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 September 30, 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, with respect to an acquisition in
November 2011 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 small
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "small 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 October 26, 2012 was 1,335,712 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income (Loss) 3
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 13
ITEM 4 CONTROLS AND PROCEDURES 15
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
September 30, June 30,
2012 2012
_____________ __________
Current Assets: (Unaudited)
Cash and cash equivalents $ 748,600 $ 769,300
Investment securities 730,000 718,300
Trade accounts receivable, net 639,100 623,500
Inventories 1,748,300 1,613,700
Prepaid expenses and other current assets 150,400 167,800
Deferred taxes 70,600 70,200
__________ __________
Total current assets 4,087,000 3,962,800
Property and equipment at cost, net 182,400 180,500
Intangible assets, net 850,600 877,300
Goodwill 589,900 589,900
Other assets 25,600 25,700
Deferred taxes 130,600 136,000
__________ __________
Total assets $5,866,100 $5,772,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 178,700 $ 114,800
Customer advances 200,900 98,500
Notes payable, current 76,400 75,800
Accrued expenses and taxes 233,000 237,500
Contingent consideration payable, current 19,000 19,000
Dividends payable 40,100 -
__________ __________
Total current liabilities 748,100 545,600
Contingent consideration payable, less
current portion 88,400 88,400
Notes payable, less current portion 85,700 105,000
__________ __________
Total liabilities 922,200 739,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,355,514 issued and outstanding at
September 30, and June 30, 2012 67,800 67,800
Additional paid-in capital 1,972,100 1,968,700
Accumulated other comprehensive loss ( 3,000) ( 12,600)
Retained earnings 2,959,400 3,061,700
___________ __________
4,996,300 5,085,600
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
___________ __________
Total shareholders' equity 4,943,900 5,033,200
Total liabilities and ___________ __________
shareholders' equity $5,866,100 $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
Periods Ended
September 30,
__________________________
2012 2011
__________ __________
Net sales $1,351,700 $1,541,000
Cost of sales 887,300 937,000
__________ __________
Gross profit 464,400 604,000
__________ __________
Operating Expenses:
General and administrative 279,600 290,900
Research and development 120,100 46,900
__________ __________
Total operating expenses 556,100 526,800
__________ __________
Income (loss) from operations ( 91,700) 77,200
__________ __________
Other income (expense):
Investment income 2,900 3,600
Other income 2,500 3,200
Interest expense ( 1,400) -
__________ __________
Total other income 4,000 6,800
__________ __________
Income (loss) before income tax expense
(benefit) ( 87,700) 84,000
__________ __________
Income tax expense (benefit):
Current ( 30,600) 21,200
Deferred 5,100 3,400
__________ __________
Total income (loss) tax
expense (benefit) ( 25,500) 24,600
___________ __________
Net income (loss) ($ 62,200) $ 59,400
========== ==========
Basic earnings (loss) per common
share ($ .05) $ .05
========== ==========
Diluted earnings (loss) per common
share ($ .05) $ .05
========== ==========
Cash dividends declared
per common share $ .03 $ .05
========== ==========
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Month
Periods Ended
September 30,
__________________________
2012 2011
__________ _________
Net income (loss) ( $62,200) $59,400
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax 9,600 ( 900)
__________ _________
Comprehensive income (loss) ( $52,600) $58,500
========== =========
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
Sept. 30, 2012 Sept. 30, 2011
_______________ _____________
Operating activities:
Net income (loss) ($ 62,200) $ 59,400
___________ __________
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 44,300 47,100
Deferred income taxes 5,100 3,400
Stock-based compensation 3,400 600
Changes in operating assets and liabilities:
Accounts receivable ( 15,600) ( 232,600)
Inventories ( 134,600) 47,200
Prepaid expenses and other
current assets 17,400 48,800
other assets 100 -
Accounts payable 63,900 ( 21,300)
Customer advances 102,400 -
Accrued expenses and taxes ( 4,400) ( 18,200)
____________ ___________
Total adjustments 82,000 125,000
____________ ___________
Net cash provided by (used in)
operating activities 19,800 ( 65,600)
____________ ___________
Investing activities:
Purchase of investment securities,
available-for-sale ( 2,300) ( 2,900)
Capital expenditures ( 17,400) ( 54,900)
Purchases of intangible assets ( 2,100) ( 1,300)
____________ ___________
Net cash used in
investing activities ( 21,800) ( 59,100)
____________ ___________
Financing activities:
Principal payments on note payable ( 18,700) -
____________ ___________
Net decrease in cash and
cash equivalents ( 20,700) ( 124,700)
Cash and cash equivalents,
beginning of period 769,300 907,800
____________ ___________
Cash and cash equivalents, end of period $ 748,600 $ 783,100
============ ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ - $ 1,500
Interest 1,400 -
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
months ended September 30, 2012, 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 July 2012, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update No. 2012-02, "Testing Indefinite-
Lived Intangible Assets for Impairment" ("ASU No. 2012-02"), which
allows entities to use a qualitative approach to test indefinite-
lived intangible assets for impairment. ASU No. 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 No. 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 No. 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 future 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.
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 consolidated as of July 1, 2011 (the beginning of
the period 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 Three Month
Period Ended
September 30,
___________________
2011
___________________
Net sales $1,578,500
Net income $ 27,100
Net income
per share - basic $.02
Net income
per share - diluted $.02
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 September 30, 2012:
Net Sales $1,064,900 $ 284,200 $ 2,600 $ - $1,351,700
Foreign Sales 621,700 239,200 - - 860,900
Profit(Loss) 117,600 ( 134,300) ( 75,000) - ( 91,700)
Assets 2,556,900 987,000 801,000 1,521,200 5,866,100
Long-Lived Asset
Expenditures 2,100 17,400 - - 19,500
Depreciation and
Amortization 11,100 9,300 23,900 - 44,300
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended September 30, 2011:
Net Sales $1,075,200 $ 465,800 $ - $ - $1,541,000
Foreign Sales 608,700 112,600 - - 721,300
Profit(Loss) 135,800 ( 58,600) - - 77,200
Assets 2,621,100 1,078,300 - 1,333,400 5,032,800
Long-Lived Asset
Expenditures 8,200 46,700 - - 54,900
Depreciation and
Amortization 11,800 35,300 - - 47,100
Approximately 61% and 63% of net sales of benchtop laboratory equipment
for the three month periods ended September 30, 2012 and 2011,
respectively, were derived from the Company's main product, the
Vortex-Genie 2(R) mixer, excluding accessories.
Two customers accounted in the aggregate for approximately 22% and 20%
of the net sales of the Benchtop Laboratory Equipment Operations and 17%
and 14% of the consolidated sales for the three months ended September
30, 2012, and 2011, respectively. Sales of catalyst research instruments
generally comprise a few very large orders averaging at least $100,000
per order to a limited number of customers, who differ from order to
order. Sales to five and three customers represented approximately
97% and 91% of the Catalyst Research Instrument Operations' net sales,
respectively, and 17% and 28% of the consolidated sales for
the three months ended September 30, 2012 and 2011, respectively.
The Company's foreign sales are principally to customers in Europe
and Asia.
8
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the a
mount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. Fair value measurements do not include transaction
costs.
The accounting guidance also expands the disclosure requirements
around fair value and establishes a fair value hierarchy of valuation
inputs. The hierarchy prioritizes the inputs into three levels based
on the extent to which inputs used in measuring fair value are
observable in the market. Each fair value measurement is reported
in one of the three levels, which is determined by the lowest level
input that is significant to the fair value measurement in its entirety.
These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices
for identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to
be active or financial instruments for which all
significant inputs are observable, either directly
or indirectly.
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and
unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at September 30, 2012 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
September 30, 2012 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalents $ 748,600 $ 748,600 $ - $ -
Available for sale securities 730,000 730,000 - -
__________ __________ _______ ________
Total $1,478,600 $1,478,600 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 107,400 $ - $ - $107,400
========== ========== ======= ========
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
========== ========== ======= ========
9
Investments in marketable securities classified as available-for-sale by
security type at September 30, 2012 and June 30, 2012 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At September 30, 2012:
Available for sale:
Equity securities $ 5,900 $ 16,400 $ 10,500
Mutual funds 727,100 713,600 (13,500)
_________ _________ ___________
$ 733,000 $ 730,000 $ ( 3,000)
========= ========= ===========
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:
Inventories for financial statement purposes are based on perpetual
inventory records at September 30, 2012 and based on a physical count as
of June 30, 2012. Components of inventory are as follows:
September 30, June 30,
2012 2012
_____________ ___________
Raw Materials $1,291,600 $1,146,800
Work in process 248,400 221,900
Finished Goods 208,300 245,000
__________ __________
$1,748,300 $1,613,700
========== ==========
7. Earnings (Loss) per common share:
Basic earnings (loss) per common share are computed by dividing net income
or loss by the weighted-average number of shares outstanding. Diluted
earnings per common share include the dilutive effect of stock options, if
any.
10
Earnings (Loss) per common share was computed as follows:
For the Three Month
Periods Ended
September 30,
___________________________
2012 2011
___________________________
Net income (loss) ($ 62,200) $ 59,400
============= ==========
Weighted average common
shares outstanding 1,335,712 1,196,577
Dilutive securities - 14,924
_____________ __________
Weighted average dilutive
common shares outstanding 1,335,712 1,211,501
============= ==========
Basic earnings (loss) per
common share ($ .05) $ .05
============= ==========
Diluted earnings (loss) per
common share ($ .05) $ .05
============= ==========
Approximately 60,000 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 month period ended September
30, 2012, because the effect would be anti-dilutive due to the loss for
the period.
Approximately 2,000 shares of the Company's Common Stock issuable upon the
exercise of outstanding stock options were excluded from the calculation of
diluted earnings per common share for the three months ended September 30,
2011, because the effect would be anti-dilutive.
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 September 30, 2012 and June 30, 2012, all of which is expected to be
deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
________ _________ ____________ _________
At September 30, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 354,900 $ 509,100
Customer relationships 10 yrs. 237,000 195,400 41,600
Sublicense agreements 10 yrs. 294,000 25,700 268,300
Non-compete agreements 5 yrs. 120,000 105,200 14,800
Other intangible assets 5 yrs. 146,000 129,200 16,800
__________ __________ __________
$1,661,000 $ 810,400 $ 850,600
========== ========== ==========
11
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 $28,800 and $28,300 for the three months
ended September 30, 2012 and 2011, respectively. As of September 30,
2012, estimated future amortization expense related to intangible assets
is $85,500 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 $347,900 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 to
customers' specifications catalyst research instruments, and to develop
marketable bioprocessing systems, 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 $20,700 to $748,600 as of September 30,
2012 from $769,300 as of June 30, 2012.
Net cash provided by operating activities was $19,800 for the three months
ended September 30, 2012 as compared to cash used by operating activities of
$65,600 for the comparable three month period in 2011, due mainly to the lower
accounts receivable balances generated in the current period compared to the
prior period and advances received during the three months ended September 30,
2012 from customers for catalyst research instrument orders received in the
current period. Cash used in investing activities was $21,800 for the three
month period ended September 30, 2012 compared to $59,100 for the three month
period ended September 30, 2011 due primarily to decreased capital
expenditures. Cash used in financing activities was $18,700 for the three
months ended September 30, 2012 related to a loan in connection with the recent
acquisition.
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.
The Company's working capital decreased by $78,300 to $3,338,900 at September
30, 2012 from $3,417,200 at June 30, 2012, mostly due to the net loss for the
current three moth 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, to bear interest at 3.08
percentage points above a defined LIBOR Index. The interest rate as of
September 30, 2012 was approximately 3.32% and the 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 September 30, 2012 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
during the next 12 months from its available financial resources which include
its cash and investment securities.
Results of Operations
Financial Overview
The Company recorded a loss before income tax benefit of $87,700 for the three
month period ended September 30, 2012 compared to income before income taxes of
$84,000 for the comparative prior fiscal year period, primarily as a result of
the increased loss of the Catalyst Research Instruments Operations and the loss
generated by the new Bioprocessing Systems business, which has yet to generate
meaningful product sales.
The Three Months Ended September 30, 2012 Compared With the Three Months Ended
September 30, 2011
Net sales for the three months ended September 30, 2012 decreased by $189,300
(12.3%) to $1,351,700 from $1,541,000 for the three months ended September 30,
2011, primarily as a result of a $181,600 decrease in catalyst research
instrument sales for the quarter. Sales of 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. Sales of benchtop
laboratory products decreased slightly by $10,300 compared to the same period
last year. The Bioprocessing Systems Operations generated approximately $2,600
in revenues from sales of small parts, but is expected to generate future sales
from products currently under development, although no assurance can be given.
The backlog of orders for catalyst research instruments was $1,240,000 as of
September 30, 2012, substantially all of which is expected to be delivered by
fiscal year end, as compared to the backlog as of September 30, 2011 of
$268,000.
The gross profit percentage for the three months ended September 30, 2012
decreased to 34.4% compared to 39.2% for the three months ended September 30,
2012, due primarily to higher material costs for the Benchtop Laboratory
Equipment Operations and fixed overhead costs for the Catalyst Research
Instruments Operations on decreased sales.
General and administrative expenses for the three months ended September 30,
2012 decreased by $11,300 (3.9%) to $279,600 from $290,900 for the three months
ended September 30, 2011, primarily due to acquisition costs of the
Bioprocessing Systems Operations which were incurred in the three month period
ended September 30, 2011.
Selling expenses for the three months ended September 30, 2012 decreased
$32,600 (17.2%) to $156,400 from $189,000 for the three months ended September
30, 2011, primarily the result of decreased sales commissions for the Catalyst
Research Instruments Operations.
Research and development expenses for the three months ended September 30, 2012
increased by $73,200 (156.1%) to $120,100 from $46,900 for the three months
ended September 30, 2011, primarily the result of product development costs
related to the new Bioprocessing Systems Operations, and increased development
activity by the Benchtop Laboratory Equipment Operations.
14
Other income decreased to $4,000 for the three months ended September 30, 2012
from $6,800 for the prior year period, mainly due to the interest expense
incurred by the new Bioprocessing Systems Operations.
As a result of the loss for the three months ended September 30, 2012, the
Company recorded an income tax benefit of $25,500 compared to income tax
expense of $24,600 for the three months ended September 30, 2011.
The result of the foregoing was a net loss for the three months ended September
30, 2012 of $62,200 compared to net income of $59,400 for the three months
ended September 30, 2011.
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.
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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:
None
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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: November 14, 2012
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