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, 2001
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.
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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)
(631)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 February 1, 2002: 938,540 shares outstanding
of the Company's Common Stock, par value, $ .05.
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
December 31, 2001
-----------------
Current Assets:
Cash and cash equivalents $ 263,900
Investment securities 427,700
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 358,400
Inventories 688,000
Prepaid expenses and other current assets 58,700
----------
Total current assets 1,796,700
Property and equipment at cost, less accumulated
depreciation of $348,700 176,200
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Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $28,200 9,400
Deferred Taxes 101,600
Other 145,500
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256,500
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$2,229,400
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 132,300
Accrued expenses 124,500
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Total current liabilities 256,800
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Deferred compensation 88,900
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Shareholders' equity:
Common stock $.05 par value 47,700
Additional paid-in capital 951,100
Accumulated other comprehensive loss, unrealized
holding loss on investment securities (5,900)
Retained earnings 943,200
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1,936,100
Less common stock held in treasury, at cost 52,400
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1,883,700
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$2,229,400
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See notes to condensed unaudited consolidated financial statements
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2001 2000 2001 2000
-------- -------- ---------- ----------
Net sales $872,700 $759,400 $1,794,000 $1,546,700
Cost of goods sold 539,600 455,700 1,069,000 922,900
-------- -------- ---------- ----------
Gross profit 333,100 303,700 725,000 623,800
Operating Expenses:
General & administrative 207,600 173,100 414,100 351,500
Selling 46,400 40,100 83,600 65,000
Research & development 68,800 68,600 147,800 133,400
-------- -------- ---------- ----------
322,800 281,800 645,500 549,900
-------- -------- ---------- ----------
Income from operations 10,300 21,900 79,500 73,900
Interest & other income 5,300 8,600 13,600 15,400
-------- -------- ---------- ----------
Income before income taxes 15,600 30,500 93,100 89,300
Income taxes 2,000 - 29,000 -
-------- -------- ---------- ----------
Net income $ 13,600 $ 30,500 $ 64,100 $ 89,300
======== ======== ========== ==========
Net income per common
share - basic $ .01 $ .04 $ .07 $ .11
Net income per common
share - diluted $ .01 $ .03 $ .06 $ .09
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 2001 December 31, 2000
Operating activities:
Net Income $ 64,100 $ 89,300
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Adjustments to reconcile net income
to net cash provided by (used in)
Operating activities:
(Gain) on sale of investments ( 4,400) -
Depreciation and amortization 32,400 34,700
Change in assets and liabilities:
Accounts receivable ( 58,000) (41,700)
Inventories (111,600) (121,500)
Prepaid expenses and other
current assets 13,000 ( 5,700)
Other assets 5,400 ( 100)
Accounts payable (20,200) 62,700
Accrued expenses 50,600 16,400
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Total adjustments (92,800) (55,200)
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Net cash provided by (used in)
operating activities (28,700) 34,100
Investing activities:
Purchase of investment securities,
available-for-sale ( 80,600) (100,000)
Purchase of investment securities,
held to maturity (148,000) ( 76,000)
Redemptions of investment securities,
available-for-sale 175,300 -
Redemptions of investment securities,
held to maturity 40,000 186,500
Capital expenditures (10,000) (36,500)
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Net cash used in investing activities (23,300) (26,000)
Financing activities,
exercise of stock options 40,500 -
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Net increase (decrease) in cash and cash
equivalents (11,500) 8,100
Cash and cash equivalents, beginning of
year 275,400 394,600
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Cash and cash equivalents, end of period $ 263,900 $ 402,700
========= =========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 6,500 $ 400
See notes to condensed unaudited consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
within the Form 10-KSB for the fiscal year ended June 30,
2001 of Scientific Industries, Inc. (the "Company").
The statements as of and for the three and six months ended
December 31, 2001 and 2000 are unaudited and include all
normal recurring adjustments necessary to present fairly the
results of such unaudited interim periods. The results for
the three and six months ended December 31, 2001, are not
necessarily an indication of the results of the full fiscal
year.
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 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:
December 31,
2001
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Raw Materials $ 519,800
Work in process 91,600
Finished Goods 76,600
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$ 688,000
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
3. Net income per Common Share:
Basic net income per common share is computed by dividing net income
by the weighted-average number of shares outstanding. Diluted net
income per common share includes the dilutive effect of stock options
and a warrant.
Net income per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2001 2000 2001 2000
-------- --------- -------- --------
Net income $13,600 $30,500 $ 64,100 $ 89,300
Weighted average common
shares outstanding 933,070 835,540 914,340 835,540
Effect of dilutive
securities, stock options 75,384 123,948 96,787 121,006
-------- -------- -------- --------
Weighted average dilutive
common shares outstanding 1,008,454 959,488 1,011,127 956,546
========= ======== ========= ========
Net income per
common share - basic $ .01 $ .04 $ .07 $ .11
========= ======== ========= ========
Net income per
common share - diluted $ .01 $ .03 $ .06 $ .09
========= ======== ========= ========
Anti-dilutive stock options to purchase 51,000 shares of Common Stock
at $1.92 to $2.40 per share were outstanding as of December 31, 2001, and
to purchase 71,000 shares of Common Stock at $1.50 to $2.00 per share were
outstanding as of December 31, 2000, however, these shares were not
included in the computations of diluted net income per common share
because the options' exercise price was greater than the average market
price of the Company's common stock.
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SCIENTIFIC INDUSTRIES, INC., AND SUBSIDIARY
4. Comprehensive Income:
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 and comprehensive income for the three and six
months ended December 31, 2001 and 2000.
Item 2. Management's Discussion and Analysis
Liquidity and Capital Resources
Due primarily to the increase in income for the respective six month
period, the Company's working capital for the six months ended December
31, 2001 increased $130,400 to $1,539,900 and for the six months ended
December 31, 2000, increased $87,200 to $1,242,800. The Company has
available a secured bank line of credit of $200,000 with North Fork Bank.
The credit line expires on November 1, 2002 and carries interest at prime
plus 1%, which has not yet been utilized. 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.
Results of Operations
The Three Months Ended December 31, 2001 Compared with the Three Months
Ended December 31, 2000.
Net sales of $872,700 increased $113,300 (14.9%) for the three months
ended December 31, 2001 compared to $759,400 for the three months ended
December 31, 2000 primarily as a result of an increase in the volume of
unit sales compared to the prior year's period. The gross profit
percentage of 38.2% for the three months ended December 31, 2001, is lower
than the gross profit of 40.0% for the three months ended December 31,
2000, primarily due to an increase in the factory supervisory staff in
preparation for future growth.
General and administrative expenses for the three months ended December
31, 2001 of $207,600, increased $34,500 (19.9%) from $173,100 for the
comparable period in 2000 primarily as a result of costs incurred to
pursue external business opportunities including fees for an investment
banker.
Selling expenses increased $6,300 (15.7%) to $46,400 for the three months
ended December 31, 2001 from $40,100 for the comparable period in 2000.
This was due to increased marketing activity, primarily trade show
exhibiting and promotional material.
The Company incurred no income tax expense for the three months ended
December 31, 2000 due to the use of available net operating loss and tax
credit carryforwards during the fiscal year ended June 30, 2001. Income
tax expense amounted to $2,000 for the three months ended December 31,
2001.
6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
The Six Months Ended December 31, 2001 Compared with Six Months Ended
December 31, 2000.
Net sales of $1,794,000 increased $247,300 (16.0%) for the six months
ended December 31, 2001 from $1,546,700 for the six months ended December
31, 2000 primarily as a result of an increase in the volume of unit sales
compared to the prior year's period. Gross profit for the six months
ended December 31, 2001, was 40.4% compared to 40.3% for the six months
ended December 31, 2000.
General and administrative expenses for the six months ended December 31,
2001 of $414,100 increased $62,600 (17.8%) from $351,500 for the six
months ended December 31, 2000 primarily as a result of expenses incurred
in the pursuit of external business opportunities and legal fees incurred
in the ordinary course of business.
Selling expenses for the six months ended December 31, 2001 were $83,600,
an increase of $18,600 (28.6%) from $65,000 for the six months ended
December 31, 2000 due to increased marketing activity, primarily trade
show exhibiting and promotional material.
Research and development expenses for the six months ended December 31,
2001 increased $14,400 (10.8%) to $147,800 compared to $133,400 for the
six months ended December 31, 2000 due to an increase in development
activity for planned new products primarily during the first three months
of the six-month period.
The Company incurred no income tax expense for the six month period ended
December 31, 2000 compared to $29,000 for the six month period ended
December 31, 2001 because the Company had available net operating loss and
tax credit carryforwards during fiscal year 2001.
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
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: None
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the period covered by this report.
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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
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Helena R. Santos
Controller and Assistant Treasurer
(Principal Accounting Officer)
Date: February 14, 2002
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