UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2014
TRANSITION REPORT PURSUANT TO 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.
(Exact Name of Registrant 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)
Registrant's telephone number, including area code (631) 567-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
___________________ _________________________________________
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
______________________________________
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [ x ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ x ]
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), except for a Report
on Form 8-K required to be filed in February with respect to an acquisition
and (2) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(SS 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (SS 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ x ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act) Yes [ ] No [ x ]
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 August 29, 2014 is $2,558,100.
The number of shares outstanding of the registrant's common stock, par
value $.05 per share ("Common Stock") as of August 29, 2014 is 1,469,112
shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
PART I
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 8
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 14
ITEM 9A. CONTROLS AND PROCEDURES 14
ITEM 9B. OTHER INFORMATION 15
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 15
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE 22
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 22
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 24
SIGNATURES 30
EXHIBIT 31.0 CERTIFICATION 31
EXHIBIT 32.0 CERTIFICATION 33
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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," "will be," "will," "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. Business.
General. Incorporated in 1954, Scientific Industries, Inc., a
Delaware corporation (which along with its subsidiaries, the "Company") is
engaged in the design, manufacture, and marketing of standard benchtop
laboratory equipment ("Benchtop Laboratory Equipment"), and customized
catalyst research instruments ("Catalyst Research Instruments"), under
its wholly-owned subsidiary, Altamira Instruments, Inc., ("Altamira")
and through its wholly-owned subsidiary, Scientific Bioprocessing, Inc.,
("SBI"), the design and development of bioprocessing systems and products
("Bioprocessing Systems"). The Company's products are used primarily for
research purposes by universities, pharmaceutical companies, pharmacies
national laboratories, medical device manufacturers, petrochemical companies
and other industries performing laboratory-scale research.
Operating Segments. The Company views its operations as three
segments: the manufacture and marketing of standard Benchtop Laboratory
Equipment for research in university, pharmacy and industrial laboratories
sold primarily through laboratory equipment distributors and online,
the manufacture and marketing of custom-made Catalyst Research Instruments
for universities, government laboratories, and chemical and petrochemical
companies, and the production, marketing and sublicensing of bioprocessing
systems and products for research in university and industrial laboratories.
For certain financial information regarding the Company's operating segments,
see Note 3 to the consolidated financial statements included under Item 8.
Products.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory
Equipment products consist of mixers and shakers, rotators/rockers,
refrigerated and shaking incubators, and magnetic stirrers sold under the
"Genie (TM)" brand, and pharmacy and laboratory balances under the
"Torbal (TM)" brand. Sales of the Company's principal product, the
Vortex-Genie(R) 2 Mixer, excluding accessories, represented approximately
41% and 42% of the Company's total net revenues for each of the
fiscal years ended June 30, 2014 ("fiscal 2014") and June 30, 2013
("fiscal 2013"), and 59% and 67%, of the segment's sales for fiscal 2014
and fiscal 2013, respectively.
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.
The Company's additional mixers and shakers include a high speed
touch mixer; a mixer with an integral timer, a patented cell disruptor;
microplate mixers, two vortex mixers incorporating digital control and
display; a large capacity multi-vessel vortex mixer and shaker, and a large
capacity orbital shaker.
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The Company also offers various benchtop multi-purpose rotators
and rockers, designed to rotate and rock a wide variety of containers,
and a refrigerated incubator and an incubator shaker, both of which are
multi-functional benchtop environmental chambers designed to perform
various shaking and stirring functions under controlled environmental
conditions.
Its line of magnetic stirrers include a patented high/low
programmable magnetic stirrer; a four-place high/low programmable
magnetic stirrer; a large volume magnetic stirrer available in analog and
digital versions; and a four-place general purpose stirrer also available
in analog and digital versions.
The Company also markets a line of pharmacy, laboratory, and
industrial digital scales, mechanical balances, moisture analyzers, and
force gauges under its Torbal brand, as a result of an acquisition in
February 2014 (described in detail in Note 2 to the consolidated financial
statements included under Item 8).
Catalyst Research Instruments. The Catalyst Research Instrument
products are offered through the Company's subsidiary, Altamira. Its
flagship product is the AMI-200(TM), which is used to perform traditional
catalyst characterization experiments on an unattended basis. The product
also features a stand-alone personal computer to control the instrument
and incorporates proprietary LabVIEW(R)-based software. The Company's
AMI-300(TM) Catalyst Characterization Instrument incorporates a
sophisticated data handling package and is designed to perform dynamic
temperature-programmed catalyst characterization experiments. All AMI
model instruments are designed or adapted to a customer's individual
requirements.
Its other Catalyst Research Instrument products include reactor
systems, high throughput systems and micro-activity reactors, including
the Company's BenchCAT(TM) custom reactor systems. They are available
with single and multiple reactor paths and with reactor temperatures up
to 1200 degrees Celsius. The systems feature multiple gas flows, are
available in gas and gas/liquid configurations, and feature one or more
stand-alone personal computers with the LabVIEW(R)-based control software.
Bioprocessing Systems. The Company, through SBI, is engaged in
the design and development of bioprocessing systems, principally
microreactor systems using disposable sensors for vessels with volumes
ranging from 250 milliliter to five liters for future sale or licensing.
In addition, the Company sublicenses the patents and technology it holds
exclusively under a license with the University of Maryland, Baltimore
County, ("UMBC"), for which it receives royalties.
Product Development. The Company designs and develops
substantially all of its products. Company personnel formulate plans
and concepts for new products and improvements or modifications of
existing products. The Company engages outside consultants to augment
its capabilities in areas such as industrial and electronics design.
Major Customers. Sales, principally of the Vortex-Genie 2 Mixer,
to two customers, one of which is one of the two major distributors of
laboratory equipment, represented for fiscal 2014 and fiscal 2013, 13%
and 14% of total revenues, and 19% and 22% of Benchtop Laboratory
Equipment product sales. Sales of Catalyst Research Instrument products
are generally pursuant to a few large orders amounting on average to
over $100,000 to a limited number of customers. In fiscal 2014, sales
to three customers, which represented at least 10% of that segment's
sales for each, accounted for 45% of the segment's sales (13% of total
revenues). In fiscal 2013, sales to two customers, accounted for an
aggregate of 32% of the segment's sales (11% of the total revenues).
Marketing.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory
Equipment products sold under the "Genie" brand are generally distributed
and marketed through an established network of domestic and overseas
laboratory equipment distributors, who sell the Company's products
through printed catalogs, websites and sales force. See "Major Customers".
The Company's "Torbal" brand products are marketed primarily online via
its websites and sold online and on a direct basis, with
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only a few distributors. The Company also markets products through
attendance at industry trade shows, trade publication advertising,
brochures and catalogs, the Company's websites, one sales manager and
one director of marketing in the U.S., and a consultant in Europe.
In general, due to the reliance on sales through the catalog
distribution system, it takes two to three years for a new benchtop
laboratory equipment product to begin generating meaningful sales.
Catalyst Research Instruments. The Company's Catalyst Research
Instruments are sold directly worldwide to universities, government
laboratories, and chemical and petrochemical companies through its sales
personnel and independent representatives engaged on a commission basis.
Its marketing efforts include attendance at various trade shows,
Altamira's website, outside sales representatives, and printed materials.
Bioprocessing Systems. The Company's Bioprocessing Systems
products, are currently under development, and will be offered both
directly and through distribution worldwide to university, industrial,
and government laboratories. It is anticipated that the related
marketing efforts will mainly comprise attendance at various trade
shows, publications, website, and dealer-related activities.
Assembly and Production. The Company has an operating facility
in Bohemia, New York from which its Benchtop Laboratory Equipment
Operations are conducted and one in Pittsburgh, Pennsylvania from which
its Catalyst Research Instruments Operations are conducted. The Company
also has a small sales and marketing office in Oradell, New Jersey
related to its Torbal division. The Company's production operations
principally involve assembly of components supplied by various domestic
and international independent suppliers. The Company has not commenced
production of bioprocessing products, but anticipates that its current
facilities will be adequate for such purpose.
Patents, Trademarks, and Licenses.
The Company holds several United States patents relating to its
products, including a patent which expires in September 2015 for the
TurboMix(TM); an accessory to the Vortex-Genie 2 Mixer, a patent which
expires in July 2016 on the Roto-Shake Genie(R); a patent which expires
in November 2022 on the MagStir Genie(R), MultiMagStir Genie(R), and
Enviro-Genie(R), and a patent which expires in January 2023 on
a biocompatible bag with integral sensors. The Company has several
patent applications pending. The Company does not anticipate, although
it cannot provide assurance any material adverse effect on its
operations following the expiration of the foregoing patents.
The Company has various proprietary trademarks, including
AMI(TM),BenchCAT(TM), BioGenie(R), Cellphase(R), Cellstation(R),
Disruptor Beads(TM),Disruptor Genie(R), Enviro-Genie(R), Genie(TM),
Incubator Genie(TM), MagStir Genie(R), MegaMag Genie(R), MicroPlate
Genie(R), MultiMagStir Genie(R), Multi-MicroPlate Genie(R),
Orbital-Genie(R), QuadMag Genie(R), Rotator Genie(R), Roto-Shake
Genie(R), Torbal(R), TurboMix(TM), and Vortex-Genie(R), each of
which it considers important to the success of the related product.
The Company also has several trademark applications pending. No
representation can be made that any application will be granted or
as to the protection that any existing or future trademark may
provide.
The Company has several licensing agreements for technology
and patents used in the Company's business, including an exclusive
license from UMBC with respect to rights and know-how under a patent
held by UMBC related to non-disposable sensor technology, which
the Company further sublicenses on an exclusive basis to a German
company, except for non-exclusive rights held by the Company as
it relates to the use of the technology with vessels of sizes
ranging from 250 milliliters to 5 liters, and to applications in
sub-milliliter volumes licensed to a third party. The Company
also holds a license as to the technology related to its patent
for the Roto-Shake Genie, and a patent related to its TurboMix
attachment for the Vortex-Genie and Disruptor Genie. Total
license fees paid by the Company under all its licenses for fiscal
2014 and fiscal 2013 amounted to $107,900 and $117,100,
respectively.
6
Foreign Sales. The Company's sales to overseas customers,
principally in Asia and Europe, accounted for approximately 51%
and 58% of the Company's net revenues for fiscal 2014 and fiscal
2013, respectively. Payments are 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.
Backlog. The amount of backlog for Benchtop Laboratory
Equipment products is not a significant factor because this line
of products is comprised of standard catalog items requiring lead
times which usually are not longer than two weeks. There is no
backlog for Bioprocessing Systems. The backlog for Catalyst
Research Instrument products as of June 30, 2014 was $453,000,
all of which is expected to be filled by June 30, 2015, as
compared to a backlog of $336,800 as of June 30, 2013, all of
which was filled in fiscal 2014.
Competition. Most of the Company's principal
competitors are substantially larger and have greater
financial, production and marketing resources than the
Company. Competition is generally based upon technical
specifications, price, and product recognition and acceptance.
The Company's main competition for its Benchtop Laboratory
Equipment products derives from private label brand mixers
offered by laboratory equipment distributors in the United
States and Europe. However, the Company believes that despite
its smaller size, it is a major market participant in the
global vortex mixer market.
The Company's major competitors for its Benchtop
Laboratory Equipment are Henry Troemner, Inc. (a private label
supplier to the two largest laboratory equipment distributors
in the U.S. and Europe), IKA-Werke GmbH & Co. KG, a German
company, Benchmark Scientific, Inc., (a United States importer of
China-produced products), and Heidolph Instruments GmbH, a
German company. The Company's main competitors for its Torbal
products are Ohaus Corporation, an American company, A&D
Company Ltd., a Japanese company, and Adam Equipment Co.,
Ltd., a British company.
The primary competition for the Company's Catalyst
Research Instrument products is in the form of instruments
produced internally by research laboratory staffs of
potential customers. Major competitors in the United
States include Quantachrome Instruments, and Micromeritics
Instrument Corporation, each a privately-held company.
The potential major competitors for the Company's
Bioprocessing Systems are Applikon Biotechnology, B.V.
(Netherlands), DASGIP Technology GmbH (Germany), and
PreSens - Precision Sensing GmbH (Germany).
Research and Development. The Company incurred
research and development expenses, the majority of which related
to its Benchtop Laboratory Equipment products, of $426,700
during fiscal 2014 compared to $450,500 during fiscal 2013.
The Company expects research and development expenditures in
the fiscal year ending June 30, 2015 will be at approximately
the same level as those in fiscal 2014.
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, establish occupational
safety and health standards and 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.
7
Employees. As of August 31, 2014, the Company
employed 31 persons (22 for the Benchtop Laboratory Equipment
Operations and 9 for the Catalyst Research Instruments Operations)
of whom 30 were full-time, including its three executive officers.
All activities of the Bioprocessing Systems Operations are being
performed by employees of the other two operations and consultants.
None of the Company's employees are represented by any union.
Available Information. The Company's Annual Report to
Stockholders for fiscal 2014, includes its Annual Report on Form 10-K.
The Annual Report will be mailed to security holders together
with the Company's proxy material and solicitation as it relates
to the Company's 2013 Annual Meeting of Stockholders. All the
Company's reports, including Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and other
information filed with, or furnished to, the Securities and
Exchange Commission (the "SEC" or the "Commission"), including
amendments to such reports, are available on the SEC's website
that contains such reports, proxy and information statements, and
other information regarding companies that file electronically
with the Commission. This information is available at www.sec.gov.
In addition, all the Company's public filings can be accessed
through the Company's website at
http://scientificindustries.com/secfilings.html.
Item 1A. 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
announcements to reflect future events or circumstances.
Dependence on Major Customers
Sales to one customer, a major laboratory equipment
distributor in the United States, represented 7.9% and 10.9% of
the segment's sales for fiscal 2014 and 2013, respectively. Sales
to another customer, an overseas laboratory equipment distributor
accounted for 11.2% and 11.5% of the segment's sales for fiscal
2014 and 2013, respectively.
No representation can be made that the Company will be
successful in continuing to retain either or both customers, or
not suffer a material reduction in sales either which could have
an adverse effect on future operating results of the Company.
One Benchtop Laboratory Equipment Product Accounts for a Substantial
Portion of Revenues
The Company has a limited number of Benchtop Laboratory
Equipment products with one product, the Vortex-Genie 2 Mixer,
accounting for approximately 59% and 67% of Benchtop Laboratory
Equipment sales, for fiscal 2014 and fiscal 2013, respectively,
and 41% and 42% of total revenues for each of fiscal 2014 and
fiscal 2013.
The Company is a Small Participant in Each of the Industries in
Which It Operates
The Benchtop Laboratory Equipment industry is a highly
competitive mature industry. Although the Vortex-Genie 2 Mixer
has been widely accepted, the annual sales of the Benchtop
Laboratory Equipment products ($4,679,100 for fiscal 2014 and
$4,466,000 for fiscal 2013) are significantly lower than
the annual sales of many of its competitors in the industry.
The principal competitors are substantially larger with much
greater financial, production and marketing resources than the
Company. There are constant new entrants into the vortex mixer
market, including those offering products imported from China,
which the Company is unable to compete on price. The Torbal
line of products is also a very small unknown brand with
significant competition from well known brands.
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The production and sale of Catalyst Research Instruments
products is highly competitive. Altamira's competitors include
several companies with greater resources and many laboratories which
produce their own instruments.
The Company's Bioprocessing Systems operation is a
participant in the fast-growing laboratory-scale sector of the
larger bioprocessing products industry, which is dominated by
several large companies with much greater resources than the
Company.
The Company's Ability to Grow and Compete Effectively Depends
In Part on Its Ability to Develop and Effectively Market New
Products
Over the past ten years, the Company has continuously
invested in the development and marketing of new Benchtop Laboratory
Equipment products with a view to increasing revenues and reducing
the Company's dependence on the Vortex-Genie 2 Mixer. Gross
revenues derived from such other Benchtop Laboratory Equipment
products amounted to $1,909,300 for fiscal 2014 and $1,468,300,
for fiscal 2013. The segment's ability to compete will depend
upon the Company's success in continuing to develop and market
new laboratory equipment as to which no assurance can be given.
The Company relies primarily on distributors and their
catalogs to market the majority of its Benchtop Laboratory
Equipment products, as is customary in the industry. Accordingly,
sales of new products are heavily dependent on the distributors'
decision to include and retain a new product in the distributors'
catalogs and on their websites. 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;
furthermore, not all distributors feature the Company's
products in their catalogs.
The Company's line of Catalyst Research Instruments
consists of only a few products. The ability of the Company to
compete in this segment and expand the line will depend on its
ability to make engineering improvements to existing products
and develop and add new products incorporating more current
technology. Over the last two fiscal years the Company has
introduced two new catalyst research products to increase its
product offerings and has continuously sought to expand its
outside sales force.
The success of the Company's new Bioprocessing Systems
operation will be heavily dependent on its ability to develop
and market new products. New products are being or are to be
developed by the Company's employees and outside consultants.
Such products are of a complex nature of which the Company has
limited or no prior experience and are taking longer to develop
than previously anticipated. In addition, they will be subject
to beta testing by end users, which could result in design and/or
production changes which could further delay development time.
The sale and marketing of the products, at least initially, will
be through the Company's attendance at trade shows, website,
and a few select distributors.
No assurance can be given that the amounts allocated by
the Company for its new product development and sales and
marketing programs will be sufficient to develop additional
commercially feasible products which will be accepted by the
marketplace, or that any distributor will include or retain
any particular product in its catalogs and websites.
The Company May Be Subject to General Economic, Political, and
Social Factors
Orders for the Company's products, particularly its
Catalyst Research Instruments products, depend in part, on the
customer's ability to secure funds to finance purchases,
especially government funding. Availability of funds can be
affected by budgetary constraints. Factors including a general
economic recession, such as the one which commenced in fiscal
2009 and negatively affected the Company in fiscal 2011 and
fiscal 2012, the European crisis, or a major terrorist attack
would likely have a negative impact on the availability of
funding including government or academic grants to potential
customers.
9
The Company's ability to secure new Catalyst Research
Instruments orders can also be affected by changes in domestic
and international policies pertaining to energy and the environment,
which could affect funding of potential customers.
The Company is Heavily Dependent on Outside Suppliers for the
Components of Its Products
The Company purchases all its components from outside
suppliers and relies on a few single suppliers for some crucial
Benchtop Laboratory Equipment components, mostly due to cost
considerations. Most of the Company's suppliers, including
United States vendors, produce the components directly or
indirectly in overseas factories, and orders are subject to long
lead times and potential other risks related to production in a
foreign country. To minimize the risk of supply shortages, the
Company keeps more than normal quantities on hand of the critical
components that cannot easily be procured or, where feasible
and cost effective, purchases are made from more than one supplier.
However, a shortage of such components could halt
production and have a material negative effect on the Company's
operations.
The Company's Ability to Compete Depends in Part on Its Ability
To Secure and Maintain Proprietary Rights to its Products
The Company has no patent protection for its principal
Benchtop Laboratory Equipment product, the Vortex-Genie 2 Mixer,
the Torbal balances, or for its Catalyst Research products and
limited patent protection on a few other Benchtop Laboratory
Equipment products. There are several competitive products
available in the marketplace possessing similar technical
specifications and design.
As part of the asset purchase by SBI during fiscal 2012,
the Company acquired the rights to various patents for
bioprocessing products which it licenses from UMBC.
There can be no assurance that any patent issued,
licensed or sublicensed to the Company provides or will
provide the Company with competitive advantages or will
not be challenged by third parties. Furthermore, there
can be no assurance that others will not independently develop
similar products or design around the patents. Any of the
foregoing activities could have a material adverse effect
on the Company. Moreover, the enforcement by the Company
of its patent or license rights may require substantial
litigation costs.
The Company Has Limited Management Resources
The loss of the services of any of Ms. Helena Santos,
the Company's Chief Executive and Financial Officer and
President, Mr. Robert Nichols, the Company's Executive Vice
President, Mr. Brookman March, President of Altamira, and
Mr. Karl Nowosielski, Torbal Division 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 operating
results and financial condition.
The Common Stock of the Company is Thinly Traded and is Subject
to Volatility
As of August 31, 2014, there were only 1,469,112 shares
of Common Stock of the Company outstanding, of which 344,223
shares (23%) were held by the directors and officers of the
Company. The Common Stock of the Company is traded on the
Over-the-Counter Bulletin Board and, historically, has been
thinly traded. There have been a number of trading days
during fiscal 2014 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.
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Item 2. Properties.
The Company's executive offices and principal
manufacturing facility for its Benchtop Laboratory Equipment
Operations comprise approximately 25,000 square feet, are located
in Bohemia, New York and held pursuant to a lease which was
due to expire in January 2015, but will expire earlier upon
a move which the Company plans to make to a 19,000 square foot
neighboring facility in the same vicinity from the same landlord,
at a lower rental rate under a new lease beginning November 1, 2014
with an expiration date in February 2025. The Company's Catalyst
Research Instruments Operations are conducted from an approximately
9,000 square foot facility in Pittsburgh, Pennsylvania under a lease
expiring in November 2017. The Bioprocessing Systems operation does
not occupy a separate physical location. The Company has a 1,200
square foot facility in Oradell, New Jersey from where it conducts its
sales and marketing functions, primarily for the Torbal division of
the Benchtop Laboratory Equipment Operations. See Note 11 to the
Financial Statements in Item 8. The leased facilities are suitable
and adequate for each of the Company's operations. In the opinion
of management, all properties are adequately covered by insurance.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
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 2014.
PART II
Item 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
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 2013 and fiscal 2014, 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
__________________________ _______ ________
09/30/12 $ 1.51 $ 2.00
12/31/12 1.62 2.10
03/31/13 1.88 2.68
06/30/13 2.55 3.06
09/30/13 3.21 3.36
12/31/13 3.65 4.00
03/31/14 3.76 4.80
06/30/14 3.10 3.89
(a) As of August 31, 2014, there were 359 record
holders of the Company's Common Stock.
(b) On November 4, 2013, the Company paid a cash dividend
of $.08 per share to stockholders of record on October 11, 2013.
On November 1, 2012, the Company paid a cash dividend of $.03 per
share to stockholders of record on October 1, 2012. The Company
is not subject to any agreement which prohibits or restricts the
Company from paying dividends on its Common Stock.
11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking statements. 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, success of expansion
efforts, 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 the Company's financial
statements and the related notes included elsewhere in this
report.
Overview. The Company incurred a loss before income tax
benefit of $107,000 for fiscal 2014 compared to income before
income tax expense of $520,800 for fiscal 2013, primarily as a
result of the loss incurred by the Catalyst Research Instruments
Operations due to lower sales and gross margins, lower profits
derived by the Benchtop Laboratory Equipment Operations as a result
of lower sales of Genie brand products and costs associated with
the recent acquisition of the Torbal business.
Results of Operations. Net sales for fiscal 2014 decreased
$341,300 (4.8%) to $6,793,200 from $7,134,500 for fiscal 2013,
reflecting a decrease of $618,200 (24.3%) in net sales of catalyst
research instruments, partially offset by increases of $213,100
(4.8%) in benchtop laboratory equipment sales, and $63,800 in
the Bioprocessing Systems Operations revenues. The benchtop
laboratory equipment sales reflected $412,100 derived by the
new Torbal business.
Sales of catalyst research instruments are comprised of a
small number of large orders, typically averaging more than
$100,000 each. The lower sales of catalyst research instruments
resulted from a lesser amount of high value orders. As of June
30, 2014, the order backlog for these products was
$453,000 compared to $336,800 as of June 30, 2013.
Revenues derived from the new Bioprocessing Systems
Operations consist of net royalties received from sublicensees
and an order for bioprocessing product prototypes during the
second fiscal quarter. The Company expects that such Operations
will also generate future revenues from products currently
under development, although no assurance can be given.
The gross profit percentage for fiscal 2014 was 38.5%
compared to 41.5% for fiscal 2013 due mainly to higher labor
and overhead costs for the catalyst research instruments sales.
General and administrative expenses for fiscal 2014
increased $235,700 (18.4%) to $1,513,400 compared to $1,277,700
for fiscal 2013, primarily due to the acquisition costs and the
expenses including amortization expense, related to the new
Torbal division of the Benchtop Laboratory Equipment Operations.
Selling expenses for fiscal 2014 increased $69,800 (9.7%)
to $792,900 from $723,100 from for fiscal 2013 due to higher
expenses incurred by the Benchtop Laboratory Equipment Operations
including expenses for the Torbal division.
12
Research and development expenses decreased by $23,800
(5.6%) to $426,700 compared to $450,500 for fiscal 2013,
primarily the result of decreased new product development costs
by the Bioprocessing Systems Operations due to the use of lower
cost consultants.
Total other income decreased by $1,700 (12.7%) to
$11,700 for fiscal 2014 from $13,400 for fiscal 2013, mainly
due to lower interest income and other income on lower investments
balances.
Income tax benefit for fiscal 2014 was $31,700 compared
to tax expense of $124,400 last year primarily due to the
current period loss.
As a result of the foregoing, the net loss for fiscal
2014 was $75,300, compared to net income of $396,400 for
fiscal 2013.
Liquidity and Capital Resources. Cash and cash
equivalents decreased by $433,600 to $493,700 as of June 30, 2014
from $927,300 as of June 30, 2013.
Net cash provided by operating activities decreased by
$529,400 to $35,000 for fiscal 2014 as compared to $564,400 for
fiscal 2013, primarily due to the loss incurred of $75,300 for
fiscal 2014 compared to $396,400 income for fiscal 2013, and
increased inventories. Cash used in investing activities
increased by $5,300 to $259,000 for fiscal 2014 compared to
$253,700 for fiscal 2013, primarily due to the cash used in
the asset purchase of the Torbal business during fiscal 2014.
Net cash used in financing activities increased $56,900 to
$209,600 for fiscal 2014 compared to $152,700 in fiscal 2013
mainly due to the higher dividend paid during fiscal 2014.
The Company's working capital decreased by $682,700 to
$3,142,400 as of June 30, 2014 compared to $3,825,100 as of June
30, 2013, mainly due to the asset purchase during fiscal 2014.
The Company has a line of credit with its bank, Bank of
America Merrill Lynch which provides for maximum borrowings of
up to $700,000, bearing interest at 3.00 percentage points above
the LIBOR Index, currently 3.155% and is secured by a pledge of
collateral consisting of the inventory, accounts, chattel paper,
equipment and fixtures of the Company. Outstanding amounts are
due and payable by November 30, 2015 with a requirement that the
Company is to reduce the outstanding principal balance to zero
during the 30 day period ending on the expiration date of the
promissory note. As of August 31, 2014, $150,000 was due under
this line.
Management believes that the Company will be able to meet,
absent a material capital expenditure not currently anticipated,
its cash flow needs during the 12 months ending June 30, 2015 from
its available financial resources including its cash and
investment securities, and operations.
Capital Expenditures. During fiscal 2014, the Company
incurred $49,900 in capital expenditures. The Company expects
that based on its current operations, its capital expenditures
will not be materially higher for the fiscal year ending June
30, 2015.
Off-Balance Sheet Arrangements. None.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements required by this item are attached
hereto on pages F1-F26.
13
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this Annual Report on
Form 10-K, 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.
Management's Annual Report on Internal Control Over
Financial Reporting. Management is responsible for establishing
and maintaining adequate internal control over the Company's
financial reporting, as such term is defined in Securities
Exchange Act Rule 13a-15(f) and 15d-15(f). The Company's
internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
The Chief Executive and Financial Officer of the
Company conducted an evaluation of the effectiveness of the
Company's internal controls over financial reporting as of
June 30, 2014 based on the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control - Integrated Framework.
Based on the assessment of the Company's Chief Executive
and Financial Officer of the Company, it was concluded that as
of June 30, 2014, the Company's internal controls over financial
reporting were effective based on these criteria.
This annual report does not include an attestation
report of the Company's registered public accounting firm
regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's registered
public accounting firm pursuant to the rules of the Securities and
Exchange Commission that permit the Company to provide only
management's report in this annual report.
Changes in Internal Control Over Financial Reporting.
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.
Inherent Limitations on Effectiveness of Controls. The
Company's management, including its Chief Executive and Financial
Officer, believes that its disclosure controls and procedures and
internal controls over financial reporting are designed to
provide reasonable assurance of achieving their objectives
and are effective at the reasonable assurance level. However,
management does not expect that its disclosure controls and
procedures or its internal control over financial reporting
will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud,
if any,
14
have been detected. These inherent limitations include the
realities that judgments in decision making can be faulty,
and that breakdowns can occur because of a simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people or by management override of the controls. The design
of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over
time, controls may become inadequate because of changes in
conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations
in a cost effective control system, misstatements due to
error or fraud may occur and not be detected.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance.
Directors
The Company has the following five Directors:
Joseph G. Cremonese (age 78), a Director since November
2002 and Chairman of the Board since February 2006, has been,
through his affiliate, a marketing consultant to the Company since
1996. Mr. Cremonese has been since 1991, President of his
affiliate, 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, he has been a director of
Proteomics, Inc., a producer of recombinant proteins for medical
research. Prior to 1991, he had been employed by Fisher
Scientific, the largest U.S. distributor of laboratory equipment.
Roger B. Knowles (age 89), a Director since 1965, has
been retired for the last five years.
Grace S. Morin (age 66), a Director since December 4, 2006,
had been President, Director and principal stockholder of Altamira
Instruments, Inc. from December 2003 until its acquisition in
November 2006 by the Company. Ms. Morin had been employed by
Altamira to supervise its administrative functions at the Pittsburgh,
Pennsylvania facility as a full-time employee through March 31,
2009 and since that date as a part-time consultant. Prior to
December 2003, she was a general business consultant for two years,
and prior thereto a member of senior management of a designer of gas
flow environmental engineered products for approximately four years.
Helena R. Santos (age 50), a Director since 2009, has been
employed by the Company since 1994, and has served since August 2002
as its President, Chief Executive Officer and Treasurer. She had
served as Vice President, Controller from 1997 and as 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.
James S. Segasture (age 78), a Director since 1991, has
been retired for the last five years.
The Directors are elected to three-year staggered terms.
The current terms of the Directors expire at the annual meeting of
stockholders of the Company following: the fiscal year ended June 30,
2014 - two Directors (Messers. Cremonese and Knowles, Class C), the
fiscal year ending June 30, 2015 - two directors (Ms. Santos and Mr.
Segasture, Class A), and the fiscal year ending June 30, 2016 - one
director (Ms. Morin).
15
Board Committees
The Company's Stock Option Committee administers the
Company's 2012 Stock Option Plan. The members of the committee are
non-management Directors of the Company - James S. Segasture and
Joseph G. Cremonese. The members of the Committee serve at the
discretion of the Board. During fiscal 2014 the Stock Option
Committee held one meeting.
Grace S. Morin, and James S. Segasture are the current
members of the Company's Compensation Committee serving at the
discretion of the Board. The Committee administers the Company's
compensation policies. During fiscal 2014, the Compensation
Committee held one meeting.
The Board of Directors acts as the Company's Audit
Committee, which in its function as the Committee, held five
meetings during fiscal 2014. Ms. Santos, who is not "independent"
and Ms. Morin are "financial experts" as defined by the Securities
and Exchange Commission.
Executive Officers
See above for the employment history of Ms. Santos.
Robert P. Nichols (age 53), employed by the Company since
February 1998, has served since August 2002 as Executive Vice
President. Previously, he had been since May 2001 Vice President,
Engineering. Prior to joining the Company, Mr. Nichols was an
Engineer Manager with Bay Side Motion Group, a precision motion
equipment manufacturer from January 1996 to February 1998.
Brookman P. March (age 69) has been Director of Sales and
Marketing of Altamira, which has conducted the Catalyst Research
Instruments operation since November 30, 2006 and its President
since July 2008. He had been Vice President and a Director of
Altamira from December 2003 until it was acquired by the Company.
Mr. March is the husband of Ms. Morin, a Director of the Company.
Karl D. Nowosielski (age 35), is the President of the
Torbal division of the Benchtop Laboratory Equipment Operations and
Director of Marketing for the Company. He had been until February
2014 Vice President of Fulcrum, Inc. (the seller of the Torbal
division assets) since 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that, for fiscal 2014, its officers,
directors and 10% stockholders timely complied with all filing
requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended.
Code of Ethics
The Company has adopted a code of ethics that applies to
the Executive Officers and Directors. A copy of the code of ethics
can be found on the Company's website at www.scientificindustries.com.
Item 11. Executive Compensation.
Compensation Discussion and Analysis. The Compensation
Committee reviews and recommends to the Board of Directors the
compensation to be paid to each executive officer. Executive
compensation, in all instances except for the compensation for
the Chief Executive Officer ("CEO"), is based on recommendations
from the CEO. The CEO makes a determination by comparing the
performance of each executive being reviewed with objectives
established at the beginning of each fiscal year and with
objectives established during the business year with regard to
the success of the achievement of such objectives and the
successful execution of management targets and goals.
16
With respect to the compensation of the CEO, the
Committee considers performance criteria, 50% of which is related
to the direction, by the CEO, of the reporting executives, the
establishment of executive objectives as components for the
successful achievement of Company goals and the successful
completion of programs leading to the successful completion
of the Business Plan for the Company and 50% is based on the
achievement by the Company of its financial and personnel goals
tempered by the amount of the income or loss of the Company
during the fiscal year.
The compensation at times includes grants of options under
its stock option plan to the named executives. Each officer is
employed pursuant to a long-term employment agreement, containing
terms proposed by the Committee and approved as reasonable by the
Board of Directors. The Board is cognizant that as a relatively
small company, the Company has limited resources and opportunities
with respect to recruiting and retaining key executives.
Accordingly, the Company has relied upon long-term employment
agreements and grants of stock options to retain qualified personnel.
Compensation for each of its executive officers provided
by their employment agreements were based on the foregoing factors
and the operating and financial results of the segments under their
management.
The following table summarizes all compensation paid by
the Company to each of its executive officers for the fiscal years
ended June 30, 2014 and 2013.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
_____________________________________________________________________
Non- Non-
Equity Qualified
Incentive Deferred
Name Plan Comp-
and Stock Option Comp- ensation
Principal Fiscal Salary Bonus Awards Awards ensation Earnings
Position Year ($) ($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
_____________________________________________________________________
Helena R. 2014 150,000 0 0 0 0 0
Santos, 2013 141,000 10,000(1) 0 0 0 0
CEO,
President,
CFO
_____________________________________________________________________
Robert P. 2014 135,000 0 0 500(5) 0 0
Nichols, 2013 129,100 5,000(1) 0 0 0 0
Exec.
V.P.
_____________________________________________________________________
Brookman 2013 135,000 0 0 2,500(4) 0 0
P. March, 2012 131,000 5,000(1) 0 1,900(3) 0 0
Director
of Sales
and
Marketing,
and
President of
Altamira
_____________________________________________________________________
Karl D. 2014 45,800(7) 0 0 3,900(6) 0 0
Nowosielski
President of
Torbal
Division
and Director
of Marketing
_____________________________________________________________________
SUMMARY COMPENSATION TABLE (CONTINUED)
_____________________________________________________________________
Changes
in
Pension
Value
and Non-
Qualified All
Name Deferred Other
and Comp- Comp-
Principal Fiscal ensation ensation Total
Position Year Earnings ($) ($)
(a) (b) (i) (j)
_____________________________________________________________________
Helena R. 2014 0 6,000(2) 156,000
Santos, 2013 0 4,200(2) 155,200
CEO,
President,
CFO
_____________________________________________________________________
Robert P. 2014 0 5,400(2) 140,900
Nichols, 2013 0 3,900(2) 138,000
Exec.
V.P.
_____________________________________________________________________
Brookman 2014 0 5,400(2) 142,900
P. March, 2013 0 5,200(2) 143,100
Director
of Sales
and
Marketing,
and
President of
Altamira
_____________________________________________________________________
Karl D. 2014 0 0 49,700
Nowosielski
President of
Torbal
Divsion
and Director
of Marketing
_____________________________________________________________________
17
(1) Represents amounts earned for fiscal 2013.
(2) The amounts represent the Company's matching contribution under
the Company's 401(k) Plans.
(3) The amount represents compensation expense for stock options
granted valued utilizing the Black-Scholes-Merton options pricing
model, disregarding estimates of forfeitures related to service-
based vesting considerations. The fiscal 2012 option was valued
at a total of $5,700 of which $1,900 was expensed as stock based
compensation in each of fiscal 2014 and fiscal 2013.
(4) The amount represents the compensation expense for the 2014
and 2012 stock options granted valued utilizing the Black-Scholes-
Merton options pricing model, disregarding estimates of forfeitures
related to service-based vesting considerations. The 2014 option
was valued at a total of $3,500 of which $600 was expensed in
fiscal 2014. See Note (3) above.
(5) The amount represents compensation expense for a stock
option granted in fiscal 2014 valued utilizing the Black-
Scholes-Merton options pricing model, disregarding estimates
of forfeitures related to service-based vesting considerations.
The option was valued at a total of $3,500 of which $500
was expensed as stock based compensation in fiscal 2014.
(6) The amount represents compensation expense for a stock
option granted in fiscal 2014 as part of his employment
agreement, valued utilizing the Black-Scholes-Merton options
pricing model, disregarding estimates of forfeitures related
to service-based vesting considerations. The option was
valued at a total of $3,900, all of which was expensed as
stock based compensation in fiscal 2014.
(7) Represents salary from February 2014 to the end of fiscal
2014.
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 2014
All Other
Estimated Estimated Stock
Future Future Awards:
Payouts Payouts Number
Under Under Of
Non-Equity Equity Shares
Incentive Incentive Of Stock
Grant Plan Plan Or Units
Name Date $ $ (#)
(a) (b) (c) (d) (e)
________________________________________________________
Brookman P. March 12/04/13 0 0 0
Robert P. Nichols 12/04/13 0 0 0
Karl D. Nowosielski 12/04/13 0 0 0
________________________________________________________
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 2014
(CONTINUED)
All Other
Option Grant
Awards: Date
Number Exercise Fair
Of Or Base Value of
Securities Price Stock
Underlying Of Option And
Options Awards Option
Name # ($/Sh) Awards
(a) (f) (g) (h)
_________________________________________________________
Brookman P. March 2,000 3.50 3,500
Rober P. Nichols 2,000 3.50 3,500
Karl D. Nowosielski 2,000 3.67 3,900
_________________________________________________________
18
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
______________________________________________________________
Option Awards
______________________________________________________________
Number Equity
Number of Incentive
of Securities Plan Awards:
Securities Under- Number of
Under- lying Securities
lying Un- Unexercised Underlying Option
exercised Options(#) Unexercised Exercise Option
Options(#) Unexerci- Unearned Price Expiration
Name Exercisable sable Options(#) ($) Date
(a) (b) (c) (d) (e) (f)
_____________________________________________________________________
Brookman P. 9,834 3,666 0 3.07-3.71 11/2014-12/2023
March
Robert P.
Nichols 0 2,000 0 3.50 12/2023
Karl D.
Nowosielski 0 2,000 0 3.67 02/2024
_____________________________________________________________________
Employment Agreements
In May 2013, The Company entered into employment agreements
with Ms. Helena R. Santos and Robert P. Nichols extending their
terms of employment to June 30, 2015. The agreements provide for
annual base salaries for the fiscal years ending June 30, 2014 and
June 30, 2015, for Ms. Santos of $150,000 and $154,000 respectively;
and for Mr. Nichols of $135,000 and $139,000 respectively. Bonuses,
if any, are to be awarded at the discretion of the Board of Directors
for each of the fiscal years. For the fiscal year ended June 30, 2013
bonuses of $10,000 and $5,000, for Ms. Santos and Mr. Nichols,
respectively, were authorized. No bonuses were awarded for
fiscal 2014.
In May 2012, the Company entered into an employment
agreement with Mr. March extending the term through June 30, 2014,
which was further extended by mutual consent through June 30, 2015.
The agreement provides for an annual base salary of $135,000 and
$140,000 for each of the fiscal years ending June 30, 2014 and
2015. Bonuses, if any, may be awarded at the discretion of the
Board of Directors. A bonus of $5,000 was awarded to Mr. March
for fiscal 2013. No bonus was awarded for fiscal 2014. Mr.
March is the husband of Grace S. Morin, a
Director of the Company and of Altamira and a former principal
stockholder of Altamira.
In February 2014 in conjunction with the acquisition
of the Torbal division assets from Fulcrum, Inc., the Company
entered into an employment agreement with Mr. Nowosielski
providing for his employment through February 2017, which
may be extended by mutual consent for another two years.
The agreement provides for an annual base salary of $140,000,
subject to increases commencing with the second year based
on percentage increases in the Consumer Price Index, plus
discretionary bonuses. The agreement also provided for
the issuance of 2,000 stock options upon commencement of
employment and 4,000, 5,000, and 6,000 stock options in
February 2015, 2016, and 2017 subject to his continued
employment. No bonuses have been awarded under the
agreement.
Each of the foregoing employment agreements contains
confidentiality and non-competition covenants. The employment
agreements for Ms. Santos, Mr. March, and Mr. Nowosielski
contain termination provisions stipulating that if the
Company terminates the employment other than for death,
disability, or cause (defined as (i) conviction of a felony
or (ii) gross neglect or gross misconduct (including conflict
of interest), the Company shall pay severance payments
equal to one year's salary at the rate of the compensation at
the time of termination, and continue to pay the regular
benefits provided by the Company for a period of two years
from termination.
19
Directors' Compensation and Options
DIRECTORS' COMPENSATION
For the Year Ended June 30, 2014
_________________________________________________________________
Non-
Equity
Fees Incentive
Earned Plan
or Paid Stock Option Comp-
in Cash Awards Awards ensation
Name ($) ($) ($) ($)
(a) (b) (c) (d) (e)
__________________________________________________________________
Joseph G.
Cremonese 29,000 0 8,700(1) 0
Roger B.
Knowles 14,000 0 0 0
Grace S.
Morin 14,000 0 0 0
James S.
Segasture 14,000 0 0 0
___________________________________________________________________
DIRECTORS' COMPENSATION (CONTINUED)
Changes
in
Pension
Value and
Non- Non-
qualified qualified
Deferred Deferred All
Compens- Comp- Other
ation ensation Comp-
Earnings Earnings ensation Total
Name ($) ($) ($) ($)
(a) (f) (g) (h) (i)
____________________________________________________________________
Joseph G.
Cremonese 0 0 41,400(2) 79,100
Roger B.
Knowles 0 0 0 14,000
Grace S.
Morin 0 0 5,700(3) 19,700
James S.
Segasture 0 0 0 14,000
____________________________________________________________________
(1) The amount represents consulting expense recorded in fiscal 2014
for stock options granted in fiscal 2014 utilizing the Black-Scholes-
Merton options pricing model (see Items 12 and 13).
(2) Represents amount paid to his affiliate pursuant to a marketing
consulting agreement (see Items 12 and 13).
(3) Represents compensation received for her administrative services
as a consultant for Altamira (see Items 12 and 13).
The Company pays each Director who is not an employee of the
Company or a subsidiary a quarterly retainer fee of $2,000 and $1,400
for each meeting attended. In addition, the Company reimburses each
Director 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. Cremonese, as Chairman
of the Board receives an additional fee of $1,300 per month. During
fiscal 2013, total director compensation to non-employee Directors
aggregated $126,800, including the consulting fees paid to Mr.
Cremonese's affiliate, and to Ms. Morin.
Under the Company's 2002 Stock Option Plan, none of the
Directors existing at the time of the adoption of the plan were
eligible to receive option grants thereunder. However, Mr. Joseph G.
Cremonese who was elected a Director for the first time at the 2002
Annual Meeting of Stockholders, was granted ten-year options on
December 1, 2003 to purchase 5,000 shares of the Company's Common
Stock at the exercise price of $1.35 per share; ten-year options
on February 20, 2007 to purchase 5,000 shares of the Company's
Common Stock at the exercise price of $3.10 per share; and five-year
options on September 17, 2009 to purchase 10,000 shares at the
exercise price of $1.88 per share. He also received on December 4,
2013 five-year options on January 12, 2012 to purchase 10,000
shares at the exercise price of $3.45 per share, and ten-year
options to purchase 5,000 shares at an exercise price of $3.50
per share. The fiscal 2014 option had a total fair value (as
determined by the Black-Scholes-Merton option pricing model) of
$8,700 all of which was recognized as consulting expense in 2014.
He exercised 5,000 options during fiscal 2014.
20
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The following table sets forth, as of June 30, 2014, the
number of shares of Common Stock beneficially owned by (i) each
person known to the Company to beneficially own more than 5% of
the outstanding shares of 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 outstanding shares of Common Stock owned by such
individual. Each person has sole voting and investment power with
respect to the shares shown, except as noted. Except as indicated
in the table, the address for each of the following 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) 9.5%
16 Walnut Street
Glen Head, NY 11545
Spectrum Laboratories, Inc. 127,986 (2) 8.7%
18617 Broadwick Street
Rancho Dominquez, CA 90220
Fulcrum, Inc. 126,449 (3) 8.6%
100 Delawanna Avenue
Clifton, NJ 07014
Joseph G. Cremonese 104,597 (4) 6.9%
Roger B. Knowles - -
Grace S. Morin 96,450 (5) 6.5%
James S. Segasture 162,500 (6) 11.1%
Helena R. Santos 15,779 1.1%
Robert P. Nichols 20,397 1.4%
Brookman P. March 96,450 (7) 6.5%
Karl D. Nowosielski 2,000 (8) 0.0%
All directors and executive
officers as a group (8 persons) 401,723 (9) 26.3%
(1) Based on information reported in his Schedule 13D filed
with the Securities and Exchange Commission on October 30, 2002.
(2) Based on information reported on Form 3 filed with the
Securities and Exchange Commission on June 27, 2011.
(3) Stock issued in connection with the acquisition of the
Torbal division assets from Fulcrum, In. on February 26, 2014.
(4) 57,597 shares are owned jointly with his wife, 7,000
shares are owned by his wife, and 40,000 shares are issuable
upon exercise of options.
(5) Includes 13,500 shares issuable upon exercise of options
held by her husband, Mr. March.
(6) Shares owned jointly with his wife.
(7) Represents 82,950 shares owned by Ms. Morin, his wife and
13,500 shares issuable upon exercise of options.
(8) Represents shares issuable upon exercise of options.
(9) Includes 55,500 shares issuable upon exercise of options.
21
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to
Company options, warrants and rights as of June 30, 2014.
_________________________________________________________________
Number of Securities
to be Issued Upon Weighted-Average
Exercise of Exercise Price of
Outstanding Options, Outstanding Options,
Warrants and Rights Warrants and Rights ($)
Plan Category (a) (b)
_________________________________________________________________
Equity
Compensation
plans approved by
security holders 61,000 3.11
Equity
Compensation
plans not approved
by security holders N/A N/A
_________________________________________________________________
Total 61,000 3.11
_________________________________________________________________
EQUITY COMPENSATION PLAN INFORMATION (CONTINUED)
_________________________________________________________________
Number of Securities
Remaining Available
for
Future Issuance
Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a)
Plan Category (c)
_________________________________________________________________
Equity
Compensation
plans approved by
security holders 82,000
Equity
Compensation
plans not approved
by security holders N/A
_________________________________________________________________
Total 82,000
_________________________________________________________________
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
Mr. Joseph G. Cremonese, a Director since November 2002,
through his affiliate, Laboratory Innovation Company, Ltd., has
been providing independent marketing consulting services to the
Company since January 1, 2003 pursuant to a consulting agreement
expiring December 31, 2014. The agreement currently provides that
Mr. Cremonese and his affiliate shall render, at the request of
the Company, marketing consulting services for a monthly payment
of $3,600. The agreement contains confidentiality and non-
competition covenants. The Company paid fees of $41,400 and
$39,600 pursuant to the agreement for each of fiscal 2014 and
fiscal 2013.
Ms. Grace S. Morin, was elected a Director in December
2006 upon the sale of her 90.36% ownership interest in Altamira
to the Company in November 2006. Up until March 31, 2009, Ms.
Morin had been employed by Altamira as an administrative employee.
Since April 1, 2009, she has provided consulting services on a
part-time basis pursuant to an agreement expiring March 31, 2014
at the rate of $85 per hour, resulting in payments of $5,700 and
$6,100 for fiscal 2014 and fiscal 2013, respectively. The
agreement contains confidentiality and non-competition covenants.
Item 14. Principal Accountant Fees and Services.
The following is a description of the fees incurred by
the Company for services by the firm of Nussbaum Yates Berg Klein
& Wolpow, LLP (the "Firm") during fiscal 2014 and fiscal 2013.
The Company incurred for the services of the Firm fees of
approximately $64,000 and $62,000 for fiscal 2014 and 2013,
respectively, in connection with the audit of the Company's annual
financial statements and quarterly reviews; and $6,000 for each
fiscal year for the preparation of the Company's corporate tax
returns. The Company also paid $12,600 of other fees to the Firm
for fiscal 2014.
22
In approving the engagement of the independent registered
public accounting firm to perform the audit and non-audit services,
the Board of Directors as the Company's audit committee evaluates the
scope and cost of each of the services to be performed including a
determination that the performance of the non-audit services will not
affect the independence of the firm in the performance of the
audit services.
23
Part IV
Item 15. Exhibits and Financial Statement Schedules.
Financial Statements. The required financial statements of
the Company are attached hereto on pages F1-F26.
Exhibits. The following Exhibits are filed as part of this
report on Form 10-K:
Exhibit Number Exhibit
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 on
Form 8-K filed on January 6, 2003 and Exhibit 3(ii) to the Company's
Current Report on Form 8-K filed on December 5, 2007 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).
4(b) 2012 Stock Option Plan (filed as Exhibit 10
to the Company's Current Report on Form 8-K filed on January 23, 2012
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 in Bohemia, New York
(filed as Exhibit 10(a) to the Company's Annual Report on Form
10-KSB filed on September 28, 2005 and incorporated by reference
thereto).
10(a)-1 Amendment to lease between Registrant and
REP A10 LLC, successor in interest of AIP Associates, 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(a)-2 Second amendment to lease between
Registrant and REP A10 LLC dated November 5, 2007 (filed as
Exhibit 10A-1 to the Company's Current Report on Form 8-K filed
on November 8, 2007, and incorporated by reference thereto).
10(a)-3 Lease agreement dated August 8, 2014 by
and between the Company and 80 Orvile Drive Associates LLC.
24
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(b)-2 Employment Agreement dated December 29, 2006,
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 December 29, 2006,
and incorporated by reference thereto).
10(b)-3 Employment Agreement dated July 31, 2009
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 August 7, 2009,
and incorporated by reference thereto).
10(b)-4 Employment Agreement dated May 14, 2010 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 May 18, 2010,
and incorporated by reference thereto).
10(b)-5 Employment Agreement dated September 13,
2011 by and between the Company and Ms. Santos (filed as exhibit
10(b)-5 to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 2011, and incorporated by reference thereto).
10(b)-6 Amended Employment Agreement dated May 20,
2013 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 May 20,
2013, and incorporated by reference thereto).
10(c) Employment Agreement dated January 1, 2003,
by and between the Company and Mr. Robert P. Nichols (filed as
Exhibit 10A-1 to the Company's Current Report on Form 8-K filed
on January 22, 2003, and incorporated by reference thereto).
10(c)-1 Employment Agreement dated September 1,
2004, by and between the Company and Mr. Nichols (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)-2 Employment Agreement dated December
29, 2006, by and between the Company and Mr. Nichols (filed as
Exhibit 10A-1 to the Company's Current Report on Form 8-K filed
on December 29, 2006, and incorporated by reference thereto).
10(c)-3 Employment Agreement dated July 31, 2009
by and between the Company and Mr. Nichols (filed as Exhibit
10A-2 to the Company's Current Report on Form 8-K filed on
August 7, 2009, and incorporated by reference thereto).
10(c)-4 Employment Agreement dated May 14, 2010
by and between the Company and Mr. Nichols (filed as Exhibit
10A-2 to the Company's Current Report on Form 8-K filed on
May 18, 2010, and incorporated by reference thereto).
10(c)-5 Employment Agreement dated September
13, 2011 by and between the Company and Mr. Nichols (filed as
Exhibit 10(c)-5 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2011, and incorporated by
reference thereto).
10(c)-6 Amended Employment Agreement dated
May 20, 2013 by and between the Company and Mr. Nichols
(filed as Exhibit 10A-2 to the Company's current Report
on Form 8-K filed on May 20, 2013, and incorporated by
reference thereto).
25
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 Amended and Restated 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).
10(d)-2 Second Amended and Restated Consulting
Agreement dated March 15, 2007, 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 16, 2007, and incorporated by reference thereto).
10(d)-3 Third Amended and Restated Consulting
Agreement dated September 23, 2009, by and between the Company
and Mr. Cremonese and Laboratory Innovation Company, Ltd.
(filed as Exhibit 10 to the Company's Annual Report on Form 10-K
field on September 24, 2009, and incorporated by reference
thereto).
10(d)-4 Fourth Amended and Restated Consulting
Agreement dated January 7, 2011 (filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K (filed on January 18,
2011, and incorporated by reference thereto).
10(d)-5 Fifth Amendment and Restated Consulting
Agreement dated January 20, 2012 (filed as Exhibit 10 to the
Company's Current Report on Form 8-K (filed on January 23,
2012, and incorporated by reference thereto).
10(d)-6 Agreement extension dated November 29,
2012 to Amended and Restated Consulting Agreement (filed as
Exhibit 10 to the Company's Current Report on Form 8-K filed
on December 4, 2012, and incorporated by reference thereto).
10(d)-7 Agreement extension dated December 12,
2013 to Amended and Restated Consulting Agreement (filed as
Exhibit 10 to the Company's Current Report on Form 8-K filed
on December 12, 3013, and incorporated by reference thereto).
10(e) Sublicense from Fluorometrix Corporation
(filed as Exhibit 10(a)1 to the Company's Current Report on Form
8-K filed on June 14, 2006, and incorporated by reference
thereto).
10(f) Stock Purchase Agreement, dated as of
November 30, 2006, by and among the Company and Grace Morin,
Heather H. Haught and William D. Chandler (filed as Exhibit
2.1 to the Company's Current Report on Form 8-K filed on
December 5, 2006, and incorporated by reference thereto).
10(g) Escrow Agreement, dated as of November
30, 2006, by and among the Company and Grace Morin, Heather H.
Haught and William D. Chandler (filed as Exhibit 10(a) to the
Company's Current Report on Form 8-K filed on December 5, 2006,
and incorporated by reference thereto).
10(h) Registration Rights Agreement, dated
as of November 30, 2006, by and among the Company and Grace
Morin, Heather H. Haught and William D. Chandler (filed as
Exhibit 10(b) to the Company's Current Report on Form 8-K
filed on December 5, 2006, and incorporated by reference
thereto).
26
10(i) Employment Agreement, dated as of
November 30, 2006, between Altamira Instruments, Inc. and
Brookman P. March (filed as Exhibit 10(c) to the Company's
Current Report on Form 8-K filed on December 5, 2006, and
incorporated by reference thereto).
10(i)-1 Employment Agreement, dated as of
October 30, 2008, between Altamira Instruments, Inc. and
Brookman P. March (filed as Exhibit 10A-2 to the Company's
Current Report on Form 8-K filed on October 30, 2008, and
incorporated by reference thereto).
10(i)-2 Employment Agreement, dated as of
October 1, 2010, between Altamira Instruments, Inc., and
Brookman P. March (filed as Exhibit 10A-1 to the Company's
Current Report on Form 8-K filed on October 13, 2010, and
incorporated by reference thereto).
10(i)-3 Employment Agreement, dated as of
May 18, 2012 between Altamira Instruments, Inc. and
Brookman P. March (filed as Exhibit 10(i)-3 to the Company's
Annual Report on Form 10-K filed on September 27, 2012, and
incorporated by reference thereto).
10(i)-4 Agreement Extension, dated as of
May 21, 2014 between Altamira Instruments, Inc.
and Brookman P. March (filed as Exhibit 10 to the Company's
Current Report on Form 8-K filed on May 21, 2014, and
incorporated by reference thereto).
10(j) Indemnity Agreement, dated as of
April 13, 2007 by and among the Company and Grace Morin,
Heather H. Haught and William D. Chandler (filed as
Exhibit 10(j) to the Company's Annual Report on Form
10-KSB filed on September 28, 2007 and incorporated
by reference thereto).
10(k) Lease between Altamira Instruments,
Inc. and Allegheny Homes, LLC, with respect to the
Company's Pittsburgh, Pennsylvania facilities (filed as
Exhibit 10(k) to the Company's Annual Report on Form 10-KSB
filed on September 28, 2007 and incorporated by reference
thereto).
10(k)-1 Lease between Altamira Instruments,
Inc. and Allegheny Homes, LLC, with respect to the Company's
Pittsburgh, Pennsylvania facilities (filed as Exhibit 10(k)-1
to the Company's Quarterly Report on Form 10-Q filed on
February 14, 2013, and incorporated by reference thereto).
10(l) Line of Credit Agreements dated
October 30, 2008, by and among the Company and Capital
One, N.A. (filed as Exhibits 10-A1(a) through (f) to the
Company's Current Report on Form 8-K filed on October 30,
2008, and incorporated by reference thereto).
10(l)-1 Restated Promissory Note Agreement
dated January 20, 2010 by and among the Company and Capital
One N.A. (filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K filed on January 20, 2010, and
incorporated by reference thereto).
10(l)-2 Restated Promissory Note Agreement
dated January 5, 2011 by and among the Company and Capital
One N.A. (filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K filed on January 6, 2011, and
incorporated by reference thereto).
27
10(m) Consulting Agreement dated April 1,
2009 by and between the Company and Grace Morin (filed as
Exhibit 10A-1 to the Company's Current Report on Form 8-K
filed on April 1, 2009, and incorporated by reference
thereto).
10(n) Line of Credit Agreements dated June 14,
2011, by and among the Company and JPMorgan Chase Bank,
N.A. (filed as Exhibits 99.1 through 99.3 to the Company's
Current Report on Form 8-K filed on June 16, 2011, and
incorporated by reference thereto).
10(n)-1 Promissory Note dated June 5, 2013 by
and among the Company and JP Morgan Chase Bank, N.A.
(filed as Exhibit 99 to the Company's Current Report on
Form 8-K filed on June 7, 2013, and incorporated by
reference thereto).
10(o) Purchase Agreement, dated as of
November 14, 2011, by and among the Company, Scientific
Bioprocessing, Inc., and Fluorometrix Corporation (filed
as Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on November 17, 2011, and incorporated by reference
thereto).
10(p) Escrow Agreement, dated as of November
14, 2011, by and among the Company, Scientific Bioprocessing,
Inc., and Fluorometrix Corporation (filed as Exhibit 10(A) to
the Company's Current Report on Form 8-K filed on November
17, 2011, and incorporated by reference thereto).
10(q) Research and Development Agreement dated as
of November 14, 2011, by and between Scientific
Bioprocessing, Inc. and Biodox R&D Corporation (filed as
Exhibit 10(B) to the Company's Current Report on Form 8-K
filed on November 17, 2011, and incorporated by reference
thereto).
10(q)-1 Notice of termination of Research and
Development Agreement dated June 12, 2013 (filed as
Exhibit 99 to the Company's Current Report on Form 8-K
filed on June 27, 2013, and incorporated by reference
thereto).
10(r) Non-Competition Agreement, dated as of
November 14, 2011, by and among the Company, Scientific
Bioprocessing, Inc., and Joseph E. Qualitz (filed as Exhibit
10(D) to the Company's Current Report on Form 8-K filed
on November 17, 2011, and incorporated by reference thereto).
10(s) Promissory Note, dated as of November 14,
2011, by and between the Company and the University of
Maryland, Baltimore County (filed as Exhibit 10(c) to the
Company's Current Report on Form 8-K filed on November
17, 2011, and incorporated by reference thereto).
10(t) License Agreement, dated as of January
31, 2001 by and between University of Maryland, Baltimore
County and Fluorometrix Corporation (filed as Exhibit
10(E) to the Company's Current Report on Form 8-K filed
on November 21, 2011, and incorporated by reference
thereto).
10(u) Line of Credit Agreements dated June 25, 2014,
by and among the Company and Bank of America Merrill
Lynch (filed as Exhibits 99.1 through 99.2 (to the Company's
Current Report on Form 8-K filed on July 2, 2014, and
incorporated by reference thereto).
28
10(v) Asset Purchase Agreement, dated as of February
26, 2014, by and among the Company and Fulcrum, Inc. (filed
as Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on February 28, 2014, and incorporated by reference
thereto).
10(v)-1 Escrow Agreement, dated as of February 26,
2014, by and among the Company, and Fulcrum, Inc. (filed as
Exhibit 10(e) to the Company's Current Report on Form 8-K
filed on February 28, 2014, and incorporated by reference
thereto).
10(v)-2 Non-Competition Agreements, dated as of
February 26, 2014, by and among the Company, and James
Maloy and Karl Nowosielski (filed as Exhibits 10(b) and 10(c)
to the Company's Current Report on Form 8-K filed on
February 28, 2014, and incorporated by reference thereto).
10(v)-3 Registration Rights Agreement, dated as
of February 26, 2014, by and among the Company, and
Fulcrum, Inc. (filed as Exhibit 10(d) to the Company's
Current Report on Form 8-K filed on February 28, 2014,
and incorporated by reference thereto).
10(v)-4 Supply Agreement, dated as of February
20, 2014, by and among the Company, and Axis Sp 3.O.O.
(filed as Exhibit 10(g) to the Company's Current Report
on Form 8-K filed on February 28, 2014, and incorporated
by reference thereto).
14 Code of Ethics (filed as Exhibit
14 to the Company's Annual Report on Form 10-KSB filed on
September 28, 2007 and incorporated by reference thereto).
21 Subsidiaries of the Registrant
Altamira Instruments, Inc., a Delaware Corporation, is a
wholly-owned subsidiary of the Company.
Scientific Bioprocessing, Inc., a Delaware Corporation, is
a wholly-owned subsidiary of the Company since November 2011.
Scientific Packaging Industries, Inc., a New York
corporation, is a wholly-owned inactive subsidiary of
the Company.
31.01 Certification of Chief Executive
Officer and Chief Financial Officer pursuant to Section
302 of Sarbanes-Oxley Act of 2002.
32.01 Certification of Chief Executive
Officer and Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002.
29
SIGNATURES
Pursuant to the requirements of Section13
or 15(d) of the Securities Exchange Act of 1934, 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 26, 2014
Pursuant to the requirements of the Securities
Exchange Act of 1934, 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/ Helena R. Santos President and Treasurer (Chief September 26, 2014
Helena R. Santos Executive Officer and Financial
Officer) and Director
/s/ Joseph G. Cremonese Chairman of the Board September 26, 2014
Joseph G. Cremonese
/s/ Roger B. Knowles Director September 26, 2014
Roger B. Knowles
/s/ Grace S. Morin Director September 26, 2014
Grace S. Morin
/s/ James S. Segasture Director September 26, 2014
James S. Segasture
30
___________________________________________________________________________
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE
YEARS ENDED JUNE 30, 2014 AND 2013
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
CONTENTS
Page
----
Report of independent registered public accounting firm F-1
Consolidated financial statements:
Balance sheets F-2
Statements of operations F-3
Statements of comprehensive income (loss) F-4
Statements of shareholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Scientific Industries, Inc.
Bohemia, New York
We have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and subsidiaries (the "Company") as
of June 30, 2014 and 2013, and the related consolidated statements
of operations, comprehensive income (loss), shareholders' equity
and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements, 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
consolidated financial position of Scientific Industries, Inc.
and subsidiaries as of June 30, 2014 and 2013, and the
consolidated results of their operations and their cash flows for
the years then ended in conformity with U.S. generally accepted
accounting principles.
/s/ Nussbaum Yates Berg klein & Wolpow, LLP
Nussbaum Yates Berg Klein & Wolpow, LLP
Melville, New York
September 26, 2014
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2014 AND 2013
ASSETS
2014 2013
_________ _________
Current assets
Cash and cash equivalents $ 493,700 $ 927,300
Investment securities 415,400 908,400
Trade accounts receivable, less
allowance for doubtful accounts
of $11,600 in 2014 and 2013 756,700 815,900
Inventories 2,309,200 1,705,600
Prepaid and other current assets 123,100 59,000
Deferred taxes 86,000 86,600
__________ __________
Total current assets 4,184,100 4,502,800
Property and equipment, net 252,100 156,500
Intangible assets, net 1,795,900 773,500
Goodwill 705,300 589,900
Other assets 28,200 24,100
Deferred taxes 146,200 106,200
__________ __________
Total assets $7,111,800 $6,153,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 373,700 $ 156,800
Customer advances 89,500 15,900
Accrued expenses and taxes 442,800 407,700
Contingent consideration,
current portion 109,000 19,000
Notes payable, current portion 26,700 78,300
__________ __________
Total current liabilities 1,041,000 677,700
Contingent consideration payable,
less current portion 391,000 51,600
Notes payable, less current portion - 26,700
__________ __________
Total liabilities 1,432,700 756,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 1,488,914 shares in 2014
and 1,357,465 in 2013 74,400 67,900
Additional paid-in capital 2,420,700 1,977,100
Accumulated other comprehensive gain
(loss), unrealized holding gain
(loss) on investment securities 1,100 (13,600)
Retained earnings 3,235,300 3,418,000
__________ __________
5,731,500 5,449,400
Less common stock held in treasury at
cost, 19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,679,100 5,397,000
__________ __________
Total liabilities and
shareholders' equity $7,111,800 $6,153,000
========== ==========
See notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
__________ ____________
Revenues $6,793,200 $7,134,500
Cost of sales 4,178,900 4,175,800
__________ __________
Gross profit 2,614,300 2,958,700
__________ __________
Operating expenses:
General and administrative 1,513,400 1,277,700
Selling 792,900 723,100
Research and development 426,700 450,500
__________ __________
Total operating expenses 2,733,000 2,451,300
__________ __________
Income (loss) from operations (118,700) 507,400
__________ __________
Other income (expense):
Interest income - 6,800
Other income 14,800 11,400
Interest expense (3,100) (4,800)
__________ __________
Total other income 11,700 13,400
__________ __________
Income (loss) before income tax
expense (benefit) (107,000) 520,800
__________ __________
Income tax expense (benefit):
Current 400 106,800
Deferred ( 32,100) 17,600
__________ __________
Total income tax expense
(benefit) ( 31,700) 124,400
__________ __________
Net income (loss) $ ( 75,300) $ 396,400
========== ==========
Basic earnings (loss) per common share $ (.05) $ .30
======= =====
Diluted earnings (loss) per common share $ (.05) $ .30
======= =====
Weighted average common shares
outstanding, basic 1,385,054 1,337,048
========= =========
Weighted average common shares
outstanding, assuming dilution 1,385,054 1,342,212
========= =========
See notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
__________ __________
Net income (loss) $ ( 75,300) $ 396,400
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax 14,700 ( 1,000)
__________ __________
Comprehensive income (loss) $ (60,600) $ 395,400
========== =========
See notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
Common Stock Additional Accumulated
______________ Paid-in Other Compr-
Shares Amount Capital ehensive Gain
(Loss)
_______ _______ __________ _____________
Balance, July 1, 2012 1,355,514 $67,800 $1,968,700 $ (12,600)
Net income - - - -
Unrealized holding loss
on investment securities,
net of tax - - - (1,000)
Exercise of stock options 5,000 250 (250) -
Tender of common stock (3,049) ( 150) 150 -
Stock-based compensation - - 8,500 -
Cash dividend declared
and paid, $.03 per share - - - -
_________ _______ _________ ___________
Balance, June 30, 2013 1,357,465 67,900 1,977,100 (13,600)
Net income - - - -
Unrealized holding gain
on investment securities,
net of tax - - - 14,700
Exercise of stock options 5,000 200 6,500 -
Issuance of common stock 126,449 6,300 421,100 -
Stock-based compensation - - 16,000 -
Cash dividend declared
and paid, $.08 per share - - - -
_________ _______ __________ ___________
Balance, June 30, 2014 1,488,914 $74,400 $2,420,700 $ 1,100
========= ======= ========== ===========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2014 AND 2013
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
__________ ______ _______ ____________
Balance, July 1, 2012 $3,061,700 19,802 $52,400 $5,033,200
Net income 396,400 - - 396,400
Unrealized holding loss
on investment securities,
net of tax - - - (1,000)
Exercise of stock options - - - -
Tender of common stock - - - -
Stock-based compensation - - - 8,500
Cash dividend declared
and paid, $.03 per share (40,100) - - (40,100)
__________ _______ _______ ___________
Balance, June 30, 2013 3,418,000 19,802 52,400 5,397,000
Net loss (75,300) - - (75,300)
Unrealized holding gain
on investment securities,
net of tax - - - 14,700
Exercise of stock options - - - 6,700
Issuance of common stock - - - 427,400
Stock-based compensation - - - 16,000
Cash dividend paid, $.08
per share (107,400) - - (107,400)
__________ _______ ________ ___________
Balance, June 30, 2014 $3,235,300 19,802 $52,400 $5,679,100
========== ======= ======= ===========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
__________ __________
Operating activities:
Net income (loss) $ ( 75,300) $ 396,400
__________ __________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 262,800 178,800
Deferred income tax expense (benefit) (32,100) 17,600
Loss on sale of investment securities 19,500 7,600
Stock-based compensation 16,000 8,500
Changes in operating assets and
liabilities, net of effect of
acquisition:
Trade accounts receivable 59,200 (192,400)
Inventories (459,600) ( 91,900)
Prepaid and other current assets ( 64,100) 108,800
Other assets ( 4,100) 1,600
Accounts payable 216,900 42,000
Customer advances 73,600 ( 82,600)
Accrued expenses and taxes 22,200 170,000
__________ __________
Total adjustments 110,300 168,000
__________ __________
Net cash provided by
operating activities 35,000 564,400
__________ __________
Investing activities, net of effect
of acquisition:
Payment for intangible assets acquired
in acquisition (Note 2) (700,000) -
Purchase of investment securities,
available for sale ( 25,000) (920,500)
Redemption of investment securities,
available for sale 518,800 717,600
Capital expenditures (49,900) (37,500)
Purchase of other intangible assets ( 2,900) (13,300)
_________ _________
Net cash used in investing activities (259,000) (253,700)
_________ _________
Financing activities:
Line of credit proceeds 150,000 -
Line of credit repayments (150,000) -
Payment of contingent consideration (30,600) (36,800)
Proceeds from exercise of stock options 6,700 -
Cash dividend declared and paid (107,400) (40,100)
Principal payments on note payable (78,300) (75,800)
__________ _________
Net cash used in financing activities (209,600) (152,700)
__________ _________
F-6
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
__________ __________
Net increase (decrease) in cash and
cash equivalents (433,600) 158,000
Cash and cash equivalents, beginning
of year 927,300 769,300
_________ __________
Cash and cash equivalents, end of year $ 493,700 $ 927,300
========= ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 152,100 $ -
Interest 3,100 4,800
Non-cash investing and financing activities (Note 2)
See notes to consolidated financial statements.
F-7
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies
Nature of Operations
Scientific Industries, Inc. and its subsidiaries (the "Company")
design, manufacture, and market a variety of benchtop laboratory
equipment, bioprocessing products and catalyst research instruments.
The Company is headquartered in Bohemia, New York where it produces
benchtop laboratory equipment for research and has another location
in Pittsburgh, Pennsylvania, where it produces a variety of
custom-made catalyst research instruments and designs bioprocessing
products, and a small facility in Oradell, New Jersey related to
benchtop laboratory equipment. The equipment sold by the Company
includes mixers, shakers, stirrers, refrigerated incubators, pharmacy
balances and scales, catalyst characterization instruments, reactor
systems and high throughput systems. The Company also sublicenses
certain patents and technology under a license with the University of
Maryland, Baltimore County, and receives royalty fees from the
sublicenses.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc., Scientific Packaging
Industries, Inc., an inactive wholly-owned subsidiary, Altamira
Instruments, Inc. ("Altamira"), a Delaware corporation and
wholly-owned subsidiary, and Scientific Bioprocessing, Inc.
("SBI"), a Delaware corporation and wholly-owned subsidiary,
(all collectively referred to as the "Company"). All material
intercompany balances and transactions have been eliminated.
Revenue Recognition
Revenue from product sales is recognized when all the following
criteria are met:
* Receipt of a written purchase order agreement which is
binding on the customer.
* Goods are shipped and title passes.
* Prices are fixed.
* Collectability is reasonably assured.
* All material obligations under the agreement have been
substantially performed.
Substantially all orders are F.O.B. shipping point, all sales
are final without right of return or payment contingencies, and
there are no special sales arrangements or agreements with any
customers.
Royalty revenue received under the Company's sublicenses is
recorded net of payments due to its licensors.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of 90 days or less to be cash equivalents.
At times, cash balances may be in excess of the Federal Deposit
Insurance Corporation ("FDIC") insurance limit. As of June 30, 2014
and 2013, $52,800 and $256,200, respectively of cash balances were
in excess of such limit.
F-8
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies (Continued)
Accounts Receivable
In order to record the Company's accounts receivable at their
net realizable value, the Company must assess their
collectability. 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.
Customer Advances
In the ordinary course of business, customers may make advance
payments for purchase orders. Such amounts, when received, are
categorized as liabilities under the caption customer advances.
Investment Securities
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 (determined on a
first-in, first-out basis) 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
property and equipment 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.
F-9
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies (Continued)
Intangible Assets
Intangible assets consist primarily of acquired technology, customer
relationships, non-compete agreements, patents, licenses, websites,
intellectual property and research and development ("IPR&D"),
trademarks and trade names. All intangible assets are amortized
on a straight-line basis over the estimated useful lives of the
respective assets, generally 3 to 10 years. The Company continually
evaluates the remaining estimated useful lives of intangible assets
that are being amortized to determine whether events or circumstances
warrant a revision to the remaining period of amortization.
Goodwill and Long-Lived Assets
Goodwill represents the excess of purchase price over the fair value
of identifiable net assets acquired in a business combination.
Goodwill and long-lived intangible assets are tested for impairment
at least annually in accordance with the provisions of ASC No. 350,
"Intangibles-Goodwill and Other" ("ASC No. 350"). ASC No. 350
requires that goodwill be tested for impairment at the reporting
unit level (operating segment or one level below an operating
segment) on an annual basis and between annual tests if an event
occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying value.
Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of
assets and liabilities to reporting units, assignment of goodwill
to reporting units, and determination of the fair value of each
reporting unit. The Company tests goodwill and long-lived assets
annually as of June 30, the last day of its fiscal year, unless an
event occurs that would cause the Company to believe the value
is impaired at an interim date.
Impairment of Long-Lived Assets
The Company follows the provisions of ASC No. 360-10, "Property,
Plant and Equipment - Impairment or Disposal of Long-Lived Assets
("ASC No. 360-10"). ASC No. 360-10 which requires evaluation of
the need for an impairment charge relating to long-lived assets
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If an
evaluation for impairment is required, the estimated future
undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write
down to a new depreciable basis is required. If required, an
impairment charge is recorded based on an estimate of future
discounted cash flows. No impairment change has been recorded
for the years ended June 30, 2014 and 2013.
F-10
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal
income tax return. Income taxes are accounted for under the
asset and liability method. The Company provides for federal,
and state income taxes currently payable, as well as for those
deferred due to timing differences between reporting income and
expenses for financial statement purposes versus tax purposes.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributed to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted income
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect of a change in income tax rates is
recognized as income or expense in the period that includes
the enactment date.
The Company recognizes the effect of income tax positions only
if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest
amount that is greater than 50% likely of being realized.
Changes in recognition or measurement are reflected in the period
in which the change in judgment occurs.
Advertising
Advertising costs are expensed as incurred. Advertising expense
amounted to $53,200 and $30,000 for the years ended June 30, 2014
and 2013, respectively.
Shipping and Handling
The Company classifies costs associated with shipping and
handling fees as a component of cost of goods sold.
Stock Compensation Plan
The Company has a ten-year stock option plan (the "2012 Plan")
which provides for the grant of options to purchase up to
100,000 shares of the Company's Common Stock, par value $.05
per share ("Common Stock"), plus 57,000 shares under options
previously granted under the 2002 Stock Option Plan of the
Company (the "Prior Plan"). The 2012 Plan provides for the
granting of incentive or non-incentive stock options as defined
in the 2012 Plan and options under the 2012 Plan may be granted
until 2022. 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 which shall not be less than
the book value per share of Common Stock as of the end of
the most recent fiscal quarter. Non-incentive stock options
shall not be granted at less than the fair market value of
the shares of Common Stock on the date of grant, and the per
share book value. At June 30, 2014 and 2013, 82,000 and 93,000
shares respectively, of Common Stock were available for grant
of options under the 2012 Plan.
F-11
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
Stock-based compensation is accounted for in accordance with
ASC No. 718 "Compensation-Stock Compensation" ("ASC No. 718")
which requires compensation costs related to stock-based
payment transactions to be recognized. With limited exceptions,
the amount of compensation cost is measured based on the
grant-date fair value of the equity or liability instruments
issued. In addition, liability awards are measured at each
reporting period. Compensation costs are recognized over the
period that an employee provides service in exchange for the
award. During the year ended June 30, 2014, the Company
granted 11,000 options to employees and the Chairman of the
Board of Directors that had a fair value of $19,500. The fair
value of the options granted during fiscal year 2014 was
determined using the Black-Scholes-Merton option-pricing model.
The weighted average assumptions used for fiscal 2014, was
an expected life of 10 years; risk free interest rate of
2.75%; volatility of 62%, and dividend yield of 2.92%. The
weighted-average value per share of the options granted in
2014 was $1.78, and stock-based compensation costs were
$16,000 and $8,500 for the years ended June 30, 2014 and 2013.
Stock-based compensation costs related to nonvested awards to
be recognized in the future are $9,000 and $3,700 as of
June 30, 2014 and 2013, respectively.
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 actual results experienced by the
Company may differ materially from management's estimates.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing
net income (loss) by the weighted-average number of shares
outstanding. Diluted earnings per common share includes the
dilutive effect of stock options.
F-12
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
1. Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board
("FASB") issued ASU 2013-11, Income Taxes (Topic 740), which
clarifies the presentation requirements of unrecognized tax
benefits when a net operating loss carries forward, a similar
tax loss, or a tax credit carry forward exists at the reporting
date. The amendments in this ASU are effective for the fiscal
years, and interim periods within those years, beginning after
December 15, 2013 and should be applied prospectively. The
adoption of this ASU did not have a material impact to the
Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers amending revenue recognition
requirements for multiple-deliverable revenue arrangements.
This update provides guidance on how revenue is recognized
to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for the
goods or services. This determination is made in five steps:
(i) identity the contract with the customer: (ii) identify the
performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize
revenue when (or as) the entity satisfies a performance
obligation. The update is effective for the Company beginning
July 1, 2017. Early adoption is not permitted. The Company is
currently evaluating the impact this guidance may have on
its financial condition and results of operations.
In June 2014, the FASB issued ASU 2014-12, Compensation -
Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide that a Performance
Target Could be Achieved After the Requisite Service Period.
This update affects reporting entities that grant their
employee's targets that affects vesting could be achieved after
the requisite service period. The new standard requires that
a performance target that affects vesting and that could be
achieved after the requisite services priod be treated as a
performance condition. The new standard will be effective for
the Company beginning July 1, 2015, and early adoption is
permitted. The Company expects the adoption will not have a
material impact on its financial condition, results of
operations or cash flows.
2. Acquisition
On February 26, 2014, the Company acquired substantially all
the assets of a privately owned company consisting principally
of inventory, fixed assets, and intangible assets related
to the production and sale of a variety of laboratory and
pharmacy balances and scales. The acquisition was pursuant
to an asset purchase agreement whereby the Company paid the
sellers $700,000 in cash, 126,449 shares of Common Stock
valued at $427,500 (of which 31,612 are held in escrow for
one year) and agreed to make additional cash payments based
on a percentage of net sales of the business acquired equal
to 8% for the period ending June 30, 2014 annualized, 9% for
the year ending June 30, 2015, 10% for the year ending June
30, 2016 and 11% for the year ending June 30, 2017, estimated
at a present value of $460,000 on the date of acquisition.
Payments related to this contingent consideration for
each period are due in September following the fiscal year.
F-13
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2. Acquisition (Continued)
The products, which are similar to the Company's other Benchtop
Laboratory Equipment, and in many cases used by the same
customers, are marketed under the Torbal(R) brand. The principal
customers are pharmacies, pharmacy schools, universities,
government laboratories, and industries utilizing a precision
scale. The products are sold primarily on a direct basis,
including through the Company's e-commerce site.
Management of the Company allocated the purchase price based
on its valuation of the assets acquired, as follows:
Current assets $ 144,000
Property and equipment 118,100
Goodwill* 115,400
Other intangible assets 1,210,000
___________
Total Purchase Price $ 1,587,500
===========
*See Note 7, "Goodwill and Other Intangible Assets".
Of the $1,210,000 of the acquired other intangible assets, $570,000
was assigned to technology and websites with a useful life of
5 years, $120,000 was assigned to customer relationships with an
estimated useful life of 9 years, $140,000 was assigned to the trade
name with an estimated useful life of 6 years, $110,000 was assigned
to the IPR&D with an estimated useful life of 3 years, and $270,000
was assigned to non-compete agreements with an estimated useful
life of 5 years.
In connection with the acquisition, the Company entered into a
three-year employment agreement with the previous Chief Operating
Officer of the acquired business as President of the Company's
new Torbal Division and Director of Marketing for the Company. The
agreement may be extended by mutual consent for an additional
two years.
The Company was unable to obtain audited financial statements of
the business acquired in connection with the acquisition. The
inability to include the related audited financial statements as
required by the Securities Exchange Act of 1934 in the related
Report on Form 8-K filing resulted in the inability of the Company
to register under the Securities Act of 1933, as amended, offerings
of the Company's securities during the one year period ending
February 2015.
F-14
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
2. Acquisition (Continued)
Pro forma results
The unaudited pro forma condensed consolidated financial
information in the table below summarizes the consolidated
results of operations of the Company including its new Torbal
Division, on a pro forma basis, as though the companies had
been consolidated as of the beginning of the fiscal year ended
June 30, 2013. The unaudited pro forma condensed financial
information presented below is for informational purposes only
and is not intended to represent or be indicative of the
consolidated results of the operations that would have been
achieved if the acquisition had been completed as of the
commencement of the fiscal year presented. In addition, the
Company was unable to obtain audited historical information and,
therefore the information presented is based on management's
best judgment and the effects of the acquisition including
amortization expense and excluding total acquisition related
costs incurred of $79,500 for the year ended June 30, 2014:
2014 2013
Revenues
$7,623,200 $8,384,500
Net income (loss) $ (69,300) $ 307,600
Net income (loss) per
share - basic $ (.05) $ .21
Net income (loss) per
share - diluted $ (.05) $ .21
3. Segment Information and Concentrations
The Company views its operations as three segments: the
manufacture and marketing of standard benchtop laboratory
equipment for research in university, hospital and industrial
laboratories sold primarily through laboratory equipment
distributors and laboratory and pharmacy balances and scales
("Benchtop Laboratory Equipment Operations"), the manufacture
and marketing of custom-made catalyst research instruments
for universities, government laboratories, and chemical and
petrochemical companies sold on a direct basis ("Catalyst
Research Instruments Operations") and the design of
bioprocessing systems and products and related royalty
income ("Bioprocessing Systems").
F-15
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
3. Segment Information and Concentrations (Continued)
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
June 30, 2014:
Revenues $4,679,100 $1,923,300 $ 190,800 $ - $6,793,200
Foreign Sales 2,617,300 866,900 2,000 - 3,486,200
Income (Loss)
From Operations 156,000 ( 145,700) ( 49,500) ( 79,500) (118,700)
Assets 4,129,100 1,535,300 799,800 647,600 7,111,800
Long-Lived Asset
Expenditures 1,476,500 11,300 8,500 - 1,496,300
Depreciation and
Amortization 130,900 35,000 96,900 - 262,800
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
June 30, 2013:
Revenues $4,466,000 $2,541,500 $ 127,000 $ - $7,134,500
Foreign Sales 2,549,100 1,603,800 - - 4,152,900
Income (Loss)
From Operations 525,900 151,400 ( 169,900) - 507,400
Assets 2,501,600 1,646,600 903,600 1,101,200 6,153,000
Long-Lived Asset
Expenditures 18,300 23,300 9,200 - 50,800
Depreciation and
Amortization 43,300 35,300 100,200 - 178,800
F-16
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
4. Fair Value of Financial Instruments
The Financial Accounting Standards Board defines the fair value of
financial instruments as the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value
measurements do not include transaction costs.
The accounting guidance also expands the disclosure requirements
around fair value and establishes a fair value hierarchy for
valuation inputs. The hierarchy prioritizes the inputs into
three levels based on the extent to which inputs used in
measuring fair value are observable in the market. Each fair
value measurement is reported in one of the three levels, which is
determined by the lowest level input that is significant to the
fair value measurement in its entirety. These levels are
described below:
Level 1 Inputs that are based upon unadjusted quoted
prices for identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered
to be active or financial instruments for which all significant
inputs are observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are
both significant to the fair value measurement and unobservable.
The following tables set forth by level within the fair value
hierarchy the Company's financial assets that were accounted
for at fair value on a recurring basis at June 30, 2014 and 2013
according to the valuation techniques the Company used to
determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2014 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 493,700 $ 493,700 $ - $ -
Available for sale securities 415,400 415,400 - -
__________ __________ _______ ________
Total $ 909,100 $ 909,100 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 500,000 $ - $ - $500,000
========== ========== ======= ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2013 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 927,300 $ 927,300 $ - $ -
Available for sale securities 908,400 908,400 - -
__________ __________ _______ ________
Total $1,835,700 $1,835,700 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 70,600 $ - $ - $ 70,600
========== ========== ======= ========
F-17
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
4. Fair Value of Financial Instruments (Continued)
Investments in marketable securities classified as available-for-sale
by security type at June 30, 2014 and 2013 consisted of the following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2014:
Available for sale:
Equity securities $ 29,300 $ 38,500 $ 9,200
Mutual funds 385,000 376,900 ( 8,100)
__________ _________ __________
$ 414,300 $ 415,400 $ 1,100
========== ========= ==========
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2013:
Available for sale:
Equity securities $ 29,300 $ 33,200 $ 3,900
Mutual funds 892,700 875,200 (17,500)
__________ _________ __________
$ 922,000 $ 908,400 $ (13,600)
========== ========= ==========
5. Inventories
2014 2013
__________ __________
Raw materials $1,617,100 $1,336,800
Work-in-process 366,200 254,000
Finished goods 325,900 114,800
__________ __________
$2,309,200 $1,705,600
========== ==========
F-18
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
6. Property and Equipment
Useful Lives
(Years) 2014 2013
____________ __________ __________
Automobiles 5 $ 14,900 $ 14,900
Computer equipment 3-5 155,800 132,100
Machinery and equipment 3-7 744,800 627,500
Furniture and fixtures 4-10 206,900 181,000
Leasehold improvements 3-5 72,800 71,700
_________ _________
1,195,200 1,027,200
Less accumulated depreciation
and amortization 943,100 870,700
_________ _________
$ 252,100 $ 156,500
========= =========
Depreciation expense was $71,900 and $61,700 for the years ended
June 30, 2014 and 2013, respectively.
7. Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in connection with the Company's
acquisitions. Goodwill amounted to $705,300 and $589,900 at June 30,
2014 and 2013 respectively, all of which is expected to be deductible
for tax purposes.
F-19
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
7. Goodwill and Other Intangible Assets (Continued)
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
At June 30, 2014:
Technology, trademarks 5/10 yrs. $1,226,800 $ 489,100 $ 737,700
Trade names 6 yrs. 140,000 7,800 132,200
Websites 5 yrs. 210,000 14,000 196,000
Customer relationships 9/10 yrs. 357,000 215,800 141,200
Sublicense agreements 10 yrs. 294,000 77,200 216,800
Non-compete agreements 5 yrs. 384,000 126,300 257,700
IPR&D 3 yrs. 110,000 12,200 97,800
Other intangible assets 5 yrs. 157,400 140,900 16,500
__________ _________ _________
$2,879,200 $1,083,300 $1,795,900
========== ========= =========
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
At June 30, 2013:
Technology, trademarks 5/10 yrs. $ 865,400 $ 402,100 $ 463,300
Customer relationships 10 yrs. 237,000 203,200 33,800
Sublicense agreements 10 yrs. 294,000 47,800 246,200
Non-compete agreements 5 yrs. 114,000 105,900 8,100
Other intangible assets 5 yrs. 156,000 133,900 22,100
__________ _________ _________
$1,666,400 $ 892,900 $ 773,500
========== ========= =========
Total amortization expense was $190,900 and $117,100 in 2014 and 2013,
respectively.
Estimated future amortization expense of intangible assets is as follows:
Fiscal Years
____________
2015 $ 348,300
2016 352,400
2017 337,100
2018 323,300
2019 244,800
Thereafter 190,000
_______________
$ 1,795,900
===============
F-20
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
8. Loan Payable, Bank
In June 2014, the Company obtained a line of credit with Bank of
America Merrill Lynch which provides for maximum borrowings of up
to $700,000, bearing interest currently at 3.155% per annum (based
on 3.00 percentage points over the LIBOR Index) and secured by a
pledge of collateral consisting of the inventory, accounts, chattel
paper, and equipment and fixtures of the Company. Outstanding amounts
are due and payable by November 30, 2015 with a requirement that the
Company is to reduce the outstanding principal balance to zero during
the 30 day period ending on the anniversary date of the Note. This
line of credit replaced a $700,000 line of credit with JP Morgan Chase
Bank, N.A. The Company did not have any amounts outstanding under
the lines at June 30, 2014 and 2013.
9. Notes Payable
The Company has a $230,000 36-month note payable through October 2014,
to University of Maryland, Baltimore County, which was part of the
consideration paid for the acquisition of the bioprocessing products
business in November 2011, with monthly payments of $6,714 bearing
interest at 3.25%. Amounts due under the note was $26,700 and $105,000
at June 30, 2014 and 2013, respectively.
10. Employee Benefit Plans
During the fiscal year ended June 30, 2013, the Company adopted a
single 401(k) profit sharing plan covering all its employees, which
provides for voluntary employee salary contributions not to exceed
the statutory limitations provided by the Internal Revenue Code.
The plan provides for Company matching contribution equal to 100%
of employee's deferral up to 3% of pay, plus 50% of employee's
deferral over 3% of pay up to 5%. Previously, the Company had two
separate plans. Total matching contributions amounted to $49,600 and
$42,800 for the years ended June 30, 2014 and 2013, respectively.
11. Commitments and Contingencies
The Company's current lease for its existing Bohemia, New York
premises expires in January 2015, but will terminate upon the Company's
move to a smaller neighboring facility in the same vicinity from the
same landlord, at a lower rental rate under a new lease through
February 2025, which requires minimum annual rental payments plus
other expenses, including real estate taxes and insurance. The future
minimum annual rental expense, computed on a straight-line basis, is
approximately $177,600 under the terms of the new lease. Rental
expense for the Bohemia facility under its current lease amounted to
approximately $239,800 in 2014 and $233,500 in 2013. Accrued rent,
payable in future years, amounted to $18,700 and $44,200 at June 30,
2014 and 2013, respectively.
The Company is also obligated under an operating lease for its
facility in Pittsburgh, Pennsylvania, through November 2017, which
requires monthly minimum rental payments through November 2017, plus
common area expenses. Total rental expenses for the Pittsburgh
facility was $95,000 and $77,200 for the fiscal years ended June 30, 2014
and 2013.
F-21
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
11. Commitments and Contingencies (Continued)
In addition, the Company's new Torbal division was operating from a
Clifton, New Jersey facility and as of mid-July 2014 moved to a
significantly smaller office facility in Oradell, New Jersey from
which it performs its sales and marketing functions. The Company was
obligated under a previous agreement to pay $24,000 for an early lease
termination for the Clifton facility. Total rental expenses for the
New Jersey facilities, including the fee, was $47,900 for the fiscal
year ended June 30, 2014.
The Company's approximate future minimum rental payments under all
operating leases are as follows:
Fiscal Years
____________
2015 $ 251,700
2016 255,600
2017 264,000
2018 205,000
2019 174,000
Thereafter 841,600
___________
$ 1,991,900
===========
The Company has employment contracts with its President providing
for an annual base salary of $154,000 and $150,000 for the fiscal
years ending June 30, 2015 and 2014 and with its Executive Vice
President providing for an annual base salary of $139,000 and
$135,000 for the fiscal years ending June 30, 2015 and 2014.
Both contracts also provide for discretionary performance bonuses.
Bonuses of $10,000 and $5,000 were awarded to the President and
Executive Vice President, respectively, for the year ended
June 30, 2013. No bonuses were awarded for the fiscal year
ended June 30, 2014 to either executive except for a stock
option granted to the Executive Vice President during the year
ended June 30, 2014, valued at $3,500 using the Black-Scholes-
Merton option pricing model.
The Company has an employment contract with the President of
Altamira through June 30, 2015, which may be extended by mutual
consent for an additional year. The contract provides for an
annual base salary of $140,000 and $135,000 for each of the
fiscal years ending June 30, 2015 and 2014, respectively, plus
discretionary bonuses. A bonus of $5,000 was awarded for the
fiscal year ended June 30, 2013. No bonus was awarded for
the fiscal year ended June 30, 2014, except for a stock
option granted during the year ended June 30, 2014, valued
at $3,500 using the Black-Scholes-Merton option pricing model.
The Company has a consulting agreement which expires on
December 31, 2014 with an affiliate of the Chairman of the
Board of Directors for marketing consulting services. The
agreement provides that the consultant be paid a monthly
fee of $3,600 for a certain number of consulting days as
defined in the agreement. Stock options were granted to the
Chairman of the Board of Directors valued at $8,700 during
the year ended June 30, 2014. Consulting expense related to
this agreement amounted to $50,100 and $44,600 for the
years ended June 30, 2014 and 2013, respectively.
F-22
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
11. Commitments and Contingencies (Continued)
The Company has an employment agreement dated February 2014
with the President of its Torbal Division which expires in
February 2017, which may be extended by mutual consent for
another two years. The contract provides for an annual base
salary of $140,000 subject to increases commencing with the
second year based on percentage increases in the Consumer
Price Index from the end of the immediately preceding year's
CPI plus discretionary bonuses. No bonuses were awarded
during the fiscal year ended June 30, 2014, however as
part of the employment agreement, he was awarded a 2,000
share stock option upon commencement of his employment with
the Company valued at $3,900 using the Black-Scholes-Merton
option pricing model. In addition, he is to be granted,
subject to his continued employment in February 2015, 2016
and 2017 options for 4,000 shares, 5,000 shares and 6,000
shares, respectively.
The Company had a consulting agreement which expired March
31, 2014 with another member of its Board of Directors for
administrative services providing that the consultant
be paid at the rate of $85 per hour. Consulting expense
related to this agreement amounted to $5,700 and $6,100
for the fiscal years ended June 30, 2014 and 2013,
respectively.
12. Income Taxes
The reconciliation of the provision for income taxes at
the federal statutory rate of 35% to the actual tax expense
or benefit for the applicable fiscal year was as follows:
2014 2013
__________________ _________________
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
_______ _______ ________ _______
Computed "expected" income tax $(37,500) (35.0%) $182,300 35.0%
Research and development
credits ( 1,600) ( 1.5) (30,700) ( 5.9)
Other, net 7,400 6.9 (27,200) ( 5.2)
_________ _______ _________ ______
Income tax expense (benefit) $(31,700) (29.6%) $124,400 23.9%
========= ======= ========= ======
F-23
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
12. Income Taxes (Continued)
Deferred tax assets and liabilities consist of the following:
2014 2013
__________ __________
Deferred tax assets:
Amortization of intangible assets $ 153,300 $ 146,100
Various accruals 75,100 49,600
Other 48,100 53,400
_________ _________
276,500 249,100
Deferred tax liability:
Depreciation of property
and amortization of goodwill (44,300) (56,300)
__________ __________
Net deferred tax assets $ 232,200 $ 192,800
========== ==========
The breakdown between current and long-term deferred tax assets and
liabilities is as follows:
2014 2013
__________ __________
Current deferred tax assets $ 86,000 $ 86,600
_________ _________
Long-term deferred tax assets 190,500 162,500
Long-term deferred tax liabilities (44,300) (56,300)
__________ __________
Net long-term deferred tax asset 146,200 106,200
__________ __________
Net deferred tax assets $ 232,200 $ 192,800
========== ==========
ASC No. 740 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC
No. 740 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure,
and transition. As of June 30, 2014 and 2013, the Company did not
have any unrecognized tax benefits related to various federal
and state income tax matters.
The Company's policy is to recognize interest and penalties on
any unrecognized tax benefits as a component of income tax expense.
The Company does not have any accrued interest or penalties
associated with any unrecognized tax benefits. The Company is
subject to U.S. federal income tax, as well as various state
jurisdictions. The Company is currently open to audit under the
statute of limitations by the federal and state jurisdictions
for the years ending June 30, 2011 through 2013. The Company
does not anticipate any material amount of unrecognized tax
benefits within the next 12 months.
F-24
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
13. Stock Options
Option activity is summarized as follows:
Fiscal 2014 Fiscal 2013
_________________ __________________
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
_______ _______ _______ ________
Shares under option:
Outstanding, beginning of year 55,000 $ 2.86 60,000 $ 2.73
Granted 11,000 3.53 - -
Exercised (5,000) 1.35 (5,000) 1.25
________ ________
Outstanding, end of year 61,000 3.11 55,000 2.86
________ _______ ________ ________
Options exercisable at year-end 48,300 $ 2.82 51,000 $ 2.81
________ _______ ________ ________
Weighted average fair value per
share of options granted
during fiscal 2014 $1.78
_____
As of June 30, 2014 As of June 30, 2014
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.88 10,000 .2 $ 1.88 10,000 $ 1.88
$3.07-$3.71 51,000 4.17 $ 3.35 38,300 $ 3.28
________ ________
61,000 48,300
________ ________
As of June 30, 2013 As of June 30, 2013
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.35-$1.88 15,000 .94 $ 1.70 15,000 $ 1.70
$3.07-$3.71 40,000 3.72 $ 3.30 36,000 $ 3.27
________ ________
55,000 51,000
________ ________
F-25
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2014 AND 2013
14. Earnings (Loss) Per Common Share
Earnings (loss) per common share data was computed as follows:
2014 2013
__________ __________
Net income (loss) $ ( 75,300) $ 396,400
__________ __________
Weighted average common shares
outstanding 1,385,054 1,337,048
Effect of dilutive securities - 5,164
__________ __________
Weighted average dilutive common
shares outstanding 1,385,054 1,342,212
__________ __________
Basic earnings (loss) per common share $ (.05) $ .30
========== ==========
Diluted earnings (loss) per common share $ (.05) $ .30
========== ==========
Approximately 59,000 shares of the Company's common stock issuable
upon the exercise of outstanding options were excluded from the
calculation of diluted loss per common share, for the fiscal year
ended June, 2014, because the effect would be anti-dilutive due
to the loss for the period.
Approximately 40,000 shares of the Company's common stock issuable
upon the exercise of outstanding options were excluded from the
calculation of diluted earnings per common share for the year ended
June 30, 2013, because the effect would be anti-dilutive.
F-26