UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended December 31, 1996
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) (I.R.S. Employer Identification No.)
70 Orville Drive, Bohemia, New York 11716
(Address of principal executive offices)
(516)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 the latest practicable date: 826,239
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
FORM 10-QSB
The following information of the registrant and its subsidiary are submitted
herewith:
PART I -- Financial Information:
Condensed Consolidated Balance Sheet - December 31, 1996 1
Condensed Consolidated Statements of Income - Three and Six Months
Ended December 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows -Six
Months Ended December 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Management's Discussion and Analysis 5-6
PART II -- Other Information:
Items 1 through 6 7
Signatures 8
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
ASSETS
December 31, 1996
Current Assets:
Cash and cash equivalents $ 103,100
Investment securities 813,500
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 331,100
Inventories (Note 2) 248,800
Prepaid expenses, taxes and other current assets 64,800
Deferred income taxes 28,000
---------
Total current assets 1,589,300
---------
Property and equipment at cost, less accumulated
depreciation of $96,300 142,200
---------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $14,100 56,300
Deferred income taxes 8,600
Other 108,400
173,300
----------
$1,904,800
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 45,300
Accrued expenses 168,700
Customer advances 200
----------
Total current liabilities 214,200
----------
Deferred compensation 64,700
----------
Shareholders' equity:
Common stock $.05 par value 42,300
Additional paid-in capital 842,300
Unrealized holding loss on investment securities (800)
Retained earnings 794,500
----------
1,678,300
----------
Less common stock held in treasury, at cost 52,400
----------
1,625,900
----------
$1,904,800
===========
See notes to condensed unaudited consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
1996 1995 1996 1995
Net sales $736,200 $638,200 $1,523,100 $1,267,700
Cost of goods sold 464,300 381,300 933,400 781,000
-------- -------- ---------- ----------
Gross profit 271,900 256,900 589,700 486,700
Operating Expenses:
General and
administrative 176,500 169,500 357,300 338,800
Selling 22,600 21,700 49,900 32,400
Research and
development 47,600 8,000 84,300 8,000
------- ------- ------- -------
246,700 199,200 491,500 379,200
------- ------- ------- -------
Income from operations 25,200 57,700 98,200 107,500
Interest and other
income 9,900 8,200 18,300 17,100
------- ------- ------- -------
Income before income
taxes 35,100 65,900 116,500 124,600
Income taxes 6,400 17,100 36,800 38,100
-------- ------- ------- -------
Net income $ 28,700 $ 48,800 $ 79,700 $ 86,500
======== ======== ========= =========
Net income per common
share (Note 3): $ .03 $ .05 $.08 $.09
Weighted average number of
outstanding shares 826,239 826,239 826,239 826,239
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 1996 December 31, 1995
Operating activities:
Net Income $ 79,700 $ 86,500
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 35,100 26,600
Change in assets and liabilities:
Accounts receivable (146,700) (38,200)
Inventories 45,800 (85,300)
Prepaid expenses, taxes and other
current assets 51,500 (14,100)
Other assets (5,500) 4,100
Accounts payable 800 (21,700)
Accrued expenses (11,600) 53,700
Customer advances (4,100) ( 9,900)
-------- ----------
Total adjustments (34,700) (84,800)
-------- ----------
Net cash provided by
operating activities 45,000 1,700
-------- ----------
Investing activities:
Purchase of investment securities,
principally held to maturity (688,800) (577,100)
Redemptions of investment securities,
principally held to maturity 623,000 378,100
Capital expenditures (46,000) (14,900)
Purchase of intangible assets - (66,100)
-------- --------
Net cash used in
investing activities (111,800) (280,000)
-------- --------
Net decrease in cash and cash equivalents (66,800) (278,300)
Cash and cash equivalents, beginning of year 169,900 315,600
-------- --------
Cash and cash equivalents, end of period $ 103,100 $ 37,300
======== ========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 400 $ 36,300
See notes to condensed unaudited consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General:As contemplated by the Securities and Exchange Commission, the
accompanying financial statements and footnotes have been condensed and
therefore do not contain all financial statements and disclosures required by
generally accepted accounting principles. Reference is made to the financial
statements contained in the Annual Report to Stockholders for the year ended
June 30, 1996 of Scientific Industries, Inc., and the information under the
heading "the Company."
The statements as of and for the three and six months ended December 31, 1996
and 1995 are unaudited. In the opinion of management, all adjustments have
been made to present fairly the results of such unaudited interim periods.
1. Significant accounting policies:
Principles of consolidation:
The accompanying condensed consolidated financial statements include the
accounts of Scientific Industries, Inc. and Scientific Packaging Industries,
Inc. (a 100% owned subsidiary). All intercompany items and transactions have
been eliminated in consolidation.
2. Inventories:
Inventories for interim financial statement purposes are computed by costing
sales made during the applicable periods. Management has estimated the
components of inventory to be as follows:
December 31,
1996
Raw Materials $ 218,800
Work in process 26,300
Finished Goods 3,700
------------
$ 248,800
============
3. Net income per share:
Income per share of Common Stock is computed on the basis of the weighted
average number of shares outstanding plus the dilutive effect of stock
options.
4
SCIENTIFIC INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital increased to $1,375,100 at December 31, 1996
from $1,304,400 at June 30, 1996 attributable primarily to an increase in
income from operations. Management believes that funds generated from
operations and existing cash and investment securities balances will be
sufficient to support the Company's operational requirements for at least one
year.
Results of Operations
The Three Months Ended December 31, 1996 Compared With Three Months Ended
December 31, 1995.
Net sales increased $98,000 (15.4%) for the three month period ended December
31, 1996 compared with the three month period ended December 31, 1995 as a
result of increased demand for our existing laboratory products during this
quarter. The gross profit percentage for the three month period ended
December 31, 1996 of 36.9% decreased from 40.3% for the comparable period last
year as a result of higher material costs.
Research and development expenses for the three month period ended December
31, 1996 were $47,600 compared to $8,000 in the comparable period last year as
a result of the establishment of a Research and Development department. The
Company expects to market and have available for delivery the new line of
centrifuge products at the end of this fiscal year along with other new
laboratory products.
Income before income taxes for the three month period ended December 31, 1996
of $35,100 compared with $65,900 for the three month period ended December 31,
1995 decreased $30,800 (46.7%) mainly due to increased research and
development costs.
The Six Months Ended December 31, 1996 Compared With Six Months Ended December
31, 1995.
Net sales increased $255,400 (20.1%) for the six month period ended December
31, 1996 compared with the six month period ended December 31, 1995 as a
result of increased demand for our existing laboratory products during the
period. The gross profit percentage for the six month period ended December
31, 1996 of 38.7% compared to the gross profit percentage of 38.4% for the six
month period ended December 31, 1995 remained relatively the same as a result
of higher material costs during the second quarter partially offset by higher
sales during this first half of the current year.
General and administrative expenses for the six month period ended December
31, 1996 of $357,300 increased $18,500 (5.5%) compared with $338,800 for the
six month period ended December 31, 1995 due to normal increases in salaries,
insurance, and depreciation.
5
SCIENTIFIC INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling expenses increased $17,500 (54.0%)to $49,900 for the six month period
ended December 31, 1996 compared with $32,400 for the same period last year as
a result of market research expenses pertaining to the new line of centrifuge
products and a promotional rebate program for our existing laboratory
products.
Research and development expenses for the six month period ended December 31,
1996 were $84,300 compared to $8,000 in the comparable period last year as a
result of the establishment of a Research and Development department. The
Company expects to market and have available for delivery the new line of
centrifuge products at the end of this fiscal year along with other laboratory
products. The Company anticipates that spending on research and development
will continue at approximately the same level as the first half of the current
fiscal year.
Income before income taxes for the six month period ended December 31, 1996 of
$116,500 decreased $8,100 (6.5%) compared with $124,600 for the six month
period ended December 31, 1995. The decrease was mainly due to research and
development costs, partially offset by higher sales during the period (as
discussed in the previous page).
6
SCIENTIFIC INDUSTRIES, INC.
FORM 10-QSB
For the Quarter Ended December 31, 1996
Part II -- OTHER INFORMATION
Items 1, 2, and 3 Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1996, the Company's 1996 Annual
Meeting was held on November 19, 1996. At this meeting two Class C Directors,
Lowell A. Kleiman and Roger B. Knowles were elected to the Company's Board of
Directors to serve until the 1999 Annual Meeting. There was a total of
592,928 "FOR" votes, 8,339 "AGAINST" votes for Mr. Kleiman, and 593,729 "FOR"
votes, 7,538 "AGAINST" votes for Mr. Knowles. The other directors whose terms
of office as directors continued after the meeting are Arthur M. Borden (Class
A), James S. Segasture (Class A), Joseph I. Kesselman (Class B).
There were no other matters submitted to a vote of security holders
during this quarter.
Items 5 and 6 Not applicable
7
SIGNATURES
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
Lowell A. Kleiman
President and Treasurer
Chief Executive and Financial Officer
Helena R. Santos
Controller and Assistant Treasurer
Principal Accounting Officer
Date February 14, 1997
8
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This schedule contains summary financial information extracted from SEC Form
10-KSB and is qualified in its entirety by reference to such financial
statements.
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 302000
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<TOTAL-LIABILITY-AND-EQUITY> 1545600
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<INCOME-TAX> 42100
<INCOME-CONTINUING> 81500
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