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 SEPTEMBER 30, 2002
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TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
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Commission File Number: 0-6658
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SCIENTIFIC INDUSTRIES, INC.
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(Exact name of small business issuer 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 October 31, 2002: 954,541 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
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September 30, 2002
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Current Assets:
Cash and cash equivalents $ 389,700
Investment securities 422,700
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 351,300
Inventories 762,100
Prepaid expenses and other current assets 46,200
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Total current assets 1,972,000
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Property and equipment at cost, less accumulated
depreciation of $389,200 168,900
Deferred taxes 106,600
Intangible assets, less accumulated amortization
of $32,700 5,600
Other 90,700
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$2,343,800
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 166,400
Accrued expenses 190,900
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Total current liabilities 357,300
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Deferred compensation 59,500
Shareholders' equity:
Common stock $.05 par value 48,700
Additional paid-in capital 963,600
Accumulated other comprehensive gain, unrealized
holding gain on investment securities 4,200
Retained earnings 962,900
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1,979,400
Less common stock held in treasury, at cost 52,400
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1,927,000
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$2,343,800
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See notes to condensed unaudited consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month Periods Ended
September 30, 2002 September 30, 2001
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Net sales $ 850,300 $ 921,300
Cost of goods sold 502,500 529,400
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Gross profit 347,800 391,900
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Operating Expenses:
General and administrative 224,700 206,500
Selling 31,800 37,200
Research and development 87,400 79,000
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343,900 322,700
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Income from operations 3,900 69,200
Interest and other income 4,100 8,300
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Income before income
taxes 8,000 77,500
Income taxes 1,400 27,000
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Net income $ 6,600 $ 50,500
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Net income per common
share - basic $ .01 $ .06
Net income per common
share - diluted $ .01 $ .05
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, 2002 September 30, 2001
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Operating activities:
Net Income $ 6,600 $ 50,500
Adjustments to reconcile net income
to net cash used in
operating activities:
Gain on sale of investments ( 600) ( 4,400)
Loss on disposal of asset 200 -
Depreciation and amortization 16,500 15,800
Change in assets and liabilities:
Accounts receivable ( 75,300) ( 169,100)
Inventories ( 83,000) ( 38,200)
Prepaid expenses and other
current assets 17,000 5,800
Other assets 3,800 5,500
Accounts payable 82,000 ( 60,200)
Accrued expenses 9,700 68,500
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Total adjustments ( 29,700) ( 176,300)
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Net cash used in operating
activities ( 23,100) ( 125,800)
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Investing activities:
Purchase of investment securities,
available for sale ( 44,400) ( 20,800)
Purchase of investment securities,
held to maturity - ( 106,900)
Redemptions of investment securities,
available-for-sale 52,600 175,300
Redemptions of investment securities,
held to maturity 106,100 15,000
Capital expenditures ( 1,400) ( 4,900)
Proceeds from sale of assets 800 -
Purchase of intangible assets ( 600) -
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Net cash provided by investing
activities 113,100 57,700
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Financing activities;
exercise of stock options 2,900 -
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Net increase (decrease)
in cash and cash equivalents 92,900 ( 68,100)
Cash and cash equivalents, beginning of year 296,800 275,400
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Cash and cash equivalents, end of period $ 389,700 $ 207,300
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Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 23,100 $ 4,200
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 "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,
2002 of Scientific Industries, Inc., (the "Company").
The statements as of and for the three months ended
September 30, 2002 and 2001 are unaudited and include all
normal recurring adjustments necessary to present fairly
the results of such unaudited interim periods. The results
for the three months ended September 30, 2002 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 period.
Components of inventory are as follows:
September 30, 2002
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Raw Materials $ 572,100
Work in process 93,700
Finished Goods 96,300
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$ 762,100
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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 Periods Ended
September 30, 2002 September 30, 2001
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Net income $ 6,600 $ 50,500
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Weighted average common
shares outstanding 950,639 895,540
Effect of dilutive
securities 49,199 118,196
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Weighted average dilutive
common shares outstanding 999,838 1,013,736
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Net income per common
share - basic $ .01 $ .06
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Net income per common
share - diluted $ .01 $ .05
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Unexercised employee stock options to purchase 59,000 shares of
common stock at $1.88 to $2.40 per share were outstanding as of September
30, 2002, 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:
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 month periods
ended September 30, 2002 and 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company's working capital as of September 30, 2002 increased $83,300
to $1,614,700 compared to $1,531,400 at June 30, 2002, due primarily to
increased accounts receivable and inventories. Inventories of raw
components were higher due to lower sales and purchase of greater
quantities of certain components from overseas to obtain lower unit
costs. The Company has available for its working capital needs, a
secured bank line of credit of $200,000 with North Fork Bank which
expires on November 1, 2003 and carries interest at prime plus 1%, all
of which was available as of September 30, 2002. Management believes
that the Company will be able to meet its cash flow needs during the next
12 months ending September 30, 2003 from its available financial
resources which include its cash and investment securities.
Results of Operations
The Three Months Ended September 30, 2002 Compared with the Three Months
Ended September 30, 2001.
The Company's net sales for the three months ended September 30, 2002
decreased $71,000 (7.8%) from $921,300 for the three months ended
September 30, 2001 to $850,300, principally the result of lower sales of
the Company's principal product, the Vortex-Genie 2 (registered trademark)
Mixer, to foreign and domestic distributors, which the Company began
experiencing in the last quarter of the fiscal year ended June 30, 2002
("fiscal 2002"). This appears to be due to increasing competitive
pressures for the mixer and general economic conditions. This quarter's
net sales were, however, higher than sales for the fourth quarter of
fiscal 2002. The gross profit of $347,800 for the three months ended
September 30, 2002 decreased slightly to 40.9% from 42.5% or $391,900
for the three months ended September 30, 2001 as a result of the lower
sales. Moreover, gross sales of new products, which consists of the
Enviro-Genie (registered trademark), Roto-Shake Genie (registered
trademark,) Timer Genie (trademark), Disruptor Genie (trademark), and
Genie 1 (trademark) increased by $24,000 (32%) from $73,500 for the
three months ended September 30, 2001 to $97,500 for the three months
ended September 30, 2002.
General and administrative expenses for the three months ended September
30, 2002 increased by $18,200 (8.9%) to $224,700 compared to $206,500 for
the three months ended September 30, 2001, primarily due to costs
incurred in connection with the former CEO's employment termination.
Research and development expenses increased by $8,400 (10.6%) to $87,400
for the three months ended September 30, 2002 from $79,000 for the
comparable prior period as a result of costs incurred in connection with
the engagement of an outside engineering firm, which is expected to be
more cost beneficial compared to the in-house engineering labor which it
replaced.
As a result of lower sales, higher general and administrative, and
research and development costs, the Company had net income of $6,600 for
the three months ended September 30, 2002 compared to $50,500 for the
three months ended September 30, 2001.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
However, a financial advisor employed by the Company pursuant to an
engagement letter that was not extended by the Company beyond its
expiration date of March 31, 2002 asserted a claim against the Company
in April 2002 in the amount of $125,000 for alleged services rendered to
the Company that were alleged to be outside the scope of the letter. The
Company denies engaging the financial advisor for any services outside
the scope of the engagement letter or that any amounts are owing to the
advisor. The Company's counsel has advised the Company that based on its
review of the engagement letter and the Company's denial, it is unlikely
that the financial advisor will prevail if it institutes a legal
proceeding.
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) Exhibit Number: Description
99.1 Certification Pursuant to 18
U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K: On August 30, 2002, the Company
filed a Current Report on Form 8-K
with the Commission, disclosing
the termination of Mr. Lowell A.
Kleiman's employment as President
and Chief Executive Officer, the
appointment of Ms. Helena Santos
as President, Chief Executive
Officer and Treasurer and Mr.
Robert Nichols as Executive Vice
President and Secretary, and the
amendment of the Company's Bylaws.
SIGNATURE
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.
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Registrant
Date November 13, 2002 /s/ Helena R. Santos
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Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. ss.1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Helena R. Santos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Scientific
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and I have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date");
and
c. presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based
on my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
November 13, 2002
By: /s/Helena R. Santos
_______________________
Helena R. Santos, Chief Executive
Officer and Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION OF CHIEF FINANCIAL OFFICER AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Scientific
Industries, Inc. (the "Company") for the quarterly period ended September
30, 2002, as filed with the Securities and Exchange Commission on the
date hereof (the "Report") I, Helena R. Santos, Chief Executive Officer,
and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a)
or 15 (d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
By: /s/Helena R. Santos
___________________________________________________
Helena R. Santos
President, Chief Executive Officer, Treasurer and
Chief Financial Officer
Date: November 13, 2002