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 SEPTEMBER 30, 1998
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: 834,572
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 - September 30, 1998 1
Condensed Consolidated Statements of Income - Three Months
Ended September 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows - Three
Months Ended September 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4-5
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
September 30, 1998
Current Assets:
Cash and cash equivalents $ 171,400
Investment securities 944,700
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 321,900
Inventories (Note 2) 431,200
Prepaid expenses, taxes and other current assets 53,600
Deferred income taxes 21,200
----------
Total current assets 1,944,000
----------
Investment securities 44,400
----------
Property and equipment at cost, less accumulated
depreciation of $147,600 144,000
----------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $43,000 50,500
Deferred income taxes 22,700
Other 135,600
----------
208,800
----------
$2,341,200
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 157,600
Accrued expenses 153,800
Customer advances 15,500
----------
Total current liabilities 326,900
----------
Deferred compensation 87,800
----------
Shareholders' equity:
Common stock $.05 par value 42,700
Additional paid-in capital 852,500
Unrealized holding gain on investment securities 1,700
Retained earnings 1,082,000
----------
1,978,900
Less common stock held in treasury, at cost 52,400
----------
1,926,500
----------
$2,341,200
==========
See notes to condensed unaudited consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month Periods Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Net sales $ 917,600 $ 724,400
Cost of sales 567,100 425,800
---------- ----------
Gross profit 350,500 298,600
---------- ----------
Operating expenses:
General and administrative 198,500 183,500
Selling 23,700 29,300
Research and development 67,900 61,600
---------- ----------
290,100 274,400
---------- ----------
Income from operations 60,400 24,200
Interest and other income 10,400 9,500
---------- ----------
Income before income taxes 70,800 33,700
Income taxes 19,800 8,200
---------- ----------
Net income $ 51,000 $ 25,500
========== ==========
Net income per common share-basic
(Note 3) $ .06 $ .03
Net income per common share-diluted
(Note 3) $ .05 $ .03
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Operating activities:
Net Income $ 51,000 $ 25,500
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 22,500 18,400
Change in assets and liabilities:
Accounts receivable (52,600) 24,700
Inventories (90,200) (5,300)
Prepaid expenses, taxes and other
current assets 5,800 23,600
Accounts payable 49,000 17,900
Accrued expenses (14,100) (72,100)
Customer advances 300 -
---------- ----------
Total adjustments (79,300) 7,300
---------- ----------
Net cash provided by (used in)
operating activities (28,300) 32,700
---------- ----------
Investing activities:
Purchase of investment securities,
principally held to maturity (473,300) (375,600)
Redemptions of investment securities,
principally held to maturity 515,100 378,000
Capital expenditures (8,000) (5,500)
Purchase of intangible assets - (7,500)
---------- ----------
Net cash provided by (used in)
investing activities 33,800 (10,600)
---------- ----------
Net increase in cash and
cash equivalents 5,500 22,100
Cash and cash equivalents,
beginning of year 165,900 146,600
---------- ----------
Cash and cash equivalents, end of period $ 171,400 $ 168,700
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 2,500 $ 59,300
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 an therefore do not contain all financial statements
and disclosures required by generally accepted accounting
principles. Reference should be made to the Annual Report to
Stockholders for the year ended June 30, 1998 of Scientific
Industries, Inc., the "Company."
The statements as of and for the three months ended September
30, 1998 and 1997 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:
September 30,
1998
-------------
Raw Materials $ 411,300
Work in process 10,000
Finished Goods 9,900
-------------
$ 431,200
=============
3. Earnings Per Share:
For the year ended June 30, 1998, the Company adopted Financial Accounting
Standard No. 128, "Earning Per Share", which replaces the presentation of
primary earnings per share ("EPS") and fully diluted EPS with a presentation
of basic EPS and diluted EPS. Basic EPS excludes common stock equivalents
and is computed by dividing net income available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if common
stock equivalents such as stock options were exercised. EPS data for all
periods have been restated to conform to SFAS No. 128 requirement.
Net income per common share was computed as follows:
For the Three Month Periods Ended
September 30, 1998 September 30, 1997
Net Income $ 51,000 $ 25,500
========== ===========
Weighted average common shares
outstanding 834,572 826,239
Effect of dilutive securities,
stock options 149,238 138,623
---------- -----------
Weighted average dilutive common
shares outstanding 983,810 964,862
========== ===========
Net income per common share-basic $ .06 $ .03
Net income per common share-diluted $ .05 $ .03
4. Comprehensive Income:
The Company has adopted Financial Accounting Standard No. 130, "Reporting
Comprehensive Income", which requires classification of items of other
comprehensive income in a financial statement and a display of the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in "Shareholders' Equity." The Company did not
report and display comprehensive income, because it does not have material
items representing components of other comprehensive income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had working capital of $1,617,100 at September 30, 1998 which
approximated the Company's working capital of $1,600,700 at June 30, 1998.
Management believes that the Company's working capital will be sufficient to
meet the Company's operational requirements for at least one year.
Results of Operations
The Three Months Ended September 30, 1998 Compared With Three Months Ended
September 30, 1997.
Net sales increased $193,200 (26.7%) for the three month period ended
September 30, 1998 compared with the three month period ended September 30, 1997
as a result of continued strong demand for our existing laboratory products
and a temporary labor shortage for the quarter ended September 30, 1997
which resulted in lower sales for that quarter. The gross profit percentage
for the three month period ended September 30, 1998 of 38.2% approximated the
gross profit percentage for the fiscal year ended June 30, 1998 (38.6%),
however it was lower than the gross profit of 41.2% for the three month period
ended September 30, 1997. The decrease in the gross profit percentage for
the quarter ended September 30, 1998 compared to the same quarter last
year is mostly due to higher labor and labor-related costs included in factory
overhead.
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
General and administrative expenses for the quarter ended September 30, 1998 of
$198,500 increased $15,000 (8.2%) from $183,500 for the comparable quarter
last year.
The increase was primarily due to expenses related to the pursuit of external
business opportunities.
Research and development expenses for the three month period ended September 30,
1998 were $67,900 compared to $61,600 in the comparable period last year as a
result of increased research and development activities.
Income before income taxes of $70,800 for the three month period ended
September 30, 1998 increased $37,100 (110.1%) compared to $33,700 for the
comparable quarter last year, primarily as a result of higher sales.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
FORM 10-QSB
For the Quarter Ended September 30, 1998
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings NONE
Item 2. through 5. NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the period covered by
this report.
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
/s/
---------------------------
Lowell A. Kleiman
President and Treasurer
Principal Executive and Financial Officer
/s/
---------------------------
Helena R. Santos
Vice President, Controller and
Assistant Treasurer
Principal Accounting Officer
Date: November 12, 1998
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 171,400
<SECURITIES> 989,100
<RECEIVABLES> 329,300
<ALLOWANCES> 7,400
<INVENTORY> 431,200
<CURRENT-ASSETS> 1,944,000
<PP&E> 291,600
<DEPRECIATION> 147,600
<TOTAL-ASSETS> 2,341,200
<CURRENT-LIABILITIES> 208,800
<BONDS> 0
0
0
<COMMON> 42,700
<OTHER-SE> 1,883,800
<TOTAL-LIABILITY-AND-EQUITY> 2,341,200
<SALES> 917,600
<TOTAL-REVENUES> 928,000
<CGS> 567,100
<TOTAL-COSTS> 857,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,800
<INCOME-TAX> 19,800
<INCOME-CONTINUING> 70,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,000
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
