UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended December 31, 2012
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
(Exact name of registrant as specified in its charter)
Delaware 04-2217279
____________________________ ____________________________________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
70 Orville Drive, Bohemia, New York 11716
________________________________________ _______________________
(Address of principal executive offices) (Zip Code)
(631)567-4700
____________________________________________________________________
(Registrant's telephone number, including area code)
|
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 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 [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "Accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer___________ Accelerated Filer_________ Non-accelerated filer_____________ Smaller reporting company [X] (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
The number of shares outstanding of the issuer's common stock par value, $0.05 per share, as of February 4, 2013 was 1,337,663 shares.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Comprehensive
Income (Loss) 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS 14
ITEM 4 CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
EXHIBITS 19
|
|
|
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2012 2012
(Unaudited)
_____________ __________
Current Assets:
Cash and cash equivalents $ 670,400 $ 769,300
Investment securities 720,100 718,300
Trade accounts receivable, net 942,800 623,500
Inventories 1,834,700 1,613,700
Prepaid expenses and other current assets 86,200 167,800
Deferred taxes 70,300 70,200
__________ __________
Total current assets 4,324,500 3,962,800
Property and equipment at cost, net 174,000 180,500
Intangible assets, net 822,100 877,300
Goodwill 589,900 589,900
Other assets 24,100 25,700
Deferred taxes 125,400 136,000
__________ __________
Total assets $6,060,000 $5,772,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 142,300 $ 114,800
Customer advances 356,400 98,500
Notes payable, current 77,100 75,800
Accrued expenses and taxes 221,800 237,500
Contingent consideration payable, current 19,000 19,000
_________ __________
Total current liabilities 816,600 545,600
Contingent consideration payable, less
current portion 88,400 88,400
Notes payable, less current portion 66,100 105,000
__________ __________
Total liabilities 971,100 739,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value; authorized 7,000,000 shares;
1,357,465 issued and outstanding at
December 31, 2012 and 1,355,514 at
June 30, 2012 67,900 67,800
Additional paid-in capital 1,975,300 1,968,700
Accumulated other comprehensive income
(loss) 300 ( 12,600)
Retained earnings 3,097,800 3,061,700
___________ __________
5,141,300 5,085,600
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
___________ __________
Total shareholders' equity 5,088,900 5,033,200
Total liabilities and ___________ __________
shareholders' equity $6,060,000 $5,772,200
=========== ==========
|
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
______________________ ______________________
2012 2011 2012 2011
__________ __________ __________ __________
Net sales $1,876,900 $1,197,600 $3,228,600 $2,738,500
Cost of sales 1,046,600 707,200 1,934,000 1,644,200
__________ __________ __________ __________
Gross profit 830,300 490,400 1,294,600 1,094,300
__________ __________ __________ __________
Operating Expenses:
General & administrative 309,600 335,100 589,200 626,100
Selling 191,100 160,100 347,400 349,000
Research & development 135,100 78,700 255,200 125,500
__________ __________ __________ __________
Total operating
expenses 635,800 573,900 1,191,800 1,100,600
__________ __________ __________ __________
Income (loss) from
operations 194,500 ( 83,500) 102,800 ( 6,300)
__________ __________ __________ __________
Other income (expense):
Investment income 3,100 3,500 5,900 7,100
Other ( 1,600) 2,700 900 5,900
Interest expense ( 1,300)( 1,200) ( 2,700) ( 1,200)
__________ __________ __________ __________
Total other income 200 5,000 4,100 11,800
__________ __________ __________ __________
Income (loss) before
income taxes (benefit) 194,700 ( 78,500) 106,900 5,500
__________ __________ __________ __________
Income tax expense (benefit):
Current 51,800 ( 21,800) 21,200 ( 500)
Deferred 4,500 ( 1,400) 9,500 2,000
__________ __________ __________ __________
Total income (loss) tax
expense (benefit) 56,300 ( 23,200) 30,700 1,500
__________ __________ __________ __________
Net income (loss) $ 138,400 ($ 55,300)$ 76,200 $ 4,000
========== ========== ========== ==========
|
Basic earnings (loss) per common
share $ .10 $ (.04) $ .06 $ .00
Diluted earnings (loss) per common
share $ .10 $ (.04) $ .06 $ .00 Cash dividends declared per common share $ .00 $ .00 $ .03 $ .05 |
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
___________________ _________________
2012 2011 2012 2011
________ __________ ________ _______
Net income (loss) $138,400 ($ 55,300) $ 76,200 4,000
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 3,300 2,300 12,900 1,400
________ ________ ________ _______
Comprehensive income (loss) $141,700 ($ 53,000) $ 89,100 $ 5,400
======== ======== ======== =======
|
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, December 31,
__________________________
2012 2011
_________ _________
Operating activities:
Net income $ 76,200 $ 4,000
_________ _________
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Loss on sale of investments 4,800 -
Depreciation and amortization 89,000 99,300
Deferred income tax 9,500 2,000
Stock-based compensation 6,700 1,000
Changes in operating assets and liabilities:
Accounts receivable ( 319,300) ( 40,100)
Inventories ( 221,000) ( 315,600)
Prepaid expenses and other current assets 81,600 20,000
Accounts payable 27,500 112,900
Customer advances 257,900 326,900
Accrued expenses and taxes ( 15,700) ( 23,200)
Other assets 1,600 -
___________ ___________
Total adjustments ( 77,400) 183,200
___________ ___________
Net cash provided by (used in)
operating activities ( 1,200) 187,200
___________ ___________
Investing activities:
Intangible assets acquired in acquisition - ( 260,000)
Purchase of investment securities,
available-for-sale ( 710,300) ( 5,500)
Capital expenditures ( 25,200) ( 61,900)
Purchase of intangible assets, other ( 2,100) ( 1,600)
Redemption of investment securities, available
for sale 717,600 -
___________ ___________
Net cash used in investing activities ( 20,000) ( 329,000)
___________ ___________
Financing activities:
Line of credit proceeds - 60,000
Proceeds from exercise of stock options - 9,600
Cash dividend declared and paid ( 40,100) ( 59,900)
Principal payments on note payable ( 37,600) ( 12,200)
___________ ___________
Net cash used in financing activities ( 77,700) ( 2,500)
___________ ___________
Net decrease in cash
and cash equivalents ( 98,900) ( 144,300)
Cash and cash equivalents, beginning of year 769,300 907,800
___________ ___________
Cash and cash equivalents, end of period $ 670,400 $ 763,500
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ - $ 3,300
Interest 2,700 -
|
See notes to unaudited condensed consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim condensed consolidated financial statements are prepared pursuant to the Securities and Exchange Commission?s rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The Company believes all adjustments necessary for a fair presentation of these interim statements have been included and that they are of a normal and recurring nature. These interim statements should be read in conjunction with the Company's financial statements and notes thereto, included in its Annual Report on Form 10-K, for the fiscal year ended June 30, 2012. The results for the three and six months ended December 31, 2012, are not necessarily an indication of the results for the full fiscal year ending June 30, 2013.
1. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc. ("Scientific", a Delaware corporation), Altamira Instruments, Inc.("Altamira", a wholly owned subsidiary and Delaware corporation), Scientific Packaging Industries, Inc. (an inactive wholly owned subsidiary and New York corporation) and Scientific Bioprocessing, Inc., ("SBI", a wholly owned subsidiary and Delaware corporation). All are collectively referred to as the "Company". All material intercompany balances and transactions have been eliminated.
2. New Accounting Pronouncements:
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2012-02, "Testing Indefinite- Lived Intangible Assets for Impairment" ("ASU No. 2012-02"), which allows entities to use a qualitative approach to test indefinite- lived intangible assets for impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test. Otherwise, the quantitative impairment test is not required. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of the provisions of ASU No. 2012-02 is not expected to have a material impact on the Company's financial position or results of operations.
3. Acquisition:
On November 14, 2011, the Company through SBI acquired substantially all of the assets of a privately owned company consisting principally of a license and sublicenses under patents held by the University of Maryland, Baltimore County ("UMBC?) with respect to the design, development and production of bioprocessing methods, systems and products. The acquisition was pursuant to an asset purchase agreement("APA") whereby the Company paid to the seller $260,000 in cash, issued 135,135 shares of Common Stock valued at $400,000, issued to UMBC a $230,000 36-month note payable, and agreed to make additional cash payments equal to 30% of net royalties received under the acquired license and sublicenses, estimated at a present value of $128,000 on the date of acquisition.
SBI's revenues are derived from royalties received by SBI under the various sublicense agreements, net of royalty payments due to UMBC and revenues from sales of certain products being developed under its existing license. University, government, and industrial laboratories working primarily in the biotechnology industry worldwide are its targeted customers.
Management of the Company allocated the purchase price based on its valuation of the assets acquired, all of which are intangible, as follows:
Technology, trademarks, and in-process
research & development ("IPR&D") $ 500,000
Sublicense agreements 294,000
Engineering drawings and software 64,000
Non-competition agreements 18,000
Goodwill* 142,000
__________
Total Purchase Price $1,018,000
==========
|
*See Note 8, "Goodwill and Other Intangible Assets".
The amounts allocated to Technology, Trademarks, and IPR&D and Sublicense Agreements are deemed to have a useful life of 10 years, and to the remaining intangible assets to have a useful life of 5 years, all of which are being amortized on a straight-line basis, except for goodwill.
In connection with the acquisition, SBI entered into a research and development agreement providing for the seller to perform services with respect to the research and development of bioprocessing methods, systems, and products pursuant to programs set forth in the Agreement at a fee of $14,000 per month with SBI to bear all related expenses. The agreement is for a two-year term with SBI having three one-year extension options. SBI has the right to terminate the agreement in the event of a failure to achieve the designated product development terms set forth in the agreement.
Pro forma results
The unaudited pro forma condensed consolidated financial information in the table below summarizes the consolidated results of operations of Scientific, Altamira and SBI on a pro forma basis, as though the companies had been consolidated as of July 1, 2011 (the beginning of the prior periods 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 commencement of the period presented.
For the Three Month For the Six Month
Period Ended Period Ended
December 31, December 31,
___________________ __________________
2011 2011
___________________ __________________
Net sales $1,235,100 $2,813,500
Net income (loss) ($ 40,700) $ 6,300
Net income (loss)
per share - basic ($.03) $.00
Net income (loss)
per share - diluted ($.03) $.00
|
4. Segment Information and Concentrations:
The Company views its operations as three segments: the manufacture and marketing of standard benchtop laboratory equipment for research in university, hospital and industrial laboratories sold primarily through laboratory equipment distributors ("Benchtop Laboratory Equipment"), 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") and the marketing and production of bioprocessing systems for laboratory research in the biotechnology industry sold directly to customers and through distributors ("Bioprocessing Systems").
Segment information is reported as follows (foreign sales are principally to customers in Europe and Asia):
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2012:
Net Sales $1,164,900 $ 664,900 $ 47,100 $ - $1,876,900
Foreign Sales 747,900 279,800 - - 1,027,700
Profit(Loss) 157,200 68,200 ( 30,900) - 194,500
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 7,100 700 - - 7,800
Depreciation and
Amortization 11,500 9,200 24,000 - 44,700
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Three months ended December 31, 2011:
Net Sales $1,108,500 $ 89,100 $ - $ - $1,197,600
Foreign Sales 755,100 8,400 - - 763,500
Profit(Loss) 100,200 ( 117,800) ( 32,300) ( 33,600) ( 83,500)
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 4,500 2,800 876,000 - 883,300
Depreciation and
Amortization 12,300 27,800 12,000 - 52,100
|
Approximately 73% and 63% of net sales of benchtop laboratory equipment (46% and 59% of total net sales) for the three month periods ended December 31, 2012 and 2011, respectively, were derived from the Company's main product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two customers accounted in the aggregate for approximately 24% and 26% of the net sales of the Benchtop Laboratory Equipment Operations and 15% and 24% of total net sales for the three months ended December 31, 2012, and 2011, respectively. Sales of catalyst research instruments generally comprise a few very large orders averaging at least $100,000 per order to a limited number of customers, who differ from order to order. Sales to four customers and one customer represented approximately 95% and 73% of the Catalyst Research Instrument Operations' net sales, respectively, and 34% and 25% of total net sales for the three months ended December 31, 2012 and 2011, respectively.
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ ___________
Six months ended December 30, 2012:
Net Sales $2,229,700 $ 949,200 $ 49,700 $ - $3,228,600
Foreign Sales 1,369,600 519,000 - - 1,888,600
Profit(Loss) 274,800 ( 66,100) ( 105,900) - 102,800
Assets 2,485,700 1,695,400 963,100 915,800 6,060,000
Long-Lived Asset
Expenditures 9,200 18,100 - - 27,300
Depreciation and
Amortization 22,600 18,500 47,900 - 89,000
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
Six months ended December 31, 2011:
Net Sales $2,183,600 $ 554,900 $ - $ - $2,738,500
Foreign Sales 1,363,700 121,100 - - 1,484,800
Profit(Loss) 260,600 ( 176,400) ( 32,300) ( 58,200) ( 6,300)
Assets 2,467,600 1,375,700 866,600 1,481,800 6,191,700
Long-Lived Asset
Expenditures 14,000 49,500 876,000 - 939,500
Depreciation and
Amortization 24,300 63,000 12,000 - 99,300
|
Approximately 68% and 63% of net sales of benchtop laboratory equipment (47% and 50% of total net sales) for the six month periods ended December 31, 2012 and 2011, respectively, were derived from the segment's main product, the Vortex-Genie 2(R) mixer, excluding accessories.
Two benchtop laboratory equipment customers, accounted in the aggregate for approximately 23% of the segment's net sales for each of the two comparative periods and 16% and 19%, respectively, of total net sales for the six month periods ended December 31, 2012 and 2011.
Sales of catalyst research instruments to four different customers in each of the six month periods, accounted for approximately 67% and 88% of the segment's net sales and 20% and 18% of total net sales for the six month period ended December 31, 2012 and 2011, respectively.
5. Fair Value of Financial Instruments:
The FASB defines the fair value of financial instruments as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements do not include transaction costs.
The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy of valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.
The following tables set forth by level within the fair value hierarchy the Company's financial assets that were accounted for at fair value on a recurring basis at December 31, 2012 and June 30, 2012 according to the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
December 31, 2012 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalents $ 670,400 $ 670,400 $ - $ -
Available for sale securities 720,100 720,100 - -
__________ __________ _______ ________
Total $1,390,500 $1,390,500 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 107,400 $ - $ - $107,400
========== ========== ======= ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
JUne 30, 2012 Level 1 Level 2 Level 3
_________________ __________ _______ _______
Cash and cash equivalents $ 769,300 $ 769,300 $ - $ -
Available for sale securities 718,300 718,300 - -
__________ __________ _______ ________
Total $1,487,600 $1,487,600 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 107,400 $ - $ - $107,400
========== ========== ======= ========
|
Investments in marketable securities classified as available-for-sale by security type at December 31, 2012 and June 30, 2012 consisted of the following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At December 31, 2012:
Available for sale:
Equity securities $ 31,800 $ 31,100 $ ( 700)
Mutual funds 688,000 689,000 1,000
_________ _________ ___________
$ 719,800 $ 720,100 $ 300
========= ========= ===========
Unrealized
Fair Holding Gain
Cost Value (Loss)
_________ _________ _____________
At June 30, 2012:
Available for sale:
Equity securities $ 5,900 $ 16,000 $ 10,100
Mutual funds 725,000 702,300 (22,700)
_________ _________ ____________
$ 730,900 $ 718,300 $ (12,600)
========= ========= ============
|
6. Inventories:
Inventories for financial statement purposes are based on perpetual inventory records at December 31, 2012 and based on a physical count as of June 30, 2012. Components of inventory are as follows:
December 31, June 30,
2012 2012
____________ __________
Raw Materials $1,297,300 $1,146,800
Work in process 369,900 221,900
Finished Goods 167,500 245,000
__________ __________
$1,834,700 $1,613,700
========== ==========
|
7. Earnings (Loss) per common share:
Basic earnings (loss) per common share are computed by dividing net income or loss by the weighted-average number of shares outstanding. Diluted earnings per common share include the dilutive effect of stock options, if any.
Earnings (Loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Period Ended
December 31, December 31,
_______________________ ____________________
2012 2011 2012 2011
Net income (loss) $ 138,400 ($ 55,300) $ 76,200 $ 4,000
=========== =========== ========= ==========
Weighted average common
shares outstanding 1,337,175 1,265,613 1,336,444 1,231,095
Dilutive securities 3,765 - 4,463 14,873
___________ ___________ _________ __________
Weighted average dilutive
common shares outstanding 1,340,940 1,265,613 1,340,907 1,245,968
=========== ========== ========= ==========
Basic earnings (loss) per
common share $ .10 ($ .04) $ .06 $ .00
=========== ========== ========= ==========
Diluted earnings (loss) per
common share $ .10 ($ .04) $ .06 $ .00
=========== ========== ========= ==========
|
Approximately 40,000 shares of the Company's common stock issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share for each of the three and six month periods ended December 31, 2012, because the effect would be anti-dilutive.
Approximately 57,000 and 2,000 shares of the Company's Common Stock issuable upon the exercise of outstanding stock options were excluded from the calculation of diluted earnings per common share for the three and six month periods ended December 31, 2011, because the effect would be anti- dilutive.
8. Goodwill and Other Intangible Assets:
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the Company's acquisition of Altamira and SBI's acquisition of assets. Goodwill amounted to $589,900 as of December 31, 2012 and June 30, 2012, all of which is deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ _________ ____________ _________
At December 31, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 370,600 $ 493,400
Customer relationships 10 yrs. 237,000 198,400 38,600
Sublicense agreements 10 yrs. 294,000 33,100 260,900
Non-compete agreements 5 yrs. 120,000 106,000 14,000
Other intangible assets 5 yrs. 146,000 130,800 15,200
__________ ___________ _________
$1,661,000 $ 838,900 $ 822,100
========== =========== =========
|
Useful Accumulated
Lives Cost Amortization Net
________ _________ ____________ _________
At June 30, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 339,300 $ 524,700
Customer relationships 10 yrs. 237,000 192,100 44,900
Sublicense agreements 10 yrs. 294,000 18,400 275,600
Non-compete agreements 5 yrs. 120,000 104,300 15,700
Other intangible assets 5 yrs. 143,900 127,500 16,400
__________ __________ __________
$1,658,900 $ 781,600 $ 877,300
========== ========== ==========
|
Total amortization expense was $28,600 and $33,000 for the three months ended December 31, 2012 and 2011, respectively and $57,400 and $61,300 for the six months ended December 31, 2012 and 2011, respectively. As of December 31, 2012, estimated future amortization expense related to intangible assets is $56,900 for the remainder of the fiscal year ending June 30, 2013, $108,800 for fiscal 2014, $105,200 for fiscal 2015, $109,400 for fiscal 2016, $93,800 for fiscal 2017, and $348,000 thereafter.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis or Plan 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, impact of competition, the ability to reach final agreements, the ability to finance and produce to customers? specifications catalyst research instruments, and to develop marketable bioprocessing systems, adverse economic conditions, and other factors affecting the Company's business that are beyond the Company?s control. Consequently, no forward-looking statement can be guaranteed.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $98,900 to $670,400 as of December 31, 2012 from $769,300 as of June 30, 2012.
Net cash used in operating activities was $1,200 for the six months ended December 31, 2012 as compared to $187,200 provided by operating activities for the comparable six month period in 2011, due mainly to higher accounts receivable balances outstanding in the current year period compared to the prior period. Cash used in investing activities was $20,000 for the six month period ended December 31, 2012 compared to $329,000 for the six month period ended December 31, 2011, due to the acquisition by SBI of intangible assets in the prior year period. The Company reflected cash used in financing activities of $77,700 in the current year period compared to only $2,000 in the prior year comparable period, because of cash received last year under the line of credit.
On September 21, 2012, the Board of Directors of the Company declared a cash dividend of $.03 per share of Common Stock payable on November 1, 2012 to holders of record as of the close of business on October 1, 2012 as compared to $.05 per share paid in the prior fiscal year period.
The Company's working capital increased by $90,700 to $3,507,900 as of December 31, 2012 from working capital of $3,417,200 at June 30, 2012, mainly due to the income for the period.
The Company has a line of credit with its bank, JPMorgan Chase Bank, N.A. which provides for maximum borrowings of up to $700,000, bearing interest at 3.08 percentage points above a defined LIBOR Index. The interest rate as of December 31, 2012 was approximately 3.32% and any borrowing is to be secured by a pledge of collateral consisting of the inventory, accounts, chattel paper, equipment and general intangibles of the Company. Outstanding amounts are due and payable by June 13, 2013 with a requirement that the Company is to reduce the outstanding principal balance to zero during the 30 day period ending on the anniversary date of the promissory note. As of December 31, 2012 and June 30, 2012, no borrowings under the line were outstanding.
Management believes that the Company will be able to meet its cash flow needs during the next 12 months from its available financial resources which include its cash and investment securities.
Results of Operations
Financial Overview
The Company recorded income before income taxes of $194,700 and $106,900 for the three and six month periods ended December 31, 2012, respectively, compared to a loss before income tax benefit of $78,500 for the year earlier three month period and income before income tax of $5,500 for the year earlier six month period, primarily as a result of higher income derived from increased sales of catalyst research instruments and benchtop laboratory equipment products.
The Three Months Ended December 31, 2012 Compared With the Three Months Ended December 31, 2011
Net sales for the three months ended December 31, 2012 increased by $679,300 (56.7%) to $1,876,900 from $1,197,600 for the three months ended December 31, 2011 as a result of increased sales of $575,800 by the Catalyst Research Instruments Operations and of $56,400 by the Laboratory Equipment Operations, and a $47,100 increase in revenues, mainly royalties of the Bioprocessing Systems Operations. Sales of the benchtop laboratory equipment products generally are pursuant to many small purchase orders from distributors, while catalyst research instruments are sold pursuant to a small number of larger orders, typically averaging over $100,000 each, resulting in significant swings in revenues. The backlog of orders for catalyst research instruments was $1,452,300 as of December 31, 2012, all of which are anticipated to be delivered by fiscal year end; the back log as of December 31, 2011 was $995,000.
The Company's gross profit percentage for the three months ended December 31, 2012 increased to 44.2% from 40.9% for the year earlier three month period primarily as a result of increased catalyst research instrument sales and lower overhead costs for the Benchtop Laboratory Equipment Operations.
General and administrative expenses for the three month comparative periods ended December 31, 2012 and December 31, 2011 decreased by $25,500 (7.6%) to $309,600 from $335,100 primarily due to the expenses related to the asset acquisition by SBI incurred in the prior year period.
Selling expenses for the three months ended December 31, 2012 increased by $31,000 (19.4%) to $191,100 from $160,100 for the three months ended December 31, 2011, primarily the result of commissions paid with respect to the increase in catalyst research instruments sales.
Research and development expenses for the three months ended December 31, 2012 increased $56,400 (71.7%) to $135,100 from $78,700 for the three months ended December 31, 2011, primarily the result of increased product development activity by the Company's Benchtop Laboratory Equipment Operations and new product development by the Bioprocessing Systems Operations.
As a result of the $194,700 income before income taxes for the three months ended December 31, 2012, compared to a $78,500 loss before income tax benefit for the three months ended December 31, 2011, the Company recorded income tax expense of $56,300 compared to income tax benefit of $23,200 for the three months ended December 31, 2011.
The Six Months Ended December 31, 2012 Compared With the Six Months Ended December 31, 2011
Net sales for the six months ended December 31, 2012 increased by $490,100 (17.9%) to $3,228,600 compared to $2,738,500 for the six months ended December 31, 2011, due to increases of $394,300 in catalyst research instrument sales and $46,100 in benchtop laboratory equipment sales, and an increase of $49,700 in revenues, mainly royalties, of the Bioprocessing Systems Operations. Sales of benchtop laboratory equipment products generally are comprised of many small purchase orders from distributors, while sales of catalyst research instruments are comprised of a small number of large orders, typically averaging over $100,000 each, resulting in significant swings in revenues. The backlog of orders for catalyst research instruments was $1,452,300 as of December 31, 2012, all of which are anticipated to be delivered by fiscal year end; the backlog as of December 31, 2011 was $995,000.
General and Administrative expenses decreased by $36,900 (5.9%) to $589,200 for the six months ended December 31, 2012 from $626,100 for the comparable period of the prior year, primarily due to the expenses related to SBI's asset acquisition in November 2011, partially offset by the related amortization expenses in the current year by the Bioprocessing Systems Operations.
Research and development expenses for the six months ended December 31, 2012 increased $129,700 (103.3%) to $255,200 compared to $125,500 for the six months ended December 31, 2011, due to increased new product development activity by the Company's Benchtop Laboratory Equipment Operations and new product development by the Bioprocessing Systems Operations.
Total other income for the six month period ended December 31, 2012 decreased by $7,700 to $4,100 from $11,800 for the six month period ended December 31, 2011, mainly due to interest expense incurred by the Bioprocessing Systems Operations and losses on sales of investment securities.
As a result of the foregoing, income tax expense for the six month period ended December 31, 2012 was $30,700 compared to $1,500 for the comparable period of the prior fiscal year, and net income for the six months ended December 31, 2012 was $76,200 compared to $4,000 for the six months ended December 31, 2011.
Item 4. Controls and Procedures
Evaluation of Disclosure 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.
Changes in Internal Control Over Financial Reporting. There was no change in the Company's internal controls over financial reporting that occurred during the most recently completed fiscal quarter that materially affected or is reasonably likely to materially affect the Company's internal controls over financial reporting.
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number: Description
10(k)-1 Lease agreement between Altamira Instruments, Inc. and
Allegheny Homes, LLC with respect to the Company's
Pittsburgh, Pennsylvania facilities.
31.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
(b) Reports on Form 8-K:
Report dated December 4, 2012 reporting under Item 1.01.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
In accordance with the requirements 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
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: February 14, 2013
|
Exhibit 32.1
CERTIFICATION
The undersigned as Chief Executive Officer and Chief Financial Officer of the Company, does hereby certify that the foregoing Quarterly Report of SCIENTIFIC INDUSTRIES, INC. (the "Company"), on Form 10-Q for the period ended December 31, 2012:
(1) Fully complies with the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934; and
(2) Fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 14, 2013
/s/ Helena R. Santos ____________________ Helena R. Santos Chief Executive Officer and Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 31.1
CERTIFICATION
I, Helena R. Santos, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended December 31, 2012 of Scientific Industries, Inc., a smaller reporting company (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) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15 (f) and 15d-15(f) for the
Registrant and have:
a) Designed such internal disclosure and procedures, or caused
such 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) 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
d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal controls over financial reporting, to the Registrant's auditors and the 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 controls 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 controls over financial reporting.
February 14, 2013
/s/ Helena R. Santos ____________________ Helena R. Santos Chief Executive Officer and Chief Financial Officer |
LEASE AGREEMENT
THIS LEASE is made and entered into this 1st day of December, 2012 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. Demised Premises: Landlord hereby leases to Tenant an area containing approximately 9,060 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 December 1, 2012 and expiring at the end
of the 60th full calendar month thereafter, or November
30, 2017.
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 as follow:
ANNUAL MONTHLY
Year 1 - Dec. 1, 2012 - Nov. 30, 2013 -$73,200.00 $6,100.00
Year 2 - Dec. 1, 2013 - Nov. 30, 2014 -$75,600.00 $6,300.00
Year 3 - Dec. 1, 2014 - Nov. 30, 2015 -$79,200.00 $6,600.00
Year 4 - Dec. 1, 2015 - Nov. 30, 2016 -$84,000.00 $7,000.00
Year 5 - Dec. 1, 2016 - Nov. 30, 2017 -$86,400.00 $7,200.00
|
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 Ten (10%) percent of that installment or 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 of 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, Tenant shall be responsible for their pro-rate share, of 53% based on square footage, of all operating costs associated with the premises including electric, gas, water and sewer consumption, snow removal and landscaping. Altamira agrees to maintain an account of all monthly expenses and agrees to provide the necessary common area services attributable to the building, and accordingly send a monthly statement and copies of all Utility Invoices and Common Area Maintenance Invoices to B.W. Rodgers for reimbursement.
7. Additional Rent: In the event the taxes levied and assessed against the real estate herein demised are increased beyond that imposed for the year 2011, whether occasioned by an increase in millage or an increase in assessment or otherwise, the Tenant shall pay as additional rent said increased taxes during the term of this Lease or any renewal thereof. This shall likewise apply to any tax measured by the value assessment or use of the real estate.
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 alteration 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 not 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 Insurance: 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 all 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, 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 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 exercise 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 a 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, usch 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. Use: Tenant shall occupy and use the demised Premises only for lawful purposes during the entire term of this lease in compliance with applicable zoning and occupancy requirements.
18. 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 and 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 government laws, regulations, ordinances,
codes and orders) which affect the land or building or the use
thereof, and (b) the land 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 mortage notifying Tenant to the effect, this lease shall be deemed prior in 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 attornment as such successor in interest shall reasonably approve.
20. Estoppel Certificate: Tenant agrees, at any time within fifteen (15) days 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 modification, 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 filed 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, the, 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 hereinafter issued, provided that such release of liability and waiver of the right of subrogation shall not be operative in any case where the effort 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 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 of 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 continue 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 or 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 of 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 statue, rule of 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 demised Premises either by force or otherwise 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 to 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 ANY ATTORNEY OF ANY COURT OF RECORD, TO APPEAR FOR TENANT 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 JUDGMENTS, 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 obligation 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: Brook March, 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 trial 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 particularly 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, look-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: Nothwithstanding 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 two (2) truck/ loading dock located in the warehouse portion of the demised premises.
38. Early Termination: Deleted.
39. Complete Obligations: This lease contains the entire agreement between the parties hereto, and neither party has made any statement, agreement or representations, 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 work "it" includes any appropriate pronoun as the context requires.
42. Provisions Binding: This lease and all the terms and provisions hereof shall inure 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 option 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/ Barbara Tucciarone /s/ Gene G. Tucciarone
Gene G. Tucciarone, Pres.
|
TENANT
ALTAMIRA INSTRUMENTS
/s/ Sharon Kiesel /s/ Brook March
Brook March, Pres.
|