UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
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( )TRANSITION REPORT PURSUANT TO 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.
---------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 04-2217279
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
70 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
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(Address of principal executive offices)
(631)567-4700
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(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. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
September 30, 2000
------------------
Current Assets:
Cash and cash equivalents $ 419,700
Investment securities 177,700
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 352,400
Inventories 433,800
Prepaid expenses and other current assets 20,700
----------
Total current assets 1,404,300
----------
Property and equipment at cost, less accumulated
depreciation of $272,200 172,700
----------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $19,600 16,900
Other 159,300
----------
176,200
----------
$1,753,200
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 83,900
Accrued expenses 94,000
----------
Total current liabilities 177,900
----------
Deferred compensation 106,500
----------
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 (4,000)
Retained earnings 612,900
----------
1,521,200
Less common stock held in treasury, at cost 52,400
----------
1,468,800
----------
$1,753,200
==========
See notes to condensed unaudited consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month Periods Ended
September 30, 2000 September 30, 1999
---------- ----------
Net sales $ 787,300 $ 716,200
Cost of sales 467,200 498,700
---------- ----------
Gross profit 320,100 217,500
---------- ----------
Operating expenses:
General and administrative 178,400 173,500
Selling 24,900 26,200
Research and development 64,800 64,000
---------- ----------
268,100 263,700
---------- ----------
Income (loss) from operations 52,000 ( 46,200)
---------- ----------
Other income (expenses):
Litigation costs - ( 226,500)
Interest and other income 6,800 7,600
---------- ----------
6,800 ( 218,900)
---------- ----------
Income (loss) before income taxes 58,800 ( 265,100)
Income taxes - -
---------- ----------
Net income (loss) $ 58,800 ($ 265,100)
========== ==========
Net income (loss) per common $ .07 ($ .32 )
share-basic
Net income (loss) per common $ .06 ($ .32 )
share-diluted
See notes to condensed unaudited consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Month Periods Ended
September 30, 2000 September 30, 1999
----------------- ----------------
Operating activities:
Net Income (loss) $ 58,800 ($ 265,100)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Gain on sale of investments - (800)
Depreciation and amortization 18,000 24,800
Change in assets and liabilities:
Accounts receivable (32,500) 40,100
Inventories (16,900) (54,700)
Recoverable income taxes - 13,700
Prepaid expenses and other 6,100 10,100
Accounts payable (100) 63,400
Accrued expenses 3,700 18,100
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Total adjustments (21,700) 114,700
---------- ------------
Net cash provided by
(used in) operating
activities 37,100 ( 150,400)
---------- ------------
Investing activities:
Purchase of investment securities,
available-for-sale - (4,800)
Purchase of investment securities,
held to maturity (65,900) -
Redemptions of investment securities,
available-for-sale - 4,300
Redemptions of investment securities,
held to maturity 60,500 306,700
Capital expenditures (6,600) ( 30,500)
----------- ------------
Net cash provided by
(used in) investing
activities (12,000) 275,700
----------- -----------
Net increase in cash and
cash equivalents 25,100 125,300
----------- -----------
Cash and cash equivalents, 394,600 229,100
beginning of year ----------- -----------
Cash and cash equivalents, $ 419,700 $ 354,400
end of period =========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 400 $ 400
See notes to condensed unaudited consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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
within the Form 10-KSB for the year ended June 30, 200
Scientific Industries, Inc. (the "Company").
The statements as of and for the three months ended
September 30, 2000 and 1999 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 unaudited consolidated financial
statements include the accounts of the Company and Scientific
Packaging Industries, Inc., a New York Corporation and An inactive
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:
September 30, 2000
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Raw Materials $ 383,000
Work in process 41,500
Finished Goods 9,300
------------
$ 433,800
============
3. Net Income (Loss) Per Common Share:
Basic net income (loss) per common share is computed by dividing
net income (loss) by the weighted-average number of shares
outstanding. Diluted net income (loss) per share includes the
dilutive effect, if any, of stock options.
Net income (loss) per common share was computed as follows:
For the Three Month Periods Ended
September 30, 2000 September 30, 1999
------------------ -------------------
Net Income (Loss) $ 58,800 ($ 265,100)
Weighted average common
shares outstanding 835,540 835,540
Effect of dilutive securities,
stock options 118,085 -
Weighted average dilutive ---------- ----------
common shares outstanding 953,625 835,540
========== ==========
Net income (loss)per common $ .07 ($ .32)
share-basic
Net income (loss) per common $ .06 ($ .32)
share-diluted
The potential effect of dilution from the assumed exercise of
stock options, amounting to 99,892 shares of common stock as of
September 30, 1999, was not included in determining dilutive EPS
because to do so would be anti-dilutive because the Company incurred a
net loss for the period. Unexercised employee stock options to
purchase 71,000 shares of common stock at $1.50 to $2.00 per share
were outstanding as of September 30, 2000 and 106,680 shares of common
stock at $1.28 to $2.00 per share were outstanding as of September 30,
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 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.
There was no significant difference between net income (loss) and
comprehensive income (loss) for the periods ended September 30, 2000
and 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital for the three months ended September 30,
2000 increased $70,800 to $1,226,400 compared to $1,155,600 as of June
30, 2000. This increase is primarily due to income from operations.
The working capital for the three months ended September 30, 1999 of
$978,800 reflected a decrease of $253,600 from $1,252,400 at June 30,
1999 due to litigation costs. Management believes that it will be
able to meet its cash flow requirements during the next year from its
available financial resources which include its cash and cash
equivalents and investment securities. In addition, the Company has
available a secured bank line of credit of $200,000 with North Fork
Bank. The credit line expires on November 1, 2001 and carries
interest at prime plus 1%. The Company could utilize this line of
credit for working capital needs but has not yet utilized this credit
line.
Results of Operations
The Three Months Ended September 30, 2000 Compared With Three Months
Ended September 30, 1999.
Net sales of $787,300 increased $71,100 (9.9%) for the three months
ended September 30, 2000 compared to $716,200 for the period ended
September 30, 1999 primarily as a result of sales to VWR Scientific
Products ("VWR"), the Company's second largest customer, re-
establishment of the Company's normal selling price structure during
the quarter, and an overall increase in orders. Pursuant to a
settlement agreement reached in December 1999 with VWR and Troemner,
Inc. ("Troemner") regarding litigation commenced in January 1999, the
Company began selling the Scientific Industries brand vortex mixer to
VWR during the fiscal year ended June 30, 2000. The gross profit
percentage of 40.7% for the three months ended September 30, 2000
increased from 30.4% for the three months ended September 30, 1999
primarily as a result of the higher sales and lower material costs.
The Company incurred litigation costs of $226,500 for the three months
ended September 30, 1999 related to proceedings brought by the Company
against VWR and Troemner in January 1999. The litigation was settled
in December 1999. Since the settlement, the Company has incurred no
litigation costs.
The Company incurred no income tax expense for the three months ended
September 30, 2000 and 1999 due to the use of available net operating
loss and tax credit carryforwards in 2000 and due to the net loss in
1999. A valuation allowance was recognized for both periods to offset
the full amount of the Company's net deferred tax assets due to the
uncertainty of realizing these assets in the future. The realization
of deferred tax assets depends on future income. Therefore, an
assessment was made as to whether, in the judgment of management,
income in future years will be sufficient to realize the deferred tax
assets. It was determined based on consideration of positive and
negative factors that it is more likely than not that the deferred tax
assets will not be realized. The positive factors included the
success of the Vortex-Genie 2 (registered trademark) mixer; the
litigation settlement; and the development of new products for product
line diversification. The negative factors included the net loss for
last two fiscal years; the fact that 95% of net sales are derived from
one single product which now faces increased competition;
significantly lower sales to VWR compared to prior to commencement of
the litigation; increased reliance on the Company's existing largest
customer; and the long time period required to establish new products
in the market.
The higher sales, coupled with higher profit margins resulted in net
income of $58,800 for the three months ended September 30, 2000
compared to a net loss of $265,100 for the prior three month period
ended September 30, 1999. The prior period also reflected litigation
costs of $226,500, which had a significant impact on the Company's
financial results.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal
proceedings.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
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: No reports on Form 8-K were filed
during the period covered by this
report.
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
Principal Executive and Financial Officer
/s/ Helena R. Santos
--------------------
Helena R. Santos
Vice President, Controller and
Assistant Treasurer
Principal Accounting Officer
Date: November 14, 2000
