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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO__________
Commission File Number: 0-12254
SCIENTIFIC TECHNOLOGIES INCORPORATED
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(Issuer)
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<S> <C>
Oregon 77-0170363
- --------------------------------- --------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
31069 Genstar Road, Hayward, California 94544
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(Address of principal executive offices) (Zip Code)
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(510) 471-9717
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(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 OR 15(d) of the Securities Exchange Act during the past 12 months (or 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____
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Common stock outstanding as of November 1, 1995 was 9,607,758 shares.
1
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SCIENTIFIC TECHNOLOGIES INCORPORATED
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CONSOLIDATED BALANCE SHEET
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(Unaudited)
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<CAPTION>
Assets Sep. 30, 1995
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<S> <C>
Current assets:
Cash and cash equivalents $ 4,897,000
Short-term investments 1,057,000
Accounts and notes receivable, net 6,460,000
Inventories 2,897,000
Other assets 288,000
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Total current assets 15,599,000
Property and equipment, net 1,884,000
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Total assets $17,483,000
==========
<CAPTION>
Liabilities and Shareholders' Equity
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Current liabilities
Short-term debt $ 17,000
Trade accounts payable 2,017,000
Payable to Parent 743,000
Accrued expenses 1,512,000
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Total current liabilities 4,289,000
Long-term debt 50,000
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Total liabilities 4,339,000
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Shareholders' equity
Common stock: shares authorized 20,000,000
issued and outstanding; 9,608,000
($.001 par value) 10,000
Capital in excess of par value 5,415,000
Retained earnings 7,719,000
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Total shareholders' equity 13,144,000
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Total liabilities and shareholders' equity $17,483,000
==========
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2
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SCIENTIFIC TECHNOLOGIES INCORPORATED
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CONSOLIDATED STATEMENT OF OPERATIONS
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(Unaudited)
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<CAPTION>
For the three months ended
Sep. 30, 1995 Sep. 30, 1994
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<S> <C> <C>
Sales $9,479,000 $6,281,000
Cost of goods sold 4,503,000 2,909,000
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Gross profit 4,976,000 3,372,000
Operating Expenses:
Selling, general and administrative 1,968,000 1,602,000
Research and development 437,000 352,000
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Total operating expenses 2,405,000 1,954,000
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Income from operations 2,571,000 1,418,000
Interest income, net 72,000 28,000
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Income before income taxes 2,643,000 1,446,000
Provision for taxes on income 1,057,000 578,000
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Net income $1,586,000 $ 868,000
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Net income per share $ .17 $ .09
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Weighted average common and common
equivalent shares 9,608,000 9,608,000
========== ==========
</TABLE>
3
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SCIENTIFIC TECHNOLOGIES INCORPORATED
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CONSOLIDATED STATEMENT OF OPERATIONS
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(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
Sep. 30, 1995 Sep. 30, 1994
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<S> <C> <C>
Sales $26,899,000 $18,491,000
Cost of goods sold 11,972,000 8,544,000
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Gross profit 14,927,000 9,947,000
Operating Expenses:
Selling, general and administrative 5,964,000 4,742,000
Research and development 1,128,000 983,000
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Total operating expenses 7,092,000 5,725,000
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Income from operations 7,835,000 4,222,000
Interest income, net 177,000 87,000
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Income before income taxes 8,012,000 4,309,000
Provision for taxes on income 3,205,000 1,724,000
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Net income $ 4,807,000 $ 2,585,000
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Net income per share $ .50 $ .27
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Weighted average common and common
equivalent shares 9,608,000 9,608,000
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</TABLE>
4
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SCIENTIFIC TECHNOLOGIES INCORPORATED
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CONSOLIDATED STATEMENT OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
Sep. 30, 1995 Sep. 30, 1994
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<S> <C> <C>
Cash flows from operating activities
Net income $ 4,807,000 $ 2,585,000
Adjustments to reconcile net income
to cash
provided by operating activities:
Depreciation and amortization 335,000 241,000
Changes in assets and liabilities:
Accounts receivable, net (1,673,000) (821,000)
Inventories (531,000) (764,000)
Receivable from Parent 847,000
Payable to Parent 724,000
Trade accounts payable 468,000 534,000
Accrued expenses 130,000 595,000
Other (58,000) (24,000)
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Cash flows provided by
operating activities 4,202,000 3,193,000
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Cash flows from investing activities
Investment in intangibles and fixed
assets (696,000) (768,000)
Sale (Purchase) of short-term
investments 76,000 (1,515,000)
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Cash flows used in investing
activities (620,000) (2,283,000)
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Cash flows from financing activities
Increase (decrease) in debt (19,000) (41,000)
Dividends (913,000) (717,000)
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Cash flows used in financing
activities (932,000) (758,000)
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Change in cash and cash equivalents 2,650,000 103,000
Cash and cash equivalents at beginning
of period 2,247,000 152,000
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Cash and cash equivalents at end of
period $ 4,897,000 $ 255,000
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Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 5,000 $ 9,000
Cash paid to the Parent for income
taxes $ 3,205,000 $ 1,724,000
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5
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SCIENTIFIC TECHNOLOGIES INCORPORATED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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The consolidated financial statements as of September 30, 1995 and the three
and nine months ended September 30, 1995 and 1994 are unaudited. In the opinion
of management, they reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results of these periods but
may not necessarily be indicative of the results to be expected for the full
fiscal year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been consolidated or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in Scientific Technologies
Incorporated's Annual Report to Shareholders on Form 10-KSB for the year ended
December 31, 1994.
1. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
Sep. 30, 1995
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<S> <C>
Raw Materials $1,446,000
Work in Process 489,000
Finished Goods 962,000
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$2,897,000
==========
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2. NET INCOME PER SHARE
Net income per common share is computed based on the weighted average
number of shares outstanding during the period. There were no options or
warrants outstanding during the periods presented.
3. DIVIDEND PAID
On September 1, 1995, the Company paid a quarterly cash dividend of $.035
per share on all its common shares, to shareholders of record on August 22,
1995. On July 5, 1995, the Company paid a quarterly cash dividend of $.03 per
share on all its common shares, to shareholders of record on June 23, 1995.
Approximately 87% of the outstanding common stock of the Company is beneficially
owned by Scientific Technology Incorporated (the Parent), a California
corporation under common control with the Company. Dividends paid to Scientific
Technology Incorporated were applied to the Receivable from or Payable to Parent
accounts.
4. STOCK SPLIT
On June 16, 1995, the Board of Directors approved stock split whereby each
one share of Common Stock of the Company issued and outstanding on the record
date would be split up and converted into two shares of common stock. The record
date for this stock split was July 6, 1995 and the shareholders of record at the
close of business on that date were entitled to receive one additional share of
Common Stock of the Company for each one share of Common Stock held on that
date. The payable date for the stock split was July 27, 1995. All share and per
share numbers have been restated to reflect this split.
6
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ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
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RESULTS OF OPERATIONS
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Results of Operations
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Sales for the three and nine months ended September 30, 1995 increased 51% and
45% respectively to records of $9,479,000 and $26,899,000 from $6,281,000 and
$18,491,000 recorded in the same periods in 1994. This was primarily the result
of increased distributor sales and sales to Original Equipment Manufacturers
(OEMs).
Gross profit increased 48% to $4,976,000 for the third quarter of 1995 from
$3,372,000 for the third quarter of 1994 and increased 50% to $14,927,000 for
the first nine months of 1995 from $9,947,000 for the first nine months of 1994.
Gross margin declined to 53% during the third quarter of 1995 compared to 54% in
the comparable quarter of 1994. The increased distributor and OEM sales resulted
in higher overall discount rates, thereby reducing the Company's gross margin.
The Company anticipates that continued sales volume growth will come through its
distributor and OEM network. Higher discount rates associated with these sales
could continue to have a negative effect on gross margins. Gross margin for the
first nine months of 1995 was 56% compared to 54% for the comparable period in
1994. The increase was the result of improved economies of scale associated with
the increased sales volume, offset to some extent by the growth in distributor
and OEM sales.
Selling, general and administrative expenses as a percent of sales declined
to 21% in the third quarter of 1995 from the 26% reported in 1994 and to 22%
during the first nine months of 1995 from 26% during the first nine months 1994.
Selling, general and administrative costs increased 23% to $1,968,000 in the
third quarter and 26% to $5,964,000 in the first nine months of 1995 from
$1,602,000 and $4,742,000 in the comparable 1994 periods. This was primarily the
result of increased selling expenses associated with the higher levels of sales.
Research and development expenses rose to $437,000 in the third quarter of
1995 from $352,000 in 1994. Research and development expenses rose to $1,128,000
during the first nine months of 1995 compared to $983,000 during the first nine
months of 1994. Research and development expenses were 5% and 4% of sales for
the three and nine months ended September 30, 1995 compared to 6% and 5% for the
comparable 1994 periods.
Interest income, net increased to $72,000 and $177,000 for the three and nine
months ended September 30, 1995 compared to $28,000 and $87,000 for the
comparable periods in 1994. This was primarily the result of increased income
from short-term investments offsetting reduced interest income from the Parent.
The Company's provision for income taxes was $1,057,000 and $3,205,000 for the
three and nine months ended September 30, 1995 compared to $578,000 and
$1,724,000 for the comparable periods in 1994.
7
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The growth in sales, gross profit and income experienced by the Company in
recent quarters is not necessarily indicative of future results. In view of the
significant growth of the Company's operations in recent years, the Company
believes that period to period comparisons of its financial results should not
be relied upon as an indication of future performance.
In the fourth quarter of 1995, the Company will relocate to a new facility
being constructed for its use and located five miles from its present location.
While, the Company will take all necessary steps to minimize disruption of its
business, there can be no guarantee that some temporary interruption will not
occur.
Liquidity and Capital Resources
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At September 30, 1995 the Company's working capital was $11,310,000, a 45%
increase from the $7,807,000 reported at December 31, 1994. This was due to cash
generated from operations, increased accounts receivable and inventory and lower
short-term debt, which offset increased trade accounts payable, payable to
Parent and accrued expenses. The Payable to Parent account represents the net
amounts of activity including cash received, cash disbursed and amounts owed to
Parent for allocated charges and dividends.
The Company reduced its bank borrowings by $19,000 during the first nine
months of 1995 to $67,000. Available bank borrowings were $2,500,000 at
September 30, 1995. The Company believes that cash from operations, together
with its cash resources and available bank borrowings, should be adequate to
fund its working capital requirements through at least 1996.
PART II - OTHER INFORMATION
None
8
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SIGNATURES
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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.
SCIENTIFIC TECHNOLOGIES INCORPORATED
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Registrant
Date: November 13, 1995 /s/Joseph J. Lazzara
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Joseph J. Lazzara
President and Chief Executive
Officer
(Principal Executive and
Financial officer)
Date: November 13, 1995 /s/ Richard O. Faria
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Richard O. Faria
Vice-President and Controller
(Principal Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,897,000
<SECURITIES> 1,057,000
<RECEIVABLES> 6,574,000
<ALLOWANCES> 114,000
<INVENTORY> 2,897,000
<CURRENT-ASSETS> 15,599,000
<PP&E> 4,007,000
<DEPRECIATION> 2,123,000
<TOTAL-ASSETS> 17,483,000
<CURRENT-LIABILITIES> 4,289,000
<BONDS> 0
<COMMON> 10,000
0
0
<OTHER-SE> 13,134,000
<TOTAL-LIABILITY-AND-EQUITY> 13,144,000
<SALES> 26,899,000
<TOTAL-REVENUES> 26,899,000
<CGS> 11,972,000
<TOTAL-COSTS> 19,064,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,012,000
<INCOME-TAX> 3,205,000
<INCOME-CONTINUING> 4,807,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,807,000
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
