UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2
(Mark One)
( X )ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 2004
_____________
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( )TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______to_______
(Name of Small Business Issuer in Its Charter)
DELAWARE 04-2217279
________ __________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
70 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
___________________________________ __________
(Address of principal executive offices) (Zip Code)
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
________ _________
None None
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Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
The aggregate market value of the voting stock held by non-affiliates computed by reference to the average bid and asked prices of such stock, as of September 3, 2004 is $1,154,500.
The number of shares outstanding of the issuer's common stock, par value $.05 per share ("Common Stock") as of September 3, 2004 is 975,541 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
This amendment is being filed to modify ITEM 8A. CONTROLS AND
PROCEDURES.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Forward Looking Statements. The Company and its representatives may from time to time make written or oral forward-looking statements with respect to the Company's annual or long-term goals, including statements contained in its filings with the Securities and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely result," "are expected to," "will continue to," "is anticipated," "estimate," "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General. Scientific Industries, Inc., a Delaware corporation (the "Company"), formed in 1954, designs, manufactures, and markets a variety of laboratory equipment. The Company's products are generally used for research purposes in research laboratories in or used by universities, hospitals, pharmaceutical companies, clinics, medical device manufacturers and other related industries.
Products. The Company's products principally consist of mixers and shakers, rotators/ rockers, refrigerated incubators and magnetic stirrers.
The Company's primary product is the Vortex-Genie(R) 2 Mixer. The vortex mixer is used to mix the contents of test tubes, beakers, and other various containers by placing such containers on a rotating cup or other attachments which cause the contents to be mixed at varying speeds. Sales of the Vortex-Genie 2 Mixer and related accessories represented approximately 83% of the Company's revenues for the year ended June 30, 2004 ("fiscal 2004") as compared with 87% of the Company's revenues for the year ended June 30, 2003 ("fiscal 2003").
The Company introduced in the year ended June 30, 2002 ("fiscal 2002") the Vortex-Genie 2T, a mixer with an integral timer, the Vortex-Genie 1, a high speed touch mixer, and the Disruptor Genie(TM), a patented cell disruptor. In addition, during fiscal 2004, the Company began offering cell disruption media to be used with the Disruptor Genie. Revenues from all three products in fiscal 2004 were more than twice their revenues in fiscal 2003. In general, it takes two to three years for a product to begin generating meaningful sales in the industry due to the catalog distribution system.
The Company recently introduced the Microplate Genie(TM), another specialty mixer designed specifically to mix and vortex the contents of microplates.
The Company's Roto-Shake Genie(R), a patented benchtop multi-purpose rotator/rocker is designed by the Company to rotate and rock a wide variety of containers which are magnetically attached to the unit's magnetized platform. The Enviro-Genie(R) Refrigerated Incubator and the BioReactor Genie(TM) Cell Culture Chamber (the latter introduced during fiscal 2003), are multi-functional benchtop environmental chambers designed to perform various functions under controlled environmental conditions of
temperature. The Bag Rotator, is another product that mixes transfer packs and other sealed bags for the clinical market.
During fiscal 2004, the Company launched the Magstir Genie(TM), a new patented magnetic stirrer, which is programmable and offers a unique low to high speed range. The Company is currently working on the development of several other magnetic stirrers to be introduced in the near term.
Product Development. The Company designs and develops substantially all of its products. Its personnel formulate plans and concepts for new products and improvements or modifications to existing products. It also engages outside consultants to augment its capabilities in such areas as industrial design. The Company is currently working on the development of several new products, some of which it anticipates will be introduced during the year ended June 30, 2005 "fiscal 2005". The Company assembles its products at its factory using components purchased from various domestic and international sources.
Marketing. Commencing in January 2003, the Company substantially increased its marketing efforts and expenditures under its revised strategy for sales growth with: (i) the employment of a Director of Sales and Marketing; (ii) the entry into a long-term agreement providing for a substantial increase in the services of its outside marketing consultant, who earlier had been a marketing employee of the Company's principal distributor and who was elected a Director of the Company at the Annual Meeting of Stockholders in November 2002, and (iii) an expanded promotion and advertising program. The Company also engaged several independent sales representatives for marketing and selling certain products.
The Company's products are generally distributed and marketed through an established network of domestic and foreign laboratory equipment distributors. The Company also markets its products through attendance of industry trade shows, trade publication advertising, brochures and catalogs, independent sales representatives, and its own web site. Sales of products through the Company's website, with e-commerce introduced in fiscal 2004, have been and are expected to be insignificant in view of the type of customer for the Company's products.
Production Materials. The Company's production operation
principally involves assembly of components supplied by various
independent suppliers. The Company does not rely on any one
supplier, except as to a few components where it is not practicable
to have multiple suppliers but alternative suppliers are available.
The Company anticipates to continue effecting purchasing economies
through continued purchases of components from overseas vendors.
Patents, Trademarks, Licenses and Franchises. The Company holds several United States patents relating to existing products. It licenses one of its patents, a patent on a utilitarian feature of its Vortex-Genie 2 Mixer on a non-exclusive, royalty-free basis to Henry Troemner, LLC, ("Troemner"), under an agreement dated December 1, 1999 settling a lawsuit instituted by the Company in April, 1999. This license expires on November 2, 2005, the expiration date of the patent. The Company's patent for the TurboMix(TM), an attachment to the existing Vortex-Genie 2 Mixer, expires in September 2015. Its patent on the Roto-Shake Genie expires in July 2016. During the last two fiscal years, the Company applied for a new patent and filed several trademark applications, all of which are currently pending. The Company intends to apply for additional patents and trademarks, when appropriate, for technology, products, and marks which it considers important for the protection of its business. No assurance can be given that any patent or trademark application will result in the issuance of a patent or trademark, or if granted, will provide effective protection.
The Company has various proprietary marks, including BioReactor Genie(TM), Disruptor Beads(TM), Disruptor Genie(TM), Enviro-Genie(TM), Genie(TM), MagStir Genie(TM), Microplate Genie(TM), Roto-Shake Genie(R), TurboMix(TM), and Vortex-Genie(R), each of which it considers important to the success of the related product.
Foreign Sales. The Company's foreign sales to various distributors outside the United States (principally Asia and Europe) accounted for approximately 42.5% of the Company's net sales for fiscal 2004 and 48.6% for fiscal 2003. Such sales are paid in United States dollars and are therefore not subject to risks of currency fluctuation, foreign duties and customs.
Seasonality. The Company does not consider its business to be seasonal.
Major Customers. Sales, predominantly of the Vortex-Genie
2 Mixer, to two of the Company's customers, each a major
distributor, represented in the aggregate approximately 42% of net
sales for fiscal 2004 and for fiscal 2003. The loss of either
customer or a material reduction in their purchases, as experienced
during fiscal 2003, could have a material adverse effect upon the
operating results of the Company.
Backlog. The Company's backlog is not significant because
the Company's current line of products is comprised of standard
catalog items. The typical lead time for order fulfillment is
approximately two weeks or less.
Competition. Most of the Company's competitors are substantially larger and have greater financial, production and marketing resources than the Company. Competition is generally based upon quality, technical specifications, price, and product recognition and acceptance. The Company believes it is a dominant factor in the market for vortex mixers in the United States and is widely recognized in the international vortex mixers market.
In the general area of laboratory equipment, the Company's major competitors are Troemner, Barnstead/Thermolyne Corporation, (an Apogent Technologies Company recently merged with Fisher Scientific, the Company's principal customer), IKA-Werke GmbH & Co. KG, a German company, and Heidolph Instruments GmbH, a German company. Since the Company's products are primarily sold through distributor catalogs, the Company relies heavily on the distributors' decisions as to which products they include in their catalogs. The Company is uncertain as to the future effect on sales to its largest customer as a result of the recent merger between one of its major competitors and Fisher Scientific, its principal customer.
Research and Development. In connection with the development of new products, the Company incurred research and development expenses of $364,800 during fiscal 2004 compared to $292,300 during fiscal 2003. The Company expects to continue its program of increased product diversification in fiscal 2005.
Government and Environmental Regulation. The Company's products and claims with respect thereto have not required approval of the Food and Drug Administration or any other government approval. The Company's manufacturing operations, like those of the industry in general, are subject to numerous existing and proposed, if adopted, federal, state, and local regulations to protect the environment, to establish occupational safety and health standards and to cover other matters. The Company believes that its operations are in compliance with existing laws and regulations and the cost to comply is not significant to the Company.
Employees. As of September 3, 2004, the Company employed 20 persons of which 18 were full-time, including its two executive officers. None of the Company's employees are represented by any unions.
RISK FACTORS
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, important risk factors are identified below that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to such future periods in any current statements. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.
THE COMPANY OFFERS A LIMITED NUMBER OF PRODUCTS WITH SALES OF ONE PRODUCT ACCOUNTING FOR A SUBSTANTIAL PORTION OF ITS REVENUES
The Company currently offers for sale a limited number of products, with sales of its Vortex-Genie 2 Mixer and accessories related thereto accounting for approximately 83% of the Company's sales for fiscal 2004 and 87% for fiscal 2003. In the past few years, there have been new entrants into the vortex mixer market. The competitive mixers are being aggressively marketed by the same distributors that offer the Company's mixers. Total units and sales amounts derived from the Vortex-Genie 2 Mixer were slightly higher in fiscal 2004 compared to fiscal 2003. No assurance can be given that the Company will be able to increase or maintain its current level of sales of the Vortex-Genie 2 Mixer or that the operating margin derived therefrom will not be adversely affected.
DEPENDENCE ON MAJOR CUSTOMERS
The industry is dominated in the U.S. by two major laboratory equipment distributors, Fisher Scientific and VWR International, both which currently distribute the Company's products. Total sales to these two customers accounted for approximately 42% of the Company's total sales in the last two fiscal years. Fisher Scientific recently completed in 2004 a merger with Apogent Technologies, which owns Barnstead/Thermolyne, a competitor of the Company. No representation can be made at this time as to the effect of this merger on sales of the Company's products to Fisher Scientific. A material reduction in sales to either distributor would have a material adverse effect on the results of operations of the Company.
THE COMPANY'S ABILITY TO GROW AND COMPETE EFFECTIVELY IS IN PART DEPENDENT ON ITS ABILITY TO DEVELOP AND EFFECTIVELY MARKET NEW PRODUCTS
During the past six years, the Company has pursued a program to develop and market new laboratory equipment with a view to increasing its revenues and reducing its dependence on the Vortex-Genie 2 Mixer. Pursuant to the program, the Company first developed and introduced the Roto-Shake Genie rotator/rocker and then the Enviro-Genie refrigerated incubator. During fiscal 2002, the Company began selling three new products which generally target the vortex mixer market - Vortex-Genie 1 touch mixer, Vortex-Genie 2T timed mixer, and the Disruptor Genie cell disruptor. More recently, the Company introduced the Magstir Genie(TM) magnetic stirrer and the Microplate Genie(TM) microplate mixer, with additional products currently under development.
Revenues derived from products other than the Vortex-Genie 2, (excluding accessories) amounted to $643,000 and $423,900, respectively, for fiscal 2004 and fiscal 2003. The Company historically has relied primarily on its distributors and their catalogs to market its products. Accordingly, it may be at least 24 to 36 months between the completion of development of a product and the distribution of the catalog in which it is first offered. The
Company has recently expanded and revised its marketing program including hiring a Director of Sales and Marketing, and engaging several independent sales representatives to handle certain products. Sales of new products are still heavily dependent on their inclusion in distributors' catalogs and websites, since the majority of the end users purchase through distributors. To encourage distributors to include the products in their catalogs and websites, the Company established a new pricing policy for calendar year 2005 with a revised discount structure. No assurance can be made that the amounts allocated by the Company for its development and marketing program will prove beneficial to the Company or that the pricing policy will result in the inclusion of any particular product in a distributor's catalog and website.
THE COMPANY IS HEAVILY DEPENDENT ON OUTSIDER SUPPLIERS FOR THE COMPONENTS OF ITS PRODUCTS
While the Company believes there are several suppliers available for all of its components, it presently relies on one source for each of several components. The disruption or termination of the operations of such sources could have an adverse effect, hopefully of short duration, on the Company's results of operation. Furthermore, the Company intends to continue purchasing components from overseas vendors. Such increased reliance could increase the risks of the Company's operation including those arising from government controls, foreign conditions, custom duties, changes in both foreign and United States government policies, and the reliability and financial condition of such suppliers.
THE COMPANY IS A SMALL PARTICIPANT IN ITS HIGHLY COMPETITIVE INDUSTRY
Although the Company's principal product, the Vortex-Genie 2 Mixer, has been widely accepted, the Company is an insignificant factor in the highly competitive laboratory products industry. The Company's net sales for fiscal 2004 and fiscal 2003 were $3,532,600 and $3,257,100, respectively. Its principal competitors are substantially larger and have much greater financial, production and marketing resources than the Company.
THE COMPANY'S ABILITY TO COMPETE DEPENDS IN PART ON ITS ABILITY TO SECURE AND MAINTAIN PROPRIETARY RIGHTS TO ITS PRODUCTS
The Company's ability to compete depends in part on its ability to secure and maintain proprietary rights to its products. The Company holds a design patent expiring in November 2005 on a feature of its Vortex-Genie 2 Mixer, its principal product. It holds a patent on an attachment to that product which expires in September 2015 and on another product which expires in July 2016. During fiscal 2003, the Company applied for an additional patent, and intends to apply for additional patents on new products.
There can be no assurance that the expiration of the design
patent will not be materially harmful to the Company's revenues or
that the Company will be successful in obtaining additional
patents, that any patent issued to the Company provides or will
provide the Company with competitive advantages or will not be
challenged by third parties or that the patents of others will not
prevent the commercialization of products developed by the Company.
Furthermore, there can be no assurance that others will not
independently develop similar products or design around the
Company's patents. Any of the foregoing activities could have a
material adverse effect on the Company. Moreover, there is no
assurance that the enforcement by the Company of its patent rights
will not result in substantial litigation costs, as it did in
fiscal 2000 in the defense of its proprietary claim with respect to
its Vortex-Genie 2 Mixer.
THE COMPANY HAS LIMITED MANAGEMENT RESOURCES
Mr. Lowell A. Kleiman, had been the Company's President and Chief Executive Officer until the termination of his employment on August 29, 2002. Ms. Helena Santos who had been its Vice President Controller was then appointed its Chief Executive Officer, President and Treasurer and Mr. Robert Nichols who had been its Vice President - Engineering was then appointed its Executive Vice President. Any material expansion of the Company's operations could place a significant additional strain on the Company's limited management resources. Furthermore, the loss of either Ms. Santos or Mr. Nichols in the absence of an equally qualified successor could be materially adverse to the Company's results and financial condition.
THE COMMON STOCK OF THE COMPANY IS THINLY TRADED AND IS SUBJECT TO VOLATILITY
The Common Stock of the Company is traded on the Over-the-Counter Bulletin Board and, historically, has been thinly traded. As of September 23, 2004, there were only 975,541 shares of Common Stock of the Company outstanding, of which 330,815 shares are held by the directors and officers of the Company. There have been a number of trading days during fiscal 2004 on which no trades of the Company's Common Stock were reported. Accordingly, the market price for the Common Stock is subject to great volatility.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and manufacturing facilities comprising approximately 25,000 square feet are located at 70 Orville Drive, Bohemia, New York 11716. They are held pursuant to a lease which was amended in September 2004, principally to extend the expiration date from December 31, 2004 to January 31, 2010, and to reduce the minimum base annual rent. The leased facilities are suitable and adequate for such use. In the opinion of management, the property is adequately covered by insurance. See Note 8 to the Financial Statements in Item 7 for further information about the Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings. However, a financial advisor employed by the Company pursuant to an engagement letter that was not extended by the Company beyond its expiration date of March 31, 2002 asserted in April 2002 a claim against the Company in the amount of $125,000 for alleged services rendered to the Company that were alleged to be outside the scope of the letter. The Company denies engaging the financial advisor for any services outside the scope of the engagement letter or that any amount is owing to the advisor. The Company's counsel has advised the Company that based on its review of the engagement letter and the Company's denial, it is unlikely that the financial advisor will prevail if it institutes a legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock is traded in the over-the-counter market. The following table sets forth the low and high bid quotations for each quarter of fiscal 2003 and fiscal 2004, as reported by the National Association of Securities Dealers, Inc. Electronic Bulletin Board. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:
For Fiscal Quarter Ended: Low Bid High Bid _________________________ _______ ________ 09/30/02 1.10 1.80 12/31/02 1.05 1.50 03/31/03 1.05 1.15 06/30/03 1.05 1.15 09/30/03 1.12 1.20 12/31/03 1.20 1.50 03/31/04 1.50 1.85 06/30/04 1.85 2.00 |
(b) There were, as of September 3, 2004, 861 record holders of the Company's Common Stock.
(c) On March 15, 2004, The Company paid a cash dividend of $.05 per share to stockholders of record on March 4, 2004. The Company is not subject to any agreement which prohibits or restricts the Company from paying dividends on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, impact of competition, the ability to reach final agreements, adverse economic conditions, and other factors affecting the Company's business that are beyond the Company's control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report.
Overview. Commencing in January 2003, the Company
substantially increased its marketing and product development
efforts and expenditures under its revised strategy for sales
growth with (i) the employment of a Director of Sales and
Marketing, (ii) an expanded promotion and advertising program, and
(iii) increased commitment of funds to research and development
activity.
The Company also intensified its efforts to increase the Company's profitability by continuing to seek economies through a search for alternative, lower cost quality sources for its material components (mostly from overseas), and evaluating its labor requirements on an ongoing basis for achievement of overall cost reductions.
The Company's net income for fiscal 2004 increased by $184,900 to $248,700 from $63,800 for fiscal 2003 primarily as a result of the following factors.
* An increase of 8.5% in net sales.
* An increase in gross profit margin percentage from
41.2% to 47.2%.
* A decrease of 13.3% in general and administrative
expenses.
* An increase of 43.2% in selling expenses.
* An increase of 24.8% in research and development
expenses.
Results of Operations. Net sales for fiscal 2004 were $3,532,600, an increase of $275,500 (8.5%) compared to net sales of $3,257,100 for fiscal 2003. The increase is primarily due to higher sales of the products introduced in the last few fiscal years, principally the Disruptor Genie, Vortex-Genie 2T, and Vortex-Genie 1. Sales of new products (excluding accessories) increased from $423,900 in fiscal 2003 to $648,000 in fiscal 2004. The gross profit percentage for fiscal 2004 of 47.2% exceeded the gross profit percentage of 41.2% for fiscal 2003, mostly as a result of production economies (principally increased overseas purchases of material components at lower cost), higher margins on average of the new products, and lower labor costs resulting from efficiencies.
General and administrative ("G&A") expenses were $686,700 for fiscal 2004, a decrease of $105,000 (13.3%) compared to $791,700 in fiscal 2003, mostly due to the incurrence of $72,300 of proxy costs in fiscal 2003 in connection with the proxy contest initiated by the former Chief Executive Officer, and costs incurred in connection with termination of his employment in August 2002.
Selling expenses for fiscal 2004 increased $93,300 (43.2%) to $309,300 compared to $216,000 for fiscal 2003 as a result of the Company's expansion of its sales and marketing functions, including the hiring of a Director of Sales and Marketing in January 2003, and significantly increased promotional and advertising expenditures.
Research and development expenses increased by $72,500 (24.8%) to $364,800 for fiscal 2004 compared to $292,300 for fiscal 2003, as a result of increased new product development.
Income tax expense was $77,000 for fiscal 2004 compared to a tax benefit of $11,500 for fiscal 2003.
Liquidity and Capital Resources. Net cash provided by operating activities was $338,000 for fiscal 2004 compared to $16,100 for fiscal 2003, mainly the result of the increase in net income. Cash used in investing activities decreased to $168,900 for fiscal 2004 compared to $211,900 for fiscal 2003, reflecting lesser purchases of investment securities and greater amount of redemptions, and a sale in the prior year of a previously leased auto related to the termination of employment of the Company's former chief executive officer. Cash used in financing activities increased to $35,300 for fiscal 2004 compared to $6,600 provided in fiscal 2003, primarily as a result of the cash dividend declared and paid in March 2004. As a result of the foregoing, the Company's cash and cash equivalents increased by $133,800 to $241,400 as of June 30, 2004 compared to $107,600 as of June 30, 2003.
On September 21, 2004, the Board of Directors of the Company declared a cash dividend of $.07 per share of Common Stock payable on January 14, 2005 to holders of record as of the close of business on October 20, 2004.
The Company's working capital increased $308,300 to $1,983,300 from $1,675,000. The increase was primarily generated from profitable operations. The Company has available a secured bank line of credit of $200,000 with North Fork Bank which expires on November 1, 2004 and carries interest at prime. The Company will seek to
extend the credit line which has never been utilized. Management believes that it will be able to meet its cash flow requirements during the fiscal year ending June 30, 2005 from its available financial resources which are anticipated to include future cash generated from operations, its cash and cash equivalents and investments, and if required, the credit line.
Capital Expenditures. During fiscal 2004, the Company incurred $53,400 in capital expenditures. The Company expects to incur capital expenditures at approximately the same level during fiscal 2005. It is anticipated, as in past fiscal years, that capital expenditures, will be funded from the Company's operations or available working capital.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements required by this item are attached hereto on pages F1-F18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under Sthe Securities Exchange Act of 1934), the Chief Executive and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that materially affected or is reasonably likely to materially affect the Company's internal controls over financial reporting.
ITEM 8B. OTHER INFORMATION.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS
The Company has five Directors. The name, principal occupation for the last five years, selected biographical information and period of service as a director of the Company of each Director are set forth in this section.
Arthur M. Borden, Esq. (age 84), a Director since 1974, has been counsel to the law firm of Katen Muchin Zavis Rosenman (formerly Rosenman & Colin) during the past five years.
Joseph G. Cremonese (age 68), a director since November 2002, has been a marketing consultant to the Company since 1996. Mr. Cremonese has been since 1991, President of Laboratory Innovation Company, Ltd., which is a vehicle for technology transfer and consulting services for companies engaged in the production and sale of products for science and biotechnology. Since March 2003, Mr. Cremonese has been a director of and consultant to Proteomics, Inc., a producer of recombinant proteins for medical research. Mr. Cremonese had been, prior to 1991, employed by Fisher Scientific (the Company's largest customer).
Joseph I. Kesselman (age 79), a Director since 1961 and Chairman of the Board since August 29, 2002, is a consultant to various corporations, and a director of Nuclear and Environmental Protection Inc., Hopare Holding, S.A. (a Swiss company), and Infranor Inc., a developer and manufacturer of servo systems.
Roger B. Knowles (age 78), a Director since 1965, is retired and during the past five years has been involved in liquidating various real estate and manufacturing concerns.
James S. Segasture (age 68), a Director since 1991, has been a private investor since February 1990.
The Directors of the Company are elected to two-year
staggered terms. The terms of the Directors currently expire at
the annual meeting of stockholders of the Company to be held at the
next annual meeting following: the fiscal year ended June 30, 2004
- one Director (Mr. Kesselman, Class B), the fiscal year ending
June 30, 2005 - two Directors (Messrs. Cremonese and Knowles, Class
C) and the year ending June 30, 2006 - two Directors (Messrs.
Borden and Segasture, Class A). Mr. Kesselman is Chairman of the
Board.
BOARD COMMITTEES
Joseph I. Kesselman and James S. Segasture have been appointed as the sole members of the Company's Stock Option Committee to serve at the discretion of the Board and to administer the Company's 2002 Stock Option Plan.
The Company does not currently have any other committees. The Board of Directors acts as the Company's Audit Committee.
EXECUTIVE OFFICERS
Helena R. Santos, CPA (age 40), employed by the Company since 1994, was appointed in August 2002 as President, Chief Executive Officer and Treasurer. Prior to said appointment she served as Vice President, Controller from 1997 and Secretary from May 2001. She was an internal auditor with a major defense contractor from March 1991 to April 1994. She had been previously employed in public accounting.
Robert P. Nichols (age 43), employed by the Company since
February 1998, was appointed in August 2002 as Executive Vice
President. He had been Vice President, Engineering from May 2001.
Prior to joining the Company, he was an Engineer Manager with Bay
Side Motion Group, a precision motion equipment manufacturer from
January 1996 to February 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, for the year ended June 30, 2004, all filing requirements of Section 16(a) of the Securities Act of 1934, as amended, applicable to its officers, directors and 10% stockholders were complied with timely.
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation paid by the Company to its then Chief Executive Officer and President with respect to each of the three fiscal years ended June 30, 2004. No other executive officer earned in excess of $100,000 in any of such fiscal periods.
SUMMARY COMPENSATION TABLE
All Other
Fiscal Compen-
Name Year Salary Bonus sation
________________ _______ ________ _______ ___________
Helena R. Santos(1) 2004 $100,000 $ - $ -
Helena R. Santos 2003 $ 76,000 $ - $ -
|
Lowell A. Kleiman(1) 2003 $ 53,300 $ - $ 19,500(2) Lowell A. Kleiman 2002 $160,000 $ - $ -
(1) Ms. Santos was appointed Chief Executive Officer and President on August 29, 2002 following the termination of Mr. Kleiman's employment.
(2) Represents accrued benefits paid to Mr. Kleiman upon the termination of his employment.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to officers during fiscal year 2004.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES
Number of
Shares of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-money
Acquired Options Options
On Value at FY-End (#) at FY-End($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) (1) Unexercisable Unexercisable(1)
________________ _________ ________ _____________ _______________
|
Helena R. Santos 9,000 9,300 15,000/0 21,300/0
(1) Calculated by multiplying the number of shares of Common Stock subject to options by the difference between the market price and exercise price, per share, on date of exercise and June 30, 2004, respectively.
Employment Agreements
On September 1, 2004 the Company entered into new employment agreements with Ms. Helena R. Santos and Mr. Robert P. Nichols replacing employment agreements that were entered into in January 2003. The new agreements increased their base salaries by $10,000 each - to $110,000 for Ms. Santos and $105,000 for Mr. Nichols. The new agreements also extended their employment period to December 31, 2006. They otherwise contain substantially the same provisions as the replaced agreements, including annual bonuses at the discretion of the Board and noncompetition and confidentiality covenants.
DIRECTORS' COMPENSATION
The Company currently pays each non-employee Director a quarterly retainer of $750 and a fee of $500 for each meeting attended, plus reimbursement for out-of-pocket expenses incurred in connection with attendance at board meetings in the amount of $50 or the Director's itemized expenses, whichever is greater. Mr. Joseph I. Kesselman, as Chairman of the Board, has received in addition since March 2003 a monthly fee, which increased to $750 on February 24, 2004 from $500. During fiscal 2004, the Company paid fees in the aggregate amount of $35,000 to non-employee Directors.
Pursuant to the Company's 1992 Stock Option Plan ("1992 Plan") options to purchase 3,000 shares of Common Stock at the then fair market value were granted to each non-employee director who was on the Board of Directors on the first business day of each March, in 1993, 1994, 1995, and 1996, namely Messrs. Borden, Kesselman, Knowles and Segasture. In addition, in December 1997, the Board of Directors approved annual grants under the 1992 Plan beginning in December 1997 of options to purchase 4,000 shares of Common Stock for each non-employee director exercisable at the fair market value on the date of grant. Accordingly, as of June 30, 2004, the Company had granted under the 1992 Plan in the aggregate to the foregoing four non-employee Directors options to purchase 128,000 shares of Common Stock, or options to purchase 32,000 shares of Common Stock for each. The fair market value per share of Common Stock on the dates of grant ranged from $0.50 for options granted in 1993 to $2.40 in 2002. As of June 30, 2004, options under the 1992 Plan with respect to 46,000 shares had been exercised by the Directors. They had exercised options with respect to 48,000 shares granted to them prior to the adoption of the 1992 Plan.
Under the Company's 2002 Stock Option Plan ("2002 Plan"), none of the directors at the time of the Plan's approval by stockholders in 2002 were eligible to receive option grants. Mr. Joseph G. Cremonese who was elected Director at the 2002 Annual Meeting, was granted on December 1, 2003 an option to purchase 5,000 shares of Common Stock at the fair market value of $1.35.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of year end, the number of shares of Common Stock beneficially owned by (i) the persons known to the Company to be the owners of more than 5% of the Common Stock, (ii) each director of the Company, (iii) each named executive officer of the Company, and (iv) all directors and executive officers as a group. Shares not outstanding but deemed beneficially owned by virtue of the right of any individual to acquire shares within 60 days are treated as outstanding only when determining the amount of and percentage of Common Stock owned by such individual. Each person has sole voting and investment power with respect to the shares shown, except as noted. The address for each director and executive officer is c/o Scientific Industries, Inc., 70 Orville Drive, Bohemia, New York 11716.
Amount and
Name Nature of Beneficial Ownership % of Class
_________________________________________________________________
Lowell A. Kleiman 139,581 (1) 14.5%
16 Walnut Street
Glen Head, NY 11545
Arthur M. Borden 62,540 (2) 6.3%
Joseph G. Cremonese 20,000 (3) 2.1%
Joseph I. Kesselman 63,520 (4) 6.4%
Roger B. Knowles 75,705 (5) 7.7%
James S. Segasture 187,250 (6) 19.4%
Helena R. Santos 21,000 (7) 2.1%
All directors and executive
|
officers as a group (7 persons) 457,815 (8) 41.5%
(1) Based on information reported in his Schedule 13D filed with
the Securities and Exchange Commission on October 30, 2002.
(2) Includes 26,000 shares issuable upon exercise of options.
(3) 15,000 shares are owned jointly with his wife and 5,000
shares are issuable upon exercise of options.
(4) Includes 26,000 shares issuable upon exercise of options and
735 shares of Common Stock owned jointly with his wife.
(5) Includes 26,000 shares issuable upon exercise of options,
44,158 shares owned by his wife, and 1,337 shares owned by a
trust of which he is a trustee, beneficial ownership of
which is disclaimed by him.
(6) Includes 4,000 shares issuable upon exercise of options and
493 shares owned by his wife.
(7) Includes 15,000 shares issuable upon exercise of options.
(8) Includes 127,000 shares issuable upon exercise of options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 2003, the Company entered into a consulting agreement with Mr. Joseph G. Cremonese, who was elected a Class C Director at the Annual Meeting of Stockholders in November 2002 and has been providing the Company with consulting services as an independent marketing consultant for approximately seven years. The consulting agreement provides that Mr. Cremonese and his affiliate, Laboratory Innovation Company, Ltd. will, at the request of the Company, render for the period January 1, 2003 through December 31, 2004 marketing consulting services of at least 80, but not more than
96 days per year at the rate of $450 per day with a monthly cap of $3,000, with the Company's obligation reduced to the extent the consulting services are less than 80 days for the 12 month period. The agreement contains confidentiality and non-competition covenants. During fiscal 2004, the Company paid Mr. Cremonese an aggregate of $33,200 for his consulting services to the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index at the end of this report.
(b) Reports on Form 8-K
Registrant filed a Report on Form 8-K on May 5, 2004 reporting under Item 5, Other Events and Regulation FD Disclosure.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Company incurred audit fees of approximately $26,000 and $25,000 to Nussbaum, Yates & Wolpow, P.C. in connection with the audit of the Company's financial statements respectively for the fiscal years ended June 30, 2004 and 2003. In addition, the Company incurred $2,550 and $2,250 in connection with the quarterly reviews for fiscal 2004 and 2003 respectively. The audit fees included preparation of the Company's corporate tax returns. There were no other audit related fees or other fees, except that during fiscal year 2003, the Company paid Nussbaum, Yates & Wolpow, P.C. $1,700 in connection with the Company's Stock Option Plan registration statement.
The Board of Directors has reviewed and discussed the audited financial statements with management. It discussed with the independent auditors of the Company matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards AU 380), as modified or supplemented and received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No.1, Independence Discussions with Audit Committees), as modified or supplemented. The Board discussed with the independent accountant the independent accountant's independence.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive Officer, Treasurer
Chief Financial and Principal
Accounting Officer
Date: April 20, 2005
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date /s/ Arthur M. Borden Director September 27, 2004 ____________________ Arthur M. Borden /s/ Joseph G. Cremonese Director September 27, 2004 _______________________ Joseph G. Cremonese /s/ Joseph I. Kesselman Chairman of September 27, 2004 _______________________ the Board Joseph I. Kesselman /s/ Roger B. Knowles Director September 27, 2004 ____________________ Roger B. Knowles /s/ James S. Segasture Director September 27, 2004 ______________________ James S. Segasture |
EXHIBIT INDEX
Exhibit Number Description
______________ ___________
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company as
amended. (Filed as Exhibit 1(a-1) to the Company's
General Form for Registration of Securities on Form
10 dated February 14, 1973 and incorporated by
reference thereto.)
3(b) Certificate of Amendment of the Company's Certificate
of Incorporation, as filed on January 28, 1985.
(Filed as Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1985
and incorporated by reference thereto.)
3(c) By-Laws of the Company, as restated and
amended. (Filed as Exhibit 3(ii) to the
Company's Current Report Form 8-K filed on
January 6, 2003) and incorporated by
reference thereto.
4 Instruments defining the rights of security
holders:
4(a) 2002 Stock Option Plan (Filed as Exhibit 99-1
to the Company's Current Report on Form 8-K
filed on November 25, 2002 and incorporated
by reference thereto.
10 Material Contracts:
10(a) Lease between Registrant and AIP Associates,
predecessor-in-interest of current lessor,
dated October, 1989 with respect to Company's
offices and facilities.
10(a)-1 Amendment to lease between Registrant
and REP A10 LLC dated September 1,
2004 (Filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K
filed on September 2, 2004, and
incorporated by reference thereto).
10(b) Employment Agreement dated January 1, 2003,
by and between the Company and Ms. Santos
(Filed as Exhibit 10(a) to the Company's
Current Report on Form 8-K filed on January
22, 2003, and incorporated by reference
thereto).
10(b)-1 Employment Agreement dated September
1, 2004, replacing January 1, 2003
agreement by and between the Company
and Ms. Santos (filed as Exhibit 10A-1
to the Company's Current Report on
Form 8-K filed on September 1, 2004,
and incorporated by reference thereto).
10(c) Employment Agreement dated January 1, 2003,
by and between the company and Mr. Nichols.
10(c)-1 Employment Agreement dated September
1, 2004, by and between the Company
and Mr. Nichols replacing January 1,
2003 agreement.
10(d) Consulting Agreement dated January 1, 2003 by
and between the Company and Mr. Cremonese and
his affiliate, Laboratory Innovation Company,
Ltd., (Filed as Exhibit 10(b) to the
Company's Current
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Report on Form 8-K filed on
January 6, 2003, and incorporated by
reference thereto).
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New
York corporation, is a wholly-owned inactive
subsidiary of the Company.
31.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002.
____________________________________________________________________
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SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARY
YEARS ENDED JUNE 30, 2004 AND 2003
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
YEARS ENDED JUNE 30, 2004 AND 2003
CONTENTS
Page
____
Report of Independent Certified Public Accountants F-1
Consolidated financial statements:
Balance sheets F-2
Statements of income F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-18
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Board of Directors and Shareholders
Scientific Industries, Inc. and subsidiary
Bohemia, New York
We have audited the accompanying consolidated balance sheets of Scientific Industries, Inc. and subsidiary as of June 30, 2004 and 2003, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scientific Industries, Inc. and subsidiary as of June 30, 2004 and 2003, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/Nussbaum Yates & Wolpow, P.C. ________________________________ Nussbaum Yates & Wolpow, P.C. Melville, New York |
August 30, 2004, except Note 8
as to which the date is September 1, 2004
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND 2003
ASSETS
2004 2003
___________ ___________
Current assets
Cash and cash equivalents $ 241,400 $ 107,600
Investment securities 802,500 695,400
Trade accounts receivable, less
allowance for doubtful accounts
of $10,600 in 2004 and $7,400 in
2003 388,800 409,600
Inventories 666,200 582,200
Prepaid and other current assets 58,200 64,600
Deferred taxes 62,300 -
___________ ___________
Total current assets 2,219,400 1,859,400
Property and equipment, net 140,500 152,500
Deferred taxes 25,500 113,600
Intangible assets, less accumulated
amortization of $41,300 and $36,000
in 2004 and 2003 12,500 15,500
Other 72,800 75,400
___________ ___________
Total assets $ 2,470,700 $ 2,216,400
=========== ===========
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,000 $ 58,100
Accrued expenses and taxes 160,100 126,300
___________ ___________
Total current liabilities 236,100 184,400
___________ ___________
Deferred compensation 36,000 43,800
___________ ___________
Commitments and contingencies
Shareholder's equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 995,343 and 980,343 shares
in 2004 and 2003 49,800 49,000
Additional paid-in capital 984,200 971,200
Accumulated other comprehensive
income, unrealized holding gain
(loss) on investment securities (3,500) 300
Retained earnings 1,220,500 1,020,100
___________ ___________
2,251,000 2,040,600
Less common stock held in treasury
at cost, 19,802 shares 52,400 52,400
___________ ___________
Total shareholders' equity 2,198,600 1,988,200
___________ ___________
Total liabilities and
shareholders' equity $ 2,470,700 $ 2,216,400
=========== ===========
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See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
___________ ___________
Net sales $ 3,532,600 $ 3,257,100
Cost of sales 1,864,100 1,914,500
___________ ___________
Gross profit 1,668,500 1,342,600
___________ ___________
Operating expenses:
General and administrative 686,700 791,700
Selling 309,300 216,000
Research and development 364,800 292,300
___________ ___________
1,360,800 1,300,000
___________ ___________
Income from operations 307,700 42,600
___________ ___________
Other income (expense):
Interest income 10,500 15,100
Other income (expense), net 7,500 (5,400)
___________ ___________
18,000 9,700
___________ ___________
Income before income taxes (benefit) 325,700 52,300
___________ ___________
Income tax expense (benefit):
Current 51,200 (4,500)
Deferred 25,800 (7,000)
___________ ___________
77,000 (11,500)
___________ ___________
Net income $ 248,700 $ 63,800
=========== ===========
Basic earnings per common share $ .26 $ .07
=========== ===========
Diluted earnings per common share $ .24 $ .06
=========== ===========
Weighted average common shares
outstanding 965,230 955,766
=========== ===========
Weighted average common shares
outstanding, assuming dilution 1,018,810 994,109
=========== ===========
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See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2004 AND 2003
Common Stock Additional Accumulated
______________ Paid-in Comprehensive
Shares Amount Capital Income (Loss)
_______ _______ ________ _____________
Balance, July 01, 2002 970,343 $48,500 $960,900 $ 1,000
Net income - - - -
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 100
Less: reclassification
adjustment for gain
included in net income - - - ( 800)
Change in net unrealized
holding gain - - - -
Comprehensive income - - - -
Exercise of stock options 10,000 500 6,100 -
Income tax benefit of
stock options exercised - - 4,200 -
_______ _______ ________ _____________
Balance, June 30, 2003 980,343 49,000 971,200 300
Net income - - - -
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (4,600)
Less: reclassification
adjustment for loss
included in net income - - - 800
Change in net unrealized
holding gain - - - -
Comprehensive income - - - -
Exercise of stock options 15,000 800 12,200 -
Income tax benefit of
stock options exercised - - 800 -
Cash dividend paid, $.05
per share - - - -
_______ _______ ________ _____________
Balance, June 30, 2004 995,343 $49,800 $984,200 $ (3,500)
======= ======= ======== =============
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
Total
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
________ ______ ______ _____________
Balance, July 1, 2002 $956,300 19,802 $52,400 $ 1,914,300
_____________
Net income 63,800 - - 63,800
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 100
Less: reclassification
adjustment for gain
included in net income - - - ( 800)
_____________
Change in unrealized - - - (700)
holding gain _____________
Comprehensive income - - - 63,100
_____________
Exercise of stock options - - - 6,600
Income tax benefit of stock
options exercised - - - 4,200
__________ ______ _______ ______________
Balance, June 30, 2003 $1,020,100 19,802 $52,400 $ 1,988,200
______________
Net income 248,700 - - 248,700
______________
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (4,600)
Less: reclassification
adjustment for loss
included in net income - - - 800
______________
Change in net unrealized
holding gain - - - (3,600)
______________
Comprehensive income - - - 244,900
______________
Exercise of stock options - - - 13,000
Income tax benefit of
stock options exercised - - - 800
Cash dividend paid, $.05
per share (48,300) - - (48,300)
___________ _______ _______ _______________
Balance, June 30, 2004 $1,220,500 19,802 $52,400 $ 2,198,600
=========== ======= ======= ===============
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See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2004 AND 2003
2004 2003
___________ ___________
Operating activities:
Net income $ 248,700 $ 63,800
Adjustments to reconcile net income to __________ ____________
net cash provided by operating activities:
Loss (gain) on sale of investments 800 (800)
Loss on disposal of property and equipment 4,200 6,400
Depreciation and amortization 68,000 65,400
Provision for bad debts 3,200 -
Deferred income taxes 25,800 (7,000)
Income tax benefit of stock options
exercised 800 4,200
Changes in assets and liabilities:
Trade accounts receivable 17,600 (133,600)
Inventories (84,000) 96,900
Prepaid expenses and other current assets 6,400 (1,400)
Other assets 2,600 19,100
Accounts payable 17,900 (26,300)
Accrued expenses and taxes 33,800 (54,900)
Deferred compensation (7,800) (15,700)
___________ ___________
Total adjustments 89,300 (47,700)
___________ ___________
Net cash provided by operating
activities 338,000 16,100
___________ ___________
Investing activities:
Purchase of investment securities,
available for sale (337,600) (241,500)
Purchase investment securities, held to
maturity - (113,700)
Redemption of investment securities,
available for sale 92,600 80,000
Redemption of investment securities,
held to maturity 130,800 110,600
Capital expenditures (53,400) (63,800)
Proceeds from sale of property and equipment 200 31,000
Purchase of intangible assets (1,500) (14,500)
___________ __________
Net cash used in investing activities (168,900) (211,900)
___________ __________
Financing activities:
Proceeds from exercise of stock options 13,000 6,600
Cash dividend declared and paid (48,300) -
___________ __________
Net cash provided by (used in) financing
activities (35,300) 6,600
___________ __________
Net increase (decrease) in cash and cash
equivalents 133,800 (189,200)
Cash and cash equivalents, beginning of year 107,600 296,800
___________ __________
Cash and cash equivalents, end of year $ 241,400 $ 107,600
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 8,000 $ 29,800
=========== ==========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc. and Scientific Packaging Industries, Inc., its inactive wholly-owned subsidiary (collectively referred to as the "Company"). All material intercompany balances and transactions have been eliminated.
Revenue Recognition
Sales are recorded when the goods are shipped to customers and title passes.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable
In order to record the Company's accounts receivable at their net realizable value, the Company must assess their collectibility. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company's receivables, and the current creditworthiness of the Company's customers. The Company has recorded allowances for receivables which it considered uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company's customers was to deteriorate and their ability to make required payments became impaired, increases in these allowances may be required. The Company actively manages its accounts receivable to minimize credit risk. Historically, credit losses have not been significant. The Company does not obtain collateral for its accounts receivable.
Investment Securities
Securities which the Company has the ability and positive intent to hold to maturity are carried at amortized cost. Substantially all held-to-maturity securities mature within one year. Securities available for sale are carried at fair value with unrealized gains or losses reported in a separate component of shareholders' equity. Realized gains or losses are determined based on the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or market.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation of computer equipment, machinery and equipment and furniture and fixtures is provided for primarily by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized by the straight-line method over the term of the related lease or the estimated useful lives of the assets, whichever is shorter.
Intangible Assets
Intangible assets consist of patents and trademarks being amortized on a straight-line basis over five years. Amortization expense of intangible assets for the years ended June 30, 2004 and 2003 was $4,500 and $6,000. Expense is expected to be approximately $4,000 annually for the next three years.
Asset Impairment
The Company reviews its long-lived assets annually to determine whether facts and circumstances exist which indicate that the carrying amount of assets may not be recoverable or the useful life is shorter than originally estimated. If the facts warrant a review, the Company assesses the recoverability of its assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives. The Company has not recorded any impairment charges.
Income Taxes
The Company accounts for income taxes according to the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. Deferred income taxes result principally from the timing of the deductibility of the rent accrual, inventory adjustments, deferred compensation paid, the use of accelerated methods of depreciation and amortization for tax purposes, and tax credit carryforwards.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to $46,700 and $5,000 for the years ended June 30, 2004 and 2003.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan
During the year ended June 30, 2003, the Company established a new
ten-year stock option plan (the "2002 Plan") which provides for the
future grant of options to purchase up to 100,000 shares of the
Company's Common Stock, par value $.05 per share ("Common
Stock"), plus to the extent that options previously granted under
the 1992 Stock Option Plan of the Company (the "Prior Plan") expire
or terminate for any reason without having been exercised, then options
exercisable for that same number of shares of Common Stock, up to
a maximum of one hundred sixty one thousand (161,000) shares, may be
granted pursuant to the 2002 Plan. The 2002 Plan provides for the
granting of incentive or non-incentive stock options as defined in the
2002 Plan. Incentive stock options may be granted to employees at
an exercise price equal to 100% (or 110% if the optionee owns directly
or indirectly more than 10% of the outstanding voting stock) of the fair
market value of the shares of Common Stock on the date of the grant.
Non-incentive stock options shall be granted at an exercise price
not less than 85% of the fair market value of the shares of Common Stock
on the date of grant. The 2002 Plan also stipulates that none of
Messrs. Joseph I. Kesselman, Arthur M. Borden, Roger B. Knowles,
Lowell A. Kleiman and James S. Segasture shall be eligible to receive
option grants under the 2002 Plan. However the Prior Plan provided that
each non-employee member of the Board of Directors be granted, annually
commencing March 1993, for a period of four years, a ten-year option to
purchase 3,000 shares of Common Stock at the fair market value on the
date of grant and commencing annually in December 1997, for as long as
director, a ten-year option to purchase 4,000 shares of Common Stock at
the fair market value on the date of grant. No options have been
granted to the above directors of the Company since December 2001.
The options expire at various dates through October 2012.
At June 30, 2004, 83,000 shares of Common Stock were available for grant
under the 2002 Plan plus 15,000 shares which expired under the Prior Plan.
The Company has elected to account for its employee stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense is recognized for options granted under fixed plans when the option price is not less than the fair market value of the underlying common stock on the date of grant. Pro forma information regarding net income and earnings per share, however, is required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123) for entities continuing to apply APB No. 25. For disclosure purposes, the Company has estimated the fair value of its employee stock options on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for stock options granted in 2004 and 2003, respectively:
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
2004 2003
________ _________
Expected life (in years) 10 10
Risk-free interest rate 4.72% 4.39%
Expected volatility 38.36% 35.74%
Dividend yield 2.31% 0.00%
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Under the above model, the total value of stock options granted in 2004 and 2003 was $5,300 and $4,800 respectively, which would be amortized ratably on a pro forma basis over the related vesting periods. Had compensation cost been determined based upon the fair value of the stock options at grant date for all awards, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
2004 2003
________ _________
Net income:
As reported $248,700 $63,800
Pro forma 244,400 63,000
Basic earnings per share:
As reported $ .26 $ .07
Pro forma $ .25 $ .07
Diluted earnings per share:
As reported $ .24 $ .06
Pro forma $ .24 $ .06
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Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported $ - $ -
The SFAS No. 123 method of accounting does not apply to options granted prior to January 1, 1995 and, accordingly, the resulting pro forma compensation cost may not be representative of that to be expected in future years.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management's most difficult and subjective judgments include the valuation of inventory and the recognition and measurement of income tax assets and liabilities. The actual results experienced by the Company may differ materially from management's estimates.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the weighted-average number of shares outstanding. Diluted earnings per share includes the dilutive effect of stock options and warrants.
Recent Accounting Pronouncements
Recent accounting pronouncements not reflected herein do not have a material effect on the Company's financial statements.
2. Line of Business and Concentrations
The Company is engaged in the manufacturing and marketing of equipment for research in university, hospital and industrial laboratories. The Company believes that it has only one reportable segment. Approximately 83% in 2004 and 87% in 2003 of sales are generated from the Vortex-Genie(R) 2 mixer and related accessories.
Certain information relating to the Company's export sales and principal customers is as follows:
2004 2003
________ _________
Export sales (principally Europe
and Asia) $1,502,100 $1,583,700
Customers in excess of 10% of net
sales:
Largest in 2004 and 2003 878,000 867,000
Second largest in 2004 and 2003 614,600 488,600
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Accounts receivable from these customers amounted to approximately 34% and 39% of total accounts receivable at June 30, 2004 and 2003.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
3. Investment Securities
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding Gain
Cost Value (Loss)
_____________ ________ _____________
At June 30, 2004:
Available for sale:
Equity securities $ 8,300 $ 8,100 ($ 200)
Mutual funds 591,800 588,500 ( 3,300)
Callable bonds 150,000 150,000 -
_________ _________ ________
$750,100 $746,600 ($3,500)
========= ========= ========
Held-to-maturity:
State and municipal bonds,
due in one year or less $ 55,900 $ 55,800 ($ 100)
========= ========= ========
Gross Cost or Unrealized
Amortized Fair Holding
Cost Value Gain (Loss)
_____________ _________ _____________
At June 30, 2003:
Available for sale:
Equity securities $ 20,700 $ 18,800 ($1,900)
Mutual funds 511,000 513,200 2,200
_________ _________ ________
$531,700 $532,000 $ 300
========= ========= ========
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
4. Inventories
2004 2003
________ _________
Raw materials $ 611,000 $ 532,100
Work-in-process 7,400 4,700
Finished goods 47,800 45,400
_________ _________
$ 666,200 $ 582,200
========= =========
5. Property and Equipment
Useful Lives
(Years) 2004 2003
____________ ________ _________
Computer equipment 3-5 $119,800 $167,000
Machinery and equipment 3-7 294,100 272,200
Furniture and fixtures 4-10 77,800 70,800
Leasehold improvements 1-8 35,200 35,200
________ _________
526,900 545,200
Less accumulated depreciation
and amortization 386,400 392,700
________ _________
$140,500 $152,500
======== =========
6. Bank Line of Credit
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The Company has a $200,000 secured bank line of credit collateralized by all the assets of the Company. The credit line expires on November 1, 2004 and bears interest at prime. The Company did not utilize this credit line during the years ended June 30, 2004 and 2003. To support the line of credit available, the Company is required to maintain 20% of the credit line in average monthly balances.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
7. Employee Benefit Plan
The Company has a 401(k) profit sharing plan for all eligible employees as defined in the Plan. The Plan provides for voluntary employee salary contributions from 1% to 15% not to exceed the statutory limitation provided by the Internal Revenue Code. The Company shall match 50% of each participant's salary deferral election, up to a maximum amount for each participant of 2% of their compensation. Employer matching contributions to the Plan amounted to $12,400 in 2004 and $10,600 in 2003. The Company also has the option to make an additional profit sharing contribution to the Plan. There was no profit sharing contribution in either year.
8. Commitments and Contingencies
Lease
The Company is obligated through December 2004 under a noncancelable operating lease for its premises, which required current minimum annual rental payments of approximately $244,000 and certain other expenses, including real estate taxes and insurance. On September 1, 2004, the lease was extended to January 31, 2010.
The Company's approximate future minimum rental payments under the above lease as extended are as follows:
2005 $ 193,300
2006 172,100
2007 179,000
2008 186,100
2009 193,600
Thereafter 115,800
__________
$1,039,900
==========
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In accordance with generally accepted accounting principles, the future minimum annual rental expense, computed on a level basis, will be approximately $182,800 under the terms of the extended lease. Rental expense amounted to approximately $242,300 in 2004 and $237,400 in 2003. Accrued rent, payable in future years, amounted to $11,300 and $28,000 at June 30, 2004 and 2003.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
8. Commitments and Contingencies (Continued)
Employment Contracts
The Company had an employment contract (which expired June 30, 2002) with its former President. On August 29, 2002, the Company decided to terminate his employment. The contract provided for an annual salary of $160,000 and also granted the President a five-year option to purchase 10,000 shares of common stock at $1.50 per share which expired unexercised.
Pursuant to the employment contract, the former President chose that a portion of compensation earned in prior years be deferred to future years. The deferred amounts were placed in a separate investment account and all earnings and losses thereon are for his benefit. As of June 30, 2004 and 2003, $54,000 and $58,400 was segregated into such an account and is included as an asset. The balance due to him is payable out of (but not secured by) the account, in five equal annual installments as adjusted by market fluctuations commencing after the termination of employment. Accordingly, $18,000 has been classified as a short-term asset and liability and $36,000 as a long-term asset and liability at June 30, 2004. For the year ended June 30, 2004 and 2003, $17,400 and $12,700, respectively, were paid to the former President.
During the year ended June 30, 2003, the Company entered into employment agreements with both its current President and Executive Vice President for two-year periods expiring December 31, 2004. The agreements with its President and Vice President provide for a base salary for the first year of $100,000 and $95,000, respectively, with the salary for calendar 2004 to be determined by the Board of Directors, but to be not less than the base salary. The agreements also provide for discretionary performance-related annual bonuses. On September 1, 2004, these contracts were extended for two additional years with salaries of $110,000 and $105,000, respectively.
Other
A financial advisor employed by the Company pursuant to an engagement letter that was not extended by the Company beyond its expiration date of March 31, 2002 asserted a claim against the Company in April 2002 in the amount of $125,000 for alleged services rendered to the Company that were alleged to be outside the scope of the letter. The Company denies engaging the financial advisor for any services outside the scope of the engagement letter or that any amounts are owing to the advisor. The Company's counsel has advised the Company that based on its review of the engagement letter and the Company's denial, it is unlikely that the financial advisor will prevail if it institutes a legal proceeding. Accordingly, no provision for loss has been recorded by the Company at June 30, 2004.
During the year ended June 30, 2003, the Company entered into a two-year consulting agreement through December 31, 2004 with a member of its Board of Directors for marketing consulting services. The agreement provides that the director will be paid a monthly fee of $3,000 for a certain number of consulting days as defined in the agreement.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
9. Income Taxes
Income taxes (benefit) for 2004 and 2003 were different from the amounts computed by applying the Federal income tax rate to the income before income taxes due to the following:
2004 2003
_________________ ________________
%of %of
Pre-tax Pre-tax
Amount Income Amount Income
________ _______ ________ _______
Computed "expected" income tax $110,700 34.0% $ 17,800 34.0%
Research and development credits (31,700) (9.7) (18,600) (36.0)
Other (2,000) (0.6) (10,700) (20.0)
________ _______ ________ _______
Actual income taxes (benefit) $ 77,000 23.7% $(11,500) (22.0)%
======== ======= ======== =======
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Deferred tax assets and liabilities consist of the following:
2004 2003
________ _________
Deferred tax assets:
Amortization of intangibles $ 9,700 $ 7,900
Deferred compensation 18,400 17,500
Rent accrual 3,800 8,400
Tax credit carry forwards 59,500 77,500
Other 17,300 15,700
________ _________
108,700 127,000
Deferred tax liability:
Depreciation of property
and equipment (20,900) (13,400)
________ _________
Net deferred tax assets $ 87,800 $ 113,600
======== =========
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At June 30, 2004, the Company had tax credit carry forwards of approximately $59,500 expiring in 2021 through 2024.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
10. Stock Options and Warrant
Option activity is summarized as follows:
Fiscal 2004 Fiscal 2003 Weighted- Weighted- Average Average Exercise Exercise |
of year 147,000 $1.47 165,000 $1.39
Granted 10,000 $1.28 7,000 $1.25
Exercised ( 15,000) .86 ( 10,000) .66
Forfeited - - ( 15,000) 1.06
_________ _________
Outstanding at end of year 142,000 $1.52 147,000 $1.47
========= ===== ========= =====
Options exercisable at
year-end 132,333 $1.54 140,000 $1.48
========= ===== ========= =====
Weighted average fair
value per share of options
granted during fiscal
2004 and 2003 $ .53 $ .69
===== =====
Options Outstanding Options Exercisable
__________________________________ _______________________
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.20 - $2.40 113,000 4.78 $1.70 103,333 $1.74
$.50 - $.94 29,000 5.14 .84 29,000 .84
_______ _______
142,000 132,333
======= =======
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
10. Stock Options and Warrant (Continued)
During the year ended June 30, 2004 two directors and an officer exercised options under the Prior Plan to acquire a total of 15,000 shares at $.81 to $.94 per share. During the year ended June 30, 2003 three directors, and an officer exercised options under the Prior Plan to acquire a total of 10,000 shares at $.50 to $.94 per share.
The Company had previously granted in February 1992, to four non-employee members of the board of directors, ten-year options for each to purchase 12,000 shares of Common Stock, at an exercise price of $.35, not covered under either Plan. All these options have been exercised by the directors.
The Company has a stock purchase warrant outstanding covering 17,390 shares of the Company's common stock issued during 2001 for services. The warrant which was immediately exercisable has an exercise price of $1.4375 per share and expires on February 5, 2006. During the years ended June 30, 2004 and 2003, none of the warrants were exercised.
11. Earnings Per Common Share
Earnings per common share data was computed as follows:
2004 2003
________ _________
Net income $ 248,700 $ 63,800
========= =========
Weighted average common shares
outstanding 965,230 955,766
Effect of dilutive securities,
stock options and warrant 53,580 38,343
_________ _________
Weighted average dilutive common
shares outstanding 1,018,810 994,109
========= =========
Basic earnings per common share $ .26 $ .07
========= =========
Diluted earnings per common share $ .24 $ .06
========= =========
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2004 AND 2003
11. Earnings Per Common Share (Continued)
Unexercised employee stock options to purchase 56,000 shares of common stock at $1.875 to $2.40 per share were outstanding as of June 30, 2003, but were not included in the foregoing potential computation because the options' exercise price was greater than the average market price of the Company's common stock. As of June 30, 2004, all outstanding options and the warrant were included in the computation.
12. Fair Value of Financial Instruments
The financial statements include various estimated fair value information as of June 30, 2004 and 2003, as required by Statement of Financial Accounting Standards 107, "Disclosure about Fair Value of Financial Instruments." Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that statement and does not purport to represent the aggregate net fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
The carrying value of cash and cash equivalents and investment securities approximates fair market value because of the short maturity of those instruments.
The following table provides summary information on the fair value of significant financial instruments included in the financial statements:
2004 2003
___________________ ___________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
________ _________ ________ _________
Assets:
Cash and cash equivalents $241,400 $241,400 $107,600 $107,600
Investment securities
(Note 3) $802,500 $802,400 $695,400 $695,600
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Exhibit 10(a)
AGREEMENT OF LEASE
AGREEMENT OF LEASE made as of October , 1989, between AIP ASSOCIATES, a partnership having its principal office at 225 Broadhollow Road, Suite 212 West, CS 5341, Melville, New York 11747-0983 (hereinafter referred to as "Landlord") and SCIENTIFIC INDUSTRIES, INC., a corporation, having its principal office at 70 Orville Drive, Bohemia, NY 11716 (hereinafter referred to as "Tenant").
RECITAL
Landlord has agreed to demise and lease unto Tenant and Tenant has agreed to hire and take from Landlord the premises described, outlined in red on Exhibit A annexed hereto and made a part hereof (the "Premises"), which Premises are located in the building and improvements known as 70 Orville Drive, Bohemia, NY (the "Building"), together with the right to use, in common with others, the parking area serving the Building as shown on said Exhibit A. The legal description of the land comprising the Building and said parking area is attached hereto as Exhibit A-1. Now, therefore, in consideration of the terms, conditions and covenants of this Lease, it is hereby agreed as follows:
TERM
1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, the Premises for a term of ten (10) years (or until such term shall sooner cease and expire as hereinafter provided) to commence January 1, 1990 and to terminate on December 31, 1999.
TITLE
2. The Premises are let subject to covenants, restrictions and easements of record, governmental laws, rules, regulations and order, and the reservation by Landlord of all air rights above, around and about the Premises and all rights to increase the size of the Building or the sizes of surrounding buildings based on the air rights appurtenant to the Premises, as, if and when permitted by any present or future zoning laws, ordinances, orders or regulations.
RENT
3. (a) Tenant covenants to pay to Landlord at its principal office, or at such place as Landlord shall from time to time direct in writing, the minimum annual rent set forth below, and the additional rent required to be paid pursuant to the terms of this Lease. Minimum annual rent and such other additional rent and charges which Tenant shall be required to pay are hereinafter sometimes referred to as "Rent". Minimum annual rent shall be as follows:
During the first year of the term of this lease the basic annual rent shall be $144,354.21, payable $22,208.34 for the first month and $11,104.14 for each of the second through twelfth months.
During the second year the basic annual rental shall be $138,999.96, payable $11,583.33 in equal monthly installments.
During the third year the basic annual rental shall be $144,750.00, payable $12,062.50 in equal monthly installments.
During the fourth year the basic annual rental shall be $151,250.04, payable $12,604.17 in equal monthly installments.
During the fifth year the basic annual rental shall be $157,749.96, payable $13,145.83 in equal monthly installments.
During the sixth year the basic annual rental shall be $165,000.00, payable $13,750.00 in equal monthly installments.
During the seventh year the basic annual rental shall be $172,500.00 payable $14,375.00 in equal monthly installments.
During the eighth year the basic annual rental shall be $180,500.04, payable $15,041.67 in equal monthly installments.
During the ninth year the basic annual rental shall be $189,000.00, payable $15,750.00 in equal monthly installments.
During the tenth year the basic annual rental shall be $175,591.66, payable $16,500.00 first through eleventh months and $5,395.83 for the twelfth month.
(b) Tenant shall pay the minimum annual rent in equal monthly installments in advance on the first day of each calendar month included in the term except for the first month's rent which shall be paid one-half (1/2) on the signing of this Lease and one-half (1/2) on January 1, 1990.
(c) All Rent shall be paid in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, at the address of Landlord set forth in this Lease or at such other place as Landlord in writing may designate without (except as may be otherwise herein expressly provided) any set-off or deduction whatsoever and without any prior demand therefore.
(d) Unless another time shall be herein expressly provided, any additional rent shall be due and payable on demand or together with the next succeeding installment of minimum annual rent, whichever shall first occur; and Landlord shall have the same remedies for failure to pay the additional rent as for a non-payment of minimum annual rent.
(e) For any portion of a calendar month included at the beginning or end of the term, Tenant shall pay 1/30th of each monthly installment of Rent for each day of such portion, payable in advance at the beginning of such portion.
(f) From and after fifteen (15) days after the due date of any payment of Rent, interest shall accrue thereon at the rate of 1.0% per month.
(g) If Tenant shall default in making any payment required to be made by Tenant or in performing any obligation of Tenant under this Lease which shall require the expenditure of money, Landlord may, but shall not be obligated to make such payment on behalf of Tenant or expend such sum as may be necessary to perform or fulfill such obligation. Any sums so paid by Landlord shall be deemed Rent and shall be due and payable to Landlord at the time of payment of the next installment of minimum annual rent.
USE OF PREMISES
4. Tenant shall use and occupy the Premises solely for: light
manufacturing, assembly, warehousing and distribution of electronic
parts and components, sterilizers and mechanical apparatus, and
executive and general offices in connection therewith, and for no
other purpose. Tenant shall not use or permit the use of the
Premises contrary to any applicable statute, ordinance or regulation
or in violation of the Certificate of Occupancy, or in a manner
which would cause structural injury to the Building. Tenant may
change the use of the Premises to any other lawful use, provided the
same does not downgrade the character or reputation of the
industrial park in which the Building is located, to wit, Airport
International Plaza, and is in keeping with the other tenants
thereof. If, in Landlord's opinion, the changed use does downgrade
the character or reputation of Airport International Plaza or is not
in keeping with the business of the other tenants thereof, then the
dispute shall be submitted to arbitration pursuant to Article 16
(g). In no event, however, shall any loading be permitted by, in,
or through the front of the building.
5. If, in any year, during the term of this lease or any renewal, extension or modification thereof, real estate taxes (as hereinafter defined) shall be increased over and above Landlord's basic tax liability (as hereinafter defined) Tenant covenants and agrees to pay that proportion of increase as determined by the formula (as hereinafter defined) as additional rental, on the rent installment date immediately following receipt of "Landlord's Statement" (as hereinafter defined). Any increases in taxes due to Tenant's improvements performed by Tenant are to be paid in full solely by Tenant. (A) The term "real estate taxes" shall be deemed to mean all taxes and assessments, special or otherwise, assessed upon or with respect to the ownership of and/or all other taxable interests in the land and improvements thereon of which the demised premises are part, imposed by Federal, State or local governmental authority or any other taxing authority having jurisdiction over Landlord's tax lot or lots, but shall not include income, intangible, franchise, capital stocks, estate or inheritance taxes, or taxes based upon the receipt of rentals (unless the same shall be in lieu of "real estate taxes" as herein defined by whatever name the tax may be designated.)
(B) "Landlord's basic tax liability" shall be a sum equal to the lesser of the amount of taxes as assessed or the said taxes as reduced by appropriate proceedings, against the land, buildings and improvements of which the premises are part in the tax year 1989/1990, excluding, however, taxes for special assessments for local improvements not located on property owned by Landlord.
(C) "Formula"
Tenant's total
Square footage x increase = Tenant's share
Total square footage of increase
of building (60.54%)
(D) "Landlord's Statement" shall be that written statement which Landlord may at any time deliver to Tenant containing a computation of the increase above Landlord's basic tax liability and the amount of Tenant's proportionate share thereof.
The failure of Landlord to deliver a Landlord's Statement as provided above, shall not prejudice nor waive the right of Landlord to deliver such statement for any subsequent tax year nor from including in said statement, as additional rental, Tenant's proportionate share of any increase for any year in which no Landlord's Statement was delivered to Tenant, but for which Tenant was otherwise obligated to pay such additional rental. In the event that Landlord's basic tax liability is reduced as a result of any appropriate proceeding, Landlord shall have the right to adjust the amount of additional rent due from Tenant for any year in which Tenant is or was obligated to pay additional rental hereunder and Tenant agrees to pay the amount of said adjustment on the next rent installment day immediately following receipt of a written statement from Landlord setting forth the amount of said adjustment.
With respect to any period at the expiration of the term of this lease, which shall constitute a partial tax year, Landlord's Statement shall apportion the amount of the additional rental due hereunder. The obligation of the Tenant in respect of such additional rental applicable for the last year of the term of this lease or part thereof shall survive the expiration of the term of this lease.
LANDLORD'S WORK
6. (a) Tenant represents it has inspected the Premises and agrees to occupy the same in its "as is" condition, except that Landlord shall perform the following work ("Landlord's Work") prior to the commencement to the term:
1. change heating system serving the Premises from oil heat to gas heat;
2. repair the air-conditioning and heating system serving the office area of the Premises;
3. repair the roof, if and where needed;
4. repair and stripe the parking area serving Building
(b) As used herein the term "substantially
completed" shall mean the date when the Premises are suitable
for occupancy by Tenant in accordance with the plans and
specifications with the exception of punch list items and
insubstantial details of construction, mechanical adjustment or
decoration the non completion of which does not materially
interfere with Tenant's use of the Premises; but if Landlord
shall be delayed in such "substantial completion" as a result of
(i) Tenant's failure to furnish plans and specifications; (ii)
Tenant's request for materials, finishes or installations other
than Landlord's standard; (iii) Tenant's changes in said plans;
(iv) the performance or completion of any work, labor or
services by a party employed by Tenant; or (v) Tenant's failure
to approve final plans, working drawings or reflective ceiling
plans, the commencement of the term of said lease and the
payment of rent there under shall be accelerated by the number
of days of such delay. The terms "term" and "term of this
Lease" or words of similar import shall be deemed to mean the
entire period demised hereby including all renewals or extensions.
MISCELLANEOUS
7. (A) Before performing any covenant or incurring any expense on Tenant's behalf, for which Landlord will seek reimbursement from Tenant, Landlord will give Tenant prior notice thereof with reasonable opportunity for Tenant to perform same.
(B) Wherever in this Lease the consent or approval of Landlord is a condition precedent for the taking of any action by Tenant, Landlord agrees not to unreasonably withhold or delay its consent or approval.
(C) If Landlord shall default on any mortgage or other lien or encumbrance affecting the Premises to which this lease is subject and subordinate, Tenant shall have the right to cure such default on behalf of, and at the expense of, Landlord, together with interest thereon at the then highest legal rate, and said sum may be deducted by Tenant from rent payments next falling due hereunder.
(D) Whenever this lease provides that Landlord may do or take any action that Landlord in its reasonable discretion deems appropriate and/or necessary (or words of like import), if Landlord shall do or take any action pursuant thereto and Tenant should notify Landlord that it finds such action to be unreasonable, arbitrary or capricious, then if the parties are unable to amicably resolve the dispute it shall be submitted to arbitration pursuant to Article 16 (g).
REPAIRS, MAINTENANCE, FLOOR LOADS AND RESTRICTIONS
8. (a) During the term of this Lease Landlord shall make all structural and exterior repairs, including, without limitation, repairs to the roof, exterior walls and foundation of the Premises, except structural and exterior repairs required as a result of the acts or negligence of Tenant, its agents, officers, employees, patrons or licensees. Tenant shall at all times keep and maintain the Premises in good order condition and repair, shall make all other repairs required to the Premises not required to be made by Landlord, including without limiting the generality of the foregoing, (i) maintenance and repair of the electrical, heating, plumbing, sprinkler and air-conditioning facilities in the Premises; (ii) generally keeping and maintaining interior of the Premises in good repair and condition; and (iii) keeping the Premises clean and free of debris; and (iv) repair and maintenance of all plate glass. If Tenant fails to make any repairs or replacements required to be made by Tenant, Landlord may perform same for the account of Tenant at Tenant's expense and the cost thereof shall be due and payable by Tenant to Landlord as Rent.
(b) Landlord shall maintain the exterior, the parking lot, sidewalk, driveways and landscaping on, about or serving the Premises in good order and repair, including snow removal and sweeping. Tenant shall, as Tenant's contribution with respect to such maintenance, pay to Landlord as additional rent, within thirty (30) days after billing thereof by Landlord, which billing shall not be more often than every three months, Tenant's pro rata share (as such term is defined in Article 36) of the actual cost of such maintenance. Landlord's bills shall be accompanied by a statement showing in reasonable detail Landlord's actual costs of the period in question. Tenant's failure to object to any such statement within thirty (30) days after service thereof shall be deemed an acceptance by Tenant of the accuracy thereof. As used herein, the term "actual costs" shall be deemed to include, landscaping, planting, replanting and replacement of flowers, shrubbery and grass, public liability, workmen's compensation insurance with respect to the work to be performed by Landlord, striping, lighting, if lights are now or at any time hereafter placed within said parking areas (including cost of electricity and maintenance and replacement of fixtures and bulbs), repair of paving, curbs and walkways, repair and cleaning of drainage to implement all of the foregoing (including workmen's compensations insurance covering such personnel,) other similar direct costs of the type incurred in the operation of comparable properties plus 15% of all of the foregoing costs to cover Landlord's administrative and overhead costs.
(c) Landlord shall not be required to commence any repairs required to be performed by it until after notice from Tenant that same are necessary, which notice, except in the case of an emergency, shall be in writing and shall permit Landlord ten (10) days in which to commence such repair. When necessary by reason of accident or other casualty occurring in the Building or at the Premises or elsewhere on Landlord's surrounding property, or in order to make any necessary repairs, alterations, or improvements in or relating to the Building or the Premises or other portions of Landlord's property, Landlord reserves the right to interrupt, temporarily, and on prior written notice to Tenant, shall have been completed. There shall be no abatement in rent because of any such interruption if Landlord shall pursue such work with reasonable diligence and dispatch.
(d) Tenant shall not place a load upon any floor of the Premises which exceeds the floor load per square foot area which such floor was designed to carry. If Tenant shall desire a floor load in excess of that for which the floor of any portion of the Premises is designed, upon submission to Landlord of plans showing the location of and the desired floor live load for the area in question, Landlord may strengthen and reinforce the same, at Tenant's sole expense, so as to carry the live load desired. Business machines and mechanical equipment used by Tenant which cause vibration or noise that may be transmitted to the Building or to any occupiable space to such a degree as to be reasonably objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at its expense, in settings of cork, rubber or spring-type vibration eliminators sufficient to eliminate such vibration or noise.
(e) Tenant shall comply with the following restrictions with respect to the Premises:
(i) Tenant shall store all trash and refuse in appropriate sealed and covered containers either within the Premises or in a concealed location at the rear of the Building and shall attend to the regular disposal and removal thereof.
(ii) Tenant shall receive all deliveries, load and unload goods, merchandise, supplies, fixtures, equipment, furniture and rubbish only through proper service doors and loading docks serving the Building, but in no event through the main front entrance thereof.
(iii) Tenant shall not change the exterior colors or
architectural treatment of the Premises or make any alterations
or changes to the exterior of the Building or to the grading,
planting or landscaping of the exterior of the Building.
(iv) Tenant shall not place or install or suffer to
be placed or installed any sign upon the Building or the
Premises unless such sign shall be approved by Landlord and
shall be harmonious with the signs of adjoining properties. In
any event, Tenant shall not place or cause to be placed upon the
Building any awning, canopy, banner, flag, pennant, aerial,
antenna or the like. All signs or lettering on or about the
Premises or the Building shall be neat and of reasonable size.
The following are strictly prohibited.
(x) Paper signs and stickers;
(y) Moving, flickering or flashing lights;
(z) Exposed neon or fluorescent tubes
or other exposed light sources.
(v) Tenant shall not permit the parking of any vehicle on the streets and roadways adjoining or surrounding the Building and Tenant shall require its employees, customers, invitees, licensees and visitors to park only in the parking areas serving the Premises. Tenant shall at all times be permitted its pro rata share of parking spaces in the parking lot of the Building, however, Landlord may, at any time, designate, at landlord's discretion, the exact location and identify Tenant's pro rata share of parking spaces and thereafter Tenant shall cause its employees, customers, invitees, licensees and visitors to park only in the designated parking spaces. Tenant agrees that after Tenant shall have received a prior written warning, any violators of this parking restriction may be towed away be Landlord at Tenant's sole cost and expense and Tenant shall indemnify, defend and hold Landlord harmless against any claims or liabilities (including Landlord's attorneys' fees) arising by reason of such towing by Landlord. Tenant shall have the use of fifty-five (55) parking spaces in the parking area servicing the Building, as shown on Exhibit A and upon Tenant's request Landlord will set aside a specific area (or areas) for Tenant's reserved parking and exclusive use.
(v) Tenant shall not manufacture or store any item which, in the reasonable opinion of Landlord, causes offensive odors, irritations, or any discomfort to occupants of the Building of which the Demised Premises form a part.
TENANT'S ALTERATIONS
9. (a) Tenant shall not make (i) any
structural alterations in or to the Premises or the
Building without Landlord's prior written consent, or
(ii) make any additions to the Building.
(b) Tenant may, without Landlord's consent, make non-structural alterations or improvements to the Premises, the cost of which does not exceed $5,000.00. No other alterations, improvements or changes shall be made without landlord's consent, which consent shall not be unreasonably withheld. All buildings, improvements, alterations and replacements, and all building service equipment made or installed by or on behalf of Tenant shall immediately upon completion or installation thereof be and become the property of Landlord. All trade fixtures, moveable partitions, furniture and furnishings installed at the expense of Tenant shall remain the property of Tenant and Tenant may remove the same or any part thereof during the term of this Lease, or if such termination, then within a reasonable time thereafter, but Tenant shall at its expense, repair, any and all damage to the Premises resulting from or caused by such removal. Title to any property which Tenant elects not to remove or which is abandoned by Tenant shall, at the end of the term vest in Landlord. Tenant shall not make any non-structural alterations or improvements, the cost of which exceeds $5,000.00 until it shall have first submitted to Landlord plans and specifications for such work and Landlord shall have approved same. All such work to be performed by Tenant shall be in accordance with the approved plans and specifications and Landlord shall have the right at any time during the pendency of such work to inspect the Premises and the manner of construction. In the event of any such repairs, alterations or improvements, Landlord shall have the option to require Tenant to deliver to Landlord at Tenant's cost and expense a bond satisfactory to landlord in the sum equal to the cost of the State of New York, which bond shall guaranty completion of the repairs, alterations and improvements and payment of the cost of the work. Any mechanics liens filed at any time against the Premises, for work claimed to have been performed or for materials claimed to have been furnished to Tenant or Tenant's contractors or subcontractors, shall be discharged by Tenant within twenty days after filing by bonding, payment or otherwise.
10. (a) Tenant shall pay for all fuel, heat, water, electricity and other utilities consumed or used by Tenant on the premises, as recorded on separate meters installed by Landlord at Landlord's expense, except for water which Landlord shall install a check meter. Tenant shall also pay for its pro rata share of the sprinkler fire line charges, imposed by Suffolk County Water Authority, on the Building.
(b) Tenant shall be responsible for all deposits with companies for service. Tenant shall comply with all requirements of the utility supplying said service. Landlord shall have no responsibility for the installation of telephone service.
REQUIREMENTS OF LAW, SPRINLERS
11. (a) Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements (including those which require structural alterations) of the Federal, State, County and Local Government and of any and all their Departments and Bureaus applicable to the Premises, for the correction, in, upon, or connected with the Premises during the term, provided the same arises out of Tenant's use and occupancy of the Premises; and shall also promptly comply with and execute all rules, orders and regulations of the New York Board of Fire Underwriters for the prevention of fires at the Tenant's own cost and expense. In the event Tenant is required by the provisions of this paragraph to make a structural alteration, then, prior to the commencement of such alteration, Tenant shall secure the payment of the costs of such alteration with a surety bond or other means satisfactory to Landlord. Notwithstanding the foregoing, Tenant shall not be obligated to make any structural alteration unless required because of Tenant's act or neglect.
(b) Tenant shall keep and maintain any sprinkler system no or hereafter installed in the Premises in good repair and working condition, and if the New York Board of Fire Underwriters of the New York Fire Insurance Exchange or any Bureau, Department or official of any Federal, State or local governmental or quasi-governmental authority shall require or recommend any changes, modifications or alterations, including, without limitation, additional sprinkler heads or other equipment, to be made or supplied by reason of Tenant's business or the location of partitions, trade fixtures, or other contents of the Premises, or if such changes, modifications, alterations, additional sprinkler heads or other equipment in the Premises are necessary by reason of any act of Tenant to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate as fixed by said Exchange, or by any Fire Insurance Company with respect to the Building, the Premises or any adjoining or nearby buildings or improvements, Tenant shall at Tenant's sole cost and expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. Tenant shall throughout the term maintain for the benefit of the Landlord and Tenant, with a responsible company doing business in Suffolk County, a contract for Sprinkler Supervisory Service and furnish Landlord with copies thereof and all renewals, together with evidence of payment.
(c) If by reason of Tenant's use and occupancy or abandonment of the Premises, or if by reason of the improper or careless conduct of any business upon or use of the Premises, the fire insurance rates for the Building, or any other tenants or occupants of the Building of any adjoining or nearby buildings or improvements or any tenants or occupants thereof (including contents and equipment coverage) shall at any time be higher than it otherwise would be, Tenant shall reimburse Landlord as additional rent hereunder, for that part of all fire insurance premiums charged to such other owners, tenants or occupants because of the conduct of such business not so permitted, or because of the improper or careless conduct of any business upon or use of the Premises, and shall make such reimbursement upon the first day of the month following billing thereof by Landlord; but this covenant shall not apply to a premium for any period beyond the expiration date of this Lease, first above specified. In any action or proceeding based upon or arising out of this provision, a schedule or "make up" of rate for the Building or any other affected insurance coverage purporting to have been issued by New York Fire Insurance Exchange, or other body making fire insurance rate, shall be prima facie evidence of the facts therein stated.
(d) Tenant shall keep or cause the
Premises to be kept free of Hazardous Materials.
Without limiting the foregoing, Tenant shall not cause
or permit the Premises to be used to generate,
manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process Hazardous
Materials, except in compliance with all applicable
Federal, state and local laws or regulations, nor
shall Tenant cause or permit, as a result of any
intentional or unintentional act or omission on the
part of Tenant or any subtenant, a release of
Hazardous Materials onto the Premises or onto any
other property. Tenant shall comply with and ensure
compliance by all subtenants with all applicable
Federal, state and local laws, ordinances, rules and
regulations, whenever and by whomever triggered, and
shall obtain and comply with, and ensure that all
subtenants obtain and comply with, any and all
approvals, registrations or permits required
thereunder. Tenant shall (a) conduct and complete all
investigations, studies, samplings, and testing, and
all remedial removal, and other actions necessary to
clean up and remove all Hazardous Materials, on, from,
or affecting the Premises, which have resulted from
acts or omissions of Tenant (i) in accordance with all
applicable Federal, state and local laws, ordinances,
rules, regulations, and policies, (ii) to the
satisfaction of Landlord, and (iii) in accordance with
the orders and directives of all Federal, state, and
local governmental authorities, and (b) defend,
indemnify, and hold harmless Landlord, its employees,
agents, officers, and directors, from and against any
claims, demands, penalties, fines, liabilities,
settlements, damages, costs, or expenses of whatever
kind of nature, known or unknown, contingent or
otherwise, arising out of, or in any way related to,
(i) the presence, disposal, release, or threatened
release of any hazardous Materials which are on, from,
or affecting the soil, water, vegetation, buildings,
personal property, persons, animals, or otherwise;
(ii) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or
related to such Hazardous Materials; (iii) any
lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Materials,
and/or (iv) any violation of laws, orders, regulation,
requirements, or demands of government authorities, or
any policies or requirement of a landlord which are
based upon or in any way related to such Hazardous
Materials, including, without limitation, attorney and
consultant fees, investigation an laboratory fees,
court costs, and litigation expenses, which have
resulted from acts or omissions of Tenant. In the
event this Lease is terminated, or Tenant is
dispossessed, Tenant shall deliver the Premises to
Landlord free of any and all Hazardous Materials,
which have resulted from acts or omissions of Tenant,
so that the conditions of the Premises shall conform
with all applicable Federal, state and local laws,
ordinances, rules or regulations affecting the
Premises. For purposes of this paragraph, "Hazardous
Materials" includes, without limit, any flammable
explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic
substances, or related materials defined in the
Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections
1801 et seq.), the Resource Conservations and Recovery
Act, as amended (42 U.S.C. Sections 9601, et seq.),
and in the regulations adopted and publications
promulgated pursuant thereto, or any other Federal,
state or local environmental law, ordinance, rule or
regulation.
INSURANCE
12. (a) Tenant shall, during the term of this Lease, maintain insurance against steam boiler and machinery insurance written on a broad form basis to the limit of $300,000.00, if there is a boiler or pressure object or other similar equipment in the Premises, all with waiver of right in all such insurance policies to recover by way of subrogation against Landlord, or Tenant, with insurance companies of recognized responsibility authorized and licensed to issue such policies in the State of New York reasonable acceptable to Landlord, and to maintain such insurance at all times during the term of this Lease. Such policies shall be obtained by Tenant and the policies referred to above shall be issued in the name of Landlord and, at the direction of Landlord, loss to be payable to Landlord and mortgagee as their interests shall appear. The policies referred to shall remain at all times in the possession of Land lord or Landlord's mortgages. Tenant shall pay the premiums on said policies and furnish proof of payment to Landlord as they accrue, and if not so paid, Landlord may, at its option, pay such premiums. All premiums, whether or not paid by Landlord shall be deemed additional rent and due and payable on the next rent day or any subsequent rent day and payments of such premiums by Landlord shall not be deemed a waiver of the default in payment by Tenant. In lieu of delivering insurance policies, Tenant may furnish a Certificate of Insurance under a blanket insurance policy covering other premises of Tenant, provided that an endorsement is contained thereon naming Landlord as the insured and owner of the Premises and fixing a separate value for the coverage allocable to the Premises. Tenant shall not be required to carry any insurance for or in respect of any portion of the Building not occupied by Tenant.
(b) Tenant shall, during the term of this Lease, at Tenant's sole cost and expense, provide and keep in force for the benefit of Landlord and Tenant as their interests may appear, public liability insurance policy or policies of standard form in the State of New York, with limits of One Million ($1,000,000.00)/Three Million ($3,000,000.00) Dollars bodily injury including death, and Two Hundred Fifty Thousand ($250,000.00) Dollar limits for property damage, such policy or (policies to cover the Premises, inclusive of sidewalks and parking facilities. The policies shall be obtained by Tenant and certificates thereof delivered to Landlord upon the commencement of the term thereof, with evidence of payment of the premiums thereon and shall be taken in well rated insurance companies authorized to do business in the State of New York.
(c) Landlord shall keep the Building insured against by loss by fire with extended coverage, rent insurance covering rent and any additional rent for the entire term of this lease, malicious mischief, storm damage, if available, and against such other risks and such amounts as Landlord in its reasonable discretion deems appropriate and necessary. Landlord agrees that all such policies shall carry a waiver of subrogation. Tenant shall pay its pro rata share (as such term is defined in Article (36) of all such insurance premiums thereof within ten (10) days after billing by Landlord. With respect to any premium for any policies commencing or expiring before or after the termination of the term of this Lease, as the case may be, such premiums shall be prorated based on the number of months included in the term of this lease during which the policy was in effect.
(d) Neither Landlord nor Tenant shall be liable to the other for any business interruption or any loss or damage to property or injury to or death of persons occurring in the Building (including the Leased Premises), or in any manner growing out of or connected with the Tenant's use and occupation of the Premises, the Building or the condition thereof, whether or not caused by the negligence or other fault of Landlord or Tenant and, or of their respective agents, employees, subtenants, licensees, or assigns. This release shall apply to the extent that such business interruption, loss, or damage to property or injury to or death of persons is covered by insurance, regardless of whether such insurance is payable to or protects Landlord or Tenant, or both. Nothing herein shall be construed to impose any other or greater liability upon either Landlord or Tenant than would have existed in the absence of this provision. This release shall be in effect only so long as the applicable insurance policies contain a clause to the effect that this release shall not affect the right of the insured to recover under such policies. Such clauses shall be obtained by the parties whenever possible. The release in favor of Landlord contained herein is in addition to and not in s substitution for, or in dimunition of the hold harmless and indemnification provisions hereof.
DAMAGE OR DESTRUCTION
13. (a) If the Building or the Premises shall be damaged or destroyed during the term by fire or other casualty covered by insurance then carried by Landlord, Landlord shall, with due diligence, repair and/or rebuild the same to substantially the condition it was in immediately prior to such damage or destruction.
(b) Rent shall be abated proportionately during the period in which, by reason of any such damage or destruction, there is a substantial interference with the operation of the business of Tenant in the Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Premises, an such abatement shall continue for the period commencing with such destruction or damage and ending with the substantial completion (as such term is defined in Article 6) by Landlord of such work or repair and/or construction as Landlord in obligated to perform.
(c) If the Building shall be damaged or destroyed to the extent of fifty (50%) percent or more of the then replacement value thereof, exclusive of foundations, by any cause, or should the damage be occasioned by a casualty for which there was no insurance, Landlord shall have the right to terminate this Lease on written notice to Tenant served within sixty (60) days after such damage or destruction.
(d) If this Lease shall not be terminated as in
this Article 13 provided, Landlord shall restore the
Building and the Premises and subparagraphs (a) and
(b) of this Article 13 shall be applicable.
(e) If at the time of the fire loss or
destruction, Landlord is unable to rebuild because of
(i) any governmental bureau, department or
subdivision thereof shall impose restrictions on the
manufacture, sale, distribution and/or use of
materials necessary in the construction of the
building, or (ii) Landlord is unable to obtain
materials from its usual sources due to strikes,
lockouts, war, military operations and requirements,
National emergencies, etc., and such disability shall
continue for four (4) months, either party may cancel
this Lease upon giving written notice to the other.
(f) Tenant hereby waives any and all rights granted by Section 227 of the Real Property Law of the State of New York or any other law of like import now or hereafter enacted.
SUBORDINATION
14. (a) This Lease shall be subject and subordinate at all times to the lien of any mortgages (i) now encumbering the Premises or the Building and land of which the Premises are a part and to all advances made or hereafter to be made upon the security thereof, and (ii) hereafter made provided same are made to a lending institution. Tenant shall execute and deliver such further instrument or instruments subordinating this Lease to the lien of any such mortgage or mortgages as shall be desired by any mortgagee or proposed mortgagee. As used in this Lease, the term "lending institution" shall mean savings bank, savings and loan association, bank or trust company, real estate investment trust, insurance company organized under the laws of the United States or any state thereof, university or Federal, State, Municipal or public, or private, employee, welfare, pension or retirement fund or system.
(b) Upon demand, Tenant shall furnish to Landlord copies of its Annual Report for the past five (5) years and such other information, financial or otherwise, concerning Tenant which may reasonably be required by any prospective institutional mortgagee.
(c) Tenant shall, upon not less that five (5) days' prior request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying (i) that this Lease is unmodified and in full force and effect (or if there have been modifications that the same are in full force and effect as modified and identifying the modifications), (ii) the dates to which the Rent and other charges have been paid, and (iii) that so far as the person making the certificate knows, Landlord is not in default under any provisions of this Lease. It is intended that any such statement may be relied upon by any person proposing to acquire Landlord's interest in this Lease, and prospective purchaser of the Premises, or any prospective mortgagee, or assignee of any mortgage upon the Premises. Landlord shall deliver a similar statement upon request of Tenant or its accountant.
(d) So long as there is a first mortgage lien encumbering the Premises, Landlord and Tenant shall not, without first obtaining the written consent of such mortgagee, enter into any agreement, the effect of which would be to (i) cancel, terminate or surrender this Lease or reduce the term; (ii) grant any concession in respect thereof; (iii) reduce the Rent or require the prepayment of any rent in advance of the due date thereof; (iv) create any offsets or claims against Rent; (v) assign in whole or in part any of the rents there from of Tenant's interest in the Lease or sublet the whole or any portion of the Premises except as provided in this Lease.
(e) Tenant shall, within ninety(90)days after the end of each fiscal year of Tenant, upon request of Landlord, furnish to Landlord and any first mortgagee of the Premises, copies of its latest Annual Report.
(f) In the event of any act or omission by Landlord which would give Tenant the right to terminate this Lease or to claim a partial or total eviction, Tenant shall not exercise any such right until (i) it shall have served written notice, by registered or certified mail, of such act or omission, to Landlord and to the holder of any mortgage whose name and address shall have been furnished to Tenant in writing, at the last address so furnished, and (ii) a reasonable period of time for remedying such act or omission shall have elapsed following the serving of such notice; provided, however, that following the serving of such notice, Landlord or said holder shall, with reasonable diligence, have commenced and continued to remedy such act or omission or to cause the same to be remedied.
INDEMNIFICATION
15. Tenant shall indemnify, defend, save and hold Landlord harmless from and against any and all liability and damages and any and all injury, loss, claim, damage or suit of every kind and nature including Landlord's reasonable counsel fees, to any person, firm, association or corporation or to any property arising out of or based upon related to or in any way connected with the use or occupancy of the Premises or the conduct or operation of Tenant's business unless such injury, loss, claim or damage is attributable solely to the negligence of Landlord or its agents servants or employees.
EMINENT DOMAIN
16. (a) If the whole of the Premises be taken under the power of eminent domain for any public or quasi-public improvement or use, the term of this Lease shall expire as of the date of vesting of title in the condemning authority, or such earlier date as Tenant may be actually deprived of the full use and enjoyment of the Premises.
(b) If 3,000 square feet or more of the Building is taken under the power of eminent domain or for any public or quasi-public purpose, Tenant or Landlord shall have the option of canceling and terminating this Lease by written notice served within thirty (30) days after the taking, and this Lease shall thereupon expire on the 60th day after the serving by Landlord or said notice.
(c) If less than 3,000 square feet of the Premises is taken this Lease shall remain in full force and effect, however, minimum annual rent and Tenant's pro rata share for the purposes of payment of Taxes and insurance premiums and any other additional rent required under this Lease which is based upon the square foot area of the Premises in relation to the Building shall be apportioned, pro rata with the number of square feet of the Building so taken. If Tenant's parking area only is taken, then (i) if 25% or less is taken, this Lease shall not terminate but minimum annual rent only shall, unless Landlord provides substitute parking, substantially equal in size to that which was taken and within reasonable walking distance of the Premises, within sixty (60) days after the taking, this Lease shall at the option of Tenant, by written notice served between the 61st and 90th days after the taking, be cancelled and terminated effective sixty (60) days from the date of said taking and if such notice is not served, this Lease shall not terminate but minimum rent only shall be apportioned pro rata in accordance with the size and usefulness of the portion taken.
(d) If this Lease is not terminated or terminable under the provisions of this Article 16, Landlord shall, with reasonable dispatch and at Landlord's sole cost and expense, restore, reconstruct and rebuild the remaining portion of the Premises and the Building and all the appurtenances, equipment, utilities, facilities and installations to their condition prior to such taking, in such manner that the resulting building and parking area and driveways shall be a complete and integrated structural, architectural an functional unit similar to and of equal material and workmanship to the Building and parking area and driveways prior to such taking, with all the appurtenances, equipment, utilities, facilities and installations throughout in good working order so as to put both the parking area and driveways and the Premises in proper condition to be used by Tenant for the same purposes as the time of such taking, all in accordance with plans and specifications to be prepared by Landlord, at the sole cost and expense of Landlord.
(e) If the nature of the work to be performed as a result of the taking is such as to prevent the operation of the business then being conducted thereon, or to make it impractical so to do then the Rent and other charges to be paid by Tenant under this Lease shall abate until substantial completion, as such term is defined in Article 6, of such work by Landlord.
(f) In the event of any taking under the power of eminent domain, Landlord shall be entitled to and shall receive the entire award provided that Tenant shall be entitled to and shall receive any part of any award made for Tenant's cost of moving Tenant's trade fixtures.
(g) In the event of any dispute under the provisions of this Article 16, it shall be resolved by arbitration in Suffolk County, New York before three disinterested and impartial arbitrators, in accordance with the rules of the American Arbitration Association. Each arbitrator shall have a minimum of ten (10) years experience in dealing with renting or appraising industrial real estate. All fees and expenses of the arbitrators and the American Arbitration Association shall be borne equally by the parties.
RIGHT TO SUBLET OR ASSIGN
17. A. The Tenant covenants that it shall not assign this Lease nor sublet the Demised Premises or any part thereof without the prior written consent of landlord, which shall not be unreasonable withheld, in each instance, except on the condition hereinafter stated. The Tenant may assign this Lease or sublet the Demised Premises with Landlord's written consent, providing:
(i) That such assignment or sublease is for a use which is in compliance with the then existing zoning regulations and the Certificate of Occupancy;
(ii) That at the time of such assignment or subletting, there is no default under the terms of this Lease on the Tenant's part;
(iii) That in the event of an assignment, the assignee assume in writing the performance of all of the terms and obligations of the within Lease;
(iv) That a duplicate original of said assignment or sublease be delivered by registered or certified mail to the Landlord at the address herein set forth within ten (10) days from the said assignment or sublease and within ninety (90) days of the date that Tenant first advise Landlord of the name and address of the proposed subtenant or assignee as required, pursuant to subparagraph (B) hereof;
(v) Such assignment or subletting shall not, however, release the within Tenant from its liability for the full and faithful performance of all of the terms and conditions of the Lease;
(vi) If this Lease be assigned, or if the Demised Premises or any part thereof be under let or occupied by anybody other than Tenant, Landlord may after default by Tenant collect rent from the assignee, under tenant or occupant, and apply the net amount collected to the rent herein reserved;
(B) Notwithstanding anything contained in this Article 17 to the contrary, no assignment or under letting shall be made by Tenant in any event until Tenant has offered to terminate this Lease as of the last day of any calendar month during the term hereof and to vacate and surrender the Demised Premises to landlord on the date fixed in the notice served by Tenant upon Landlord (which date shall be prior to the date of such proposed assignment or the commencement date of such proposed lease). Simultaneously with said offer to terminate this Lease, Tenant shall advise the Landlord, in writing, of the name and address of the proposed assignee or subtenant, and all the terms, covenants, and conditions of the proposed sublease or assignment.
(C) Tenant may, without the consent of Landlord, assign this Lease to an affiliated (i.e. a corporation 20% or more of whose capital stock is owned by the same stockholders owning 20% or more of whose capital stock is owned by the same stockholders owning 20% of Tenant's capital stock or more), parent or subsidiary corporation of Tenant or to a corporation to which it sells or assigns all or substantially all of its assets or with which it may be consolidated or merged, provided such purchasing consolidated, merged or affiliated or subsidiary corporation shall in writing assume and agree to perform all of the obligations of Tenant under this lease and it shall deliver such assumption with a copy of such assignment to Landlord within ten (10) days thereafter, and provided further that Tenant shall not be released or discharged from any liability under this Lease by reason of such assignment.
(D) Whenever Tenant shall claim under this Article or any other part of this Lease that Landlord has unreasonable withheld or delayed its consent to some request of Tenant, Tenant shall have no claim for damages by reason of such alleged withholding or delay, and Tenant's sole remedy thereof shall be a right to obtain specific performance or injunction but in no event with recovery of damages.
RIGHT TO INSPECT:
POSTING SIGNS
18. (a) Tenant shall permit Landlord or Landlord's agents to enter the Premises at all reasonable hours upon prior reasonable notice for the purpose of (i) inspecting the same; (ii) making repairs required by the terms of this Lease to be made by Tenant and which Tenant neglects or refuses to make; (iii) exhibiting the Premises to prospective purchasers and mortgages; (iv) during the 12 months preceding the expiration of this Lease, exhibiting the Premises to brokers and prospective tenants; and (v) for the purpose of making any additions or alterations to the Building or to any surrounding building provided, in each and every case, Landlord shall use its best efforts not to unreasonable interfere with the conduct of Tenant's business at the Premises.
(b) During the nine (9) months preceding the end of the term, Landlord may post and maintain, without hindrance or molestation, signs or notices indicating that the Premises are for sale and/or for rent; however, no such sign shall be affixed to a door or window of the Premises or exceed two (2) feet by three (3) feet.
BANKRUPTCY
19. (a) If, at any time prior to the commencement of the term of this Lease, or if ay any time during the term there shall be filed by or against Tenant in any court, pursuant to any statute, either of the United States or of any State, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, and within thirty (30) days thereof Tenant fails to secure a discharge thereof or if Tenant makes an assignment for the benefit of creditors or petition for or enters into an arrangement, this Lease, at the option of Landlord, exercised within a reasonable time after notice of the happening of any one or more of such events, may be cancelled and terminated, in which event neither Tenant nor any person claiming through or under Tenant by virtue of any statute or of any order of any court shall be entitled to possession or to remain in possession of the premises but shall forthwith quit and surrender the Premises, and Landlord, in addition to any other rights may retain any rent, security, deposit or monies received by it from Tenant or others in behalf of Tenant as partial liquidated damages. Notwithstanding the foregoing, Landlord agrees not to exercise said right of cancellation a long as Rent payments are timely made.
(b) In the event of the termination of this Lease pursuant to paragraph (a) of this Article 19, Landlord shall forthwith, notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the Rent reserved hereunder for the un-expired portion of the term an the then fair and reasonable rental value of the Premises for the same period. In the computation of such damages the difference between any installment of Rent becoming due hereunder after the date of termination and the fair an reasonable rental value of the Premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of 4% per annum. If the Premises, or any part thereof, be relet by Landlord for the un-expired term of said Lease, the amount of rent reserved upon such reletting shall prima facie be the fair and reasonable rental value for the part or the whole of the premises so relet during the term of the reletting. Nothing herein contained shall limit or prejudice the right of Landlord to prove for and obtain as liquidated damages by reason of such termination an amount equal to the maximum allowed by any statute or rule of law, in effect at the time when, an governing the proceeding in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above.
DEFAULT
20. (a) If Tenant shall fail to pay any installment of Rent, or any additional rent or other charges as and when the same are required to be paid hereunder, and such default shall continue for a period of ten (10) days after notice, or if Tenant defaults in fulfilling any of the other covenants of this Lease and such default shall continue for a period of twenty(20) days after notice, or if Tenant shall dissolve or liquidate or commence to dissolve or liquidate, or if the Premises become vacant or deserted, or if the said default or omission complained of shall be of such a nature that the same cannot be completely cured or remedied within said twenty(20) day period, and if Tenant shall not have diligently commenced curing such default within such twenty (20) day period, and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, then, in any one or more of such events, Landlord my serve a written three (3) day notice of cancellation of this Lease upon Tenant, and upon the expiration of said three (3) day period were the day hereo definitely fixed for the end and expiration of this Lease, and the term thereof, and Tenant shall then quit and surrender the Premises to Landlord but Tenant shall remain liable as hereinafter provided. If Tenant shall default (i) in the timely payment of any item of Rent, and such default shall continue or be repeated for two consecutive months or for a total of four months in any period of twelve months, or (ii) in the performance of any particular term, condition or covenant of this Lease more than six times in any period of six months, then, notwithstanding that such defaults shall have each been cured within the period after notice, if any, as provided in this Lease, any further similar default shall be deemed to be deliberate and Landlord thereafter may serve a written ten (10) day notice of termination of this Lease to tenant without affording to Tenant an opportunity to cure such further default.
(b) If (i) the notice provided for in subparagraph (a) above shall have been given, and the term shall expire as aforesaid; or (ii) if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant, or (iii) if Tenant shall fail to move into or take possession of the Premises within fifteen (15) days after commencement of the term of this Lease, then, and in any of such events Landlord may without notice, re-enter the Premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise; and the legal representative of Tenant or other occupant of the Premises and remove their effects and hold the Premises as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this Lease, Landlord may cancel and terminate such renewal or extension agreement by written notice.
REMEDIES OF LANDLORD
21. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (i) Rent shall become due thereupon and be paid up to the time of such re-entry, disposses and/or expiration, together with such expenses as Landlord may incur for legal expenses, attorneys' fees, brokerage, and/or putting the Premises in good order or for preparing the same for re-rental; (ii) Landlord may relet the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent; and/or (iii) Tenant or the legal representatives of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the Rent herein reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the Premises for each month of the period which would otherwise have constituted the balance of the term of this Lease. The failure or refusal of Landlord to reflect the Premises or any part or parts thereof shall not be released or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such reasonable expenses as Landlord may incur in connection with reletting such as legal expenses, attorneys' fees, brokerage and for keeping the Premises in good order or preparing the same for reletting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, at Landlord's option may make such alterations, repairs, replacements and/or decorations in the Premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable for the failure to relet the Premises, or in the event that the Premises are relet, for failure to collect the rent under such reletting. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy, shall not preclude Landlord from any other remedy, in law or in equity. In all cases hereunder, and in any suit, action or proceeding of any kind between the parties, it shall be presumptive evidence of the fact of the existence of a charge being due, if Landlord shall produce a bill, notice or certificate of any public official entitled to give such bill, notice or certificate to the effect that such charge appears of record on the books in his office and has not been paid.
ATTORNEY'S FEES
22. If Tenant shall at any time be in default hereunder, and if Landlord shall institute an action or summary proceeding against Tenant based upon such default and Landlord shall be successful, then Tenant shall reimburse Landlord for the reasonable expenses of attorney's fees and disbursements incurred by Landlord. The amount of such expenses shall be deemed to be "additional rent" hereunder and shall be due from Tenant to Landlord on the first day of the month following the incurring of such expenses. This provision shall be reciprocal so that if Tenant shall be successful in an action against Landlord, then Landlord shall reimburse Tenant for such reasonable expenses and disbursements.
WAIVER OF REDEMPTION, COUNTERCLAIM, TRIAL BY JURY
23. Tenant hereby expressly (i) waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant or any of the covenants and conditions of this Lease or otherwise; (ii) waives all rights to stay summary proceedings; and (iii) agrees that it shall not interpose any counterclaim in any summary proceeding or any action based on non-payment of Rent or any other payments or charges required to be made by Tenant to Landlord. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of them against the other with respect to any matters arising out of or connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or any claim of injury or damage and any emergency statutory or any other statutory remedy.
NO WAIVER
24. No act or thing done by Landlord or Landlord's agents during the term hereby demised shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of either party or of Landlord's agents hall have any power to accept the keys of the Premises prior to the termination of the Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of the Lease or a surrender of the Premises. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant, or condition of this Lease shall not prevent a subsequent act, which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by either party unless such waiver be in writing signed by such party. The words "re-enter" and "re-entry" as used herein are not restricted to their technical legal meaning.
END OF TERM
25. (A) On the last day of the term hereof or on the earlier termination thereof, Tenant shall peaceably and quietly, leave, surrender and deliver the premises up to Landlord, broom clean, together with any and all alterations, changes, additions and improvements which may have been made upon the Premises (except movable furniture or movable trade fixtures installed at the expense of Tenant) in good repair and good order and safe condition except for reasonable wear and tear and damage by fire, other casualty or the elements excepted, and Tenant shall remove all of its personal property from the Premises and any property not so removed shall be deemed to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to Tenant and without obligation to account therefore. Tenant's obligations under this Article 25 shall survive the expiration or other termination of this Lease.
(B) If Tenant shall hold over after the end of the term, such holding over shall be unlawful and in no manner constitute a renewal or an extension of the lease and no notice of any kind shall be required prior to any commencement of summary proceeding and Tenant hereby waives any such right. However, during such hold over time Tenant shall have all of the obligations of this lease, including payment of rent at a monthly rate equal to double the amount due during the first month of the last year of occupancy before the end of the expired term, plus any escalations or additional rent provided for in this lease.
BROKER
26. Tenant represents that this Lease was brought about by no one as broker and all negotiations with respect to this Lease were conducted exclusively without any broker. Tenant agrees that if any claim is made for commissions by any broker by, through or on account of any acts of Tenant, Tenant will hold Landlord free and harmless from any and all liabilities and expenses in connection therewith, including Landlord's reasonable attorney's fees.
QUIET ENJOYMENT
27. Landlord covenants that if and so long as Tenant pays the Rent, and additional rent, and other charges reserved by this Lease, and performs all the terms, covenants and conditions of this Lease on the part of Tenant to be performed, Tenant shall quietly enjoy the premises subject, however, to the terms of this Lease and of any mortgage or mortgages to which this Lease by its terms is subject.
NONLIABILITY OF LANDLORD
28. (a) Landlord and Landlord's agents
and employees shall not be liable for, and Tenant
Waives all claims for, loss or damage to Tenant's
business or damage to person or property sustained by
Tenant resulting from any accident or occurrence
(unless caused by or resulting from the negligence of
Landlord, its agents, servants or employees other than
accidents or occurrences against which Tenant is
insured) in or upon the Premises or the Building,
including, but not limited to, claims for damage
resulting from: (i) any equipment or appurtenances
becoming out of repair; (ii) injury done or occasioned
by wind; (iii) any defect in or failure of plumbing,
heating or air conditioning equipment, electric wiring
or installation thereof, (iv) broken glass; (v) the
backing up of any sewer pipe or downspout; (vi) the
bursting, leaking or running of any tank, tub,
washstand, water closet, waste pipe, drain or other
pipe or tank in, upon or about the Building or the
Premises; (vii) the escape of steam or hot water;
(viii) water, snow or ice being upon or coming through
the roof, skylight, trapdoor, stairs, doorways, show
windows, walks or any other place upon or near the
Building or the Premises or otherwise; (ix) any act,
omission or negligence of other tenants, licensees or
of any other persons or occupants of the Building or
of adjoining or contiguous buildings or of owners of
adjacent or contiguous property.
(b) If Landlord or a successor in interest is an individual (which term as used herein includes aggregates of individuals such as joint ventures, general or limited partnerships or associates) such individual shall be under no personal liability with respect to any of the provisions of this Lease, and if such individual hereto is in breach or default with respect to its obligations under this Lease, Tenant shall look solely to the equity of such individual in the land and building of which the Premises form a part for the satisfaction of Tenant's remedies and in no event shall Tenant attempt to secure any personal judgment against any partner, employee or agent of Landlord by reason of such default by Landlord.
(c) The word "Landlord" as used herein means only the owner in fee for the time being of the Premises, and in the event of any sale of the Premises, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder arising thereafter and it shall be deemed and construed without further agreement between the parties or between the parties and the purchaser of the Premises, that such purchaser has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder.
UTILITY EASEMENT
32. This Lease is subject and subordinate to any utility, gas, water and electric light or telephone line easements now or hereafter granted, affecting the Premises, the Building or the land upon which they are located, provided that the same do not unreasonably interfere with the Building nor unreasonably interfere with the use of the Premises by Tenant.
NOTICES
33. All notices to be given hereunder shall be in writing by certified or registered mail addressed to either of the parties at the address hereinabove given or at any other subsequent mailing address they may indicate by notice. Any notice given hereunder by mail shall be deemed delivered when deposited in a United States general or branch post office, addressed as above provided. Tenant hereby authorizes and designates the manager of the Premises as an officer authorized to accept and receive service of process.
BINDING EFFECT OF LEASE
34. The covenants, agreements and obligations contained in this Lease shall, except as herein otherwise provided, extend to, bind and inure to the benefit of the parties hereto and their respective personal representatives, heirs, successors and permitted assigns. Each covenant, agreement, obligation or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided.
UNAVOIDABLE DELAYS
35. Whenever Landlord shall be required by the terms of this Lease or otherwise to make any improvements or repairs, to furnish any service, to perform any construction or reconstruction or to fulfill any other obligation hereunder, and Landlord shall be delayed in, or prevented from, so doing, Landlord shall not be deemed to be in default and this Lease and the obligation of Tenant to pay Rent hereunder and to perform all of the other covenants and agreements hereunder on the part of Tenant to be performed shall not be affected, impaired, or excused, and any time limit herein fixed for Landlord's performance thereof shall be extended if and so long as Landlord's non-performance, delay or default shall be caused by reason of strike or labor troubles, accidents, any rule, order or regulation of any department, or subdivision thereof of any governmental agency, governmental pre-emption in connection with any national emergency or war, the conditions of supply and demand which have been or are affected by war or other emergency or any other cause beyond Landlord's reasonable control. Similarly, if Tenant is delayed in, or is prevented from, performing any obligation hereunder other than payment of rent (or other sums) by reason of force majeure, the time limit for Tenant shall likewise be extended.
NO ABATEMENT
36. As used in this Lease, the term "Tenant's pro rata share" shall mean 60.54% of the charge or item in question and the term "Tenant's pro rata share of parking spaces" shall be deemed to mean fifty-five (55) spaces. In the event Landlord shall increase the size of the Building or in the event Tenant shall lease additional space in the Building, Tenant's pro rata share shall be adjusted to reflect the new ratio which the size of the Premises bears to the size of the Building. In the event Landlord and Tenant are unable to enter into an agreement in writing setting forth Tenant's new pro rata share within thirty (30) days after submittal of such an agreement by Landlord to Tenant or Tenant to Landlord, the dispute shall be resolved by arbitration in accordance with the provisions of paragraph 16(g).
SEWER
37. Tenant shall only permit sanitary discharge into the existing sewer. Tenant shall comply with all requirements of the County of Suffolk, Department of Public Works, as it relates to use of the sewer, including the payment of any excess volume charges as determined by the County of Suffolk.
RENEWAL OPTIONS
38. The Tenant shall have the right to be exercised as hereinafter provided, to extend the term of this Lease for one period of five (5) years upon the following terms and conditions:
(A) That at the time of the exercise of such right the Tenant shall not be in default in the performance of any of the terms, covenants or conditions herein contained with respect to a matter as to which notice of default has been given hereunder and which has not been remedied within the time limited in this Lease.
(B) That said extension shall be upon the same terms, covenants and conditions as in this lease provided, except that (a) there shall be no further privilege or extension for the term of this Lease beyond the one period referred to above; (b)
During the first year of said extension period the basic annual rent shall be $201,750.00 payable $16,812.50 in equal monthly installments.
During the second year of said extension period the basic annual rental shall be $211,749.96, payable $17,645.83 in equal monthly installments.
During the third year of said extension period the basic annual rental shall be $222,500.00, payable $18,541.67 in equal monthly installments.
During the fourth year of said extension period the basic annual rental shall be $233,750.04, payable $19,479.17 in equal monthly installments.
During the fifth year of said extension period the basic annual rental shall be $245,750.04, payable $20,479.17 in equal monthly installments.
(C) Notwithstanding anything in this paragraph "38" contained to the contrary, the Tenant shall not be entitled to said extension if at the time of the commencement of the extended period of the Tenant shall be I n default under any of the terms, covenants or conditions of this Lease with respect to a matter as to which notice of default has been given hereunder and which has not been remedied within the time limited in this Lease, or if this Lease shall have terminated prior to the commencement of said period.
(D) The Tenant shall exercise its right to said extension of the term of this Lease by notifying the Landlord of the Tenant's election to exercise such right at least one (1) year prior to the expiration of the term of this Lease. Upon the giving of any such notice, this Lease shall be deemed extended for the specified period, subject to the provisions of this paragraph "38" without execution of any further instrument.
(E) This option is personal to the Tenant named herein only. In the event of an assignment of the lease to the Premises by the Tenant named herein, this option shall be null and void and have no force and effect.
MORTGAGEE'S SECURITY
39. Tenant hereby agrees not to look to the Mortgagee as Mortgagee, Mortgagee in possession or successor in title to the property, for accountability for any security deposit required by the Landlord hereunder, unless said sums have actually been received by such Mortgagee as security for the Tenant's performance of this lease.
GUARD SERVICE
40. The Landlord at its option, may furnish a Security Guard device for the Building and other structures located in the complex known as Airport International Plaza, in which event the Tenant will pay to Landlord its proportionate share of actual cost amount will be payable to the Landlord as additional rent with the Tenant to Landlord hereunder. Tenant's proportionate share of such cost shall be that fraction of which the numerator shall be 25,000 and the denominator shall be the total number of rentable square feet of space in all the premises covered by such Security Guard Service. However, Tenant's proportionate share of such cost shall not exceed $1,500.00 in any calendar year, i.e. $.06 per rentable square foot of demised premises which is 25,000 square feet.
IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first above written.
AIP ASSOCIATES
By: /s/ Roger Rechler _____________________ Partner |
SCIENTIFIC INDUSTRIES INC.
By: /s/Anita C. Pulver
______________________
STATE OF NEW YORK )
) ss.:
COUNTY OF SUFFOLK )
|
On this 2nd day of November, 1989, before me personally came Roger Rechler, to me known, who thereupon made solemn oath and acknowledged before me that he is a member of AIP ASSOCIATES, the partnership in whose behalf he acts and whose name he executed the foregoing instrument.
/s/Muriel Klopsis _________________ Notary Public |
STATE OF NEW YORK )
) ss.:
COUNTY OF )
On this day of , 1989, before me
|
personally came Anita C. Pulver to me known, who being by me duly sworn, did depose and say that he resides at 4 Hawthorne Street, Mt. Sinai, NY 11766 that he is Vice President of SCIENTIFIC INDUSTRIES INC., the corporation described in and which executed the foregoing instrument; that he knows the seal of the said corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of the said corporation; and that he signed his thereto by like order.
/s/Claire P. McAuliffe ______________________ Notary Public |
Exhibit 31.1
CERTIFICATION
I, Helena R. Santos, certify that:
(1) I have reviewed this Annual Report on Form 10-KSB of Scientific Industries, Inc. (the "registrant");
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and I have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the
registrant's internal control over financial
reporting (as defined in Exchange Act Rules 13a-15
(f) and 15d-15 (f) that occurred during the
registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in case of an
annual report) that has materially affected, or is
reasonable likely to materially affect, the
registrant's internal control over financial reporting.
(5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of the registrant's Board of Directors (or persons performing the equivalent functions);
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting
September 27, 2004
/s/ Helena R. Santos _________________ Helena R. Santos Chief Executive Officer and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
I, Helena R. Santos, as Chief Executive Officer and Chief Financial Officer of Scientific Industries, Inc. (the "Company"), certify that:
1. I have reviewed this Annual Report on Form 10-KSB of the Company for the year ended June 30, 2004 (the "Annual Report");
2. Based on my knowledge, the Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Annual Report; and
3. Based on my knowledge, the financial statements, and other financial information included in the Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in the Annual Report.
[Items 4, 5, and 6 omitted pursuant to the transition provisions of Release No. 34-46427.]
Date: September 27, 2004 /s/ Helena R. Santos _________________ Helena R. Santos Chief Executive Officer and Chief Financial Officer |