{SCIENTIFIC INDUSTRIES INC. letterhead}
February 1, 2008
VIA FEDEX AND FAX (202) 772-9218
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Mr. Kevin L. Vaughn
Branch Chief
Securities and Exchange Commission
Division of Corporation Finance-Mail Stop 6010
Washington, DC 20549
Re: Scientific Industries, Inc.
Form 10-KSB for the fiscal year ended June 30, 2007
File No. 000-06658
Dear Mr. Vaughn:
Scientific Industries, Inc. (the "Company") has received and reviewed
the comments set forth in your January 29, 2008 letter to the Company,
and the following is our response to the comments contained in
your letter.
To facilitate your review, the comments from your January 29, 2008
letter are repeated in bold italics, and the Company's responses to
each comment are set forth in standard font.
Form 10-KSB for the fiscal year ended June 30, 2007
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Item 6. Management's Discussion and Analysis of Financial Condition
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1. We note your disclosure "while the revenues related to the work
in progress were reported by the Company subsequent to the acquisition,
a significant portion of the gross profit was attributed prior to
acquisition." Please clarify for us how you accounted for the deferred
revenue at the date of acquisition, including how you considered the
guidance in EITF 01-3.
RESPONSE:
1. Please note that the acquiree did not have any deferred revenue at
the date of acquisition, therefore EITF 01-3 does not apply. At the date
of acquisition, management made a determination as to the fair value of
the acquiree's assets, including Work in Process ("WIP"). WIP was valued
at estimated selling prices of finish goods less the sum of (a) cost to
complete, (b) cost of disposal, and (c) a reasonable profit allowance for
the completing and selling effort of the acquiring entity (none of which
were performed by the acquiring company), based on profit for similar
finished goods (SFAS 141, paragraph 37, c(2)). WIP was comprised of
pre-sold custom products and all selling efforts were performed by the
acquired company prior to acquisition. Accordingly, acquired WIP was
valued at an amount that would result in a profit to the Company,
post-acquisition, that did not include earnings attributable to the
production and sales efforts prior to acquisition.
Note 2. Acquisition, page F-11
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2. We note your reference to an independent valuation firm in regards
to valuing the tangible and intangible assets acquired in the Altamira
acquisition. While in future filings management may elect to take full
responsibility for the valuation, if you choose to continue to refer to
the expert in any capacity, please revise future filings, beginning with
your next Form 10-QSB, to name the independent valuation firm. In addition,
please note that if you intend to incorporate your Form 10-KSB by reference
into any registration statement, you will be required to include the consent
of the independent valuation firm as an exhibit to the registration statement.
RESPONSE:
2. We requested the services of a valuation firm to render an opinion on
the fair value of the assets acquired to help us meet the financial reporting
requirements under SFAS No. 141, however since we elect to take full
responsibility for the valuation, we will not refer to the expert in future
filings.
3. We note that the consideration for this acquisition consisted of cash
payments of $442,000 and stock payments of $386,200. We also note that you
are required to make contingent payments to the former shareholders of
Altamira. Please address the following:
* Tell us and revise future filings to disclose your maximum liability
under the contingent payment provision and tell us what amount was accrued
related to this provision on the acquisition date.
* Reconcile your net purchase price allocation of $989,000 to the
consideration you paid and accrued at the acquisition date.
RESPONSE:
3.
* Under the Stock Purchase Agreement ("SPA") between the Company and
the sellers, there is no payment cap, therefore there was no maximum
liability under the contingent payment provision. In addition, the
contingent consideration was not determinable at the date of acquisition,
hence it was not included in determining the cost of the acquired entity on
that date in accordance with SFAS 141, paragraph 26. The obligation for
contingent consideration at June 30, 2007 which was accrued (but not paid)
based on actual sales for the first contingency period from date of
acquisition to June 30, 2007 amounted to $67,000. Future filings will
disclose the fact that there is no maximum liability and that future
contingent consideration was not determinable on date of acquisition.
* Net purchase price of $989,000 as of June 30, 2007 is reconciled
as follows:
Cash - $442,000
Stock - $386,000
Contingent Consideration Accrued - $ 67,000
Direct Costs of Acquisition - $ 94,000
________
$989,000
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Note 11. Income Taxes, page F-20
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4. We note from your footnote disclosures that you recorded deferred
tax liabilities of $51,400 and $27,600 as of June 30, 2007 and 2006,
respectively. Please reconcile these amounts to the deferred tax
liabilities represented on the face of your balance sheet of $7,600
and $3,200, respectively. Please advise or revise.
RESPONSE:
4. The long-term deferred taxes have been netted in accordance with
paragraph no. 42 of SFAS 109, as follows:
2007 2006
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Long Term Def. Tax Liability $51,400 $27,600
Long Term Def. Tax Asset ($43,800) ($24,400)
________ ________
$ 7,600 $ 3,200
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The Company hereby acknowledges that:
* The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and
* The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you require further information, please do not hesitate to contact us.
Sincerely,
/s/ Helena R. Santos
____________________
Helena R. Santos
Principal Executive and Financial Officer