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, 2003
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 October 31, 2003: 960,541 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
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
September 30, 2003
------------------
Current Assets:
Cash and cash equivalents $ 301,300
Investment securities 606,400
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 447,800
Inventories 553,100
Prepaid expenses and other current assets 49,100
----------
Total current assets 1,957,700
Property and equipment at cost, less accumulated
depreciation of $407,600 153,300
Deferred taxes 113,600
Intangible assets, less accumulated amortization
of $38,100 14,200
Other 75,500
----------
$2,314,300
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 102,500
Accrued expenses 148,900
----------
Total current liabilities 251,400
----------
Deferred compensation 43,800
----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000
shares; 980,343 issued and outstanding 49,000
Additional paid-in capital 971,200
Accumulated other comprehensive gain, unrealized
holding gain on investment securities 1,200
Retained earnings 1,050,100
----------
2,071,500
Less common stock held in treasury, at cost,
19,802 shares 52,400
----------
2,019,100
----------
$2,314,300
==========
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Month Periods Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Net sales $ 873,900 $ 850,300
Cost of goods sold 464,900 502,500
---------- -----------
Gross profit 409,000 347,800
---------- -----------
Operating Expenses:
General and administrative 164,100 224,700
Selling 99,900 31,800
Research and development 102,600 87,400
---------- -----------
366,600 343,900
Income from operations 42,400 3,900
Interest and other income 2,600 4,100
---------- -----------
Income before income
taxes 45,000 8,000
Income taxes 15,000 1,400
---------- -----------
Net income $ 30,000 $ 6,600
========== ===========
Net income per common
share - basic $ .03 $ .01
Net income per common
share - diluted $ .03 $ .01
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Operating activities:
Net income $ 30,000 $ 6,600
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
(Gain) loss on sale of investments 800 ( 600)
Loss on disposal of asset - 200
Depreciation and amortization 17,200 16,500
Change in assets and liabilities:
Accounts receivable ( 38,200) ( 75,300)
Inventories 29,100 ( 83,000)
Prepaid expenses and other
current assets 15,500 17,000
Other assets ( 100) 3,800
Accounts payable 44,400 82,000
Accrued expenses 22,600 9,700
---------- ---------
Total adjustments 91,300 ( 29,700)
---------- ---------
Net cash provided by (used in)
operating activities 121,300 ( 23,100)
---------- ---------
Investing activities:
Purchase of investment securities,
available for sale ( 1,800) ( 44,400)
Redemptions of investment securities,
available-for-sale 30,000 52,600
Redemptions of investment securities,
held to maturity 60,000 106,100
Capital expenditures ( 15,800) ( 1,400)
Proceeds from sale of assets - 800
Purchase of intangible assets - ( 600)
----------- ---------
Net cash provided by investing
activities 72,400 113,100
----------- ---------
Financing activities;
exercise of stock options - 2,900
----------- ---------
Net increase
in cash and cash equivalents 193,700 92,900
Cash and cash equivalents, beginning
of year 107,600 296,800
----------- ---------
Cash and cash equivalents, end of
period $ 301,300 $ 389,700
=========== =========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 200 $ 23,100
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim condensed consolidated
financial statements are prepared pursuant to the
Securities and Exchange Commission's rules and regulations
for reporting on Form 10-QSB. Accordingly, certain
information and footnotes required by accounting principles
generally accepted in the United States for complete
financial statements are not included herein. The Company
believes all adjustments necessary for a fair presentation
of these interim statements have been included and are of
a normal and recurring nature. These interim statements
should be read in conjunction with the Company's financial
statements and notes thereto, included in its Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2003.
The results for the three months ended September 30, 2003,
are not necessarily an indication of the results
for 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, 2003
------------------
Raw Materials $ 461,300
Work in process 8,000
Finished Goods 83,800
------------
$ 553,100
============
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, 2003 September 30, 2002
------------------ ------------------
Net income $ 30,000 $ 6,600
========= ========
Weighted average common
shares outstanding 960,541 950,639
Effect of dilutive
securities 28,959 49,199
--------- --------
Weighted average dilutive
common shares outstanding 989,500 999,838
========= ========
Net income per common
share - basic $ .03 $ .01
========= ========
Net income per common
share - diluted $ .03 $ .01
========= ========
Unexercised employee stock options to purchase 56,000 and 59,000
shares of Common Stock at $1.875 to $2.40 per share were outstanding
as of September 30, 2003 and 2002, respectively, but were not
included in the foregoing computation because the exercise price of
each option was greater than the average market price of the
Company's Common Stock for the related periods.
4. Comprehensive Income:
There was no significant difference between net income and
comprehensive income for the three month periods ended September 30,
2003 and 2002.
5. Stock-Based Compensation Plans
As of September 30, 2003, the Company maintains an Incentive Stock
Option Plan. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based compensation costs are reflected in
net income, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on
net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee
compensation:
For the Three Month Periods Ended
September 30, 2003 September 30, 2002
Net income:
As reported $ 30,000 $ 6,600
Pro Forma 29,700 6,600
Net income per common and
common equivalent share:
Basic - as reported $ .03 $ .01
Basic - pro forma $ .03 $ .01
Diluted - as reported $ .03 $ .01
Diluted - pro forma $ .03 $ .01
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking
information. Numerous unknown factors and future events could cause such
differences, including but not limited to, product demand, market
acceptance, impact of competition, the ability to reach final agreements,
adverse economic conditions, and other factors affecting the Company's
business that are beyond the Company's control. Consequently, no
forward-looking statement can be guaranteed.
We do not undertake any obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
The Company's cash and cash equivalents, and short-term investments
increased from $803,000 at the end of fiscal year 2003 to $907,700 at
September 30, 2003, principally as a result of cash provided from
operations. The Company's working capital as of September 30, 2003
increased $31,300 to $1,706,300 compared to $1,675,000 at June 30, 2003.
The Company had available for its working capital needs, a secured bank
line of credit of $200,000 with North Fork Bank and carried interest at
prime plus 1%, all of which was available as of September 30, 2003. The
line was renewed on November 1, 2003 through November 1, 2004 and carries
an interest rate of prime. Management believes that the Company will be
able to meet its cash flow needs during the 12 months ending September
30, 2004 from its available financial resources which include its cash
and investment securities.
Results of Operations
Financial Overview
Sales for the first quarter of fiscal year 2004 benefitted from new
product sales - especially the Disruptor Genie (trademark)
Vortex-Genie (registered trademark)1, and Vortex-Genie 2T. New product
sales were $134,800 compared to $97,500 for the comparable period last year.
In addition, sales of the Company's principal product, the Vortex-Genie 2
mixer, were only minimally lower than the prior year's comparable quarter
and significantly higher than sales for each of the quarters ended
March 31, 2003 and June 30, 2003.
The Three Months Ended September 30, 2003 Compared with the Three Months
Ended September 30, 2002.
The Company's net sales for the three months ended September 30, 2003
increased $23,600 (2.8%) from $850,300 for the three months ended
September 30, 2002 to $873,900, the result of increased sales of the
Company's new products partially offset by only a 1% decline in net sales
of the Vortex-Genie 2 mixer. The gross profit of $409,000 as a
percentage of revenues for the three months ended September 30, 2003
increased to 46.8% from 40.9% or $347,800 for the three months ended
September 30, 2002 as a result of lower overhead and reduction in the
costs of certain material components which are now purchased from
overseas.
General and administrative expenses for the three months ended September
30, 2003 decreased by $60,600 (27.0%) to $164,100 compared to $224,700
for the three months ended September 30, 2002. The prior year period
included costs incurred in connection with the termination of employment
in August 2002 of the then Chief Executive Officer including his salary,
certain benefits, and legal costs related to the termination.
Selling expenses for the three months ended September 30, 2003 increased
$68,100 (214%) to $99,900, as compared to $31,800 for the three months
ended September 30, 2002, as a result of the Company's expansion of its
sales and marketing functions including the hiring of a new director of
sales and marketing in January 2003, and advertising and other marketing
expenses.
Research and development expenses increased by $15,200 (17.4%) to
$102,600 for the three months ended September 30, 2003 from $87,400 for
the comparable prior year period as a result of increased new product
development.
As a result of the foregoing, the Company's income before income taxes
increased $37,000 (463%) to $45,000 for the three months ended September
30, 2003 compared to $8,000 for the three months ended September 30,
2002.
Income taxes of $15,000 for the three months ended September 30, 2003
increased by $13,600 from $1,400 for the comparable period last year as
a result of higher income for the period.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number: Description
31.1 Certification of Chief Executive
Officer and Chief Financial
Officer pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive
Officer and Chief Financial
Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
Scientific Industries, Inc.
Registrant
Date November 13, 2003 /s/Helena R. Santos
----------------- -------------------
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer