UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 2005
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. $3,593,000
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 2, 2005 is $1,929,100.
The number of shares outstanding of the issuer's common stock, par
value $.05 per share ("Common Stock") as of September 2, 2005 is
980,207 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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 laboratories
of universities, hospitals, pharmaceutical companies, clinics,
medical device manufacturers and other related industries.
Products. The Company's products principally consist of
laboratory mixers, rotators/rockers, refrigerated incubators, and
magnetic stirrers.
Mixers and Disruptors. 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 (excluding accessories) represented
approximately 75% of the Company's revenues for the year ended June
30, 2005 ("fiscal 2005") as compared with 77% of the Company's
revenues for the year ended June 30, 2004 ("fiscal 2004").
Commencing in the year ended June 30, 2002 ("fiscal 2002")
the Company expanded its mixers line to included the Vortex-Genie
2T, a mixer with an integral timer, the Vortex-Genie 1, a high
speed touch mixer, and the Disruptor Genie(R), a patented cell
disruptor (all introduced in fiscal 2002); the MicroPlate
Genie(TM), another specialty mixer designed specifically to mix and
vortex the contents of microplates (introduced in fiscal 2004) and
the Multi-MicroPlate Genie(TM) (launched at the end of fiscal
2005).
Other Products. 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 (introduced during fiscal 2003) are
multi-functional benchtop environmental chambers designed to
perform various functions under controlled environmental conditions
of temperature. The Company's Bag Rotator also mixes transfer
packs and other sealed bags for the clinical market.
During the past two fiscal years, the Company launched two
other products -the Magstir Genie(R), a new patented magnetic
stirrer, which is programmable and offers a unique low to high
speed range (launched in fiscal 2004) and the new Multi-Magstir
Genie(TM) (launched in fiscal 2005). Other magnetic stirrers are
currently under development for introduction during the fiscal year
ending June 30, 2006 ("fiscal 2006").
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.
Marketing. The Company's products are generally
distributed and marketed through an established network of domestic
and foreign laboratory equipment distributors. See "Major
Customers" below. In general, it takes two to three years for a
new product to begin generating meaningful sales in the industry
due to the catalog distribution system.
Commencing in January 2003, the Company substantially
increased its marketing efforts and expenditures 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 marketing consulting services of an affiliate of a
Director of the Company, who earlier had been a marketing employee
of the Company's principal distributor, and (iii) an expanded
promotion and advertising program.
The Company also markets its products through attendance
of industry trade shows, trade publication advertising, brochures
and catalogs, and to a limited extent, in view of the type of
customer for the Company's products, its own web site.
Assembly and Production Materials. The Company's
production operation principally involves assembly of components
supplied by various domestic and international independent
suppliers. The Company does not have any sole suppliers, except as
to a few components where it is not practicable to have multiple
suppliers and alternative suppliers are available. Over the last
two fiscal years, the Company has purchased a substantial portion
of components from overseas factories, with a material part of the
purchases effected through a U.S. vendor. (The vendor accounted
for approximately 35% and 28% for fiscal 2005 and fiscal 2004,
respectively, of the Company's material purchases during fiscal
2005.) See "Risk Factors" The Company is Heavily Dependent on
Outside Suppliers for the Components of Its Products.
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. The patent and license expire on November 2, 2005.
The Company's patent for the TurboMix(TM), an accessory to the
existing Vortex-Genie 2 Mixer, expires in September 2015. Its
patent on the Roto-Shake Genie expires in July 2016. A new patent
and several trademark applications are currently pending. No
representation can be made that any application will be granted or
as to the protection, if any, it will provide if granted.
The Company has various proprietary marks, including
BioReactor Genie(TM), Disruptor Beads(TM), Disruptor Genie(R),
Enviro-Genie(R), Genie(TM), MagStir Genie(R), MultiMagStir
Genie(TM), MicroPlate Genie(TM), Multi-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, all of which
were to various distributors outside the United States (principally
Asia and Europe) accounted for approximately 43.8% of the Company's
net sales for fiscal 2005 and 42.5% for fiscal 2004. 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, mostly of the Vortex-Genie 2
Mixer to two of the Company's customers, each a
major distributor, represented in the aggregate approximately 40%
and 42% of net sales for fiscal 2005 and for fiscal 2004, respectively.
A third customer, also a distributor of the Company's products,
accounted for 10.2 % in fiscal 2005 and under 10% in fiscal 2004
of the Company's net sales. The loss of or a material reduction
of sales to either distributor, as experienced during fiscal year
ended June 30, 2003, could have a material adverse effect upon
the operating results of the Company. See "Competition" below
for offerings by distributors of competitive products.
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 owned by 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. Both Fisher
Scientific and another major distributor of the Company's products
offer private label mixers in competition with the Company's vortex
mixers. The exclusion of the Vortex-Genie 2 Mixer from either
distributor's catalog could have a material adverse effect on the
Company.
Research and Development. In connection with the
development of new products, the Company incurred research and
development expenses of $350,200 during fiscal 2005 compared to
$364,800 during fiscal 2004. The Company expects its expenditures
in fiscal 2006 for research and development will be in
approximately the same range.
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 2, 2005, the Company employed
19 persons of whom 18 were full-time, including its two executive
officers. None of the Company's employees is 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. Sales of its Vortex-Genie 2 Mixer accounted for
approximately 75% and 77% of the Company's sales for fiscal 2005
and fiscal 2004, respectively. No assurance can be given that the
Company will be able to 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, each of which currently distributes the Company's
products. Total sales to these two customers accounted for
approximately 40% and 42% of the Company's total sales in the last
two fiscal years. Moreover, Fisher Scientific acquired in 2004
Apogent Technologies, which owns Barnstead/Thermolyne, a competitor
of the Company. No representation can be made at this time as to the
effect, if any, of this acquisition on sales of the Company's
products to Fisher Scientific. A third customer, also a
distributor of the Company's products, accounted for 10.2 % in
fiscal 2005 and under 10% in fiscal 2004, respectively of the
Company's net sales. A material reduction in sales to any of the
three distributors would have a material adverse effect on
the results of operations of the Company.
THE COMPANY IS A SMALL PARTICIPANT IN ITS HIGHLY COMPETITIVE INDUSTRY
The laboratory products industry is highly competitive.
Although the Company's principal product, the Vortex-Genie 2 Mixer,
has been widely accepted, the Company's annual net sales ($3,593,000
for fiscal 2005 and $3,532,600 for fiscal 2004) is much less than
the annual revenues of many of its competitors in the industry.
Its principal competitors are substantially larger and have much greater
financial, production and marketing resources than the Company. In
the past few years, there have been new entrants into the vortex
mixer market including a supplier of the Company's two largest
distributors.
THE COMPANY'S ABILITY TO GROW AND COMPETE EFFECTIVELY IS IN PART
DEPENDENT ON ITS ABILITY TO DEVELOP AND EFFECTIVELY MARKET NEW
PRODUCTS
In the recent past, the Company been pursuing 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 during the fiscal year ended June 30, 1999
the Roto-Shake Genie rotator/rocker and then in the fiscal year
ended June 30, 2001 the Enviro-Genie refrigerated
incubator. During fiscal 2002, the Company began selling three
new products which generally target the vortex mixer market - the
Vortex-Genie 1 touch mixer, the Vortex-Genie 2T timed mixer, and
the Disruptor Genie cell disruptor. More recently, the Company
introduced the MagStir Genie and MultiMagStir Genie magnetic stirrers
and the MicroPlate Genie and Multi-MicroPlate Genie microplate mixers,
with additional products currently under development.
Revenues derived from products other than the Vortex-Genie
2, (excluding accessories) amounted to $669,500 and $648,000,
respectively, for fiscal 2005 and fiscal 2004. The Company
historically has relied primarily on its distributors and their
catalogs to market its 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. 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. During
fiscal 2004, the Company changed its pricing policies to encourage
distributors to include the products in their catalogs and
websites, with a revised discount structure.
In the beginning of calendar 2003, the Company began
taking a more aggressive approach towards the marketing of its
products, starting with the hiring of a sales and marketing
director, and allocating more resources for advertising,
promotions, website, and miscellaneous other selling and marketing
tools. No assurance can be made that the amounts allocated by the
Company for its development and marketing program will prove
beneficial 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 OUTSIDE 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 several components. (See "Assembly and Production
Materials".) 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. To diminish this
risk, the Company keeps higher than normal quantities on-hand of such
components, and has added several alternate suppliers during 2005.
Furthermore, the Company intends to continue purchasing components
from overseas factories directly or indirectly. Such 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'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 's design patent on a feature of its Vortex-Genie 2
Mixer, its principal product, expires in November 2005. It holds a
patent on an accessory to that product which expires in September
2015 and on another product which expires in July 2016. A patent
application on a new product is pending.
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
The loss of the services of Ms. Helena Santos, the
Company's Chief Executive Officer, President and Treasurer, or Mr.
Robert Nichols, the Company's Executive Vice President or any
material expansion of the Company's operations could place a
significant additional strain on the Company's limited management
resources and 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 7, 2005, there were only 980,207 shares of
Common Stock of the Company outstanding, of which 321,815 shares
are held by the directors and officers of the Company. There have
been a number of trading days during fiscal 2005 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. See
Note 8 to the Financial Statements in Item 7 for further
information. The leased facilities are suitable and adequate for
the Company's operations. In the opinion of management, the
property is adequately covered by insurance.
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 2005.
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 2004 and fiscal 2005, 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
09/30/03 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
09/30/04 1.95 2.05
12/31/04 2.00 2.25
03/31/05 2.25 3.28
06/30/05 2.26 3.01
(b) There were, as of September 7, 2005, 854 record
holders of the Company's Common Stock.
(c) On January 14, 2005, The Company paid a cash dividend
of $.07 per share to stockholders of record on October 20,
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, 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. During fiscal 2005, the Company achieved a
significant increase of 30% in Income Before Income Taxes compared
to fiscal 2004 $423,000 compared to $325,700 mainly the result
of the Company's success in reducing operating costs. However, due
to inflationary pressures the Company does not anticipate achieving
any material cost reductions in fiscal 2006. Furthermore, increasing
price competition could also impact the Company's gross profit margins.
Net sales increased by $60,400 (1.7%) to $3,593,000 for
fiscal 2005 from $3,532,600 for fiscal 2004, which appears to be
comparable to the organic growth rate reported by many laboratory
equipment suppliers in the industry. The Company's sales increase
was mainly due to greater sales of new products and accessories to
overseas
customers.
The laboratory products industry has been subject to
certain merger and acquisition activity in the past two years,
creating additional pricing and competitive pressures. In fiscal
2004, Fisher Scientific, the Company's largest customer acquired
Apogent Technologies, Inc., a major supplier of various laboratory
equipment, and the Company's second largest customer, VWR
International was acquired by Clayton, Dubilier & Rice, Inc..
The Company believes that in order to remain competitive in
its current environment, it must continue its marketing and sales
efforts to achieve product recognition and customer loyalty, and to
target new markets with its existing products and new technology.
Results of Operations. Net sales for fiscal 2005 were
$3,593,000, an increase of $60,400 (1.7%) compared to net sales of
$3,532,600 for fiscal 2004 due to an increase from $902,600 in
fiscal 2004 to $967,400 in fiscal 2005 in sales of new products and
accessories. The increase in new products and accessory sales was
primarily to overseas customers. The gross profit percentage for
fiscal 2005 of 48.7% exceeded the gross profit percentage of 47.2%
for fiscal 2004, mostly as a result of lower factory overhead costs
and, to a lesser extent, increased selling prices.
General and administrative ("G&A") expenses were
approximately the same at $682,300 for fiscal 2005, compared to
$686,700 in fiscal 2004.
Selling expenses for fiscal 2005 decreased slightly by
$7,100 (2.3%) to $316,400 compared to $309,300 for fiscal 2004
mainly due to lower website and printed materials expenses.
Research and development expenses decreased by $14,600
(4.0%) to $350,200 for fiscal 2005 compared to $364,800 for fiscal
2004, as a result of lower outside engineering costs, while
maintaining a constant level of development projects.
Income tax expense was $118,500 for fiscal 2005 compared to
$77,000 for fiscal 2004, due mainly to higher profits.
Liquidity and Capital Resources. Net cash provided by
operating activities was $319,900 for fiscal 2005 compared to
$338,000 impacted in fiscal 2005 by higher inventory and higher
accounts receivable balances at June 30, 2005. Cash used in
investing activities increased to $315,000 for fiscal 2005
compared to $168,900 for fiscal 2004, reflecting higher purchases of
investment securities, which as of June 30, 2005 amounted to
$1,026,700. Cash used in financing activities increased to
$62,400 for fiscal 2005 compared to $35,300 in fiscal 2004,
primarily as a result of the cash dividend paid in January 2005.
As a result of the foregoing, the Company's cash and cash
equivalents decreased by $57,500 to $183,900 as of
June 30, 2005 compared to $241,400 as of June 30, 2004.
The increase of $265,500 in the Company's working capital
to $2,248,800 from $1,983,300 was primarily generated by profitable
operations, partially offset by the cash dividend paid and capital
expenditures. 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
June 30, 2005. The Company has never borrowed under this line of
credit. Management believes that it will be able to meet its
cash flow requirements during the fiscal year ending June 30, 2006
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 2005, the Company
incurred $53,900 in capital expenditures, the level which the
Company expects to incur during fiscal 2006. The Company believes
that the required funding for capital expenditures will be, as in
past fiscal years, 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 the 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. The
Company also concluded that information required to be disclosed in
such reports is accumulated and communicated to the Company's
management, including its principal executive and principal
financial officer, as appropriate to allow timely decisions
regarding required disclosure.
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 85), a Director since 1974, has
been counsel to the law firm of Katen Muchin Zavis Rosenman
(formerly Rosenman & Colin) during the past five years. He is a
director of Supreme Industries, Inc., a nationwide manufacturer of
specialized truck bodies.
Joseph G. Cremonese (age 69), 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. Prior to 1991, he had been employed by
Fisher Scientific, presently the the Company's largest customer.
Joseph I. Kesselman (age 80), a Director since 1961 and
Chairman of the Board since August 29, 2002, has been for more than
five years a consultant to various corporations. He is 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 79), a Director since 1965, is
retired. During the past five years he has been involved in
liquidating various real estate and manufacturing concerns.
James S. Segasture (age 69), a Director since 1991, has
been a private investor since February 1990.
The Directors are elected to two-year staggered terms. The
current terms of the Directors 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, 2005 - two Directors
(Messrs. Cremonese and Knowles, Class C), the fiscal year ending
June 30, 2006 - two Directors (Messrs. Borden and Segasture, Class
A) and the fiscal year ending June 30, 2007 - one Director (Mr.
Kesselman, Class B).
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 Board of Directors acts as the Company's Audit Committee.
EXECUTIVE OFFICERS
Helena R. Santos, CPA (age 41), employed by the Company
since 1994, was appointed in August 2002 as President, Chief
Executive Officer and Treasurer. Previously she served as Vice
President, Controller from 1997 and Secretary from May 2001. Ms.
Santos 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 44), 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,
2005, its officers, directors and 10% stockholders timely complied
with all filing requirements of Section 16(a) of the Securities Act
of 1934, as amended.
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation paid by the
Company to its then Chief Executive Officer and President and
Executive Vice President with respect to each of the three fiscal
years ended June 30, 2005, 2004 and 2003. 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) 2005 $108,200 $ - $ -
2004 $100,000 $ - $ -
2003 $ 98,500 $ - $ -
Robert P. Nichols (2)2005 $103,200 $ - $ -
2004 $ 95,000 $ - $ -
2003 $ 94,000 $ - $ -
Lowell A. Kleiman (1)2003 $ 53,300 $ - $ 19,500
(1) Ms. Santos was appointed Chief Executive Officer and President
on August 29, 2002 following the termination of Mr. Kleiman's
employment. His other compensation represents benefits accrued
upon termination.
(2) Mr. Nichols was appointed Executive Vice President on August
29, 2002.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to officers during fiscal year 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES
There were no options exercised by officers during fiscal year
2005.
Employment Agreements
The Company's employment agreements with Ms. Helena R.
Santos and Mr. Robert P. Nichols effective through December 31,
2006 provide for base annual salaries of $110,000, an increase
on September 1, 2004 from $100,000 for Ms. Santos and $105,000 for
Mr. Nichols, an increase on September 1, 2004 from $95,000. Each
agreement authorizes annual bonuses at the discretion of the Board
based upon performance criteria and contains 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, also receives a
monthly fee of $750. During fiscal 2005, the fees to non-employee
Directors aggregated $36,000.
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
and through December 2002 the Board of Directors granted under the
2002 Plan annually options to purchase 4,000 shares of
Common Stock for each of them exercisable at the fair market value
on the date of grant. Accordingly, as of June 30, 2005, the
Company had granted under the 1992 Plan to the foregoing four
non-employee Directors options to purchase an aggregate of 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, 2005, options under the
1992 Plan with respect to 49,000 shares had been exercised by the
Directors. In addition, 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 Plan, none of the Directors at
the time of the adoption by the Board of Directors of the 2002 Plan
(subsequently approved by stockholders) were eligible to receive
option grants. Mr. Joseph G. Cremonese who was elected Director
at the 2002 Annual Meeting of Stockholders, 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 June 30, 2005, 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) 14.2%
16 Walnut Street
Glen Head, NY 11545
Arthur M. Borden 59,540 (2) 5.9%
Joseph G. Cremonese 21,210 (3) 2.1%
Joseph I. Kesselman 63,520 (4) 6.3%
Roger B. Knowles 59,495 (5) 5.9%
James S. Segasture 187,250 (6) 19.0%
Helena R. Santos 21,000 (7) 2.1%
Robert P. Nichols 27,800 (8) 2.8%
All directors and executive
officers as a group (7 persons) 439,815 (9) 40.1%
(1) Based on information reported in his Schedule 13D filed with
the Securities and Exchange Commission on October 30, 2002.
(2) Includes 23,000 shares issuable upon exercise of options.
(3) 16,210 shares are owned jointly with his wife and 5,000
shares are issuable upon exercise of options.
(4) Includes 23,000 shares issuable upon exercise of options and
735 shares of Common Stock owned jointly with his wife.
(5) Includes 23,000 shares issuable upon exercise of options,
35,158 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 25,000 shares issuable upon exercise of options.
(9) includes 118,000 shares issuable upon exercise of options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Joseph G. Cremonese, who was elected a Class C Director
at the Annual Meeting of Stockholders in November 2002 or his
affiliate, Laboratory Innovation Company, Ltd., have been providing
independent marketing consulting services to the Company for
approximately eight years. The services have been rendered since
January 1, 2003 pursuant to a consulting agreement which was
amended in March 2005. The agreement as amended provides that
Mr. Cremonese and his affiliate render, at the request of the
Company, through December 31, 2006 marketing consulting services
of at least 72 (originally 80), but not more than 96, days per
year at the rate of $500 (originally $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 72 days for the
12 month period. The agreement contains confidentiality and
non-competition covenants. During fiscal 2005, the Company
paid an aggregate of $31,000 for the consulting services.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibits to this report are listed in the Exhibit
Index at the end of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last
quarter of fiscal 2005.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Company incurred for the services of Nussbaum, Yates &
Wolpow, P.C.: audit fees (including for preparation of the
Company's corporate tax returns) of approximately $26,500 and
$26,000 in connection with the audit of the Company's financial
statements for fiscal 2005 and fiscal 2004, respectively; $2,700
and $2,550 in connection with the quarterly reviews for fiscal 2005
and fiscal 2004, respectively, and $3,600 in fiscal 2005 in
connection with reviews of amendments of the Company's annual and
quarterly reports filed under the Securities Exchange Act of
1934. There were no other audit related fees or other fees paid to
Nussbaum, Yates & Wolpow, P.C.
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: September 28, 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 28, 2005
____________________
Arthur M. Borden
/s/ Joseph G. Cremonese Director September 28, 2005
_______________________
Joseph G. Cremonese
/s/ Joseph I. Kesselman Chairman of September 28, 2005
_______________________ the Board
Joseph I. Kesselman
/s/ Roger B. Knowles Director September 28, 2005
____________________
Roger B. Knowles
/s/ James S. Segasture Director September 28, 2005
______________________
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. (Filed for EDGAR
purposes only)
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, 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 September
1, 2004, by and between the Company
and Mr. Nichols.
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).
10(d)-1 Consulting agreement dated March 22,
2005, by and between the Company and
Mr. Cremonese and Laboratory Innovation
Company, Ltd., (filed as Exhibit 10A-1
to the Company's current report on
Form 8-K filed on March 23, 2005, 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, 2005 AND 2004
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
YEARS ENDED JUNE 30, 2005 AND 2004
CONTENTS
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated financial statements:
Balance sheet 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 Registered Public Accounting Firm
_______________________________________________________
Board of Directors and Shareholders
Scientific Industries, Inc. and Subsidiary
Bohemia, New York
We have audited the consolidated balance sheets of Scientific
Industries, Inc. and subsidiary as of June 30, 2005 and 2004, 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Scientific Industries, Inc. and subsidiary as of
June 30, 2005 and 2004, and the results of their operations and
their cash flows for the years then ended in conformity with
United States generally accepted accounting principles.
/s/Nussbaum Yates & Wolpow, P.C.
________________________________
Nussbaum Yates & Wolpow, P.C.
Melville, New York
September 7, 2005
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND 2004
ASSETS
2005 2004
___________ ___________
Current assets
Cash and cash equivalents $ 183,900 $ 241,400
Investment securities 1,026,700 802,500
Trade accounts receivable, less
allowance for doubtful accounts
of $10,600 in 2005 and 2004 450,600 388,800
Inventories 800,400 666,200
Prepaid and other current assets 57,800 58,200
Deferred taxes 49,000 62,300
___________ ___________
Total current assets 2,568,400 2,219,400
Property and equipment, net 136,100 140,500
Deferred taxes - 25,500
Intangible assets, less accumulated
amortization of $48,700 and $41,300
in 2005 and 2004 35,400 12,500
Other 40,000 72,800
___________ ___________
Total assets $ 2,779,900 $ 2,470,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,400 $ 76,000
Accrued expenses and taxes 237,200 160,100
___________ ___________
Total current liabilities 319,600 236,100
___________ ___________
Deferred compensation 19,400 36,000
___________ ___________
Deferred taxes 3,000 -
___________ ___________
Commitments and contingencies
Shareholder's equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 1,000,009 and 995,343 shares
in 2005 and 2004 50,000 49,800
Additional paid-in capital 991,200 984,200
Accumulated other comprehensive
income, unrealized holding loss
on investment securities (7,600) (3,500)
Retained earnings 1,456,700 1,220,500
___________ ___________
2,490,300 2,251,000
Less common stock held in treasury
at cost, 19,802 shares 52,400 52,400
___________ ___________
Total shareholders' equity 2,437,900 2,198,600
___________ ___________
Total liabilities and
shareholders' equity $ 2,779,900 $ 2,470,700
=========== ===========
See notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
JUNE 30, 2005 AND 2004
2005 2004
____________ ___________
Net sales $ 3,593,000 $ 3,532,600
Cost of sales 1,844,500 1,864,100
____________ ___________
Gross profit 1,748,500 1,668,500
____________ ___________
Operating expenses:
General and administrative 682,300 686,700
Selling 316,400 309,300
Research and development 350,200 364,800
____________ ___________
1,348,900 1,360,800
____________ ___________
Income from operations 399,600 307,700
____________ ___________
Other income:
Interest income 18,400 10,500
Other income, net 5,000 7,500
____________ ___________
23,400 18,000
____________ ___________
Income before income taxes 423,000 325,700
____________ ___________
Income tax expense:
Current 76,700 51,200
Deferred 41,800 25,800
____________ ___________
118,500 77,000
____________ ___________
Net income $ 304,500 $ 248,700
____________ ___________
Basic earnings per common share $ .31 $ .26
____________ ___________
Diluted earnings per common share $ .29 $ .24
____________ ___________
Weighted average common shares
outstanding 978,008 965,230
____________ ___________
Weighted average common shares
outstanding, assuming dilution 1,051,039 1,018,810
____________ ___________
See notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2005 AND 2004
Common Stock Additional Accumulated
______________ Paid-in Comprehensive
Shares Amount Capital Income (Loss)
_______ _______ ________ _____________
Balance, July 1, 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)
Net income - - - -
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (5,500)
Less: reclassification
adjustment for loss
included in net income - - - 1,400
Change in net unrealized
holding gain - - - -
Comprehensive income - - - -
Exercise of stock options 4,666 200 5,700 -
Income tax benefit of
stock options exercised - - 1,300 -
Cash dividend paid, $.07
per share - - - -
_________ _______ ________ _____________
Balance, June 30, 2005 1,000,009 $50,000 $991,200 $(7,600)
========= ======= ======== =============
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
Total
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
________ ______ ______ _____________
Balance, July 1, 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 - - - (3,800)
_____________
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
Net income 304,500 - - 304,500
_____________
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (5,500)
Less: reclassification
adjustment for loss
included in net income - - - 1,400
_____________
Change in net unrealized
holding gain - - - (4,100)
_____________
Comprehensive income - - - 300,400
_____________
Exercise of stock options - - - 5,900
Income tax benefit of
stock options exercised - - - 1,300
Cash dividend paid, $.07
per share (68,300) - - (68,300)
___________ _______ _______ _____________
Balance, June 30, 2005 $1,456,700 19,802 $52,400 $ 2,437,900
=========== ======= ======= =============
See notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2005 AND 2004
2005 2004
___________ __________
Operating activities:
Net income $ 304,500 $ 248,700
Adjustments to reconcile net income to __________ ___________
net cash provided by operating activities
Loss on sale of investments 1,400 800
Loss on disposal of property and equipment - 4,200
Depreciation and amortization 66,600 68,000
Provision for bad debts - 3,200
Deferred income taxes 41,800 25,800
Income tax benefit of stock options
exercised 1,300 800
Changes in assets and liabilities:
Trade accounts receivable (61,800) 17,600
Inventories (134,200) (84,000)
Prepaid expenses and other current assets 600 6,400
Other assets 32,800 2,600
Accounts payable 6,400 17,900
Accrued expenses and taxes 77,100 33,800
Deferred compensation (16,600) (7,800)
___________ __________
Total adjustments 15,400 89,300
___________ __________
Net cash provided by operating
activities 319,900 338,000
___________ __________
Investing activities:
Purchase of investment securities,
available for sale (435,400) (337,600)
Purchase investment securities, held to
maturity (113,500) -
Redemption of investment securities,
available for sale 222,600 92,600
Redemption of investment securities,
held to maturity 95,500 130,800
Capital expenditures (53,900) (53,400)
Proceeds from sale of property and equipment - 200
Purchase of intangible assets (30,300) ( 1,500)
___________ _________
Net cash used in investing activities (315,000) (168,900)
___________ _________
Financing activities:
Proceeds from exercise of stock options 5,900 13,000
Cash dividend declared and paid (68,300) (48,300)
___________ _________
Net cash used in financing
activities (62,400) (35,300)
___________ _________
Net increase (decrease) in cash and cash
equivalents (57,500) 133,800
Cash and cash equivalents, beginning of year 241,400 107,600
___________ _________
Cash and cash equivalents, end of year $ 183,900 $ 241,400
=========== =========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 24,000 $ 8,000
=========== =========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2005 AND 2004
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
The Company records revenue from the sale of its goods at the
time of shipment. All shipments are FOB shipping point. All sales
are final without right of return or payment contingencies. The Company
has no special sales arrangements or agreements with any of its
customers. Sales are recorded when the following criteria are met:
Receipt of a written purchase order which is binding on the customer.
Goods are shipped and title passes.
Prices are fixed.
Collectibility is reasonably assured.
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. At
certain times, the Company maintains balances in accounts in excess of the
$100,000 FDIC insurance coverage.
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 its 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. The Company does not obtain collateral for its
accounts receivable.
F-6
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
1. Summary of Significant Accounting Policies (Continued)
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 valued at the lower of cost (first in, first out)
or market value, and have been reduced by an allowance for excess and
obsolete inventories. The estimate is based on management's review of
inventories on hand compared to estimated future usage and sales.
Cost of work-in-process and finished goods inventories include material,
labor and manufacturing overhead.
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, 2005 and 2004 was $7,400
and $4,500. Expense is expected to be approximately $8,000 annually for
the next five 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.
F-7
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
1. Summary of Significant Accounting Policies (Continued)
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 basis
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 $43,700 and $46,700 for the years ended June 30, 2005 and 2004.
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 are to 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 the then members of the
Board of Directors shall be eligible to receive option grants under the 2002
Plan. 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 directors of the Company since December 2001.
The options expire at various dates through October 2012. At June 30, 2005,
83,000 shares of Common Stock were available for grant under the 2002 Plan
plus 21,000 shares which expired under the Prior Plan.
F-8
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
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 (there were no options granted in 2005):
2004
________
Expected life (in years) 10
Risk-free interest rate 4.72%
Expected volatility 38.36%
Dividend yield 2.31%
Under the above model, the total value of stock options granted
in 2004 was $5,300, 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:
2005 2004
_________ _________
Net income:
As reported $304,500 $248,700
Pro forma 302,700 244,400
Basic earnings per share:
As reported $ .31 $ .26
Pro forma $ .31 $ .25
Diluted earnings per share:
As reported $ .29 $ .24
Pro forma $ .29 $ .24
Stock-based employee compensation
cost, net of related tax effects,
included in the determination of
net income as reported $ - $ -
F-9
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
The Company did not grant any options or warrants as compensation for
goods or services to non-employees for the years ended June 30, 2005
and 2004.
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 common share includes the dilutive effect of stock options and warrants.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued Statement No. 123(R) (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. 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 as of the first annual
reporting period that begins after December 15, 2005. The Company
is currently assessing the impact of adopting SFAS 123(R).
F-10
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
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 75% in 2005 and 77% in 2004 of sales are
generated from the Vortex-Genie(R) 2 mixer excluding accessories.
Certain information relating to the Company's export sales and
principal customers is as follows:
2005 2004
__________ __________
Export sales (principally Europe
and Asia) $1,575,100 $1,502,100
Customers in excess of 10% of net
sales:
Largest in 2004 and 2003 830,800 878,000
Second largest in 2004 and 2003 598,500 614,600
Third largest (principal customer
in 2005 only) 366,600
Accounts receivable from these customers amounted to
approximately 41% and 34% of total accounts receivable at
June 30, 2005 and 2004.
The Company purchased approximately 35% and 28% of material from
one supplier for the years ended June 30, 2005 and 2004. Another
supplier accounted for 22% of material purchased for the year
ended June 30, 2004.
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, 2005:
Available for sale:
Equity securities $ 8,300 $ 10,000 $ 1,700
Mutual funds 678,300 669,000 (9,300)
Callable bonds 275,000 275,000 -
_________ _________ __________
$ 961,600 $ 954,000 $ (7,600)
_________ _________ __________
Held-to-maturity:
State and municipal bonds,
due in one year or less $ 57,700 $ 57,500 $ (200)
Certificate of deposit 15,000 15,000 -
_________ ________ ________
$ 72,700 $ 72,500 $ (200)
_________ ________ ________
F-11
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
3. Investment Securities (Continued)
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)
_________ ________ __________
4. Inventories
2005 2004
__________ __________
Raw materials $ 711,400 $ 611,000
Work-in-process 10,600 7,400
Finished goods 78,400 47,800
__________ __________
$ 800,400 $ 666,200
__________ __________
5. Property and Equipment
Useful Lives
(Years) 2005 2004
____________ _________ _________
Computer equipment 3-5 $123,000 $119,800
Machinery and equipment 3-7 340,100 294,100
Furniture and fixtures 4-10 80,600 77,800
Leasehold improvements 5 35,200 35,200
________ _________
578,900 526,900
Less accumulated depreciation
and amortization 442,800 386,400
________ _________
$136,100 $140,500
======== =========
F-12
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
6. Bank Line of Credit
The Company has an available $200,000 secured bank line of credit which
bears interest at prime collateralized by all the assets of the Company.
The Company did not utilize this credit line during the years ended
June 30, 2005 and 2004. To support the line of credit, the Company would
be required to maintain 20% of the credit line in average monthly balances.
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 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 $9,600 in 2005 and $12,400 in 2004.
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 January 2010 under a noncancelable
operating lease for its premises, which requires current minimum annual
rental payments of approximately $155,000 and certain other expenses,
including real estate taxes and insurance.
The Company's approximate future minimum rental payments under
the above lease are as follows:
Fiscal Years
____________
2006 $ 172,100
2007 179,000
2008 186,100
2009 193,600
Thereafter 115,800
__________
$ 846,600
==========
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 lease. Rental expense
amounted to approximately $217,600 in 2005 and $242,300 in 2004. Accrued
rent, payable in future years, amounted to $19,700 and $11,300 at June 30,
2005 and 2004.
F-13
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
8. Commitments and Contingencies (Continued)
Employment Contracts
Pursuant to an expired employment contract with its former President,
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, 2005 and 2004, $38,800 and $54,000 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. For the years ended June 30, 2005
and 2004, $19,600 and $17,400, respectively were paid to the former
President.
The Company has employment contracts with its President and
Executive Vice President expiring on December 31, 2006, providing for
annual base 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, 2005.
During the year ended June 30, 2003, the Company entered into a
consulting agreement through December 31, 2004 with an affiliate of a
member of its Board of Directors for marketing consulting services.
The agreement provides that the consultant will be paid a monthly fee
of $3,000 for a certain number of consulting days as defined in the
agreement. On March 22, 2005, the agreement was amended to provide,
among other things, for an extension through December 31, 2006
at the same monthly fee.
F-14
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
9. Income Taxes
Income taxes (benefit) for 2005 and 2004 were different from the
amounts computed by applying the Federal income tax rate to the income
before income taxes due to the following:
2005 2004
________________ ________________
%of % of
Pre-tax Pre-tax
Amount Income Amount Income
_________ _______ _________ _______
Computed "expected" income tax $ 143,800 34.0% $ 110,700 34.0%
Research and development
credits (13,000) (3.1) (31,700) (9.7)
State income taxes, net of
Federal effect 10,700 2.5 6,500 2.0
Other, net (23,000) (5.4) ( 8,500) (2.6)
_________ _______ _________ _______
Actual income taxes 118,500 28.0% $ 77,000 23.7%
_________ _______ _________ _______
Deferred tax assets and liabilities consist of the following:
2005 2004
________ _________
Deferred tax assets:
Amortization of intangibles $ 10,500 $ 9,700
Deferred compensation 13,300 18,400
Rent accrual 6,800 3,800
Tax credit carry forwards 16,200 59,500
Other 26,200 17,300
________ _________
73,000 108,700
Deferred tax liability:
Depreciation of property
and equipment (27,000) (20,900)
________ _________
Net deferred tax assets $ 46,000 $ 87,800
======== =========
At June 30, 2005, the Company had tax credit carryforwards of
approximately $16,200 expiring in 2024 through 2025.
F-15
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
10. Stock Options and Warrant
Option activity is summarized as follows:
Fiscal 2005 Fiscal 2004
_________________ __________________
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
_______ _______ _______ ________
Shares under option:
Outstanding, beginning of year 142,000 $ 1.52 147,000 $ 1.47
Granted - - 10,000 1.28
Exercised (4,666) 1.27 (15,000) .86
Forfeited (6,000) 1.31 - -
________ _______
Outstanding, end of year 131,334 1.54 142,000 1.52
________ _______ _______ _______
Options exercisable, year-end 125,668 $ 1.55 132,333 $ 1.54
________ _______ _______ _______
Weighted average fair value per
share of options granted
durign fiscal 2005 and 2004 $ - $ .53
_______ _______
As of June 30, 2005 As of June 30, 2005
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-$2.40 102,334 4.23 $1.74 96,668 $1.77
$.82-$.84 29,000 4.14 .84 29,000 .84
_______ _______
131,334 125,668
_______ _______
F-16
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
10. Stock Options and Warrant (Continued)
During the year ended June 30, 2005, options were exercised for
a total of 4,666 shares of Common Stock at $1.20 to $1.31 per share.
During the year ended June 30, 2004 options were exercised under
the Prior Plan to acquire a total of 15,000 shares of Common Stock
at $.81 to $.94 per share.
The ten-year options granted in February 1992 (before the adoption
of the Prior Plan), to four non-employee members of the board of
directors, for each to purchase 12,000 shares of Common Stock, at an
exercise price of $.35 have been exercised.
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, 2005 and 2004, the warrant was not
exercised.
11. Earnings Per Common Share
Earnings per common share data was computed as follows:
2005 2004
________ _________
Net income $ 304,500 $ 248,700
========= =========
Weighted average common shares
outstanding 978,008 965,230
Effect of dilutive securities,
stock options and warrant 73,031 53,580
_________ _________
Weighted average dilutive common
shares outstanding 1,051,039 1,018,810
========= =========
Basic earnings per common share $ .31 $ .26
========= =========
Diluted earnings per common share $ .29 $ .24
========= =========
F-17
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2005 AND 2004
12. Fair Value of Financial Instruments
The financial statements include various estimated fair value
information as of June 30, 2005 and 2004, 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:
2005 2004
___________________ ___________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
________ _________ ________ _________
Assets:
Cash and cash equivalents $ 183,900 $ 183,900 $241,400 $241,400
Investment securities
(Note 3) $1,026,700 $1,026,500 $802,500 $802,400
F-18