UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended December 31, 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),
and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ].
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"Accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer___________ Accelerated Filer_________
Non-accelerated filer_____________ Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
The number of shares outstanding of the issuer's common stock par
value, $0.05 per share, as of February 4, 2013 was 1,337,663 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 14
ITEM 4 CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
EXHIBITS 19
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2012 2012
(Unaudited)
_____________ __________
Current Assets:
Cash and cash equivalents $ 670,400 $ 769,300
Investment securities 720,100 718,300
Trade accounts receivable, net 942,800 623,500
Inventories 1,834,700 1,613,700
Prepaid expenses and other current assets 86,200 167,800
Deferred taxes 70,300 70,200
__________ __________
Total current assets 4,324,500 3,962,800
Property and equipment at cost, net 174,000 180,500
Intangible assets, net 822,100 877,300
Goodwill 589,900 589,900
Other assets 24,100 25,700
Deferred taxes 125,400 136,000
__________ __________
Total assets $6,060,000 $5,772,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 142,300 $ 114,800
Customer advances 356,400 98,500
Notes payable, current 77,100 75,800
Accrued expenses and taxes 221,800 237,500
Contingent consideration payable, current 19,000 19,000
_________ __________
Total current liabilities 816,600 545,600
Contingent consideration payable, less
current portion 88,400 88,400
Notes payable, less current portion 66,100 105,000
__________ __________
Total liabilities 971,100 739,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,357,465 issued and outstanding at
December 31, 2012 and 1,355,514 at
June 30, 2012 67,900 67,800
Additional paid-in capital 1,975,300 1,968,700
Accumulated other comprehensive income
(loss) 300 ( 12,600)
Retained earnings 3,097,800 3,061,700
___________ __________
5,141,300 5,085,600
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
___________ __________
Total shareholders' equity 5,088,900 5,033,200
Total liabilities and ___________ __________
shareholders' equity $6,060,000 $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 Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________ ______________________
2012 2011 2012 2011
__________ __________ __________ __________
Net sales $1,876,900 $1,197,600 $3,228,600 $2,738,500
Cost of sales 1,046,600 707,200 1,934,000 1,644,200
__________ __________ __________ __________
Gross profit 830,300 490,400 1,294,600 1,094,300
__________ __________ __________ __________
Operating Expenses:
General & administrative 309,600 335,100 589,200 626,100
Selling 191,100 160,100 347,400 349,000
Research & development 135,100 78,700 255,200 125,500
__________ __________ __________ __________
Total operating
expenses 635,800 573,900 1,191,800 1,100,600
__________ __________ __________ __________
Income (loss) from
operations 194,500 ( 83,500) 102,800 ( 6,300)
__________ __________ __________ __________
Other income (expense):
Investment income 3,100 3,500 5,900 7,100
Other ( 1,600) 2,700 900 5,900
Interest expense ( 1,300)( 1,200) ( 2,700) ( 1,200)
__________ __________ __________ __________
Total other income 200 5,000 4,100 11,800
__________ __________ __________ __________
Income (loss) before
income taxes (benefit) 194,700 ( 78,500) 106,900 5,500
__________ __________ __________ __________
Income tax expense (benefit):
Current 51,800 ( 21,800) 21,200 ( 500)
Deferred 4,500 ( 1,400) 9,500 2,000
__________ __________ __________ __________
Total income (loss) tax
expense (benefit) 56,300 ( 23,200) 30,700 1,500
__________ __________ __________ __________
Net income (loss) $ 138,400 ($ 55,300)$ 76,200 $ 4,000
========== ========== ========== ==========
Basic earnings (loss) per common
share $ .10 $ (.04) $ .06 $ .00
Diluted earnings (loss) per common
share $ .10 $ (.04) $ .06 $ .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 Six Month
Periods Ended Periods Ended
December 31, December 31,
___________________ _________________
2012 2011 2012 2011
________ __________ ________ _______
Net income (loss) $138,400 ($ 55,300) $ 76,200 4,000
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 3,300 2,300 12,900 1,400
________ ________ ________ _______
Comprehensive income (loss) $141,700 ($ 53,000) $ 89,100 $ 5,400
======== ======== ======== =======
See notes to unaudited condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, December 31,
__________________________
2012 2011
_________ _________
Operating activities:
Net income $ 76,200 $ 4,000
_________ _________
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Loss on sale of investments 4,800 -
Depreciation and amortization 89,000 99,300
Deferred income tax 9,500 2,000
Stock-based compensation 6,700 1,000
Changes in operating assets and liabilities:
Accounts receivable ( 319,300) ( 40,100)
Inventories ( 221,000) ( 315,600)
Prepaid expenses and other current assets 81,600 20,000
Accounts payable 27,500 112,900
Customer advances 257,900 326,900
Accrued expenses and taxes ( 15,700) ( 23,200)
Other assets 1,600 -
___________ ___________
Total adjustments ( 77,400) 183,200
___________ ___________
Net cash provided by (used in)
operating activities ( 1,200) 187,200
___________ ___________
Investing activities:
Intangible assets acquired in acquisition - ( 260,000)
Purchase of investment securities,
available-for-sale ( 710,300) ( 5,500)
Capital expenditures ( 25,200) ( 61,900)
Purchase of intangible assets, other ( 2,100) ( 1,600)
Redemption of investment securities, available
for sale 717,600 -
___________ ___________
Net cash used in investing activities ( 20,000) ( 329,000)
___________ ___________
Financing activities:
Line of credit proceeds - 60,000
Proceeds from exercise of stock options - 9,600
Cash dividend declared and paid ( 40,100) ( 59,900)
Principal payments on note payable ( 37,600) ( 12,200)
___________ ___________
Net cash used in financing activities ( 77,700) ( 2,500)
___________ ___________
Net decrease in cash
and cash equivalents ( 98,900) ( 144,300)
Cash and cash equivalents, beginning of year 769,300 907,800
___________ ___________
Cash and cash equivalents, end of period $ 670,400 $ 763,500
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ - $ 3,300
Interest 2,700 -
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 six months ended December 31, 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 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 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 Three Month For the Six Month
Period Ended Period Ended
December 31, December 31,
___________________ __________________
2011 2011
___________________ __________________
Net sales $1,235,100 $2,813,500
Net income (loss) ($ 40,700) $ 6,300
Net income (loss)
per share - basic ($.03) $.00
Net income (loss)
per share - diluted ($.03) $.00
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 (foreign sales are
principally to customers in Europe and Asia):
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2012:
Net Sales $1,164,900 $ 664,900 $ 47,100 $ - $1,876,900
Foreign Sales 747,900 279,800 - - 1,027,700
Profit(Loss) 157,200 68,200 ( 30,900) - 194,500
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 7,100 700 - - 7,800
Depreciation and
Amortization 11,500 9,200 24,000 - 44,700
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2011:
Net Sales $1,108,500 $ 89,100 $ - $ - $1,197,600
Foreign Sales 755,100 8,400 - - 763,500
Profit(Loss) 100,200 ( 117,800) ( 32,300) ( 33,600) ( 83,500)
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 4,500 2,800 876,000 - 883,300
Depreciation and
Amortization 12,300 27,800 12,000 - 52,100
Approximately 73% and 63% of net sales of benchtop laboratory equipment
(46% and 59% of total net sales) for the three month periods ended
December 31, 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 24% and 26%
of the net sales of the Benchtop Laboratory Equipment Operations and 15%
and 24% of total net sales for the three months ended December 31, 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 four customers and one customer represented approximately 95% and 73%
of the Catalyst Research Instrument Operations' net sales, respectively,
and 34% and 25% of total net sales for the three months ended
December 31, 2012 and 2011, respectively.
8
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 30, 2012:
Net Sales $2,229,700 $ 949,200 $ 49,700 $ - $3,228,600
Foreign Sales 1,369,600 519,000 - - 1,888,600
Profit(Loss) 274,800 ( 66,100) ( 105,900) - 102,800
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 9,200 18,100 - - 27,300
Depreciation and
Amortization 22,600 18,500 47,900 - 89,000
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Six months ended December 31, 2011:
Net Sales $2,183,600 $ 554,900 $ - $ - $2,738,500
Foreign Sales 1,363,700 121,100 - - 1,484,800
Profit(Loss) 260,600 ( 176,400) ( 32,300) ( 58,200) ( 6,300)
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 14,000 49,500 876,000 - 939,500
Depreciation and
Amortization 24,300 63,000 12,000 - 99,300
Approximately 68% and 63% of net sales of benchtop laboratory equipment
(47% and 50% of total net sales) for the six month periods ended December
31, 2012 and 2011, respectively, were derived from the segment's main
product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate
for approximately 23% of the segment's net sales for each of the two
comparative periods and 16% and 19%, respectively, of total net sales
for the six month periods ended December 31, 2012 and 2011.
Sales of catalyst research instruments to four different customers in
each of the six month periods, accounted for approximately 67% and 88%
of the segment's net sales and 20% and 18% of total net sales for the
six month period ended December 31, 2012 and 2011, respectively.
9
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.
The accounting guidance also expands the disclosure requirements around
fair value and establishes a fair value hierarchy of valuation inputs.
The hierarchy prioritizes the inputs into three levels based on the extent
to which inputs used in measuring fair value are observable in the market.
Each fair value measurement is reported in one of the three levels, which
is determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices for
identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to be
active or financial instruments for which all significant
inputs are observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both
significant to the fair value measurement and
unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on a
recurring basis at December 31, 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
December 31, 2012 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalents $ 670,400 $ 670,400 $ - $ -
Available for sale securities 720,100 720,100 - -
__________ __________ _______ ________
Total $1,390,500 $1,390,500 $ - $ -
========== ========== ======= ========
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
========== ========== ======= ========
10
Investments in marketable securities classified as available-for-sale by
security type at December 31, 2012 and June 30, 2012 consisted of the
following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At December 31, 2012:
Available for sale:
Equity securities $ 31,800 $ 31,100 $ ( 700)
Mutual funds 688,000 689,000 1,000
_________ _________ ___________
$ 719,800 $ 720,100 $ 300
========= ========= ===========
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 December 31, 2012 and based on a physical count
as of June 30, 2012. Components of inventory are as follows:
December 31, June 30,
2012 2012
____________ __________
Raw Materials $1,297,300 $1,146,800
Work in process 369,900 221,900
Finished Goods 167,500 245,000
__________ __________
$1,834,700 $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.
11
Earnings (Loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Period Ended
December 31, December 31,
_______________________ ____________________
2012 2011 2012 2011
Net income (loss) $ 138,400 ($ 55,300) $ 76,200 $ 4,000
=========== =========== ========= ==========
Weighted average common
shares outstanding 1,337,175 1,265,613 1,336,444 1,231,095
Dilutive securities 3,765 - 4,463 14,873
___________ ___________ _________ __________
Weighted average dilutive
common shares outstanding 1,340,940 1,265,613 1,340,907 1,245,968
=========== ========== ========= ==========
Basic earnings (loss) per
common share $ .10 ($ .04) $ .06 $ .00
=========== ========== ========= ==========
Diluted earnings (loss) per
common share $ .10 ($ .04) $ .06 $ .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 six month
periods ended December 31, 2012, because the effect would be anti-dilutive.
Approximately 57,000 and 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 and six
month periods ended December 31, 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 December 31, 2012 and June 30, 2012, all of which is deductible for
tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ _________ ____________ _________
At December 31, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 370,600 $ 493,400
Customer relationships 10 yrs. 237,000 198,400 38,600
Sublicense agreements 10 yrs. 294,000 33,100 260,900
Non-compete agreements 5 yrs. 120,000 106,000 14,000
Other intangible assets 5 yrs. 146,000 130,800 15,200
__________ ___________ _________
$1,661,000 $ 838,900 $ 822,100
========== =========== =========
12
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 $28,600 and $33,000 for the three months
ended December 31, 2012 and 2011, respectively and $57,400 and $61,300
for the six months ended December 31, 2012 and 2011, respectively. As
of December 31, 2012, estimated future amortization expense related to
intangible assets is $56,900 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.
13
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan of Operations
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking information.
Numerous unknown factors and future events could cause such differences,
including but not limited to, product demand, market acceptance, impact
of competition, the ability to reach final agreements, the ability to
finance and produce 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 $98,900 to $670,400 as of
December 31, 2012 from $769,300 as of June 30, 2012.
Net cash used in operating activities was $1,200 for the six months
ended December 31, 2012 as compared to $187,200 provided by operating
activities for the comparable six month period in 2011, due mainly to
higher accounts receivable balances outstanding in the current year
period compared to the prior period. Cash used in investing activities
was $20,000 for the six month period ended December 31, 2012 compared
to $329,000 for the six month period ended December 31, 2011, due to
the acquisition by SBI of intangible assets in the prior year period.
The Company reflected cash used in financing activities of $77,700 in
the current year period compared to only $2,000 in the prior year
comparable period, because of cash received last year under the line
of credit.
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 $90,700 to $3,507,900 as of
December 31, 2012 from working capital of $3,417,200 at June 30, 2012,
mainly due to the income for the 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 December 31, 2012 was approximately 3.32% 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 December 31,
2012 and June 30, 2012, no borrowings under the line were outstanding.
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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 income before income taxes of $194,700 and
$106,900 for the three and six month periods ended December 31, 2012,
respectively, compared to a loss before income tax benefit of $78,500
for the year earlier three month period and income before income tax
of $5,500 for the year earlier six month period, primarily as a
result of higher income derived from increased sales of catalyst
research instruments and benchtop laboratory equipment products.
The Three Months Ended December 31, 2012 Compared With the Three
Months Ended December 31, 2011
Net sales for the three months ended December 31, 2012 increased
by $679,300 (56.7%) to $1,876,900 from $1,197,600 for the three
months ended December 31, 2011 as a result of increased sales of
$575,800 by the Catalyst Research Instruments Operations and of
$56,400 by the Laboratory Equipment Operations, and a $47,100
increase in revenues, mainly royalties of the Bioprocessing
Systems Operations. Sales of the benchtop laboratory equipment
products generally are pursuant to many small purchase orders
from distributors, while catalyst research instruments are sold
pursuant to a small number of larger orders, typically averaging
over $100,000 each, resulting in significant swings in revenues.
The backlog of orders for catalyst research instruments was
$1,452,300 as of December 31, 2012, all of which are anticipated
to be delivered by fiscal year end; the back log as of December
31, 2011 was $995,000.
The Company's gross profit percentage for the three months ended
December 31, 2012 increased to 44.2% from 40.9% for the year earlier
three month period primarily as a result of increased catalyst
research instrument sales and lower overhead costs for the Benchtop
Laboratory Equipment Operations.
General and administrative expenses for the three month comparative
periods ended December 31, 2012 and December 31, 2011 decreased by
$25,500 (7.6%) to $309,600 from $335,100 primarily due to the
expenses related to the asset acquisition by SBI incurred in the
prior year period.
Selling expenses for the three months ended December 31, 2012
increased by $31,000 (19.4%) to $191,100 from $160,100 for the three
months ended December 31, 2011, primarily the result of commissions
paid with respect to the increase in catalyst research instruments
sales.
Research and development expenses for the three months ended December
31, 2012 increased $56,400 (71.7%) to $135,100 from $78,700 for the
three months ended December 31, 2011, primarily the result of
increased product development activity by the Company's Benchtop
Laboratory Equipment Operations and new product development by the
Bioprocessing Systems Operations.
As a result of the $194,700 income before income taxes for the three
months ended December 31, 2012, compared to a $78,500 loss before
income tax benefit for the three months ended December 31, 2011, the
Company recorded income tax expense of $56,300 compared to income
tax benefit of $23,200 for the three months ended December 31, 2011.
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The Six Months Ended December 31, 2012 Compared With the Six Months
Ended December 31, 2011
Net sales for the six months ended December 31, 2012 increased by
$490,100 (17.9%) to $3,228,600 compared to $2,738,500 for the six
months ended December 31, 2011, due to increases of $394,300 in
catalyst research instrument sales and $46,100 in benchtop laboratory
equipment sales, and an increase of $49,700 in revenues, mainly
royalties, of the Bioprocessing Systems Operations. Sales of
benchtop laboratory equipment products generally are comprised of
many small purchase orders from distributors, while sales of
catalyst research instruments are comprised of a small number of
large orders, typically averaging over $100,000 each, resulting in
significant swings in revenues. The backlog of orders for catalyst
research instruments was $1,452,300 as of December 31, 2012, all of
which are anticipated to be delivered by fiscal year end; the
backlog as of December 31, 2011 was $995,000.
General and Administrative expenses decreased by $36,900 (5.9%) to
$589,200 for the six months ended December 31, 2012 from $626,100
for the comparable period of the prior year, primarily due to the
expenses related to SBI's asset acquisition in November 2011,
partially offset by the related amortization expenses in the
current year by the Bioprocessing Systems Operations.
Research and development expenses for the six months ended
December 31, 2012 increased $129,700 (103.3%) to $255,200 compared
to $125,500 for the six months ended December 31, 2011, due to
increased new product development activity by the Company's
Benchtop Laboratory Equipment Operations and new product development
by the Bioprocessing Systems Operations.
Total other income for the six month period ended December 31, 2012
decreased by $7,700 to $4,100 from $11,800 for the six month period
ended December 31, 2011, mainly due to interest expense incurred by
the Bioprocessing Systems Operations and losses on sales of investment
securities.
As a result of the foregoing, income tax expense for the six month
period ended December 31, 2012 was $30,700 compared to $1,500 for the
comparable period of the prior fiscal year, and net income for the
six months ended December 31, 2012 was $76,200 compared to $4,000 for
the six months ended December 31, 2011.
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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
10(k)-1 Lease agreement between Altamira Instruments, Inc. and
Allegheny Homes, LLC with respect to the Company's
Pittsburgh, Pennsylvania facilities.
31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
Report dated December 4, 2012 reporting under Item
1.01.
17
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: February 14, 2013
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