UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
( X )ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 2004
_____________
( )TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to_______
Commission file number 0-6658
______
SCIENTIFIC INDUSTRIES, INC.
___________________________
(Name of Small Business Issuer in Its Charter)
DELAWARE 04-2217279
________ __________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
70 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
___________________________________ __________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (631) 567-4700
______________
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
________ _________
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.05 PER SHARE
________________
(Title of Class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year. $3,532,600
__________
The aggregate market value of the voting stock held by
non-affiliates computed by reference to the average bid and asked
prices of such stock, as of September 3, 2004 is $1,154,500.
The number of shares outstanding of the issuer's common stock, par
value $.05 per share ("Common Stock") as of September 3, 2004 is
975,541 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Amendment No. 1
_______________
This amendment is being filed to add ITEM 8A. CONTROLS AND
PROCEDURES.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Forward Looking Statements. The Company and its
representatives may from time to time make written or oral
forward-looking statements with respect to the Company's annual or
long-term goals, including statements contained in its filings with
the Securities and Exchange Commission and in its reports to
stockholders.
The words or phrases "will likely result," "are expected
to," "will continue to," "is anticipated," "estimate," "project" or
similar expressions identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. Readers are cautioned not to place undue reliance on
any such forward-looking statements, which speak only as of the
date made.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General. Scientific Industries, Inc., a Delaware
corporation (the "Company"), formed in 1954, designs, manufactures,
and markets a variety of laboratory equipment. The Company's
products are generally used for research purposes in research
laboratories in or used by universities, hospitals, pharmaceutical
companies, clinics, medical device manufacturers and other related
industries.
Products. The Company's products principally consist of
mixers and shakers, rotators/ rockers, refrigerated incubators
and magnetic stirrers.
The Company's primary product is the Vortex-Genie(R) 2
Mixer. The vortex mixer is used to mix the contents of test tubes,
beakers, and other various containers by placing such containers on
a rotating cup or other attachments which cause the contents to be
mixed at varying speeds. Sales of the Vortex-Genie 2 Mixer and
related accessories represented approximately 83% of the Company's
revenues for the year ended June 30, 2004 ("fiscal 2004") as
compared with 87% of the Company's revenues for the year ended June
30, 2003 ("fiscal 2003").
The Company introduced in the year ended June 30, 2002
("fiscal 2002") the Vortex-Genie 2T, a mixer with an integral
timer, the Vortex-Genie 1, a high speed touch mixer, and the
Disruptor Genie(TM), a patented cell disruptor. In addition,
during fiscal 2004, the Company began offering cell disruption
media to be used with the Disruptor Genie. Revenues from all three
products in fiscal 2004 were more than twice their revenues in
fiscal 2003. In general, it takes two to three years for a product
to begin generating meaningful sales in the industry due to the
catalog distribution system.
The Company recently introduced the Microplate Genie(TM),
another specialty mixer designed specifically to mix and vortex the
contents of microplates.
The Company's Roto-Shake Genie(R), a patented benchtop
multi-purpose rotator/rocker is designed by the Company to rotate
and rock a wide variety of containers which are magnetically
attached to the unit's magnetized platform. The Enviro-Genie(R)
Refrigerated Incubator and the BioReactor Genie(TM) Cell Culture
Chamber (the latter introduced during fiscal 2003), are
multi-functional benchtop environmental chambers designed to perform
various functions under controlled environmental conditions of
temperature. The Bag Rotator, is another product that mixes
transfer packs and other sealed bags for the clinical market.
During fiscal 2004, the Company launched the Magstir
Genie(TM), a new patented magnetic stirrer, which is programmable
and offers a unique low to high speed range. The Company is
currently working on the development of several other magnetic
stirrers to be introduced in the near term.
Product Development. The Company designs and develops
substantially all of its products. Its personnel formulate plans
and concepts for new products and improvements or modifications to
existing products. It also engages outside consultants to augment
its capabilities in such areas as industrial design. The Company
is currently working on the development of several new products,
some of which it anticipates will be introduced during the year
ended June 30, 2005 "fiscal 2005". The Company assembles its
products at its factory using components purchased from various
domestic and international sources.
Marketing. Commencing in January 2003, the Company
substantially increased its marketing efforts and expenditures
under its revised strategy for sales growth with: (i) the
employment of a Director of Sales and Marketing; (ii) the entry
into a long-term agreement providing for a substantial increase in
the services of its outside marketing consultant, who earlier had
been a marketing employee of the Company's principal distributor
and who was elected a Director of the Company at the Annual Meeting
of Stockholders in November 2002, and (iii) an expanded promotion
and advertising program. The Company also engaged several
independent sales representatives for marketing and selling certain
products.
The Company's products are generally distributed and
marketed through an established network of domestic and foreign
laboratory equipment distributors. The Company also markets its
products through attendance of industry trade shows, trade
publication advertising, brochures and catalogs, independent sales
representatives, and its own web site. Sales of products through
the Company's website, with e-commerce introduced in fiscal 2004,
have been and are expected to be insignificant in view of the type
of customer for the Company's products.
Production Materials. The Company's production operation
principally involves assembly of components supplied by various
independent suppliers. The Company does not rely on any one
supplier, except as to a few components where it is not practicable
to have multiple suppliers but alternative suppliers are available.
The Company anticipates to continue effecting purchasing economies
through continued purchases of components from overseas vendors.
Patents, Trademarks, Licenses and Franchises. The Company
holds several United States patents relating to existing products.
It licenses one of its patents, a patent on a utilitarian feature
of its Vortex-Genie 2 Mixer on a non-exclusive, royalty-free basis
to Henry Troemner, LLC, ("Troemner"), under an agreement dated
December 1, 1999 settling a lawsuit instituted by the Company in
April, 1999. This license expires on November 2, 2005, the
expiration date of the patent. The Company's patent for the
TurboMix(TM), an attachment to the existing Vortex-Genie 2 Mixer,
expires in September 2015. Its patent on the Roto-Shake Genie
expires in July 2016. During the last two fiscal years, the
Company applied for a new patent and filed several trademark
applications, all of which are currently pending. The Company
intends to apply for additional patents and trademarks, when
appropriate, for technology, products, and marks which it considers
important for the protection of its business. No assurance can be
given that any patent or trademark application will result in the
issuance of a patent or trademark, or if granted, will provide
effective protection.
The Company has various proprietary marks, including
BioReactor Genie(TM), Disruptor Beads(TM), Disruptor Genie(TM),
Enviro-Genie(TM), Genie(TM), MagStir Genie(TM), Microplate
Genie(TM), Roto-Shake Genie(R), TurboMix(TM), and Vortex-Genie(R),
each of which it considers important to the success of the related
product.
Foreign Sales. The Company's foreign sales to various
distributors outside the United States (principally Asia and
Europe) accounted for approximately 42.5% of the Company's net
sales for fiscal 2004 and 48.6% for fiscal 2003. Such sales are
paid in United States dollars and are therefore not subject to
risks of currency fluctuation, foreign duties and customs.
Seasonality. The Company does not consider its business to
be seasonal.
Major Customers. Sales, predominantly of the Vortex-Genie
2 Mixer, to two of the Company's customers, each a major
distributor, represented in the aggregate approximately 42% of net
sales for fiscal 2004 and for fiscal 2003. The loss of either
customer or a material reduction in their purchases, as experienced
during fiscal 2003, could have a material adverse effect upon the
operating results of the Company.
Backlog. The Company's backlog is not significant because
the Company's current line of products is comprised of standard
catalog items. The typical lead time for order fulfillment is
approximately two weeks or less.
Competition. Most of the Company's competitors are
substantially larger and have greater financial, production and
marketing resources than the Company. Competition is generally
based upon quality, technical specifications, price, and product
recognition and acceptance. The Company believes it is a dominant
factor in the market for vortex mixers in the United States and is
widely recognized in the international vortex mixers market.
In the general area of laboratory equipment, the Company's
major competitors are Troemner, Barnstead/Thermolyne Corporation,
(an Apogent Technologies Company recently merged with Fisher
Scientific, the Company's principal customer), IKA-Werke GmbH & Co.
KG, a German company, and Heidolph Instruments GmbH, a German
company. Since the Company's products are primarily sold through
distributor catalogs, the Company relies heavily on the
distributors' decisions as to which products they include in their
catalogs. The Company is uncertain as to the future effect on
sales to its largest customer as a result of the recent merger
between one of its major competitors and Fisher Scientific, its
principal customer.
Research and Development. In connection with the
development of new products, the Company incurred research and
development expenses of $364,800 during fiscal 2004 compared to
$292,300 during fiscal 2003. The Company expects to continue its
program of increased product diversification in fiscal 2005.
Government and Environmental Regulation. The Company's
products and claims with respect thereto have not required approval
of the Food and Drug Administration or any other government
approval. The Company's manufacturing operations, like those of
the industry in general, are subject to numerous existing and
proposed, if adopted, federal, state, and local regulations to
protect the environment, to establish occupational safety and
health standards and to cover other matters. The Company believes
that its operations are in compliance with existing laws and
regulations and the cost to comply is not significant to the Company.
Employees. As of September 3, 2004, the Company employed
20 persons of which 18 were full-time, including its two executive
officers. None of the Company's employees are represented by any
unions.
RISK FACTORS
In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, important risk
factors are identified below that could affect the Company's
financial performance and could cause the Company's actual results
for future periods to differ materially from any opinions or
statements expressed with respect to such future periods in any
current statements. The Company undertakes no obligation to
publicly revise any forward-looking statements to reflect future
events or circumstances.
THE COMPANY OFFERS A LIMITED NUMBER OF PRODUCTS WITH SALES OF ONE
PRODUCT ACCOUNTING FOR A SUBSTANTIAL PORTION OF ITS REVENUES
The Company currently offers for sale a limited number of
products, with sales of its Vortex-Genie 2 Mixer and accessories
related thereto accounting for approximately 83% of the Company's
sales for fiscal 2004 and 87% for fiscal 2003. In the past few
years, there have been new entrants into the vortex mixer market.
The competitive mixers are being aggressively marketed by the same
distributors that offer the Company's mixers. Total units and
sales amounts derived from the Vortex-Genie 2 Mixer were slightly
higher in fiscal 2004 compared to fiscal 2003. No assurance can be
given that the Company will be able to increase or maintain its
current level of sales of the Vortex-Genie 2 Mixer or that the
operating margin derived therefrom will not be adversely affected.
DEPENDENCE ON MAJOR CUSTOMERS
The industry is dominated in the U.S. by two major
laboratory equipment distributors, Fisher Scientific and VWR
International, both which currently distribute the Company's
products. Total sales to these two customers accounted for
approximately 42% of the Company's total sales in the last two
fiscal years. Fisher Scientific recently completed in 2004 a
merger with Apogent Technologies, which owns Barnstead/Thermolyne,
a competitor of the Company. No representation can be made at this
time as to the effect of this merger on sales of the Company's
products to Fisher Scientific. A material reduction in sales to
either distributor would have a material adverse effect on the
results of operations of the Company.
THE COMPANY'S ABILITY TO GROW AND COMPETE EFFECTIVELY IS IN PART
DEPENDENT ON ITS ABILITY TO DEVELOP AND EFFECTIVELY MARKET NEW
PRODUCTS
During the past six years, the Company has pursued a
program to develop and market new laboratory equipment with a view
to increasing its revenues and reducing its dependence on the
Vortex-Genie 2 Mixer. Pursuant to the program, the Company first
developed and introduced the Roto-Shake Genie rotator/rocker and
then the Enviro-Genie refrigerated incubator. During fiscal 2002,
the Company began selling three new products which generally target
the vortex mixer market - Vortex-Genie 1 touch mixer, Vortex-Genie
2T timed mixer, and the Disruptor Genie cell disruptor. More
recently, the Company introduced the Magstir Genie(TM) magnetic
stirrer and the Microplate Genie(TM) microplate mixer, with
additional products currently under development.
Revenues derived from products other than the Vortex-Genie
2, (excluding accessories) amounted to $643,000 and $423,900,
respectively, for fiscal 2004 and fiscal 2003. The Company
historically has relied primarily on its distributors and their
catalogs to market its products. Accordingly, it may be at least
24 to 36 months between the completion of development of a product
and the distribution of the catalog in which it is first offered. The
Company has recently expanded and revised its marketing program
including hiring a Director of Sales and Marketing, and
engaging several independent sales representatives to handle
certain products. Sales of new products are still heavily
dependent on their inclusion in distributors' catalogs and
websites, since the majority of the end users purchase through
distributors. To encourage distributors to include the products in
their catalogs and websites, the Company established a new pricing
policy for calendar year 2005 with a revised discount structure.
No assurance can be made that the amounts allocated by the Company
for its development and marketing program will prove beneficial to
the Company or that the pricing policy will result in the inclusion
of any particular product in a distributor's catalog and website.
THE COMPANY IS HEAVILY DEPENDENT ON OUTSIDER SUPPLIERS FOR THE
COMPONENTS OF ITS PRODUCTS
While the Company believes there are several suppliers
available for all of its components, it presently relies on one
source for each of several components. The disruption or
termination of the operations of such sources could have an
adverse effect, hopefully of short duration, on the Company's
results of operation. Furthermore, the Company intends to continue
purchasing components from overseas vendors. Such increased
reliance could increase the risks of the Company's operation
including those arising from government controls, foreign
conditions, custom duties, changes in both foreign and United
States government policies, and the reliability and financial
condition of such suppliers.
THE COMPANY IS A SMALL PARTICIPANT IN ITS HIGHLY COMPETITIVE INDUSTRY
Although the Company's principal product, the Vortex-Genie
2 Mixer, has been widely accepted, the Company is an insignificant
factor in the highly competitive laboratory products industry. The
Company's net sales for fiscal 2004 and fiscal 2003 were $3,532,600
and $3,257,100, respectively. Its principal competitors are
substantially larger and have much greater financial, production
and marketing resources than the Company.
THE COMPANY'S ABILITY TO COMPETE DEPENDS IN PART ON ITS ABILITY TO
SECURE AND MAINTAIN PROPRIETARY RIGHTS TO ITS PRODUCTS
The Company's ability to compete depends in part on its
ability to secure and maintain proprietary rights to its products.
The Company holds a design patent expiring in November 2005 on a
feature of its Vortex-Genie 2 Mixer, its principal product. It
holds a patent on an attachment to that product which expires in
September 2015 and on another product which expires in July 2016.
During fiscal 2003, the Company applied for an additional patent,
and intends to apply for additional patents on new products.
There can be no assurance that the expiration of the design
patent will not be materially harmful to the Company's revenues or
that the Company will be successful in obtaining additional
patents, that any patent issued to the Company provides or will
provide the Company with competitive advantages or will not be
challenged by third parties or that the patents of others will not
prevent the commercialization of products developed by the Company.
Furthermore, there can be no assurance that others will not
independently develop similar products or design around the
Company's patents. Any of the foregoing activities could have a
material adverse effect on the Company. Moreover, there is no
assurance that the enforcement by the Company of its patent rights
will not result in substantial litigation costs, as it did in
fiscal 2000 in the defense of its proprietary claim with respect to
its Vortex-Genie 2 Mixer.
THE COMPANY HAS LIMITED MANAGEMENT RESOURCES
Mr. Lowell A. Kleiman, had been the Company's President and
Chief Executive Officer until the termination of his employment on
August 29, 2002. Ms. Helena Santos who had been its Vice President
Controller was then appointed its Chief Executive Officer,
President and Treasurer and Mr. Robert Nichols who had been its
Vice President - Engineering was then appointed its Executive Vice
President. Any material expansion of the Company's operations
could place a significant additional strain on the Company's
limited management resources. Furthermore, the loss of either Ms.
Santos or Mr. Nichols in the absence of an equally qualified
successor could be materially adverse to the Company's results and
financial condition.
THE COMMON STOCK OF THE COMPANY IS THINLY TRADED AND IS SUBJECT TO
VOLATILITY
The Common Stock of the Company is traded on the
Over-the-Counter Bulletin Board and, historically, has been thinly
traded. As of September 23, 2004, there were only 975,541 shares of
Common Stock of the Company outstanding, of which 330,815 shares
are held by the directors and officers of the Company. There have
been a number of trading days during fiscal 2004 on which no trades
of the Company's Common Stock were reported. Accordingly, the
market price for the Common Stock is subject to great volatility.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and manufacturing
facilities comprising approximately 25,000 square feet are located
at 70 Orville Drive, Bohemia, New York 11716. They are held
pursuant to a lease which was amended in September 2004,
principally to extend the expiration date from December 31, 2004 to
January 31, 2010, and to reduce the minimum base annual rent. The
leased facilities are suitable and adequate for such use. In the
opinion of management, the property is adequately covered by
insurance. See Note 8 to the Financial Statements in Item 7 for
further information about the Company's lease obligations.
ITEM 3. 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 in
April 2002 a claim against the Company 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 amount is 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 2004.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
(a) The Company's Common Stock is traded in the
over-the-counter market. The following table sets
forth the low and high bid quotations for each
quarter of fiscal 2003 and fiscal 2004, as reported
by the National Association of Securities Dealers,
Inc. Electronic Bulletin Board. Such quotations
reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual
transactions:
For Fiscal Quarter Ended: Low Bid High Bid
_________________________ _______ ________
09/30/02 1.10 1.80
12/31/02 1.05 1.50
03/31/03 1.05 1.15
06/30/03 1.05 1.15
09/30/03 1.12 1.20
12/31/03 1.20 1.50
03/31/04 1.50 1.85
06/30/04 1.85 2.00
(b) There were, as of September 3, 2004, 861 record
holders of the Company's Common Stock.
(c) On March 15, 2004, The Company paid a cash dividend
of $.05 per share to stockholders of record on March 4,
2004. The Company is not subject to any agreement which
prohibits or restricts the Company from paying dividends on
its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
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, success of marketing
strategy, 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, which are discussed elsewhere in this report.
Consequently, no forward-looking statement can be guaranteed. The
Company undertakes no obligation to publicly update forward-looking
statements, whether as a result of new information, future events
or otherwise. This Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in
conjunction with our financial statements and the related notes
included elsewhere in this report.
Overview. Commencing in January 2003, the Company
substantially increased its marketing and product development
efforts and expenditures under its revised strategy for sales
growth with (i) the employment of a Director of Sales and
Marketing, (ii) an expanded promotion and advertising program, and
(iii) increased commitment of funds to research and development
activity.
The Company also intensified its efforts to increase the
Company's profitability by continuing to seek economies through a
search for alternative, lower cost quality sources for its material
components (mostly from overseas), and evaluating its labor
requirements on an ongoing basis for achievement of overall cost
reductions.
The Company's net income for fiscal 2004 increased by $184,900 to
$248,700 from $63,800 for fiscal 2003 primarily as a result of the
following factors.
* An increase of 8.5% in net sales.
* An increase in gross profit margin percentage from
41.2% to 47.2%.
* A decrease of 13.3% in general and administrative
expenses.
* An increase of 43.2% in selling expenses.
* An increase of 24.8% in research and development
expenses.
Results of Operations. Net sales for fiscal 2004 were
$3,532,600, an increase of $275,500 (8.5%) compared to net sales of
$3,257,100 for fiscal 2003. The increase is primarily due to
higher sales of the products introduced in the last few fiscal
years, principally the Disruptor Genie, Vortex-Genie 2T, and
Vortex-Genie 1. Sales of new products (excluding accessories)
increased from $423,900 in fiscal 2003 to $648,000 in fiscal 2004.
The gross profit percentage for fiscal 2004 of 47.2% exceeded the
gross profit percentage of 41.2% for fiscal 2003, mostly as a
result of production economies (principally increased overseas
purchases of material components at lower cost), higher margins on
average of the new products, and lower labor costs resulting from
efficiencies.
General and administrative ("G&A") expenses were $686,700
for fiscal 2004, a decrease of $105,000 (13.3%) compared to
$791,700 in fiscal 2003, mostly due to the incurrence of $72,300
of proxy costs in fiscal 2003 in connection with the proxy contest
initiated by the former Chief Executive Officer, and costs incurred
in connection with termination of his employment in August 2002.
Selling expenses for fiscal 2004 increased $93,300 (43.2%)
to $309,300 compared to $216,000 for fiscal 2003 as a result of the
Company's expansion of its sales and marketing functions, including
the hiring of a Director of Sales and Marketing in January 2003,
and significantly increased promotional and advertising expenditures.
Research and development expenses increased by $72,500
(24.8%) to $364,800 for fiscal 2004 compared to $292,300 for fiscal
2003, as a result of increased new product development.
Income tax expense was $77,000 for fiscal 2004 compared to
a tax benefit of $11,500 for fiscal 2003.
Liquidity and Capital Resources. Net cash provided by
operating activities was $338,000 for fiscal 2004 compared to
$16,100 for fiscal 2003, mainly the result of the increase in net
income. Cash used in investing activities decreased to $168,900
for fiscal 2004 compared to $211,900 for fiscal 2003, reflecting
lesser purchases of investment securities and greater amount of
redemptions, and a sale in the prior year of a previously leased
auto related to the termination of employment of the Company's
former chief executive officer. Cash used in financing activities
increased to $35,300 for fiscal 2004 compared to $6,600 provided
in fiscal 2003, primarily as a result of the cash dividend declared
and paid in March 2004. As a result of the foregoing, the Company's
cash and cash equivalents increased by $133,800 to $241,400 as of
June 30, 2004 compared to $107,600 as of June 30, 2003.
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 increased $308,300 to
$1,983,300 from $1,675,000. The increase was primarily generated
from profitable operations. The Company has available a secured
bank line of credit of $200,000 with North Fork Bank which expires
on November 1, 2004 and carries interest at prime. The Company
will seek to
extend the credit line which has never been utilized.
Management believes that it will be able to meet its cash flow
requirements during the fiscal year ending June 30, 2005 from its
available financial resources which are anticipated to include
future cash generated from operations, its cash and cash
equivalents and investments, and if required, the credit line.
Capital Expenditures. During fiscal 2004, the Company
incurred $53,400 in capital expenditures. The Company expects to
incur capital expenditures at approximately the same level during
fiscal 2005. It is anticipated, as in past fiscal years, that
capital expenditures, will be funded from the Company's operations
or available working capital.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements required by this item are attached
hereto on pages F1-F18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, based
on an evaluation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
Sthe Securities Exchange Act of 1934), the Chief Executive and
Chief Financial Officer of the Company has concluded that the
Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the
Company in its Exchange Act reports is recorded, processed,
summarized and reported within the applicable time periods
specified by the SEC's rules and forms.
There was no change in the Company's internal controls
over financial reporting that occurred during the most recent
fiscal quarter that materially affected or is reasonably likely
to materially affect the Company's internal controls over
financial reporting.
ITEM 8B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS
The Company has five Directors. The name, principal
occupation for the last five years, selected biographical
information and period of service as a director of the Company of
each Director are set forth in this section.
Arthur M. Borden, Esq. (age 84), a Director since 1974, has
been counsel to the law firm of Katen Muchin Zavis Rosenman
(formerly Rosenman & Colin) during the past five years.
Joseph G. Cremonese (age 68), a director since November
2002, has been a marketing consultant to the Company since 1996.
Mr. Cremonese has been since 1991, President of Laboratory
Innovation Company, Ltd., which is a vehicle for technology
transfer and consulting services for companies engaged in the
production and sale of products for science and biotechnology.
Since March 2003, Mr. Cremonese has been a director of and
consultant to Proteomics, Inc., a producer of recombinant proteins
for medical research. Mr. Cremonese had been, prior to 1991,
employed by Fisher Scientific (the Company's largest customer).
Joseph I. Kesselman (age 79), a Director since 1961 and
Chairman of the Board since August 29, 2002, is a consultant to
various corporations, and a director of Nuclear and Environmental
Protection Inc., Hopare Holding, S.A. (a Swiss company), and
Infranor Inc., a developer and manufacturer of servo systems.
Roger B. Knowles (age 78), a Director since 1965, is
retired and during the past five years has been involved in
liquidating various real estate and manufacturing concerns.
James S. Segasture (age 68), a Director since 1991, has
been a private investor since February 1990.
The Directors of the Company are elected to two-year
staggered terms. The terms of the Directors currently expire at
the annual meeting of stockholders of the Company to be held at the
next annual meeting following: the fiscal year ended June 30, 2004
- one Director (Mr. Kesselman, Class B), the fiscal year ending
June 30, 2005 - two Directors (Messrs. Cremonese and Knowles, Class
C) and the year ending June 30, 2006 - two Directors (Messrs.
Borden and Segasture, Class A). Mr. Kesselman is Chairman of the
Board.
BOARD COMMITTEES
Joseph I. Kesselman and James S. Segasture have been
appointed as the sole members of the Company's Stock Option
Committee to serve at the discretion of the Board and to administer
the Company's 2002 Stock Option Plan.
The Company does not currently have any other committees.
The Board of Directors acts as the Company's Audit Committee.
EXECUTIVE OFFICERS
Helena R. Santos, CPA (age 40), employed by the Company
since 1994, was appointed in August 2002 as President, Chief
Executive Officer and Treasurer. Prior to said appointment she
served as Vice President, Controller from 1997 and Secretary from
May 2001. She was an internal auditor with a major defense
contractor from March 1991 to April 1994. She had been previously
employed in public accounting.
Robert P. Nichols (age 43), employed by the Company since
February 1998, was appointed in August 2002 as Executive Vice
President. He had been Vice President, Engineering from May 2001.
Prior to joining the Company, he was an Engineer Manager with Bay
Side Motion Group, a precision motion equipment manufacturer from
January 1996 to February 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, for the year ended June 30,
2004, all filing requirements of Section 16(a) of the Securities
Act of 1934, as amended, applicable to its officers, directors and
10% stockholders were complied with timely.
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation paid by the
Company to its then Chief Executive Officer and President with
respect to each of the three fiscal years ended June 30, 2004. No
other executive officer earned in excess of $100,000 in any of such
fiscal periods.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
___________________
All Other
Fiscal Compen-
Name Year Salary Bonus sation
________________ _______ ________ _______ ___________
Helena R. Santos(1) 2004 $100,000 $ - $ -
Helena R. Santos 2003 $ 76,000 $ - $ -
Lowell A. Kleiman(1) 2003 $ 53,300 $ - $ 19,500(2)
Lowell A. Kleiman 2002 $160,000 $ - $ -
(1) Ms. Santos was appointed Chief Executive Officer and President
on August 29, 2002 following the termination of Mr. Kleiman's
employment.
(2) Represents accrued benefits paid to Mr. Kleiman upon the
termination of his employment.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to officers during fiscal year 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES
Number of
Shares of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-money
Acquired Options Options
On Value at FY-End (#) at FY-End($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) (1) Unexercisable Unexercisable(1)
________________ _________ ________ _____________ _______________
Helena R. Santos 9,000 9,300 15,000/0 21,300/0
(1) Calculated by multiplying the number of shares of Common Stock
subject to options by the difference between the market price and
exercise price, per share, on date of exercise and June 30, 2004,
respectively.
Employment Agreements
On September 1, 2004 the Company entered into new
employment agreements with Ms. Helena R. Santos and Mr. Robert P.
Nichols replacing employment agreements that were entered into in
January 2003. The new agreements increased their base salaries by
$10,000 each - to $110,000 for Ms. Santos and $105,000 for Mr.
Nichols. The new agreements also extended their employment period
to December 31, 2006. They otherwise contain substantially the
same provisions as the replaced agreements, including annual
bonuses at the discretion of the Board and noncompetition and
confidentiality covenants.
DIRECTORS' COMPENSATION
The Company currently pays each non-employee Director a
quarterly retainer of $750 and a fee of $500 for each meeting
attended, plus reimbursement for out-of-pocket expenses incurred in
connection with attendance at board meetings in the amount of $50
or the Director's itemized expenses, whichever is greater. Mr.
Joseph I. Kesselman, as Chairman of the Board, has received in
addition since March 2003 a monthly fee, which increased to $750
on February 24, 2004 from $500. During fiscal 2004, the Company
paid fees in the aggregate amount of $35,000 to non-employee
Directors.
Pursuant to the Company's 1992 Stock Option Plan ("1992
Plan") options to purchase 3,000 shares of Common Stock at the then
fair market value were granted to each non-employee director who
was on the Board of Directors on the first business day of each
March, in 1993, 1994, 1995, and 1996, namely Messrs. Borden,
Kesselman, Knowles and Segasture. In addition, in December 1997,
the Board of Directors approved annual grants under the 1992 Plan
beginning in December 1997 of options to purchase 4,000 shares of
Common Stock for each non-employee director exercisable at the fair
market value on the date of grant. Accordingly, as of June 30,
2004, the Company had granted under the 1992 Plan in the aggregate
to the foregoing four non-employee Directors options to purchase
128,000 shares of Common Stock, or options to purchase 32,000
shares of Common Stock for each. The fair market value per share
of Common Stock on the dates of grant ranged from $0.50 for options
granted in 1993 to $2.40 in 2002. As of June 30, 2004, options
under the 1992 Plan with respect to 46,000 shares had been
exercised by the Directors. They had exercised options with
respect to 48,000 shares granted to them prior to the adoption of
the 1992 Plan.
Under the Company's 2002 Stock Option Plan ("2002 Plan"),
none of the directors at the time of the Plan's approval by
stockholders in 2002 were eligible to receive option grants. Mr.
Joseph G. Cremonese who was elected Director at the 2002 Annual
Meeting, was granted on December 1, 2003 an option to purchase
5,000 shares of Common Stock at the fair market value of $1.35.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of year end, the number
of shares of Common Stock beneficially owned by (i) the persons
known to the Company to be the owners of more than 5% of the Common
Stock, (ii) each director of the Company, (iii) each named
executive officer of the Company, and (iv) all directors and
executive officers as a group. Shares not outstanding but deemed
beneficially owned by virtue of the right of any individual to
acquire shares within 60 days are treated as outstanding only when
determining the amount of and percentage of Common Stock owned by
such individual. Each person has sole voting and investment power
with respect to the shares shown, except as noted. The
address for each director and executive officer is c/o Scientific
Industries, Inc., 70 Orville Drive, Bohemia, New York 11716.
Amount and
Name Nature of Beneficial Ownership % of Class
_________________________________________________________________
Lowell A. Kleiman 139,581 (1) 14.5%
16 Walnut Street
Glen Head, NY 11545
Arthur M. Borden 62,540 (2) 6.3%
Joseph G. Cremonese 20,000 (3) 2.1%
Joseph I. Kesselman 63,520 (4) 6.4%
Roger B. Knowles 75,705 (5) 7.7%
James S. Segasture 187,250 (6) 19.4%
Helena R. Santos 21,000 (7) 2.1%
All directors and executive
officers as a group (7 persons) 457,815 (8) 41.5%
(1) Based on information reported in his Schedule 13D filed with
the Securities and Exchange Commission on October 30, 2002.
(2) Includes 26,000 shares issuable upon exercise of options.
(3) 15,000 shares are owned jointly with his wife and 5,000
shares are issuable upon exercise of options.
(4) Includes 26,000 shares issuable upon exercise of options and
735 shares of Common Stock owned jointly with his wife.
(5) Includes 26,000 shares issuable upon exercise of options,
44,158 shares owned by his wife, and 1,337 shares owned by a
trust of which he is a trustee, beneficial ownership of
which is disclaimed by him.
(6) Includes 4,000 shares issuable upon exercise of options and
493 shares owned by his wife.
(7) Includes 15,000 shares issuable upon exercise of options.
(8) Includes 127,000 shares issuable upon exercise of options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 2003, the Company entered into a consulting
agreement with Mr. Joseph G. Cremonese, who was elected a Class C
Director at the Annual Meeting of Stockholders in November 2002 and
has been providing the Company with consulting services as an
independent marketing consultant for approximately seven years.
The consulting agreement provides that Mr. Cremonese and his
affiliate, Laboratory Innovation Company, Ltd. will, at the
request of the Company, render for the period January 1, 2003
through December 31, 2004 marketing consulting services of at least
80, but not more than
96 days per year at the rate of $450 per day with a monthly cap
of $3,000, with the Company's obligation reduced to the extent
the consulting services are less than 80 days for the
12 month period. The agreement contains confidentiality and
non-competition covenants. During fiscal 2004, the Company paid
Mr. Cremonese an aggregate of $33,200 for his consulting services
to the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index
at the end of this report.
(b) Reports on Form 8-K
Registrant filed a Report on Form 8-K on May 5, 2004
reporting under Item 5, Other Events and Regulation FD Disclosure.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Company incurred audit fees of approximately $26,000
and $25,000 to Nussbaum, Yates & Wolpow, P.C. in connection with the
audit of the Company's financial statements respectively for the
fiscal years ended June 30, 2004 and 2003. In addition, the
Company incurred $2,550 and $2,250 in connection with the quarterly
reviews for fiscal 2004 and 2003 respectively. The audit fees
included preparation of the Company's corporate tax returns. There
were no other audit related fees or other fees, except that during
fiscal year 2003, the Company paid Nussbaum, Yates & Wolpow, P.C.
$1,700 in connection with the Company's Stock Option Plan
registration statement.
The Board of Directors has reviewed and discussed the
audited financial statements with management. It discussed with
the independent auditors of the Company matters required to be
discussed by SAS 61 (Codification of Statements on Auditing
Standards AU 380), as modified or supplemented and received the
written disclosures and the letter from the independent accountants
required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No.1, Independence
Discussions with Audit Committees), as modified or supplemented.
The Board discussed with the independent accountant the independent
accountant's independence.
SIGNATURES
In accordance with Section 13 or 15(d) 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/ Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive Officer, Treasurer
Chief Financial and Principal
Accounting Officer
Date: March 22, 2005
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name Title Date
/s/ Arthur M. Borden Director September 27, 2004
____________________
Arthur M. Borden
/s/ Joseph G. Cremonese Director September 27, 2004
_______________________
Joseph G. Cremonese
/s/ Joseph I. Kesselman Chairman of September 27, 2004
_______________________ the Board
Joseph I. Kesselman
/s/ Roger B. Knowles Director September 27, 2004
____________________
Roger B. Knowles
/s/ James S. Segasture Director September 27, 2004
______________________
James S. Segasture
EXHIBIT INDEX
Exhibit Number Description
______________ ___________
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company as
amended. (Filed as Exhibit 1(a-1) to the Company's
General Form for Registration of Securities on Form
10 dated February 14, 1973 and incorporated by
reference thereto.)
3(b) Certificate of Amendment of the Company's Certificate
of Incorporation, as filed on January 28, 1985.
(Filed as Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1985
and incorporated by reference thereto.)
3(c) By-Laws of the Company, as restated and
amended. (Filed as Exhibit 3(ii) to the
Company's Current Report Form 8-K filed on
January 6, 2003) and incorporated by
reference thereto.
4 Instruments defining the rights of security
holders:
4(a) 2002 Stock Option Plan (Filed as Exhibit 99-1
to the Company's Current Report on Form 8-K
filed on November 25, 2002 and incorporated
by reference thereto.
10 Material Contracts:
10(a) Lease between Registrant and AIP Associates,
predecessor-in-interest of current lessor,
dated October, 1989 with respect to Company's
offices and facilities.
10(a)-1 Amendment to lease between Registrant
and REP A10 LLC dated September 1,
2004 (Filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K
filed on September 2, 2004, and
incorporated by reference thereto).
10(b) Employment Agreement dated January 1, 2003,
by and between the Company and Ms. Santos
(Filed as Exhibit 10(a) to the Company's
Current Report on Form 8-K filed on January
22, 2003, and incorporated by reference
thereto).
10(b)-1 Employment Agreement dated September
1, 2004, replacing January 1, 2003
agreement by and between the Company
and Ms. Santos (filed as Exhibit 10A-1
to the Company's Current Report on
Form 8-K filed on September 1, 2004,
and incorporated by reference thereto).
10(c) Employment Agreement dated January 1, 2003,
by and between the company and Mr. Nichols.
10(c)-1 Employment Agreement dated September
1, 2004, by and between the Company
and Mr. Nichols replacing January 1,
2003 agreement.
10(d) Consulting Agreement dated January 1, 2003 by
and between the Company and Mr. Cremonese and
his affiliate, Laboratory Innovation Company,
Ltd., (Filed as Exhibit 10(b) to the
Company's Current
Report on Form 8-K filed on
January 6, 2003, and incorporated by
reference thereto).
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New
York corporation, is a wholly-owned inactive
subsidiary of the Company.
31.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002.
____________________________________________________________________
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
YEARS ENDED JUNE 30, 2004 AND 2003
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
YEARS ENDED JUNE 30, 2004 AND 2003
CONTENTS
Page
____
Report of Independent Certified Public Accountants F-1
Consolidated financial statements:
Balance sheets F-2
Statements of income F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-18
Report of Independent Certified Public Accountants
__________________________________________________
Board of Directors and Shareholders
Scientific Industries, Inc. and subsidiary
Bohemia, New York
We have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and subsidiary as of June 30, 2004
and 2003, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Scientific Industries, Inc. and subsidiary as of June 30, 2004
and 2003, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with
accounting principles generally accepted in the United
States of America.
/s/Nussbaum Yates & Wolpow, P.C.
________________________________
Nussbaum Yates & Wolpow, P.C.
Melville, New York
August 30, 2004, except Note 8
as to which the date is September 1, 2004
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND 2003
ASSETS
2004 2003
___________ ___________
Current assets
Cash and cash equivalents $ 241,400 $ 107,600
Investment securities 802,500 695,400
Trade accounts receivable, less
allowance for doubtful accounts
of $10,600 in 2004 and $7,400 in
2003 388,800 409,600
Inventories 666,200 582,200
Prepaid and other current assets 58,200 64,600
Deferred taxes 62,300 -
___________ ___________
Total current assets 2,219,400 1,859,400
Property and equipment, net 140,500 152,500
Deferred taxes 25,500 113,600
Intangible assets, less accumulated
amortization of $41,300 and $36,000
in 2004 and 2003 12,500 15,500
Other 72,800 75,400
___________ ___________
Total assets $ 2,470,700 $ 2,216,400
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,000 $ 58,100
Accrued expenses and taxes 160,100 126,300
___________ ___________
Total current liabilities 236,100 184,400
___________ ___________
Deferred compensation 36,000 43,800
___________ ___________
Commitments and contingencies
Shareholder's equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 995,343 and 980,343 shares
in 2004 and 2003 49,800 49,000
Additional paid-in capital 984,200 971,200
Accumulated other comprehensive
income, unrealized holding gain
(loss) on investment securities (3,500) 300
Retained earnings 1,220,500 1,020,100
___________ ___________
2,251,000 2,040,600
Less common stock held in treasury
at cost, 19,802 shares 52,400 52,400
___________ ___________
Total shareholders' equity 2,198,600 1,988,200
___________ ___________
Total liabilities and
shareholders' equity $ 2,470,700 $ 2,216,400
=========== ===========
See notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
___________ ___________
Net sales $ 3,532,600 $ 3,257,100
Cost of sales 1,864,100 1,914,500
___________ ___________
Gross profit 1,668,500 1,342,600
___________ ___________
Operating expenses:
General and administrative 686,700 791,700
Selling 309,300 216,000
Research and development 364,800 292,300
___________ ___________
1,360,800 1,300,000
___________ ___________
Income from operations 307,700 42,600
___________ ___________
Other income (expense):
Interest income 10,500 15,100
Other income (expense), net 7,500 (5,400)
___________ ___________
18,000 9,700
___________ ___________
Income before income taxes (benefit) 325,700 52,300
___________ ___________
Income tax expense (benefit):
Current 51,200 (4,500)
Deferred 25,800 (7,000)
___________ ___________
77,000 (11,500)
___________ ___________
Net income $ 248,700 $ 63,800
=========== ===========
Basic earnings per common share $ .26 $ .07
=========== ===========
Diluted earnings per common share $ .24 $ .06
=========== ===========
Weighted average common shares
outstanding 965,230 955,766
=========== ===========
Weighted average common shares
outstanding, assuming dilution 1,018,810 994,109
=========== ===========
See notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2004 AND 2003
Common Stock Additional Accumulated
______________ Paid-in Comprehensive
Shares Amount Capital Income (Loss)
_______ _______ ________ _____________
Balance, July 01, 2002 970,343 $48,500 $960,900 $ 1,000
Net income - - - -
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 100
Less: reclassification
adjustment for gain
included in net income - - - ( 800)
Change in net unrealized
holding gain - - - -
Comprehensive income - - - -
Exercise of stock options 10,000 500 6,100 -
Income tax benefit of
stock options exercised - - 4,200 -
_______ _______ ________ _____________
Balance, June 30, 2003 980,343 49,000 971,200 300
Net income - - - -
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (4,600)
Less: reclassification
adjustment for loss
included in net income - - - 800
Change in net unrealized
holding gain - - - -
Comprehensive income - - - -
Exercise of stock options 15,000 800 12,200 -
Income tax benefit of
stock options exercised - - 800 -
Cash dividend paid, $.05
per share - - - -
_______ _______ ________ _____________
Balance, June 30, 2004 995,343 $49,800 $984,200 $ (3,500)
======= ======= ======== =============
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
Total
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
________ ______ ______ _____________
Balance, July 1, 2002 $956,300 19,802 $52,400 $ 1,914,300
_____________
Net income 63,800 - - 63,800
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 100
Less: reclassification
adjustment for gain
included in net income - - - ( 800)
_____________
Change in unrealized - - - (700)
holding gain _____________
Comprehensive income - - - 63,100
_____________
Exercise of stock options - - - 6,600
Income tax benefit of stock
options exercised - - - 4,200
__________ ______ _______ ______________
Balance, June 30, 2003 $1,020,100 19,802 $52,400 $ 1,988,200
______________
Net income 248,700 - - 248,700
______________
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (4,600)
Less: reclassification
adjustment for loss
included in net income - - - 800
______________
Change in net unrealized
holding gain - - - (3,600)
______________
Comprehensive income - - - 244,900
______________
Exercise of stock options - - - 13,000
Income tax benefit of
stock options exercised - - - 800
Cash dividend paid, $.05
per share (48,300) - - (48,300)
___________ _______ _______ _______________
Balance, June 30, 2004 $1,220,500 19,802 $52,400 $ 2,198,600
=========== ======= ======= ===============
See notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
___________ ___________
Operating activities:
Net income $ 248,700 $ 63,800
Adjustments to reconcile net income to __________ ____________
net cash provided by operating activities:
Loss (gain) on sale of investments 800 (800)
Loss on disposal of property and equipment 4,200 6,400
Depreciation and amortization 68,000 65,400
Provision for bad debts 3,200 -
Deferred income taxes 25,800 (7,000)
Income tax benefit of stock options
exercised 800 4,200
Changes in assets and liabilities:
Trade accounts receivable 17,600 (133,600)
Inventories (84,000) 96,900
Prepaid expenses and other current assets 6,400 (1,400)
Other assets 2,600 19,100
Accounts payable 17,900 (26,300)
Accrued expenses and taxes 33,800 (54,900)
Deferred compensation (7,800) (15,700)
___________ ___________
Total adjustments 89,300 (47,700)
___________ ___________
Net cash provided by operating
activities 338,000 16,100
___________ ___________
Investing activities:
Purchase of investment securities,
available for sale (337,600) (241,500)
Purchase investment securities, held to
maturity - (113,700)
Redemption of investment securities,
available for sale 92,600 80,000
Redemption of investment securities,
held to maturity 130,800 110,600
Capital expenditures (53,400) (63,800)
Proceeds from sale of property and equipment 200 31,000
Purchase of intangible assets (1,500) (14,500)
___________ __________
Net cash used in investing activities (168,900) (211,900)
___________ __________
Financing activities:
Proceeds from exercise of stock options 13,000 6,600
Cash dividend declared and paid (48,300) -
___________ __________
Net cash provided by (used in) financing
activities (35,300) 6,600
___________ __________
Net increase (decrease) in cash and cash
equivalents 133,800 (189,200)
Cash and cash equivalents, beginning of year 107,600 296,800
___________ __________
Cash and cash equivalents, end of year $ 241,400 $ 107,600
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 8,000 $ 29,800
=========== ==========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. and Scientific Packaging
Industries, Inc., its inactive wholly-owned subsidiary
(collectively referred to as the "Company"). All material
intercompany balances and transactions have been eliminated.
Revenue Recognition
Sales are recorded when the goods are shipped to customers and
title passes.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Accounts Receivable
In order to record the Company's accounts receivable at their net
realizable value, the Company must assess their collectibility.
A considerable amount of judgment is required in order to make this
assessment, including an analysis of historical bad debts and other
adjustments, a review of the aging of the Company's receivables, and
the current creditworthiness of the Company's customers. The Company
has recorded allowances for receivables which it considered
uncollectible, including amounts for the resolution of potential
credit and other collection issues such as disputed invoices,
customer satisfaction claims and pricing discrepancies. However,
depending on how such potential issues are resolved, or if the
financial condition of any of the Company's customers was to
deteriorate and their ability to make required payments became
impaired, increases in these allowances may be required. The
Company actively manages its accounts receivable to minimize
credit risk. Historically, credit losses have not been significant.
The Company does not obtain collateral for its accounts receivable.
Investment Securities
Securities which the Company has the ability and positive intent to
hold to maturity are carried at amortized cost. Substantially all
held-to-maturity securities mature within one year. Securities
available for sale are carried at fair value with unrealized gains
or losses reported in a separate component of shareholders' equity.
Realized gains or losses are determined based on the specific
identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
F-6
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation of
computer equipment, machinery and equipment and furniture and
fixtures is provided for primarily by the straight-line method
over the estimated useful lives of the assets. Leasehold
improvements are amortized by the straight-line method over the
term of the related lease or the estimated useful lives of the
assets, whichever is shorter.
Intangible Assets
Intangible assets consist of patents and trademarks being
amortized on a straight-line basis over five years. Amortization
expense of intangible assets for the years ended June 30, 2004 and
2003 was $4,500 and $6,000. Expense is expected to be approximately
$4,000 annually for the next three years.
Asset Impairment
The Company reviews its long-lived assets annually to determine
whether facts and circumstances exist which indicate that the
carrying amount of assets may not be recoverable or the useful life
is shorter than originally estimated. If the facts warrant a
review, the Company assesses the recoverability of its assets by
comparing the projected undiscounted net cash flows associated with
the related asset or group of assets over their remaining lives against
their respective carrying amounts. Impairment, if any, is based on
the excess of the carrying amount over the fair value of those assets.
If assets are determined to be recoverable, but the useful lives are
shorter than originally estimated, the net book value of the assets
is depreciated over the newly determined remaining useful
lives. The Company has not recorded any impairment charges.
Income Taxes
The Company accounts for income taxes according to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes". Under the liability method specified by SFAS 109,
deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. Deferred income taxes
result principally from the timing of the deductibility of the rent
accrual, inventory adjustments, deferred compensation paid, the use of
accelerated methods of depreciation and amortization for tax purposes,
and tax credit carryforwards.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted
to $46,700 and $5,000 for the years ended June 30, 2004 and 2003.
F-7
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan
During the year ended June 30, 2003, the Company established a new
ten-year stock option plan (the "2002 Plan") which provides for the
future grant of options to purchase up to 100,000 shares of the
Company's Common Stock, par value $.05 per share ("Common
Stock"), plus to the extent that options previously granted under
the 1992 Stock Option Plan of the Company (the "Prior Plan") expire
or terminate for any reason without having been exercised, then options
exercisable for that same number of shares of Common Stock, up to
a maximum of one hundred sixty one thousand (161,000) shares, may be
granted pursuant to the 2002 Plan. The 2002 Plan provides for the
granting of incentive or non-incentive stock options as defined in the
2002 Plan. Incentive stock options may be granted to employees at
an exercise price equal to 100% (or 110% if the optionee owns directly
or indirectly more than 10% of the outstanding voting stock) of the fair
market value of the shares of Common Stock on the date of the grant.
Non-incentive stock options shall be granted at an exercise price
not less than 85% of the fair market value of the shares of Common Stock
on the date of grant. The 2002 Plan also stipulates that none of
Messrs. Joseph I. Kesselman, Arthur M. Borden, Roger B. Knowles,
Lowell A. Kleiman and James S. Segasture shall be eligible to receive
option grants under the 2002 Plan. However the Prior Plan provided that
each non-employee member of the Board of Directors be granted, annually
commencing March 1993, for a period of four years, a ten-year option to
purchase 3,000 shares of Common Stock at the fair market value on the
date of grant and commencing annually in December 1997, for as long as
director, a ten-year option to purchase 4,000 shares of Common Stock at
the fair market value on the date of grant. No options have been
granted to the above directors of the Company since December 2001.
The options expire at various dates through October 2012.
At June 30, 2004, 83,000 shares of Common Stock were available for grant
under the 2002 Plan plus 15,000 shares which expired under the Prior Plan.
The Company has elected to account for its employee stock options
under APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation expense is recognized for options granted
under fixed plans when the option price is not less than the
fair market value of the underlying common stock on the date of grant.
Pro forma information regarding net income and earnings per share,
however, is required under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123) for
entities continuing to apply APB No. 25. For disclosure purposes, the
Company has estimated the fair value of its employee stock options on
the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for stock options
granted in 2004 and 2003, respectively:
F-8
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
2004 2003
________ _________
Expected life (in years) 10 10
Risk-free interest rate 4.72% 4.39%
Expected volatility 38.36% 35.74%
Dividend yield 2.31% 0.00%
Under the above model, the total value of stock options granted in
2004 and 2003 was $5,300 and $4,800 respectively, which would be
amortized ratably on a pro forma basis over the related vesting
periods. Had compensation cost been determined based
upon the fair value of the stock options at grant date for all awards,
the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2004 2003
________ _________
Net income:
As reported $248,700 $63,800
Pro forma 244,400 63,000
Basic earnings per share:
As reported $ .26 $ .07
Pro forma $ .25 $ .07
Diluted earnings per share:
As reported $ .24 $ .06
Pro forma $ .24 $ .06
Stock-based employee compensation cost,
net of related tax effects, included
in the determination of net income
as reported $ - $ -
The SFAS No. 123 method of accounting does not apply to options
granted prior to January 1, 1995 and, accordingly, the resulting
pro forma compensation cost may not be representative of that to
be expected in future years.
F-9
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and judgments that affect the amounts
reported in the financial statements and accompanying notes. The
accounting estimates that require management's most difficult and
subjective judgments include the valuation of inventory and the
recognition and measurement of income tax assets and liabilities.
The actual results experienced by the Company may differ materially
from management's estimates.
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 share includes the dilutive effect of stock options and warrants.
Recent Accounting Pronouncements
Recent accounting pronouncements not reflected herein do not have a
material effect on the Company's financial statements.
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 it has only one reportable segment.
Approximately 83% in 2004 and 87% in 2003 of sales are generated from
the Vortex-Genie(R) 2 mixer and related accessories.
Certain information relating to the Company's export sales and
principal customers is as follows:
2004 2003
________ _________
Export sales (principally Europe
and Asia) $1,502,100 $1,583,700
Customers in excess of 10% of net
sales:
Largest in 2004 and 2003 878,000 867,000
Second largest in 2004 and 2003 614,600 488,600
Accounts receivable from these customers amounted to approximately
34% and 39% of total accounts receivable at June 30, 2004 and 2003.
F-10
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
3. Investment Securities
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding Gain
Cost Value (Loss)
_____________ ________ _____________
At June 30, 2004:
Available for sale:
Equity securities $ 8,300 $ 8,100 ($ 200)
Mutual funds 591,800 588,500 ( 3,300)
Callable bonds 150,000 150,000 -
_________ _________ ________
$750,100 $746,600 ($3,500)
========= ========= ========
Held-to-maturity:
State and municipal bonds,
due in one year or less $ 55,900 $ 55,800 ($ 100)
========= ========= ========
Gross Cost or Unrealized
Amortized Fair Holding
Cost Value Gain (Loss)
_____________ _________ _____________
At June 30, 2003:
Available for sale:
Equity securities $ 20,700 $ 18,800 ($1,900)
Mutual funds 511,000 513,200 2,200
_________ _________ ________
$531,700 $532,000 $ 300
========= ========= ========
Held-to-maturity:
State and municipal bonds,
due in one year or less $163,400 $163,600 $ 200
========= ========= ========
F-11
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
4. Inventories
2004 2003
________ _________
Raw materials $ 611,000 $ 532,100
Work-in-process 7,400 4,700
Finished goods 47,800 45,400
_________ _________
$ 666,200 $ 582,200
========= =========
5. Property and Equipment
Useful Lives
(Years) 2004 2003
____________ ________ _________
Computer equipment 3-5 $119,800 $167,000
Machinery and equipment 3-7 294,100 272,200
Furniture and fixtures 4-10 77,800 70,800
Leasehold improvements 1-8 35,200 35,200
________ _________
526,900 545,200
Less accumulated depreciation
and amortization 386,400 392,700
________ _________
$140,500 $152,500
======== =========
6. Bank Line of Credit
The Company has a $200,000 secured bank line of credit collateralized
by all the assets of the Company. The credit line expires on
November 1, 2004 and bears interest at prime. The Company did not
utilize this credit line during the years ended June 30, 2004 and 2003.
To support the line of credit available, the Company is required to
maintain 20% of the credit line in average monthly balances.
F-12
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
7. Employee Benefit Plan
The Company has a 401(k) profit sharing plan for all eligible employees
as defined in the Plan. The Plan provides for voluntary employee salary
contributions from 1% to 15% not to exceed the statutory limitation
provided by the Internal Revenue Code. The Company shall match 50% of
each participant's salary deferral election, up to a maximum amount for
each participant of 2% of their compensation. Employer matching
contributions to the Plan amounted to $12,400 in 2004 and $10,600
in 2003. The Company also has the option to make an additional profit
sharing contribution to the Plan. There was no profit sharing
contribution in either year.
8. Commitments and Contingencies
Lease
The Company is obligated through December 2004 under a noncancelable
operating lease for its premises, which required current minimum annual
rental payments of approximately $244,000 and certain other expenses,
including real estate taxes and insurance. On September 1, 2004, the
lease was extended to January 31, 2010.
The Company's approximate future minimum rental payments under
the above lease as extended are as follows:
Fiscal Years
____________
2005 $ 193,300
2006 172,100
2007 179,000
2008 186,100
2009 193,600
Thereafter 115,800
__________
$1,039,900
==========
In accordance with generally accepted accounting principles, the
future minimum annual rental expense, computed on a level basis, will
be approximately $182,800 under the terms of the extended lease.
Rental expense amounted to approximately $242,300 in 2004 and $237,400 in
2003. Accrued rent, payable in future years, amounted to $11,300 and
$28,000 at June 30, 2004 and 2003.
F-13
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
8. Commitments and Contingencies (Continued)
Employment Contracts
The Company had an employment contract (which expired June 30, 2002)
with its former President. On August 29, 2002, the Company decided to
terminate his employment. The contract provided for an annual salary of
$160,000 and also granted the President a five-year option to
purchase 10,000 shares of common stock at $1.50 per share which expired
unexercised.
Pursuant to the employment contract, the former President chose that a
portion of compensation earned in prior years be deferred to future
years. The deferred amounts were placed in a separate investment
account and all earnings and losses thereon are for his benefit.
As of June 30, 2004 and 2003, $54,000 and $58,400 was segregated into
such an account and is included as an asset. The balance due to him is
payable out of (but not secured by) the account, in five equal
annual installments as adjusted by market fluctuations commencing after
the termination of employment. Accordingly, $18,000 has been
classified as a short-term asset and liability and $36,000 as a
long-term asset and liability at June 30, 2004. For the year ended
June 30, 2004 and 2003, $17,400 and $12,700, respectively, were
paid to the former President.
During the year ended June 30, 2003, the Company entered into
employment agreements with both its current President and Executive
Vice President for two-year periods expiring December 31, 2004.
The agreements with its President and Vice President provide for a
base salary for the first year of $100,000 and $95,000, respectively,
with the salary for calendar 2004 to be determined by the Board of
Directors, but to be not less than the base salary. The agreements
also provide for discretionary performance-related annual bonuses.
On September 1, 2004, these contracts were extended for two additional
years with salaries of $110,000 and $105,000, respectively.
Other
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.
Accordingly, no provision for loss has been recorded by the Company at
June 30, 2004.
During the year ended June 30, 2003, the Company entered into a two-year
consulting agreement through December 31, 2004 with a member of its
Board of Directors for marketing consulting services. The agreement
provides that the director will be paid a monthly fee of $3,000 for a
certain number of consulting days as defined in the agreement.
F-14
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
9. Income Taxes
Income taxes (benefit) for 2004 and 2003 were different from the amounts
computed by applying the Federal income tax rate to the income before
income taxes due to the following:
2004 2003
_________________ ________________
%of %of
Pre-tax Pre-tax
Amount Income Amount Income
________ _______ ________ _______
Computed "expected" income tax $110,700 34.0% $ 17,800 34.0%
Research and development credits (31,700) (9.7) (18,600) (36.0)
Other (2,000) (0.6) (10,700) (20.0)
________ _______ ________ _______
Actual income taxes (benefit) $ 77,000 23.7% $(11,500) (22.0)%
======== ======= ======== =======
Deferred tax assets and liabilities consist of the following:
2004 2003
________ _________
Deferred tax assets:
Amortization of intangibles $ 9,700 $ 7,900
Deferred compensation 18,400 17,500
Rent accrual 3,800 8,400
Tax credit carry forwards 59,500 77,500
Other 17,300 15,700
________ _________
108,700 127,000
Deferred tax liability:
Depreciation of property
and equipment (20,900) (13,400)
________ _________
Net deferred tax assets $ 87,800 $ 113,600
======== =========
At June 30, 2004, the Company had tax credit carry forwards of
approximately $59,500 expiring in 2021 through 2024.
F-15
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
10. Stock Options and Warrant
Option activity is summarized as follows:
Fiscal 2004 Fiscal 2003
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
________ ______ ________ ________
Shares under option:
Outstanding at beginning
of year 147,000 $1.47 165,000 $1.39
Granted 10,000 $1.28 7,000 $1.25
Exercised ( 15,000) .86 ( 10,000) .66
Forfeited - - ( 15,000) 1.06
_________ _________
Outstanding at end of year 142,000 $1.52 147,000 $1.47
========= ===== ========= =====
Options exercisable at
year-end 132,333 $1.54 140,000 $1.48
========= ===== ========= =====
Weighted average fair
value per share of options
granted during fiscal
2004 and 2003 $ .53 $ .69
===== =====
Options Outstanding Options Exercisable
__________________________________ _______________________
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.20 - $2.40 113,000 4.78 $1.70 103,333 $1.74
$.50 - $.94 29,000 5.14 .84 29,000 .84
_______ _______
142,000 132,333
======= =======
F-16
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
10. Stock Options and Warrant (Continued)
During the year ended June 30, 2004 two directors and an officer
exercised options under the Prior Plan to acquire a total of 15,000
shares at $.81 to $.94 per share. During the year ended June 30,
2003 three directors, and an officer exercised options under the
Prior Plan to acquire a total of 10,000 shares at $.50 to $.94
per share.
The Company had previously granted in February 1992, to four non-employee
members of the board of directors, ten-year options for each to purchase
12,000 shares of Common Stock, at an exercise price of $.35, not covered
under either Plan. All these options have been exercised by the directors.
The Company has a stock purchase warrant outstanding covering 17,390
shares of the Company's common stock issued during 2001 for services.
The warrant which was immediately exercisable has an exercise price of
$1.4375 per share and expires on February 5, 2006. During the years
ended June 30, 2004 and 2003, none of the warrants were exercised.
11. Earnings Per Common Share
Earnings per common share data was computed as follows:
2004 2003
________ _________
Net income $ 248,700 $ 63,800
========= =========
Weighted average common shares
outstanding 965,230 955,766
Effect of dilutive securities,
stock options and warrant 53,580 38,343
_________ _________
Weighted average dilutive common
shares outstanding 1,018,810 994,109
========= =========
Basic earnings per common share $ .26 $ .07
========= =========
Diluted earnings per common share $ .24 $ .06
========= =========
F-17
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
11. Earnings Per Common Share (Continued)
Unexercised employee stock options to purchase 56,000 shares of common
stock at $1.875 to $2.40 per share were outstanding as of June 30, 2003,
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. As of June 30, 2004, all outstanding options
and the warrant were included in the computation.
12. Fair Value of Financial Instruments
The financial statements include various estimated fair value information
as of June 30, 2004 and 2003, as required by Statement of Financial
Accounting Standards 107, "Disclosure about Fair Value of Financial
Instruments." Such information, which pertains to the Company's
financial instruments, is based on the requirements set forth in that
statement and does not purport to represent the aggregate net fair
value of the Company. The following methods and assumptions
were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value.
The carrying value of cash and cash equivalents and investment
securities approximates fair market value because of the short
maturity of those instruments.
The following table provides summary information on the fair value
of significant financial instruments included in the financial
statements:
2004 2003
___________________ ___________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
________ _________ ________ _________
Assets:
Cash and cash equivalents $241,400 $241,400 $107,600 $107,600
Investment securities
(Note 3) $802,500 $802,400 $695,400 $695,600
F-18