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, 2005
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 28, 2005: 989,686 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, 2005
Current Assets:
Cash and cash equivalents $ 129,700
Investment securities 1,041,700
Trade accounts receivable, less allowance for
doubtful accounts of $11,600 552,500
Inventories 852,700
Prepaid expenses and other current assets 49,800
Deferred taxes 46,000
----------
Total current assets 2,672,400
Property and equipment at cost, less accumulated
depreciation of $456,200 126,100
Intangible assets, less accumulated amortization
of $51,500 50,400
Other 41,100
----------
Total assets $2,890,000
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 93,500
Accrued expenses and taxes 238,900
Dividends payable 89,000
----------
Total current liabilities 421,400
----------
Deferred compensation 20,500
----------
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,009,488 issued and outstanding 50,500
Additional paid-in capital 990,700
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 5,200)
Retained earnings 1,464,500
----------
2,500,500
Less common stock held in treasury, at cost,
19,802 shares 52,400
----------
Total shareholders' equity 2,448,100
----------
Total liabilities and shareholders' equity $2,890,000
==========
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, 2005 September 30, 2004
------------------ ------------------
Net sales $ 890,000 $ 851,800
Cost of goods sold 433,300 458,000
---------- -----------
Gross profit 456,700 393,800
---------- -----------
Operating Expenses:
General and administrative 174,000 177,500
Selling 63,500 67,900
Research and development 91,800 78,400
---------- -----------
329,300 323,800
---------- -----------
Income from operations 127,400 70,000
Interest and other income, net 7,500 6,600
---------- -----------
Income before income taxes 134,900 76,600
Income taxes, all current 38,000 18,000
----------- -----------
Net income $ 96,900 $ 58,600
=========== ===========
Basic earnings per common
share $ .10 $ .06
Diluted earnings per common
share $ .09 $ .06
Cash dividends declared per common
share $ .09 $ .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, 2005 September 30, 2004
------------------ ------------------
Operating activities:
Net income $ 96,900 $ 58,600
--------- ---------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on sale of investments 2,500 -
Depreciation and amortization 16,400 16,400
Change in assets and liabilities:
Accounts receivable ( 101,900) ( 200)
Inventories ( 52,300) 2,500
Prepaid expenses and other
current assets 8,000 8,300
Other assets ( 1,100) 6,900
Accounts payable 11,100 ( 8,300)
Accrued expenses and taxes 1,700 ( 5,000)
Deferred compensation 1,100 ( 1,900)
---------- ---------
Total adjustments ( 114,500) 18,700
---------- ---------
Net cash provided by (used in)
operating activities ( 17,600) 77,300
--------- ---------
Investing activities:
Purchase of investment securities,
available for sale ( 154,300) ( 77,000)
Purchase of investment securities,
held to maturity - ( 15,300)
Redemptions of investment securities,
available for sale 123,900 -
Redemptions of investment securities,
held to maturity 15,000 25,500
Capital expenditures ( 3,400) ( 25,900)
Purchase of intangible assets ( 17,800) ( 4,400)
---------- ---------
Net cash used in investing
activities ( 36,600) ( 97,100)
---------- ---------
Net decrease
in cash and cash equivalents ( 54,200) ( 19,800)
Cash and cash equivalents,
beginning of year 183,900 241,400
---------- ---------
Cash and cash equivalents, end of period $ 129,700 $ 221,600
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 58,300 $ 27,700
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, 2005. The results
for the three months ended September 30, 2005,
are not necessarily an indication of the results
that may be expected for the full fiscal year
ending June 30, 2006.
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 which is 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 manufacturing and marketing of
equipment for research in university, hospital and industrial
laboratories. The Company believes that is has only one
reportable segment. Approximately 67% and 73% of net sales
for the three month periods ended September 30, 2005 and 2004,
respectively, were net sales of the Company's main product,
the Vortex-Genie 2(R) mixer, excluding accessories.
The Company's export sales (principally Europe and Asia) were
approximately $349,500 and $313,600 (39% and 37% of net sales)
for the three month periods ended September 30, 2005 and 2004,
respectively.
Three of the Company's customers accounted in the aggregate
for 52% and 50% of net sales for the three month periods ended
September 30, 2005 and 2004, 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. Components of inventory are as
follows:
September 30, 2005
------------------
Raw Materials $ 692,000
Work in process 36,700
Finished Goods 124,000
------------
$ 852,700
============
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, which was exercised at the end
of the period.
Earnings per common share was computed as follows:
For the Three Month Periods Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Net income $ 96,900 $ 58,600
========= =========
Weighted average common
shares outstanding 980,310 975,541
Effect of dilutive
securities 80,515 69,138
--------- ---------
Weighted average dilutive
common shares outstanding 1,060,825 1,044,679
========= =========
Basic earnings per common
share $ .10 $ .06
========= =========
Diluted earnings per common
share $ .09 $ .06
========= =========
All options and the warrant outstanding for the periods ended
September 30, 2005 and 2004 were included in the foregoing
computations on a weighted average basis.
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, 2005 and 2004.
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, 2005 September 30, 2004
Net income:
As reported $ 96,900 $ 30,000
Pro Forma 96,400 29,700
Earnings per common and
common equivalent share:
Basic - as reported $ .10 $ .03
Basic - pro forma $ .10 $ .03
Diluted - as reported $ .09 $ .03
Diluted - pro forma $ .09 $ .03
On December 16, 2004, the Financial Accounting Standards Board
issued Statement No. 123 (revised 2004) that will require
compensation costs related to share-based payment transactions to
be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based
on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be
measured each reporting period. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. Statement 123(R) replaces FASB Statement
No. 123, Accounting for Stock-Based Compensation, and supercedes
APB Opinion No. 25, accounting for Stock Issued to Employees.
SFAS 123(R) is effective at the beginning of the next fiscal year
that begins after December 15, 2005. The Company is currently
assessing the impact of adopting SFAS 123(R).
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.
Liquidity and Capital Resources
Net cash used in operating activities was $17,600 for the three
month period of the current fiscal year as compared to $77,300
provided in the comparative period of the prior fiscal year. The
principal factors accounting for the difference were higher
accounts receivable and inventory at September 30, 2005 compared
to year end, partially offset by higher net income for the current
three month period. Cash used in investing activities was $36,600
for the current period as compared to $97,100 used in the three
months ended September 30, 2004 reflecting lower net purchases of
investment securities during the current year period and greater
capital expenditures during the prior year's three month period.
As a result of the foregoing, cash and cash equivalents decreased
by $54,200 to $129,700 as of September 30, 2005 from a balance of
$183,900 as of June 30, 2005.
On September 27, 2005, the Board of Directors of the Company
declared a cash dividend of $.09 per share of Common Stock payable
on January 13, 2006 to holders of record as of the close of
business on October 27, 2005.
The Company's working capital of $2,251,000 as of September 30,
2005 approximated the working capital of $2,248,800 at June 30,
2005. The Company has available for its working capital needs, a
secured bank line of credit of $200,000 with North Fork Bank with
interest at prime, all of which was available as of September 30,
2005. The Company has never borrowed under this line of credit.
Management believes that the Company will be able to meet its cash
flow needs during the next 12 months from its available financial
resources which include its cash and investment securities.
Financial Overview
The quarter ended September 30, 2005 produced higher net income of
$96,900, an increase of $38,300 over the prior year's comparable
quarter, principally as a result of higher gross margins. Sales
for the quarter
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
ended September 30, 2005 were positively impacted by an
approximate 41% increase in sales of new products over those for
the quarter ended September 30, 2004.
Results of Operations
The Three Months Ended September 30, 2005 Compared with the Three
Months Ended September 30, 2004
The Company's net sales for the three months ended September 30,
2005 (the "2005 Quarter") increased $38,200 (4.5%) to $890,000
from $851,800 for the three months ended September 30, 2004 (the
"2004 Quarter"), primarily the result of a $64,500 (40.6%)
increase in sales of new products to $223,400, from $158,900 for
the 2004 Quarter. The gross profit percentage for the 2005
Quarter was 51.3% compared to 46.2% for the 2004 Quarter, mainly
as a result of lower factory-related costs, including the reduced
rent under the new lease for the company's facilities and the
absence of certain other costs that were incurred in prior year's
period.
General and administrative expenses for the 2005 Quarter were
$174,000, a slight decrease of $3,500 (2.0%) from $177,500 for the
2004 Quarter.
Selling expenses of $63,500 for the 2005 Quarter were $4,400
(6.5%) less than $67,900 for the 2004 Quarter primarily due to
lower printed materials expenses.
Research and development expenses for the 2005 Quarter of $91,800
were higher by $13,400 (17.1%) than $78,400 for the 2004 Quarter
as a result of development work for a new project.
As a result of the foregoing, the Company reflected a $58,300
(76.1%) increase in income before income taxes to $134,900 for the
2005 Quarter, from $76,600 for the 2004 Quarter.
As a result of the higher income, income taxes amounted to $38,000
for the 2005 Quarter as compared to $18,000 for the comparable
period last year and net income for the 2005 Quarter was $96,900,
a 65.4% increase from $58,600 for the 2004 Quarter.
ITEM 3. 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 the Securities
Exchange Act of 1934), the Chief Executive and Chief Financial
Officer of the Company 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.
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 a report on Form 8-K on
September 28, 2005 reporting 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, 2005 /s/Helena R. Santos
-------------------
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Chief Financial and Principal
Accounting Officer