10-Q 1 form10q2q06.txt FORM 10Q 2Q06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION CITYPLACEWASHINGTON, STATED.C. POSTALCODE20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-6994 StateplaceNEW BRUNSWICK SCIENTIFIC CO., INC. -------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-1630072 --------------------- ----------- (State or other jurisdiction of I.R.S. incorporation or organization) Employer Identification No.) 44 Talmadge Road Edison, StateNew Jersey 08817 ------------------------- ----- (Address of principal executive offices) (Zip Code) (732) 287-1200 --------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (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 ninety (90) days. Yes [X] No [ ] Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] There are 9,204,406 Common shares outstanding as of July 20, 2006. 1 NEW BRUNSWICK SCIENTIFIC CO., INC. Index PART I - FINANCIAL STATEMENTS Item 1. Financial Statements (unaudited) Consolidated Balance Sheets - July 1, 2006 and December 31, 2005 3 Consolidated Statements of Operations - Three and Six Months Ended July 1, 2006 and July 2, 2005 4 Consolidated Statements of Cash Flows - Six Months Ended July 1, 2006 and July 2, 2005 5 Consolidated Statements of Comprehensive Income (Loss) - Three and Six Months Ended July 1, 2006 and July 2, 2005 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 Item 3. Qualitative and Quantitative Disclosures about Market Risk 23 Item 4. Controls and Procedures 23 PART II Item 1. Legal Proceedings 24 Item 1A. Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 6. Exhibits 25 Signatures 27 FORWARD-LOOKING STATEMENTS This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will" or words of similar meaning and include, but are not limited to, statements about the expected future business and financial performance of New Brunswick Scientific Co., Inc. and its subsidiaries. The forward-looking statements include a number of risks and uncertainties which are detailed in Part I, Item 1A, "Risk Factors,", of our Annual Report on Form 10-K for the year ended December 31, 2005 and other risk factors identified herein or from time to time in our periodic filings with the Securities and Exchange Commission. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. We undertakes no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise. Unless the context requires otherwise, references in this quarterly report on Form 10-Q to "Company", "we," "us," and "our" refer to placeStateNew Brunswick Scientific Co., Inc. and its subsidiaries. See notes to unaudited consolidated financial statements. 2 PART I - FINANCIAL STATEMENTS.

NEW BRUNSWICK SCIENTIFIC CO., INC. ~~Index~~AND ~~PAGE~~SUBSIDIARIES ~~----~~CONSOLIDATED ~~PART~~BALANCE ISHEETS -(Dollars ~~FINANCIAL~~in ~~INFORMATION~~thousands, ~~Item~~except 1.per ~~Financial~~share ~~Statements~~amounts) (~~unaudited~~Unaudited) ~~Consolidated~~ASSETS ~~Balance Sheets~~ ------ July 21, December 31, 2006 2005 --------- -------------- Current assets: Cash and ~~December~~cash 31equivalents $ 7,847 ~~2004~~$ 311,351 ~~Consolidated~~Accounts ~~Statements~~receivable, ofnet ~~Operations~~12,589 -11,989 ~~Three~~Inventories: Raw materials and ~~Six~~sub-assemblies ~~Months~~8,571 ~~Ended~~7,123 ~~July~~Work-in-process 2,073 ~~2005~~2,120 ~~and~~Finished ~~July~~goods 4,714 3,912 ~~2004~~--------- 4-------------- ~~Consolidated~~Total ~~Statements~~inventories of15,358 ~~Cash~~13,155 ~~Flows~~Deferred -income ~~Six~~taxes ~~Months~~543 ~~Ended~~543 ~~July~~Prepaid 2,expenses ~~2005~~ and ~~July~~other 3current assets 1,129 ~~2004~~1,211 5--------- ~~Consolidated~~-------------- ~~Statements~~Total ofcurrent ~~Comprehensive~~assets ~~(Loss)~~37,466 ~~Income~~38,249 --------- ~~Three~~-------------- ~~and~~Property, ~~Six~~plant ~~Months~~and ~~Ended~~equipment, ~~July~~net 28,185 ~~2005~~6,595 ~~and~~Goodwill ~~July~~8,453 37,864 ~~2004~~Deferred 6income ~~Notes~~taxes to326 ~~Unaudited~~326 ~~Consolidated~~Other ~~Financial~~assets ~~Statements~~1,972 71,932 ~~Item~~--------- 2.-------------- ~~Management's~~Total ~~Discussion~~assets ~~and~~$ ~~Analysis~~56,402 of$ ~~Results~~54,966 of========= ~~Operations~~============== ~~and~~LIABILITIES ~~Financial~~AND ~~Condition~~SHAREHOLDERS' 13EQUITY ~~Item~~------------------------------------- 3.Current ~~Qualitative~~liabilities: ~~and~~Current ~~Quantitative~~installments ~~Disclosures~~of ~~about~~long-term ~~Market~~debt ~~Risk~~$ 194,459 ~~Item~~$ 4.,597 ~~Controls~~Accounts payable and ~~Procedures~~accrued 19expenses ~~PART~~8,294 II10,782 --------- ~~OTHER~~-------------- ~~INFORMATION~~Total ~~Item~~current 4.liabilities ~~Submission~~12,753 of15,379 ~~Matters~~--------- to-------------- aLong-term ~~Vote~~debt, net of ~~Security~~current ~~Holders~~installments 211,182 ~~Item~~1,389 6.Other ~~Exhibits~~liabilities 1,297 1,480 --------- -------------- Total liabilities 15,232 18,248 Commitments and ~~Reports~~contingencies Shareholders' equity: Common stock, $0.0625 par; authorized 25,000,000 shares; issued and ~~Form~~outstanding: 82006 -K 219,195,351 ~~Signatures~~shares; 222005 ~~Exhibit~~- 319,006,922 shares 575 563 Additional paid-in capital 54,626 53,423 Accumulated deficit (a13,169) ~~Exhibit~~(14,769) 31Accumulated other comprehensive loss (b852) ~~Exhibit~~(2,489) 32Notes receivable from exercise of stock options (10) (10) --------- -------------- Total shareholders' equity 41,170 36,718 --------- -------------- Total liabilities and shareholders' equity $ 56,402 $ $54,966 ========= ==============

NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended July 21, July 32, July 21, July 32, 2006 2005 ~~2004~~2006 2005 ~~2004~~ -------------------- ------------------ --------- ---------~~---~~ ~~Restated(1) Restated(1)~~ Net sales $ 18,586 $ 15,180 $ 1435,~~905~~553 $ 31,288 ~~$ 29,527~~ Operating costs and expenses: Cost of sales 10,922 9,267 820,~~883~~982 19,073 ~~17,574~~ Selling, general and administrative expenses 4,~~601~~918 4,~~431~~601 9,~~123~~544 89,~~703~~123 Research, development and engineering expenses 1,147 1,239 ~~973~~2,433 2,376 ~~1,876~~ -------------------- ------------------ --------- ---------~~---~~ Total operating costs and expenses 16,987 15,107 1432,~~287~~959 30,572 ~~28,153~~ -------------------- ------------------ --------- ---------~~---~~ Income from operations 1,599 73 ~~618~~2,594 716 ~~1,374~~ Other income (expense): Interest income 86 58 17174 111 35 Interest (expense (77) ~~credit~~ (145) 56 (~~181~~167) (~~155~~181) Other, net 2 (535) 212 (6965) 21 -------------------- ------------------ --------- ---------~~---~~ (26) (85) 68 (4958) (~~189~~49) -------------------- ------------------ --------- ---------~~---~~ Income (~~Loss~~loss) ~~income~~ before income tax expense (benefit) ~~expense~~1,573 (12) ~~686~~2,536 667 ~~1,185~~ Income tax expense (benefit) ~~expense~~556 (16) ~~254~~936 256 ~~473~~ -------------------- ------------------ --------- ---------~~---~~ Net income $ 41,017 $ ~~432~~4 $ ~~411~~1,600 $ ~~712~~411 ==================== ================== ========= =========~~===~~ Basic income per share $ 0.0011 $ 0.0500 $ 0.0518 $ 0.0805 ==================== ================== ========= =========~~===~~ Diluted income per share $ 0.0011 $ 0.0500 $ 0.0517 $ 0.0805 ==================== ================== ========= =========~~===~~ Basic weighted average number of shares outstanding 9,175 8,951 89,~~714~~111 8,922 ~~8,681~~ ==================== ================== ========= =========~~===~~ Diluted weighted average number of shares outstanding 9,232 9,002 89,~~882~~172 8,988 ~~8,837~~ ==================== ================== ========= =========~~=== (1)See Note 2, "Restatement of Consolidated Financial Statements" of the Notes to Unaudited Consolidated Financial Statements.~~

NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended July 21, July 32, 2006 2005 ~~2004~~ ------------------ ---------~~---~~ Cash flows from operating activities: ~~Restated(1)~~ Net income $ ~~411~~1,600 $ ~~712~~411 Adjustments to reconcile net income to net cash ~~used~~provided inby operating activities: Depreciation and amortization 631 628 ~~681~~Share-based compensation 148 - Deferred income taxes - 51 72 Change in fair value of interest rate swaps (~~116~~59) (~~180~~116) Change in related balance sheet accounts: Accounts and notes receivable (66) 1,724 ~~396~~ Inventories (1,~~886~~839) (1,~~492~~886) Prepaid expenses and other current assets 149 (339) ~~(165)~~ Other assets ~~and~~326 ~~goodwill~~ (295) ~~(60)~~ Accounts payable and accrued expenses (2,895) (396) ~~190~~ Advance payments from customers 19 254 ~~(8)~~ Other liabilities (~~285~~176) (~~185~~285) ------------------ ---------~~---~~ Net cash used in operating activities (~~249~~2,162) (39249) ------------------ ---------~~---~~ Cash flows used in investing activities: Additions to property, plant and equipment (~~318~~2,236) (~~410~~318) Proceeds from sale of equipment 136 - 32 ------------------ ---------~~---~~ Net cash used in investing activities (~~318~~2,100) (~~378~~318) ------------------ ---------~~---~~ Cash flows from financing activities: Tax benefits from exercised stock options 287 - Repayments of long-term debt (~~336~~386) (~~428~~336) Proceeds from issue of shares under stock purchase and option plans 771 444 ~~412~~ Payments on notes receivable related to exercised stock options 11- 11 ------------------ ---------~~---~~ Net cash provided by ~~(used in)~~ financing activities 672 119 ~~(5)~~ ------------------ ---------~~---~~ Net effect of exchange rate changes on cash (86 (51) 3 ------------------ ---------~~---~~ Net decrease in cash and cash equivalents (~~499~~3,504) (~~419~~499) Cash and cash equivalents at beginning of period 1011,~~846~~351 10,~~536~~846 ------------------ ---------~~---~~ Cash and cash equivalents at end of period $ 107,~~347~~847 $ 10,~~117~~347 ================== ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 285 $ 381 Income taxes $ 731 $ 529 (1)See Note 2, "Restatement of Consolidated Financial Statements" of the Notes to Unaudited Consolidated Financial Statements. See notes to unaudited consolidated financial statements.

~~Three~~NEW ~~Months~~BRUNSWICK ~~Ended~~SCIENTIFIC ~~Six months Ended July 2~~CO., ~~July~~INC. 3,AND ~~July~~SUBSIDIARIES 2,CONSOLIDATED ~~July~~STATEMENTS 3,OF ~~2005~~CASH ~~2004~~FLOWS ~~2005 2004~~ -~~-------------------~~ ~~------------------~~CONTINUED ~~--------- ------------ Restated~~(1)In ~~Restated(1~~thousands) ~~Net income $ 4 $ 432 $ 411 $ 712 Other comprehensive~~ (~~loss~~Unaudited) ~~income:~~Six ~~Foreign~~Months ~~currency~~Ended ~~translation~~July ~~adjustment (~~1,~~125)~~ ~~174~~July (12,~~686)~~ ~~342~~2006 ~~(1)~~2005 -----------------~~---~~ ~~Change in fair value of interest rate swaps~~ - ~~(1)~~ - ------~~------------~~ ~~---------~~Supplemental ~~------------~~disclosure ~~Comprehensive~~of ~~(loss)~~cash ~~income~~flow $information: ~~(1,122)~~Cash $paid ~~606~~during $the ~~(1,276)~~period $for: ~~1,054~~Interest ~~====================~~$ ~~==================~~278 ~~=========~~$ ~~============~~285 ~~(1)See~~Income ~~Note~~taxes 2,$ ~~"Restatement~~666 of$ ~~Consolidated Financial Statements" of the Notes to Unaudited Consolidated Financial Statements.~~731

Supplemental Schedule of Non-Cash Financing Activates: During the six months ended July 1, 2006, we retired 40,015 shares of Common Stock that were tendered to us upon the exercise of certain employee stock options. The market price of these shares, at the time of tender, aggregated $319,000. 6

~~Three~~NEW ~~Months~~BRUNSWICK ~~Ended~~SCIENTIFIC ~~July 3~~CO., ~~2004~~INC. ~~-------------------------------~~AND ~~Previously~~SUBSIDIARIES AsCONSOLIDATED ~~-------------------------------~~STATEMENTS ~~Reported~~OF ~~Adjustments(1)~~COMPREHENSIVE ~~Restated~~INCOME ~~--------------------------------- --------------- ------------------------------- Income from operations $ 618 $ - $ 618 Other income~~ (~~expense~~LOSS): ~~Interest~~(In ~~income~~thousands) ~~17 - 17 Interest expense~~ (~~170~~Unaudited) ~~226~~Three 56Months ~~Other~~Ended ~~expense,~~Six ~~net~~Months ~~(5)~~Ended - ~~(5)~~ --------------- ---~~----------------------------~~ ~~(158) 226 68~~ --------------- ---~~----------------------------~~ ~~Income~~July ~~before~~1, ~~income~~July ~~tax~~2, ~~expense~~July ~~(benefit)~~1, ~~460~~July ~~226~~2, ~~686~~2006 ~~Income~~2005 ~~tax~~2006 ~~expense~~2005 ~~(benefit) 164 90 254~~ ------------------- ------------------ -------- --------- Net income $ ~~296~~1,017 $ ~~136~~4 $ ~~432~~1,600 ~~================================= =============== =============================== Basic income per share~~ $ ~~0.03~~411 $Other ~~0.02~~comprehensive ~~$ 0.05 ================================= =============== =============================== Diluted~~ income ~~per~~(loss): ~~share~~Foreign $currency ~~0.03~~translation $adjustment ~~0.02~~993 ~~$ 0.05 ================================= =============== =============================== Basic weighted average number of shares outstanding 8~~(1,~~714~~125) 81,~~714~~630 8(1,~~714~~686) ~~=================================~~Change ~~===============~~in ~~===============================~~fair ~~Diluted~~value ~~weighted average number~~ of ~~shares~~interest ~~outstanding~~rate ~~8,882~~swaps ~~8,882~~1 ~~8,882~~(1) ~~=================================~~7 ~~===============~~(1) ~~=============================== Six Months Ended July 3, 2005~~ ------------------- ------------------~~------~~ ~~Previously Reported Adjustments(1) As Restated~~ --------~~----~~ ---------~~------~~ ~~-------------~~Comprehensive ~~Income~~income ~~from~~(loss) ~~operations~~ $ 12,~~374~~011 $ ~~- $~~ (1,~~374 Other income (expense~~122): ~~Interest~~$ ~~income 35 - 35 Interest expense (335) 180 (155) Other expense~~3,237 ~~net~~$ (~~69) - (69) (369) 180 (189) Income before income tax expense (benefit)~~ 1,~~005 180 1,185 Income tax expense (benefit~~276) ~~401 72 473 Net income $ 604 $ 108 $ 712~~ =============== ====~~=========~~ ~~Basic income per share $ 0.07 $ 0.01 $ 0.08~~ ============ ======~~=========~~ ========~~=====~~ ~~Diluted income per share $ 0.07 $ 0.01 $ 0.08~~ ============ =============== ============= Basic weighted average number of shares outstanding 8,681 8,681 8,681 ============ =============== ============= Diluted weighted average number of shares outstanding 8,837 8,837 8,837 ============ =============== ============= (1) Reflects adjustments to interest expense and related deferred tax benefit to correct for the misapplication of SFAS No. 133 as it applies to interest rate swaps entered into in 1999 and 2004 primarily to fix the interest rates on variable rate debt incurred for acquisitions in 1999 and 2003.

7 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Interim results: In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly, the financial position of the Company as of July 1, 2006 and the results of its operations for the three and six months ended July 1, 2006 and July 2, 2005 and its cash flows for the six months ended July 1, 2006 and July 2, 2005. Interim results may not be indicative of the results that may be expected for the year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2005. Note 2 - Interest rate swaps: We account for our derivative and hedging transactions in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". SFAS No. 133 and SFAS No. 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. On April 1, 2005 we put in place the required documentation as prescribed by SFAS No. 133 and designated three interest rate swaps as cash flow hedges and will therefore avail ourselves to the hedge accounting rules for the remainder of the lives of the swaps. As such, the negative fair values of the swaps as of the designation date, which aggregated $146,000, will ultimately be recognized into income over the remaining lives of the interest rate swaps as ineffectiveness. Since April 1, 2005, hedge ineffectiveness measured each quarter will be recognized in operations. The effective changes in the fair value of the swaps subsequent to April 1, 2005 are shown as an increase or decrease in other comprehensive income on our balance sheet in accordance with the requirements of SFAS No. 133. At July 1, 2006 the remaining fair values of the swaps aggregated $23,000. During the three and six months ended July 1, 2006 and July 2, 2005, the change in the fair value of the swap agreements recorded as a decrease to interest expense amounted to $28,000 and $52,000, respectively, for the 2006 periods and zero and $117,000, respectively, for the 2005 periods. Note 3 - Income per share: Basic income per share is calculated by dividing net income by the weighted average number of shares outstanding. Diluted income per share is calculated by dividing net income by the sum of the weighted average number of shares 8 outstanding plus the dilutive effect of stock options which have been issued by us using the treasury stock method. Antidilutive stock options are excluded from the calculation of diluted income per share. For the three and six month periods ended July 1, 2006 there were no stock options that were antidilutive. For the three and six months ended July 2, 2005 stock options to purchase 153,700 and 151,500 shares, respectively, were excluded from the calculation of diluted income per share since their inclusion would have been antidilutive. The dilutive effect of stock options for the three and six month periods ended July 1, 2006 and July 2, 2005 are 57,185 and 60,995, respectively, for the 2006 periods and 50,668 and 66,115, respectively, for the 2005 periods. Note 4 - Long-term debt and credit agreement: We are parties to an agreement with Wachovia Bank, National Association (the "Bank"), which has had a number of amendments (the "Bank Agreement"), which has been extended to May 31, 2008, and which provides us with a credit facility for acquisitions, equipment loans, working capital and letters of credit and foreign exchange transactions. The maturity of the outstanding debt incurred related to the acquisition portion of the credit facility with respect to a 1999 acquisition is December 1, 2006, and with respect to a 2003 acquisition is November 1, 2008. The maturity date of the outstanding debt incurred related to the equipment loan portion of the credit facility is November 1, 2008. There are no compensating balance requirements and any borrowings under the Bank Agreement bear interest at the Bank's prime rate less 125 basis points or LIBOR plus 125 basis points, at our discretion. At July 1, 2006, the Bank's prime rate was 8.25% and LIBOR was 5.33%. All of our domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under the Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service ratio, a net worth covenant and a ratio of total liabilities to tangible net worth. We are in compliance with our covenants pursuant to the Bank Agreement at July 1, 2006. 9 The following amounts were outstanding and available under the Bank Agreement (in thousands):

~~July 2~~July1, ~~2005~~2006 December 31, ~~2004~~2005 ---------------------------------------------- ----------------- Total Line Available Outstanding ~~Outstanding~~ ------- -------------- ------------- ---------- ------------------- Acquisitions $ 10,000 $ 45,~~639~~127 $5 4,~~361~~873(a) $ 5,~~634~~133(a)( Equipment loans 2,500 12,~~936~~101 ~~564~~399(b) ~~646~~481(b) Working capital and letters of credit 5,000 54,~~000~~971 -29(c) 929(c) Foreign exchange transactions 10,000 10,000 - - ------- --------------------------- ---------- ------------------- $ 27,500 $21 22,~~575~~199 $ 5,~~925~~301 ~~$6,289~~ ======= =========================== ========== ==================== ~~-----------------~~_____________________ (a) $43,~~200~~927,000 in ~~2005~~2006 and $4,~~366~~079,000 in ~~2004~~2005 at fixed interest of 8% per annum and $1946,~~161,~~000 in ~~2005~~2006 and $1,~~268~~054,000 in ~~2004~~2005 at fixed interest of 4.46% per annum through the use of interest rate swap agreements. (b) Interest fixed at 4.14% per annum through the use of an interest rate swap agreement. (c) Letters of credit.

At July 1, 2006 and December 31, 2005, the interest rate swaps referred to above had aggregate fair values of $23,000 and ($36,000), respectively, and are included in Other Assets or Other Liabilities in the accompanying consolidated balance sheets. The interest rate swaps have the same notional values as the related debt and expire on the same dates as the related debt. In November 1999, we issued notes in the amount of 250,000 GBP ($392,500 at the date of acquisition) in connection with the acquisition of DJM Cryo-Research Group. The notes bear interest at 6% which are payable annually and principal is payable in five equal annual installments which commenced in November 2003. At July 1, 2006 and December 31, 2005, the balance due on the notes was 100,000 GBP ($184,000) and 100,000 GBP ($172,000), respectively. We are parties to first and second mortgages on the facility of our Netherlands subsidiary, which bear interest of 5.50% and 5.45%, respectively, per annum. During the terms of the mortgages, we are obligated to make monthly payments of interest and quarterly payments of principal. At July 1, 2006, $73,000 and $100,000 was outstanding under the first and second mortgages, respectively, and at December 31, 2005, $80,000 and $107,000 was outstanding under the first and second mortgages, respectively. Each mortgage requires 80 equal quarterly payments of principal. Note 5 - Stock-Based Compensation: We have non-qualified stock option plans for Officers and Key Employees, 10% Shareholder Directors and Nonemployee Directors. These plans are administered 10 by the Governance and Compensation Committee of the Board of Directors. Options generally vest over five years from the date of grant. The exercise price of the options granted under the Nonemployee Directors plan must be at least 85% of the fair value of our Common Stock at the time the options are granted, all other plans require the exercise price of the options granted be not less than the fair market value of our Common Stock at the time the options are granted. Options may be exercised for a period of up to ten years from the date they are granted. In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces "Accounting for Stock-Based Compensation," ("SFAS 123") and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all sharebased payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first annual reporting period that begins after June 15, 2005. Under SFAS 123R, the pro forma disclosures previously permitted under SFAS 123 are no longer an alternative to financial statement recognition. We adopted the new standard effective January 1, 2006 and have selected the Black-Scholes method of valuation for share-based compensation. We have adopted the modified prospective transition method which requires that compensation cost be recorded, as earned, for all unvested stock options and restricted stock outstanding at the beginning of the first quarter of adoption of SFAS 123R. The charge is being recognized in cost of sales, selling, general and administrative expenses and research, development and engineering expenses over the remaining service period after the adoption date based on the options' original estimate of fair value. The following table summarizes option activity for the six months ended July 1, 2006:

~~Three~~Weighted ~~Months~~Average ~~Ended~~Aggregate ~~Six~~Weighted ~~Months~~Remaining ~~Ended~~Intrinsic ~~July~~Average 2,Contract ~~July~~Value 3,Stock ~~July~~Exercise 2,Term ~~July~~(in 3,Options ~~2005~~Price ~~2004~~(in ~~2005~~years) ~~2004~~thousands) --------- ----------- ----------~~--------~~ -------- ---~~---------~~ ~~Restated(1)~~Outstanding ~~Restated(1)~~at ~~Net~~December ~~income~~31, as2005 ~~reported~~591,920 $ 4.93 $Granted ~~432~~at $exercise ~~411~~prices $which ~~712~~equaled ~~Deduct:~~the ~~Total stock-based employee compensation expense determined under~~ fair market value ~~based~~on ~~method,~~the ~~net~~date of ~~related~~grant ~~tax~~107,000 ~~effects~~7.14 94Exercised 86(219,341) ~~173~~4.65 ~~157~~Forfeited ~~--------------------~~(375) ~~------------------~~4.53 -------- -~~-----------~~ ~~Pro~~Outstanding ~~forma~~at ~~net~~July ~~(loss)~~1, ~~income~~2006 $479,204 ~~(90)~~ $ ~~346 $ 238 $ 555 ==================== ================== ======== ============ (Loss) income per share: Basic-as reported $ 0~~5.0054 ~~$ 0~~3.0554 $ ~~0.05~~1,387 ~~$ 0.08~~ =========~~===========~~ ~~==================~~Exercisable ~~========~~at ~~============~~July ~~Basic-pro~~1, ~~forma~~2006 $166,212 ~~(0.01)~~ $ 04.0448 ~~$ 0~~1.0390 $ ~~0.06~~463 ==================== ================== ======== ============ Diluted-as reported $ 0.00 $ 0.05 $ 0.05 $ 0.08 ==================== ================== ======== ============ Diluted-pro forma $ (0.01) $ 0.04 $ 0.03 $ 0.06 ==================== ================== ======== ============ (1)See Note 2, "Restatement of Consolidated Financial Statements" of the Notes to Unaudited Consolidated Financial Statements. 11

The fair value for each stock option granted was estimated at the date of grant using a Black-Scholes option-pricing model. The expected term of options is estimated based on our historical exercise rate and forfeiture rates are estimated based on employment termination experience. The risk-free rate is 11 based on U.S. Treasury yields for securities in effect at the time of grant with terms approximating the expected term until exercise of the option. The table below presents the assumptions used to calculate the fair value of options granted during the three and six months ended July 1, 2006 and July 2, 2005:

Three Months Ended Six Months Ended ---------------------------------- ---------------- July 21, July 32, July 21, July 32, 2006 2005 ~~2004~~2006 2005 ~~2004~~ ------------------ ------------------ --------- --------- Expected life (years) N/A ~~6.0~~N/A 64.05 6.0 Expected volatility N/A 51N/A 48.0708% 40.35% ~~51.07%~~ Expected dividend yield N/A -N/A -- -- Risk-free interest rate N/A N/A 4.8553% 3.99% ~~4.85%~~Weighted ~~Weighed~~ average fair value of options granted during the ~~period~~year N/A $N/A 63.0723 ~~$ 6~~2.~~14 $ 6.07~~79

In the three and six month periods ended July 1, 2006, we recorded pre-tax share-based compensation for options of $82,000 and $148,000, respectively, which is included in our income before income tax for the periods. Had we not adopted SFAS 123R, the effect on basic and diluted income per share for the periods ended July 1, 2006 would have been an increase of $0.01 for the three month period and $0.01 for the six month period. As of July 1, 2006, $8,000 of compensation costs associated with the adoption of SFAS 123R was capitalized into inventory. As of July 1, 2006, there was $795,000 of total unrecognized compensation cost related to unvested options that we expect to recognize over a weighted average period of 43 months. We utilize newly issued shares to satisfy the exercise of stock options. Prior to the adoption of SFAS 123R, we applied the intrinsic-value-based method of accounting prescribed by APB 25, "Accounting for Stock Issued to Employees", and related interpretations, to account for stock options granted to employees. Under this method, compensation cost was recorded only if the market price of the underlying common stock on the date of grant exceeded the exercise price. SFAS 123, "Accounting for Stock-Based Compensation", established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS 123, we elected to continue to apply the intrinsic-value-based method of accounting described above, and adopted only the disclosure requirements of SFAS 123, as amended, which were similar in most respects to SFAS 123R, with the exception of option forfeitures, which we accounted for as they occurred. 12 The following table illustrates the pro forma effect on our net income and net income per share as if we had adopted the fair value-based method of accounting for stock-based compensation under SFAS 123 for the three and six months ended July 2, 2005 (in thousands, except per share amounts):

Three Months ~~Ended~~ Six Months Ended Ended July 2, July ~~3, July~~ 2, ~~July 3,~~ 2005 ~~2004~~ 2005 ~~2004~~ --------------~~------~~ ------------------ ---~~------~~ ~~---------~~Net ~~Service~~income ~~cost~~as $reported 88 $ 954 $ ~~176~~411 $Deduct: ~~190~~Total ~~Interest~~stock-based ~~cost~~employee ~~124~~compensation ~~120~~expense ~~248~~determined ~~240~~under ~~Expected~~fair ~~return~~value onbased ~~plan~~method, ~~assets (132) (118) (264) (233) Amortization of~~ net ~~obligation 5 5 10 10 Amortization~~ of ~~prior~~related ~~service~~tax ~~costs~~effects ~~(1)~~94 ~~(1)~~173 ~~(2) (2) Amortization of net loss 48 54 96 108~~ -------------- ------ ---------------~~---~~ Pro forma net (loss) income $ (90) $ 238 --------- -----~~----~~ ~~Net~~===================== ~~periodic~~(Loss) ~~pension~~income ~~cost~~per share: Basic-as reported $ ~~132~~0.00 $ ~~155~~0.05 ============== ===================== Basic-pro forma $ ~~264~~(0.01) $ ~~313~~0.03 ============== ===================== Diluted-as reported $ 0.00 $ 0.05 ============== ===================== Diluted-pro forma $ (0.01) $ 0.03 ============== =====================

Prior to the adoption of SFAS 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123R requires that the cash flows resulting from tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) be classified as financing cash flows. Cash received from stock options exercised for the three and six months ended July 1, 2006 was $323,000 and $702,000, respectively. Tax benefits realized from stock option exercises for the three and six months ended July 1, 2006 was $106,000 and $287,000, respectively. In November 2005, the FASB issued FASB Staff Position 123(R)-3, "Transition Election Related to Accounting for the Tax Effects of Share-based Payment Awards" ("FSP 123R-3"). FSP 123R-3 provides an elective alternative transition method of calculating the additional paid-in capital pool ("APIC POOL") of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R to the method otherwise required by paragraph 81 of SFAS 123R. We have concluded that we will use the alternative method allowed by FSP 123R-3. 13 Note 6 - Pension plan: Components of net periodic benefit cost for the three and six months ended July 1, 2006 and July 2, 2005 are as follows (in thousands):

Three Months Ended Six Months Ended --------------------------------------- ------------------ July 1, July 2, July 31, ~~Decrease)~~July %2, 2006 2005 ~~2004~~2006 ~~Increase~~2005 ~~Change~~ -------------------- -------- ---------- --------- --------- ~~Backlog~~Service -cost ~~beginning~~$ 109 $ ~~7,987~~88 $ ~~9,884~~218 $ 176 Interest cost 132 124 264 248 Expected return on plan assets (~~1,897~~136) (~~19.2~~132)% ~~Add~~(272) (264) Amortization of net ~~orders~~obligation ~~received~~5 ~~16,198~~5 ~~14,735~~10 10 Amortization of prior service costs (1~~,463~~) ~~9.9~~(1) ~~Less~~(2) (2) Amortization of net ~~sales~~loss ~~15,180~~60 ~~14,905~~48 ~~275~~120 ~~1.8~~96 -------------------- -------- ---------- --------- --------- ~~Backlog~~Net -periodic ~~ending~~pension cost $ ~~9,005~~169 $ ~~9,714~~132 $ ~~(709)~~338 ~~(7.3)%~~$ 264 ==================== ======== ========== ========= =========

We previously disclosed in our financial statements for the year ended December 31, 2005, that we expect to contribute $800,000 to our pension plan in 2006. Subsequently during our annual Pension Trustee's meeting with our actuary, it was decided to increase the contribution to $1,020,000. As of July 1, 2006, $425,000 of contributions have been made. We have a defined contribution plan for our U.S. employees, with a specified matching employer contribution. The employer's expense for the three and six month period ended July 1, 2006 and July 2, 2005 was $40,000 and $89,000, respectively, for the 2006 periods and $42,000 and $83,000, respectively, for the 2005 periods. Note 7 - Recently Issued Accounting Pronouncements In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes". The Interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The Interpretation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on the related de-recognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The Interpretation is effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are evaluating the impact of this new pronouncement on our consolidated financial statements. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is Management's Discussion and Analysis of significant factors that have affected our operating results and financial condition during the three and six month periods ended July 1, 2006 and July 2, 2005, respectively, which should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005. We are in the process of implementing our enterprise resource planning system ("ERP System"). The implementation will be phased in over the next three years, including a significant portion which is expected to occur in the fourth quarter of 2006. The implementation includes changes that involve internal controls over financial reporting. Although we expect the implementation to proceed without any material adverse effects, the possibility exists that the migration to our ERP System could adversely affect our internal controls, our disclosure controls and procedures or our results of operations in future periods. RESULTS OF OPERATIONS --------------------- EXECUTIVE OVERVIEW ------------------- We are a leading provider of a wide variety of research equipment and scientific instruments for the life sciences used to create, maintain and control the physical and biochemical conditions required for the growth, detection and storage of microorganisms. Our products are used for medical, biological, chemical and environmental research and for the commercial development of antibiotics, proteins, hormones, enzymes, monoclonal antibodies, agricultural products, fuels, vitamins, vaccines and other substances. We sell our equipment to pharmaceutical companies, agricultural and chemical companies, other industrial customers engaged in biotechnology, and to medical schools, universities, research institutes, hospitals, private laboratories and laboratories of federal, state and municipal government departments and agencies in the United States. While only a small percentage of our sales are made directly to United States government departments and agencies, our domestic business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. We also sell our equipment both directly (primarily in Europe) and through scientific equipment dealers to foreign companies, institutions and governments. Foreign sales may be affected by U.S. export control regulations applicable to scientific equipment. Fisher Scientific, our largest customer, is the exclusive U.S. distributor of our C-Line, E-Series and I-Series biological shakers and is the exclusive dealer for our CO2 incubators in the U.S. Fisher Scientific is also the exclusive distributor of our C-Line shakers in certain European countries and has a broader distribution arrangement with us in Canada and in France. 15 NET SALES ---------- The following tables summarizes consolidated backlog, net orders and net sales for the three and six months ended July 1, 2006 and July 2, 2005 (in thousands of dollars):

~~Six~~Three Months Ended ------------------- July 21, July 32, (Decrease) % 2006 2005 ~~2004~~ Increase Change ------------------- -------- ----------- ------- Backlog - beginning $ 810,~~376~~421 $ 97,~~018~~987 $ ~~(642)~~2,434 (730.1)5% Add net orders received 3117,~~917~~594 3016,~~223~~198 1,~~694~~396 58.6 Less net sales 3118,~~288~~586 2915,~~527~~180 13,~~761~~406 622.04 ------------------- -------- ----------- ~~-------~~ Backlog - ending $ 9,~~005~~429 $ 9,~~714~~005 $ ~~(709)~~424 (74.~~3)%~~7 ================= ==~~======~~ ======== === ========

~~Three Months Ended~~ Six Months Ended ~~July~~----------------- 2, July 31, July 2, ~~July~~(Decrease) 3,% ~~2005~~2006 ~~2004~~ 2005 ~~2004~~Increase Change -----------------~~---~~ -------- ---------- -~~--------~~ --------- ~~Net~~Backlog ~~sales~~- beginning $ 1510,~~180~~776 $ 148,~~905~~376 $ 312,~~288~~400 $28.7% 29Add net orders received 34,~~527~~206 ~~Cost~~31,917 of2,289 7.2 Less net sales 935,~~267~~553 831,~~883~~288 194,~~073~~265 ~~17,574~~13.6 -----------------~~---~~ --------~~----------~~ --------- --~~-------~~ ~~Gross~~Backlog ~~profit~~- $ending ~~5,913~~ $ 69,~~022~~429 $ 129,~~215~~005 $ ~~11,953~~424 ~~==================== ================== ========= ========= Gross margin 39.0% 40.~~4~~% 39~~.0%7 ~~40.5%~~ =================~~===~~ ========~~==========~~ ========= ==~~=======~~

Net sales for the three months ended July 1, 2006 increased $3,406,000 or 22.4% to $18,586,000 from $15,180,000 for the 2005 quarter. Domestic and international sales increased 25.7% and 20.1%, respectively. The effects of foreign currency translation on net sales during the three months ended July 1, 2006 was not significant. The overall increase in net sales for the three months ended July 1, 2006 was due principally to higher shipments of fermentation equipment, ultra low temperature freezers and biological shakers. Net sales for the six months ended July 1, 2006 increased $4,265,000 or 13.6% to $33,553,000 from $31,288,000 for the 2005 six month period. Domestic and international sales increased 11.0% and 15.4%, respectively. Due to the strength of the dollar during the six months ended July 1, 2006 versus the 2005 six month period, the effects of foreign currency translation negatively affected net sales during the six months ended July 1, 2006 by $596,000 or 1.9% of net sales when compared with the 2005 six month period. The overall increase in net sales for the six months ended July 1, 2006 was principally due to higher shipments of fermentation equipment, ultra low temperature freezers and CO2 incubators. Orders during the three months and six months ended July 1, 2006 increased 8.6% and 7.2%, respectively. As of July 1, 2006 the backlog increased 4.7%. As a result of higher inventory levels, reduced cycle times and improved production planning, we were able to handle the increase in orders with only a minor increase in backlog from the July 2, 2005 level. 16 GROSS MARGIN ------------- The following table shows gross profit and gross margin for the three and six months ended July 1, 2006 and July 2, 2005 (in thousands of dollars):

Three Months Ended Six Months Ended ~~July~~-------------------- 2,------------------ July 31, July 2, July 31, ~~2005~~July ~~2004~~2 2006 2005 ~~2004~~2006 2005 -------------------- ------------------ --------- --------- ~~Gain~~Net ~~(loss)~~sales ~~on foreign currency transactions (a)~~ $ 1618,586 $ 3915,180 $ 4835,553 $31,288 ~~(10)~~Cost ~~Bank fees (11) (11) (21) (23) Loss on sale~~ of ~~fixed~~sales ~~assets~~10,922 -9,267 ~~(30)~~20,982 ~~- (30) Other~~19,073 ~~net (3) (3) (6) (6)~~ -------------------- ------------------ --------- --------- ~~Total~~Gross ~~other~~profit ~~income~~$ ~~(expense)~~7,664 ~~net~~ $ ~~2 $ (~~5),913 $ 2114,571 $12,215 ~~(69)~~ ==================== ================== ========= ========= ~~_______________________~~Gross ~~(a)~~margin ~~Realized~~41.2% ~~foreign~~39.0% ~~exchange~~41.0% ~~gains~~39.0% ~~and~~==================== ~~losses~~================== ~~which~~========= ~~relate primarily to the settlement of purchases in the normal course of business between the Company's United States and European operating companies.~~========

Gross margin for the three months ended July 1, 2006 increased to 41.2% from 39.0% for the 2005 quarter and increased to 41.0% for the six months ended July 1, 2006 from 39.0% for the 2005 six month period. These increases are due primarily to greater absorption of overhead due to the increased production at our factories. The 2005 periods were negatively impacted by effects of our aggressive pricing strategy, which was aimed at gaining market share for certain products in select markets. Cost of goods sold for the three and six months ended July 1, 2006 incuded a share-based compensation charge of $7,000 associated with the adoption of SFAS 123R. As of July 1, 2006, $8,000 of compensation costs associated with the adoption of SFAS 123R was capitalized into inventory. SELLING, GENERAL AND ADMINISTRATIVE -------------------------------------- Selling, general and administrative expenses for the three months ended July 1, 2006 increased $317,000 or 6.9% to $4,918,000 from $4,601,000 during the 2005 quarter. This increase was primarily due to: (i) training, data conversion, consulting and maintenance costs associated with our enterprise resource planning system; (ii) increased commissions and related selling costs associated with our increased sales levels and (iii) a share-based compensation charge of $69,000 associated with the adoption of SFAS 123R. Partially offsetting these increases was a $9,000 benefit from the foreign currency translation effect of the stronger US dollar. The 2005 quarter was negatively impacted by $61,000 of consulting costs related to Sarbanes-Oxley Section 404 compliance. 17 Selling, general and administrative expenses for the six months ended July 1, 2006 increased $421,000 or 4.6% to $9,544,000 from $9,123,000 during the 2005 six month period. This increase was primarily due to: (i) training, data conversion, consulting, and maintenance costs associated with our enterprise resource planning system; (ii) increased personnel and related cost associated with our sales and service groups and (iii) a share-based compensation charge of $130,000 associated with the adoption of SFAS 123R. Partially offsetting these increases was a $155,000 benefit from the foreign currency translation effect of the stronger US dollar versus the 2005 six month period. The 2005 six month period was negatively impacted by $189,000 of consulting costs related to Sarbanes-Oxley Section 404 compliance. RESEARCH, DEVELOPMENT AND ENGINEERING ---------------------------------------- Research, development and engineering expenses for the three months ended July 1, 2006 decreased $92,000 or 7.4% to $1,147,000 from $1,239,000 during the 2005 quarter and increased $57,000 or 2.4% for the six months ended July 1, 2006 to $2,433,000 from $2,376,000 during the 2005 six month period. Spending for the 2006 and 2005 periods reflect the costs associated with our aggressive development schedule for new products. The three and six months ended July 1, 2006 included a share-based compensation charge of $6,000 and $11,000, respectively, associated with the adoption of SFAS 123R. INTEREST INCOME ---------------- Interest income for the three and six months ended July 1, 2006 increased to $86,000 and $174,000, respectively, from $58,000 and $111,000, respectively, for the three and six months ended July 2, 2005. These increases are due primarily to rising interest rates on invested cash. INTEREST EXPENSE ----------------- Interest expense for the three months ended July 1, 2006 decreased to $77,000 from $145,000 during the 2005 quarter. This reduction in interest expense is due to: (i) capitalized interest of $14,000 on our new enterprise resource planning system in the 2006 quarter, (ii) an increase in the favorable change in the fair value of interest rate swaps from zero in the 2005 quarter to $28,000 in the 2006 quarter and, (iii) a lower level of average outstanding debt during the 2006 quarter. Interest expense for the six months ended July 1, 2006 decreased to $167,000 from $181,000 during the 2005 six month period. This reduction in interest expense is due to capitalized interest of $14,000 on our new enterprise resource planning system in the 2006 six month period and a lower level of average outstanding debt during the 2006 six month period. Offsetting this was a decrease in the favorable change in the fair value of interest rate swaps from $117,000 in the 2005 six month period to $52,000 in the 2006 six month period. 18 OTHER INCOME (EXPENSE) ------------------------ The following table details other income (expense) for the three and six months ended July 1, 2006 and July 2, 2005 (in thousands):

~~Payments~~Three ~~Due~~Months byEnded ~~Period~~Six ~~(In~~Months ~~thousands)~~Ended -------------------- ------------------ ~~Contractual~~July ~~obligations: Less than~~ 1-3, ~~4-5~~July ~~More~~2, ~~than~~July ~~Total~~ 1, ~~Year~~July ~~Years~~2, ~~Years~~2006 52005 ~~Years~~2006 2005 -------------------- ---- ---------- ---- -- ------- ---------- ~~Long-term~~(Loss) ~~debt,~~gain ~~obligations~~on foreign currency transactions (a) $ ~~7,278~~(25) $ ~~1,684~~16 $~~5,534~~ (43) $ 6048 $Bank -fees ~~Operating~~(9) ~~lease~~(11) ~~obligations~~(19) (b21) 3Other,~~519~~ ~~815~~net (1~~,462~~) ~~625~~(3) ~~617 Purchase obligations~~(c3) ~~6,852 6,716 136 - - Other long-term liabilities~~ (d6) ~~530~~ - ~~530~~ - - ----------------- ------- ----------- ------ ---~~---~~ ---------- Total ~~contractual~~other ~~cash~~income ~~Obligations~~(expense) $ ~~18,179~~(35) $ ~~9,215~~2 $~~7,662~~ $(65) ~~685~~ $ ~~617~~21 ==================== ==== ========== ==== == ======= ========== _______________________ (a) ~~Consists~~Foreign ~~primarily~~exchange ofgains ~~debt incurred for acquisitions financed under the Company's Bank Agreement~~ and oflosses ~~notes~~relate ~~due~~primarily to the ~~sellers~~settlement of ~~businesses~~purchases ~~acquired by the Company. (b) Primarily reflects (on a gross basis before sublet income) lease obligations for five premises~~ in the ~~United~~normal ~~Kingdom,~~course ~~two~~ of ~~which~~business ~~have~~between ~~been~~our ~~sublet.~~United ~~Both~~States ~~of the subleased premises have been sublet for the entire terms of their leases. One has a lease expiration date of 2014~~ and anEuropean ~~annual~~operating ~~rental of 99,750 ($176,000 at July 2, 2005)~~companies. The second sublet premises has a lease expiration date of September 28, 2009 and an annual rental of 45,000 ($80,000 at July 2, 2005). (c) Primarily includes commitments for raw materials and services related to the Company's production of equipment at its various manufacturing facilities. (d) Represents a contingent liability for an earnout related to the acquisition of RS Biotech provided a minimum number of units of CO2 Incubators are sold. The Company believes that the payment of such additional consideration is determinable beyond a reasonable doubt and as such has recorded the amount as a liability and as additional purchase price.

INCOME TAX EXPENSE -------------------- For the six months ended July 1, 2006 we used our expected effective tax rate for the year, based on projected U.S. and foreign results, which amounted to 36.9%. The decrease in our effective income tax rate from 38.4% for the six months ended July 2, 2005 is attributable to a number of factors including: (i) a decrease in state and local taxes, (ii) the tax impact on the income of our foreign subsidiaries which are taxed at lower rates, (iii) deductibility of certain expenses, and (iv) utilization of loss carryforwards from certain of our European subsidiaries. 19 FINANCIAL CONDITION ------------------- LIQUIDITY AND CAPITAL RESOURCES ------------------------------- CONTRACTUAL OBLIGATIONS Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness and future minimum operating lease obligations as of July 1, 2006 are set forth in the following table:

GUARANTEES In order to secure a 250,000 GBP grant from the Scottish Ministers, Scottish Executive Enterprise, Transport and Lifelong Learning Department for the relocation and expansion of our facility in Scottland, UK, we guaranteed the repayment of that grant for up to 250,000 GBPs plus interest, should we not fulfill our obligations under that grant. Among other conditions, the Scottish Ministers could recall all or a portion of the grant should we fail to meet specific job targets or experience a change in control. As of July 1, 2006 the amount of the guarantee is zero since at that time we hadn't received any portion of this grant. On August 8, 2006 we received the first installment under the grant which amounted to 110,000 GBPs. The guarantee will terminate on the fifth anniversary of the first payment of the grant. 20 OPERATING ACTIVITIES -------------------- Cash and cash equivalents decreased $3,504,000 to $7,847,000 at July 1, 2006 from $11,351,000 at December 31, 2005. Net cash used in operating activities amounted to $2,162,000 for the six months ended July 1, 2006. The overall factors primarily affecting operating cash flows during the six months ended July 1, 2006 were: (i) an increase in inventory in order to maintain shipping levels on our current and future orders, (ii) a decrease in accounts payable and accrued expenses due to the timing of purchases and payments on those purchases, (iii) an increase in accounts and notes receivable as a result of higher sales levels, and (iv) a decrease in other liabilities. Partially offsetting these uses of cash were: (i) net income of $1,600,000, which gets adjusted for non-cash items such as depreciation and amortization, share-based compensation and a change in fair value of interest rate swaps, and (ii) a decrease in prepaid expenses and other current assets. INVESTING ACTIVITIES -------------------- For the six months ended July 1, 2006, net cash used in investing activities of $2,100,000 was a result of: (i) 696,000 ($1,357,000) for the purchase of land and building in Irvine, Scottland for our RS Biotech subsidiary, (ii) $345,000 of capitalized costs associated with our new enterprise resource planning system, and (iii) normal additions to property, plant and equipment. FINANCING ACTIVITIES --------------------- For the six months ended July 1, 2006, net cash provided by financing activities totaled $672,000 and primarily consisted of proceeds from the issue of shares under stock purchase and option plans that totaled $771,000, tax benefits from exercised stock options that totaled $287,000, which was partially offset by repayments of long-term debt of $386,000. BANK AGREEMENT --------------- We are parties to an agreement with Wachovia Bank, National Association (the "Bank"), which has had a number of amendments (the "Bank Agreement"), which has been extended to May 31, 2008, and which provides us with a credit facility for acquisitions, equipment loans, working capital and letters of credit and foreign exchange transactions. The maturity of the outstanding debt incurred related to the acquisition portion of the credit facility with respect to a 1999 acquisition is December 1, 2006, and with respect to a 2003 acquisition is November 1, 2008. The maturity date of the outstanding debt incurred related to the equipment loan portion of the credit facility is November 1, 2008. We expect to repay the $4.5 million due on December 1, 2006 with cash on hand. There are no compensating balance requirements and any borrowings under the Bank Agreement bear interest at the Bank's prime rate less 125 basis points or LIBOR plus 125 basis points, at our discretion. At July 1, 2006, the Bank's prime rate was 8.25% and LIBOR was 5.33%. Since the Bank Agreement requires that all borrowings be at variable interest rates, the Bank provides us with a mechanism to fix interest rates on borrowings by use of interest rate swaps. At July 1, 2006 we had three interest rate swaps in place to fix the interest rates, primarily for debt incurred for acquisitions in 1999 and 2003. 21 All of our domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under the Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service ratio, a net worth covenant and a ratio of total liabilities to tangible net worth. We were in compliance with its covenants pursuant to the Bank Agreement at July 1, 2006 and currently anticipate being in compliance with such covenants during the next 12 months. CRITICAL ACCOUNTING POLICIES ------------------------------ No changes have been made in our critical accounting policies during the six months ended July 1, 2006 except for the adoption on January 1, 2006 of SFAS No. 123R. See footnote 5 in the consolidated financial statements for more information. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required by Item 3 has been disclosed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2005. There has been no material change in the disclosures regarding market risk. ITEM 4. CONTROLS AND PROCEDURES. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the fiscal quarter ended July 1, 2006. This was due to the determination that we did not have adequate controls and procedures in place to ensure that the shares of our common stock being offered and sold under the New Brunswick Scientific Co., Inc. Employee Stock Purchase Plan (the "Plan") were properly registered. As a result, we did not disclose in prior Form 10-K and Form 10-Q filings certain unregistered sales of our common stock under the Plan in accordance with Securities and Exchange Commission requirements, as more fully described in Part II, Item 2, of this Form 10-Q. We have instituted revised procedures to prevent any further inadvertent sales of unregistered shares of our Common Stock under the Plan. 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. No material legal proceedings are currently pending. From time to time, we are involved in litigation in the normal course of business, which we believe, after consultation with counsel, the ultimate disposition of which will not have a material adverse effect on our consolidated results of operations or financial position. ITEM 1A. RISK FACTORS. There have been no material changes during the six months ended July 1, 2006 from the risk factors reported in our Annual Report on Form 10-K for the year ended December 31, 2005. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS In May 1987, the Company's shareholders approved the New Brunswick Scientific Co., Inc. Employee Stock Purchase Plan (the "Plan"), established in accordance with Section 423 of the Internal Revenue Code, pursuant to which employees are entitled through payroll deductions to purchase periodically shares of our Common Stock at a discount to the prevailing market price. At the time of the establishment of the Plan, 100,000 shares of Common Stock were registered under the Securities Act of 1933, as amended (the "1933 Act"), for sale under the Plan. During the quarter ended July 1, 2006, we determined that we had failed to register properly 354,615 shares of Common Stock issued under the Plan, consisting of (i) 100,000 shares and 150,000 shares authorized for issuance under the Plan pursuant to Plan amendments approved by shareholders in May 1995 and May 2003, respectively, and (ii) 104,615 shares of Common Stock that become issuable pursuant to the antidilution adjustment provisions of the Plan as the result of a series of stock dividends paid by the Company. These unregistered shares were sold over the period December 1996, when the last of the 100,000 shares initially registered were sold, and June 2006, when we suspended further sales under the Plan due to the discovery that the shares being offered and sold were not properly registered. We believe that some, although not necessarily all, of the unregistered shares of Common Stock offered and sold were exempt from registration under the 1933 Act in accordance with Section 4(2) based on the purchaser's knowledge of the Company and his or her financial sophistication. However, we have not made an analysis to determine the precise number of shares that qualified for the Section 4(2) exemption. We received gross proceeds of approximately $1,275,975 from the sale of the unregistered shares of Common Stock, which we used for general corporate purposes. 24 On August 10, 2006, we filed a Registration Statement on Form S-8 (i) registering for sale under the Plan 125,579 unsold shares of Common Stock authorized for issuance under the Plan and (ii) registering for resale 6,123 unregistered shares of Common Stock previously sold under the Plan. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. a) Our annual meeting of shareholders was held on May 31, 2006. c) The following matters were voted upon at the annual meeting: (i) To elect three Class I directors of the Corporation to terms of three years. The votes cast for each director were as follows: For Withheld --- -------- Kenneth Freedman 6,756,000 335,033 Peter Schkeeper 6,760,950 330,083 Ernest Gross 6,754,608 336,425 (ii) To approve and adopt an amendment to the Corporation's Employee Stock Purchase Plan increasing the authorized shares by 100,000. The votes were cast as follows: Broker Approve Disapprove Abstain Nonvotes ------- ---------- ------- -------- 4,385,416 379,036 4,170 2,322,411 (iii) To approve and adopt and amendment to the Corporations 2001 Nonqualified Stock Option Plan for Officers and Key Employees increasing the number of authorized shares by 100,000. The votes were cast as follows: Broker Approve Disapprove Abstain Nonvotes ------- ---------- ------- -------- 4,360,589 401,821 6,212 2,322,411 ITEM 6. EXHIBITS.

26 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. StateplaceNEW BRUNSWICK SCIENTIFIC CO., INC. -------------------------------------------- (Registrant) Date: August 11, 2006 /s/ PersonNameDavid Freedman ---------------------------- David Freedman Chairman and Chief Executive Officer Date: August 11, 2006 /s/ Thomas Bocchino ------------------- Thomas Bocchino Vice President, Finance, Chief Financial Officer and Treasurer (Chief Accounting Officer) 27

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