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: March 31, 2002
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 April 30, 2002: 954,540 shares outstanding of
the Company's Common Stock, par value, $ .05.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
March 31, 2002
Current Assets:
Cash and cash equivalents $ 119,000
Investment securities 508,100
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 578,300
Inventories 602,000
Prepaid expenses and other current assets 29,500
----------
Total current assets 1,836,900
----------
Property and equipment at cost, less accumulated
depreciation of $362,000 175,500
----------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $29,700 8,000
Deferred taxes 101,600
Other 145,400
----------
255,000
----------
$2,267,400
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 97,000
Accrued expenses 180,200
----------
Total current liabilities 277,200
----------
Deferred compensation 88,900
----------
Shareholders' equity:
Common stock $.05 par value 48,500
Additional paid-in capital 955,900
Accumulated other comprehensive loss, unrealized
holding loss on investment securities ( 4,500)
Retained earnings 953,800
----------
1,953,700
Less common stock held in treasury, at cost 52,400
----------
1,901,300
----------
$2,267,400
==========
See notes to condensed unaudited consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Month For the Nine Month
Periods Ended Periods Ended
March 31, March 31,
2002 2001 2002 2001
---------- --------- ---------- ----------
Net sales $ 892,000 1,027,100 $2,686,000 $2,573,800
Cost of goods sold 540,500 589,000 1,609,500 1,511,900
---------- --------- ---------- ----------
Gross profit 351,500 438,100 1,076,500 1,061,900
---------- --------- ---------- ----------
Operating Expenses:
General and administrative 219,100 221,200 633,200 572,700
Selling 46,700 39,600 130,300 104,600
Research and development 74,500 62,500 222,300 195,900
---------- --------- ---------- ----------
340,300 323,300 985,800 873,200
---------- --------- ---------- ----------
Income from operations 11,200 114,800 90,700 188,700
Interest and other income 2,400 1,100 16,000 16,500
---------- --------- ---------- ----------
Income before income
taxes 13,600 115,900 106,700 205,200
Income taxes 3,000 - 32,000 -
---------- --------- ---------- ----------
Net income $ 10,600 $115,900 $ 74,700 $205,200
Net income per common
share - basic $ .01 $ .14 $ .08 $ .25
Net income per common
share - diluted $ .01 $ .12 $ .07 $ .21
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Periods Ended
March 31, 2002 March 31, 2001
Operating activities:
Net Income $ 74,700 $ 205,200
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Gain on sale of investments ( 4,400) -
Depreciation and amortization 48,100 53,200
Change in assets and liabilities:
Accounts receivable ( 277,900) ( 158,200)
Inventories ( 25,600) ( 64,600)
Prepaid expenses and other
current assets 42,200 ( 41,400)
Other assets 5,500 ( 100)
Accounts payable ( 55,500) 46,500
Accrued expenses 106,300 49,100
---------- ----------
Total adjustments ( 161,300) ( 115,500)
---------- ----------
Net cash provided by (used in)
operating activities ( 86,600) 89,700
---------- ----------
Investing activities:
Purchase of investment securities,
available for sale ( 114,700) ( 269,500)
Purchase of investment securities,
held to maturity ( 310,200) ( 106,000)
Redemptions of investment securities,
available-for-sale 175,300 -
Redemptions of investment securities,
held to maturity 156,500 221,500
Capital expenditures ( 22,100) ( 70,300)
Purchase of intangible assets ( 700) -
---------- ----------
Net cash used in
investing activities ( 115,900) ( 224,300)
---------- ----------
Financing activities;
exercise of stock options 46,100 21,000
---------- ----------
Net decrease in cash and cash
equivalents ( 156,400) ( 113,600)
Cash and cash equivalents,
beginning of year 275,400 394,600
---------- ----------
Cash and cash equivalents,
end of period $ 119,000 $ 281,000
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 6,500 $ 400
See notes to condensed unaudited consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General: As contemplated by the Securities and Exchange Commission
(the "Commission"), the accompanying financial statements
and footnotes thereto have been condensed and therefore do
not contain all financial statements and disclosures
required by generally accepted accounting principles.
Reference is made to the financial statements contained
within the Form 10-KSB for the fiscal year ended June 30,
2001 of Scientific Industries, Inc., (the "Company").
The statements as of and for the three and nine months
ended March 31, 2002 and 2001 are unaudited and include all
normal recurring adjustments necessary to present fairly
the results of such unaudited interim periods. The results
for the three and nine months ended March 31, 2002 are not
necessarily an indication of the results of the full fiscal
year.
1. Significant accounting policies:
Principles of consolidation:
The accompanying condensed consolidated financial statements include
the accounts of the Company and Scientific Packaging Industries,
Inc., a New York corporation and an inactive wholly owned subsidiary
of the Company. All intercompany items and transactions have been
eliminated in consolidation.
2. Inventories:
Inventories for interim financial statement purposes are based on
perpetual inventory records at the end of the applicable periods.
Components of inventory are as follows:
March 31, 2002
--------------
Raw Materials $ 500,700
Work in process 58,600
Finished Goods 42,700
------------
$ 602,000
============
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED),
(continued)
3. Net income per Common Share:
Basic net income per Common Share is computed by dividing net income
by the weighted-average number of shares outstanding. Diluted net
income per Common Share includes the dilutive effect of stock
options and a warrant.
Net income per Common Share was computed as follows:
For the Three Month For the Nine Month
Periods Ended Periods Ended
March, 31 March 31,
2002 2001 2002 2001
-------- -------- -------- --------
Net income $ 10,600 $115,900 $ 74,700 $205,200
======== ======== ======== ========
Weighted average common
shares outstanding 945,296 841,540 924,117 837,510
Effect of dilutive
securities 75,063 136,551 89,542 126,188
-------- -------- -------- --------
Weighted average dilutive
common shares
outstanding 1,020,359 978,091 1,013,659 963,698
========= ======== ========= ========
Net income per common
share - basic $ .01 $ .14 $ .08 $ .25
Net income per common
share - diluted $ .01 $ .12 $ .07 $ .21
Stock options to purchase 16,000 shares of Common Stock at $2.40 per
share outstanding as of March 31, 2002, and options to purchase 51,000
shares of Common Stock at $1.88 to $2.00 per share were outstanding at
March 31, 2001 were not included in the computations of diluted net
income per common share because the options' exercise prices were
greater than the average market price of the Company's common stock.
4. Comprehensive Income:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which established standards for reporting and displaying comprehensive
income in financial statements. There was no significant difference
between net income and comprehensive income for the three and nine
month periods ended March 31, 2002 and 2001.
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (UNAUDITED),
(continued)
5. 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 is deemed warranted.
Item 2. Management's Discussion and Analysis
Liquidity and Capital Resources
The Company's working capital as of March 31, 2002 and March 31, 2001,
due primarily to the income for the respective nine month periods then
ended, were $1,559,700 and $1,368,200 respectively, representing
increases of $150,200 and $212,600, respectively, from the beginning of
the periods. The Company has available for its working capital needs,
a secured bank line of credit of $200,000 with North Fork Bank which
expires on November 1, 2002 and carries interest at prime plus 1%, all
of which was available as of March 31, 2002. Management believes
that the Company will be able to meet its cash flow needs during the
next 12 months ending March 31, 2003 from its available financial
resources which include its cash and investment securities.
Results of Operations
The Three Months Ended March 31, 2002 Compared with the Three Months
Ended March 31, 2001.
The Company's net sales for the three months ended March 31, 2001
benefitted from an exceptional level of orders from both
foreign and domestic customers. Accordingly, the Company's net sales
for the three months ended March 31, 2002 were $892,000 compared to
$1,027,100 for the comparable period last year, a decrease of $135,100
(13.1%). The higher net sales for the three months ended
March 31, 2001 along with an increase in factory supervisory staff
during the current fiscal year resulted in a lower gross profit
percentage of 39.4% for the three months ended March 31, 2002
compared to a gross profit percentage of 42.7% for the three months
ended March 31, 2001.
6
Selling expenses increased $7,100 (17.9%) to $46,700 for the three
months ended March 31, 2002 from $39,600 for the three months ended
March 31, 2001, primarily as a result of increased promotional
activity.
Research and development expenses increased $12,000 (19.2%) to $74,500
for the three months ended March 31, 2002 from $62,500 for the
comparable period last year, mainly as a result of increased research
and development activity related to planned new products.
The Company reflected income tax expense of $3,000 for the three
months ended March 31, 2002. No income tax expense was incurred for
the three months ended March 31, 2001 due to the application of net
operating loss carryforwards.
The Nine Months Ended March 31, 2002 Compared with Nine Months Ended
March 31, 2001.
Net sales of $2,686,000 for the nine months ended March 31, 2002
increased $112,200 (4.3%) compared to net sales of $2,573,800 for the
comparable period last year primarily as a result of higher volume in
unit sales. The gross profit percentage of 40.0% for the nine months
ended March 31, 2002 decreased slightly from 41.3% for the comparable
period last year, mainly due to an increase in factory supervisory
staff in preparation for future growth.
General and administrative expenses of $633,200 for the nine months
ended March 31, 2002 increased $60,500 (10.6%) from $572,700 for the
nine months ended March 31, 2001, mainly as a result of expenses
incurred for the pursuit of external business opportunities.
Selling expenses of $130,300 for the nine months ended March 31, 2002
increased $25,700 (24.6%) from $104,600 for the comparable period last
year primarily due to increased promotional activity.
Research and development expenses of $222,300 for the nine months
ended March 31, 2002 increased $26,400 (13.5%) from $195,900 for the
comparable period last year, mainly as a result of an increase in
development activity for planned new products.
The Company reflected income tax expense of $32,000 for the nine
months ended March 31, 2002. No income tax expense was incurred for
the nine months ended March 31, 2001 due to the application of net
operating loss carryforwards.
7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending legal proceedings.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2001 Annual Meeting was held on March 13, 2002.
At this meeting Joseph I. Kesselman was re-elected to the Company's
Board of Directors to serve until the Company's annual meeting of
stockholders with respect to the year ended June 30, 2004 and until
the due election and qualification of his successor by a vote of
759,631 shares "For" and 6,010 shares "Withheld". The other
directors whose terms of office as directors continued after the
meeting are Arthur M. Borden, Lowell A. Kleiman, Roger B. Knowles,
and James S. Segasture. The shareholders also ratified the
appointment of Nussbaum Yates & Wolpow as the Company's
independent accountants for the fiscal year ending
June 30, 2002 by a vote of 759,871 shares "For" and 432 shares
abstaining.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: No reports on Form 8-K were filed
during the period covered by this report.
8
SIGNATURES
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 May 14, 2002
/s/
---------------------------
Lowell A. Kleiman
President and Treasurer
(Chief Executive and Financial Officer)
/s/
----------------------------
Helena R. Santos
Controller and Assistant Treasurer
(Principal Accounting Officer)
9