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 March 31, 2012
______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 "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 April 27, 2012 was 1,335,712 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Page
____
Condensed Consolidated Balance Sheets 1
Unaudited Condensed Consolidated Statements of Operations 2
Unaudited Condensed Consolidated Statements of Comprehensive
Income (Loss) 3
Unaudited Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2 MANAGEMENT=S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 14
ITEM 4 CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2012 2011
__________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 552,200 $ 907,800
Investment securities 713,900 693,400
Trade accounts receivable, net 569,000 620,000
Inventories 2,132,400 1,639,800
Prepaid expenses and other current assets 156,700 197,700
Deferred taxes 74,800 77,700
__________ __________
Total current assets 4,199,000 4,136,400
Property and equipment at cost, net 187,100 175,100
Intangible assets, net 905,600 112,300
Goodwill 589,900 447,900
Other assets 25,700 25,700
Deferred taxes 113,900 115,800
__________ __________
Total assets $6,021,200 $5,013,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 151,600 $ 128,100
Customer advances 307,100 -
Notes payable, current 75,200 -
Accrued expenses and taxes 309,200 284,300
__________ __________
Total current liabilities 843,100 412,400
Contingent consideration payable 92,900 -
Notes payable, long-term 124,200 -
__________ __________
Total liabilities 1,060,200 412,400
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,355,514 and 1,216,379 issued and outstanding at
March 31, 2012 and June 30, 2011 67,800 60,800
Additional paid-in capital 1,966,900 1,558,500
Accumulated other comprehensive loss ( 12,600) ( 21,500)
Retained earnings 2,991,300 3,055,400
___________ __________
5,013,400 4,653,200
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
___________ __________
Total shareholders' equity 4,961,000 4,600,800
___________ __________
Total liabilities and
Shareholders' equity $6,021,200 $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 Nine Month
Periods Ended Periods Ended
March 31, March 31,
______________________ ______________________
2012 2011 2012 2011
______________________ ______________________
Net sales $1,519,500 $1,460,300 $4,258,000 $4,747,200
Cost of goods sold 920,500 863,500 2,564,700 2,772,500
__________ __________ __________ __________
Gross profit 599,000 596,800 1,693,300 1,974,700
__________ __________ __________ __________
Operating Expenses:
General & administrative 318,900 282,800 945,000 879,800
Selling 170,800 159,000 519,800 502,300
Research & development 125,000 90,300 250,500 267,700
__________ __________ __________ __________
614,700 532,100 1,715,300 1,649,800
__________ __________ __________ __________
Income (loss)
from operations ( 15,700) 64,700 ( 22,000) 324,900
Interest & other
income, net 4,300 9,800 16,100 25,400
__________ __________ __________ __________
Income (loss)
before income taxes ( 11,400) 74,500 ( 5,900) 350,300
__________ __________ __________ __________
Income tax expense (benefit):
Current ( 2,900) 19,300 ( 3,400) 113,100
Deferred ( 300) ( 5,000) 1,700 ( 14,800)
__________ __________ __________ __________
( 3,200) 14,300 ( 1,700) 98,300
__________ __________ __________ __________
Net income (loss) ($ 8,200) $ 60,200 ($ 4,200) $ 252,000
========== ========== ========== ==========
Basic earnings (loss) per common
share ($ .01) $ .05 $ .00 $ .21
Diluted earnings (loss) per common
share ($ .01) $ .05 $ .00 $ .21
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 COMPREHENSIVE INCOME (LOSS)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
_______________________ ____________________
2012 2011 2012 2011
_______________________ ____________________
Net income (loss) ($ 8,200) $ 60,200 ($ 4,200) $ 252,000
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 7,500 2,300 8,900 5,000
_________ ________ ________ __________
Comprehensive income (loss) ($ 700) $ 62,500 $ 4,700 $ 257,000
========= ======== ======== ==========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended
March 31, 2012 March 31, 2011
_______________ ______________
Operating activities:
Net income (loss) ($ 4,200) $ 252,000
___________ __________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 141,600 142,200
Deferred income tax (benefit) 1,700 ( 14,800)
Stock-based compensation 5,700 20,800
Changes in operating assets and liabilities:
Accounts receivable 51,000 871,100
Inventories ( 492,600) ( 94,600)
Prepaid expenses and other current assets 41,000 ( 39,300)
Accounts payable 23,500 ( 114,300)
Customer advances 307,100 -
Accrued expenses and taxes 5,900 ( 148,200)
__________ ___________
Total adjustments 84,900 622,900
__________ ___________
Net cash provided by operating activities 80,700 874,900
__________ ___________
Investing activities:
Additional consideration for acquisition of
Altamira Instruments, Inc. - ( 182,600)
Intangible assets acquired in
acquisition (Note3) ( 260,000) -
Purchase of investment securities,
available-for-sale ( 8,300) ( 11,100)
Capital expenditures ( 66,100) ( 61,500)
Purchase of intangible assets, other ( 4,900) ( 8,800)
___________ ___________
Net cash used in investing activities ( 339,300) ( 264,000)
___________ ___________
Financing activities:
Line of credit proceeds 60,000 -
Line of credit repayments ( 60,000) -
Payments of contingent consideration ( 16,100) -
Proceeds from exercise of stock options 9,600 -
Cash dividend declared and paid ( 59,900) ( 107,700)
Principal payments on note payable ( 30,600) -
___________ ___________
Net cash used in financing activities ( 97,000) ( 107,700)
___________ ___________
Net increase (decrease) in cash
and cash equivalents ( 355,600) 503,200
Cash and cash equivalents, beginning of year 907,800 632,700
___________ ___________
Cash and cash equivalents, end of period $ 552,200 $ 1,135,900
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 3,300 $ 298,400
Non-cash investing and financing activities (Note3):
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
4
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 nine months ended March 31, 2012,
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 issued "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. The
Company adopted the standard during the periods ended March 31, 2012.
5
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 resulted in the inability of the Company
to register under the Securities Act of 1933, as amended, offerings of the
Company's securities during the one year period ending November 2012.
SBI's revenues and profits (if any) are derived from royalties received by
SBI under the various sublicense agreements, and revenues from sales of
certain 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 8, "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, and to the
remaining intangible assets to have a useful life 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.
6
Pro forma results
The unaudited pro forma condensed consolidated financial information
in the table below summarizes the consolidated 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
total acquisition related costs incurred of $78,500 for the nine
month period ended March 31, 2012:
For the Three Month For the Nine Month
Period Ended Periods Ended
March 31, March 31,
___________________ ______________________
2011 2012 2011
___________________ ______________________
Net sales $1,497,800 $4,333,000 $4,859,700
Net income (loss) $ 22,000 ($ 12,900) $ 161,000
Net income (loss)
per share - basic $.02 ($.01) $.12
Net income (loss)
per share - diluted $.02 ($.01) $.12
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").
7
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended March 31, 2012:
Net Sales $1,025,300 $ 418,300 $ 75,900 $ - $1,519,500
Foreign Sales 613,900 405,900 3,600 - 1,023,400
Profit(Loss) 85,000 ( 76,000) ( 16,300)( 4,100) ( 11,400)
Assets 2,446,300 1,239,700 842,700 1,492,500 6,021,200
Long-Lived Asset
Expenditures 7,500 - - - 7,500
Depreciation and
Amortization 12,500 5,900 24,000 - 42,400
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended March 31, 2011:
Net Sales $1,164,900 $ 295,400 $ - $ - $1,460,300
Foreign Sales 720,800 201,400 - - 922,200
Profit(Loss) 138,900 ( 74,200) - 9,800 74,500
Assets 2,313,900 1,300,400 - 1,318,400 4,932,700
Long-Lived Asset
Expenditures 5,800 800 - - 6,600
Depreciation and
Amortization 13,800 32,800 - - 46,600
Approximately 62% and 70% of net sales of benchtop laboratory equipment
for the three month periods ended March 31, 2012 and 2011, respectively,
were derived from the Company's main product, the Vortex-Genie 2 mixer,
excluding accessories.
Two benchtop laboratory equipment customers accounted for approximately
27% and 23% of the segment's net sales,(42% and 19% of total net sales)
for the three month periods ended March 31, 2012 and 2011, 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 two customers in the three months ended March 31,
2012 and two different customers in the three months ended March 31,
2011, accounted respectively for 92% and 93% of the segment's net sales
(25% and 19% of total net sales) for the respective periods.
8
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Nine months ended March 31, 2012:
Net Sales $3,208,900 $ 973,200 $ 75,900 $ - $4,258,000
Foreign Sales 1,977,700 27,000 3,600 - 2,508,300
Profit(Loss) 357,400 ( 252,400) ( 48,600) ( 62,300) ( 5,900)
Assets 2,446,300 1,239,700 842,700 1,492,500 6,021,200
Long-Lived Asset
Expenditures 21,500 49,500 876,000 - 947,000
Depreciation and
Amortization 36,700 68,900 36,000 - 141,600
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Nine months ended March 31, 2011:
Net Sales $3,431,900 $1,315,300 $ - $ - $4,747,200
Foreign Sales 1,946,300 746,000 - - 2,692,300
Profit(Loss) 486,800 ( 161,900) - 25,400 350,300
Assets 2,313,900 1,300,400 - 1,318,400 4,932,700
Long-Lived Asset
Expenditures 38,100 23,400 - - 61,500
Depreciation and
Amortization 42,600 99,600 - - 142,200
Approximately 63% and 69% of net sales of benchtop laboratory equipment
for the nine month periods ended March 31, 2012 and 2011, respectively,
were derived from the Company's main product, the Vortex-Genie 2 mixer,
excluding accessories.
Two benchtop laboratory equipment customers, accounted for approximately
26% and 29% of the segment's net sales (20% and 21% of total net sales)
for the nine month periods ended March 31, 2012 and 2011, respectively.
Sales of catalyst research instruments to three customers in the nine
months ended March 31, 2012 and to three other customers in the nine
months ended March 31, 2011 accounted for approximately 65% and 43% of
that segment's net sales (15% and 12% of total net sales) for the
respective nine month periods.
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 ("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.
9
The accounting guidance also expands the disclosure requirements
concerning 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 valuations 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 and liabilities that were accounted for at fair
value on a recurring basis at March 31, 2012 and June 30, 2011 according to
the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
March 31, 2012 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalents $ 552,200 $ 552,200 $ - $ -
Available for sale securities 713,900 713,900 - -
__________ __________ _______ _______
Total $1,266,100 $1,266,100 $ - $ -
========== ========== ======= =======
Liabilities:
Contingent consideration $ 111,900 $ - $ - $111,900
========== ========== ======= ========
Fair Value Measurements Using Inputs
Considered as
Assets:
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 $ - $ -
========== ========== ======= =======
Liabilities:
Contingent consideration $ - $ - $ - $ -
========== ========== ======= =======
Investments in marketable securities classified as available-for-sale by
security type at March 31, 2012 and June 30, 2011 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At March 31, 2012:
Available for sale:
Equity securities $ 7,800 $ 16,600 $ 8,800
Mutual funds 718,700 697,300 (21,400)
_________ _________ ___________
$ 726,500 $ 713,900 $ (12,600)
========= ========= ===========
10
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:
At interim reporting periods, inventories for financial statement
purposes are based on perpetual inventory records. Components of
inventory are as follows:
March 31, June 30,
2012 2011
__________ ___________
Raw Materials $1,218,700 $1,051,300
Work in process 681,000 408,200
Finished Goods 232,700 180,300
__________ __________
$2,132,400 $1,639,800
========== ==========
7. Earnings (Loss) per common share:
Basic earnings (losses) per common share are computed by dividing
net income by the weighted-average number of shares outstanding.
Diluted earnings per common share include the dilutive effect of
stock options, if any.
Earnings (Loss) per common share was computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
______________________ _____________________
2012 2011 2012 2011
______________________ _____________________
Net income (loss) ($ 8,200) $ 60,200 ($ 4,200) $ 252,000
========== ========= ========== =========
Weighted average common
shares outstanding 1,335,712 1,196,577 1,265,714 1,196,577
Effect of dilutive
securities - 17,110 - 16,610
__________ _________ __________ _________
Weighted average dilutive
common shares outstanding 1,335,712 1,213,687 1,265,714 1,213,187
========== ========= ========== =========
Basic earnings (loss) per
common share ($ .01) $ .05 ($ .00) $ .21
========= ======= ========== =======
Diluted earnings (loss) per
common share ($ .01) $ .05 ($ .00) $ .21
========= ======= ========== =======
11
Approximately 55,000 shares of the Company's common stock
issuable upon the exercise of outstanding options were excluded from
the calculation of diluted loss per common share, for the three and
nine month periods ended March 31, 2012, respectively, because the
effect would be anti-dilutive due to the losses for the periods.
8. 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 March 31, 2012 and June 30, 2011, respectively, of which
$142,000 relates to the newly acquired assets of SBI as of March 31, 2012
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 March 31, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 323,500 $ 540,500
Customer relationships 10 yrs. 237,000 189,400 47,600
Sublicense agreements 10 yrs. 294,000 11,000 283,000
Non-compete agreements 5 yrs. 120,000 103,400 16,600
Other intangible assets 5 yrs. 143,900 126,000 17,900
__________ ___________ _________
$1,658,900 $ 753,300 $ 905,600
========== =========== =========
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 $26,300 and $26,500 for the three months
ended March 31, 2012 and 2011, respectively and $87,600 and $84,900 for
the nine months ended March 31, 2012 and 2011, respectively. As of March
31, 2012, estimated future amortization expense related to intangible
assets is $30,800 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 $442,300 thereafter.
9. 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, (3.33% at
March 31, 2012) 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. No amounts were
outstanding at March 31, 2012 and June 30, 2011.
12
10. 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 March 31, 2012 the current and long-term portions of the note
were $75,200 and $124,200, respectively.
13
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking information.
Numerous unknown factors and future events could cause such differences,
including but not limited to, product demand, market acceptance, impact
of competition, the ability to reach final agreements, the ability to
finance and produce catalyst research instruments to customers'
satisfaction, adverse economic conditions, and other factors affecting
the Company's business that are beyond the Company's control.
Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $355,600 to $552,200 as of
March 31, 2012 from $907,800 as of June 30, 2011.
Operating activities provided $80,700 of cash for the nine month period
ended March 31, 2012 as compared to $874,900 for the nine month period
ended March 31, 2011, due mainly to higher inventory balances and lower
income partially offset by advances from customers of Altamira with
respect to their orders and a much lower change in accounts receivable
balances. Cash used in investing activities was $339,300 for the nine
month period ended March 31, 2012 compared to $264,000 for the nine month
period ended March 31, 2011 primarily due to the acquisition by SBI of
intangible assets. Cash used in financing activities was $97,000 for the
nine month period ended March 31, 2012 compared to $107,700 for the nine
month period ended March 31, 2011, due primarily to a lower dividend
paid in the current fiscal year.
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 $349,100 to $3,374,900 as of
March 31, 2012 from working capital of $3,724,000 at June 30, 2011 mainly
the result of 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.
14
Results of Operations
Financial Overview
The Company recorded a loss before income tax benefit of $11,400 for the
three month period ended March 31 2012 compared to income before income
taxes of $74,500 for the comparative period last year, primarily as a
result of the reduction in income for the Benchtop Laboratory Equipment
Operations and a loss generated by the new Bioprocessing Systems business.
For the comparative nine month periods ended March 31, 2012, the Company
reflected a loss before income tax benefit of $5,900 compared to income
before income taxes of $350,300 for the comparable 2011 period, also
principally due to the lower income generated by the Benchtop Laboratory
Equipment Operations, the increased loss for the Catalyst Research
Instrument Operations, the loss derived by the new Bioprocessing Systems
Operations and the related acquisition costs.
The Three Months Ended March 31, 2012 Compared With the Three Months
Ended March 31, 2011
Net sales for the three months ended March 31, 2012 increased by $59,200
(4.1%) to $1,519,500 from $1,460,300 for the three months ended March 31,
2011 as a result of a $122,900 increase in catalyst research instrument
sales and revenues of $75,900, primarily royalties, of the new
Bioprocessing Systems Operations, partially offset by a $139,600 decrease
in sales of benchtop laboratory equipment. Sales of benchtop laboratory
equipment products generally comprise many small 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 Operations
generate revenues from royalties. Once new product development is
completed, it expects to also generate sales from such products, although
no assurance can be given that the future developed products will
result in meaningful sales. The backlog of orders for catalyst research
instruments was $850,000 as of March 31, 2012, substantially all of which
is expected to be delivered by fiscal year end, as compared to the
backlog as of March 31, 2011 of $240,000.
The gross profit percentage for the three months ended March 31, 2012
decreased to 39.4% compared to 40.9% for the three months ended March
31, 2011, due primarily to the increase in overhead costs for the
Catalyst Research Instrument Operations.
General and administrative expenses for the three months ended March
31, 2012 increased $36,100 (12.8%) to $318,900 from $282,800 for the
three months ended March 31, 2011, primarily due to the amortization
expenses incurred by the new Bioprocessing Systems Operations.
Selling expenses for the three months ended March 31, 2012 increased
$11,800 (7.4%) to $170,800 from $159,000 for the three months ended
March 31, 2011, primarily the result of higher selling costs incurred
by the Benchtop Laboratory Equipment Operations.
Research and development expenses for the three months ended March
31, 2012 increased by $34,700 (38.4%) to $125,000 from $90,300 for
the three months ended March 31, 2011, primarily the result of new
product development costs related to the new Bioprocessing
Systems Operations.
Interest and other income, net, decreased to $4,300 for the three
months ended March 31, 2012 from $9,800 for the prior year period,
mostly due to lower cash balances and interest rates, and the interest
expense incurred by the new Bioprocessing Systems Operations.
As a result of the loss of $11,400 for the three months ended March
31, 2012, the Company recorded an income tax benefit of $3,200 compared
to income tax expense of $14,300 for the three months ended March 31, 2011.
The result of the foregoing was a net loss for the three months ended
March 31, 2012 of $8,200 compared to net income of $60,200 for the three
months ended March 31, 2011.
15
Nine Months Ended March 31, 2012 Compared With the Nine Months Ended
March 31, 2011
Net sales for the nine months ended March 31, 2012 decreased by $489,200
(10.3%) to $4,258,000 compared to $4,747,200 for the nine months ended
March 31, 2011, due to decreases of $342,100 in catalyst research
instrument sales and $223,000 in benchtop laboratory equipment sales, the
latter reflecting a decrease in orders from both U.S. customers and
European customers. 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 $850,000 as of March 31, 2012, substantially
all of which is anticipated to be delivered by fiscal year end, as
compared with $240,000 as of March 31, 2011.
The gross profit percentage for the nine months ended March 31, 2012
was 39.8% as compared with 41.6% for the prior year period mostly due to
the reduced margins for the Benchtop Laboratory Equipment Operations.
General and administrative expenses increased by $65,200 (7.4%) to
$945,000 for the nine months ended March 31, 2012 from $879,800 for
the comparable period last year, primarily the result of
amortization for the new Bioprocessing Systems Operations including
costs related to the asset acquisition by SBI.
Selling expenses for the nine months ended March 31, 2012 increased
by $17,500 (3.5%) to $519,800 compared to $502,300 for the nine months
ended March 31, 2011, due to higher selling expenses incurred by the
Benchtop Laboratory Equipment Operations related to its foreign sales.
Research and development expenses for the nine months ended March 31,
2012 decreased by $17,200 (6.4%) to $250,500 from $267,700 for the
nine months ended March 31, 2011, due to a reduction in new product
development activity by both the Benchtop Laboratory Equipment and
Catalyst Research Instruments Operations, partially offset by the new
costs incurred by the Bioprocessing Systems Operations.
Interest and other income, net, decreased to $16,100 for the nine
months ended March 31, 2012 from $25,400 for the nine month period of
the prior year period, mainly due to smaller cash balances and lower
interest rates, and the interest expense incurred by the new
Bioprocessing Systems Operations.
Due to the loss incurred for the nine months ended March 31, 2012,
the Company reflected an income tax benefit of $1,700 compared to
income tax expense of $98,300 for the nine months ended March 31, 2011.
As a result of the foregoing, the net loss for the nine months ended
March 31, 2012 was $4,200 compared to net income of $252,000 for the
nine months ended March 31, 2011.
16
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 January 23, 2012 reporting under
Items 1.01 and 5.07.
17
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
__________________________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: May 15, 2012
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