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 MARCH 31, 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: 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 - March 31, 1998 1
Condensed Consolidated Statements of Income (Loss)
Three and Nine Months Ended March 31,1998 and 1997 2
Condensed Consolidated Statements of Cash Flows -Nine
Months Ended March 31, 1998 and 1997 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. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSETS
------
March 31, 1998
--------------
Current Assets:
Cash and cash equivalents $ 149,300
Investment securities 980,400
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 390,200
Inventories (Note 2) 288,500
Prepaid expenses, taxes and other current assets 65,800
Deferred income taxes 35,000
----------
Total current assets 1,909,200
Property and equipment at cost, less accumulated
depreciation of $134,100 145,300
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $33,300 49,700
Deferred income taxes 16,100
Other 123,900
189,700
----------
$2,244,200
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 142,000
Accrued expenses 205,400
Customer advances 15,200
----------
Total current liabilities 362,600
Deferred compensation 77,900
Shareholders' equity:
Common stock $.05 par value 42,300
Additional paid-in capital 842,300
Unrealized holding gain on investment securities 700
Retained earnings 970,800
---------
1,856,100
Less common stock held in treasury, at cost 52,400
---------
1,803,700
---------
$2,244,200
==========
See notes to condensed unaudited consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- ----------- ---------
Net sales $920,100 $627,700 $2,585,200 $2,150,800
Cost of goods sold 563,700 396,800 1,566,100 1,330,200
-------- -------- ---------- ----------
Gross profit 356,400 230,900 1,019,100 820,600
Operating expenses:
General and administrative 233,600 177,700 639,500 535,000
Selling 38,200 27,000 121,100 76,900
Research and development 28,500 76,800 126,300 161,100
-------- -------- ---------- ----------
300,300 281,500 886,900 773,000
Income (loss) from operations 56,100 (50,600) 132,200 47,600
Interest and other income 9,700 7,700 30,300 26,000
Income (loss) before income taxes 65,800 (42,900) 162,500 73,600
-------- -------- --------- ----------
Income taxes (credit) 24,500 (23,300) 42,200 13,500
-------- -------- ---------- ----------
Net income (loss) $ 41,300 $(19,600) $ 120,300 $ 60,100
======== ======== ========== ==========
Net income (loss) per common
share (Note 3): $ .05 ($ .02) $ .15 $ .07
Net income (loss) per common
share - assuming dilution (Note 3) $ .04 ($ .02) $ .12 $ .06
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 1998 March 31, 1997
-------------- --------------
Operating activities:
Net Income $ 120,300 $ 60,100
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 57,100 54,300
Change in assets and liabilities:
Accounts receivable (108,700) (120,500)
Inventories 41,500 (91,000)
Prepaid expenses, taxes and other
current assets 16,700 39,500
Other assets - (5,600)
Accounts payable 59,200 77,500
Accrued expenses (57,100) (2,400)
Customer advances 11,400 20,900
--------- ----------
Total adjustments 20,100 (27,300)
--------- ----------
Net cash provided by
operating activities 140,400 32,800
--------- ----------
Investing activities:
Purchase of investment securities,
principally held to maturity (1,200,700) (1,110,500)
Redemptions of investment securities,
principally held to maturity 1,109,500 1,004,600
Capital expenditures (38,000) (60,200)
Purchase of intangible assets (8,500) (1,700)
---------- ----------
Net cash used in
investing activities (137,700) (167,800)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 2,700 (135,000)
Cash and cash equivalents, beginning of year 146,600 169,900
---------- ----------
Cash and cash equivalents, end of period $ 149,300 $ 34,900
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 87,700 $ 400
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, 1997 of Scientific Industries, Inc., and the information
under the heading "the Company."
The statements as of and for the three and nine months ended March
31, 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:
March 31,
1998
----------
Raw Materials $ 267,100
Work in process 14,300
Finished Goods 7,100
----------
$ 288,500
==========
4
SCIENTIFIC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 Nine Month
Periods Ended Periods Ended
March March
1998 1997 1998 1997
-------- -------- -------- ---------
Net income (loss) $41,300 $(19,600) $120,300 $ 60,100
======= ========= ======== =========
Weighted average
common shares 826,239 826,239 826,239 826,239
Effect of dilutive securities:
Stock Options 156,556 - 152,387 126,942
------- ------- ------- -------
Weighted average
diluted shares 982,795 826,239 982,458 976,542
Net income (loss) per common
share $ .05 $( .02) $ .15 $ .07
Net income (loss) per common
share-assuming dilution $ .04 $( .02) $ .12 $ .06
Options to purchase 10,000 shares of common stock at $1.75 per share were
outstanding at March 31, 1997, but were not included in the 1997 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 March 31, 1998.
The incremental shares from assumed exercise of stock options were not
included in the three month period ended March 1997 calculation because
including those shares would result in an anti-dilutive per share amount.
Dividends were not paid during 1998 or 1997.
5
SCIENTIFIC INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital increased to $1,546,600 at March 31, 1998 from
$1,424,800 at June 30, 1997 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 March 31, 1998 Compared With Three Months Ended March
31, 1997.
Net sales increased $292,400 (46.6%) for the three month period ended March
31, 1998 compared with the three month period ended March 31, 1997 as a result
of increased demand for our existing laboratory products. The gross profit
percentage for the three month period ended March 31, 1998 increased to 38.7%
from 36.8% for the comparable period last year as a result of increased sales
even though factory overhead increased.
General and administrative expenses of $233,600 for the three month period
ended March 31, 1998 increased $55,900 (31.5%) from $177,700 for the comparable
period last year mainly as a result of expenses related to the pursuit of
external business opportunities.
Selling expenses of $38,200 for the three month period ended March 31, 1998
increased $11,200 (41.5%) from $27,000 for the comparable period last year as
a result of increased expenses under a promotional program for our existing
laboratory products, and also as a result of marketing expenses for our new
products.
Research and development expenses for the three month period ended March 31,
1998 were $28,500 compared to $76,800 in the comparable period last year.
The decrease of $48,300 (62.9%) was due to lower material expenditures because
the two new products previously reported (TurboMix attachment and Roto-Shake
Genie) went into production during the quarter.
Income before income taxes for the three month period ended March 31, 1998
was $65,800 compared to a loss before income tax credit for the three month
period ended March 31, 1997 of $42,900. The increase in income was mostly
due to higher sales.
The Nine Months Ended March 31, 1998 Compared With Nine Months Ended March
31, 1997.
Net sales increased $434,400 (20.2%) for the nine month period ended March 31,
1998 compared with the nine month period ended March 31, 1997 as a result of
increased demand for existing laboratory products. The gross profit percentage
for the nine month period ended March 31, 1998 of 39.4% increased from the
gross profit of 38.2% for the nine month period ended March 31, 1997 due to
increased sales even though factory overhead was higher.
6
SCIENTIFIC INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
General administrative expenses of $639,500 for the three month period ended
March 31, 1998 increased $104,500 (19.5%) from $535,000 for the comparable
period last year mostly as a result of expenses related to the pursuit of
external business opportunities.
Selling expenses increased $44,200 (57.5%)to $121,100 for the nine month
period ended March 31, 1998 compared with $76,900 for the same period last
year as a result of increased expenses under a promotional program for our
existing laboratory products, and also as a result of marketing expenses for
our new products.
Research and development expenses for the nine month period ended March 31,
1998 were $126,300 compared to $161,100 in the comparable period last year.
The decrease of $34,800 (21.6%) was due to lower material expenditures because
the two new products previously reported (TurboMix attachment and Roto-Shake
Genie) went into production during the third quarter.
Income before income taxes for the nine month period ended March 31, 1998 of
$162,500 increased $88,900 (120.8%) compared with $73,600 for the nine month
period ended March 31, 1997. The increase in income was mainly due to higher
sales.
7
SCIENTIFIC INDUSTRIES, INC.
FORM 10-QSB
For the Quarter Ended March 31, 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: NONE
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the period covered by this
report.
8
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
--------------------
Lowell A. Kleiman
President and Treasurer
(Chief Executive and Financial Officer)
/s/Helena R. Santos
-------------------
Helena R. Santos
Vice President, Controller and Assistant
Treasurer
(Principal Accounting Officer)
Date: May 13, 1998
- -------------------
9
<TABLE> <S> <C>
<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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 149300
<SECURITIES> 980400
<RECEIVABLES> 397600
<ALLOWANCES> 7400
<INVENTORY> 288500
<CURRENT-ASSETS> 1909200
<PP&E> 279400
<DEPRECIATION> 134100
<TOTAL-ASSETS> 2244200
<CURRENT-LIABILITIES> 362600
<BONDS> 0
0
0
<COMMON> 42300
<OTHER-SE> 1761400
<TOTAL-LIABILITY-AND-EQUITY> 2244200
<SALES> 920100
<TOTAL-REVENUES> 929800
<CGS> 563700
<TOTAL-COSTS> 864000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 65800
<INCOME-TAX> 24500
<INCOME-CONTINUING> 41300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41300
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
