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, 2011
______TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
___________ ___________
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ _________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
70 Orville Drive, Bohemia, New York 11716
________________________________________ __________
(Address of principal executive offices) (Zip Code)
(631)567-4700
____________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), 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 29, 2011 was 1,196,577 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 Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 12
ITEM 4 CONTROLS AND PROCEDURES 15
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2011 2010
___________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $1,135,900 $ 632,700
Investment securities 685,400 665,600
Trade accounts receivable, net 623,400 1,494,500
Inventories 1,367,200 1,272,600
Prepaid expenses and other current assets 126,500 87,200
Deferred taxes 74,400 73,800
__________ __________
Total current assets 4,012,800 4,226,400
Property and equipment at cost, net 197,400 193,400
Intangible assets, net 138,100 214,200
Goodwill 447,900 405,200
Other assets 25,800 25,700
Deferred taxes 110,700 100,100
__________ __________
Total assets $4,932,700 $5,165,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 113,500 $ 227,700
Accrued expenses and taxes 197,900 486,000
__________ ___________
Total current liabilities 311,400 713,700
__________ ___________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,216,379 issued and outstanding at
March 31, 2011 and June 30, 2010 60,800 60,800
Additional paid-in capital 1,557,900 1,537,200
Accumulated other comprehensive loss ( 24,800) ( 29,800)
Retained earnings 3,079,800 2,935,500
____________ ___________
4,673,700 4,503,700
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
____________ ___________
Total shareholders' equity 4,621,300 4,451,300
____________ ___________
Total liabilities and
shareholders' equity $4,932,700 $5,165,000
============ ===========
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,
2011 2010 2011 2010
__________ __________ __________ __________
Net sales $1,460,300 $1,137,600 $4,747,200 $4,209,100
Cost of goods sold 863,500 659,600 2,772,500 2,423,300
__________ __________ __________ __________
Gross profit 596,800 478,000 1,974,700 1,785,800
__________ __________ __________ __________
Operating Expenses:
General & administrative 282,800 275,100 879,800 847,300
Selling 159,000 141,800 502,300 418,400
Research & development 90,300 82,300 267,700 271,500
__________ __________ __________ __________
532,100 499,200 1,649,800 1,537,200
__________ __________ __________ __________
Income (loss)
from operations 64,700 ( 21,200) 324,900 248,600
Interest & other
income, net 9,800 10,300 25,400 24,200
__________ __________ _________ __________
Income (loss)
before income taxes 74,500 ( 10,900) 350,300 272,800
__________ ___________ _________ __________
Income tax expense (benefit):
Current 19,300 10,500 113,100 107,800
Deferred ( 5,000) ( 14,600) ( 14,800) ( 31,000)
___________ ___________ __________ ___________
14,300 ( 4,100) 98,300 76,800
Net income (loss) $ 60,200 ($ 6,800) $ 252,000 $ 196,000
========== ========== ========= ==========
Basic earnings (loss) per common
share $ .05 ($ .01) $ .21 $ .16
Diluted earnings (loss) per common
share $ .05 ($ .01) $ .21 $ .16
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 Nine Month Periods Ended
March 31, 2011 March 31, 2010
______________ ______________
Operating activities:
Net income $ 252,000 $ 196,000
_________ __________
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 142,200 149,900
Deferred income taxes ( 14,800) ( 31,000)
Stock-based compensation 20,800 9,500
Income tax benefit of stock options
exercised - 400
Changes in operating assets and liabilities:
Accounts receivable 871,100 283,800
Inventories ( 94,600) (522,500)
Prepaid expenses and other
current assets ( 39,300) 22,100
Accounts payable (114,300) 3,000
Customer advances - 136,300
Accrued expenses and taxes (148,200) (140,800)
__________ __________
Total adjustments 622,900 ( 89,300)
__________ __________
Net cash provided by
operating activities 874,900 106,700
__________ __________
Investing activities:
Additional consideration for
Altamira Instruments, Inc.
acquisition (182,600) (107,000)
Purchase of investment securities,
available-for-sale ( 11,100) ( 11,000)
Capital expenditures ( 61,500) ( 22,400)
Purchase of intangible assets ( 8,800) ( 3,300)
Net cash used in
investing activities (264,000) (143,700)
__________ ___________
Financing activities:
Proceeds from exercise of stock options - 5,300
Cash dividends declared and paid (107,700) ( 71,800)
__________ __________
Net cash used in (107,700) ( 66,500)
financing activities
__________ __________
Net increase (decrease) in cash
and cash equivalents 503,200 (103,500)
Cash and cash equivalents, beginning
of year 632,700 738,400
___________ ___________
Cash and cash equivalents, end of period $1,135,900 $ 634,900
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 298,400 $ 263,300
See notes to condensed consolidated financial statements (unaudited)
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 10K,
for the fiscal year ended June 30, 2010. The results for
the three and nine months ended March 31, 2011, are not
necessarily an indication of the results of 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. Recent Accounting Pronouncements:
In December 2010, the Financial Accounting Standards Board ("FASB")
issued a new standard which modifies step 1 of the goodwill
impairment test for entities with a zero or negative carrying value
to require entities to assess, considering qualitative factors,
whether it is more likely than not that a goodwill impairment
exists. If an entity concludes that it is more likely than not that
goodwill impairment exists, the entity must perform step 2 of the
goodwill impairment test. The new standard allows an entity to use
either the equity or the enterprise valuation premise to determine
the carrying amount of a reporting unit. The Company will adopt the
new accounting standard which will become effective for impairment
tests to be performed during the fiscal year ending June 30, 2012.
3. Acquisition of Altamira Instruments, Inc.:
On November 30, 2006, the Company acquired all of the outstanding
capital stock of Altamira. The acquisition was pursuant to a
Stock Purchase Agreement (the "Agreement") whereby the Company
paid to the sellers 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.
4
Altamira's principal customers are universities, government
laboratories, and chemical and petrochemical companies. The
instruments are customizable to the customer's specifications, and
are sold on a direct basis.
In conjunction with the acquisition of Altamira, management of the
Company valued the tangible and intangible assets acquired,
including goodwill, customer relationships, non-compete
agreements, and certain technology, trade names and trademarks.
The carrying amounts of goodwill and other intangible assets are
presented in Note 9, "Goodwill and Other Intangible Assets" which
represent the valuations determined in conjunction with the
acquisition. In addition, other fair market value adjustments
were made in conjunction with the acquisition, primarily
adjustments to property and equipment, and inventory.
As of March 31, 2011, the total adjusted aggregate purchase price,
allocated to assets acquired and liabilities assumed is as
follows:
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.
4. Segment Information and Concentrations:
The Company views its operations as two segments: the manufacture
and marketing of standard benchtop laboratory equipment for
research in university, hospital and industrial laboratories sold
primarily through laboratory equipment distributors ("Benchtop
Laboratory Equipment Operations"), and the manufacture and
marketing by Altamira of custom-made catalyst research instruments
for universities, government laboratories, and chemical and
petrochemical companies sold on a direct basis ("Catalyst Research
Instruments Operations").
5
Segment information is reported as follows:
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
__________ ___________ _________ ____________
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
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
__________ ___________ _________ ____________
Three months ended March 31, 2010:
Net Sales $1,011,900 $ 125,700 $ - $1,137,600
Foreign Sales 585,600 27,900 - 613,500
Profit(Loss) 123,400 ( 144,600) 10,300 ( 10,900)
Assets 2,279,900 1,858,300 822,400 4,960,600
Long-Lived Asset
Expenditures 11,400 - - 11,400
Depreciation and
Amortization 14,100 33,400 - 47,500
Approximately 70% and 64% of net sales of benchtop laboratory
equipment for the three month periods ended March 31, 2011 and
2010, 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 the three month periods ended March 31, 2011 and
2010 for approximately 23% and 32% of the segment's net sales,
respectively, (19% and 29% of total net sales, 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, 2011 and another customer in the three months
ended March 31, 2010, accounted respectively for 93% and 47% of
the segment's net sales (19% and 5% of total net sales) for the
respective periods.
6
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
__________ ___________ _________ ____________
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
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
__________ ___________ _________ ____________
Nine months ended March 31, 2010:
Net Sales $3,180,200 $1,028,900 $ - $4,209,100
Foreign Sales 1,776,900 119,400 - 1,896,300
Profit (Loss) 433,700 ( 185,100) 24,200 272,800
Assets 2,279,900 1,858,300 822,400 4,960,600
Long-Lived Asset
Expenditures 22,400 - - 22,400
Depreciation and
Amortization 45,500 104,400 - 149,900
Approximately 69% and 68% of net sales of benchtop laboratory
equipment for the nine month periods ended March 31, 2011 and
2010, 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 29% and 30% of the segment's net sales
(21% and 23% of total net sales) for the nine month periods ended
March 31, 2011 and 2010, respectively.
Sales of catalyst research instruments to three customers in the
nine months ended March 31, 2011 and to three other customers in
the nine months ended March 31, 2010 accounted for approximately
43% and 65% of that segment's net sales (12% and 16% 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.
7
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 that were accounted for
at fair value on a recurring basis at March 31, 2011 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
March 31, 2011 Level 1 Level 2 Level 3
______________ _______ _______ _______
Cash and cash equivalents $1,135,900 $1,135,900 $ - $ -
Available for sale securities 685,400 685,400 - -
__________ __________ ______ ______
Total $1,821,300 $1,821,300 $ - $ -
========== ========== ====== ======
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 $ - $ -
========== ========== ====== ======
8
Investments in marketable securities classified as available-for-sale
by security type at March 31, 2011 and June 30, 2010 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ ____________
At March 31, 2011:
Available for sale:
Equity securities $ 7,800 $ 12,900 $ 5,100
Mutual funds 702,400 672,500 (29,900)
_________ _________ ____________
$ 710,200 $ 685,400 $ (24,800)
========= ========= ============
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)
========= ========= ============
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,
2011 2010
__________ ___________
Raw Materials $ 982,100 $ 896,400
Work in process 204,800 201,400
Finished Goods 180,300 174,800
__________ ___________
$1,367,200 $ 1,272,600
========== ===========
7. 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.
9
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,
___________________ _____________________
2011 2010 2011 2010
___________________ _____________________
Net income (loss) $ 60,200 ($ 6,800) $ 252,000 $196,000
========= ========== ========= ========
Weighted average common
shares outstanding 1,196,577 1,196,577 1,196,577 1,195,876
Effect of dilutive
securities 17,110 - 16,610 15,738
_________ _________ _________ _________
Weighted average dilutive
common shares outstanding 1,213,687 1,196,577 1,213,187 1,211,614
========= ========= ========= =========
Basic earnings (loss) per
common share $ .05 ($ .01) $ .21 $ .16
======= ========= ======= =======
Diluted earnings (loss) per
common share $ .05 ($ .01) $ .21 $ .16
======= ========= ======= =======
Approximately 53,000 and 23,000 shares, respectively, 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 nine months ended March 31, 2010, because the effect would
be anti-dilutive.
8. Comprehensive Income:
The FASB established standards for disclosure of comprehensive income or
loss, which includes net income or loss and any changes in equity from
non-owner sources that are not recorded in the income statement (such
as changes in net unrealized gains or losses on securities.) The
Company's only source of other comprehensive income or loss is the
net unrealized gain or loss on securities. The components of
comprehensive income were as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
___________________ __________________
2011 2010 2011 2010
___________________ __________________
Net Income (Loss) $ 60,200 ($ 6,800) $252,000 $196,000
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 2,300 6,900 5,000 47,500
_________ ________ ________ ________
Comprehensive income $ 62,500 $ 100 $257,000 $243,500
========= ======== ======== ========
10
9. Goodwill and Other Intangible Assets:
In conjunction with the acquisition of Altamira, management of the
Company valued the tangible and intangible assets acquired, including
customer relationships, non-compete agreements and technology which
encompasses trade names, trademarks and licenses. The valuation resulted
in an initial negative goodwill of approximately $91,500 on the date of
acquisition which was subsequently adjusted to positive goodwill of
$447,900 and $405,200 at March 31, 2011 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 $51,400
for the nine months ended March 31, 2010.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ ________
At March 31, 2011:
Technology 5 yrs. $300,000 $260,000 $ 40,000
Customer relationships 10 yrs. 237,000 172,800 64,200
Non-compete agreement 5 yrs. 102,000 88,400 13,600
Other intangible assets 5 yrs. 138,300 118,000 20,300
________ ________ ________
$777,300 $639,200 $138,100
________ ________ ________
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 $26,500 and $29,000 for the three
months ended March 31, 2011 and 2010, respectively and $84,900 and
$92,600 for the nine months ended March 31, 2011 and 2010, respectively.
As of March 31, 2011, estimated future amortization expense related to
intangible assets is $26,500 for the remaining three months of the
fiscal year ending June 30, 2011, $51,800 for fiscal 2012, $13,500
for fiscal 2013, $9,800 for fiscal 2014, $9,800 for fiscal 2015, and
$26,700 thereafter.
10. 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 March 31, 2011. Advances are at the
discretion of the Bank.
All borrowings under the note are to be 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 March 31, 2011 and June 30, 2010.
11
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 $503,200 to $1,135,900 as of
March 31, 2011 from $632,700 as of June 30, 2010.
Net cash provided by operating activities increased to $874,900 for
the nine month period ended March 31, 2011 as compared to $106,700
for the nine month period ended March 31, 2010, due mainly to the
collection of accounts receivable balances, lower inventory levels and
income from operations. Cash used in investing activity levels was
$264,400 for the nine month period ended March 31, 2011 compared to
$143,700 for the nine month period ended March 31, 2010 primarily due
to a higher amount of additional consideration paid for the acquisition
of Altamira and purchases of new equipment. Cash used in financing
activities was $107,700 for the nine month period ended March 31, 2011
compared to $66,500 for the nine month period ended March 31, 2010,
due primarily to a higher dividend paid during the nine month period
ended March 31, 2011.
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 $188,700 to $3,701,400 as of
March 31, 2011 from working capital of $3,512,700 at June 30, 2010
mainly the result of the increased income for the nine months ended
March 31, 2011 and a reduction of contingent consideration payments
to the sellers of Altamira.
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 March
31, 2011. 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 financing
represented by the promissory note and investment securities.
12
Results of Operations
Financial Overview
The Company recorded income before income taxes of $74,500 and $350,300
for the three and nine month periods ended March 31, 2011 compared to a
loss of $10,900 for the three month period ended March 31, 2010 and
income of $272,800 for the nine month period ended March 31, 2010,
mainly the result of increased sales for both business segments.
However, due to the apparent lack of customer funding, the $240,000
backlog for catalyst research instruments at March 31, 2011 is
significantly lower than $1,600,000 as of March 31, 2010.
The Three Months Ended March 31, 2011 Compared With the Three Months
Ended March 31, 2010
____________________________________________________________________
Net sales for the three months ended March 31, 2011 increased by
$322,700 (28.4%) to $1,460,300 compared to $1,137,600 for the three
months ended March 31, 2010 as a result of a $153,000 increase in sales
of benchtop laboratory equipment and $169,700 increase in sales of
catalyst research instruments. Sales of benchtop laboratory equipment
products generally are comprised of small purchase orders from
distributors, while sales of the catalyst research instruments are
comprised of a small number of large orders, typically averaging over
$100,000 each, subjecting the segment's revenues to material
fluctuations.
The gross profit percentage for the three months ended March 31, 2011
decreased to 40.9% compared to 42.0% for the three months ended March 31,
2010, due primarily to higher material costs for the Benchtop Laboratory
Equipment Operations.
General and administrative expenses for the three month comparative
periods ended March 31, 2011 and March 31, 2010 increased slightly by
$7,700 (2.8%) to $282,800 from $275,100, primarily the result of an
increase in expenses to investigate potential external business
opportunities.
Selling expenses for the three months ended March 31, 2011 increased
$17,200 (12.1%) to $159,000 from $141,800 for the comparable period of
the prior year, due primarily to the employment of a customer service
representative and added marketing consulting expenses for the Benchtop
Laboratory Equipment Operations.
Research and development expenses for the three months ended March 31,
2011 increased by $8,000 (9.7%) to $90,300 compared to $82,300 for the
three months ended March 31, 2010, primarily the result of added new
product development activity by the Benchtop Laboratory Equipment
Operations.
Interest and other income was substantially the same (a $500 decrease)
for the three month comparative periods.
Income tax expense for the three month period ended March 31, 2011 was
$14,300 compared to a tax benefit of $4,100 for the three month period
ended March 31, 2010, reflecting the income of the 2011 period and the
loss for the 2010 period.
As a result of the foregoing, the Company recorded net income for the
three months ended March 31, 2011 of $60,200 compared to a net loss
of $6,800 for the three months ended March 31, 2010.
13
Nine Months Ended March 31, 2011 Compared With the Nine Months Ended
March 31, 2010
____________________________________________________________________
Net sales for the nine months ended March 31, 2011 increased by $538,100
(12.8%) to $4,747,200 compared to $4,209,100 for the nine months ended
March 31, 2010, the result of the increases of $251,700 in benchtop
laboratory equipment net sales, and $286,400 in catalyst research
instruments net sales. Sales of benchtop laboratory equipment products
generally are comprised of 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, subjecting the
segment's revenues to material
fluctuations.
The gross profit percentage for the comparative nine month periods
decreased slightly to 41.6% from 42.4%, due primarily to slightly lower
margins for the Catalyst Research Instruments Operations.
General and Administrative expenses increased by $32,500 (3.8%) from
$847,300 to $879,800 for the comparative nine month periods ended
March 31, 2011 and 2010, primarily the result of an increase in
expenses incurred in investigating potential external business
opportunities.
Selling expenses for the nine months ended March 31, 2011 increased by
$83,900 (20.1%) to $502,300 compared to $418,400 for the nine months
ended March 31, 2010, due primarily to the employment of a customer
service representative and increased sales commissions paid to
independent sales representatives and travel expenses by the Catalyst
Research Investment Operations.
Research and development expenses were $3,800 lower for the nine month
comparative periods.
Interest and other income was $1,200 lower for the nine month
comparative periods.
Higher income for the nine months ended March 31, 2011 resulted in
a $21,500 increase in income tax expense to $98,300 as compared to
$76,800 for the nine months ended March 31, 2010.
As a result of the foregoing, net income for the nine months ended
March 31, 2011 increased by $56,000 (28.6%) to $252,000 as compared
with $196,000 for the nine months ended March 31, 2010.
14
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:
There were no reports filed.
15
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 13, 2011
