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, 2004
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, 2004: 975,541 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, 2004
Current Assets:
Cash and cash equivalents $ 221,600
Investment securities 872,300
Trade accounts receivable, less allowance for
doubtful accounts of $11,600 389,000
Inventories 663,700
Prepaid expenses and other current assets 49,900
Deferred taxes 62,300
---------
Total current assets 2,258,800
Property and equipment at cost, less accumulated
depreciation of $400,900 151,700
Deferred taxes 25,500
Intangible assets, less accumulated amortization
of $42,600 15,600
Other 65,900
----------
$2,517,500
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 67,700
Accrued expenses 155,100
Dividends payable 68,300
----------
Total current liabilities 291,100
----------
Deferred compensation 34,100
----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
995,343 issued and outstanding 49,800
Additional paid-in capital 984,200
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 100)
Retained earnings 1,210,800
----------
2,244,700
Less common stock held in treasury, at cost,
19,802 shares 52,400
----------
2,192,300
----------
$2,517,500
==========
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, 2004 September 30, 2003
Net sales $ 851,800 $ 873,900
Cost of goods sold 458,000 464,900
---------- -----------
Gross profit 393,800 409,000
---------- -----------
Operating Expenses:
General and administrative 177,500 164,100
Selling 67,900 99,900
Research and development 78,400 102,600
----------- -----------
323,800 366,600
----------- -----------
Income from operations 70,000 42,400
Interest and other income 6,600 2,600
----------- -----------
Income before income
taxes 76,600 45,000
Income taxes, all current 18,000 15,000
----------- -----------
Net income $ 58,600 $ 30,000
=========== ===========
Basic earnings per common
share $ .06 $ .03
Diluted earnings per common
share $ .06 $ .03
Cash dividends declared per common
share $ .07 $ .-
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, 2004 September 30, 2003
Operating activities:
Net income $ 58,600 $ 30,000
-------- ---------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Loss on sale of investments - 800
Depreciation and amortization 16,400 17,200
Change in assets and liabilities:
Accounts receivable ( 200) ( 38,200)
Inventories 2,500 29,100
Prepaid expenses and other
current assets 8,300 15,500
Other assets 6,900 ( 100)
Accounts payable ( 8,300) 44,400
Accrued expenses and taxes ( 5,000) 22,600
Deferred compensation ( 1,900) -
--------- --------
Total adjustments 18,700 91,300
--------- --------
Net cash provided by
operating activities 77,300 121,300
--------- --------
Investing activities:
Purchase of investment securities,
available for sale ( 77,000) ( 1,800)
Purchase of investment securities,
held to maturity ( 15,300) -
Redemptions of investment securities,
available-for-sale - 30,000
Redemptions of investment securities,
held to maturity 25,500 60,000
Capital expenditures ( 25,900) ( 15,800)
Purchase of intangible assets ( 4,400) -
---------- ---------
Net cash provided by
(used in) investing
activities ( 97,100) 72,400
---------- ---------
Net increase (decrease)
in cash and cash equivalents ( 19,800) 193,700
Cash and cash equivalents,
beginning of year 241,400 107,600
---------- ---------
Cash and cash equivalents,
end of period $ 221,600 $ 301,300
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 27,700 $ 200
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, 2004. The results
for the three months ended September 30, 2004,
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. Line of Business and Concentrations:
The Company is engaged in the manufacturing and marketing of
equipment for research in university, hospital and industrial
laboratories. The Company believes that is has only one
reportable segment. Sales of the Company's principal product,
the Vortex-Genie(R) 2 mixer, accounted for approximately 73%
and 80% of net sales for the three month periods ended
September 30, 2004 and 2003, respectively.
The Company's export sales (principally Europe and Asia) were
approximately $313,600 and $346,700 (36.8% and 39.6%,
respectively, of net sales) for the three month periods ended
September 30, 2004 and 2003, respectively.
Three of the Company's customers accounted in the aggregate
for 50% and 59% of net sales for the three month periods ended
September 30, 2004 and 2003, respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. 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, 2004
------------------
Raw Materials $ 584,000
Work in process 16,300
Finished Goods 63,400
------------
$ 663,700
============
4. Earnings per common share:
Basic earnings per common share is computed by dividing net
income by the weighted-average number of shares outstanding.
Diluted earnings per common share includes the dilutive effect
of stock options and a warrant.
Earnings per common share was computed as follows:
For the Three Month Periods Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income $ 58,600 $ 30,000
========= =========
Weighted average common
shares outstanding 975,541 960,541
Effect of dilutive
securities 69,138 28,959
--------- ---------
Weighted average dilutive
common shares outstanding 1,044,679 989,500
========= =========
Basic earnings per common
share $ .06 $ .03
======= =======
Diluted earnings per common
share $ .06 $ .03
======= =======
Unexercised employee stock options to purchase 56,000 shares
of Common Stock at $1.875 to $2.40 per share were outstanding
as of September 30, 2003, 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 period. All options
outstanding as of September 30, 2004 were included in the
foregoing computation.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Comprehensive Income:
There was no significant difference between net income and
comprehensive income for the three month periods ended
September 30, 2004 and 2003.
6. Stock-Based Compensation Plans
The Company maintains an Incentive Stock Option Plan which it
accounts for 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
fair 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, 2004 September 30, 2003
------------------ ------------------
Net income:
As reported $ 58,600 $ 30,000
Pro Forma 58,100 29,700
Earnings per common and
common equivalent share:
Basic - as reported $ .06 $ .03
Basic - pro forma $ .06 $ .03
Diluted - as reported $ .06 $ .03
Diluted - pro forma $ .06 $ .03
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
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.
Financial Overview
The first quarter of fiscal year ending June 30, 2005 ("Fiscal
2005") produced higher net income of $58,600, an increase of
$28,600 over the prior year's comparable quarter, principally as a
result of lower selling and research and development expenses
which overcame a $22,100 decrease in net sales for the comparable
quarter last year. Sales for the quarter ended September 30, 2004
were impacted by slightly lower overseas sales during the quarter.
New product sales continued their growth registering an 18%
increase compared to those for the quarter ended September 30, 2003.
Another new product, the Microplate Genie(TM) mixer, was introduced
during the first quarter of Fiscal 2005.
Results of Operations
The Three Months Ended September 30, 2004 Compared with the Three
Months Ended September 30, 2003
The Company's net sales for the three months ended September 30,
2004 (the "2004 Quarter") decreased $22,100 (2.5%) to $851,800
from $873,900 for the three months ended September 30, 2003 (the
"2003 Quarter"), primarily the result of a reduction in sales to
overseas customers in July and August. Sales of new products
(excluding accessories) for the 2004 Quarter were $158,900, which
was $24,100 (17.9%) more than sales of $134,800 for the 2003
Quarter. There was no material difference in the gross profit
percentages for the 2004 Quarter (46.2%) and 2003 Quarter (46.8%).
General and administrative expenses for the 2004 Quarter was
$177,500, an increase of $13,400 (8.2%) from $164,100 for the 2003
Quarter, due primarily to higher salaries and legal expenses.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
Selling expenses of $67,900 for the 2004 Quarter were $32,000
(32.0%) lower than $99,900 for the 2003 Quarter, mainly the result
of the absence of expenses incurred in the prior year period for
training outside sales representatives and new website development
costs incurred in the prior year period.
Research and development expenses for the 2004 Quarter of $78,400
were lower by $24,200 (23.6%) than $102,600 of such expenses for
the 2003 Quarter as a result of the significant development work
for the new MicroPlate Genie(TM) mixer in the prior year period.
As a result of the foregoing, the Company's income before income
taxes was $76,600 was $31,600 for the 2004 Quarter, which was
$31,600 (70.2%) greater than $45,000 for the 2003 Quarter.
As a result of the higher net income, income taxes were $18,000
for the 2004 Quarter as compared to $15,000 for the comparable
period last year.
Liquidity and Capital Resources
Net cash provided by operating activities was $77,300 for the 2004
Quarter as compared to $121,300 for the 2003 Quarter principally
due to:
(i) The smaller increase in accounts receivable of $38,000 due to
the high sales volume to foreign customers at the end of September
30, 2003, (ii) a smaller amount of raw materials as of September
30, 2003 producing a $26,600 reduction between the quarters, and
(iii) an increase in the change in accounts payable of $52,700 as
of September 30, 2003 compared to the amount as of September 30,
2004 due to a few large one-time invoices outstanding as of
September 30, 2003. The foregoing amounts were partially offset
by the comparative $28,600 increase in net income for the 2004
Quarter. Cash used in investing activities was $97,100 for the
2004 Quarter compared to cash provided of $72,400 for the
comparative period last year. This was due principally to the
purchase of investment securities, and less redemptions during the
2004 Quarter. Cash and cash equivalents decreased by $19,800 to
$221,600 as of September 30, 2004 from a balance of $241,400 as of
June 30, 2004.
On September 21, 2004, the Board of Directors of the Company
declared a cash dividend of $.07 per share of Common Stock payable
on January 14, 2005 to holders of record as of the close of
business on October 20, 2004.
The Company's working capital decreased $15,600 to $1,967,700 from
$1,983,300 at June 30, 2004, primarily the result of the cash
dividend declared, partially offset by the Company's profitable
operations. The Company has available a secured bank line of
credit of $200,000 with North Fork Bank with interest at prime,
which was due to expire on November 1, 2004, but has been extended
indefinitely for as long as the Company is in compliance with all
loan requirements, including payments and covenants. The
Company has never borrowed under this line of credit. Management
believes that it will be able to meet its cash flow requirements
during the next 12 months from all its available financial resources.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
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.
(b) Reports on Form 8-K:
Registrant filed reports on Form 8-K on September
1, 2004 and September 2, 2004 reporting under
Item 1.01, Entry into a Material Definitive
Agreement, and on September 23, 2004 under Item
8.01, Other Events.
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 10, 2004
/s/Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Chief Financial and Principal
Accounting Officer