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, 2000
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 issuer 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)
(631)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: 835,540
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
March 31, 2000
Current Assets:
Cash and cash equivalents $ 378,300
Investment securities 58,800
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 379,600
Inventories (Note 2) 470,400
Prepaid expenses and other current assets 41,300
----------
Total current assets 1,328,400
----------
Property and equipment at cost, less accumulated
depreciation of $243,800 180,100
----------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $72,900 30,200
Other 144,100
----------
174,300
----------
$1,682,800
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 156,700
Accrued expenses 94,900
----------
Total current liabilities 251,600
----------
Deferred compensation 94,300
----------
Shareholders' equity:
Common stock $.05 par value 42,800
Additional paid-in capital 869,500
Accumulated other comprehensive loss, unrealized
holding loss on investment securities (1,700)
Retained earnings 478,700
----------
1,389,300
Less common stock held in treasury, at cost 52,400
----------
1,336,900
----------
$1,682,800
==========
See notes to condensed consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
2000 1999 2000 1999
Net sales $883,000 $617,700 $2,113,600 $2,397,100
Cost of goods sold 561,100 431,800 1,442,700 1,550,000
-------- -------- ---------- ----------
Gross profit 321,900 185,900 670,900 847,100
-------- -------- ---------- ----------
Operating Expenses:
General and administrative 190,400 144,200 550,400 548,100
Selling 29,900 34,100 86,900 83,800
Research and development 89,000 34,700 224,900 158,700
-------- -------- ---------- ----------
309,300 213,000 862,200 790,600
-------- -------- ---------- ----------
Income (loss) from operations 12,600 (27,100) ( 191,300) 56,500
-------- -------- ---------- ----------
Other income (expenses):
Litigation costs - (82,200) ( 262,200) ( 82,200)
Proceeds from litigation
settlement - - 250,000 -
Interest and other income 3,600 8,100 15,900 29,200
-------- -------- ---------- ----------
3,600 (74,100) 3,700 ( 53,000)
-------- -------- ---------- ----------
Income (loss) before income taxes
(credit) 16,200 (101,200) (187,600) 3,500
Income taxes (credit) - ( 23,300) - -
-------- --------- ---------- ----------
Net income (loss) $ 16,200 ($ 77,900) ($ 187,600) $ 3,500
======== ========= ========== =========
Net income (loss) per common
share - basic (Note 3) $ .02 ($ .09) ($ .22) $ -
Net income (loss) per common
share - diluted (Note 3) $ .02 ($ .09) ($ .22) $ -
See notes to condensed consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 2000 March 31, 1999
Operating activities:
Net Income (loss) ($ 187,600) $ 3,500
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Gain on sale of investments (800) -
Depreciation and amortization 71,700 70,500
Change in assets and liabilities:
Accounts receivable (56,600) (26,100)
Inventories (104,400) (86,000)
Recoverable income taxes 102,000 -
Prepaid expenses and other
current assets 7,000 1,000
Other assets - (29,900)
Accounts payable (87,300) (44,100)
Accrued expenses 400 (38,800)
Customer advances - (15,200)
---------- ----------
Total adjustments (68,000) (168,600)
---------- ----------
Net cash used in
operating activities (255,600) (165,100)
---------- ----------
Investing activities:
Purchase of investment securities,
principally held to maturity (44,300) (1,072,000)
Redemptions of investment securities,
available-for-sale 4,300 -
Redemptions of investment securities,
principally held to maturity 502,500 1,261,000
Capital expenditures (54,900) (22,900)
Purchase of intangible assets (2,800) (6,700)
---------- ----------
Net cash provided by
investing activities 404,800 159,400
---------- ----------
Net increase (decrease) in cash and cash
equivalents 149,200 (5,700)
Cash and cash equivalents, beginning of year 229,100 165,900
---------- ----------
Cash and cash equivalents, end of period $ 378,300 $ 160,200
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 400 $ 3,200
See notes to condensed consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General: As contemplated by the Securities and Exchange Commission (the
"Commission"), the accompanying financial statements and
footnotes thereto 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 fiscal year ended June 30, 1999 of
Scientific Industries, Inc. (the "Company").
The statements as of and for the three and nine month periods ended
March 31, 2000 and 1999 are unaudited. In the opinion of
management of the Company, 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 the Company and Scientific Packaging Industries, Inc.,
a New York corporation and a wholly owned subsidiary of the Company.
All intercompany items and transactions have been eliminated in
consolidation.
2. Inventories:
Inventories for interim financial statement purposes are based on
perpetual inventory records at the end of the applicable periods.
Components of inventory are as follows:
March 31, 2000
Raw Materials $ 418,100
Work in process 30,000
Finished Goods 22,300
------------
$ 470,400
============
4
SCIENTIFIC INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED),
(continued)
3. Earnings per share:
For the fiscal year ended June 30, 1998, the Company adopted Financial
Accounting Standard No. 128, "Earnings Per Share," which replaced 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 (loss) 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.
Net income (loss) per common share was computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March, 31 March 31,
2000 1999 2000 1999
Net income (loss) $16,200 ($77,900) ($187,600) $ 3,500
======= ======== ========= =======
Weighted average common shares
outstanding 835,540 834,572 835,540 834,572
Effect of dilutive securities,
stock options 118,842 - - 135,790
------- -------- -------- -------
Weighted average dilutive common
shares outstanding 954,382 834,572 835,540 970,362
======= ======== ======== =======
Net income (loss) per common
share - basic $ .02 ($ .09) ($ .22) $ -
Net income (loss) per common
share - diluted $ .02 ($ .09) ($ .22) $ -
The potential effect of dilution of the incremental shares from the
assumed exercise of stock options was not included in determining dilutive
EPS for the nine month period ended March 31, 2000 and the three month
period ended March 31, 1999 because to do so would be anti-dilutive.
Unexercised employee stock options to purchase 71,000 shares ofthe Company's
common stock at $1.50 to $2.00 per share were outstanding as of March 31, 2000
and 63,000 shares of the Company's common stock at $1.875 to $2.00 per share
were outstanding as of March 31, 1999, but were not included in the foregoing
potential computation because the options' exercise price was greater than the
average market price of the Company's common stock.
4. Comprehensive Income:
For the fiscal year ended June 30, 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income," which established standards for
reporting and displaying comprehensive income in financial statements.
5
SCIENTIFIC INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital for the nine months ended March 31,
2000 decreased $175,600 to $1,076,800 compared to $1,252,400 as of
June 30, 1999, primarily due to litigation costs related to the
lawsuit discussed in Part II, Item 1 and losses from operations.
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 March 31, 2000 Compared with the Three Months
Ended March 31, 1999.
The Company's net sales for the three months ended March 31, 2000
increased $265,300 (42.9%) from the comparable period last year
primarily due to (i) sales to VWR Scientific Products ("VWR") amounting
to $161,000 and (ii) increased orders from other customers. As of March
31, 2000, the Company still has a backlog of VWR orders amounting to
approximately $40,000 as part of the settlement of the
litigation discussed in Part II, Item 1. The Company cannot predict
VWR's future purchases of the Company's Vortex-Genie (registered trademark)
mixer once VWR's inventory of this initial order is depleted.
The gross profit percentage of 36.5% for the three months ended March
31, 2000 increased from 30.1% for the comparable period last
year, primarily as a result of the higher sales. Lower
selling prices resulting from price pressures brought on by Troemner,
Inc. ("Troemner") contributed to the lower than expected gross
profit for both periods.
General and administrative expenses of $190,400 for the three months
ended March 31, 2000 increased $46,200 (32.0%) from $144,200 for the
comparable period last year, primarily because the prior year's
quarter reflected lower than usual expenses due to reversal of
earlier interim accruals related to the pursuit of external business
opportunities, and lower personnel related costs.
Research and development expenses of $89,000 for the three months
ended March 31, 2000 increased $54,300 (156.5%) from $34,700
for the comparable period last year as a result of increased activity
related to the Company's new product, the Enviro-Genie (trademark).
The Company reflected income before income taxes of $16,200, compared
to a loss before income taxes (credit) of $101,200 for the comparable
period last year, primarily as a result of higher sales, partially
offset by higher operating expenses.
6
The Nine Months Ended March 31, 2000 Compared with Nine Months Ended
March 31, 1999.
The Company's net sales for the nine months ended March 31, 2000
decreased $283,500 (11.8%) from the comparable period last year primarily
due to the low sales during the first two quarters of the current
fiscal year. Such loss in sales was primarily due to the loss of
sales to VWR and fewer orders from other customers. The gross profit
percentage of 31.7% for the nine months ended March 31, 2000 decreased
from 35.3% for the comparable period last year mainly because of the
lower sales.
Research and development expenses of $224,900 for the nine months
ended March 31, 2000 increased $66,200 (41.7%) from $158,700 for the
comparable period last year primarily as a result of increased
activity related to a new product, the Enviro-Genie (trademark).
As a result of the litigation costs, lower sales and
higher research and development expenses during the nine months ended
March 31, 2000, the Company reflected a loss before income taxes of
$187,600 for the nine months ended March 31, 2000, compared to income
before income taxes of $3,500 for the comparable period last year.
7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In January 1999, Troemner began supplying VWR, the Company's second
largest customer in terms of net sales, with a vortex mixer which the
Company believed violated the trade dress rights of the Company's
Vortex-Genie 2 (registered trademark) mixer and one of the Company's utility
patents. The Vortex-Genie 2 (registered trademark) mixer and related
accessories which the Company sold to VWR as their private label mixer for
many years is the Company's
primary product which accounted for approximately 97% of the
Company's total net sales for the fiscal year ended June 30, 1999.
The Company also learned that Troemner began soliciting business from
the Company's other customers for Troemner's vortex mixer at a
markedly lower price than the Vortex-Genie 2 (registered trademark) mixer.
As a result, on January 26, 1999, the Company filed a complaint against VWR and
Troemner in the United States District Court for the Eastern District
of New York (the "District Court"), alleging, among other things,
that VWR's and Troemner's manufacture, sale, promotion, and
distribution of a vortex mixer called the "VWRbrand Mini-Vortexer"
infringes the Company's trade dress rights in the housing
configuration of the Vortex-Genie 2 (registered trademark) mixer, infringes
one of the Company's patents, and constitutes unfair competition. The Company
sought an award for monetary damages trebled, recovery of its
attorneys' fees and expenses, as well as permanent injunctive relief.
On March 8, 1999, the defendants denied the material allegations of
the complaint and asserted certain affirmative defenses and
counterclaims against the Company for unfair competition and a
declaratory judgment of non-infringement and invalidity of the
Company's patent. On March 17, 1999, the Company denied the material
allegations of the counterclaim and made a motion that VWR and
Troemner be preliminarily enjoined from making, selling, promoting
and distributing the VWRbrand Mini-Vortexer. On May 11, 1999, the
District Court granted the Company's motion for a preliminary
injunction on the grounds that the Company was likely to succeed on
its trade dress infringement claim. In connection with the granting
of the preliminary injunction, the District Court required the
Company to post an injunction bond in the amount of $500,000 which it
did on May 7, 1999. During the summer, Troemner began supplying VWR
with a modified version of their VWRbrand Mini-Vortexer. This mixer,
which was not before the District Court is currently being marketed
by VWR. The District Court's preliminary injunction order was
appealed to the United States Court of Appeals for the Federal
Circuit.
On December 1, 1999 a settlement agreement was reached among the
parties. Under the settlement, VWR and Troemner agreed not to
manufacture, sell or distribute any vortex mixer that infringes the
Company's trade dress in the housing configuration of the Vortex-
Genie 2 (registered trademark) mixer and, for a limited time, whose
accessories are interchangeable with the Vortex-Genie 2 (registered
trademark) mixer's accessories. Troemner and VWR also agreed not
to sell the original VWRbrand (registered trademark) Mini-
Vortexer manufactured by Troemner. Troemner will be entitled to
manufacture, market and sell to VWR, and VWR will be entitled to
continue to market and sell the modified version of Troemner's
VWRbrand (registered trademark) Mini-Vortexer. The VWRbrand Mini-Vortexer will
include the existing coupling under a patent license from the Company. In
addition, VWR will begin purchasing vortex mixers
from the Company under the Company's own brand. The settlement
agreement included an immediate purchase commitment from VWR of
$200,000 which includes significant quantities of the Vortex-Genie 2
(registered trademark) mixer, and to a lesser extent quantities of the
Company's new products, the Roto-Shake Genie (trademark) and the Enviro-Genie
(trademark). The settlement agreement included a cash payment of $250,000 from
Troemner and certain promotional considerations from VWR amounting up
to a maximum of $250,000 based on a percentage of sales of the
Company's products. The promotional activities are to be performed
during 2000, 2001, and 2002.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting was held on January 6, 2000.
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 election and qualification of their
respective successors. There was a total of 651,974 "For" votes, 2,679
"Withheld" votes, and 1,522 "Abstain" votes, for Lowell A. Kleiman, and
644,422 "For" votes, 10,231 "Withheld" votes, and 1,522 "Abstain" votes for
Roger B. Knowles. The other directors whose terms of office as directors
continued after the meeting are Arthur M. Borden, James S. Segasture, and
Joseph I. Kesselman. In addition, the appointment of Nussbaum, Yates &
Wolpow as the Company's independent accountants for the fiscal year ending
June 30, 2000 was ratified.
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 27 - Financial Data
Schedule
(b) Reports on Form 8-K: None
9
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/
---------------------------
Date: May 12, 2000 Lowell A. Kleiman
President and Treasurer
(Chief Executive and Financial Officer)
/s/
---------------------------
Date: May 12, 2000 Helena R. Santos
Controller and Assistant Treasurer
(Principal Accounting Officer)
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 378,300
<SECURITIES> 58,800
<RECEIVABLES> 387,000
<ALLOWANCES> 7,400
<INVENTORY> 470,400
<CURRENT-ASSETS> 1,328,400
<PP&E> 423,900
<DEPRECIATION> 243,800
<TOTAL-ASSETS> 1,682,800
<CURRENT-LIABILITIES> 251,600
<BONDS> 0
0
0
<COMMON> 42,800
<OTHER-SE> 1,294,100
<TOTAL-LIABILITY-AND-EQUITY> 1,682,800
<SALES> 2,113,600
<TOTAL-REVENUES> 2,379,500
<CGS> 1,442,700
<TOTAL-COSTS> 2,304,900
<OTHER-EXPENSES> 262,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (187,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (187,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,600)
<EPS-BASIC> ( .22)
<EPS-DILUTED> ( .22)
</TABLE>
