UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
( X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2007
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______to______
Commission file number 0-6658
SCIENTIFIC INDUSTRIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 04-2217279
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
70 Orville Drive, Bohemia, New York 11716
(Address of principal executive offices) (Zip Code)
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Issuer's telephone number (631) 567-4700
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year. $4,880,000
The aggregate market value of the voting stock held by non-affiliates computed by reference to the average bid and asked prices of such stock, as of August 24, 2007 is $1,791,500.
The number of shares outstanding of the issuer's common stock, par value $.05 per share ("Common Stock") as of August 24, 2007 is 1,145,352 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Forward Looking Statements. The Company and its representatives may from time to time make written or oral forward-looking statements with respect to the Company's annual or long-term goals, including statements contained in its filings with the Securities and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely result," "are expected to," "will continue to," "is anticipated," "estimate," "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
PART I
Item 1. Description of Business.
General. Scientific Industries, Inc., a Delaware corporation (the "Company"), has been engaged (i) since its inception in 1954, in the design manufacture and marketing of standard benchtop laboratory equipment ("Benchtop Laboratory Equipment") and (ii) since the acquisition of Altamira Instruments, Inc., a Delaware corporation ("Altamira") on November 30, 2006, in the manufacture and marketing of customized catalyst research instruments ("Catalyst Research Instruments"). The Company's products are used primarily for research purposes by universities, hospitals, pharmaceutical companies, clinics, medical device manufacturers, petrochemical companies and other related industries.
The acquisition agreement and subsequent agreement with each Altamira seller provided for the Company to pay $442,000 in cash, 125,000 shares of the Company's Common Stock and to pay additional cash equal in the aggregate to 5%, subject to adjustment, of Altamira's net sales for each of the following periods - December 1, 2006 to June 30, 2007, each of the 12 month periods ending respectively on June 30, 2008, June 30, 2009 and June 30, 2010; and July 1, 2010 to November 30, 2010. The payment for the first period amounted to approximately $66,000.
Products.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory Equipment consists of mixers and disruptors, rotators/rockers, refrigerated incubators and magnetic stirrers. The Vortex-Genie(R) 2 Mixer is the Company's primary product and sales of this product (excluding accessories) represented approximately 70% of the sales of the Company's Benchtop Laboratory Equipment, or 51% of the total sales for the fiscal year ended June 30, 2007 ("fiscal 2007"). Sales of this product accounted for approximately 72% of the total sales for the fiscal year ended June 30, 2006 ("fiscal 2006").
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.
Additional mixers and disruptors include the Vortex-Genie 1, a high speed touch mixer; the Vortex-Genie 2T, a mixer with an integral timer; the Disruptor Genie(R), a patented cell disruptor; the MicroPlate Genie(R) and Multi-MicroPlate Genie(R) mixers, specialty mixers designed to mix and vortex the contents of microplates; and the Digital Vortex-Genie 2, a vortex mixer incorporating digital control and display (launched during fiscal 2007).
The Company's Roto-Shake Genie(R), a patented benchtop multi-purpose rotator/rocker was 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 is a multi-functional benchtop environmental chamber designed to perform various functions under controlled environmental conditions of temperature.
The Benchtop Laboratory Equipment also includes a complete line of magnetic stirrers including the MagStir Genie(R), a patented high/low programmable magnetic stirrer; the MultiMagStir Genie(R), a four-place high/low programmable magnetic stirrer; the MegaMag Genie(tm), a large volume magnetic stirrer available in analog and digital versions (both versions introduced in fiscal 2007); and the QuadMag Genie(tm) magnetic stirrer, a four- place powerful general purpose stirrer (introduced in fiscal 2007).
Catalyst Research Instruments. The Catalyst Research Instruments are offered through the Company's new subsidiary, Altamira. The AMI-200(tm) is Altamira's flagship product. The AMI-200 is used to perform traditional catalyst characterization experiments on an unattended basis. The instrument also features a stand-alone personal computer to control the instrument and incorporates proprietary LabVIEW(R)-based software. All AMI model instruments can be customized to a customer's individual requirements.
The Catalyst Research Instruments also include reactor systems, high throughput systems and micro-activity reactors. The Company's BenchCAT(tm) custom reactor systems are available with single and multiple reactor paths and with reactor temperatures up to 1200 degrees celsius. These systems feature multiple gas flows, and are also available in gas and gas/liquid configurations. They also feature one or more stand- alone personal computers with the LabVIEW(R)-based control software.
The Company also offers, under a license with Symyx Corporation, the Celero(tm) high throughput system, designed to provide high throughput screening in multiples of 8 channels. This instrument is typically used to screen multiple catalysts, under the same conditions of temperature, pressure, and gas/liquid flows.
Under an exclusive distribution agreement covering North and South America, with PID Eng. & Tech in Spain, the Company markets the PID MA-Reference Reactor, which is a highly-automated, micro-activity reactor featuring sophisticated microprocessor control with touch-screen and TCP/IP Ethernet communications. This product is used for catalyst activity, selectivity, optimization and kinetics studies.
Product Development. The Company designs and develops substantially all of its products. Company personnel formulate plans and concepts for new products and improvements or modifications to existing products. The Company also engages outside consultants to augment its capabilities in such areas as industrial and electronics design.
Major Customers. Sales during fiscal 2007 to VWR International, principally of the Company's Vortex-Genie 2 Mixer, represented approximately 16% of total sales for the year, as compared to sales representing approximately 20% of total sales for fiscal 2006 to the Company's previous principal customer and distributor, Thermo Fisher Scientific, Inc. ("Fisher"), which discontinued any further purchases from the Company at the conclusion of fiscal 2006. In addition, sales to one additional customer of Benchtop Laboratory Equipment aggregated approximately 7% and 10% of total sales for fiscal 2007 and fiscal 2006, respectively. Sales of Catalyst Research Instruments are generally comprised of a few very large orders amounting on average to over $100,000 to different customers, with no single customer representing over 10% of total sales for fiscal 2007.
Marketing.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory Equipment products are generally distributed and marketed through an established network of domestic and overseas laboratory equipment distributors, who sell the Company's products through printed catalogs, websites and sales force. See "Major Customers". The Company also markets products through attendance at industry trade shows, trade publication advertising, brochures and catalogs, and through the Company's website. Over the past year, the Company has increased direct-selling efforts, mainly through online ordering on the Company's website. In general it takes two to three years for a new product to begin generating meaningful sales in the industry due to the catalog distribution system.
Catalyst Research Instruments. The Company's Catalyst Research Instruments are sold directly worldwide to universities, government laboratories, and chemical and petrochemical companies. The Company also uses outside sales representatives (on a commission basis) to augment its internal sales activities. The Company markets these products through sales calls, attendance at various trade shows, Altamira's website, outside sales representatives, and printed materials.
Assembly and Production Materials. The Company has an operating facility in Bohemia, New York and, since November 30, 2006, one in Pittsburgh, Pennsylvania as a result of the recent acquisition. The Company's production operations principally involve assembly of components supplied by various domestic and international independent suppliers. The Company historically did not have sole suppliers, except as to a few components where it was not feasible to have multiple suppliers and where alternative suppliers are available. However, as of June 30, 2007, the Company is relying on only one supplier for a major component for the Vortex-Genie products due to poor quality and delivery times from a second source. While the Company is seeking an additional source for the component, it has maintained an abundant on-hand supply of this component. Over the last two fiscal years, the Company has purchased a substantial portion of components from overseas factories for its Benchtop Laboratory Equipment operations, with a significant part of such purchases effected through a U.S. vendor. (Purchases from the vendor accounted for approximately 17% and 44% for fiscal 2007 and fiscal 2006, respectively, of the Company's total material purchases.) See "Risk Factors - The Company is Heavily Dependent on Outside Suppliers for the Components of Its Products".
Patents, Trademarks, Licenses and Franchises.
Patents. The Company holds several United States patents relating to existing products. It licensed one of its patents, a patent on a utilitarian feature of its Vortex-Genie 2 Mixer on a non-exclusive, royalty-free basis to Henry Troemner, LLC, ("Troemner"), under an agreement dated December 1, 1999 settling a lawsuit instituted by the Company in April, 1999. The patent and license expired on November 2, 2005; however, there has been no adverse effect to date on the Company's revenues as a result of the patent expiration. The Company's patent for the TurboMix, an accessory to the existing Vortex-Genie 2 Mixer, expires in September 2015. Its patent on the Roto-Shake Genie expires in July 2016. A recent patent granted on a design feature of the Company's MagStir Genie, MultiMagStir Genie, and Enviro-Genie expires in November 2022.
Trademarks. The Company has various proprietary marks, including AMI(tm), BenchCAT(tm), Celero(tm), Disruptor Beads(tm), Disruptor Genie(R), Enviro-Genie(R), Genie(tm), MagStir Genie(R), MegaMag Genie(tm), MicroPlate Genie(R), MultiMagStir Genie(R), Multi- MicroPlate Genie(R), QuadMag 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. The Company also has several trademark applications pending. No representation can be made that any application will be granted or as to the protection that any existing or future trademark may provide.
Licenses. The Company has several licensing agreements for technology and patents used in Company business. A non-exclusive worldwide sublicense from Fluorometrix Corporation relates to the development, production and marketing of a line of bioreactor vessels, including culture bags with integral sensors for pH and oxygen in volumes of 250 milliliters up to 5 liters for laboratory incubator systems. Development of a line of products under this sublicense has commenced. The Company also licenses the technology related to its patent for the Roto-Shake Genie from a local university, and licenses a patent related to its TurboMix attachment for the Vortex-Genie and Disruptor Genie from an independent inventor. Altamira has a license with respect to technology related to the Celero line of products from Symyx Corporation.
Foreign Sales. The Company's sales to overseas customers, including distributors, (principally Asia and Europe) accounted for approximately 46% of the Company's total net sales for fiscal 2007 and 44% for fiscal 2006. 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.
Backlog. The Company's backlog for its Benchtop Laboratory Equipment products is not significant because this line of products is comprised of standard catalog items. The typical lead time for such orders is not more than two weeks. The Company's backlog for Catalyst Research Instruments as of June 30, 2007 was $590,000, which is expected to be fulfilled by the end of the second quarter of the fiscal year ending June 30, 2008.
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 technical specifications, price, and product recognition and acceptance. The Company's main competition for its Benchtop Laboratory Equipment in the United States derives from private label brand mixers offered by the two largest laboratory equipment distributors in the United States, who dominate the end user market, one of which is Fisher (see "Major Customers"). The Company believes the Company and its Benchtop Laboratory Equipment products are factors in the vortex mixers market in the United States and widely recognized in the international vortex mixers market as well.
In the general area of Benchtop Laboratory Equipment, the Company's major competitors are Troemner (private label supplier to the two largest laboratory equipment distributors in the U.S. and Europe), Barnstead/Thermolyne Corporation, (an Apogent Technologies company owned by Thermo Fisher Scientific, Inc.), IKA-Werke GmbH & Co. KG, a German company, and Heidolph Instruments GmbH, a German company.
The primary competition for the Company's Catalyst Research Instruments is in the form of instruments produced internally by research laboratory staff of potential customers. Other competitors in the United States include Quantachrome Instruments, and Micromeritics Instrument Corporation, each a privately-held company.
Research and Development. In connection with the development of new products, the Company incurred research and development expenses, all of which relate to Benchtop Laboratory Equipment, of $302,100 during fiscal 2007 compared to $316,500 during fiscal 2006. No research and development expenses were incurred in connection with its Catalyst Research Instruments. The Company expects its expenditures in the fiscal year ending June 30, 2008 for research and development will not be materially different from the current fiscal year.
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 all its operations are in compliance with existing laws and regulations and the cost to comply is not significant to the Company.
Employees. As of August 24, 2007, the Company employed 30 persons (21 in Bohemia, New York and 9 in Pittsburgh, Pennsylvania) of whom 26 were full-time, including its two executive officers. None of the Company's employees is represented by any union.
Risk Factors
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, important risk factors are identified below that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to such future periods in any current statements. The Company undertakes no obligation to publicly revise any forward-looking announcements to reflect future events or circumstances.
Dependence on a Major Customer
The laboratory equipment industry is dominated in the U.S. by two major laboratory equipment distributors, Thermo Fisher Scientific, Inc. ("Fisher") and VWR International. During the fourth quarter of fiscal 2006, the Company was informed by Fisher that it would no longer market the Company's products. As a result, there were no sales of the Company's products to Fisher since the fourth quarter of fiscal 2006. Sales to this former major customer, mostly the Vortex-Genie 2 Mixer, represented approximately 20% of total net sales for fiscal 2006. As a result of increased direct selling efforts and increased distribution through the Company's other existing distributors and new distributors, the Company for fiscal 2007 was able to generate sufficient additional revenues to enable it to recoup the majority of the lost revenues. The Company's current largest customer accounted for approximately 16% of the Company's total net sales in fiscal 2007 (22% of Benchtop Laboratory Equipment sales) and 17% in fiscal 2006. A material reduction in sales to this major customer could have an adverse effect on the results of operations of the Company.
The Company Offers a Limited Number of Products with Sales of One Product Accounting for a Substantial Portion of its Revenues
The Company has a limited number of Benchtop Laboratory Equipment products with one product, the Vortex-Genie 2 Mixer accounting for approximately 70% and 72% of total Benchtop Laboratory Equipment sales, for fiscal 2007, and fiscal 2006, respectively.
The Company is A Small Participant in A Highly Competitive Laboratory Equipment Industry
The Benchtop Laboratory Equipment industry is highly competitive. Although the Company's principal product, the Vortex-Genie 2 Mixer, has been widely accepted, the Company's annual net sales for these products ($3,558,100 for fiscal 2007 and $3,465,200 for fiscal 2006) are significantly less than the annual revenues of many of its competitors in the industry. Its principal competitors are substantially larger and have much greater financial, production and marketing resources than the Company. In the past few years, there have been continuous new entrants into the vortex mixer market, including the manufacturer of the industry's two largest distributors' private label mixers.
The production and sales of Catalyst Research Instruments is highly competitive. The Company competes with many laboratories which produce their own instruments and several companies with greater resources.
The Company's Ability to Grow and Compete Effectively Is In
Part Dependent on Its Ability to Develop and Effectively
Market New Products
In the recent past, the Company began pursuing a program to develop and market new laboratory equipment products with a view to increasing revenues of such products and reducing the Company's dependence on the Vortex-Genie 2 Mixer. As a result, the Company now offers a more extensive line of Benchtop Laboratory Equipment products. However, the Company still needs to continuously develop and introduce new products in order to grow this segment of the business.
Revenues derived from new Benchtop Laboratory Equipment products (those other than the Vortex-Genie 2 Mixer, but excluding accessories) amounted to $838,500 and $737,100, respectively, for fiscal 2007 and fiscal 2006. The Company relies primarily on distributors and their catalogs to market such products. Sales of new products are heavily dependent on the distributors' decision to include a new product in the distributors' catalogs and their continued inclusion in the catalogs and on their websites, since the majority of the end users purchase through distributors. Accordingly, it may be at least 24 to 36 months between the completion of development of a product and the distribution of the catalog in which it is first offered.
No assurance can be given that the amounts allocated by the Company for its development and marketing programs will prove beneficial or that distributors will include any particular product in their catalogs and websites.
In June 2006, the Company received a nonexclusive sublicense to develop, produce and sell a line of bioreactor vessels with integral sensors for pH and oxygen in volumes of 250 milliliters up to 5 liters for laboratory systems under a license from the University of Maryland, Baltimore County, the patent holder. The Company is engaged in the development of certain products which incorporate the disposable sensor technology. No assurance can be made that such development will be completed or that it will result in material revenues.
The Company's new Catalyst Research Instruments line of products is limited to a few products. In order to remain competitive and grow this line of business, the Company needs to make engineering improvements to existing products and develop and add new products incorporating more current technology in the catalyst research area.
The Company May Be Subject to General Economic, Political, and Social Factors
Orders for the Company's products, particularly new Catalyst Research Instruments, depend in part, on a customer's ability to secure funds. Available funds can be affected by budgetary constraints and the ability to obtain grants. Factors such as a general economic recession or another major terrorist attack could have a negative impact on corporate funding and grants.
The Company's ability to secure new orders can also be effected by changes in U.S. and international policies pertaining to energy and the environment.
The Company is Heavily Dependent on Outside Suppliers for the Components of its Products
Due to poor quality and delivery times from the Company's former second supplier, the Company has only one supplier for a major component of the Vortex-Genie products. While the Company is seeking an additional supplier for this component, it has maintained an abundant on-hand supply of this component; however, there can be no assurance that the Company will be successful in securing a second supplier of this component.
While the Company believes there are several suppliers available for most of its components, it presently relies on one supplier for several components relating to the Company's Benchtop Laboratory Equipment. Purchases through a United States vendor from one overseas supplier accounted for approximately 17% and 44% of the cost of total purchased materials for fiscal 2007 and fiscal 2006, respectively, and 22% and 44% of the Benchtop Laboratory Equipment purchases. While the Company believes there are other sources for the components purchased from overseas readily available, the disruption or termination of the operations of this source or other sources could have an adverse effect, hopefully of short duration, on the Company's results of operations. To diminish this risk, the Company keeps higher than normal quantities on-hand of such components, and has added several alternate suppliers during the past two years. Furthermore, the Company intends to continue purchasing components from overseas factories directly or indirectly. Such reliance could increase the risks of the Company's operations including those arising from government controls, foreign conditions, custom duties, changes in both foreign and United States government policies, and the reliability and financial condition of such suppliers.
The Company's Ability to Compete Depends in Part on Its Ability To Secure and Maintain Proprietary Rights to its Products
The Company's ability to compete depends in part on its ability to secure and maintain proprietary rights to its products. The Company's design patent on a feature of its Vortex-Genie 2 Mixer, its principal product, expired in November 2005; however, the Company has not, to date, experienced any adverse effect from the expiration of this patent. A new patent was granted to the Company during fiscal 2006 for use in the MagStir Genie, MultiMagStir Genie, and Enviro-Genie products. The Company's ability to exploit a recently acquired sublicense with respect to a line of bioreactor vessels, which the Company has commenced developing, will be dependent on the validity of the licensor's patents.
The Company does not have any patent protection for its Catalyst Research Instruments, except for a line of products known as Celero under a licensing agreement, which is not a significant part of the business.
There can be no assurance that the Company will be successful in obtaining additional patents, that any patent issued or licensed 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 patents related to the Company's products. 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.
The Company Has Limited Management Resources
The loss of the services of Ms. Helena Santos, the Company's Chief Executive and Financial Officer, and President, or Mr. Robert Nichols, the Company's Executive Vice President or any material expansion of the Company's operations could place a significant additional strain on the Company's limited management resources and could be materially adverse to the Company's results and financial condition. In addition, the loss of Mr. Brookman March, Director of Marketing and Operations of the Company's new wholly-owned subsidiary, Altamira Instruments, Inc. could have a materially adverse impact on the Catalyst Research Instruments operations.
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 August 24, 2007, there were only 1,145,352 shares of Common Stock of the Company outstanding, of which 427,865 shares were held by the directors and officers of the Company. There have been a number of trading days during fiscal 2007 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 principal 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. In addition, the recen tly acquired Altamira subsidiary leases approximately 6,600 square feet of office, assembly, and testing space at 149 Delta Drive, Pittsburgh, Pennsylvania 15238, for its Catalyst Research Instruments operations, pursuant to a lease expiring July 2011. This lease has an early-termination clause that requires a 180 day notice in the event of an early termination. See Note 10 to the Financial Statements in Item 7 for further information on both leases. The leased facilities are suitable and adequate for the Company's operations. In the opinion of management, all properties are adequately covered by insurance.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings. 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 2007.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
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 2006 and fiscal 2007, 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
09/30/05 2.76 3.30
12/31/05 3.00 3.95
03/31/06 3.15 4.10
06/30/06 2.50 4.30
09/30/06 2.60 2.95
12/31/06 2.71 3.25
03/31/07 2.90 3.75
06/30/07 2.86 3.35
(a) As of August 24, 2007, there were 814 record holders
of the Company's Common Stock.
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(b) On January 12, 2007, the Company paid a cash dividend of $.07 per share to stockholders of record on October 30, 2006. The Company is not subject to any agreement which prohibits or restricts the Company from paying dividends on its Common Stock.
On September 20, 2007, the Board of Directors declared a cash dividend of $.07 per share of Common Stock payable on January 14, 2008 to holders of record as of the close of business on October 18, 2007.
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, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company's business that are beyond the Company's control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the related notes included elsewhere in this report.
Overview. As a result of the Company's acquisition on November 30, 2006 of Altamira, the Company's consolidated results for fiscal 2007 include the results of Altamira from the date of the acquisition. In addition, the consolidated results reflect certain adjustments related to the recording of the acquisition, including one-time adjustments to inventory and property and equipment to market values, newly purchased intangible assets and resulting goodwill, and the depreciation and amortization for the newly acquired assets.
Results of Operations. Net sales for fiscal 2007 increased by $1,414,800 (40.8%) to $4,880,000 as compared with $3,465,200 for fiscal 2006 as a result of the additional revenues from the newly acquired Catalyst Research Instruments operations as of November 30, 2006. Net sales related to the Company's Benchtop Laboratory Equipment operations increased by $92,900 (2.7%) despite the loss of a major customer at the end of fiscal 2006. Sales of the Catalyst Research Instruments differ from those of the Benchtop Laboratory Equipment in that sales of Catalyst Research Instruments are comprised of a small number of larger orders, typically averaging over $100,000 each. At the end of fiscal 2007, there was a backlog of $590,000 for Catalyst Research Instruments.
The gross profit percentage for fiscal 2007 decreased to 40.1% compared to 49.0% for fiscal 2006, mainly as a result of the lower gross profit percentage for the Catalyst Research Instruments operations whose products typically yield a gross profit ranging from 30% to 35%. In addition, the gross profit percentage was negatively affected because of a one-time acquisition related adjustment of $171,300. At the date of acquisition, Altamira's work-in-progress inventory was adjusted upwards to fair value so that the adjusted value would allow for the Company's profit allowance upon completing the manufacture of orders in process. All significant selling efforts were performed by Altamira prior to acquisition. While the revenues related to the work-in-progress were reported by the Company subsequent to the acquisition, a significant portion of the gross profit was attributed to prior to acquisition.
The gross profit percentage for the Benchtop Laboratory Equipment operations for fiscal 2007 was virtually unchanged (48.9% for fiscal 2007 and 49.0% for fiscal 2006).
General and administrative expenses for fiscal 2007 increased by $161,200 (22.4%) to $880,100 from $718,900 for fiscal 2006 mainly as a result of the general and administrative expenses related to the newly-acquired Catalyst Research Instruments operations and acquisition-related administrative costs.
Selling expenses for fiscal 2007 increased by $155,300 (65.2%) to $393,500 from $238,200 for fiscal 2006, primarily as a result of the selling expenses related to the Catalyst Research Instruments operations. Selling expenses for the Benchtop Laboratory Equipment operations were approximately at the same level for both fiscal years.
Research and development expenses for fiscal 2007 decreased by $14,400 (4.5%) from $316,500 for fiscal 2006 to $302,100 for fiscal 2007, due to lower outside engineering service costs. The Company's Catalyst Research Instruments operations did not incur any research and development expenses.
Other income increased by $11,000 (24.9%) to $55,100 from $44,100 mostly as a result of higher returns on the Company's investment securities.
Total income tax expense for fiscal 2007 was $123,100 (28.3%) compared to $147,300 (31.4%) for fiscal 2006 primarily due to lower income in the current year and other minor adjustments.
As a result of the foregoing, net income for fiscal 2007 was $312,000, a decrease of $9,700 (3.0%) from $321,700 for fiscal 2006.
Liquidity and Capital Resources. Cash and cash equivalents increased by $161,000 to $388,700 as of June 30, 2007 from $227,700 as of June 30, 2006. Net cash provided by operating activities was $172,100 for fiscal 2007 compared to $336,200 for fiscal 2006, primarily due to increases in accounts receivable and customer advance balances. For fiscal 2007, net cash provided by investing activities was $25,700 compared to net cash used in investing activities of $216,800 for fiscal 2006, primarily attributable to high redemptions of investment securities, partially offset by the cash used for the acquisition. Net cash used in financing activities for fiscal 2007 was $36,800 compared to $75,600 for fiscal 2006, the decrease due to higher cash proceeds from exercise of stock options and a lower cash dividend paid by the Company in fiscal 2007.
The Company's working capital as of June 30, 2007 decreased $28,600 to $2,460,500 from $2,489,100 at June 30, 2006, mainly due to the acquisition. The Company has available for its working capital needs, a secured bank line of credit of $200,000 with North Fork Bank with interest at prime, all of which was available as of June 30, 2007. The Company has never borrowed under this line of credit.
Capital Expenditures. During fiscal 2007, the Company incurred $65,000 in capital expenditures, the approximate level which the Company expects to incur during the fiscal year ending June 30, 2008.
Management believes that the Company will be able to meet its cash flow needs for its operations and capital expenditures during the 12 months ending June 30, 2008 from its available financial resources which include its cash and investment securities.
Item 7. Financial Statements.
The Financial Statements required by this item are attached hereto on pages F1-F23.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
Item 8A. Controls and Procedures.
As of the end of the period covered by this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that materially affected or is reasonably likely to materially affect the Company's internal controls over financial reporting.
Item 8B. Other Information.
Not applicable.
PART III
Item 9. Directors, Executive Officers; Compliance With
Section 16(a) of the Exchange Act.
Directors
The Company has the following six Directors:
Arthur M. Borden, Esq. (age 87), a Director since 1974, has been counsel to the law firm of Katten Muchin Rosenman LLP (formerly Rosenman & Colin) during the past five years. He is a director of Supreme Industries, Inc., a nationwide manufacturer of specialized truck bodies.
Joseph G. Cremonese (age 71), a Director since November 2002 and Chairman of the Board since February 2006, 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, including the Company, engaged in the production and sale of products for science and biotechnology. Since March 2003, Mr. Cremonese has been a director of and consultant to Proteomics, Inc., a producer of recombinant proteins for medical research. Prior to 1991, he had been employed by Fisher Scientific, the largest U.S. distributor of laboratory equipment.
Joseph I. Kesselman (age 82), a Director since 1961 and Chairman of the Board from August 2002 until his resignation in February 2006, has been for more than five years a consultant to various corporations. He is a director of Nuclear and Environmental Protection Inc., Hopare Holding, S.A. (a Swiss company), and Infranor Inc., a developer and manufacturer of servo systems.
Roger B. Knowles (age 82), a Director since 1965, is retired. During the past five years he has been involved in liquidating various real estate and manufacturing concerns.
Grace S. Morin (age 59 ), a Director since December 4, 2006, had been from December 2003 President, Director and principal stockholder of Altamira Instruments, Inc. until its acquisition by the Company on November 30, 2006. Ms. Morin has been engaged by Altamira on a part-time basis to supervise the administrative functions for the Catalyst Research Instruments operations in the Pittsburgh, Pennsylvania facility. Prior to December 2003, she was a general business consultant for two years, and prior to that she was a member of senior management of a designer of gas flow environmental engineered products for approximately four years.
James S. Segasture (age 71), a Director since 1991, has been a private investor since February 1990.
The Directors are elected to three-year staggered terms. The current terms of the Directors expire at the annual meeting of stockholders of the Company to be held at the next annual meeting following: the fiscal year ended June 30, 2007 - two Directors (Mr. Kesselman and Ms. Morin, Class B), the fiscal year ending June 30, 2008 - two Directors (Messrs. Cremonese and Knowles, Class C), and the fiscal year ending June 30, 2009 - two Directors (Messrs. Borden and Segasture, Class A).
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 ("2002 Plan").
Grace S. Morin, Joseph I. Kesselman, and James S. Segasture have been appointed as the members of the Company's Compensation Committee to serve at the discretion of the Board and to administer the Company's Compensation policies.
The Board of Directors acts as the Company's Audit Committee.
The Company does not have a financial expert on the Audit Committee as defined by the Securities and Exchange Commission, however, the Company believes that the members of the Audit Committee have sufficient knowledge to properly evaluate and analyze the Company's financial statements.
Executive Officers
Helena R. Santos, CPA (age 43), employed by the Company since 1994, was appointed in August 2002 as President, Chief Executive Officer and Treasurer. Previously she served as Vice President, Controller from 1997 and Secretary from May 2001. Ms. Santos was an internal auditor with a major defense contractor from March 1991 to April 1994. She had been previously employed in public accounting.
Robert P. Nichols (age 46), 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, Mr. Nichols 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, 2007, its officers, directors and 10% stockholders timely complied with all filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
Code of Ethics
We have adopted a code of ethics that applies to our Executive Officers and Directors. A copy of the code of ethics can be found on our website at www.scientificindustries.com and is attached as Exhibit 14 to this Annual Report on Form 10-KSB.
Item 10. Executive Compensation.
The following table summarizes all compensation paid by the Company to its then Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and President; and Executive Vice President with respect to each of the three fiscal years ended June 30, 2007, 2006 and 2005. No other executive officer earned in excess of $100,000 in any of such fiscal periods.
The Compensation Committee along with the other members of the Board reviews and determines the compensation payable to executives. In making a determination, the Committee and the Board give material consideration to the Company's results of operations and financial conditions and competitive factors. The compensation at times includes grants of options under its stock option plan to the named executives, each subject to long-term employment agreements, containing terms which the Board of Directors deemed reasonable. The Board is cognizant that as a relatively small company, the Company has limited resources and opportunities with respect to recruiting and retaining key executives. Accordingly, the Company has relied upon long-term employment agreements to retain qualified personnel.
Non-
Equity
Incentive
Name Plan
and Stock Option Comp-
Principal Fiscal Salary Bonus Awards Awards ensation
Position Year ($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g)
_____________________________________________________________
Helena R. 2007 115,000 10,000 0 0 0
Santos, 2006 112,100 0 0 0 0
CEO, 2005 108,200 0 0 0 0
President,
CFO
Robert P. 2007 110,000 10,000 0 0 0
Nichols, 2006 107,000 0 0 0 0
Exec. 2005 103,200 0 0 0 0
|
V. P.
Non-
Qualified
Deferred All
Name Comp- Other
and ensation Comp-
Principal Earnings ensation Total
Position ($) ($) ($)
(a) (h) (i) (j)
_____________________________________________________________
Helena R. 2007 2,500(1) 127,500
Santos, 2006 2,200(1) 114,300
CEO, 2005 2,200(1) 110,400
President,
CFO
Robert P. 2007 2,400(1) 122,400
Nichols, 2006 2,100(1) 109,100
Exec. 2005 2,100(1) 105,300
|
(1)Represents the Company's matching contribution under the Company's 401(K) Plans.
Pursuant to the Altamira acquisition, Altamira entered into a long-term employment agreement on November 30, 2006 employing Mr. Brookman P. March as Director of Marketing and Operations of Altamira at a salary in excess of $100,000 per annum. Under the agreement, teh total compensation paid to him during fiscal 2007 was $66,800, including a matching contribution under Altamira's 401(k) Plan.
Option Awards
_____________________________________________________________
Number
Number of
of Securities
Securities Under-
Under- lying
lying Unexercised Option
Exercised Options(#) Exercise Option
Options(#) Unexerci- Price Expiration
Name Exercisable sable ($) Date
(a) (b) (c) (e) (f)
_____________________________________________________________
Helena R. 5,000 0 .84 5/2009
Santos
|
(1) 12,000 shares expire in March 2008; 8,000 shares expire May 2009; and 5,000 shares expire October 2012.
Option Grants in Last Fiscal Year
There were no options granted to officers during fiscal 2007.
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 10,000 16,500 5,000/0 12,530/0
(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, 2007, respectively.
Employment Agreements
On December 29, 2006, 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 September 2004. The new agreements increased their base salaries by $10,000 each - to $120,000 for Ms. Santos and $115,000 for Mr. Nichols. The new agreements also extended their employment period to December 31, 2008. They otherwise contain substantially the same provisions as the replaced agreements, including annual bonuses at the discretion of the Board and non-competition and confidentiality covenants. The Board awarded a $10,000 bonus to each of Ms. Santos and Mr. Nichols on December 4, 2006 which was paid on December 31, 2006.
In connection with the Altamira acquisition, Altamira entered into a two-year employment agreement with Mr. Brookman March, who was Altamira's Vice President and a director, employing him currently as Director of Marketing and Operations. The employment agreement provides for a two year term with Altamira having two one-year renewal options, at a salary of $110,000 per annum during the initial two year term to be increased by 2% during each renewal period plus adjustments based on annual increases in the consumer price index. Mr. March is the husband of Grace S. Morin, a Director of the Company and the former principal stockholder of Altamira, who received on the date of acquisition $361,440 in cash, 112,950 shares of the Common Stock of the Company and the right to receive 90.36% of 5% as adjusted, of the net sales of Altamira during five periods described under Item 1. "Description of Business-General". In addition, Ms. Morin received an additional $39,800 cash payment under a separate agreement related to the acquisition (See Item 12).
Directors' Compensation
Non-
Equity
Fees Incentive
Earned Plan
or Paid Stock Option Comp-
in Cash Awards Awards ensation
Name ($) ($) ($) ($)
(a) (b) (c) (d) (e)
_____________________________________________________________________
Arthur M.
Borden 7,250 0 0 0
Joseph G.
Cremonese 17,000 0 10,100 0
Joseph I.
Kesselman 7,250 0 0 0
Roger B.
Knowles 7,250 0 0 0
Grace S.
Morin 0 0 0 0
James S.
Segasture 7,250 0 0 0
|
Non-
qualified
Deferred All
Comp- Other
ensation Comp-
Earnings ensation Total
Name ($) ($) ($)
(a) (f) (g) (h)
____________________________________________________________________
Arthur M. 0 0 7,250
Borden
Joseph G.
Cremonese 0 (1) 27,100(1)
Joseph I.
Kesselman 0 0 7,250
Roger B.
Knowles 0 0 7,250
Grace S.
Morin 0 (2) 0
James S.
Segasture 0 0 7,250
|
(1) Mr. Cremonese received additional compensation amounting to $36,200 for fiscal 2007 under a separate agreement with the Company for marketing consulting services as described in Item 12.
(2) Ms. Morin, as an employee-director does not receive director compensation; however, since November 30, 2006, she received $41,000 in compensation as an employee of Altamira.
As of April 1, 2007, the Company increased its quarterly fee from $750 to $1,500 and the fee for each meeting attended from $500 to $1,000. In addition, the Company reimburses each Director for out-of-pocket expenses incurred in connection with attendance at board meetings in the amount of $50 or the Director's itemized expenses, whichever is greater. Mr. Joseph I. Kesselman as Chairman of the Board until February 2006 received $750 per month, and Mr. Joseph G. Cremonese, as Chairman of the Board, since February 2006 received $750 per month until April when the monthly fee was increased to $1,000. During fiscal 2007, the fees to non-employee Directors aggregated $46,000.
Pursuant to the Company's 1992 Stock Option Plan ("1992 Plan") options to purchase 3,000 shares of Common Stock at the then fair market value were granted to each non-employee director who was on the Board of Directors on the first business day of each March, in 1993, 1994, 1995, and 1996, namely Messrs. Borden, Kesselman, Knowles and Segasture. In addition, in December 1997 and through December 2002 the Board of Directors granted under the 1992 Plan annually options to purchase 4,000 shares of Common Stock to each of them exercisable at the fair market value on the date of grant. Accordingly, as of June 30, 2007, the Company had granted under the 1992 Plan to the foregoing four non-employee Directors options to purchase an aggregate of 128,000 shares of Common Stock, or options to purchase 32,000 shares of Common Stock for each. The fair market value per share of Common Stock on the dates of grant ranged from $0.50 for options granted in 1993 to $2.40 in 2002. As of June 30, 2007, options under the 1992 Plan with respect to 68,000 shares had been exercised by the Directors. In addition, they had exercised options with respect to 48,000 shares granted to them prior to the adoption of the 1992 Plan.
Under the Company's 2002 Plan, none of the Directors at the time of the adoption by the Board of Directors of the 2002 Plan (subsequently approved by stockholders) were eligible to receive option grants. Mr. Joseph G. Cremonese who was elected Director at the 2002 Annual Meeting of Stockholders, was granted on December 1, 2003 an option to purchase 5,000 shares of Common Stock at the fair market value of $1.35 per share, and, on February 20, 2007 an option to purchase 5,000 shares of Common Stock at the fair market value of $3.10 per share was granted to him.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of June 30, 2007, 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. Except for Mr. Kleiman, the address for each of the following is c/o Scientific Industries, Inc., 70 Orville Drive, Bohemia, New York 11716.
Amount and
Name Nature of Beneficial Ownership % of Class
____________________________________________________________________
Lowell A. Kleiman 139,581(1) 12.2%
16 Walnut Street
Glen Head, NY 11545
Arthur M. Borden 60,740(2) 5.2%
Joseph G. Cremonese 31,410(3) 2.7%
Joseph I. Kesselman 64,120(4) 5.5%
Roger B. Knowles 25,595(5) 2.2%
Grace S. Morin 112,950 9.9%
James S. Segasture 187,250(6) 16.3%
Helena R. Santos 18,000(7) 1.6%
Robert P. Nichols 27,800(8) 2.4%
All directors and
executive officers as
a group (8 persons) 527,865(9) 42.4%
|
(1) Based on information reported in his Schedule 13D filed with
the Securities and Exchange Commission on October 30, 2002.
(2) Includes 20,000 shares issuable upon exercise of options.
(3) 21,410 shares are owned jointly with his wife and 10,000
shares are issuable upon exercise of options.
(4) Includes 20,000 shares issuable upon exercise of options
and 735 shares of Common Stock owned jointly with his wife and
4,000 shares owned by his wife.
(5) Includes 20,000 shares issuable upon exercise of options,
4,258 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 5,000 shares issuable upon exercise of options.
(8) Includes 25,000 shares issuable upon exercise of options.
(9) includes 100,000 shares issuable upon exercise of options.
Number of Securities
to be Issued Upon Weighted-Average
Exercise of Exercise Price of
Outstanding Options, Outstanding Options,
Warrants and Rights Warrants and Rights ($)
Plan Category (a) (b)
_________________________________________________________________
Equity
Compensation
plans approved by
security holders 104,001 1.62
Equity
Compensation
plans not approved
by security holders N/A N/A
Total 104,001 1.62
_________________________________________________________________
|
Number of Securities
Remaining Available
for
Future Issuance
Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a)
Plan Category (c) _________________________________________________________________ Equity Compensation plans approved by security holders 101,334 Equity Compensation plans not approved by security holders N/A Total 101,334 _________________________________________________________________ |
Item 12. Certain Relationships and Related Transactions.
Mr. Joseph G. Cremonese, who was first elected a Class C Director at the Annual Meeting of Stockholders in November 2002 or his affiliate, Laboratory Innovation Company, Ltd., have been providing independent marketing consulting services to the Company for approximately nine years. The services have been rendered since January 1, 2003 pursuant to a consulting agreement which was amended and restated for a second time in March 2007. The agreement as amended and restated provides that Mr. Cremonese and his affiliate render, at the request of the Company, through December 31, 2008 marketing consulting services of at least 60, but not more than 96 days per year at the rate of $600 per day with a monthly payment of $3,000, with the Company's obligation reduced to the extent the consulting services are less than 60 days for the 12 month period. The agreement contains confidentiality and non-competition covenants. During fiscal 2007, the Company paid an aggregate of $2,900 for the consulting services.
The Company and sellers of the Altamira capital stock (including Grace S. Morin who owned 90.36% of such capital stock and is a director of the Company) to the Company have agreed to the filing by the Company of an election under Section 338 of the Internal Revenue Code ("Code") to treat the acquisition as a purchase for tax purposes within the meaning of the Code. Accordingly, the Company has agreed to reimburse these sellers for any tax consequences resulting from such election. Accordingly, in September 2007, the Company paid Ms. Morin, Mr. Chandler and Ms. Haught $39,800, $1,100 and $1,100, respectively, in reimbursement. In connection with the Altamira transaction, the Company agreed to have Altamira continue to employ Ms. Morin, who was founder and President of Altamira, for up to 90 days. However, due to operational needs, she is currently employed on a part-time basis since May 1, 2007 to supervise the on-site administrative duties.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibits to this report are listed in the Exhibit Index at the end of this report.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended June 30, 2007.
Item 14. Principal Accountant Fees and Services.
The Company incurred for the services of Nussbaum Yates Berg Klein & Wolpow, LLP (formerly Nussbaum, Yates & Wolpow, P.C.): audit fees (including for preparation of the Company's corporate tax returns) of approximately $39,000 and $28,500 in connection with the audit of the Company's financial statements for fiscal 2007 and fiscal 2006, respectively; $4,500 and $2,850 in connection with the quarterly reviews for fiscal 2007 and fiscal 2006, respectively, and $39,900 in fiscal 2007 for additional services rendered in connection with the acquisition of Altamira Instruments, Inc. There were no other audit related fees or other fees paid to the firm.
The Board of Directors has reviewed and discussed the audited financial statements with management. It discussed with the independent auditors of the Company matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards AU 380), as modified or supplemented and received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No.1, Independence Discussions with Audit Committees), as modified or supplemented. The Board discussed with the independent accountant the independent accountant's independence.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Helena R. Santos
_____________________
Helena R. Santos
President, Chief Executive Officer, Treasurer
Chief Financial and Principal Accounting Officer
Date: September 28, 2007
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date /s/ Arthur M. Borden Director September 28, 2007 Arthur M. Borden /s/ Joseph G. Cremonese Chairman of the Board September 28 2007 Joseph G. Cremonese /s/ Joseph I. Kesselman Director September 28, 2007 Joseph I. Kesselman /s/ Roger B. Knowles Director September 28, 2007 Roger B. Knowles /s/ Grace S. Morin Director September 28, 2007 Grace S. Morin /s/ James S. Segasture Director September 28, 2007 James S. Segasture |
EXHIBIT INDEX
Exhibit Number Description
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company as amended.
(Filed as Exhibit 1(a-1) to the Company's General
Form for Registration of Securities on Form 10 dated
February 14, 1973 and incorporated by reference thereto.)
3(b) Certificate of Amendment of the Company's Certificate
of Incorporation, as filed on January 28, 1985.
(Filed as Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1985 and
incorporated by reference thereto.)
3(c) By-Laws of the Company, as restated and amended.
(Filed as Exhibit 3(ii) to the Company's Current Report
Form 8-K filed on January 6, 2003) and incorporated
by reference thereto.
4 Instruments defining the rights of security holders:
4(a) 2002 Stock Option Plan (Filed as Exhibit 99-1 to the
Company's Current Report on Form 8-K filed on November
25, 2002 and incorporated by reference thereto.
10 Material Contracts:
10(a) Lease between Registrant and AIP Associates, predecessor
-in-interest of current lessor, dated October, 1989 with
respect to Company's offices and facilities.
(Filed as Exhibit 10(a) to the Company's Form 10-KSB
filed on September 28, 2005 and incorporated by
reference thereto).
10(a)-1 Amendment to lease between Registrant and REP A10 LLC
dated September 1, 2004 (Filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on September 2,
2004, and incorporated by reference thereto).
10(b) Employment Agreement dated January 1, 2003, by and
between the Company and Ms. Santos (Filed as Exhibit
10(a) to the Company's Current Report on Form 8-K filed
on January 22, 2003, and incorporated by reference
thereto).
10(b)-1 Employment Agreement dated September 1, 2004, by and
between the Company and Ms. Santos (Filed as Exhibit
10A-1 to the Company's Current Report on Form 8-K filed
on September 1, 2004, and incorporated by reference
thereto).
10(b)-2 Employment Agreement dated December 29, 2006, by and
between the Company and Ms. Santos (Filed as Exhibit 10A-1
to the Company's Current Report on Form 8-K filed on
December 29, 2006, and incorporated by reference thereto).
10(c) Employment Agreement dated January 1, 2003, by and between
the Company and Mr. Nichols (Filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on January 22,
2003, and incorporated by reference thereto).
10(c)-1 Employment Agreement dated September 1, 2004, by and between
the Company and Mr. Nichols (Filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on September
1, 2004, and incorporated by reference thereto).
10(c)-2 Employment Agreement dated December 29, 2006, by and
between the Company and Mr. Nichols (Filed as Exhibit
10A-1 to the Company's Current Report on Form 8-K filed
on December 29, 2006, and incorporated by reference thereto).
10(d) Consulting Agreement dated January 1, 2003 by and between the
Company and Mr. Cremonese and his affiliate, Laboratory
Innovation Company, Ltd., (Filed as Exhibit 10(b) to the
Company's Current Report on Form 8-K filed on January 6, 2003,
and incorporated by reference thereto).
10(d)-1 Consulting Agreement dated March 22, 2005, by and between the
Company and Mr. Cremonese and Laboratory Innovation Company,
Ltd., (Filed as Exhibit 10A-1 to the Company's Current report
on Form 8-K filed on March 23, 2005, and incorporated by
reference thereto).
10(d)-2 Consulting Agreement dated March 15, 2007, by and between the
Company and Mr. Cremonese and Laboratory Innovation Company Ltd.,
(Filed as Exhibit 10A-1 to the Company's Current report on
Form 8-K filed on March 16, 2007, and incorporated by
reference thereto).
10(e) Sublicense from Fluorometrix Corporation (Filed as Exhibit
10(a)1 to the Company's Current Report on Form 8-K filed
on June 14, 2006, and incorporated by reference thereto).
10(f) Stock Purchase Agreement, dated as of November 30, 2006,
by and among the Company and Grace Morin, Heather H. Haught
and William D. Chandler (Filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on December 5,
2006, and incorporated by reference thereto).
10(g) Escrow Agreement, dated as of November 30, 2006, by and
among the Company and Grace Morin, Heather H. Haught and
William D. Chandler (filed as Exhibit 10(a) to the Company's
current Report on Form 8-K filed on December 5, 2006, and
incorporated by reference thereto).
10(h) Registration Rights Agreement, dated as of November 30, 2006,
by and among the Company and Grace Morin, Heather H. Haught
and William D. Chandler (filed as Exhibit 10(b) to the
Company's current Report on Form 8-K filed on December 5,
2006, and incorporated by reference thereto).
10(i) Employment Agreement, dated as of November 30, 2006, between
Altamira Instruments, Inc. And Brookman P. March (Filed as
Exhibit 10(c) to the Company's Current Report on Form 8-K
filed on December 5, 2006, and incorporated by reference
thereto).
10(j) Indemnity Agreement, dated as of April 13, 2007 by and
among the Company and Grace Morin, Heather H. Haught and
William D. Chandler.
10(k) Lease between Altamira Instruments, Inc. And Allegheny
Homes, LLC, with respect to the Company's Pittsburgh,
Pennsylvania facilities.
14 Code of Ethics
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New York
corporation, is a wholly-owned inactive subsidiary of
the Company.
Altamira Instruments, Inc., a Delaware Corporation, is a
wholly-owned subsidiary of the Company since November
30, 2006.
31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
|
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
YEARS ENDED JUNE 30, 2007 AND 2006
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
YEARS ENDED JUNE 30, 2007 AND 2006
CONTENTS
Report of Independent Registered Public Accounting Firm 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-23
|
Board of Directors and Shareholders
Scientific Industries, Inc. and Subsidiaries
Bohemia, New York
We have audited the consolidated balance sheets of Scientific Industries, Inc. and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scientific Industries, Inc. and subsidiaries as of June 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended in conformity with United States generally accepted accounting principles.
/s/ Nussbaum Yates Berg Klein & Wolpow ______________________________________ Nussbaum Yates Berg Klein & Wolpow, LLP Melville, New York September 27, 2007 |
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 AND 2006
ASSETS
2007 2006
---------- ----------
Current assets:
Cash and cash equivalents $ 388,700 $ 227,700
Investment securities 718,000 1,168,200
Trade accounts receivable, less
allowance for doubtful accounts
of $11,600 in 2007 and 2006 750,800 313,900
Inventories 1,289,600 930,300
Prepaid and other current assets 61,200 103,900
Deferred taxes 25,600 25,500
---------- ----------
Total current assets 3,233,900 2,769,500
Property and equipment, net 247,300 122,100
Intangible assets, net 596,800 40,200
Goodwill 13,400 -
Other 45,700 38,700
---------- ----------
Total assets $4,137,100 $2,970,500
========== ==========
|
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 231,900 $ 68,100
Customer advances 147,600 -
Accrued expenses and taxes 393,900 212,300
---------- ----------
Total current liabilities 773,400 280,400
---------- ----------
Deferred taxes 7,600 3,200
---------- ----------
Commitments and contingencies
Shareholder's equity:
Common stock, $.05 par value;
authorized 7,000,000 shares; issued
1,165,154 and 1,020,154 shares in
2007 and 2006 58,200 51,000
Additional paid-in capital 1,428,900 1,010,500
Accumulated other comprehensive loss,
unrealized holding loss on investment
securities (9,900) (11,500)
Retained earnings 1,931,300 1,689,300
--------- ---------
3,408,500 2,739,300
Less common stock held in treasury
at cost, 19,802 shares 52,400 52,400
--------- ---------
Total shareholders' equity 3,356,100 2,686,900
--------- ---------
Total liabilities and
shareholders' equity $4,137,100 $2,970,500
========== ==========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2007 AND 2006
2007 2006
---------- ----------
Net sales $4,880,000 $3,465,200
Cost of sales 2,924,300 1,766,700
---------- ----------
Gross profit 1,955,700 1,698,500
---------- ----------
Operating expenses:
General and administrative 880,100 718,900
Selling 393,500 238,200
Research and development 302,100 316,500
---------- ----------
1,575,700 1,273,600
---------- ----------
Income from operations 380,000 424,900
---------- ----------
Other income:
Interest income 43,900 34,600
Other income, net 11,200 9,500
---------- ----------
55,100 44,100
---------- ----------
Income before income taxes 435,100 469,000
---------- ----------
Income tax expense:
Current 118,800 123,600
Deferred 4,300 23,700
---------- ----------
123,100 147,300
---------- ----------
Net income $ 312,000 $ 321,700
========== ==========
Basic earnings per common share $ .29 $ .32
========== ==========
Diluted earnings per common share $ .27 $ .30
========== ==========
Weighted average common shares
outstanding 1,075,878 991,809
========== ==========
Weighted average common shares
outstanding, assuming dilution 1,140,751 1,068,445
========== ==========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2007 AND 2006
Common Stock Additional Accumulated
______________ Paid-in Other Compr-
Shares Amount Capital ehensive Loss
_______ _______ ________ _____________
Balance, July 1, 2005 1,000,009 $50,000 $ 991,200 $ (7,600)
Net income - - - -
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (6,400)
Less reclassification
adjustment for loss
included in net income - - - 2,500
Change in net unrealized
holding loss - - - -
Comprehensive income - - - -
Exercise of stock options
and warrant 20,145 1,000 12,500 -
Income tax benefit of
stock options exercised - - 6,800 -
Cash dividend paid, $.09
per share - - - -
_________ _______ __________ ___________
Balance, June 30, 2006 1,020,154 51,000 1,010,500 (11,500)
Net income - - - -
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 1,800
Plus reclassification
adjustment for gain
included in net income - - - (200)
Change in net unrealized
holding loss - - - -
Comprehensive income - - - -
Exercise of stock options 20,000 1,000 32,200 -
Issuance of common stock
in connection with
acquisition 125,000 6,200 380,000 -
Stock-based compensation - - 5,100 -
Income tax benefit of
stock options exercised - - 1,100 -
Cash dividend paid, $.07
per share - - - -
_________ _______ __________ ___________
Balance, June 30, 2007 1,165,154 $58,200 $1,428,900 $ ( 9,900)
========= ======= ========== ===========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
________ ______ ______ ____________
Balance, July 1, 2005 $1,456,700 19,802 $52,400 $ 2,437,900
____________
Net income 321,700 - - 321,700
____________
Other comprehensive loss:
Unrealized holding loss
arising during period - - - (6,400)
Less reclassification
adjustment for loss
included in net income - - - 2,500
____________
Change in net unrealized
holding gain - - - (3,900)
____________
Comprehensive income - - - 317,800
____________
Exercise of stock options - - - 13,500
and warrant
Income tax benefit of
stock options exercised - - - 6,800
Cash dividend paid, $.09
per share (89,100) - - (89,100)
___________ _______ _______ ____________
Balance, June 30, 2006 1,689,300 19,802 52,400 2,686,900
Net income 312,000 - - 312,000
___________
Other comprehensive loss:
Unrealized holding gain
arising during period - - - 1,800
Plus reclassification
adjustment for gain
included in net income - - - (200)
____________
Change in net unrealized
holding loss - - - 1,600
____________
Comprehensive income - - - 313,600
____________
Exercise of stock options - - - 33,200
Issuance of common stock
in connection with
acquisition - - - 386,200
Stock-based compensation - - - 5,100
Income tax benefit of stock
options exercised - - - 1,100
Cash dividend paid, $.07
per share (70,000) - - (70,000)
_________ _______ _______ __________
Balance, June 30, 2007 $1,931,300 19,802 $52,400 $3,356,100
========== ======= ======= ==========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2007 AND 2006
2007 2006
--------- ---------
Operating activities:
Net income $ 312,000 $ 321,700
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on sale of investments (200) 2,500
Depreciation and amortization 150,100 78,100
Deferred income taxes 4,300 23,700
Income tax benefit of stock options
exercised 1,100 6,800
Stock-based compensation 5,100 -
Changes in assets and liabilities,
net of effect of acquisition:
Trade accounts receivable (319,600) 136,700
Inventories 24,900 (129,900)
Prepaid and other current assets 50,300 (46,100)
Other assets 18,100 1,300
Accounts payable (75,100) (14,300)
Customer advances (104,200) -
Accrued expenses and taxes 126,700 (24,900)
Deferred compensation (21,400) (19,400)
--------- ---------
Total adjustments (139,900) 14,500
--------- ---------
Net cash provided by operating
activities 172,100 336,200
--------- ---------
Investing activities, net of effect of acquisition:
Acquisition of Altamira Instruments, Inc.,
net of cash acquired (346,500) -
Purchase of investment securities,
available for sale (23,700) (344,500)
Redemption of investment securities,
available for sale 475,700 123,600
Redemption of investment securities,
held to maturity - 72,300
Capital expenditures (65,000) (38,000)
Purchase of intangible assets (14,800) (30,200)
--------- ---------
Net cash provided by (used in)
investing activities 25,700 (216,800)
--------- ---------
Financing activities:
Proceeds from exercise of stock options 33,200 13,500
Cash dividend paid (70,000) (89,100)
--------- ---------
Net cash used in financing
activities (36,800) (75,600)
--------- ---------
Net increase in cash and cash equivalents 161,000 43,800
Cash and cash equivalents, beginning of year 227,700 183,900
--------- ---------
Cash and cash equivalents, end of year $ 388,700 $ 227,700
========= ==========
|
Non-cash financing activity:
See Note 2 for stock issued in connection with 2007
acquisition and Note 12 for exercise of warrants in 2006
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2007 AND 2006
Nature of Operations
Scientific Industries, Inc. and its subsidiaries (the "Company") design, manufacture, and market a variety of benchtop laboratory equipment and catalyst research instruments. The Company is headquartered in Bohemia, New York where it produces benchtop laboratory equipment for research and, since November 30, 2006, has a location in Pittsburgh, Pennsylvania, where it produces a variety of custom-made catalyst research instruments. The equipment sold by the Company includes mixers, shakers, stirrers, refrigerated incubators, catalyst characterization instruments, reactor systems and high throughput systems.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary and, since November 30, 2006 (date of acquisition), Altamira Instruments, Inc. ("Altamira") a Delaware corporation and wholly-owned subsidiary (all collectively referred to as the "Company"). All material intercompany balances and transactions have been eliminated.
Revenue Recognition
Revenue is recognized when all the following criteria are met:
. Receipt of a written purchase order agreement which is binding
on the customer.
. Goods are shipped and title passes.
. Prices are fixed.
. Collectibility is reasonably assured.
. All material obligations under the agreement have been
substantially performed.
All orders are F.O.B. shipping point, all sales are final without right of return or payment contingencies, and there are no special sales arrangements or agreements with any customers.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At certain times, the Company maintains balances in accounts in excess of the $100,000 FDIC insurance coverage.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Accounts Receivable
In order to record the Company's accounts receivable at their net realizable value, the Company must assess their collectibility. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company's receivables, and the current creditworthiness of the Company's customers. The Company has recorded allowances for receivables which it considered uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company's customers was to deteriorate and its ability to make required payments became impaired, increases in these allowances may be required. The Company actively manages its accounts receivable to minimize credit risk. The Company does not obtain collateral for its accounts receivable.
Customer Advances
In the ordinary course of business, customers of Altamira may prepay monies for purchase orders issued to the Company. Such amounts are categorized as liabilities under the caption customer advances.
Investment Securities
Securities which the Company has the ability and positive intent to hold to maturity are carried at amortized cost. Substantially all held-to-maturity securities mature within one year. Securities available for sale are carried at fair value with unrealized gains or losses reported in a separate component of shareholders' equity. Realized gains or losses are determined based on the specific identification method.
Inventories
Inventories are valued at the lower of cost (first in, first out) or market value, and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on management's review of inventories on hand compared to estimated future usage and sales. Cost of work-in-process and finished goods inventories include material, labor and manufacturing overhead.
Property and Equipment
Property and equipment are stated at cost. Depreciation of computer equipment, machinery and equipment and furniture and fixtures is provided for primarily by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized by the straight-line method over the term of the related lease or the estimated useful lives of the assets, whichever is shorter.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Intangible Assets
Intangible assets consist of acquired technology, customer relationships, non-compete agreements, patents, licenses, trademarks and trade names. All intangible assets are amortized on a straight-line basis over 5 years, except for customer relationships which are amortized on an accelerated (declining-balance) basis over their estimated useful lives. The Company continually evaluates the remaining estimated useful lives of intangible assets that are being amortized to determine whether events or circumstances warrant a revision to the remaining period of amortization.
Goodwill
Goodwill represents the excess purchase price over the fair value of acquired net assets and in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," is tested for impairment annually, or earlier, if indicators of impairment exist. To the extent an indication exists that the goodwill may be impaired, the Company must measure the impairment loss, if any. The Company performed an assessment to determine whether goodwill was impaired at June 30, 2007 and determined that there was no impairment to its goodwill balance.
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 basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. Deferred income taxes result principally from the timing of the deductibility of the rent accrual, deferred compensation paid, and the use of accelerated methods of depreciation and amortization for tax purposes.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to $36,200 and $39,100 for the years ended June 30, 2007 and 2006.
Stock Compensation Plan
During the year ended June 30, 2003, the Company established a ten-year stock option plan (the "2002 Plan") which provides for the grant of options to purchase up to 100,000 shares of the Company's Common Stock, par value $.05 per share ("Common Stock"), plus to the extent that options previously granted under the 1992 Stock Option Plan of the Company (the "Prior Plan") expire or terminate for any reason without having been exercised, then options exercisable for that same number of shares of Common Stock, up to a maximum of one hundred sixty one thousand (161,000) shares, may be granted pursuant to the 2002 Plan. The 2002 Plan provides for the granting of incentive or non-incentive stock options as defined in the 2002 Plan. Incentive stock options may be granted to employees at an exercise price equal to 100% (or 110% if the optionee owns directly or indirectly more than 10% of the outstanding voting stock) of the fair market value of the shares of Common Stock on the date of the grant. Non-incentive stock options are to be granted at an exercise price not less than 85% of the fair market value of the shares of Common Stock on the date of grant. The 2002 Plan also stipulates that none of the then members of the Board of Directors shall be eligible to receive option grants under the 2002 Plan. The Prior Plan provided that each non-employee member of the Board of Directors be granted, annually commencing March 1993, for a period of four years, a ten-year option to purchase 3,000 shares of Common Stock at the fair market value on the date of grant and commencing annually in December 1997, for as long as director, a ten-year option to purchase 4,000 shares of Common Stock at the fair market value on the date of grant. No options have been granted to such directors of the Company since December 2001. The options expire at various dates through February 2017. At June 30, 2007, 101,334 shares of Common Stock were available for grant under the 2002 Plan and the Prior Plan.
Through the year ended June 30, 2006, the Company had elected to account for its employee stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation expense was recognized for options granted under fixed plans when the option price was 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, was required under SFAS No. 123, "Accounting for Stock-Based Compensation," 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. There were no options granted in 2006.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Stock Compensation Plan (Continued)
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 for the year ended June 30, 2006 would have been reduced to the pro forma amounts indicated below:
Net income:
As reported $ 321,700
Pro forma 320,600
Basic earnings per share:
As reported $ .32
Pro forma $ .32
Diluted earnings per share:
As reported $ .30
Pro forma $ .30
Stock-based employee compensation cost,
net of related tax effects, included
in the determination of net income
as reported $ -
|
Any stock-based compensation transaction subsequent to June 30, 2006
is accounted for using SFAS No. 123R, "Share-Based Payment". This
statement, issued on December 16, 2004 by the Financial Accounting
Standards Board, requires compensation costs related to stock-based
payment transactions to be recognized commencing with the first
reporting period in the Company's fiscal year ended June 30, 2007.
With limited exceptions, the amount of compensation cost is measured
based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards will be measured
each reporting period. Compensation costs are recognized over
the period that an employee provides service in exchange for the award.
Statement 123R replaces SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25.
During the year ended June 30, 2007, the Company granted 5,000 options
that had a fair value of $10,100 to a director who is affiliated with
a consultant to the Company. The fair value of the options was
determined using the Black-Scholes-Merton option-pricing model, which
was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. The
weighted-average assumptions used were an expected life of 10 years;
risk-free interest rate of 4.69%; volatility of 69%; and a dividend
yield of 6%. The weighted-average value of the options granted in 2007
was $2.02 and stock-based compensation costs were $5,100 for the
year ended June 30, 2007. Stock-based compensation costs related to
non-vested awards are $5,000 to be recognized over the next two years.
The Company did not grant any options or warrants as compensation for goods or services to non-employees for the years ended June 30, 2007 and 2006.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
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 estimate that requires management's most difficult and subjective judgment includes the valuation of inventory. The actual results experienced by the Company may differ materially from management's estimates.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the weighted-average number of shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options and warrants, if any.
Recent Accounting Pronouncements
In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS 157 will be applied prospectively and will be effective for periods beginning after November 15, 2007. The Company is currently evaluating the effect, if any, of SFAS 157 on the Company's consolidated financial statements.
In June 2006, the FASB issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement ("SFAS") No. 109." This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." The interpretation describes a recognition threshold and measurement attribute for the financial statement disclosure of tax positions taken or expected to be taken. It also provides for guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company is still evaluating the effect of adopting FIN 48 and does not expect it to have a material effect on the Company's consolidated financial statements.
On November 30, 2006, the Company acquired all of the outstanding capital stock of Altamira. The acquisition was pursuant to a Stock Purchase Agreement dated as of November 30, 2006 (the "Agreement") whereby the Company paid or issued to the sellers $400,000 in cash and 125,000 shares of the Company's Common Stock and agreed to make additional cash payments equal to 5%, subject to possible adjustment, of the net sales of Altamira for each of five periods - December 1, 2006 to June 30, 2007, each of the fiscal years ending June 30, 2008, 2009, and 2010, and July 1, 2010 to November 30, 2010.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Altamira's principal customers are universities, government laboratories, and chemical and petrochemical companies. The instruments, which are customizable to the customers' specifications, are sold on a direct basis.
In conjunction with the acquisition of Altamira, management of the Company, with the assistance of an independent valuation firm, valued the tangible and intangible assets acquired, including goodwill, customer relationships, non-compete agreements, and certain technology, trade names and trademarks. The carrying amounts of goodwill and other intangible assets are presented in Note 7, "Goodwill and Other Intangible Assets" which represent the valuations performed in conjunction with the acquisition. In addition, other fair market value adjustments were made in conjunction with the acquisition, primarily adjustments to property and equipment, and inventory. Under a separate agreement with the sellers, the Company made an election to treat the acquisition of Altamira stock as a purchase of assets for tax purposes, which resulted in approximately an additional $42,000 to be paid to the sellers for their additional tax burden as a result of this election which has been treated as part of the cost of the acquisition (see Note 7).
The acquisition was recorded under the purchase method of accounting. The net purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair market values at the date of the acquisition. The allocation of the net purchase price as adjusted for the items described above is as follows:
Current assets $ 734,000
Property and equipment 140,300
Non-current assets 25,100
Goodwill 13,400
Other intangible assets 639,000*
Current liabilities (561,900)
_____________
Net purchase price $ 989,900
=============
|
*Of the $639,000 of other intangible assets, $237,000 was allocated to customer relationships with a weighted-average estimated useful life of 10 years, $300,000 was allocated to technology including trade names and trademarks with a useful life of 5 years, and $102,000 was allocated to a non-compete agreement with a useful life of 5 years. The amount allocated to the customer relationships is being amortized on an accelerated (declining balance) method and the other intangibles are being amortized on a straight-line basis.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Pro Forma Results
The unaudited pro forma condensed financial information in the table below summarizes the results of operations of Scientific Industries, Inc. ("Scientific") and Altamira, on a pro forma basis, as though the companies had been consolidated as of the beginning of each of the fiscal years presented. The unaudited pro forma condensed financial information presented below is for informational purposes only and is not intended to represent or be indicative of the consolidated results of the operations that would have been achieved if the acquisition had been completed as of the beginning of each fiscal year:
2007 2006
___________ ___________
Net sales $ 5,905,300 $ 4,944,400
Net income 388,400 218,100
Net income per share - basic $ .34 $ .20
Net income per share - diluted .33 .18
|
As a result of the acquisition of Altamira, the Company now views its operations as two segments: the manufacture and marketing of standard benchtop laboratory equipment for research in university, hospital and industrial laboratories sold primarily through laboratory equipment distributors ("benchtop laboratory equipment operations"), and the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical and petrochemical companies sold on a direct basis ("catalyst research instruments operations"). Substantially all of the management and employees of Altamira were retained following the acquisition.
Segment information is reported as follows:
Benchtop Catalyst Corporate
Laboratory Research and
Equipment Instruments Other Consolidated
__________ ___________ _________ ____________
June 30, 2007:
Net Sales $3,558,100 $1,321,900 $ - $4,880,000
Foreign Sales 1,659,500 582,700 - 2,242,200
Segment Profit (Loss) 495,600 (60,500) - 435,100
Segment Assets 2,050,100 1,329,900 757,100 4,137,100
Long-Lived Assets
Expenditures 72,000 7,800 - 79,800
Depreciation and
Amortization 51,300 98,800 - 150,100
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
There was only one reportable segment, the benchtop laboratory equipment operations, for the year ended June 30, 2006.
Certain information relating to the Company's export sales and principal customers is as follows:
2007 2006
___________ ___________
Export sales (principally Europe and Asia) $ 2,242,200 $ 1,514,400
Customers in excess of 10% of net sales:
Largest in 2007, second largest in 2006 766,700 586,700
Largest in 2006 - 703,000
|
Second largest in 2007, third largest in 2006 355,600 353,500
Accounts receivable from these customers amounted to approximately 13% and 42% of total accounts receivable at June 30, 2007 and 2006.
During the fourth quarter of fiscal 2006, the Company's then principal customer and distributor advised the Company that it would no longer market and buy the Company's products. Sales to this customer accounted for approximately 20% of net sales for fiscal 2006 and none for 2007.
The Company purchased approximately 17% and 44% of inventory from one supplier for the years ended June 30, 2007 and 2006.
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding Gain
Cost Value (Loss)
_____________ ________ ____________
At June 30, 2007:
Available for sale:
Equity securities $ 7,800 $ 12,500 $ 4,700
Mutual funds 645,100 630,500 (14,600)
Callable bonds 75,000 75,000 -
__________ _________ __________
$ 727,900 $ 718,000 $ ( 9,900)
========== ========= ==========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Gross Cost or Unrealized
Amortized Fair Holding Gain
Cost Value (Loss)
_____________ ________ ____________
At June 30, 2006:
Available for sale:
Equity securities $ 8,300 $ 11,300 $ 3,000
Mutual funds 621,400 606,900 (14,500)
Callable bonds 550,000 550,000 -
__________ __________ __________
$1,179,700 $1,168,200 $ (11,500)
__________ __________ __________
|
2007 2006
__________ __________
Raw materials $ 904,200 $ 806,700
Work-in-process 302,400 5,200
Finished goods 83,000 118,400
__________ __________
$1,289,600 $ 930,300
========== ==========
6. Property and Equipment
______________________
Useful Lives
(Years) 2007 2006
____________ __________ __________
Computer equipment 3-5 $ 130,200 $ 126,000
Machinery and equipment 3-7 439,300 365,400
Furniture and fixtures 4-10 172,300 88,000
Leasehold improvements 3-5 51,000 37,700
_________ _________
792,800 617,100
Less accumulated depreciation
and amortization 545,500 495,000
_________ _________
$ 247,300 $ 122,100
========= =========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
In conjunction with the acquisition of Altamira, management of the Company, with the assistance of an independent valuation firm, valued the tangible and intangible assets acquired, including customer relationships, non-compete agreements and technology which encompasses trade names, trademarks and licenses. The valuation resulted in an initial negative goodwill of approximately $91,500 on the date of acquisition which was subsequently adjusted to goodwill of $13,400 at June 30, 2007. The Stock Purchase Agreement provides for contingent future payments to the former shareholders based on net sales of the catalyst research instrument operations subject to certain limits, which are expected to be earned and paid. Additional consideration earned based upon sales through June 30, 2007 amounted to approximately $66,000.
The components of intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ ____________
At June 30, 2007:
Technology 5 yrs. $300,000 $ 35,000 $ 265,000
Customer relationships 10 yrs. 237,000 37,200 199,800
Non-compete agreement 5 yrs. 102,000 11,900 90,100
Other intangible assets 5 yrs. 110,300 68,400 41,900
________ _________ _________
$749,300 $ 152,500 $ 596,800
======== ========= =========
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ ____________
At June 30, 2006:
Other intangible assets 5 yrs. $114,400 $ 74,200 $ 40,200
======== ========= =========
|
Total amortization expense was $97,200 and $8,700 in 2007 and 2006.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Estimated future intangible assets amortization expense, based on current balances, as of June 30, 2007 is as follows:
Fiscal Years
____________
2008 $ 138,900
2009 130,300
2010 118,600
2011 106,800
2012 49,900
Thereafter 52,300
_____________
$ 596,800
=============
8. Bank Line of Credit
___________________
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The Company has an available $200,000 secured bank line of credit which bears interest at prime collateralized by all the assets of the Company. The Company did not utilize this credit line during the years ended June 30, 2007 and 2006. To support the line of credit, the Company would be required to maintain 20% of the credit line in average monthly balances.
The Company has a 401(k) profit sharing plan covering the Benchtop Laboratory Operations employees and as a result of the acquisition of Altamira, a second 401(k) profit sharing plan covering the Altamira employees. Both plans provide for voluntary employee salary contributions not to exceed the statutory limitations provided by the Internal Revenue Code. The first plan provides for company matching of 50% of each participant's salary deferral election, up to a maximum amount for each participant of 2% of their compensation, while the Altamira plan provides for matching the employee contributions up to 4% of their compensation. Total employer matching contributions amounted to $17,700 and $9,500 for the years ended June 30, 2007 and 2006, respectively.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Leases
The Company is obligated through January 2010 under a noncancelable operating lease for its Bohemia, New York premises, which requires minimum annual rental payments plus other expenses, including real estate taxes and insurance. In accordance with generally accepted accounting principles, the future minimum annual rental expense, computed on a straight-line basis, is approximately $182,800 under the terms of the lease. Rental expense for the Bohemia facility amounted to approximately $203,400 in 2007 and $199,500 in 2006. Accrued rent, payable in future years, amounted to $29,400 and $28,000 at June 30, 2007 and 2006.
The Company is also obligated under a lease for its facility in Pittsburgh, Pennsylvania. The lease, which commenced on August 1, 2006, has a term of five years through July 31, 2011, with an addendum provision for early termination with 180 day notice after two years of occupancy without penalty. The lease requires monthly minimum rental payments of $4,500 for the first two years and $4,700 monthly thereafter, with an option to renew for an additional five years. Total rental expense for the Pittsburgh facility was $31,500 in 2007. There are no other significant expenses related to this lease.
The Company's approximate future minimum rental payments under all leases, assuming exercise of early termination of the Pittsburgh lease, are as follows:
Fiscal Bohemia Pittsburgh
Years Facility Facility Total
____________ ________ __________ ________
2008 $186,100 $ 54,000 $240,100
2009 193,600 32,900 226,500
2010 115,800 - 115,800
________ __________ ________
$495,500 $ 86,900 $582,400
======== ========== ========
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Employment Contracts
Pursuant to an expired employment contract with its former President, the former President chose that a portion of compensation earned in prior years be deferred to future years. The deferred amounts were placed in a separate investment account and all earnings and losses thereon were for his benefit. As of June 30, 2006, $21,400 was segregated into such an account and was included as an asset. The balance due to him was payable out of (but not secured by) the account, in five equal annual installments as adjusted by market fluctuations commencing after the termination of employment. For the years ended June 30, 2007 and 2006, $22,000 and $21,000, respectively were paid to the former President. There are no additional payments due.
The Company has employment contracts with its President and Executive Vice President expiring on December 31, 2008, providing for annual base salaries of $120,000 and $115,000, respectively. Each contract provides for a performance bonus at the discretion of the Board of Directors. A cash bonus of $10,000 was paid to each of the two executive officers on December 31, 2006.
In connection with the acquisition of Altamira, the Company entered into an employment agreement with its former Vice President and Director for his services as Director of Marketing and Operations. The agreement provides for a two-year term with the Company having two one-year renewal options, at a salary of $110,000 per annum during the initial two-year term to be increased by 2% during each of the two-year extension periods plus adjustments based on annual increase in the consumer price index. The employment agreement contains non-competition and non-solicitation covenants.
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, 2007.
The Company has a consulting agreement expiring December 31, 2008 with an affiliate of a member of its Board of Directors for marketing consulting services. The agreement provides that the consultant will be paid a monthly fee of $3,000 for a certain number of consulting days as defined in the agreement. Consulting expense related to this agreement amounted to $32,900 and $35,400 for the years ended June 30, 2007 and 2006.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Income taxes for 2007 and 2006 were different from the amounts computed by applying the Federal income tax rate to the income before income taxes due to the following:
2007 2006
__________________ _________________
%of % of
Pre-tax Pre-tax
Amount Income Amount Income
_________ _______ _________ _______
Computed "expected" income tax $147,900 34.0% $159,500 34.0%
Research and development
credits ( 11,700) (2.7) (6,000) (1.3)
State income taxes, net of
Federal effect 10,700 2.5 11,600 2.5
Other, net (23,800) (5.5) (17,800) (3.8)
_________ _______ __________ ______
Actual income taxes $123,100 28.3% $147,300 31.4%
========= ======= ========== ======
|
Deferred tax assets and liabilities consist of the following:
2007 2006
__________ __________
Deferred tax assets:
Amortization of intangibles $ 33,800 $ 11,300
Deferred compensation - 7,100
Rent accrual 10,000 9,600
Other 25,600 21,900
_________ _________
69,400 49,900
Deferred tax liability:
Depreciation of property
and equipment (51,400) (27,600)
__________ __________
Net deferred tax assets $ 18,000 $ 22,300
========== ==========
|
The breakdown between current and long-term deferred tax assets and liabilities is as follows:
2007 2006
__________ __________
Current deferred tax assets $ 25,600 $ 25,500
Long-term deferred tax assets 43,800 24,400
Long-term deferred tax liabilities (51,400) (27,600)
__________ __________
$ 18,000 $ 22,300
========== ==========
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Option activity is summarized as follows:
Fiscal 2007 Fiscal 2006
_________________ __________________
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
_______ _______ _______ ________
Shares under option:
Outstanding, beginning of year 119,001 $ 1.57 131,334 $ 1.54
Granted 5,000 3.10 - -
Exercised (20,000) 1.66 (10,666) 1.27
Forfeited - - (1,667) 1.20
________ _______ ________ ________
Outstanding, end of year 104,001 1.62 119,001 1.57
________ _______ ________ ________
Options exercisable at year-end 101,001 $ 1.58 119,001 $ 1.57
________ _______ ________ ________
Weighted average fair value per
share of options granted
during fiscal 2007 and 2006 $ 3.10 $ -
_______ ________
As of June 30, 2007 As of June 30, 2007
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.92-$3.10 63,000 3.32 $ 2.04 60,000 $ 1.99
$.82-$1.33 41,001 3.25 .98 41,001 .98
________ ________
104,001 101,001
________ ________
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SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
Weighted-
Average Weighted-
Range Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life (Years) Price
_________ ___________ ____________ _________
$1.25-$2.40 90,000 3.45 $1.80
$.82-$.84 29,001 3.14 .84
_______
119,001
_______
|
During the year ended June 30, 2006 a stock purchase warrant for 17,390 shares of the Company's common stock issued during 2001 for services was exercised at a price of $1.4375 per share. The exercise was cashless and resulted in the Company issuing 9,479 shares.
Earnings per common share data was computed as follows:
2007 2006
__________ __________
Net income $ 312,000 $ 321,700
__________ __________
Weighted average common shares
outstanding 1,075,878 991,809
Effect of dilutive securities,
stock options (and warrant in 2006) 64,873 76,636
__________ __________
Weighted average dilutive common
shares outstanding 1,140,751 1,068,445
__________ __________
Basic earnings per common share $ .29 $ .32
========== ==========
Diluted earnings per common share $ .27 $ .30
========== ==========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2007 AND 2006
The financial statements include various estimated fair value information as of June 30, 2007 and 2006, as required by SFAS No. 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:
2007 2006
___________________ ___________________
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
________ _________ ________ _________
Assets:
Cash and cash equivalents $ 388,700 $388,700 $ 227,700 $ 227,700
Investment securities
(Note 3) $ 718,000 $718,000 $1,168,200 $1,168,200
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LEASE AGREEMENT
THIS LEASE is made and entered into this 1st day of August 2006 by and between Allegheny Homes, LLC whose principal address is P.O. Box 38356, Pittsburgh, Pa 15238 (hereinafter) referred to as "Landlord").
AND
Altamira Instruments, Inc., a Delaware Corporation, whose principal address is 149 Delta Drive, Suite 200, Pittsburgh,Pa. 15238 (hereinafter referred to as "Tenant")
1. DISMISSED PREMISES: Landlord hereby leases to Tenant an area containing approximately 6,560 s.f. of office/warehouse/lab space (known currently as "Suite 200", and as currently leased by the same tenant for the entire lease term.
2. TERM:
a. The term of this lease shall be for a period
of 60 months commencing as of August 1, 2006
and expiring at the end of the 60th full
calendar month thereafter.
b. Provided Tenant is not in default hereunder, Tenant shall have the right to renew the lease for five (5) years at the prevailing market rate as indicated by rentals charged for similarly situated real estate with the RIDC Park, not to exceed 135% of the initial base rental rate. Tenant must notify Landlord of its intentions via written notice 180 days prior to the lease termination.
3. RENT: Tenant covenants and agrees to pay to Landlord at P.O. Box 38356, Pgh. Pa. 15238, or any other address as specified by Landlord during the first two years of this lease, as rent for the demised Premises an annual rental of $54,000.00 in monthly installments of $4,500.00. For years three, four and five the annual rent will be $56,400.00 in monthly installments of $4,700.00.
The aforementioned rental shall be payable in advance in
monthly installments as stated herein. In the event any
installment of rent is not paid on or before the fifth
(5th) day of the month, a monthly late charge of fifteen
(15%) percent of that installment of rent shall be due
and payable by Tenant as additional rent.
4. SECURITY DEPOSIT: The Tenant has paid $5,125.00 to the Landlord as a deposit to the Landlord to stand as security for the payment by the Tenant of any and all present and future debts and liabilities of the Tenant to the Landlord and for the performance by the Tenant of all its obligations arising under or in connection with its lease collectively hereinafter the "Obligations". In the event the Landlord disposes of its interest in this lease, the Landlord shall credit the deposit to its successors and thereupon shall have no liability to the Tenant. Subject to the foregoing and to the Tenant not being in default under this lease, the Landlord shall repay the security deposit to the Tenant without interest at the end of the Term or sooner termination of the lease provided that all obligations of the Tenant to the Landlord are paid.
5. INSPECTION: Tenant covenants and agrees to permit Landlord or Landlord's authorized representative to enter the Premises for the inspection thereof, at any reasonable time during normal business hours, and during the 120 days prior to the expiration of Tenant's final lease term, for the purpose of showing the same to prospective tenants and/or purchasers. Landlord may place signs on or about said premises to indicate that same are for sale or rent, which signs shall not be removed or obliterated or hidden by Tenant. Landlord shall further have the right to access to make such repairs to the building, or any parts thereof, which Landlord may deem desirable or necessary for the safety or preservation of the same.
6. BUILDING EXPENSES: During the term of this lease and any renewal thereof, Landlord shall be responsible for direct payment of all operating costs associated with the premises including electric, gas, water and sewer consumption, real estate taxes, insurance, snow removal and landscaping.
7. ADDITIONAL RENT: During the term of this lease, and any extension or renewal thereof, Tenant shall pay within thirty (30) days of billing by Landlord, as additional rent, their pro-rata share of any increases after the first base year of 2005, in real estate taxes, insurance premiums, water, sewer, maintenance, lawn care and snow removal expenses relating to the operation of the building, at the option of the Landlord. If the Landlord chooses to bill for such increases, Landlord shall provide the bill within 60 days of such increases. Landlord shall provide the bill within 60 days of such increase and shall provide Tenant an accounting of such increases.
8. JANITORIAL/RUBBISH: Tenant shall be responsible for the sole cost of janitorial service and rubbish removal.
9. REPAIRS: Landlord shall be responsible for the following repairs:
(a) Landlord shall deliver HVAC, electrical,
plumbing, and other systems to Tenant in good
working order upon lease commencement and
shall be responsible for repairs and
maintenance of same throughout this lease.
(b) Landlord shall be responsible for the
maintenance, repair and/or replacement of the
roof, exterior walls, and structural
components of the building.
(C)) Tenant shall be responsible for all routine
maintenance and upkeep to the Premises.
However, in no event shall Landlord be required to make any repairs or replacements caused by the acts, omissions, or negligence of Tenant, its agents, servants, employees, contractors, business invitees, and persons making deliveries to the demised Premises.
10. ALTERATIONS: Tenant shall not make any alterations, additions or improvements to the demised Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld.
11. AMERICANS WITH DISABILITIES ACT: Landlord makes no representation that the Premises are in compliance with the Americans With Disabilities Act, any regulations promulgated thereunder or any similar state or local regulatory scheme. Tenant assumes full liability and responsibility for any alterations necessary to render the Premises to compliance with such laws.
12. FIRE OR OTHER CASUALTY: If the building is damaged by fire or any other casualty to such an extent that the cost of restoration, as reasonable estimated by Landlord, will equal or exceed fifty (50%) percent of the replacement value of the building(exclusive of foundations) just prior to the occurrence of the damage, then Landlord may, within sixty (60) days of the date of the fire or other casualty, terminate the lease by notice in writing to Tenant. Said termination shall be effective on the last day of the month in which notice is given or within ten (10) days of the date notice is given, whichever date is later. Tenant shall surrender possession of the demised Premises on the effective date of termination of the lease and prepaid and unpaid rent and additional rent shall be apportioned as of said date.
If the cost of restoration as reasonably estimated by Landlord shall amount to less than fifty (50%) percent of said replacement value of the building, or if despite the cost Landlord does not elect to terminate this lease, Landlord shall restore the building with reasonable promptness, subject to Force Majeure, as hereinafter defined, and neither Landlord nor Tenant shall have the right to terminate this lease. Landlord shall not be required to restore the fixtures and improvements owned or installed by Tenant.
In the event the demised Premises are rendered totally unusable as a result of fire or other casualty, Landlord shall not be required to restore or repair the demised Premises but shall have the sole choice or option to do so and shall notify Tenant of Landlord's choice or option within sixty (60) days of the fire or other casualty. In the event Landlord elects not to restore or repair the demised Premises, all rights and obligations of the Landlord and Tenant hereunder shall cease and terminate as of the day of such fire or other casualty and prepaid or unpaid rent shall be immediately adjusted as of such date.
In any case in which the use of the demised Premises is affected by any such damage, there shall be either an abatement or an equitable reduction in rent depending on the period for which and to the extent the demised premises are not reasonably useable for the purposes for which they are leased hereunder. If the damage results from the fault of Tenant, or Tenant's agents, servants, invitees or licensees, Tenant shall not be entitled to any abatement or reduction of rent, except to the extent, if any, that Landlord receives the proceeds of rent insurance in lieu of rent.
13. INDEMNITY AND INSURANCES: Landlord and Tenant each covenant and agree that it will protect and save and keep the other party forever free and harmless and indemnified against and from any and all claims on account of any and all losses, costs, damages or expenses arising out of any failure of Landlord or Tenant in any respect to comply with and perform all the terms, conditions, covenants and provisions in the within lease to be performed by such party. Notwithstanding the foregoing, Landlord and Tenant shall not indemnify or hold harmless the other party for any claims, loss, cost, damage and/or expenses arising or resulting from any intentional act, negligence or omission of such other party. The parties' obligations under this Paragraph are subject to the Waiver of Subrogation set forth in Paragraph 28, hereof. Tenant shall, during the term of this lease and any extension thereof, Tenant shall provide and maintain comprehensive general public liability insurance insuring Landlord and Tenant against all bodily injury or property damage occurring on the Premises with limits of One Million Dollars ($1,000,000.00) in respect to any one occurrence with such deductibles as Tenant may customarily carry in the conduct of its business.
Insurance hereof shall be written with a reputable
company or companies authorized to engage in the business
of general liability insurance in the Commonwealth of
Pennsylvania. Policies of insurance issued by said
companies shall name the Landlord as an additional
insured. Tenant shall furnish Landlord, at least fifteen
(15) days prior to the commencement of the term of this
lease, and thereafter at least fifteen (15) days prior to
the expiration of any policy, with customary insurance
certificate evidencing such insurance, which provided
that Landlord shall receive at least fifteen (15) days
prior notice in writing of the cancellation of any such
insurance policy. In the event Tenant fails to furnish
such certificate, Landlord may, but shall not be required
to, obtain such insurance and the premiums on such
insurance shall be deemed additional rental to be paid by
Tenant to Landlord upon demand.
Landlord shall maintain during the term of this lease all risk insurance insuring the building and property of which the Premises are a part in an amount equal to the replacement value thereof.
14. PROPERTY IN DEMISED PREMISES: All personal property of every kind or description that may at any time be in or on the demised Premises shall be at Tenant's sole risk or at the risk of other claiming under the Tenant and the Landlord shall not be liable for any damage to said property or loss suffered by the business or occupation of Tenant caused in any matter whatsoever.
At the expiration of the term herein provided or any renewals thereof, the Tenant may remove al the trade fixtures, provided all the terms and conditions of this lease have been fully performed by Tenant and rents hereinbefore stipulated are paid in full and all damage to the demised Premises caused by the removal of said trade fixtures is repaired. Subject to the foregoing, all alterations, leasehold improvements, and additions affixed to the demised Premises installed by Tenant at the demised Premises shall remain upon the demised Premises at the end of the term of the lease and shall become the property of Landlord, except as may be set forth on an exhibit to this lease, and which Tenant may remove, without injury or defacement of the demised Premises and provided all of the terms and conditions of this lease have been fully performed by Tenant and rents hereinbefore stipulated are paid in full, and all damage to the demised Premises caused by the removal of said items is repaired.
15. ASSIGNMENT AND SUBLETTING: Tenant may not assign this lease or sublet the whole or any part of the demised Premises or permit any other person to occupy the whole or any part of the demised Premises without the prior written consent of Landlord to Tenant, which consent shall not be unreasonably withheld. Tenant shall provide Landlord with all information reasonably requested to enable Landlord to make an informed decision as to any assignment or subletting, and Landlord shall inform Tenant of its decision as to any assignment or subletting, and Landlord shall inform Tenant of its decision within a reasonable period of time after receipt of such information.
16. CONDEMNATION: If the whole of the demised Premises shall be taken by any government or public authority under the power of eminent domain, or conveyed in lieu thereof, then the term of this lease shall cease from the day possession of the demised Premises shall be taken and the rent shall be paid up to that day. In the event that less than the whole of the demised Premises but a portion thereof material to Tenant's use of the demised Premises shall be taken, Landlord or Tenant shall have the option, to be exercised within thirty (30) days of the date that possession of the part of the demised Premises is taken, to terminate this lease, and the rent shall be paid up to the date of termination.
In the event neither Landlord or Tenant exercises said option, then this lease shall continue in full force and effect, except that the rent shall be equitably reduced to the extent the demised Premises are not reasonable usable for the purposes for which they are leased hereunder.
The entire compensation award, both fee and leasehold, shall belong to the Landlord without any deductions therefrom for any present or future estate of Tenant, and Tenant hereby assigns to Landlord all its right, title, and interest to any such award, and in the case of partial condemnation, Tenant's share of such award shall be proportionately reduced to reflect the fact that only a portion of the land and building has been taken Tenant shall, however, also be entitled to such award as may be allowed for fixtures and other equipment installed by it, and any other compensation allowed under the laws of the Commonwealth of Pennsylvania, such as for relocation, but only if such award or other compensation shall be in addition to the award for the land and the building.
17. RULES AND REGULATIONS: Tenant, its agents, servants, employees and invitees, shall observe and comply with the Project Development RIDC Industrial park System Architectural Guidelines and Design Standards and Protective Standards an Controls attached hereto as Exhibit "B" (collectively, the "RIDC" Standards") and the Rules and Regulations set forth on Exhibit "C", attached hereto. Landlord warrants and represents that (a) the RIDC Standards are the only covenants, restrictions or regulations (other than governmental laws, regulations, ordinances, codes and orders) which affect the land or building or the use thereof, and (b) the land and building currently comply with the RIDC Standards and except as set forth in paragraph 12 with all other laws, regulations, ordinances, codes and orders of all federal, state, county and municipal bodies, boards and commissions.
19. SUBORDINATION: Tenant agrees that this lease shall be subordinated to any mortgage now or hereafter placed upon the demised Premises, to any and all advances to be made thereunder; provided, however, that in the event of any foreclosure or deed in lieu of foreclosure affecting the property of which the demised Premises are a part, and assuming Tenant is not in default hereunder, Tenant's lease shall be unaffected by any such proceeding and shall remain in full force and effect. Tenant agrees that immediately upon the request of Landlord in writing, it will, without charge therefore, execute a recordable instrument or instruments with Landlord and the holder of any such mortgage or confirm the foregoing. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and deliver any such mutually acceptable instrument or instruments within ten (10) days after written notice to do so. In the event of any mortgagee electing to have the lease be prior in lien to its mortgage, then, upon such mortgagee notifying Tenant to the effect, this lease shall be deemed prior to lien to the said mortgage, whether this lease is dated prior to or subsequent to the date of said mortgage. In the event any person or entity shall succeed to all or part of Landlord's interest in the demised premises, whether by purchase or foreclosure, or otherwise and if so requested or required by such successor in interest, Tenant shall attorn to such successor in interest and shall execute such agreement in confirmation of such successor in interest and shall execute such agreement in confirmation of such attornment as such successor in interest shall reasonably approve.
20. ESTOPPEL CERTIFICATE: Tenant agrees, at any time within fifteen (15) day of Landlord's written request, to execute, acknowledge and deliver to Landlord or to a prospective purchaser or mortgagee of the demised Premises a written statement certifying that this lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications),and the dates to which the rent, additional rent and any payment due from Tenant have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Article may be relied upon by any prospective purchaser or mortgagee of the demised Premises.
21. WAIVER: The Tenant expressly waives to the Landlord the benefit of Act No. 20, approved April 6, 1951, entitled "The Landlord and Tenant Act of 1951" requiring notice to vacate the premises at the end of the term or any subsequent term for which this lease may be renewed and covenants and agrees to give up quiet and peaceable possession, without further notice from Landlord.
22. MECHANIC'S LIEN: Any mechanic's lien field against the
demised Premises or the building for work claimed to have
been done or for materials claimed to have been furnished
to Tenant shall be discharged by Tenant within thirty
(30) days after the filing of any mechanic's lien. If
Tenant shall fail to cause such lien to be discharged
within the period aforesaid, then, in addition to any
other right or remedy which Landlord may have, Landlord
may, but shall not be obligated to, discharge said lien
either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit or by
bonding procedures, and any amount so paid by Landlord
and all costs and expenses, including, but not limited
to, attorney's fees, incurred by Landlord in connection
therewith, plus interest, shall constitute additional
rental Payable by Tenant under this lease and shall be
paid by Tenant to Landlord on Demand.
23. PARKING: Landlord shall make available to Tenant free of charge that outdoor parking lot contiguous to Tenant's demised space. Tenant shall keep driveway clear of parked vehicles to allow Landlord complete access to the rear parking lot.
24. SIGNAGE: Landlord shall grant to Tenant via written notice, which said permission shall not be unreasonably withheld, permission to place signage on or about the demised Premises and monument signage at the driveway entrance subject to RIDC Standards, applicable zoning laws and mutual agreement with Landlord relating to sign placement.
Subject to Landlord's request, Tenant upon vacating agrees to remove at its sole cost all of its signage and restore the buildings facade and front yard areas to its present condition.
25. SURRENDER AND REMOVAL: Tenant covenants and agrees to deliver and surrender to Landlord possession of the demised Premises upon the expiration of the Term of this lease, broom clean and in as good condition and repair as the same shall be at the commencement of the term of this Lease or may have been put by Landlord or Tenant during the continuance thereof, ordinary wear and tear and damage by fire or the elements not caused by the negligence of Tenant or anyone acting thereunder excepted.
26. WAIVER OF SUBROGATION: Landlord and Tenant release each other from any liability on account of loss damage, cost or expense resulting from fire or other casualty insurable under standard fire and extended coverage insurance and waive any right of subrogation which might otherwise exist in or accrue to any person on account thereof, but only to the extent of any recovery made by the parties hereto under any policy of insurance now or hereafter issued, provided that such release of liability and waiver of the right of subrogation shall not be operative in any case where the effect thereof is to invalidate any insurance coverage.
27. HOLD OVER: If Tenant lawfully occupies the demised Premises after the end of the Term hereof, this lease and all its terms, conditions and provisions shall be in force for another month and so on from month to month unless either party gives notice to the other party at least thirty (30) days prior to the end of any such month not to continue the within lease beyond the end of any such month, in which event Tenant covenants and agrees to vacate the Premises on or before the end of any such month.
28. BREACHES AND REMEDIES: Any one or more of the following shall constitute an "Event or Default" under this lease:
A) default by Tenant in the payment of any installment of Rent, Additional Rent or any sum provided for under this lease as the same becomes due and payable, which default shall for ten (10) days;
B) breach by Tenant of any covenant or condition contained in this lease, which breach shall continue after twenty (20) days' written notice thereof from Landlord to Tenant unless the breach is of such nature that it cannot be cured in twenty (20) days in which case Tenant must take immediate steps to begin to cure the breach and use its "best efforts" to complete the cure of the breach;
C) removal, attempt to remove, or the expression or declaration of an intention to remove any of the goods and chattels from the demised Premises for any reason other than in the normal and usual operation of Tenant's business within the demised Premises;
D) issuance of an execution against Tenant which is not stayed by payment or otherwise within ten (10) days from the date of issuance of said execution;
E) institution of bankruptcy proceedings by Tenant, or
institution of bankruptcy proceedings against Tenant
which are not withdrawn or dismissed within twenty
(20) days after the institution of said proceedings;
F) an assignment by Tenant for the benefit of creditors, or appointment of a receiver for Tenant by legal proceedings or otherwise.
In the event that Tenant commits and Event of Default referred to in Paragraph 30 (A), above, the entire rent for the balance of the said Term (reduced to present value at the rate of 5% per annum) shall, at Landlord's option, and after notice and expiration of applicable grace periods, become due and payable as if by the Terms of this lease it were all payable in advance. In such event, or in the event Tenant commits any Event of Default referred to in this Paragraph 30, at Landlord's option, this lease shall terminate and Tenant shall surrender the demised Premises to Landlord. Notwithstanding any statute, rule or law, or decision of any court to the contrary, Tenant shall remain liable, even after termination of the lease, for rent, additional rent and/or accelerated rent due under this lease, and for all damages caused by Tenant's breach or breaches of the lease.
In case this lease shall be terminated as aforementioned, or if the Premises become vacant or deserted, then in addition to all other remedies of Landlord, Landlord may without notice terminate all services and/or re-enter the Premises either by force or otherwise and dispossess Tenant. Landlord may, but shall not be required to, attempt to relet the demised Premises or any part or parts thereof for a term which may at Landlord's option be less than or in excess of the period which would Otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or make improvements or additions to the demised Premises in order to facilitate a reletting of the demised Premises. Notwithstanding anything to the contrary set forth above, Landlord shall use Reasonable commercial efforts to mitigate its damages.
29. CONFESSION OF JUDGMENT: FOR VALUE RECEIVED AND FORTHWITH IN THE EVENT OF DEFAULT BY TENANT, TENANT HEREBY DOES EMPOWER AND CONFESS JUDGMENT FORTHWITH AGAINST TENANT AND IN FAVOR OF LESSOR IN AN AMICABLE ACTION OF EJECTMENT FOR THE PREMISES AND IMMEDIATELY ISSUE A WRIT OF POSSESSION, WITHOUT LEAVE OF COURT, WITH ALL FEES, RELEASES, AND WAIVES TO ACCOMPANY SAID CONFESSION OF JUDGMENT FOR A SUM DUE. USE OF THIS WARRANTY SHALL NOT EXHAUSE THE SAME OR THE POWER TO THEREAFTER CONFESS JUDGMENT, AS A CONTINUING REMEDY, TO BE USED AS OFTEN AS IT MAY BE REQUIRED, AND NOTWITHSTANDING ANY LAW OR RULE TO THE CONTRARY, A REPRODUCED COPY OF THIS INSTRUMENT CERTIFIED BY AN ATTORNEY OF ANY COURT OF RECORD TO BE TRUE AND CORRECT SHALL BE SUFFICIENT EVIDENCE OF THE CONTENTS HEREOF FOR THE PURPOSES HERETOFORE SET FORTH.
This Confession of Judgment shall survive the termination of this lease.
30. WARRANTY OF TITLE: Landlord warrants that it has good and marketable title to the land and building of which the demised Premises are a part, free from all encumbrances except those disclosed of record, and that subject to Tenant's compliance with its obligations hereunder, Tenant shall have the right to quiet enjoyment of the demised Premises.
31. NOTICES: Any notice, request, demand, approval or consent given or required to be given under this lease shall be in writing and shall be deemed to have been given on the second day after the same shall have been mailed by United States registered or certified mail, return receipt requested, with all postal charges prepaid, addressed as follows:
1) If to Landlord: Allegheny Homes, LLC
P.O. Box 38356
Pittsburgh, Pa 15238
Attn: Gene G. Tucciarone
2) If to Tenant: Altamira Instruments
149 Delta Drive
Pittsburgh, Pa 15238
Attn: Grace S. Morin, Pres.
Either party may, at any time, change its address for the above purposes by sending a notice to the other party stating the new address.
32. WAIVER BY LANDLORD: The waiver by Landlord of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or of any other term, covenant or condition herein contained. The subsequent acceptance of rent due hereunder or of any or all monetary obligations of Tenant hereunder, whether or not denoted as rent hereunder, by Landlord shall not be deemed to be a waiver of any breach by Tenant of any term, covenant or condition of this lease, regardless of Landlord's knowledge of such breach at the time of acceptance of such rent.
33. WAIVER OF JURY TRIAL: The Tenant and Landlord both waive a trail by jury of any and all issues arising in any action or proceeding between the parties hereto or their successors, under or in connection with this lease or any of its provisions.
34. REMEDIES CUMULATIVE: Mention in this lease or institution of any particular remedy by Landlord shall not preclude Landlord from any other remedies under this lease, or now or hereafter existing at law or in equity or by statute.
35. FORCE MAJEURE: Force Majeure is herein defined as strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature, foreseen or unforeseen, ordinary or extraordinary, beyond the control of the Landlord.
36. NEGATION OF PERSONAL LIABILITY: Notwithstanding anything to the contrary herein contained, Tenant agrees that Landlord shall have no personal liability with respect to any of the provisions of this lease and Tenant shall look solely to the estate and property of Landlord in this building and the land for the satisfaction of Tenant's remedies or claims including without limitation the collection of any judgment requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms and provisions of this lease to be observed and/or performed by Landlord.
37. TRUCK DOCK: Landlord shall provide tenant the exclusive use of one (1) truck/loading dock located in the warehouse portion of the demised premises.
38. EARLY TERMINATION: In the event of the demise to either
the current owner or to the building, the Tenant will
have the option of terminating this lease by providing
(180) day notice to the current Landlord.
39. COMPLETE OBLIGATIONS: This lease contains the entire agreement between the parties hereto, and neither party has made any statement, agreement or representation, either oral or written, in connection therewith, modifying, adding or changing the terms, conditions, covenants and provisions herein set forth. No modifications of this lease shall be binding unless such modifications shall be in writing and signed by the parties hereto.
40. SEVERABILITY: If any particular term, covenant or provision of this lease shall be determined to be invalid and unenforceable, the same shall not affect the remaining provisions of this lease which shall nevertheless remain in full force and effect.
41. MISCELLANEOUS: As used in this lease and when required by the context, each number (singular or plural) includes all numbers, each gender includes all genders and the word "it" includes any appropriate pronoun as the context requires.
42. PROVISIONS BINDING: This lease and all the terms and provisions hereof shall insure to the benefit of and be binding upon the parties hereto, their respective heirs, administrators, executors, successors, and assigns.
43. RIGHT OF FIRST REFUSAL: Should Landlord, during the lease term, or any extension thereof or any time Tenant is in possession of the leased Premises, elects to sell the leased Premises or receives a bona-fide offer of purchase, Tenant shall have the right of first refusal to meet any bona-fide offer of sale on the same terms and conditions of such offer, and will have fourteen (14) days thereafter to exercise their option, otherwise said options will forever terminate.
IN WITNESS WHEREOF, The parties hereto have executed this lease with the intention legally to be bound hereby the day and year first written above.
WITNESS: LANDLORD:
ALLEGHENY HOMES, LLC
/S/ Brook P. March /s/ Gene G. Tucciarone,
Pres.
_______________________
Gene G. Tucciarone, Pres.
TENANT:
ALTAMIRA INSTRUMENTS
/s/ Brook P. March 8/1/06 /s/ Grace S. Morin 8/1/06
__________________________
Grace S. Morin, Pres.
|
ADDENDUM TO LEASE BETWEEN ALLEGHENY HOMES LLC
AND ALTAMIRA INSTRUMENTS DATED AUGUST 1, 2006
A) It is hereby understood and agreed that the Tenant has the exclusive option of terminating their lease after the 24th month of occupancy, without cause or effect, by providing to Landlord, a 180 day written notice of termination after the 24th month. All of the terms and conditions as stated in the lease relative to vacating the Premises will still apply in the event of early termination.
B) In any instance where the Tenant, Altamira is threatened by an happening or event caused directly by the Landlord, and which happening or event is deemed detrimental to their operation, the Landlord will have 30 days after written notification to correct such incident; and if not corrected or abated within 30 days, the Tenant has the option, by giving 60 days notice, of terminating the lease and vacating the Premises.
/s/ Gene G. Tucciarone, Pres. 8/1/06 ______________________________ Allegheny Homes, LLC /s/ Grace S. Morin 8/1/06 ____________________________ Altamira Instruments Inc. |
CODE OF BUSINESS CONDUCT AND ETHICS
OF
SCIENTIFIC INDUSTRIES, INC.
EFFECTIVE DATE: September 20, 2007
INTRODUCTION
SCIENTIFIC INDUSTRIES, INC. expects that directors, officers,
employees, team members and contract staff members will conduct
themselves ethically and properly as a
matter or course and comply with the guidelines set forth below.
This Code of Business Conduct and Ethics (this "Code") is prepared, in large part, due to the requirements of the Sarbanes-Oxley Act of 2002 and rules of New York Stock Exchange, NASD Stock Market and/or any exchange upon which the Company's stock may be traded and is applicable to Scientific Industries, Inc. and all direct and indirect U.S. subsidiaries (hereinafter referred to collectively as the "Company"). Directors and Officers of foreign subsidiaries are also expected to act properly and consistent with country-specific guidelines developed for such subsidiaries.
This Code exists to provide the Company's directors, officers, employees, team members, contract staff members as well as shareholders, suppliers and members of the general public with an official statement as to how the Company conducts itself internally and in the marketplace and certain standards that the Company shall require of its directors, and officers.
The Company's Compliance Officer on the Effective Date of this Code is Helena R. Santos and the term "Compliance Officer", as used in this Code, refers to the Company's current Compliance Officer and any subsequent person appointed to that office.
PURPOSE
This Code is intended to provide a codification of standards that is reasonably designed to deter wrongdoing and to promote the following:
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by the Company;
Compliance with applicable governmental laws, rules and
regulations;
? The prompt internal reporting to an appropriate person or p
ersons identified in this Code for violations of this Code; and
Accountability for adherence to this Code.
SCOPE
This Code applies to the Company's Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Controller and persons performing similar functions (the "Executive Officers") as well as to all directors of the Company. As used herein, the term "employees" shall be deemed to include each of the foregoing persons unless specifically stated otherwise or unless the context clearly indicates otherwise.
POLICY PROVISIONS
Under this Code, all directors and Executive Officers (including the Company's Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Controller and persons performing similar functions) are expected to conduct business for the Company in the full spirit of honest and lawful behavior and shall not cause another director, Executive Officer, employee or non-employee to act otherwise, either through inducement or coercion.
I. Conflicts of Interest and Other Matters
Conflicts of interest may arise when an employee's position or responsibilities with the Company present an opportunity for personal gain apart from the normal compensation provided through employment. The following guidelines are provided:
A. Protection and Proper Use of Company Funds and Assets
The assets of the Company are much more than its properties, facilities, equipment, corporate funds and computer systems; they include technologies and concepts, business strategies and plans, as well as information about its business. These assets may not be improperly used and/or used to provide personal benefits for employees. In addition, employees may not provide outside persons with assets of the Company for the employee's personal gain or in such a manner as to be detrimental to the Company. Employees should protect the Company's assets and ensure their efficient and proper use. Theft, carelessness and waste have a direct impact on the Company's profitability. All Company assets should be used for legitimate business purposes.
B. Confidential Information
As part of one's job, he/she may have access to confidential information about the Company, its employees, agents, contractors, customers, suppliers and competitors. Unless released to the public by management, this information should not be disclosed to fellow employees who did not have a business need to know or to non-employees for any reason, except in accordance with established corporate procedures. Confidential information of this sort includes, but is not limited to, information or data on operations, business strategies and growth, business relationships, current or future personnel, processes, systems, procedures and financial information.
C. Outside Financial Interests Influencing Officer or Director's Decisions or Actions
Officers and Directors should avoid any outside financial interest that might influence their decisions or actions on matters involving the Company or its businesses or property. Such interests include, among other things: (i) a significant personal or immediate family interest in an enterprise that has significant business relations with the Company; or (ii) an enterprise or contract with a supplier, service-provider or any other company or entity where the individual or a member of his/her immediate family is a principal or financial beneficiary other than as an Officer and Director. All such interests should be disclosed by the Officer and Director to the Company's Compliance Officer.
D. Outside Activities Having Negative Impact On Job Performance
Officers and Directors should avoid outside employment or activities that would have a negative impact on their job performance with the Company, or which are likely to conflict with their job or their obligations to the Company.
E. Business Opportunities; Competitive Interests; Corporate Opportunities
No individual may enter into any contract or arrangement, own any interest or be a director, officer or consultant in or for an entity which enters into any contract or arrangement (except for the ownership of non-controlling interests in publicly-traded entities) with the Company for the providing of services to the Company unless and until the material facts as to the relationship or interest and the contract or transaction are fully disclosed to the Company's Compliance Officer and, if approved by the Company, the Company's Compliance Officer shall provide written confirmation of the approval of said contract or transaction.
Officers and Directors owe a duty to the Company to advance its legitimate interests when the opportunity arises to do so. Employees should refrain from and shall be prohibited from: (i) taking for themselves or for their personal benefit opportunities that could advance the interests of the Company or benefit the Company when such opportunities are discovered through the use of Company property, information or position; (ii) using Company property, information or position for personal gain; or (iii) competing with the Company.
II. Dealing With Suppliers, Customers And Other Employees
The Company obtains and keeps its business because of the quality of its operations. Conducting business, however, with other employees, suppliers and customers can pose ethical or even legal problems. The following guidelines are intended to help all employees make the appropriate decision in potentially difficult situations.
A. Bribes and Kickbacks
No Officer or Director of the Company may ever accept or pay bribes, kickbacks or other types of unusual payments from or to any organization or individual seeking to do business with, doing business with or competing with the Company.
B. Gifts
Officers and Directors may accept gifts or entertainment of nominal value as part of the normal business process if public knowledge of the employee's acceptance could cause the Company no conceivable embarrassment. Even a nominal gift and/or entertainment should not be accepted if it might appear to an observer that the gift and/or entertainment would influence the individual's business decisions. The term "nominal value" applies to the amount of the gift and/or its frequency; i.e., frequent gifts, even if of nominal value, are unacceptable. The term "entertainment" includes, but is not limited to, meals, charitable and sporting events, parties, plays and concerts. If you have any questions about the acceptance of entertainment or gifts, ask the Company's Compliance Officer for advice.
C. Travel and Entertainment Expenses
Officers and Directors must comply with the Company's policy on travel and entertainment expenses as set forth in the Company's policies and procedures, as the same may be amended or supplemented from time to time.
D. Relations with Government Personnel
The Company will not offer, give or reimburse expenses for entertainment or gratuities (including transportation, meals at business meetings or tickets to sporting or other events) to government officials or employees who are prohibited from receiving such by applicable government regulations.
E. Payments to Agents, Consultants, Distributors, Contractors
Agreements with agents, sales representatives, distributors, contractors and consultants should be in writing and should clearly and accurately set forth the services to be performed, the basis for earning the commission or fee involved and the applicable rate or fee. Payments should be reasonable in amount and not excessive in light of the practice in the trade and commensurate with the value of services rendered.
F. Fair Dealing
Each Officer and Director should endeavor to deal fairly with the Company's customers, suppliers, competitors and employees.
III. Books and Records
False or misleading entries shall not be made in any reports, ledgers, books or records of the Company nor shall any misrepresentation be made regarding the content thereof. No Officer or Director may engage in an arrangement that in any way may be interpreted or construed as misstating or otherwise concealing the nature or purpose of any entries in the books and records of the Company. No payment or receipt on behalf of the Company may be approved or made with the intention or understanding that any part of the payment or receipt is to be used for a purpose other than that described in the documents supporting the transaction.
IV. Competitive Practices
In business, it is inevitable that the Company and its competitors will meet and talk from time to time; this is neither against the law nor to be avoided. What will not be tolerated is collaboration with competitors in violation of the law on such things as pricing, production, marketing, inventories, product development, sales territories and goals, market studies and proprietary or confidential information.
As a vigorous competitor in the marketplace, the Company seeks economic knowledge about its competitors; however, it will not engage in illegal acts to acquire a competitor's trade secrets, financial data, information about company facilities, technical developments or operations.
V. Political Activities & Contributions
The Company encourages each of its Officers, Directors, and employees to be good citizens and to participate in the political process. They should, however, be aware that: (1) federal law and the statutes of some states in the U.S. prohibit the Company from contributing, directly or indirectly, to political candidates, political parties or party officials; and (2) individuals who participate in partisan political activities should ensure that they do not leave the impression that they speak or act for the Company.
VI. Compliance with Laws, Rules and Regulations
The Company proactively promotes compliance by all Officers, Directors, and employees with applicable laws, rules and regulations of any governmental unit, agency or divisions thereof and the rules and regulations of the New York Stock Exchange, The NASD Stock Market and/or any exchange upon which the Company's stock may be traded. The Company requires its Officers, Directors, and employees to abide by the provisions of applicable law on trading on inside information and all individuals are directed to refrain from trading in the Company's stock based on inside information. The Company requires its Officers, Directors, and employees to abide by applicable law and the Company's procedures with respect to periods of time within which all or some cross-section of the Company's employees will be prevented from trading in the Company' stock. The Company requires its Officers, Directors, and employees to abide by applicable law and the Company's policies with respect to disclosures of material non-public information (Regulation FD).
VII. Protection of Employees from Reprisal for Whistleblowing ("Whistleblowing Policy")
A. Purpose
To encourage employees to report Alleged Wrongful Conduct.
To prohibit supervisory personnel from taking Adverse Personnel Action against a Company employee as a result of the employee's good faith disclosure of Alleged Wrongful Conduct to a Designated Company Officer or Director or to the Company's Audit Committee. An employee who discloses and subsequently suffers an adverse Personnel Action as a result is subject to the protection of this Whistleblowing Policy.
B. Applicability
All employees of the Company who disclose Alleged Wrongful Conduct, as defined in this Whistleblowing Policy, and, who, as a result of the disclosure, are subject to an Adverse Personnel Action.
C. Whistleblowing Policy
All employees of the Company are encouraged to promptly report Alleged Wrongful Conduct. No Adverse Personnel Action may be taken against a Company employee in Knowing Retaliation for any lawful disclosure of information to a Designated Company Officer or Director or to the Company's Audit Committee, which information the employee in good faith believes evidences: (i) a violation of any law; (ii) fraudulent or criminal conduct or activities; (iii) questionable accounting or auditing matters or matters; (iv) misappropriation of Company funds; or (v) violations of provisions of this Code (such matters being collectively referred to herein as "Alleged Wrongful Conduct").
No supervisor, officer, director, department head or any other employee with authority to make or materially influence significant personnel decisions shall take or recommend an Adverse Personnel Action against an employee in Knowing Retaliation for disclosing Alleged Wrongful Conduct to a Designated Company Officer or Director or to the Company's Audit Committee.
D. Definitions
In addition to other terms as defined above, the terms set forth on Exhibit A attached hereto shall have the meanings set forth thereon for purposes of this Whistleblowing Policy.
E. Making A Disclosure
An employee who becomes aware of Alleged Wrongful Conduct is encouraged to make a Disclosure to a Designated Company Officer or Director or to the Company's Audit Committee as soon as possible.
F. Legitimate Employment Action
This Whistleblowing Policy may not be used as a defense by an employee against whom an Adverse Personnel Action has been taken for legitimate reasons or cause. It shall not be a violation of this Whistleblowing Policy to take Adverse Personnel Action against an employee whose conduct or performance warrants that action separate and apart from the employee making a disclosure.
G. Whistleblowing Statutes
An employee's protection under this Whistleblowing Policy is in addition to any protections such employee may have pursuant to any applicable state or federal law and this Whistleblowing Policy shall not be construed as limiting any of such protections.
VIII. Audit Committee Procedures - Receipt, Retention and Treatment of Complaints Regarding Accounting, Internal Accounting Controls or Auditing Matters
Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the Company's Audit Committee (and in absence of an Audit Committee, the Company's Board of Directors) has established the following procedures for the receipt, retention and treatment of complaints by Company employees regarding the Company's accounting, internal accounting controls or auditing matters.
A. Purpose
To promote and encourage Company employees to report complaints, problems or questionable practices relative to accounting, internal accounting controls or auditing matters (collectively referred to herein as "Accounting Concerns").
B. Applicability
All employees of the Company.
C. Procedures
Any Company employee who has, knows of or has reason to know or suspect the existence of any Accounting Concern is encouraged to report such Accounting Concern, promptly and in writing, to the Company's Compliance Officer and the Audit Committee (and in the absence of the Audit Committee, the Company's Board of Directors) at the following address:
Compliance Officer
Scientific Industries, Inc.
70 Orville Drive
Bohemia, New York 11716
with a copy to:
Chairman of the Board of Directors
Scientific Industries, Inc.
70 Orville Drive
Bohemia, New York 11716
Submissions by Company employees of Accounting Concerns may be signed by the employee or may be anonymous. Submissions by Company employees of Accounting Concerns should be sufficiently detailed so as to provide the necessary information to the Company's Audit Committee as to the nature of the Accounting Concerns, the violation or potential violation of any federal or state law or regulation or the nature of any questionable accounting or auditing practice or matter. Company employees are encouraged to include as much factual data as possible in any submissions of Accounting Concerns and Company employees shall not utilize the submission of an Accounting Concern for the sole purpose of harassing another Company employee or officer. Submissions by Company employees of Accounting Concerns shall be copied by the Compliance Officer's Administrative Assistant and retained in a file entitled "Accounting Concerns Report File" to be kept separate from the files of the Company's Accounting Department.
The Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) shall review and investigate or cause to be investigated each submission by Company employees of Accounting Concerns that suggests any violation of Company policies, violation of any federal or state laws or regulations or any questionable accounting or auditing practice or matter. The Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) may utilize the services of the Company's outside legal counsel in any such investigations. In the event the Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) shall determine that any Accounting Concern is of sufficient veracity and significance so as to mandate any action by the Company, the Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) shall report the Accounting Concern to the Audit Committee and, if necessary, to the Company's Board of Directors with a recommendation as to specific action to be taken. In extreme cases where an Accounting Concern has been reported that involves a violation or potential violation of federal or state laws or regulations and the Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) has determined that such report is accurate or that sufficient evidence exists to create a significant concern as to whether such violation has occurred or will occur, the Chairman of the Audit Committee (or in the absence of an Audit Committee, the Chairman of the Board of Directors) may report such Accounting Concern to the appropriate government authority.
D. Protections
Company employees who submit reports of Accounting Concerns shall be entitled to the protection of the Whistleblowing Policy set forth above.
IX. Public Company Reporting
As a public company, it is important that the Company's filings with the SEC and other public disclosures of information be complete, fair, accurate and timely. An employee, officer or director of the Company may be called upon to provide necessary information to ensure that the Company's public reports are complete, fair and accurate. The Company expects each Company employee, officer and director to take this responsibility seriously and to provide prompt, complete, fair and accurate responses to inquiries with respect to the Company's public disclosure requirements. With respect to the Company's employees, officers and directors who may be participating in the preparation of reports, information, press releases, forms or other information to be publicly disclosed through filings with the SEC or as mandated by the SEC, such employees, officers and directors are expected to use their diligent efforts to ensure that such reports, press releases, forms or other information are complete, fair, accurate and timely.
X. Compliance and Discipline
All Officers and Directors are required to comply with this Code. Officers, Directors, and employees are expected to report violations of this Code and assist the Company, when necessary, in investigating violations. All department heads, managers and supervisors are charged with the responsibility of supervising their employees in accordance with this Code.
Failure to comply with this Code will result in disciplinary action that may include suspension, termination, referral for criminal prosecution and/or reimbursement to the Company for any losses or damages resulting from the violation. The Company reserves the right to terminate any employee immediately for a single violation of this Code.
All Officers and Directors of the Company may be asked from to time to reaffirm their understanding of and willingness to comply with this Code by signing an appropriate certificate (see Appendix A).
XI. Adoption, Amendment and Waiver
A. Adoption and Amendment
This Code has been adopted by the Company's Board of Directors and may be changed, altered or amended at any time. The interpretation of any matter with respect to this Code by the Board of Directors shall be final and binding.
B. Waiver
Waivers of the provisions of this Code may be granted or withheld from time to time by the Company in its sole discretion. Waivers are only effective if set forth in writing after full disclosure of the facts and circumstances surrounding the waiver. Waivers for the benefit of directors and executive officers must be approved by the Board of Directors and will be publicly disclosed by the Company. All other waivers may be approved by the Compliance Officer and may be publicly disclosed by the Company.
NO EMPLOYMENT CONTRACT
Nothing contained herein shall be construed as limiting the Company's right to terminate an employee or Officer or Director immediately for any reason. This Code does not provide any guarantees of continued employment, nor does it constitute an employment contract between the Company and any employee or Officer or Director.
APPENDIX A
STATEMENT
I acknowledge having received a copy of the Company's Code of Business Conduct and Ethics. I have read it completely and I understand that the Code applies to me. I understand the Code does not constitute an employment contract and I agree to comply fully with each of the provisions of the Code, including such changes to the Code as the Company may announce from time to time. I have reviewed with my department head or the Compliance Officer any matters concerning ownership or other activities, which are required to be disclosed to the Company by the Code.
Name _________________________________________________________
Signature ______________________________________________________
Date __________________________________________________________
EXHIBIT A
DEFINED TERMS -- WHISTLEBLOWING POLICY
1. "Adverse Personnel Action": an employment-related act or decision or a failure to take appropriate action by a supervisor or higher level authority, which affects an employee negatively as follows:
(a) Termination of employment;
(b) Demotion;
(c) Suspension;
(d) Written reprimand;
(e) Retaliatory investigation;
(f) Decision not to promote;
(g) Receipt of an unwarranted performance rating;
(h) Withholding of appropriate salary adjustments;
(i) Elimination of the employees' position, absent an overall
reduction in work force, reorganization, or a decrease
in or lack of sufficient funding, monies, or work load; or
(j) Denial of awards, grants, leaves or benefits for which
the employee is then eligible.
2. "Disclosure": oral or written report by an employee to a Designated Company Officer or Director or to the Company's Audit Committee of Alleged Wrongful Conduct.
3. "Knowing Retaliation": An Adverse Personnel Action taken by a supervisor or other authority against an employee where such employee's prior disclosure of Alleged Wrongful Conduct is a direct or indirect reason or basis for the Adverse Personnel Action.
4. "Designated Company Officer or Director": The Company's Compliance Officer, any executive officer of the Company of the level of Senior Vice President or above and any member of the Company's Board of Directors.
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., a small business issuer (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 my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 my 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) 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 28, 2007
/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, 2007 (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 28, 2007 /s/ Helena R. Santos Helena R. Santos Chief Executive Officer and Chief Financial Officer |
INDEMNITY AGREEMENT
This Indemnity Agreement dated April 13, 2007 among SCIENTIFIC
INDUSTRIES, INC., a Delaware corporation (the "Company"), ALTAMIRA
INSTRUMENTS, INC., a Delaware corporation ("Altamira") and GRACE S.
MORIN ("Morin"), HEATHER L. HAUGHT ("Haught") and WILLIAM D. CHANDLER
(along with Morin and Haught, the "Sellers").
WHEREAS, the Company and the Sellers having recently completed the purchase by the Company from the Sellers and the sale by the Sellers to the Company (the "Transaction") of the outstanding shares of capital stock of Altamira (the "Shares") pursuant to a Stock Purchase Agreement, dated as of November 30, 2006, for a consideration which included shares of Common Stock of the Company, and;
WHEREAS, at the date of the Transaction Altamira was an "S Corporation" as defined in section 1361(a)(1) of the Internal Revenue Code of 1986 (the "Code"); and
WHEREAS, the Company intends and requests that the Transaction be governed by section 338(h)(10) of the Internal Revenue Code (the "Code"), and;
WHEREAS, in consideration of the Sellers' cooperation and consent to the filing of an election pursuant to section 338(h)(10) of the Code, the Company and Altamira jointly and severally agree and undertake to provide the indemnities to Sellers as provided in this Indemnity Agreement;
WHEREAS, as a result of the Transaction, in the absence of the Election the Sellers would each realize a long term capital gain on the sale of the Shares in the amount of the difference between the sales price for the Shares and the adjusted tax basis of the Shares in the hands of each Seller.
WHEREAS, as a result of the Election, Altamira shall be deemed to have sold its assets in a taxable transaction immediately prior to the Transaction and shall realize a gain or loss in an amount equal to the difference between the Asset Deemed Sales Price ("ADSP") as defined in Treas. Reg Sec. 1.338-4 and the adjusted tax basis of Altamira's assets. Such gain or loss will be reported to and realized by the Sellers in respect of Altamira's final S Corporation US Return of Income, Form 1120S, and any comparable state or local income tax return,
NOW THEREFORE, it is hereby agreed that:
1. Sellers will execute Form 8023, "Elections under Section 338 for Corporations Making Qualified Stock Purchases", attached hereto as Exhibit A, and such other documents and papers as may be required by the Code or the Internal Revenue Service (the "Service") providing for an election (the "Election") pursuant to Section 338(h)(10) of the Code on behalf of Sellers with respect to the Transaction. In furtherance of the Election, the Sellers will deliver within five business days of the delivery by the Company to the Sellers of the Forms K-1 the signed Form 8023 to the Company to be filed with the Internal Revenue Service ("IRS") Form 8023.
2. (a) Parties to this Indemnity Agreement contemplate that the Sellers
will incur certain additional taxes and professional fees (hereinafter
"Adverse Consequences") as a result of the filing of Form 8023 with respect
to the Transaction. In consideration of the Sellers' undertaking
to execute Form 8023 with respect to the Transaction, the Company and
Altamira will indemnify, defend and hold harmless each of the Sellers,
their successors, heirs or assigns (the "Indemnified Parties"), for any
Adverse Consequences. For purposes of this Indemnity Agreement
"Adverse Consequences" shall include but shall not be limited to any and all
additional federal, state and local tax liabilities, penalties, interest and
tax administrative expenses in the form of tax return preparation and audit
fees related to audit and adjustment by federal, state or local tax
authorities including but not limited to any Adverse Consequences
incurred by the Indemnified Parties that would otherwise not have been
incurred by the Indemnified Parties had the Buyer purchased the stock of
Altamira pursuant to the Stock Purchase Agreement without the filing of a
Section 338(h)(10) Election. It is the intention of the parties to this
Agreement to broadly construe the scope of any Adverse Consequences which
may arise on account of the filing of the Election to include, by way of
example but not of limitation, any tax which the Indemnified Parties may
incur on account of having received a reimbursement from the Company of
an incremental tax liability as a result of the Election.
(b) The amount of tax which is included in the Adverse Consequences to be indemnified pursuant to this Indemnity Agreement shall be calculated and presented to the Company by accountants for the Sellers. Independent Certified Public Accountants for the Company ("Company's Accountants") may make inquiry of independent accountants for the Sellers and be provided by the independent accountants for the Sellers the basis by which such Adverse Consequences are calculated. However, the underlying tax data shall remain the confidential information of each Seller and shall not be subject to disclosure by Company, its officers, employees and agents. In the event of any dispute as to the accuracy of the calculation of the Adverse Consequences such dispute will be resolved, at the Company's expense, by a national firm of Certified Public Accountants mutually agreeable to the Company and Sellers, the determination by which will be conclusive and not subject to further review.
c) The undertaking of indemnification is intended by the Parties, and shall be interpreted, to cause Buyer to indemnify and hold harmless the Sellers for any Adverse Consequences arising out of the applicability of section 338(h)(10) or any comparable state taxing statute to be applicable to the Transaction compared to a sale of the Shares as contemplated by the Stock Purchase Agreement had no Election been filed.
(d) Altamira shall deliver on or prior to June 15, 2007 to each Seller a Form K-1 (and any comparable state or local information report) setting forth the amount and form of Seller's income and gain after giving effect to the Election.
(e) Regardless of whether the Form 8023 is executed by Sellers, the Company shall cause Altamira to pay directly all fees of legal and accounting professionals incurred by the Sellers to assist in preparation or review of this Indemnity Agreement. Upon the execution of the Form 8023 by Sellers, the Company shall pay directly the additional fees for the preparation and filing of all personal income tax returns and documents related to the Election under the applicable tax laws and regulations, such payment to be made within five (5) business days of delivery to the Company of the related invoice(s) setting forth in reasonable detail such fees and costs. In recognition that the calculation of the amount of Adverse Consequences and the preparation of this Agreement is for the sole benefit of the Company, such payment of the professional legal or accounting services incurred in the implementation of this Agreement on behalf of the Sellers will be treated as costs of the Transaction incurred on behalf of and for the benefit of the Purchaser and will not be reported as income to Sellers.
(f) If any payment made pursuant to this Agreement is ever deemed additional proceeds from the sale of any Seller's shares or income to any Seller under any other Internal Revenue Service determination ("Additional Proceeds/Income") under applicable income tax laws and is required to be recognized as income in any Seller's income tax return for the year ended December 31, 2007 or any other year, the Company shall pay to such Seller or Sellers an amount, to be mutually determined by the Seller and the Company, but not less than the amount of taxes applicable to the gross amount of the Seller's Additional Proceeds/Income. Such payment shall be made within 30 days following delivery to the Company by or on behalf of the Sellers of the calculation of the tax applicable to the Additional Proceeds/Income.
(g) Indemnification payments for Adverse Consequences pursuant to this Agreement shall be reimbursed to each Seller within five business days from receipt of the calculations of such amounts from accountants for the Sellers. In the event of any dispute regarding the calculation of Adverse Consequences, any positive or negative adjustment to the amounts previously reimbursed pursuant to this paragraph shall be paid by the party charged with the adjustment within five business days of receipt of the report of the determination made by the national firm of Certified Public Accountants selected pursuant to Section 2(b) to resolve such dispute.
3. This Agreement shall be governed and controlled by the internal laws of the state of New York without reference to the conflicts of law provisions.
4. This Agreement may be executed in any number of counterparts and may be executed by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute one agreement.
SCIENTIFIC INDUSTRIES INC.
By:/s/Helena R. Santos Name: Helena R. Santos Title: President ________________________________ |
ALTAMIRA INSTRUMENTS, INC.
By:/s/Helena R. Santos Name: Helena R. Santos Title: President ________________________________ |
SELLERS:
/s/Grace S. Morin _________________ Grace S. Morin /s/Heather L. Haught ____________________ Heather L. Haught /s/William D. Chandler ______________________ William D. Chandler |
June 14, 2007
Grace S. Morin
Heather L. Haught
William D. Chandler
Subject: Extension of Agreement Date from June 15, 2007 to July 31, 2007
Dear Grace, Heather and William:
This will confirm an amendment tot he Indemnity Agreement dated April 13, 2007 between you, Scientific Industries, Inc., and Altamira Instruments Inc. (the "Agreement"), solely to change the date of June 15, 2007 set forth in Section 2(d) to July 31, 2007.
Please confirm your agreement with this amendment by signing at the
place indicated below and returning to the Company (i.e. Scientific
Industries, Inc.)
a copy of this letter.
SCIENTIFIC INDUSTRIES INC.
By:/s/Helena R. Santos Name: Helena R. Santos Title: President ________________________________ |
ALTAMIRA INSTRUMENTS, INC.
By:/s/Helena R. Santos Name: Helena R. Santos Title: President ________________________________ |
AGREED:
/s/Grace S. Morin _________________ Grace S. Morin /s/Heather L. Haught ____________________ Heather L. Haught /s/William D. Chandler ______________________ William D. Chandler |