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 MARCH 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 May 4, 2007: 1,129,352 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
March 31, 2007
______________
Current Assets:
Cash and cash equivalents $ 404,400
Investment securities 766,700
Trade accounts receivable, less allowance for
doubtful accounts of $11,600 658,200
Inventories 1,071,900
Prepaid expenses and other current assets 65,400
Deferred taxes 24,700
______________
Total current assets 2,991,300
Property and equipment at cost, less accumulated
depreciation of $532,400 258,400
Intangible assets, less accumulated amortization
of $115,800 631,500
Other 45,700
______________
Total assets $3,926,900
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 168,800
Customer advances 120,000
Accrued expenses and taxes 374,900
_____________
Total current liabilities 663,700
Deferred taxes 3,000
_____________
Negative goodwill 50,000
_____________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,149,154 issued and outstanding 57,500
Additional paid-in capital 1,402,300
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 5,000)
Retained earnings 1,807,800
_____________
3,262,600
Less common stock held in treasury, at cost,
19,802 shares 52,400
_____________
3,210,200
_____________
$3,926,900
=============
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 Nine Month
Periods Ended Periods Ended
March 31, March 31,
2007 2006 2007 2006
__________ __________ __________ __________
Net sales $1,341,000 $ 919,400 $3,407,200 $2,737,500
Cost of goods sold 826,600 472,100 2,017,400 1,368,800
__________ __________ __________ __________
Gross profit 514,400 447,300 1,389,800 1,368,700
__________ __________ __________ __________
Operating Expenses:
General & administrative 279,500 176,700 651,700 563,400
Selling 114,100 54,600 262,900 185,000
Research & development 66,000 72,900 234,400 243,100
__________ __________ __________ __________
459,600 304,200 1,149,000 991,500
__________ __________ __________ __________
Income from operations 54,800 143,100 240,800 377,200
Interest & other
income, net 10,000 12,600 41,800 31,000
__________ __________ __________ __________
Income before income taxes 64,800 155,700 282,600 408,200
__________ __________ __________ __________
Income tax expense (benefit):
Current 25,400 41,500 95,000 98,400
Deferred ( 2,400) 12,000 ( 900) 21,000
__________ __________ __________ __________
23,000 53,500 94,100 119,400
__________ __________ __________ __________
Net income $ 41,800 $ 102,200 $ 188,500 $ 288,800
========== ========== ========== ==========
Basic earnings per common
share $ .04 $ .10 $ .18 $ .29
Diluted earnings per common
share $ .03 $ .10 $ .17 $ .27
Cash dividends declared
per common share $ - $ - $ .07 $ .09
See notes to unaudited condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended
March 31, 2007 March 31, 2006
________________ ______________
Operating activities:
Net income $ 188,500 $ 288,800
_________ __________
Adjustments to reconcile net income
to net cash provided by
operating activities:
Gain (loss) on sale of investments ( 200) 2,500
Depreciation and amortization 146,600 61,800
Deferred income taxes ( 900) 21,000
Income tax benefit of stock options
exercised - 4,400
Changes in assets and liabilities:
Accounts receivable (227,000) ( 8,900)
Inventories 242,700 ( 98,000)
Prepaid expenses and other
current assets 46,100 ( 40,400)
Other assets 18,100 19,400
Accounts payable (148,100) 8,300
Customer advances (131,800) -
Accrued expenses and taxes 91,300 ( 25,100)
Deferred compensation - ( 19,400)
_________ _________
Total adjustments 36,800 ( 74,400)
_________ _________
Net cash provided by
operating activities 225,300 214,400
_________ _________
Investing activities:
Acquisition of Altamira
Instruments, Inc., net (346,500) -
Purchase of investment securities,
available-for-sale ( 17,500) (339,200)
Redemptions of investment securities,
available-for-sale 425,700 123,900
Redemptions of investment securities,
held to maturity - 72,300
Capital expenditures ( 35,500) ( 24,900)
Purchase of intangible assets ( 12,800) ( 4,600)
_________ _________
Net cash provided by (used in)
investing activities 13,400 ( 172,500)
_________ __________
Financing activities:
Exercise of stock options 8,000 11,500
Cash dividends declared and paid ( 70,000) ( 89,100)
_________ _________
Net cash used in ( 62,000) ( 77,600)
financing activities _________ _________
Net increase (decrease) in cash
and cash equivalents 176,700 ( 35,700)
Cash and cash equivalents, beginning of year 227,700 183,900
_________ _________
Cash and cash equivalents, end of period $ 404,400 $ 148,200
========= =========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 99,900 $ 112,900
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, 2006. The results for
the three and nine months ended March 31, 2007,
are not necessarily an indication of the results
of the full fiscal year ending June 30, 2007.
1. Significant accounting policies:
Principles of consolidation:
The accompanying condensed consolidated financial statements
include the accounts of the Company and its subsidiaries:
Scientific Packaging Industries, Inc., a New York corporation
and an inactive wholly owned subsidiary of the Company, and
since November 30, 2006 when it was acquired, Altamira
Instruments, Inc. ("Altamira"), a Delaware corporation and
wholly owned subsidiary of the Company. All intercompany items
and transactions have been eliminated in consolidation.
2. Acquisition of Altamira Instruments, Inc.:
On November 30, 2006, the Company acquired the outstanding
capital stock of Altamira, a privately held Delaware
corporation engaged from its facility in Pittsburgh,
Pennsylvania, in the production and sale of a variety of custom
catalyst research instruments. The acquisition was pursuant to
a Stock Purchase Agreement dated as of November 30, 2006 (the
"Agreement") whereby the Company paid or issued to the then
holders of the capital stock of Altamira $400,000 in cash and
125,000 shares of Common Stock and agreed to make additional
cash payments equal to 5%, subject to possible adjustment, of
the net sales of Altamira for each of five periods - the first
period is December 1, 2006 through June 30, 2007, the next
three are the years ending June 30, 2008, June 30, 2009 and
June 30, 2010 and the fifth period is July 1, 2010 through
November 30, 2010.
Altamira's principal customers are universities, government
laboratories, and chemical and petrochemical companies. The
instruments which are customizable to the customers'
specifications, are sold on a direct basis.
4
In conjunction with the acquisition of Altamira, management of
the Company, with the assistance of an independent valuation
firm, valued the tangible and intangible assets acquired,
including goodwill, customer relationships, non-compete
agreements, and certain technology, trade names and trade
marks. The carrying amounts of goodwill and other intangible
assets are presented in "Note 8. Goodwill and Other Intangible
Assets" which represent the valuations performed in conjunction
with the acquisition. In addition, other fair market value
adjustments were made in conjunction with the acquisition,
primarily adjustments to property and equipment, and inventory.
The Company anticipates that an election will be made to treat
the acquisition of Altamira stock as a purchase of assets. If
the election is not made under the Internal Revenue Code, a
deferred tax liability of approximately $325,000 would have to
be recorded along with a corresponding increase to goodwill.
The acquisition was recorded under the purchase method of
accounting. The preliminary net purchase price has been
allocated to assets acquired and liabilities assumed based on
their estimated fair market values at the date of the
acquisition. The preliminary allocation of the net purchase
price was as follows:
Current Assets $ 734,000
Property and Equipment 140,300
Non-current Assets 25,100
Negative Goodwill ( 91,500)
Other Intangible Assets 639,000 *
Current Liabilities ( 561,900)
__________
Preliminary Net Purchase Price $ 885,000
=========
* Of the $639,000 of other intangible assets, $237,000 was
allocated to customer relationships with a weighted-average
estimated useful life of 10 years, $300,000 was allocated to
technology including trade names and trade marks with a useful
life of 5 years, and $102,000 was allocated to a non-compete
agreement with a useful life of 5 years. The 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 combined results of operations of
Scientific Industries, Inc. ("Scientific") and Altamira, on a
pro forma basis, as though the companies had been combined as
of the beginning of each of the 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 beginning of each period:
5
For the Three Month For the Nine Month
Period Ended Period Ended
March 31, March 31,
___________________ _____________________
2006 2007 2006
Net Sales $1,050,000 $4,432,600 $3,465,500
Net income $ 70,300 $ 289,000 $ 133,300
Net income per share - basic $ .06 $ .26 $ .12
Net income per share - diluted $ .06 $ .24 $ .11
3. Line of Business and Concentrations:
As a result of the acquisition of Altamira, the Company now 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 ("laboratory equipment
operations"), and the manufacture and marketing of custom-made
catalyst research instruments for research in universities,
government laboratories, and chemical and pretrochemical 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 is reported as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
____________________ _____________________
2007 2006 2007 2006
____________________ _____________________
Net Sales:
Laboratory equipment $ 929,100 $ 919,400 $2,619,000 $2,737,500
Catalyst research
instruments 411,900 - 788,200 -
Net Income:
Laboratory equipmen $ 117,200 $ 102,200 $ 303,600 $ 288,800
Catalyst research
instruments ( 75,400) - ( 115,100) -
Segment Assets: March 31, 2007
______________
Laboratory equipment $2,547,800
Catalyst research
instruments 1,379,100
Long-lived asset expenditures:
Laboratory equipment $ 35,500 - $ 35,500 -
Catalyst research
instruments - - - -
6
Approximately 69% and 73% of net sales of the laboratory
equipment operations for the three month periods ended March
31, 2007 and 2006, respectively, and approximately 70% and 76%
of net sales of the laboratory equipment operations for the
nine month periods ended March 31, 2007 and 2006, respectively
were derived from the Company's main product, the Vortex-Genie
2(R) mixer, excluding accessories.
Of the laboratory equipment operations' net sales, two
customers accounted for approximately 33% and 37% for the three
and nine month periods ended March 31, 2007, respectively, and
three customers accounted for 49% for each of the three and
nine month periods ended March 31, 2006. Sales of the catalyst
research instruments operations are to a limited number of
customers who are purchasing instruments customized pursuant to
the customer's specifications. Generally, the average order is
more than $100,000. Accordingly, sales to five customers
accounted in the aggregate for approximately 98% and three of
the five accounted for 95% of the net sales of the operations
for the nine and three month periods ended March 31, 2007,
respectively.
The Company's consolidated export sales (principally Europe and
Asia) were approximately $607,600 and $425,000 for the three
month periods ended March 31, 2007 and 2006, respectively, and
$1,543,400 and $1,208,000 for the nine month periods ended
March 31, 2007 and 2006, respectively.
4. Inventories:
Inventories for interim financial statement purposes are based
on perpetual inventory records at the end of the applicable
periods. Components of inventory are as follows:
March 31,
2007
___________
Raw Materials $ 795,900
Work in process 221,600
Finished Goods 54,400
___________
$ 1,071,900
===========
5. 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 and a warrant which was exercised at the end
of September, 2005.
Earnings per common share was computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
2007 2006 2007 2006
___________________ ____________________
Net income $ 41,800 $102,200 $ 188,500 $ 288,800
======== ======== ========= =========
Weighted average common
shares outstanding 1,128,641 995,652 1,057,089 988,972
Effect of dilutive
securities 67,610 79,175 64,492 78,588
_________ _________ _________ _________
Weighted average dilutive
common shares outstanding 1,196,251 1,074,827 1,121,581 1,067,560
========= ========= ========= =========
7
Basic earnings per
common share $ .04 $ .10 $ .18 $ .29
======= ======= ======= =======
Diluted earnings per
common share $ .03 $ .10 $ .17 $ .27
======= ======= ======= =======
6. Comprehensive Income:
There was no significant difference between net income and
comprehensive income for the three and nine month periods ended
March 31, 2007 and 2006.
7. Stock-Based Compensation Plans:
The Company maintains an Incentive Stock Option Plan which
through the fiscal year ended June 30, 2006 the grants 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. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement
No. 123(R), "Accounting for Stock-Based Compensation," to
stock-based employee compensation in the prior period:
For the Three Months For the Nine Months
Ended March 31, 2006 Ended March 31, 2006
____________________ ____________________
Net income:
As reported $102,200 $288,800
Pro Forma 102,200 287,900
Earnings per common and
common equivalent share:
Basic - as reported $ .10 $ .29
Basic - pro forma $ .10 $ .29
Diluted - as reported $ .10 $ .27
Diluted - pro forma $ .10 $ .27
Any stock-based compensation transaction subsequent to June 30,
2006 is to be accounted for using Statement of Financial
Accounting Standards No. 123(R). This statement, issued on
December 16, 2004, by the Financial Accounting Standards Board,
requires compensation costs related to stock-based payment
transactions to be recognized commencing with the first
reporting period in our fiscal year ending 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 $4,000 for the three and nine months ended March 31, 2007.
8
8. Goodwill and Other Intangible Assets
In conjunction with the acquisition of Altamira, management of
the Company, with the assistance of an independent valuation
firm, valued the tangible and intangible assets acquired,
including customer relationships, non-compete agreements and
technology which encompasses trade names, trade marks and
licenses. The valuation resulted in an initial negative
goodwill of approximately $91,500 on the date of acquisition.
However, the Stock Purchase Agreement provides for contingent
future payments based on net catalyst research instrument
operations sales subject to certain limits, which are expected
to be earned and paid and the negative goodwill is eventually
expected to be fully eliminated. Management estimates that the
acquisition of Altamira will ultimately result in goodwill of
approximately $300,000 to $400,000. As of March 31, 2007 the
negative goodwill, which has been classified as a deferred
credit, was reduced to $50,000 mostly as a result of additional
contingent consideration earned.
In accordance with Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets,", goodwill and
other intangible assets are tested for impairment on an annual
basis, or earlier if indicators of impairment exist. As of
March 31, 2007, the Company determined that there were no
current indicators of impairment. In assessing the
recoverability of goodwill and purchased intangible assets,
management must make assumptions regarding estimated future
cash flows and other factors to determine the fair value of the
respective assets. It is reasonably possible that these
estimates, or their related assumptions, may change in the
future, in which event we may be required to record impairment
charges for these assets.
The Company's other intangible assets are amortized using
straight line and accelerated amortization methods based on
expected benefits derived from each intangible asset.
The components of intangible assets as of March 31, 2007 were
as follows:
Gross Net
Useful Carrying Accumulated Amortizable
Lives Amount Amortization Amount
_______ _________ ____________ ___________
Technology 5 yrs. $300,000 $ 20,000 $280,000
Customer relationships 10 yrs. 237,000 24,000 213,000
Non-compete agreement 5 yrs. 102,000 6,800 95,200
Other intangible assets 5 yrs. 108,300 65,000 43,300
________ ________ _______
$747,300 $115,800 $631,500
======== ======== ========
9
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Total amortization expense related to intangible assets was
$39,400 and $59,600 for the three and nine months ended March
31, 2007, respectively, and $1,700 and $4,800 for the three and
nine months ended March 31, 2006, respectively. As of March
31, 2007, estimated future amortization expense related to
intangible assets is $39,000 for the remainder of fiscal 2007,
$147,400 for fiscal 2008, $132,600 for fiscal 2009, $122,900
for fiscal 2010, $101,400 for fiscal 2011, $55,800 for fiscal
2012 and $32,400 thereafter.
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 produce and
finance 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 $176,700 to $404,400 as of
March 31, 2007 from $227,700 as of June 30, 2006.
Net cash provided by operating activities was $225,300 for the nine
month period of the current fiscal year as compared to $214,400 in
the comparative period for 2006, mainly the result of higher
balances of accounts receivable, accounts payable and customer
advances partially offset by higher inventories and accrued
expenses. Cash provided by investing activities was $13,400 for the
current nine month fiscal period as compared to cash used of
$172,500 for the nine months ended March 31, 2006, primarily the
result of net cash of $346,500 used in connection with the
acquisition of Altamira, and larger redemptions of investment
securities due to cash needed for the acquisition.
Net cash used in financing activities reflected a cash dividend of
$.07 per share of Common Stock which was paid on January 12, 2007
to holders of record as of the close of business on October 30, 2006.
10
The Company's working capital of $2,327,600 as of March 31, 2007
decreased $161,500 from the working capital of $2,489,100 at June
30, 2006, mostly due to the acquisition. 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 March 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 next 12 months
from its available financial resources which include its cash and
investment securities.
Results of Operations
Financial Overview
As previously reported, the Company acquired on November 30, 2006,
100% of the outstanding capital stock of Altamira, and therefore
the results of Altamira from the date of acquisition are reflected
in the consolidated results of the Company. In addition, the
consolidated results reflect certain adjustments related to the
recording of the acquisition, including adjustments of inventory
and fixed assets to fair market values, purchased intangible
assets, and related depreciation and amortization.
The Three Months Ended March 31, 2007 Compared with the Three
Months Ended March 31, 2006.
The Company's net sales for the three months ended March 31, 2007
increased by $421,600 (45.9%) to $1,341,000 as compared with
$919,400 for the three months ended March 31, 2006 as a result of
the addition of the sales of the catalyst research instrument
operations. Net sales of the laboratory equipment operations
increased slightly by $9,700 (1.1%) despite the discontinuance of
purchases by a major customer and laboratory equipment distributor.
The catalyst research instruments' revenues, unlike those of the
laboratory equipment operations, are subject to great volatility
from period to period because revenues for the catalyst research
instruments are mostly comprised of a small number of large orders,
which typically average more than $100,000 each.
The gross profit percentage for the three months ended March 31,
2007 decreased to 38.4% as compared to 48.7% for the three months
ended March 31, 2006. At the date of Altamira's acquisition, the
work-in-progress was adjusted upwards to fair value so that the
adjusted value would allow for the Company's profit allowance upon
completing the manufacture of orders in process. All significant
selling efforts were performed by Altamira prior to acquisition.
The Company recognizes revenue upon shipment of goods, passage of
title and customer acceptance. While revenue has been reported by
the Company for Altamira's sales post-acquisition, a significant
portion of the gross profit has been attributed to the period prior
to acquisition - the effect of which reduced the gross profit for
the period by $65,000. In addition, the gross profit for the
catalyst research instruments operations may vary significantly
depending on the type of order. The gross profit percentage for
the laboratory equipment operations for the three months ended
March 31, 2007 and March 31, 2006 was 51.2% and 48.7%,
respectively, the increase resulting from lower price discounts.
11
General and administrative expenses for the three months ended
March 31, 2007 were $279,500, an increase of $102,800 (58.2%) as
compared with $176,700 for the three months ended March 31, 2006,
primarily due to the addition of the general and administrative
expenses incurred during the period by the newly-acquired catalyst
research instruments operations and acquisition-related
administrative integration costs.
Selling expenses for the three months ended March 31, 2007 totaled
$114,100, an increase of $59,500 (109.0%) from $54,600 for the
three months ended March 31, 2006, mainly due to the addition of
the selling expenses of the acquired catalyst research instruments
operations.
Research and development expenses for the three months ended March
31, 2007 decreased by $6,900 (9.5%) to $66,000 as compared to
$72,900 for the three months ended March 31, 2006 due to fewer
outside engineering services for the laboratory equipment
operations; no research and development expenses were incurred in
the catalyst research instruments operations during the quarter.
The Company's income before income taxes was $64,800 for the three
months ended March 31, 2007, a decrease of $90,900 (58.4%) as
compared to $155,700 for the three months ended March 31, 2006.
Income taxes were $23,000 for the three months ended March 31, 2007
compared to $53,500 for the comparable period last year, mainly due
to lower income.
The Company's net income was $41,800 for the three months ended
March 31, 2007, a decrease of $60,400 (59.1%) as compared to
$102,200 for the three months ended March 31, 2006.
The Nine Months Ended March 31, 2007 Compared with the Nine Months
Ended March 31, 2006.
The Company's net sales for the nine months ended March 31, 2007
increased by $669,700 (24.5%) to $3,407,200 as compared with
$2,737,500 for the nine months ended March 31, 2006 as a result of
$788,200 of revenues of the acquired catalyst research instruments
operations, partially offset by a $118,500 (4.3%) decrease in net
sales of our laboratory equipment operations. The reduction in
laboratory equipment operations sales was due to the discontinuance
of purchases by a major customer and laboratory equipment
distributor, partially offset by increased sales to other
distributors and increased direct sales. The catalyst research
instruments operations' revenues are subject to great volatility
from period to period because they are mostly comprised of a few
large orders, which typically average more than $100,000 each.
The gross profit percentage for the nine months ended March 31,
2007 decreased to 40.8% as compared to 50.0% for the nine months
ended March 31, 2006. At the date of the Altamira acquisition, the
work-in-progress was adjusted upwards to fair value so that the
adjusted value would allow for the Company's profit allowance upon
completing the manufacture of orders in process. All significant
selling efforts were performed by Altamira prior to acquisition.
The Company recognizes revenue upon shipment of goods, passage of
title and customer acceptance. While revenues have been reported
by the Company for the catalyst research instruments operations
post-acquisition, a significant portion of the gross profit has
been attributed to the period prior to acquisition, the effect of
which was to reduce the gross profit for the period by $171,000.
The gross profit percentage for the nine months ended March 31,
2007 for the laboratory equipment
12
operations was 51.2%, a slight increase from 50.0% for the
comparable period last year, mostly as a result of lower price
discounts.
General and administrative expenses for the nine months ended March
31, 2007 were $651,700, an increase of $88,300 (15.7%) from
$563,400 for the nine months ended March 31, 2006, primarily due to
the addition of such expenses by the catalyst research instruments
operations and acquisition-related administrative integration
costs.
Selling expenses for the nine months ended March 31, 2007 totaled
$262,900, an increase of $77,900 (42.1%) as compared with $185,000
for the nine months ended March 31, 2006 mainly due to the addition
of the selling expenses incurred by the catalyst research
instruments operations, partially offset by a reduction of selling
expenses of the laboratory equipment operations due to lower
salaries.
There was no material change in research and development expenses-
$234,400 for the nine months ended March 31, 2007 compared with
$243,100 for the prior year's nine month period. No research and
development expenses for the catalyst research instruments
operations were incurred during the post-acquisition period through
March 31, 2007.
Interest and other income increased $10,800 (34.8%) to $41,800 for
the nine months ended March 31, 2007 as compared with $31,000 for
the nine months ended March 31, 2006 mainly due to higher interest
rates and balances of investment securities for most of the 2007
period.
As a result of the above, the Company's income before income taxes
was $282,600 for the nine months ended March 31, 2007, a decrease
of $125,600 (30.8%) as compared to $408,200 for the nine months
ended March 31, 2006.
Income taxes were $94,100 (33.3%) for the nine months ended
March 31, 2007 compared to $119,400 (29.3%) for the comparable
period last year, mainly due to lower income in the current
period. The current period's tax rate was higher mainly due to
smaller amounts of credits available.
The Company's net income was $188,500 for the nine months ended
March 31, 2007, a decrease of $100,300 (34.7%) from $288,800 for
the nine months ended March 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
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 on March 16, 2007 a
report on Form 8-K, reporting under Item 1.01.
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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: May 15, 2007
15