UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended DECEMBER 31, 2007
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from_________to_________
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
______________________________________________________________________
(Exact name of small business as specified in its charter)
DELAWARE 04-2217279
________________________ __________________________________
(State of incorporation) (IRS Employer Identification No.)
70 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
______________________________________________________________________
(Address of principal executive offices)
(631)567-4700
______________________________________________________________________
(Issuer's telephone number)
Not Applicable
______________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of January 31, 2008: 1,157,352 shares
outstanding of the Company's Common Stock, par value, $ .05.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
December 31, 2007
_________________
Current Assets:
Cash and cash equivalents $1,125,600
Investment securities 722,400
Trade accounts receivable, less allowance for
doubtful accounts of $11,600 1,154,800
Inventories 1,382,800
Prepaid expenses and other current assets 182,900
Deferred taxes 29,700
---------
Total current assets 4,598,200
Property and equipment at cost, less accumulated
depreciation of $579,100 247,000
Intangible assets, less accumulated amortization
of $230,600 522,300
Goodwill 83,900
Deferred taxes 8,200
Other 46,100
----------
Total assets $5,505,700
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 191,900
Customer advances 1,249,900
Accrued expenses and taxes 448,700
Dividends payable 80,200
----------
Total current liabilities 1,970,700
----------
Shareholders' equity:
Common stock, $.05 par value; authorized
7,000,000 shares; 1,173,154 issued and
outstanding 58,700
Additional paid-in capital 1,453,000
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 18,300)
Retained earnings 2,094,000
----------
3,587,400
Less common stock held in treasury, at cost,
19,802 shares 52,400
----------
3,535,000
----------
$5,505,700
==========
See notes to unaudited condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
_____________________ _____________________
2007 2006 2007 2006
_____________________ _____________________
Net sales $1,845,600 $1,263,300 $3,345,900 $2,066,200
Cost of goods sold 1,211,700 802,300 2,070,000 1,190,800
---------- ---------- ---------- ----------
Gross profit 633,900 461,000 1,275,900 875,400
---------- ---------- ---------- ----------
Operating Expenses:
General & administrative 267,700 207,600 513,300 372,200
Selling 123,900 78,600 247,700 148,800
Research & development 119,200 89,000 179,600 168,400
---------- ---------- ---------- ----------
510,800 375,200 940,600 689,400
---------- ---------- ---------- ----------
Income from operations 123,100 85,800 335,300 186,000
Interest & other
income, net 16,900 17,400 29,900 31,800
---------- ---------- ---------- ----------
Income before income taxes 140,000 103,200 365,200 217,800
---------- ---------- ---------- ----------
Income tax expense:
Current 48,200 32,600 142,200 69,600
Deferred ( 4,400) 1,500 ( 19,900) 1,500
----------- ---------- ---------- ----------
43,800 34,100 122,300 71,100
----------- ---------- ---------- ----------
Net income $ 96,200 $ 69,100 $ 242,900 $ 146,700
=========== ========== ========== ==========
Basic earnings per common
share $ .08 $ .07 $ .21 $ .14
Diluted earnings per common
share $ .08 $ .06 $ .20 $ .14
Cash dividends declared
per common share $ - $ - $ .07 $ .07
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended
December 31, 2007 December 31, 2006
_________________ _________________
Operating activities:
Net income $ 242,900 $ 146,700
--------- ----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of investments - ( 200)
Depreciation and amortization 111,600 33,500
Deferred income taxes ( 19,900) 1,500
Stock-based compensation 1,500 -
Income tax benefit of stock options
exercised 7,000 -
Changes in assets and liabilities:
Accounts receivable ( 404,000) ( 284,300)
Inventories ( 93,200) 221,500
Prepaid expenses and other
current assets ( 121,700) 40,300
Other assets ( 400) 18,100
Accounts payable ( 40,000) ( 45,400)
Customer advances 1,102,300 ( 70,000)
Accrued expenses and taxes 87,100 95,200
---------- -----------
Total adjustments 630,300 10,200
---------- -----------
Net cash provided by
operating activities 873,200 156,900
---------- -----------
Investing activities:
Acquisition of Altamira Instruments, Inc.,
net of cash acquired - ( 346,500)
Additional consideration for
Altamira Instruments, Inc. ( 102,800) -
Purchase of investment securities,
available-for-sale ( 12,600) ( 11,600)
Redemptions of investment securities,
available-for-sale - 275,700
Capital expenditures ( 33,300) -
Purchase of intangible assets ( 3,600) ( 9,500)
---------- ---------
Net cash used in
investing activities ( 152,300) ( 91,900)
---------- ---------
Financing activities,
proceeds from exercise of stock options 16,000 -
---------- ---------
Net increase in cash
and cash equivalents 736,900 65,000
Cash and cash equivalents, beginning
of year 388,700 227,700
---------- ----------
Cash and cash equivalents, end of
period $1,125,600 $ 292,700
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 87,900 $ 84,500
=========== ===========
See notes to unaudited condensed consolidated financial statements
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-QSB. 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 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-KSB, for the
fiscal year ended June 30, 2007. The results for
the three and six months ended December 31, 2007,
are not necessarily an indication of the results
of the full fiscal year ending June 30, 2008.
1. Significant accounting policies:
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc., Scientific Packaging
Industries, Inc., an inactive wholly-owned subsidiary and,
since November 30, 2006 (date of acquisition), Altamira
Instruments, Inc. ("Altamira"), a Delaware corporation and
wholly-owned subsidiary (all collectively referred to as the
"Company"). All material intercompany balances and
transactions have been eliminated.
2. Recent Accounting Pronouncements:
In September 2006 the FASB issued Statement No. 157, "Fair
Value Measurements" ("SFAS No. 157"). SFAS No. 157 defines
fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP),
and expands disclosures about fair value measurements.
SFAS No. 157 will be applied prospectively and will be
effective for periods beginning after November 15, 2007.
The Company is currently evaluating the effect, if any,
of SFAS No. 157 on the Company's consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115" ("SFAS No.
159"). SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value
option has been elected will be recognized in earnings at each
subsequent reporting date. SFAS No. 159 is effective as of the
beginning of an entity's first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the
effect, if any, of SFAS No. 159 on the Company's consolidated
financial statements.
4
In June 2006, the FASB issued Interpretation ("FIN") No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation
of FASB Statement ("SFAS") No. 109." This Interpretation
clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." The
interpretation describes a recognition threshold and
measurement attribute for the financial statement disclosure of
tax positions taken or expected to be taken. It also provides
for guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures and
transition. FIN No. 48 is effective for fiscal years beginning
after December 15, 2006. On July 1, 2007 the Company adopted
FIN 48 and the adoption did not result in any adjustments to
the Company's consolidated financial statements.
3. Acquisition of Altamira Instruments, Inc.:
On November 30, 2006, the Company acquired all of the
outstanding capital stock of Altamira pursuant to a Stock
Purchase Agreement dated the same date. The agreement provided
for an acquisition consideration of $400,000 in cash and
125,000 shares of the Company's Common Stock and contingent
consideration consisting of cash payments (which were not
determinable on date of acquisition) equal to 5%, subject to
possible adjustment, of the net sales (no limit) 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. Under this contingency,
the additional consideration paid and accrued totaled $136,600
as of December 31, 2007.
Under a separate agreement with the sellers, they agreed to
permit the Company to treat the acquisition of Altamira stock
as a purchase of assets for tax purposes in consideration of
which the Company agreed to reimburse them for their resulting
additional tax burden. The reimbursement, which was treated
as additional cash consideration (see Note 9), amounted to
approximately $42,000 paid in September 2007.
Altamira's principal customers are universities, government
laboratories, and chemical and petrochemical companies. The
products - catalyst research instruments, which are
customizable to the customers' specifications, 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". In addition, other fair market value adjustments were
made in conjunction with the acquisition, primarily adjustments
to property and equipment, and inventory. The acquisition was
recorded under the purchase method of accounting. The net
purchase price was allocated to assets acquired and liabilities
assumed based on their estimated fair market values at the date
of the acquisition. The allocation as of December 31, 2007 of
the total net purchase price, as adjusted for the items
described above, is as follows:
5
Current Assets $ 734,000
Property and Equipment 140,300
Non-current Assets 25,100
Goodwill 83,900
Other Intangible Assets 639,000*
Current Liabilities ( 561,900)
----------
Net purchase price $ 1,060,400
===========
* Comprised of $237,000 allocated to customer relationships
with a weighted-average estimated useful life of 10 years,
$300,000 allocated to technology including trade names and
trade marks with a useful life of 5 years, and $102,000
allocated to a non-compete agreement with a useful life of 5
years. The amount allocated to the customer relationships is
being amortized on an accelerated (declining balance) method
and the other intangibles are being amortized on a straight
line basis.
Pro forma results
The unaudited pro forma condensed financial information in the
table below summarizes the results of operations of Scientific
Industries, Inc. ("Scientific") and Altamira, on a pro forma
basis, as though the companies had been combined as of July 1,
2006. The unaudited pro forma condensed financial information
presented below for the three and six month periods ended
December 31, 2006 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 that date:
For the Three Month For the Six Month
Period Ended Period Ended
December 31, 2006 December 31, 2006
___________________ _________________
Net Sales $1,808,700 $3,091,500
Net income $ 219,200 205,700
Net income per share - basic $ .19 $ .18
Net income per share - diluted $ .18 $ .17
4. Segment Information and Concentrations:
As a result of the acquisition of Altamira, 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 of
custom-made catalyst research instruments for universities,
government laboratories, and chemical and petrochemical
companies sold on a direct basis ("catalyst research
instruments operations"). Substantially all of the management
and employees of Altamira were retained following the
acquisition.
Segment information as of December 31, 2007 and for the three
and six months ended December 31, 2007 and 2006 (the 2006
periods include the catalyst research instruments operation for
only the month of December 2006) is as follows:
6
Three Months Ended December 31, 2007
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
____________ ___________ _________ ____________
Net Sales $ 988,800 $ 856,800 $ - $1,845,600
Foreign Sales 579,500 - - 579,500
Segment Profit 40,500 99,500 - 140,000
Segment Assets 2,599,800 2,061,800 844,100 5,505,700
Long-Lived Assets
Expenditures 12,100 2,000 - 14,100
Depreciation and
Amortization 14,800 41,000 - 55,800
Three Months Ended December 31, 2006
_________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
____________ ___________ _________ ____________
Net Sales $ 887,000 $ 376,300 $ - $1,263,300
Foreign Sales 459,800 140,100 - 599,900
Segment Profit
(Loss) 142,900 ( 39,700) - 103,200
Long-Lived Assets
Expenditures - - - -
Depreciation and
Amortization 12,000 13,900 - 25,900
Approximately 71% and 70% of net sales of benchtop laboratory
equipment were derived from the Company's main product, the
Vortex-Genie 2(R) mixer, excluding accessories for the three
month periods ended December 31, 2007 and 2006, respectively.
Sales to two benchtop laboratory equipment customers, combined,
accounted for approximately 26% of the segment's sales (14% of
total sales) and 28% of the segment's sales (19% of total
sales) for the three month periods ended December 31, 2007 and
2006, respectively.
Sales of catalyst research instruments are generally comprised
of a few very large orders amounting, on average, to over
$100,000 to a limited number of customers, who differ from
order to order. Sales of catalyst research instruments to two
customers, combined, accounted for 84% of that segment's sales
(39% of total sales) for the three months ended December 31,
2007. Two other customers, combined, accounted for 99% of the
catalyst research instruments segment sales for (30% of total
sales) for the three month period ended December 31, 2006
(which only included December 2006).
7
Six Months Ended December 31, 2007
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
____________ ___________ _________ ____________
Net Sales $1,936,300 $1,409,600 $ - $3,345,900
Foreign Sales 986,900 347,800 - 1,334,700
Segment Profit 214,000 151,200 - 365,200
Segment Assets 2,599,800 2,061,800 844,100 5,505,700
Long-Lived Assets
Expenditures 26,000 7,300 - 33,300
Depreciation and
Amortization 28,600 83,000 - 111,600
Six Months Ended December 31, 2006
________________________________________________________________________
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
____________ ___________ _________ ____________
Net Sales $1,689,900 $ 376,300 $ - $2,066,200
Foreign Sales 799,700 140,100 - 939,800
Segment Profit
(Loss) 257,500 (39,700) - 217,800
Long-Lived Assets
Expenditures - - - -
Depreciation and
Amortization 19,600 13,900 - 33,500
Approximately 70% and 71% of net sales of benchtop laboratory
equipment were derived from the Company's main product, the
Vortex-Genie 2(R) mixer, excluding accessories for the six
month periods ended December 31, 2007 and 2006, respectively.
Two benchtop laboratory equipment customers accounted in the
aggregate for approximately 31% of the segment's sales for each
period (18% and 25% of total sales for the 2007 and 2006 periods,
respectively).
Sales of catalyst research instruments are generally comprised
of a few very large orders amounting, on average, to over
$100,000 to a limited number of customers, who differ from
order to order. Sales of catalyst research instruments to
three customers, combined, accounted for 72% of that segment's
sales (30% of total sales) for the six months ended December
31, 2007. Two other customers accounted for 99% of the segment's
sales (18% of total sales) for the six month period ended
December 31, 2006 (which only included sales in December 2006).
5. Inventories:
Inventories for interim financial statement purposes are based
on perpetual inventory records at the end of the applicable
period. Components of inventory are as follows:
December 31,
2007
___________
Raw Materials $ 758,300
Work in process 465,900
Finished Goods 158,600
___________
$ 1,382,800
===========
8
6. 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. Earnings per common share were computed as
follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________________________
2007 2006 2007 2006
______________________________________
Net income $ 96,200 $ 69,100 $ 242,900 $ 146,700
========= ======== ========= =========
Weighted average common
shares outstanding 1,145,569 1,043,830 1,145,461 1,022,091
Effect of dilutive
securities 52,901 66,899 53,093 62,933
--------- --------- --------- ---------
Weighted average dilutive
common shares outstanding 1,198,470 1,110,729 1,198,554 1,085,024
========= ========= ========= =========
Basic earnings per
common share $ .08 $ .07 $ .21 $ .14
======= ======= ======= =======
Diluted earnings per
common share $ .08 $ .06 $ .20 $ .14
======= ======= ======= =======
7. Comprehensive Income:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" establishes standards for disclosure of
comprehensive income, which includes net income and any changes
in equity from non-owner sources that are not recorded in the
income statement (such as changes in the net unrealized gains
or losses on securities. The Company's only source of other
comprehensive income is the net unrealized gain or loss on
securities). The components of comprehensive income were as
follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
_________________________________________
2007 2006 2007 2006
__________________________________________
Net income $ 96,200 $ 69,100 $ 242,900 $ 146,700
========= ======== ========= =========
Other comprehensive income
(loss):
Unrealized holding gain
(loss) arising during
period ( 6,200) - ( 8,400) 6,200
Plus reclassification
adjustment for gain included
in net income - ( 200) - ( 200)
---------- --------- --------- ---------
Change in unrealized holding
gain (loss) ( 6,200) ( 200) ( 8,400) 6,000
---------- --------- --------- ---------
Comprehensive income $ 90,000 $ 68,900 $ 234,500 $ 152,700
========== ======== ========= ==========
9
8. Stock-Based Compensation Plans:
The Company maintains an Incentive Stock Option Plan which
through the fiscal year ended June 30, 2006, grants under this
plan were accounted for under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Under this method,
no stock-based compensation costs were reflected in net income,
as all options granted under those plans had an exercise price
equal to the fair market value of the underlying common stock
on the date of grant.
Any stock-based compensation transaction subsequent to June 30,
2006 is accounted for using Statement of Financial Accounting
Standards No. 123(R) "Share-Based Payment". This statement
requires compensation costs related to stock-based payment
transactions to be recognized commencing with the first
reporting period in our fiscal year ended June 30, 2007. With
limited exceptions, the amount of compensation cost is measured
based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be
measured each reporting period. Compensation costs are
recognized over the period that an employee provides service in
exchange for the award. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and
supercedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company incurred stock-based compensation costs
of $700 and $1,500 for the three and six months ended December
31, 2007. No stock-based compensation costs were incurred
for the 2006 periods.
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.
Goodwill amounted to $83,900 as of December 31, 2007, mainly as
a result of $136,600 of contingent consideration paid and
accrued from date of acquisition through December 31, 2007. The
Stock Purchase Agreement provided for contingent future
payments to the former shareholders equal to 5%, subject to
certain limits, of net sales (no limit) of the catalyst
research instrument operations, during each of the five periods
described in Note 2.
The components of intangible assets as of December 31, 2007 are
as follows:
Useful Accumulated
Lives Cost Amortization Net
------ -------- ------------ ---------
Technology 5 yrs. $300,000 $ 65,000 $ 235,000
Customer relationships 10 yrs. 237,000 67,700 169,300
Non-compete agreement 5 yrs. 102,000 22,100 79,900
Other intangible assets 5 yrs. 113,900 75,800 38,100
-------- --------- ---------
$752,900 $ 230,600 $ 522,300
======== ========= =========
10
Total amortization expense was $38,300 and $15,300 for the
three months ended December 31, 2007 and 2006, respectively,
and $78,100 and $18,300 for the six months ended December 31,
2007 and 2006, respectively. As of December 31, 2007,
estimated future amortization expense related to intangible
assets is $61,300 for the remainder of fiscal year ending June
30, 2008, $131,000 for fiscal 2009, $119,300 for fiscal 2010,
$107,500 for fiscal 2011, $50,200 for fiscal 2012, and $53,000
thereafter.
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 $736,900 to $1,125,600 as of
December 31, 2007 from $388,700 as of June 30, 2007.
Net cash provided by operating activities was $873,200 for the six
months ended December 31, 2007 as compared to $156,900 for the
comparable period in 2006, mainly the result of customer advances
of $1,249,900 for orders of catalyst research instruments to be
shipped in the second half of the year and higher income, partially
offset by higher accounts receivable. The Company usually requires
advance deposits on orders for catalyst research instruments.
The amount of such deposits at any given time can fluctuate
significantly. Cash used in investing activities was $152,300
for the six months ended December 31, 2007 as compared to $91,900
for the six months ended December 31, 2006, which reflected
significant redemptions of investments used for the November 30,
2006 acquisition of Altamira.
On September 30, 2007, the Board of Directors of the Company
declared a cash dividend of $.07 per share of Common Stock which
was paid on January 14, 2008 to holders of record as of the close
of business on October 18, 2007.
The Company's working capital of $2,627,500 as of December 31, 2007
increased by $167,000 from the working capital of $2,460,500 at
June 30, 2007. The Company has available for its working capital
needs, a secured bank line of credit of $200,000 with North Fork
Bank with interest at prime, all of which was available as of
December 31, 2007. The Company has never borrowed under this line
of credit. Management believes that the Company will be able to
meet its cash flow needs during the 12 months ending December 31,
2008 from its available financial resources which include its cash
and investment securities.
12
Results of Operations
_____________________
Financial Overview
__________________
As a result of the Company's acquisition on November 30, 2006 of
Altamira, the Company's consolidated results for the three and six
months ended December 31, 2007 include the results of Altamira for
a full three and six months in the current year periods and one
month in each of the three and six month periods ended
December 31, 2006. In addition, the depreciation and amortization
expense related to the acquired assets at their fair market value
on date of acquisition is also included in the Company's results
from date of acquisition.
The Company's combined income before income taxes increased $36,800
(35.7%) and $147,400 (67.7%) for the three and six month periods
ended December 31, 2007, respectively, compared to the same periods
of the prior fiscal year; the increase primarily the result of the
addition of the income of the catalyst research instruments
operations. The reduction in income of the benchtop laboratory
equipment operations for the three month period ended December
2007 as compared to the amount for the three months ended December
31, 2006 resulted primarily from increases of raw material costs,
general and administrative expenses, and research and development
costs.
The Three Months Ended December 31, 2007 Compared With the Three
Months Ended December 31, 2006
________________________________________________________________
Net sales for the three months ended December 31, 2007 increased by
$582,300 (46.1%) to $1,845,600 as compared with $1,263,300 for the
three months ended December 31, 2006 as a result of the revenues of
the catalyst research instruments operations for three months of
the 2007 period and only one month for the 2006 period, and a
$101,800 (11.5%) increase in sales of the Company's benchtop
laboratory equipment. Sales of the catalyst research instruments
differ from those of the benchtop laboratory equipment in that
sales of the catalyst research instruments are comprised of a small
number of larger orders, typically averaging over $100,000 each;
hence sales revenues can vary greatly from month to month. As of
December 31, 2007, there was an order backlog of $1,600,000 for
catalyst research instruments.
The gross profit percentage for the three months ended December 31,
2007 decreased to 34.4% compared to 36.5% for the three months
ended December 31, 2006, mainly as a result of (i) higher basic raw
material costs incurred by the benchtop laboratory equipment
operations and (ii) lower gross margins for the catalyst research
products resulting from product mix and engineering training costs.
General and administrative ("G&A") expenses for the three months
ended December 31, 2007 increased by $60,100 (28.9%) to $267,700
from $207,600 for the comparable 2006 period, principally the
result of the G&A expenses of the catalyst research instruments
operations for the full 2007 period but only one month for the
2006 period, higher salary expense for the laboratory equipment
operations, and higher professional fees.
13
Selling expenses for the three months ended December 31, 2007
increased by $45,300 (57.6%) to $123,900 from $78,600 for the three
months ended December 31, 2006, as a result of the inclusion of
such expenses incurred by the catalyst research instruments
operations for the full 2007 period and just one month for the 2006
period, partially offset by lower marketing expenses of the
benchtop laboratory equipment operations.
Research and development expenses for the three months ended
December 31, 2007 were $119,200, an increase of $30,200 (33.9%)
from $89,000 for the three months ended December 31, 2006, due
mainly to accelerated research and development activity for new
benchtop laboratory equipment products.
Interest and other income for the three month periods ended
December 31, 2007 and December 31, 2006, was $16,900 and $17,400,
respectively.
Income tax expense for the three months ended December 31, 2007 was
$43,800 compared to $34,100 for the three months ended December 31,
2006, mainly due to the higher income.
As a result of the foregoing, net income for the three months ended
December 31, 2007 was $96,200, an increase of $27,100 (39.2%) from
$69,100 for the three months ended December 31, 2006.
The Six Months Ended December 31, 2007 Compared With the Six Months
Ended December 31, 2006
___________________________________________________________________
Net sales for the six months ended December 31, 2007 increased by
$1,279,700 (61.9%) to $3,345,900 as compared with $2,066,200 for
the six months ended December 31, 2006 as a result of the revenues
of the catalyst research instruments operations for the full six
months of the 2007 period but only one month of the 2006 period,
and a $246,400 (14.6%) increase in sales of the Company's benchtop
laboratory equipment. Sales of the catalyst research instruments
differ from those of the benchtop laboratory equipment in that sales
of the catalyst research instruments are comprised of a small number
of larger orders, typically averaging over $100,000 each; hence
sales revenues can vary greatly from month to month. As of
December 31, 2007, there was an order backlog of $1,600,000 for
catalyst research instruments.
The gross profit percentage for the six months ended December 31,
2007 decreased to 38.1% compared to 42.4% for the six months ended
December 31, 2006, mainly as a result of (i) increase of basic raw
material costs incurred by the benchtop laboratory equipment
operations and (ii) lower than normal gross margins for the
catalyst research instruments resulting from product mix and
engineering training costs.
G & A expenses for the six months ended December 31, 2007 increased
by $141,100 (37.9%) to $513,300 from $372,200 for the comparable
period last year, principally the result of the G&A expenses of the
catalyst research instruments operations for the entire six months
of the 2007 period as compared to one month of the 2006 period and
increased laboratory equipment operations salaries, directors fees,
and professional fees.
14
Selling expenses for the six months ended December 31, 2007
increased by $98,900 (66.5%) to $247,700 from $148,800 for the six
months ended December 31, 2006, as a result of the addition of such
expenses for the catalyst research instruments operations for the
full six months of the six month period ended December 31, 2007 and
only one month for the 2006 period, partially offset by lower
marketing expenses of the benchtop laboratory equipment operations.
Research and development expenses for the six months ended December
31, 2007 were $179,600, an increase of $11,200 (6.7%) from $168,400
for the six months ended December 31, 2006, due mainly to
accelerated research and development activity for new laboratory
equipment products during the last three months of the 2007 period.
Interest and other income for the six month periods ended December
31, 2007 and December 31, 2006, was $29,900 and $31,800, respectively.
Income tax expense for the six months ended December 31, 2007 was
$122,300 compared to $71,100 for the six months ended December 31,
2006, mainly due to the higher income.
As a result of the foregoing, net income for the six months ended
December 31, 2007 was $242,900, an increase of $96,200 (65.6%) from
$146,700 for the six months ended December 31, 2006.
ITEM 3. 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 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.
There was no change in the Company's internal controls over
financial reporting that occurred during the most recent 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
3(ii) Amended and Restated By-laws as amended
on December 5, 2007
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:
Registrant filed during the three months
ended December 31, 2007 Reports on Form
8-K, on November 8, 2007 reporting under
Item 1.01, and on December 5, 2007
reporting under Item 5.03.
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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: February 14, 2008
17