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, 1997
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(X) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 0-6658
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SCIENTIFIC INDUSTRIES, INC.
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(Exact name of small business as specified in its charter)
Delaware 04-2217279
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(State of incorporation) (I.R.S. Employer Identification No.)
70 Orville Drive, Bohemia, New York 11716
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(Address of principal executive offices) (zip code)
(516)567-4700
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(Issuer's telephone number)
Not Applicable
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(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
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SCIENTIFIC INDUSTRIES, INC.
FORM 10-QSB
The following information of the registrant is submitted herewith:
PART I -- Financial Information:
Condensed Consolidated Balance Sheet - December 31, 1997 1
Condensed Consolidated Statements of Income - Three and Six Months
Ended December 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows -Six
Months Ended December 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4-5
Management's Discussion and Analysis 6-7
PART II -- Other Information:
Items 1 through 6 8
Signatures 9
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
ASSETS
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December 31, 1997
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Current Assets:
Cash and cash equivalents $ 82,000
Investment securities 928,400
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 420,700
Inventories (Note 2) 283,900
Prepaid expenses and other current assets 75,500
Deferred income taxes 35,000
----------
Total current assets 1,825,500
Property and equipment at cost, less accumulated
depreciation of $121,000 151,300
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $29,400 53,600
Deferred income taxes 16,100
Other 123,900
----------
193,600
----------
$2,170,400
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 134,300
Accrued expenses 196,600
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Total current liabilities 330,900
Deferred compensation 77,900
Shareholders' equity:
Common stock $.05 par value 42,300
Additional paid-in capital 842,300
Unrealized holding loss on investment securities (100)
Retained earnings 929,500
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1,814,000
Less common stock held in treasury, at cost 52,400
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1,761,600
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$2,170,400
==========
See notes to condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- ---------- ----------
Net sales $940,700 $736,200 $1,665,100 $1,523,100
Cost of goods sold 576,600 464,300 1,002,400 933,400
-------- -------- ---------- ----------
Gross profit 364,100 271,900 662,700 589,700
Operating Expenses:
General and administrative 222,400 176,500 405,900 357,300
Selling 53,600 22,600 82,900 49,900
Research and development 36,200 47,600 97,800 84,300
-------- -------- -------- --------
312,200 246,700 586,600 491,500
Income from operations 51,900 25,200 76,100 98,200
Interest and other income 11,100 9,900 20,600 18,300
-------- -------- -------- --------
Income before income taxes 63,000 35,100 96,700 116,500
Income taxes 9,500 6,400 17,700 36,800
-------- -------- -------- --------
Net income $ 53,500 $ 28,700 $ 79,000 $ 79,700
======== ======== ======== ========
Net income per common
share (Note 3) $ .06 $ .03 $ .10 $ .10
Net income per common
share-assuming
dilution (Note 3) $ .05 $.03 $ .08 $ .08
See notes to condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 1997 December 31, 1996
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Operating activities:
Net Income $ 79,000 $ 79,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 37,000 35,100
Change in assets and liabilities:
Accounts receivable (139,200) (146,700)
Inventories 46,100 45,800
Prepaid expenses and other
current assets 7,000 51,500
Other assets - (5,500)
Accounts payable 51,500 800
Accrued expenses (65,900) (11,600)
Customer advances (3,800) ( 4,100)
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Total adjustments (67,300) (34,700)
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Net cash provided by
operating activities 11,700 45,000
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Investing activities:
Purchase of investment securities,
principally held to maturity (696,400) (688,800)
Redemptions of investment securities,
principally held to maturity 659,500 623,000
Capital expenditures (30,900) (46,000)
Purchase of intangible assets (8,500) -
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Net cash used in
investing activities (76,300) (111,800)
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Net decrease in cash and cash equivalents (64,600) (66,800)
Cash and cash equivalents, beginning of year 146,600 169,900
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Cash and cash equivalents, end of period $ 82,000 $ 103,100
=========== ============
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 81,200 $ 400
See notes to condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC.
NOTES TO CONDENSED 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, 1997 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, 1997
and 1996 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 New York Corporation, (a wholly owned subsidiary of Scientific
Industries, Inc.). 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,
1997
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Raw Materials $ 268,500
Work in process 13,500
Finished Goods 1,900
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$ 283,900
=============
3. Earnings per share:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("EPS").
Statement No. 128 replaced the previously reported primary and fully diluted
earnings per share with net income per common share (basic) and net income per
common share-assuming dilution (diluted). Net income per common share
excludes common stock equivalents, such as stock options, and is computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Net income per common share-assuming dilution,
reflects the potential dilution that could occur if common stock equivalents,
such as stock options, were exercised. All net income per share amounts for
all periods have been restated to conform to the Statement No. 128
requirement.
For the Three Month For the Six Month
Periods Ended Periods Ended
December December
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- --------
Net income $53,500 $28,700 $79,000 $79,700
========= ========= ========= ========
Weighted average
common shares 826,239 826,239 826,239 826,239
Effect of dilutive securities:
Stock options 150,303 123,642 150,303 123,642
------- ------- ------- -------
Weighted average
diluted shares 976,542 949,881 976,542 949,881
Net income per common
share $ .06 $ .03 $ .10 $ .10
Net income per common
share-assuming dilution $ .05 $ .03 $ .08 $ .08
Options to purchase 10,000 shares of common stock at $1.75 per share were
outstanding at December 31, 1996, but were not included in the computation of
diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares. The options, which expire
on September 1, 1998, were still outstanding at December 31, 1997.
SCIENTIFIC INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital increased to $1,494,600 at December 31, 1997
from $1,424,800 at June 30, 1997 attributable primarily to an increase in
income from operations. Management believes that funds generated from
operations, 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, 1997 Compared With Three Months Ended
December 31, 1996.
Net sales increased $204,500 (27.8%) for the three month period ended December
31, 1997 compared with the three month period ended December 31, 1996 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, 1997 of 38.7% increased from 36.9% for the comparable period last
year as a result of higher sales combined with unchanged fixed overhead costs.
General and administrative expenses increased $45,900 (26.0%) from $176,500
for the quarter ending December 31, 1996 to $222,400 for the quarter ending
December 31, 1997. The increase is mainly due to expenses related to the
pursuit of external business opportunities and higher officer salaries.
Selling expenses increased $31,000 (137%) to $53,600 for the quarter ending
December 31, 1997 from $22,600 for the quarter ending December 31, 1996 as a
result of increased expenses under a promotional program for our existing
laboratory products, and and as a result of marketing expenses for our new
products.
Research and development expenses for the three month period ended December 31,
1997 were $36,200 compared to $47,600 in the comparable period last year as a
result of material expenditures incurred for the centrifuge products in the
quarter ending December 31, 1996.
Income before income taxes for the three month period ended December 31, 1997
of $63,000 compared with $35,100 for the three month period ended December 31,
1996 increased $27,900 (79.5%) mainly due to higher sales.
The Six Months Ended December 31, 1997 Compared With Six Months Ended December
31, 1996.
Net sales increased $142,000 (9.3%) for the six month period ended December
31, 1997 compared with the six month period ended December 31, 1996 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, 1997 of 39.8% compared to the gross profit percentage of 38.7% for the six
month period ended December 31, 1996 increased as a result of higher sales
during the second quarter, combined with unchanged fixed costs.
General and administrative expenses for the six month period ended December
31, 1997 of $405,900 increased $48,600 (13.6%) compared with $357,300 for the
six month period ended December 31, 1996 due to expenses related to the
pursuit of external business opportunities and higher officer salaries.
Selling expenses increased $33,000 (66.1%)to $82,900 for the six month period
ended December 31, 1997 compared with $49,900 for the same period last year as
a result of increased expenses under a promotional program for our existing
laboratory products, and as a result of marketing expenses for our new products.
Research and development expenses for the six month period ended December 31,
1997 were $97,800 compared to $84,300 in the comparable period last year. The
increase of $13,500 (16.0%) was a result of research and development
activities incurred during the first quarter of this fiscal year related to
the new mixing device, Roto-Shake Genie (trademark), which is now being
marketed. The TurboMix (trademark), a new accessory for the existing Vortex
Genie 2 (registered trademark) Mixer, is also currently being marketed. The
Company's new more sophisticated line of centrifuge products still requires
engineering modifications and may not be available before the end of fiscal
1998.
Income before income taxes for the six month period ended December 31, 1997 of
$96,700 decreased $19,800 (17.0%) compared with $116,500 for the six month
period ended December 31, 1996. The decrease was mainly due to the higher
expenses discussed above.
SCIENTIFIC INDUSTRIES, INC.
FORM 10-QSB
For the Quarter Ended December 31, 1997
Part II -- OTHER INFORMATION
Items 1, 2, and 3Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1997, the Company's 1997 Annual
Meeting was held on November 20, 1997. At this meeting two Class A Directors,
Arthur M. Borden and James S. Segasture were elected to the Company's Board of
Directors to serve until the 2000 Annual Meeting. There was a total of
627,050 "FOR" votes, 4,633 "AGAINST" votes for Mr. Borden, and 628,758 "FOR"
votes, 2,925 "AGAINST" votes for Mr. Segasture. The other directors whose
terms of office as directors continued after the meeting are Lowell A. Kleiman
(Class C), Roger B. Knowles (Class C), Joseph I. Kesselman (Class B).
There were no other matters submitted to a vote of security holders
during this quarter.
Items 5. Other InformationNot applicable
Items 6. Exhibits and Reports on form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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
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Lowell A. Kleiman
President and Treasurer
(Chief Executive and Financial Officer)
/s/ Helena R. Santos
----------------------------
Helena R. Santos
Controller and Assistant Treasurer
(Principal Accounting Officer)
Date February 13, 1998
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Scientific
Industries, Inc.' SEC Form 10QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 428100
<ALLOWANCES> 7400
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<PP&E> 272300
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<CURRENT-LIABILITIES> 330900
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<COMMON> 42300
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<TOTAL-LIABILITY-AND-EQUITY> 2110000
<SALES> 940700
<TOTAL-REVENUES> 951800
<CGS> 576600
<TOTAL-COSTS> 888800
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 63000
<INCOME-TAX> 9500
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