foreign Sales 1,191,300 169,100 - 1,360,400
Segment Profit
(Loss) 310,200 ( 40,400) 13,900 283,700
Segment Assets 2,216,100 1,464,700 1,108,000 4,788,800
Long-Lived Asset
Expenditures 10,900 - - 10,900
Depreciation and
Amortization 31,400 70,800 - 102,200
Approximately 68% and 70% of net sales of benchtop laboratory
equipment for the six month periods ended December 31, 2010 and
2009, respectively, were derived from the Company's main product,
the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the
aggregate for approximately 32% and 29% of the segment's net sales
for the six month periods ended December 31, 2010 and 2009,
respectively (22% of total net sales for each of the 2010 and 2009
periods).
6
Sales of catalyst research instruments to four and five different
customers, accounted for approximately 43% and 78% of that
segment's net sales (13% and 27% of total net sales) for the six
months ended December 31, 2010 and 2009, respectively.
The Company's foreign sales are principally made to customers in
Europe and Asia.
4. Fair Value of Financial Instruments:
The Financial Accounting Standards Board ("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 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, 2010 and June 30, 2010 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, 2010 Level 1 Level 2 Level 3
----------------- ---------- ------- -------
Cash and cash equivalents $1,183,200 $1,183,200 $ - $ -
Available for sale securities 677,000 677,000 - -
---------- ---------- ------- -------
Total $1,860,200 $1,860,200 $ - $ -
========== ========== ======= =======
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2010 Level 1 Level 2 Level 3
------------- --------- ------- -------
Cash and cash equivalents $ 632,700 $ 632,700 $ - $ -
Available for sale securities 665,600 665,600 - -
---------- ---------- ----- ------
Total $1,298,300 $1,298,300 $ - $ -
========== ========== ===== ======
7
Investments in marketable securities classified as available-for-sale by
security type at December 31, 2010 and June 30, 2010 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
--------- --------- -------------
At December 31, 2010:
Available for sale:
Equity securities $ 7,800 $ 12,000 $ 4,200
Mutual funds 696,300 665,000 (31,300)
--------- --------- ------------
$ 704,100 $ 677,000 $ (27,100)
========= ========= ============
Unrealized
Fair Holding Gain
Cost Value (Loss)
--------- --------- ------------
At June 30, 2010:
Available for sale:
Equity securities $ 7,800 $ 9,600 $ 1,800
Mutual funds 687,600 656,000 (31,600)
--------- --------- ------------
$ 695,400 $ 665,600 $ (29,800)
========= ========= ============
5. Inventories:
At interim reporting periods, inventories for financial statement
purposes are based on perpetual inventory records. Components of
inventory are as follows:
December 31, June 30,
2010 2010
------------ -----------
Raw Materials $1,038,300 $ 896,400
Work in process 164,600 201,400
Finished Goods 175,000 174,800
------------ -----------
$1,377,900 $ 1,272,600
============ ===========
6. Earnings per common share:
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock
options, if any.
8
Earnings per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
------------------- ---------------------
2010 2009 2010 2009
--------- ---------- --------- ----------
Net income $ 189,600 $ 159,300 $ 191,800 $ 202,800
========= ========== ========= ==========
Weighted average common
shares outstanding 1,196,577 1,196,577 1,196,577 1,195,534
Effect of dilutive
securities 17,308 19,553 16,360 14,888
--------- --------- --------- ---------
Weighted average dilutive
common shares outstanding 1,213,885 1,216,130 1,212,937 1,210,422
========= ========= ========= =========
Basic earnings per
common share $ .16 $ .13 $ .16 $ .17
====== ====== ====== ======
Diluted earnings per
common share $ .16 $ .13 $ .16 $ .17
====== ====== ====== ======
Approximately 1,500 and 20,500 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 six months ended December 31, 2009, respectively, because the
effect would be anti-dilutive.
7. Comprehensive Income:
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 securities. The components of comprehensive
income were as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
------------------- ------------------
2010 2009 2010 2009
-------- --------- --------- --------
Net Income $189,600 $159,300 $191,800 $202,800
Other comprehensive income(loss):
Unrealized holding gain
(loss) arising during
period, net of tax ( 7,700) 4,500 2,700 40,600
---------- -------- -------- --------
Comprehensive income $ 181,900 $163,800 $194,500 $243,400
========== ======== ======== ========
9
8. 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
$447,900 and $405,200 at December 31, 2010 and June 30, 2010,
respectively, all of which is deductible for tax purposes. The related
agreement provided 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 were earned and
paid. Additional consideration amounted to $42,700 for the five months
ended November 30, 2010 (the fifth and final designated period) and
$45,200 for the six months ended December 31, 2009.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
-------- -------- ------------ --------
At December 31, 2010:
Technology 5 yrs. $300,000 $245,000 $ 55,000
Customer relationships 10 yrs. 237,000 168,500 68,500
Non-compete agreement 5 yrs. 102,000 83,300 18,700
Other intangible assets 5 yrs. 138,100 115,900 22,200
-------- -------- --------
$777,100 $612,700 $164,400
======== ======== ========
Useful Accumulated
Lives Cost Amortization Net
-------- -------- ------------ --------
At June 30, 2010:
Technology 5 yrs. $300,000 $215,000 $ 85,000
Customer relationships 10 yrs. 237,000 157,000 80,000
Non-compete agreement 5 yrs. 102,000 73,100 28,900
Other intangible assets 5 yrs. 129,500 109,200 20,300
-------- -------- --------
$768,500 $554,300 $214,200
======== ======== ========
Total amortization expense was $29,000 and $31,400 for the three months
ended December 31, 2010 and 2009, respectively and $58,400 and $63,400
for the six months ended December 31, 2010 and 2009, respectively. As
of December 31, 2010, estimated future amortization expense related to
intangible assets is $60,700 for the six months ending June 30, 2011,
$51,800 for fiscal 2012, $13,500 for fiscal 2013, $9,800 for fiscal
2014, and $28,600 thereafter.
9. Note Payable
On January 5, 2011, the Company and Capital One Bank, N.A. ("Bank")
agreed to extend the Company's outstanding promissory note through
January 3, 2012 in the form of a restatement. The note provides for
maximum borrowings of up to $500,000 and interest at the Bank's prime
rate, which was 3.25% as of December 31, 2010. Advances are at the
discretion of the Bank.
All borrowings under the note are collaterized by the Company's assets
to the extent of amounts borrowed and outstanding and all outstanding
amounts are due and payable on January 3, 2012. The Company had not
borrowed under the note as of December 31, 2010 and June 30, 2010.
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 catalyst research instruments to customers'
satisfaction, adverse economic conditions, and other factors affecting
the Company's business that are beyond the Company's control.
Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
Cash and cash equivalents increased by $550,500 to $1,183,200 as of
December 31, 2010 from $632,700 as of June 30, 2010.
Net cash provided by operating activities was $868,300 for the six
months ended December 31, 2010 as compared to $238,300 for the
comparable six month period in 2009, due mainly to the collections
of accounts receivable balances and monies received in advance from
customers of Altamira with respect to their orders. Cash used in
investing activities was $210,100 for the six month period ended
December 31, 2010 compared to $127,800 for the six month period ended
December 31, 2009 primarily due to a higher amount of additional
contingent consideration paid for the acquisition of Altamira, and
purchases of capital equipment. Cash used in financing activities was
$107,700 for the six month period ended December 31, 2010 compared
to $66,500 for the six month period ended December 31, 2009 due to a
higher dividend declared and paid this year.
On September 21, 2010, the Board of Directors of the Company declared
a cash dividend of $.09 per share of Common Stock which was paid on
December 15, 2010 to holders of record as of the close of business on
October 18, 2010 as compared to $.06 per share paid in the prior fiscal
year.
The Company's working capital increased by $73,300 to $3,586,000 as of
December 31, 2010 from working capital of $3,512,700 at June 30, 2010.
Pursuant to a promissory note with Capital One Bank, N.A. which was
restated in January 2011 extending the expiration date from January 3,
2011 to January 3, 2012, at the request of the Company, the Bank at its
sole discretion may extend to the Company advances not to exceed an
aggregate of $500,000, none of which had been borrowed as of December
31, 2010. The advances are to be secured by the Company's assets and
bear interest at the Bank's prime rate. 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 the restated
promissory note and investment securities.
11
Results of Operations
Financial Overview
The Company recorded increased income before income taxes of $272,600
for the three month period ended December 31, 2010 from $214,300 for
the three month period ended December 31, 2009, mainly the result of
increased sales for both business segments. For the comparable six
month periods ended December 31, 2010 and December 31, 2009, income
before income taxes was slightly lower - $275,800 compared with
$283,700, primarily the result of higher sales commissions paid to
independent sales representatives for the Catalyst Research
Instruments products. As of December 31, 2010, the Catalyst Research
Instruments operation had an order backlog of $283,000, compared to
$1,200,000 as of December 31, 2009.
The Three Months Ended December 31, 2010 Compared With the Three
Months Ended December 31, 2009
Net sales for the three months ended December 31, 2010 increased by
$204,000 (11.2%) to $2,031,500 from $1,827,500 for the three months
ended December 31, 2009 as a result of increases of $88,100 for the
benchtop laboratory equipment products, and $115,900 for the catalyst
research instruments. 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.
The Company's gross profit percentages for the three month comparative
periods ended December 31, 2010 and December 31, 2009 were substantially
the same - 42.8% versus 42.2%.
General and administrative expenses ("G&A") for the three month
comparative periods ended December 31, 2010 and December 31, 2009
decreased by $32,400 (9.5%) to $310,300 from $342,700 primarily as a
result of lower consulting costs for the Catalyst Research Instruments
Operations.
Selling expenses for the three months ended December 31, 2010 increased
$68,600 (51.1%) to $202,900 from $134,300 for the three months ended
December 31, 2009, due primarily to higher sales commissions paid to
independent sales representatives and increased travel expenses for the
Catalyst Research
Instruments.
As a result of increased new product development activity for the
Benchtop Laboratory Equipment operations, research and development
expenses increased $9,300 (11.5%) to $89,900 for three month
comparative periods.
Interest and other income for the three months ended December 31, 2010
decreased $3,400 (34.7%) to $6,400 from $9,800 for the three months
ended December 31, 2009 primarily due to reduced sublease rental
income at the Company's headquarters in Bohemia, New York.
Income tax expense for the three months ended December 31, 2010 was
$83,000 compared to $64,800 for the three months ended December 31,
2009, mainly due to the higher income.
As a result of the foregoing, net income for the three months ended
December 31, 2010 was $189,600, an increase of $30,300 (19.0%) from
$159,300 for the three months ended December 31, 2009.
12
The Six Months Ended December 31, 2010 Compared With the Six Months
Ended December 31, 2009
Net sales for the six months ended December 31, 2010 increased by
$215,400 (7.0%) to $3,286,900 compared to $3,071,500 for the six months
ended December 31, 2009, due to increases of $98,600 by the Benchtop
Laboratory Equipment Operations, and $116,800 by the Catalyst Research
Instruments Operations. 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.
The gross profit percentages for the six month comparative periods ended
December 31, 2010 and December 31, 2009 were substantially the same - 41.9%
versus 42.6%.
G & A expenses increased by $24,700 (4.3%) to $597,000 for the six months
ended December 31, 2010 from $572,300 for the comparable period last year,
primarily the result of an increase in expenses incurred in the pursuit
of business opportunities for the Company partially offset by a reduction
in consulting costs for the Catalyst Research Instruments Operations.
Selling expenses for the six months ended December 31, 2010 increased by
$66,700 (24.1%) to $343,300 from $276,600 for the six months ended December
31, 2009, due primarily to increased sales commissions paid to independent
sales representatives and travel expenses by the Catalyst Research
Instruments Operations.
Research and development expenses for the six months ended December 31, 2010
decreased $11,700 (6.2%) to $177,400 compared to $189,100 for the six months
ended December 31, 2009, primarily the result of reduced new product
development activity by the Catalyst Research Instruments Operations.
Interest and other income for the six month period ended December 31, 2010
increased by $1,700 to $15,600 from $13,900 for the six month period ended
December 31, 2009.
Income tax expense for the six month period ended December 31, 2010 was
$84,000 compared to $80,900 for the comparable period of the prior fiscal
year.
As a result of the foregoing, net income of $191,800 for the six months ended
December 31, 2010 was lower by $11,000 (5.4%) compared to $202,800 for the
six months ended December 31, 2009.
13
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 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 January 5, 2011 and January 18, 2011
Registrant filed Reports on Form 8-K, both
reporting under Item 1.01.
14
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 11, 2011
15
