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, 2013
______________________
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 April 26, 2013 was 1,337,663 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income (Loss) 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Unaudited Condensed Consolidated Financial
Statements 5
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
EXHIBITS 18
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2013 2012
Current assets: (Unaudited)
__________ __________
Cash and cash equivalents $ 946,400 $ 769,300
Investment securities 729,500 718,300
Trade accounts receivable, net 731,700 623,500
Inventories 2,245,200 1,613,700
Prepaid expenses and other current assets 63,600 167,800
Deferred taxes 72,600 70,200
---------- ----------
Property and equipment, net 161,600 180,500
Intangible assets, net 794,200 877,300
Goodwill 589,900 589,900
Other assets 24,100 25,700
Deferred taxes 114,700 136,000
---------- ----------
Total assets $6,473,500 $5,772,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 139,600 $ 114,800
Customer advances 503,200 98,500
Notes payable, current 77,700 75,800
Accrued expenses and taxes 381,200 237,500
Contingent consideration payable, current 19,000 19,000
---------- ----------
Total current liabilities 1,120,700 545,600
Contingent consideration payable, less current
portion 62,500 88,400
Notes payable, less current portion 46,500 105,000
---------- ----------
Total liabilities 1,229,700 739,000
---------- ----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,357,465 issued and outstanding at
March 31, 2013 and 1,355,514 at
June 30, 2012 67,900 67,800
Additional paid-in capital 1,976,200 1,968,700
Accumulated other comprehensive income (loss) 4,200 ( 12,600)
Retained earnings 3,247,900 3,061,700
---------- ----------
5,296,200 5,085,600
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
---------- ----------
Total shareholders' equity 5,243,800 5,033,200
---------- ----------
Total liabilities and
shareholders' equity $6,473,500 $5,772,200
========== ==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
______________________ ______________________
2013 2012 2013 2012
__________ __________ __________ __________
Net sales $1,626,100 $1,519,500 $4,854,700 $4,258,000
Cost of sales 810,700 920,500 2,744,700 2,564,700
---------- ---------- ---------- ----------
Gross profit 815,400 599,000 2,110,000 1,693,300
---------- ---------- ---------- ----------
Operating expenses:
General & administrative 320,800 318,900 910,000 945,000
Selling 188,600 170,800 536,000 519,800
Research & development 100,800 125,000 356,000 250,500
---------- ---------- ---------- ----------
Total operating
expenses 610,200 614,700 1,802,000 1,715,300
---------- ---------- ---------- ----------
Income (loss) from
operations 205,200 ( 15,700) 308,000 ( 22,000)
---------- ---------- ---------- ----------
Other income (expense):
Investment income 5,700 2,900 11,600 10,000
Other 600 3,100 1,500 9,000
Interest expense ( 1,100)( 1,700)( 3,800) ( 2,900)
---------- ---------- -------- ----------
Total other income 5,200 4,300 9,300 16,100
---------- ---------- -------- ----------
Income (loss) before
income taxes (benefit) 210,400 ( 11,400) 317,300 ( 5,900)
---------- ---------- --------- ----------
Income tax expense (benefit):
Current 53,600 ( 2,900) 74,800 ( 3,400)
Deferred 6,700 ( 300) 16,200 1,700
---------- ---------- --------- ----------
Total income (loss) tax
expense (benefit) 60,300 ( 3,200) 91,000 ( 1,700)
---------- ---------- --------- ----------
Net income (loss) $ 150,100 ($ 8,200) $ 226,300 ($ 4,200)
========== ========== ========= ==========
Basic earnings (loss) per common
share $ .11 $ (.01) $ .17 $ .00
Diluted earnings (loss) per common
share $ .11 $ (.01) $ .17 $ .00
Cash dividends declared
per common share $ .00 $ .00 $ .03 $ .05
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
___________________ ____________________
2013 2012 2013 2012
___________________ ____________________
Net income (loss) $ 150,100 ($ 8,200) $ 226,300 ($ 4,200)
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 3,900 7,500 16,800 8,900
--------- -------- --------- ---------
Comprehensive income (loss) $ 154,000 ($ 700) $ 243,100 $ 4,700
========= ======== ========= =========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 2013 March 31, 2012
Operating activities:
Net income (loss) $ 226,300 ($ 4,200)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss on sale of investments 7,400 -
Depreciation and amortization 132,400 141,600
Deferred income tax benefit 16,200 1,700
Stock-based compensation 7,600 5,700
Changes in operating assets and liabilities:
Accounts receivable ( 108,200) 51,000
Inventories ( 631,500) ( 492,600)
Prepaid expenses and other current assets 104,200 41,000
Accounts payable 24,800 23,500
Customer advances 404,700 307,100
Accrued expenses and taxes 143,700 5,900
Other assets 1,600 -
--------- ---------
Total adjustments 102,900 84,900
--------- ---------
Net cash provided by operating activities 329,200 80,700
--------- ---------
Investing activities:
Intangible assets acquired in acquisition of SBI - ( 260,000)
Redemption of investment securities,
available-for-sale 717,600 -
Purchase of investment securities,
available-for-sale ( 716,900) ( 8,300)
Capital expenditures ( 28,100) ( 66,100)
Purchase of other intangible assets ( 2,100) ( 4,900)
--------- ---------
Net cash used in investing activities ( 29,500) ( 339,300)
--------- ---------
Financing activities:
Line of credit proceeds - 60,000
Line of credit repayments - ( 60,000)
Payments of contingent consideration ( 25,900) ( 16,100)
Proceeds from exercise of stock options - 9,600
Cash dividend declared and paid ( 40,100) ( 59,900)
Principal payments on note payable ( 56,600) ( 30,600)
--------- ---------
Net cash used in financing activities ( 122,600) ( 97,000)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 177,100 ( 355,600)
Cash and cash equivalents, beginning of year 769,300 907,800
--------- ---------
Cash and cash equivalents, end of period $ 946,400 $ 552,200
========= =========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ - $ 3,300
Interest 3,800 2,900
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, 2012. The results for the three and nine months ended March
31, 2013, are not necessarily an indication of the results for the full
fiscal year ending June 30, 2013.
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 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 February 2013, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update No. 2013-02, Comprehensive Income
(Topic 220)-Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income ("ASU 2013-02"), to improve the reporting of
reclassifications out of accumulated other comprehensive income. ASU
2013-02 requires an entity to report the effect of significant
reclassifications out of accumulated other comprehensive income on
the respective line items in net income if the amount being reclassified
is required under U.S. GAAP to be reclassified in its entirety to net
income. For other amounts that are not required under U.S. GAAP to be
reclassified in their entirety from accumulated other comprehensive
income to net income in the same reporting period, an entity is
required to cross-reference other disclosures required under U.S.
GAAP that provide additional detail about those amounts. ASU 2013-02
became effective for the Company for this reporting period, however
the adoption of ASU 2013-02 did not have an impact on the reporting of
the Company's financial statements.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02,
"Testing Indefinite-Lived Intangible Assets for Impairment"
("ASU 2012-02"), which allows entities to use a qualitative approach
to test indefinite-lived intangible assets for impairment. ASU
2012-02 permits an entity to first assess qualitative factors to
determine whether it is more likely than not that the fair value
of the indefinite-lived intangible asset is less than its carrying
value. If it is concluded that this is the case, it is necessary
to perform the currently prescribed quantitative impairment test.
Otherwise, the quantitative impairment test is not required.
ASU 2012-02 is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012.
The adoption of the provisions of ASU 2012-02 is not expected to
have a material impact on the Company's financial position or
results of operations.
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.
SBI's revenues are derived from royalties received by SBI under the
various sublicense agreements, net of royalty payments due to UMBC, 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 at 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.
In May 2013, the Company was advised of the death of Dr. Joseph Qualitz, the
Chief Operating Officer of the seller. Pursuant to the research and
development agreement, the Company has the option to terminate the agreement
effective immediately unless the Company consents to a replacement who has the
skills, education, experience and capabilities similar to those of Dr.
Qualitz. No assurance can be given that such replacement will be made. The
Company believes that a termination will not be materially adverse to the
Company's operations or financial condition as the research and development
services can be performed by its staff, or if needed, through qualified
subcontractors at no additional material increase in cost from that to be
incurred if the research agreement was not terminated.
6
Pro forma results
The unaudited pro forma condensed consolidated financial information in
the table below summarizes the consolidated results of operations of the
Company on a pro forma basis, as though SBI had been consolidated as of
July 1, 2011 (the beginning of the prior periods presented). 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.
For the Nine Month
Period Ended
March 31,
__________________
2012
__________________
Net sales $4,333,000
Net income (loss) ($ 12,900)
Net income (loss)
per share - basic ($.01)
Net income (loss)
per share - diluted ($.01)
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 Corporate
Laboratory Research Bioprocessing and
Equipment Instruments Systems Other Consolidated
__________ ___________ _____________ __________ __________
Three months ended March 31, 2013:
Net Sales $1,229,800 $ 360,600 $ 35,700 $ - $1,626,100
Foreign Sales 645,300 107,300 - - 752,600
Profit(Loss) 243,300 3,600 ( 41,700) - 205,200
Assets 2,719,500 1,932,600 904,600 916,800 6,473,500
Long-Lived Asset
Expenditures 1,700 1,200 - - 2,900
Depreciation and
Amortization 10,700 8,700 24,000 - 43,400
Benchtop Catalyst Corporate
Laboratory Research Bioprocessing and
Equipment Instruments Systems Other Consolidated
__________ ___________ _____________ __________ __________
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) 80,700 ( 76,000) ( 16,300) ( 4,100) ( 15,700)
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
Approximately 71% and 62% of net sales of benchtop laboratory equipment for the
three month periods ended March 31, 2013 and 2012, 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% of
the segment's net sales for each of the three month periods ended March 31,
2013 and 2012 (20% and 18% of total net sales, respectively, for the periods).
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 three customers in the three months ended March 31, 2013 and two
different customers in the three months ended March 31, 2012, accounted
respectively for 92% of the segment's net sales for each of the periods
(20% and 25% of total net sales for the respective periods).
8
Benchtop Catalyst Corporate
Laboratory Research Bioprocessing and
Equipment Instruments Systems Other Consolidated
__________ ___________ _____________ __________ __________
Nine months ended March 31, 2013:
Net Sales $3,459,500 $1,309,700 $ 85,500 $ - $4,854,700
Foreign Sales 2,014,900 626,400 - - 2,641,300
Profit(Loss) 518,100 ( 62,500) ( 147,600) - 308,000
Assets 2,719,500 1,932,600 904,600 916,800 6,473,500
Long-Lived Asset
Expenditures 10,900 19,300 - - 30,200
Depreciation and
Amortization 33,300 27,200 71,900 - 132,400
Benchtop Catalyst Corporate
Laboratory Research Bioprocessing and
Equipment Instruments Systems Other Consolidated
__________ ___________ _____________ __________ __________
Nine months ended March 31, 2012:
Net Sales $3,208,900 $ 973,200 $ 75,900 $ - $4,258,000
Foreign Sales 1,977,700 527,000 3,600 - 2,508,300
Profit(Loss) 341,300 ( 252,400) ( 48,600) ( 62,300) ( 22,000)
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
Approximately 69% and 63% of net sales of benchtop laboratory equipment for the
nine month periods ended March 31, 2013 and 2012, respectively, were derived
from the Company's main product, the Vortex-Genie 2 mixer, excluding
accessories.
Two benchtop laboratory equipment customers, accounted for approximately 24%
and 26% of the segment's net sales (17% and 24% of total net sales) for the
nine month periods ended March 31, 2013 and 2012, respectively.
Sales of catalyst research instruments to three customers in the nine months
ended March 31, 2013 and to three other customers in the nine months ended
March 31, 2012 accounted for approximately 49% and 65% of that segment's net
sales (13% and 15% 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 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, 2013 and June 30, 2012 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, 2013 Level 1 Level 2 Level 3
_______________ __________ _______ _______
Cash and cash equivalents $ 946,400 $ 946,400 $ - $ -
Available for sale securities 729,500 729,500 - -
__________ __________ ______ ________
Total $1,675,900 $1,675,900 $ - $ -
========== ========== ====== ========
Liabilities:
Contingent consideration $ 81,500 $ - $ - $ 81,500
========== ========== ====== ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2012 Level 1 Level 2 Level 3
______________ __________ _______ _______
Cash and cash equivalents $ 769,300 $ 769,300 $ - $ -
Available for sale securities 718,300 718,300 - -
__________ __________ _______ ________
Total $1,487,600 $1,487,600 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 107,400 $ - $ - $107,400
========== ========== ======= ========
Investments in marketable securities classified as available-for-sale
by security type at March 31, 2013 and June 30, 2012 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At March 31, 2013:
Available for sale:
Equity securities $ 29,300 $ 31,800 $ 2,500
Mutual funds 696,000 697,700 1,700
_________ _________ ___________
$ 725,300 $ 729,500 $ 4,200
========= ========= ===========
10
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At June 30, 2012:
Available for sale:
Equity securities $ 5,900 $ 16,000 $ 10,100
Mutual funds 725,000 702,300 (22,700)
_________ _________ ____________
$ 730,900 $ 718,300 $ (12,600)
========= ========= ============
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,
2013 2012
__________ __________
Raw Materials $1,329,700 $1,146,800
Work in process 762,000 221,900
Finished Goods 153,500 245,000
__________ __________
$2,245,200 $1,613,700
========== ==========
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,
___________________________________________
2013 2012 2013 2012
___________________________________________
Net income (loss) $ 150,100 ($ 8,200) $ 226,300 ($ 4,200)
Weighted average common
shares outstanding 1,337,663 1,335,712 1,336,844 1,265,714
Effect of dilutive
securities 4,701 - 4,543 -
_________ _________ _________ _________
Weighted average dilutive
common shares outstanding 1,342,364 1,335,712 1,341,387 1,265,714
========= ========= ========= =========
Basic earnings (loss) per
common share $ .11 ($ .01) $ .17 ($ .00)
======= ======== ======= ========
Diluted earnings (loss) per
common share $ .11 ($ .01) $ .17 ($ .00)
======= ======== ======= ========
Approximately 40,000 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 each of the three
and nine month periods ended March 31, 2013, because the effect would
be anti-dilutive.
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 as of March 31, 2013 and June 30, 2012,
respectively, all of which is deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
________ _________ ____________ _________
At March 31, 2013:
Technology, trademarks 5/10 yrs. $ 864,000 $ 386,300 $ 477,700
Customer relationships 10 yrs. 237,000 200,800 36,200
Sublicense agreements 10 yrs. 294,000 40,400 253,600
Non-compete agreements 5 yrs. 120,000 107,000 13,000
Other intangible assets 5 yrs. 146,000 132,300 13,700
__________ ___________ _________
$1,661,000 $ 866,800 $ 794,200
========== =========== =========
Useful Accumulated
Lives Cost Amortization Net
________ _________ ____________ _________
At June 30, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 339,300 $ 524,700
Customer relationships 10 yrs. 237,000 192,100 44,900
Sublicense agreements 10 yrs. 294,000 18,400 275,600
Non-compete agreements 5 yrs. 120,000 104,300 15,700
Other intangible assets 5 yrs. 143,900 127,500 16,400
__________ __________ __________
$1,658,900 $ 781,600 $ 877,300
========== ========== ==========
Total amortization expense was $27,900 and $26,300 for the three months
ended March 31, 2013 and 2012, respectively and $85,200 and $87,600 for
the nine months ended March 31, 2013 and 2012, respectively. As of
March 31, 2013, estimated future amortization expense related to
intangible assets is $29,000 for the remainder of the fiscal year ending
June 30, 2013, $108,800 for fiscal 2014, $105,200 for fiscal 2015,
$109,400 for fiscal 2016, $93,800 for fiscal 2017, and $348,000
thereafter.
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, 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 $177,100 to $946,400 as of
March 31, 2013 from $769,300 as of June 30, 2012.
Operating activities provided cash of $329,200 for the nine month
period ended March 31, 2013 as compared to $80,700 for the nine month
period ended March 31, 2012, due mainly to higher income in the 2013
period. Cash used in investing activities decreased to $29,500 for
the nine month period ended March 31, 2013 compared to a decrease of
$339,300 for the nine month period ended March 31, 2012 primarily due
to the acquisition by SBI of intangible assets in the earlier period.
Cash used in financing activities was $122,600 for the nine month
period ended March 31, 2013 compared to $97,000 for the nine month
period ended March 31, 2012, due primarily to the Note and contingent
consideration payments made in connection with the acquisition by SBI
of intangible assets.
On September 21, 2012, the Board of Directors of the Company declared
a cash dividend of $.03 per share of Common Stock payable on November
1, 2012 to holders of record as of the close of business on October 1,
2012 as compared to $.05 per share paid in the prior fiscal year
period.
The Company's working capital increased by $251,100 to $3,668,300 as
of March 31, 2013 from $3,417,200 at June 30, 2012 mainly due to the
income for the 2013 period.
The Company has a line of credit with its bank, JPMorgan Chase Bank,
N.A. which provides for maximum borrowings of up to $700,000, bearing
interest at 3.08 percentage points above a defined LIBOR Index. The
interest rate as of March 31, 2013 was approximately 3.28% and any
borrowing is to be 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 promissory note. As of March 31, 2013 and
June 30, 2012, no borrowings under the line were outstanding.
13
Management believes that the Company will be able to meet its cash
flow needs for the 12 months ended March 31, 2014 from its available
financial resources, including its cash and cash equivalents, the
line of credit and investment securities.
Results of Operations:
Financial Overview
The Company recorded income before income taxes of $210,400 for the
three month period ended March 31 2013 compared to a loss of ($11,400)
before income tax benefit for the comparative period last year,
primarily as a result of the increased income for the Benchtop
Laboratory Operations and income of $3,600 for the 2013 period as
compared to ($76,000) loss for the year earlier period for the
Catalyst Research Instruments Operations. For the comparative nine
month period ended March 31, 2013, the Company reflected income before
income taxes of $317,300 compared to a loss before income tax benefit
of ($5,900) for the comparable 2012 period, also principally due to
the higher income generated by the Benchtop Laboratory Equipment
Operations, and a material reduction in the operating loss for the
Catalyst Research Instrument Operations, partially offset by the
increase in loss for the Bioprocessing Systems Operations.
The Three Months Ended March 31, 2013 Compared With the Three Months
Ended March 31, 2012
Net sales for the three months ended March 31, 2013 increased by
$106,600 (7.0%) to $1,626,100 from $1,519,500 for the three months
ended March 31, 2012 as a result of a $204,500 increase in benchtop
laboratory product sales, partially offset by decreases of $57,700 and
$40,200 in catalyst research instrument sales and bioprocessing
systems revenues, respectively. 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 backlog of
orders for catalyst research instruments was $1,340,000 as of March
31, 2013, most of which is expected to be delivered by fiscal year
end, as compared to the backlog of $850,000 as of March 31, 2012.
The gross profit for the three months ended March 31, 2013 was 50.1%
compared to 39.4% for the three months ended March 31, 2012, primarily
as a result of more profitable orders for the Catalyst Research
Instrument Operations.
General and administrative expenses for the three months ended March
31, 2013 increased slightly to $320,800 compared to $318,900 for the
three months ended March 31, 2012.
Selling expenses for the three months ended March 31, 2013 increased
$17,800 (10.4%) to $188,600 from $170,800 for the three months ended
March 31, 2012, primarily the result of commissions paid with respect
to catalyst research instrument sales.
Research and development expenses for the three months ended March 31,
2013 decreased by $24,200 (19.4%) to $100,800 from $125,000 for the
three months ended March 31, 2012, primarily the result of a reduction
of new product development activity by the Benchtop Laboratory
Equipment Operations.
14
Total other income amounted to $5,200 for the three months ended March
31, 2013 compared to $4,300 for the prior year period.
The Company recorded income tax expense of $60,300 for the three
months ended March 31, 2013 compared to an income tax benefit of
$3,200 for the three months ended March 31, 2012 due to the profits in
the current year period.
As a result of the foregoing, net income was $150,100 for the three
months ended March 31, 2013, compared to a net loss of ($8,200) for
the three months ended March 31, 2012.
Nine Months Ended March 31, 2013 Compared With the Nine Months Ended
March 31, 2012
Net sales increased by $596,700 (14.0%) to $4,854,700 for the nine
months ended March 31, 2013 compared to $4,258,000 for the nine months
ended March 31, 2012, due to increases of $336,500 in catalyst
research instrument sales and $250,600 in benchtop laboratory
equipment sales, and an increase of $9,600 in bioprocessing systems
revenues. 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 $1,340,000 as of March 31, 2013, most of
which is anticipated to be delivered by fiscal year end, as compared
with $850,000 as of March 31, 2012.
The gross profit percentage for the nine months ended March 31, 2013
was 43.5% as compared with 39.8% for the prior year nine month period
mostly due to the more profitable orders for Catalyst Research
Instruments and lower overhead costs for the Benchtop Laboratory
Equipment Operations.
General and administrative expenses decreased by $35,000 (3.7%) to
$910,000 for the nine months ended March 31, 2013 from $945,000 for
the comparable period last year, because of the incurrence in the
earlier period of costs related to the asset acquisition by SBI.
Selling expenses for the nine months ended March 31, 2013 increased by
$16,200 (3.1%) to $536,000 compared to $519,800 for the nine months
ended March 31, 2012, due to higher sales commissions incurred by the
Catalyst Research Instruments Operations.
Research and development expenses for the nine months ended March 31,
2013 increased by $105,500 (42.1%) to $356,000 from $250,500 for the
nine months ended March 31, 2012, due to increased new product
development activity by the Benchtop Laboratory Equipment Operations
and the Bioprocessing Systems Operations.
Total other income decreased by $6,800 to $9,300 from $16,100 for the
nine month comparative periods ended March 31, 2013 and 2012.
Income tax expense for the nine months ended March 31, 2013 was
$91,000 compared to an income tax benefit of $1,700 for the nine
months ended March 31, 2012 due to the profits generated for the
current year period.
15
As a result of the foregoing, net income for the nine months ended
March 31, 2013 was $226,300 compared to a net loss of $4,200 for the
nine months ended March 31, 2012.
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:
None.
16
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: May 14, 2013
17
