UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2016
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-6658
SCIENTIFIC INDUSTRIES, INC.
_________________________________________
(Exact Name of Registrant in Its Charter)
Delaware 04-2217279
_______________________________ _________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
80 Orville Drive, Suite 102, Bohemia, New York 11716
______________________________________________ __________
(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
________________________ _________________________________________
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [ x ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ x ]
Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports. Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer " and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ x ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes [ ] No [ x ]
The aggregate market value of the voting stock held by non-affiliates computed by reference to the average bid and asked prices of such stock, as of September 2, 2016 is $2,768,300.
The number of shares outstanding of the registrant's common stock, par value $.05 per share ("Common Stock") as of September 2, 2016 is 1,489,112 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
PART I
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 8
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 14
ITEM 9A. CONTROLS AND PROCEDURES 14
ITEM 9B. OTHER INFORMATION 15
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 15
ITEM 11. EXECUTIVE COMPENSATION 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE 22
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 22
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 24
SIGNATURES 31
EXHIBIT 31.0 CERTIFICATION 32
EXHIBIT 32.0 CERTIFICATION 34
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Forward Looking Statements. The Company and its representatives may from time to time make written or oral forward-looking statements with respect to the Company's annual or long-term goals, including statements contained in its filings with the Securities and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely result," "will be," "will," "are expected to," "will continue to," "is anticipated," "estimate," "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
PART I
Item 1. Business.
General. Incorporated in 1954, Scientific Industries, Inc., a Delaware corporation (which along with its subsidiaries, the "Company") is engaged in the design, manufacture, and marketing of standard benchtop laboratory equipment ("Benchtop Laboratory Equipment"), customized catalyst research instruments ("Catalyst Research Instruments"), under its wholly-owned subsidiary, Altamira Instruments, Inc., ("Altamira") and through its wholly-owned subsidiary, Scientific Bioprocessing, Inc., ("SBI"), the design and development of bioprocessing systems and products ("Bioprocessing Systems"). The Company's products are used primarily for research purposes by universities, pharmaceutical companies, pharmacies, national laboratories, medical device manufacturers, petrochemical companies and other industries performing laboratory-scale research.
Operating Segments. The Company views its operations as three segments: the manufacture and marketing of standard Benchtop Laboratory Equipment for research in university, pharmacy and industrial laboratories sold primarily through laboratory equipment distributors and online; the manufacture and marketing of custom-made Catalyst Research Instruments for universities, government laboratories, and chemical and petrochemical companies; and the development and sublicensing of bioprocessing systems and products for research in university and industrial laboratories. For certain financial information regarding the Company's operating segments, see Note 2 to the consolidated financial statements included under Item 8.
Products.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory Equipment products consist of mixers and shakers, rotators/ rockers, refrigerated and shaking incubators, and magnetic stirrers sold under the "Genie(TM)" brand, and pharmacy and laboratory balances, force gauges, and moisture analyzers under the "Torbal(TM)" brand. Sales of the Company's principal product, the Vortex-Genie(R) 2 Mixer, excluding accessories, represented approximately 28% and 34% of the Company's total net revenues for each of the fiscal years ended June 30, 2016 ("fiscal 2016") and June 30, 2015 ("fiscal 2015"), and 50% of the segment's sales for both fiscal years.
The vortex mixer is used to mix the contents of test tubes, beakers, and other various containers by placing such containers on a rotating cup or other attachments which cause the contents to be mixed at varying speeds.
The Company's additional mixers and shakers include a high speed touch mixer; a mixer with an integral timer, a patented cell disruptor; microplate mixers, two vortex mixers incorporating digital control and display; a large capacity multi-vessel vortex mixer and orbital shakers.
The Company also offers various benchtop multi-purpose rotators and rockers, designed to rotate and rock a wide variety of containers, and a refrigerated incubator and an incubator shaker, both of which are multi-functional benchtop environmental chambers designed to perform various shaking and stirring functions under controlled environmental conditions.
Its line of magnetic stirrers include a patented high/low programmable magnetic stirrer; a four-place high/low programmable magnetic stirrer; a large volume magnetic stirrer available in analog and digital versions; and a four-place general purpose stirrer also available in analog and digital versions.
The Company's Torbal brand line of products include pharmacy, laboratory, and industrial digital scales, mechanical balances, moisture analyzers, and force gauges resulting from an acquisition in February 2014.
Catalyst Research Instruments. The Catalyst Research Instrument products are offered through the Company's subsidiary, Altamira. Its flagship product is the AMI-300(TM), which is used to perform traditional catalyst characterization experiments on an unattended basis. The product also features a stand-alone personal computer to control the instrument and incorporates proprietary LabVIEW(R)-based software. The Company's AMI-300 Catalyst Characterization Instrument incorporates a sophisticated data handling package and is designed to perform dynamic temperature- programmed catalyst characterization experiments. All AMI model instruments are designed or adapted to a customer's individual requirements.
Its other Catalyst Research Instrument products include reactor systems, high throughput systems and micro-activity reactors, including the Company's BenchCAT(TM) custom reactor systems. They are available with single and multiple reactor paths and with reactor temperatures up to 1200 degrees Celsius. The systems feature multiple gas flows, are available in gas and gas/liquid configurations, and feature one or more stand-alone personal computers with the LabVIEW(R)-based control software.
Bioprocessing Systems. The Company, through SBI, is engaged in the design and development of bioprocessing products which the Company began marketing during fiscal 2016, principally coaster systems using disposable sensors for vessels with volumes ranging from 250 milliliter to five liters. The Company expects to commence production of these products in the fiscal year ending June 30, 2017. In addition, the Company sublicenses the patents and technology it holds relating to bioprocessing systems exclusively under a license with the University of Maryland, Baltimore County, ("UMBC"), for which it receives royalties.
Product Development. The Company designs and develops substantially all of its products. Company personnel formulate plans and concepts for new products and improvements or modifications of existing products. The Company engages outside consultants to augment its capabilities in areas such as industrial and electronics design.
Major Customers. Sales, principally of the Vortex- Genie 2 Mixer, to two customers, represented for fiscal 2016 and fiscal 2015, 9% and 12% of total revenues, respectively, and 15% and 17% of Benchtop Laboratory Equipment product sales, respectively. Sales of Catalyst Research Instrument products are generally pursuant to a few large orders amounting on average to over $100,000 to a limited number of customers. In fiscal 2016, sales to one customer accounted for 61% of the segment's sales (26% of total revenues). In fiscal 2015, sales to a different customer accounted for 12% of the segment's sales (4% of total revenues).
Marketing.
Benchtop Laboratory Equipment. The Company's Benchtop Laboratory Equipment products sold under the "Genie" brand are generally distributed and marketed through an established network of domestic and overseas laboratory equipment distributors, who sell the Company's products through printed catalogs, websites and sales force. The Company's "Torbal" brand products are primarily
marketed and sold online , and primarily on a direct basis, with only a few distributors. The Company also markets products through attendance at industry trade shows, trade publication advertising, brochures and catalogs, the Company's websites, one sales manager and one director of marketing in the U.S., and a consultant in Europe.
In general, due to the reliance on sales through the catalog distribution system, it takes two to three years for a new benchtop laboratory equipment product to begin generating meaningful sales.
Catalyst Research Instruments. The Company's Catalyst Research Instrument products are sold directly worldwide to universities, government laboratories, and chemical and petrochemical companies through its sales personnel and independent representatives engaged on a commission basis. Its marketing efforts include attendance at various trade shows, Altamira's website, outside sales representatives, and printed materials.
Bioprocessing Systems. The Company's Bioprocessing Systems products, are currently under development and the Company expects to begin production during the fiscal year ending June 30, 2017, although no assurances can be given, and will be offered both directly and through distribution worldwide to university, industrial, and government laboratories. The Company began marketing the products during fiscal 2016 via its new website, trade shows, and online marketing.
Assembly and Production. The Company has an operating facility in Bohemia, New York at which its Benchtop Laboratory Equipment operations are conducted and one in Pittsburgh, Pennsylvania at which its Catalyst Research Instruments operations are conducted. The Company also has a small sales and marketing office in Oradell, New Jersey related to its Torbal division. The Company's production operations principally involve assembly of components supplied by various domestic and international independent suppliers. The Company has not commenced production of bioprocessing products, but anticipates that its current facilities will be adequate for such purpose.
Patents, Trademarks, and Licenses.
The Company holds several United States patents relating to its products, including a patent which expires in February 2018 on the Roto-Shake Genie(R); a patent which expires in November 2022 on the MagStir Genie(R), MultiMagStir Genie(R), and Enviro-Genie(R), and a patent which expires in January 2029 on a biocompatible bag with integral sensors. The Company has several patent applications pending. The Company does not anticipate any material adverse effect on its operations following the expiration of the patents.
The Company has various proprietary trademarks, including AMI(TM), BenchCAT(TM), Biocoaster(TM), BioGenie(R), Cellphase(R), Cellstation(R), Disruptor Beads(TM), Disruptor Genie(R), Enviro-Genie(R), Genie(TM), Incubator Genie(TM), MagStir Genie(R), MegaMag Genie(R), MicroPlate Genie(R), MultiMagStir Genie(R), Multi-MicroPlate Genie(R), Orbital-Genie(R), QuadMag Genie(R), Rotator Genie(R), SBI(R), Roto-Shake Genie(R), Torbal(R), TurboMix(TM), and Vortex-Genie(R), each of which it considers important to the success of the related product. The Company also has several trademark applications pending. No representation can be made that any application will be granted or as to the protection that any existing or future trademark may provide.
The Company has several licensing agreements for technology and patents used in the Company's business, including an exclusive license from UMBC with respect to rights and know-how under a patent held by UMBC related to disposable sensor technology, which the Company further sublicenses on an exclusive basis to a German company, and non-exclusive rights held by the Company as it relates to the use of the technology with vessels of sizes ranging from 250 milliliters to 5 liters. The Company also holds a license to certain technology related to its patent for the Roto-Shake Genie. Total license fees paid by the Company under all its licenses for fiscal 2016 and fiscal 2015 amounted to $106,600 and $124,100, respectively.
Foreign Sales. The Company's sales to overseas customers, principally in Asia and Europe, accounted for approximately 53% and 50% of the Company's net revenues for fiscal 2016 and fiscal 2015, respectively. Payments are in United States dollars and are therefore not subject to risks of currency fluctuation, foreign duties and customs.
Seasonality. The Company does not consider its business to be seasonal.
Backlog. Backlog for Benchtop Laboratory Equipment products is not a significant factor because this line of products is comprised of standard catalog items requiring lead times which usually are not longer than two weeks. There is no backlog for Bioprocessing Systems. The backlog for Catalyst Research Instrument products as of June 30, 2016 was $995,000, all of which is expected to be filled by June 30, 2017, although no assurance can be given, as compared to a backlog of $2,570,400 as of June 30, 2015, all of which was filled in fiscal 2016.
Competition. Most of the Company's principal competitors are substantially larger and have greater financial, production and marketing resources than the Company. Competition is generally based upon technical specifications, price, and product recognition and acceptance. The Company's main competition for its Benchtop Laboratory Equipment products derives from private label brand mixers offered by laboratory equipment distributors in the United States and Europe and products exported from China. However, the Company believes that despite its small size, it is a major market participant in the global vortex mixer market.
The Company's major competitors for its Genie brand Benchtop Laboratory Equipment are Henry Troemner, Inc. (a private label supplier to the two largest laboratory equipment distributors in the U.S. and Europe), IKA-Werke GmbH & Co. KG, a German company, Benchmark Scientific, Inc., (a United States importer of China- produced products), and Heidolph Instruments GmbH, a German company. The Company's main competitors for its Torbal brand products are Ohaus Corporation, an American company, A&D Company Ltd., a Japanese company, and Adam Equipment Co., Ltd., a British company.
The primary competition for the Company's Catalyst Research Instrument products is in the form of instruments produced internally by research laboratory staffs of potential customers. Major competitors in the United States include Quantachrome Instruments (which is also a customer) and Micromeritics Instrument Corporation, each a privately-held company. The Company sells instruments to Quantachrome under an OEM agreement.
The potential major competitors for the Company's Bioprocessing Systems are Applikon Biotechnology, B.V. (Netherlands), DASGIP Technology GmbH (Germany), and PreSens - Precision Sensing GmbH (Germany).
Research and Development. The Company incurred research and development expenses, the majority of which related to its Benchtop Laboratory Equipment products, of $349,000 during fiscal 2016 compared to $392,200 during fiscal 2015. The Company expects research and development expenditures in the fiscal year ending June 30, 2017 will be at approximately the same level as those in fiscal 2016.
Government and Environmental Regulation. The Company's products and claims with respect thereto have not required approval of the Food and Drug Administration or any other government approval. The Company's manufacturing operations, like those of the industry in general, are subject to numerous existing and proposed, if adopted, federal, state, and local regulations to protect the environment, establish occupational safety and health standards and cover other matters. The Company believes that its operations are in compliance with existing laws and regulations and the cost to comply is not significant to the Company.
Employees. As of September 2, 2016, the Company employed 34 persons (24 for the Benchtop Laboratory Equipment operations and 10 for the Catalyst Research Instruments Operations) of whom 30 were full-time, including its three executive officers. All activities of the Bioprocessing Systems Operations are being performed by employees of the other two operations and consultants. None of the Company's employees are represented by any union.
Available Information. The Company's Annual Report to Stockholders for fiscal 2016, includes its Annual Report on Form 10-K. The Annual Report will be mailed to security holders together with the Company's proxy material and solicitation as it relates to the Company's 2016 Annual Meeting of Stockholders. All the Company's reports, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information filed with, or furnished to, the Securities and Exchange Commission (the "SEC" or the "Commission"), including amendments to such reports, are available on the SEC's website that contains such reports, proxy and information statements, and other information regarding companies that file electronically with the Commission. This information is available at www.sec.gov. In addition, all the Company's public filings can be accessed through the Company's website at https://scientificindustries.com/sec-filings.
Item 1A. Risk Factors.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, important risk factors are identified below that could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to such future periods in any current statements. The Company undertakes no obligation to publicly revise any forward-looking announcements to reflect future events or circumstances.
Dependence on Major Customers
Although the Company does not depend on any one single major customer, sales to two Benchtop Laboratory Equipment Operations customers accounted for a combined aggregate of 9% and 12% of its total revenues for fiscal 2016 and fiscal 2015, respectively. During fiscal 2016 one order from one customer for catalyst research instruments accounted for 26% of fiscal 2016 total revenues.
No representation can be made that the Company will be successful in continuing to retain either or both customers, or not suffer a material reduction in sales either which could have an adverse effect on future operating results of the Company.
One Benchtop Laboratory Equipment Product Accounts for a Substantial Portion of Revenues
The Company has a limited number of Benchtop Laboratory Equipment products with one product, the Vortex-Genie 2 Mixer, accounting for approximately 50% of Benchtop Laboratory Equipment sales, for each of fiscal 2016 and fiscal 2015, and 28% and 34% of total revenues for fiscal 2016 and fiscal 2015, respectively.
The Company is a Small Participant in Each of the Industries in Which It Operates
The Benchtop Laboratory Equipment industry is a highly competitive mature industry. Although the Vortex-Genie 2 Mixer has been widely accepted, the annual sales of the Benchtop Laboratory Equipment products ($5,449,700 for fiscal 2016 and $5,410,500 for fiscal 2015) are significantly lower than the annual sales of many of its competitors in the industry. The principal competitors are substantially larger with much greater financial, production and marketing resources than the Company. There are constant new entrants into the vortex mixer market, including those offering products imported from China, which the Company is unable to compete with on price. The Torbal line of products is also a small market participant in its industry with significant competition from well known brands.
The production and sale of Catalyst Research Instruments products is highly competitive. Altamira's competitors include several companies with greater resources and many laboratories which produce their own instruments.
The Company's Bioprocessing Systems operation is a participant in the fast-growing laboratory-scale sector of the larger bioprocessing products industry, which is dominated by several large companies with much greater resources than the Company.
The Company's Ability to Grow and Compete Effectively Depends In
Part on Its Ability to Develop and Effectively Market New Products
The Company continuously invests in development and marketing of new Benchtop Laboratory Equipment products with a view to increasing revenues and reducing the Company's dependence on the Vortex-Genie 2 Mixer, including the acquisition of the Torbal line of products in fiscal 2014. However, gross revenues derived from such other Benchtop Laboratory Equipment products only amounted to $2,718,300 for fiscal 2016 and $2,716,100, for fiscal 2015. The segment's ability to compete will depend upon the Company's success in continuing to develop and market new laboratory equipment as to which no assurance can be given.
The Company relies heavily on distributors and their catalogs to market the majority of its Benchtop Laboratory Equipment products, as is customary in the industry. Accordingly, sales of new products are heavily dependent on the distributors' decision to include and retain a new product in the distributors' catalogs and on their websites. It may be at least 24 to 36 months between the completion of development of a product and the distribution of the catalog in which it is first offered; furthermore, not all distributors feature the Company's products in their catalogs.
The Company's line of Catalyst Research Instruments consists of only a few products. The ability of the Company to compete in this segment and expand the line will depend on its ability to make engineering improvements to existing products and develop and add new products incorporating more current technology. Over the last few years the Company has introduced two new catalyst research products to increase its product offerings and has continuously sought to expand its outside sales force.
The success of the Company's new Bioprocessing Systems operation will be heavily dependent on its ability to develop and produce new products. Such products are of a complex nature and are taking longer to develop than previously anticipated. In addition, they will be subject to beta testing by end users, which could result in design and/or production changes which could further delay development time. The sale and marketing of the products, at least initially, will be through the Company's attendance at trade shows, website, online marketing, and a few select distributors.
No assurance can be given that the amounts allocated by the Company for its new product development and sales and marketing programs will be sufficient to develop additional commercially feasible products which will be accepted by the marketplace, or that any distributor will include or retain any such products in its catalogs and websites.
The Company May Be Subject to General Economic, Political, and Social Factors
Orders for the Company's products, particularly its Catalyst Research Instruments products, depend in part, on the customer's ability to secure funds to finance purchases, especially government funding. Availability of funds can be affected by budgetary constraints. Factors including a general economic recession, the European crisis, slowdown in Asian economies, or a major terrorist attack may have a negative impact on the availability of funding including government or academic grants to potential customers.
As discussed in Item 1, the Company has significant sales to overseas customers. The rising dollar against foreign currencies has a negative impact on sales, because the Company's products, which are paid in dollars, become more expensive.
The Company's ability to secure new Catalyst Research Instruments orders can also be affected by changes in domestic and international policies pertaining to energy and the environment, which could affect funding of potential customers.
The Company is Heavily Dependent on Outside Suppliers for the Components of Its Products
The Company purchases all its components from outside suppliers and relies on a few suppliers for some Benchtop Laboratory Equipment components, mostly due to cost considerations. Most of the Company's suppliers, including United States vendors, produce the components directly or indirectly in overseas factories, and orders are subject to long lead times and potential other risks related to production in a foreign country. To minimize the risk of supply shortages, the Company keeps more than normal quantities on hand of the critical components that cannot easily be procured or, where feasible and cost effective, purchases are made from more than one supplier.
However, a shortage of such components could halt production and have a material negative effect on the Company's operations.
The Company's Ability to Compete Depends in Part on Its Ability To Secure and Maintain Proprietary Rights to its Products
The Company has no patent protection for its principal Benchtop Laboratory Equipment product, the Vortex-Genie 2 Mixer, the Torbal balances, or for its Catalyst Research Instruments products and limited patent protection on a few other Benchtop Laboratory Equipment products. There are several competitive products available in the marketplace possessing similar technical specifications and design.
As part of the asset purchase by SBI during fiscal 2012, the Company acquired the rights to various patents for bioprocessing products which it licenses from UMBC.
There can be no assurance that any patent issued, licensed or sublicensed to the Company provides or will provide the Company with competitive advantages or will not be challenged by third parties. Furthermore, there can be no assurance that others will not independently develop similar products or design around the patents. Any of the foregoing activities could have a material adverse effect on the Company. Moreover, the enforcement by the Company of its patent or license rights may require substantial litigation costs.
The Company Has Limited Management Resources
The loss of the services of any of Ms. Helena Santos, the Company's Chief Executive and Financial Officer and President, Mr. Robert Nichols, the Company's Executive Vice President, Mr. Brookman March, President of Altamira, and Mr. Karl Nowosielski, Torbal Division President or any material expansion of the Company's operations could place a significant additional strain on the Company's limited management resources and could be materially adverse to the Company's operating results and financial condition.
The Common Stock of the Company is Thinly Traded and is Subject to Volatility
As of September 2, 2016, there were 1,489,112 shares of Common Stock of the Company outstanding, of which 364,223 shares (25%) were held by the directors and officers of the Company. The Common Stock of the Company is traded on the Over-the- Counter Bulletin Board and, historically, has been thinly traded. There have been a number of trading days during fiscal 2016 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. Properties.
The Company's executive offices and principal manufacturing facility for its Benchtop Laboratory Equipment operations comprise approximately 19,000 square feet, are located in Bohemia, New York and held pursuant to a lease which expires in February 2025. The Company's Catalyst Research Instruments operations are conducted from an approximately 9,000 square foot facility in Pittsburgh, Pennsylvania under a lease expiring in November 2017. The Bioprocessing Systems operation does not occupy a separate physical location. The Company has a 1,200 square foot facility in Oradell, New Jersey from where it conducts its sales and marketing functions, primarily for the Torbal division of the Benchtop Laboratory Equipment Operations. See Note 10 to the Financial Statements in Item 8. The leased facilities are suitable and adequate for each of the Company's operations. In the opinion of management, all properties are adequately covered by insurance.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2016.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock is traded in the over-the- counter market. The following table sets forth the low and high bid quotations for each quarter of fiscal 2015 and fiscal 2016, 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
_________________________ _______ ________
09/30/14 3.00 3.25
12/31/14 2.61 3.30
03/31/15 2.50 3.00
06/30/15 2.50 2.95
09/30/15 2.43 3.00
12/31/15 2.51 3.25
03/31/16 2.51 2.90
06/30/16 2.66 2.98
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As of September 2, 2016, there were 317 record holders of the Company's Common Stock.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking statements. Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company's business that are beyond the Company's control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's financial statements and the related notes included elsewhere in this report.
Overview. The Company reflected income before income tax expense of $218,900 for fiscal 2016 compared to a loss before income tax benefit of $7,300 for fiscal 2015, primarily due to the higher sales and profits from the Catalyst Research Instruments operations and higher profits from the Benchtop Laboratory Equipment operations, partially offset by losses incurred by the Bioprocessing Systems operations. The results reflected non-cash amounts for depreciation, amortization, and impairment of intangible assets of $641,600 for fiscal 2016 and $434,800 for fiscal 2015.
Results of Operations. Net sales for fiscal 2016 increased $1,749,200 (22.3%) to $9,597,600 from $7,848,400 for fiscal 2015, reflecting increases of $1,716,900 (74.1%) in net sales of catalyst research instruments, due to the large order to an overseas customer and $39,200 (.7%) in benchtop laboratory equipment sales, partially offset by a decrease of $6,900 (5.7%) in the Bioprocessing Systems operations revenues. The benchtop laboratory equipment sales reflected $1,175,800 of Torbal brand product sales for fiscal 2016, compared to $1,120,500 in fiscal 2015. The Company's Bioprocessing Systems operations, which began selling its new products expected to soon be fully marketable, reflected sales of $22,000 of such new products.
Sales of catalyst research instruments are comprised of a small number of large orders, historically averaging more than $100,000 each, while the sales of benchtop laboratory equipment comprise of a large number of small orders. As of June 30, 2016, the order backlog for catalyst research instruments was $995,000, all of which is expected to be shipped during fiscal year ending June 30, 2017, compared to $2,570,400 as of June 30, 2015.
Revenues derived from the Bioprocessing Systems Operations comprise primarily of net royalties received from sublicensees. The Company expects to start launching new products currently under development during the fiscal year ending June 30, 2017, although no assurance can be given.
The gross profit percentage for fiscal 2016 was 40.8% compared to 39.8% for fiscal 2015 due to higher margins on sales of catalyst research instruments resulting from the significant order in fiscal 2016, and higher margins on sales of benchtop laboratory equipment due to lower overhead costs.
General and administrative expenses for fiscal 2016 decreased $5,700 (0.3%) to $1,695,200 compared to $1,700,900 for fiscal 2015.
Selling expenses for fiscal 2016 increased $370,100 (35.4%) to $1,415,400 from $1,045,300 from for fiscal 2015 due primarily to increased outside sales commissions for the Catalyst Research Instruments operations related to a large overseas order.
Research and development expenses decreased by $43,200 (11.0%) to $349,000 for fiscal 2016 compared to $392,200 for fiscal 2015, primarily due to decreased new product development costs incurred by the Benchtop Laboratory Equipment operations, partially offset by higher product development costs incurred by the Bioprocessing Systems operations.
Total other expense was $26,100 for fiscal 2016 compared to $9,500 income in fiscal 2015, due to the interest expense related to the financing of a large order for catalyst research instruments.
Income tax expense for fiscal 2016 was $53,300 compared to a tax benefit of $16,000 for the prior year due to the income for the current year.
As a result of the foregoing, the Company recorded net income for fiscal 2016 of $165,600, compared to net income of $8,700 for fiscal 2015.
Liquidity and Capital Resources. Cash and cash equivalents increased by $763,000 to $1,245,000 as of June 30, 2016 from $482,000 as of June 30, 2015.
Net cash provided by operating activities was $880,400 for fiscal 2016 compared to $147,400 for fiscal 2015, primarily due to increased income, increased accounts payable and accrued expenses amounts, and an amount for impairment of intangible assets and a change in fair value of contingent consideration.
Net cash provided by investing activities was $194,400 for fiscal 2016 compared to net cash used of $250,700 for fiscal 2015 primarily due to the release of previously held restricted cash as collateral for the Company's working capital line of credit with its bank. The Company used $311,800 in financing activities in fiscal 2016 compared to cash provided of $91,600 in fiscal 2015, primarily due to the repayment of certain notes payable. The Company borrowed $970,000 under the export-import line of credit during fiscal 2016 to finance a large order of catalyst research instruments and repaid the debt at the end of fiscal 2016.
The Company's working capital increased by $620,600 to $4,031,900 as of June 30, 2016 compared to $3,411,300 as of June 30, 2015, mainly due to improved operating results excluding depreciation and amortization.
The Company has two lines of credit through June 2017 with First National Bank of Pennsylvania - an Export-Related Revolving Line of Credit which is guaranteed by the Export-Import Bank of the United States which provides for export-related borrowings of up to $200,000, bearing interest at prime plus 1% and an annual fee of 1.75% and a second one-year Demand Line of Credit which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 3.50%. Advances on both lines are secured by a pledge of the Company's assets including inventory, accounts, chattel paper, equipment and general intangibles of the Company. As of June 30, 2016 no borrowings were outstanding under either line.
Management believes that the Company will be able to meet its cash flow needs during the 12 months ending June 30, 2017 from its available financial resources including the lines of credit, its cash and investment securities, and operations.
Capital Expenditures. During fiscal 2016, the Company incurred $92,000 in capital expenditures. The Company expects that based on its current operations, its capital expenditures will not be materially higher for the fiscal year ending June 30, 2017.
Off-Balance Sheet Arrangements. None.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements required by this item are attached hereto on pages F1-F25.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Annual Report on Form 10-K, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over the Company's financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) and 15d-15(f). The Company's internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Chief Executive and Financial Officer of the Company conducted an evaluation of the effectiveness of the Company's internal controls over financial reporting as of June 30, 2016 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.
Based on the assessment of the Company's Chief Executive and Financial Officer of the Company, it was concluded that as of June 30, 2016, the Company's internal controls over financial reporting were effective based on these criteria.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting. There was no change in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that materially affected or is reasonably likely to materially affect the Company's internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls. The Company's management, including its Chief Executive and Financial Officer, believes that its disclosure controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that its disclosure controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors
The Company has the following five Directors:
Joseph G. Cremonese (age 80), a Director since November 2002 and Chairman of the Board since February 2006, has been, through his affiliate, a marketing consultant to the Company since 1996. Mr. Cremonese has been since 1991, President of his affiliate, Laboratory Innovation Company, Ltd., which is a vehicle for technology transfer and consulting services for companies, engaged in the production and sale of products for science and biotechnology. Since March 2003, he has been a director of Proteomics, Inc., a producer of recombinant proteins for medical research. Prior to 1991, he had been employed by Fisher Scientific, the largest U.S. distributor of laboratory equipment.
Roger B. Knowles (age 91), a Director since 1965, has been retired for the last five years.
Grace S. Morin (age 68), a Director since December 4, 2006, had been President, Director and principal stockholder of Altamira Instruments, Inc. from December 2003 until its acquisition in November 2006 by the Company. Ms. Morin had been employed by Altamira to supervise its administrative functions at the Pittsburgh, Pennsylvania facility as a full-time employee through March 31, 2009 and since that date as a part-time consultant. Prior to December 2003, she was a general business consultant for two years, and prior thereto a member of senior management of a designer of gas flow environmental engineered products for approximately four years.
Helena R. Santos (age 52), a Director since 2009, has been employed by the Company since 1994, and has served since August 2002 as its President, Chief Executive Officer and Treasurer. She had served as Vice President, Controller from 1997 and as Secretary from May 2001. Ms. Santos was an internal auditor with a major defense contractor from March 1991 to April 1994. She had been previously employed in public accounting.
James S. Segasture (age 80), a Director since 1991, has been retired for the last five years.
The Directors are elected to three-year staggered terms. The current terms of the Directors expire at the annual meeting of stockholders of the Company following: the fiscal year ended June 30, 2016 - one director (Ms. Morin, Class B), the fiscal year ending June 30, 2017 - two directors (Mr. Cremonese and Mr. Knowles, Class C), and the fiscal year ending June 30, 2018 - two directors (Ms. Santos and Mr. Segasture, Class A).
Board Committees
The Company's Stock Option Committee administers the Company's 2012 Stock Option Plan. The members of the committee are non-management Directors of the Company - James S. Segasture and Joseph G. Cremonese. The members of the Committee serve at the discretion of the Board. During fiscal 2016 the Stock Option Committee did not hold any meetings.
Grace S. Morin and James S. Segasture are the current members of the Company's Compensation Committee serving at the discretion of the Board. The Committee administers the Company's compensation policies. During fiscal 2016, the Compensation Committee held one meeting.
The Board of Directors acts as the Company's Audit Committee, which in its function as the Committee, held four meetings during fiscal 2016. Ms. Santos, who is not "independent" and Ms. Morin are "financial experts" as defined by the Securities and Exchange Commission.
Executive Officers
See above for the employment history of Ms. Santos.
Robert P. Nichols (age 55), employed by the Company since February 1998, has served since August 2002 as Executive Vice President. Previously, he had been since May 2001 Vice President, Engineering. Prior to joining the Company, Mr. Nichols was an Engineer Manager with Bay Side Motion Group, a precision motion equipment manufacturer rom January 1996 to February 1998.
Brookman P. March (age 71) has been Director of Sales and Marketing of Altamira, which has conducted the Catalyst Research Instruments operations since November 30, 2006 and its President since July 2008. He had been Vice President and a Director of Altamira from December 2003 until it was acquired by the Company. Mr. March is the husband of Ms. Morin, a Director of the Company.
Karl D. Nowosielski (age 37), is the President of the Torbal division of the Benchtop Laboratory Equipment Operations and Director of Marketing for the Company. He had been until February 2014 Vice President of Fulcrum, Inc. (the seller of the Torbal division assets) since 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that, for fiscal 2016, its officers, directors and 10% stockholders timely complied with all filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
Code of Ethics
The Company has adopted a code of ethics that applies to the Executive Officers and Directors. A copy of the code of ethics can be found on the Company's website at www.scientificindustries.com.
Item 11. Executive Compensation.
Compensation Discussion and Analysis. The Compensation Committee reviews and recommends to the Board of Directors the compensation to be paid to each executive officer. Executive compensation, in all instances except for the compensation for the Chief Executive Officer ("CEO"), is based on recommendations from the CEO. The CEO makes a determination by comparing the performance of each executive being reviewed with objectives established at the beginning of each fiscal year and with objectives established during the business year with regard to the success of the achievement of such objectives and the successful execution of management targets and goals.
With respect to the compensation of the CEO, the Committee considers performance criteria, 50% of which is related to the direction, by the CEO, of the reporting executives, the establishment of executive objectives as components for the successful achievement of Company goals and the successful completion of programs leading to the successful completion of the Business Plan for the Company and 50% is based on the achievement by the Company of its financial and personnel goals tempered by the amount of the income or loss of the Company during the fiscal year.
The compensation at times includes grants of options under its stock option plan to the named executives. Each officer is employed pursuant to a long- term employment agreement, containing terms proposed by the Committee and approved as reasonable by the Board of Directors. The Board is cognizant that as a relatively small company, the Company has limited resources and opportunities with respect to recruiting and retaining key executives. Accordingly, the Company has relied upon long-term employment agreements and grants of stock options to retain qualified personnel.
Compensation for each of its executive officers provided by their employment agreements were based on the foregoing factors and the operating and financial results of the segments under their management.
The following table summarizes all compensation paid by the Company to each of its executive officers for the fiscal years ended June 30, 2016 and 2015.
SUMMARY COMPENSATION TABLE
Non- Non-
Equity Qualified
Incentive Deferred
Name Plan Comp-
and Stock Option Comp- ensation
|
Robert P. 2016 141,800 0 0 1,200(2) 0 0 Nichols, 2015 139,000 0 0 1,200(2) 0 0 Exec. V.P. _____________________________________________________________________ Brookman 2016 142,800 0 0 1,200(3) 0 0 P. March, 2015 140,000 0 0 2,800(3) 0 0 Director of Sales and Marketing, and President of Altamira _____________________________________________________________________ Karl D. 2016 141,900 0 0 9,500(4) 0 0 |
Changes
in
Pension
Value
and Non-
Qualified All
Name Deferred Other
and Comp- Comp-
Principal Fiscal ensation ensation Total
Position Year Earnings ($) ($)
(a) (b) (i) (j)
_____________________________________________________________________
|
Robert P. 2016 0 5,700(1) 148,700 Nichols, 2015 0 5,600(1) 145,800 Exec. V.P. _____________________________________________________________________ Brookman 2016 0 5,700(1) 149,700 P. March, 2015 0 5,600(1) 148,400 Director of Sales and Marketing, and President of Altamira _____________________________________________________________________ Karl D. 2016 0 5,700(1) 157,100 |
(1) The amounts represent the Company's matching contribution under the Company's 401(k) Plans.
(2) The amount represents compensation expense for stock options granted valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service- based vesting considerations. The fiscal 2014 option was valued at a total of $3,500 of which $1,200 was expensed as stock based compensation in fiscal 2016 and 2015.
(3) The amounts represent compensation expense for the 2014 stock options granted valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The 2014 option was valued at a total of $3,500 of which $1,200 was expensed in fiscal 2016 and 2015.
(4) The amounts represent compensation expense for the 2016 and 2015 stock options granted as part of his employment agreement, valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The options were valued at a total of $9,500 and $7,100, respectively, all of which was expensed as stock based compensation in the respective periods.
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 2016
All Other
Estimated Estimated Stock
Future Future Awards:
Payouts Payouts Number
Under Under Of
Non-Equity Equity Shares
Incentive Incentive Of Stock
Grant Plan Plan Or Units
|
Karl D. Nowosielski 02/26/16 0 0 0
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 2016
(CONTINUED)
All Other
Option Grant
Awards: Date
Number Exercise Fair
Of Or Base Value of
Securities Price Stock
Underlying Of Option And
Options Awards Option
Name # ($/Sh) Awards
(a) (f) (g) (h)
_________________________________________________________
|
Karl D. Nowosielski 5,000 3.05 9,500
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Number Equity
Number of Incentive
of Securities Plan Awards:
Securities Under- Number of
Under- lying Securities
lying Un- Unexercised Underlying Option
exercised Options(#) Unexercised Exercise Option
Options(#) Unexerci- Unearned Price Expiration
Name Exercisable sable Options(#) ($) Date
(a) (b) (c) (d) (e) (f)
_____________________________________________________________________
Brookman P. 6,334 666 0 3.50-3.71 11/2014-12/2023
March
Robert P.
Nichols 1,334 666 0 3.50 12/2023
Karl D.
Nowosielski 2,667 8,333 0 3.05-4.05 02/2024-02/2026
_____________________________________________________________________
|
Employment Agreements
In May 2016, The Company extended the existing employment agreements with Ms. Helena R. Santos and Robert P. Nichols to June 30, 2017. The agreements provide for annual base salaries for the fiscal years ending June 30, 2017, for Ms. Santos of $162,000 and $146,000 for Mr. Nichols. Bonuses, if any, are to be awarded at the discretion of the Board of Directors for each of the fiscal years. No bonuses were awarded for fiscal 2016 or 2015.
In May 2016, the Company extended the existing employment agreement with Mr. March through June 30, 2017. The agreement provides for an annual base salary of $147,000. Bonuses, if any, may be awarded at the discretion of the Board of Directors. No bonuses were awarded for fiscal 2016 or 2015. Mr. March is the husband of Grace S. Morin, a Director of the Company and of Altamira and a former principal stockholder of Altamira.
In February 2014 in conjunction with the acquisition of the Torbal division assets from Fulcrum, Inc., the Company entered into an employment agreement with Mr. Nowosielski providing for his employment through February 2017, which may be extended by mutual consent for another two years. The agreement provided for an annual base salary of $140,000, subject to increases commencing with the second year based on percentage increases in the Consumer Price Index, plus discretionary bonuses. The agreement also provided for the issuance of 2,000 stock options upon commencement of employment and 4,000, 5,000, and 6,000 stock options in February 2015, 2016, and 2017, respectively, subject to his continued employment. No bonuses have been awarded under the agreement.
The employment agreements for Ms. Santos, Mr. Nichols, Mr. March and Mr. Nowosielski contain confidentiality and non-competition covenants. The employment agreements for Ms. Santos, Mr. March, and Mr. Nowosielski contain termination provisions stipulating that if the Company terminates the employment other than for death, disability, or cause (defined as (i) conviction of a felony or (ii) gross neglect or gross misconduct (including conflict of interest), the Company shall pay severance payments equal to one year's salary at the rate of the compensation at the time of termination, and continue to pay the regular benefits provided by the Company for a period of two years from termination.
Directors' Compensation and Options
DIRECTORS' COMPENSATION
For the Year Ended June 30, 2016
Non-
Equity
Fees Incentive
Earned Plan
or Paid Stock Option Comp-
in Cash Awards Awards ensation
Name ($) ($) ($) ($)
(a) (b) (c) (d) (e)
__________________________________________________________________
Joseph G.
Cremonese 30,000 0 0 0
Roger B.
Knowles 13,900 0 0 0
Grace S.
Morin 13,900 0 0 0
James S.
Segasture 13,900 0 0 0
|
DIRECTORS' COMPENSATION (CONTINUED)
Changes
in
Pension
Value and
Non- Non-
qualified qualified
Deferred Deferred All
Compens- Comp- Other
ation ensation Comp-
Earnings Earnings ensation Total
Name ($) ($) ($) ($)
(a) (f) (g) (h) (i)
____________________________________________________________________
Joseph G.
Cremonese 0 0 43,200(1) 73,200
Roger B.
Knowles 0 0 0 13,900
Grace S.
Morin 0 0 5,800(2) 19,700
James S.
Segasture 0 0 0 13,900
|
(1) Represents amount paid to his affiliate pursuant to a marketing consulting agreement (see Items 12 and 13).
(2) Represents compensation received for her administrative services as a consultant for Altamira (see Items 12 and 13).
The Company pays each Director who is not an employee of the Company or a subsidiary a quarterly retainer fee of $2,000 and $1,500 for each meeting attended. In addition, the Company reimburses each Director for out-of-pocket expenses incurred in connection with attendance at board meetings. Mr. Cremonese, as Chairman of the Board receives an additional fee of $1,400 per month. During fiscal 2016, total director compensation to non-employee Directors aggregated $120,700, including the consulting fees paid to Mr. Cremonese's affiliate, and to Ms. Morin.
Since December 1, 2003, Mr. Joseph G. Cremonese, has been awarded a total of 45,000 stock options under the Company's 2002 and 2012 Stock Option Plans of which 20,000 remain unexercised. None of the other directors have options outstanding.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth, as of June 30, 2016,
the number of shares of Common Stock beneficially owned by (i) each
person known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each named executive officer of the Company, and (iv) all
directors and executive officers as a group. Shares not outstanding
but deemed beneficially owned by virtue of the right of any individual
to acquire shares within 60 days are treated as outstanding only when
determining the amount of and percentage of outstanding shares of
Common Stock owned by such individual. Each person has sole voting
and investment power with respect to the shares shown, except as noted.
Except as indicated in the table, the address for each of the following
is c/o Scientific Industries, Inc., 80 Orville Drive, Bohemia, New York
11716.
Amount and
Name Nature of Beneficial Ownership % of Class
___________________________ ______________________________ ___________
Spectrum Laboratories, Inc. 127,986 (1) 8.6%
18617 Broadwick Street
Rancho Dominquez, CA 90220
Fulcrum, Inc. 126,449 (2) 8.5%
100 Delawanna Avenue
Clifton, NJ 07014
Lowell A. Kleiman 90,000 (3) 6.0%
16 Walnut Street
Glen Head, NY 11545
Joseph G. Cremonese 104,597 (4) 6.9%
Roger B. Knowles - -
Grace S. Morin 89,950 (5) 6.0%
James S. Segasture 162,500 (6) 10.9%
Helena R. Santos 15,779 1.1%
Robert P. Nichols 20,397 (7) 1.4%
Brookman P. March 89,950 (8) 6.0%
Karl D. Nowosielski 11,000 (9) 0.8%
All directors and executive
officers as a group (8 persons) 404,223 (10) 26.4%
|
(1) Based on information reported on Form 3 filed with the Securities
and Exchange Commission on June 27, 2011.
(2) Stock issued in connection with the acquisition of the Torbal division
assets from Fulcrum, Inc. on February 26, 2014.
(3) Based on information reported in his Schedule 13D filed with the
Securities and Exchange Commission on December 10, 2015.
(4) 77,597 shares are owned jointly with his wife, 7,000 shares are
owned by his wife, and 20,000 shares are issuable upon exercise of options.
(5) Includes 7,000 shares issuable upon exercise of options held by her
husband, Mr. March.
(6) Shares owned jointly with his wife.
(7) Includes 2,000 shares issuable upon exercise of options.
(8) Represents 82,950 shares owned by Ms. Morin, his wife and 7,000
shares issuable upon exercise of options.
(9) Represents shares issuable upon exercise of options.
(10) Includes 40,000 shares issuable upon exercise of options.
EQUITY COMPENSATION PLAN INFORMATION
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 43,500 3.33
Equity
Compensation
plans not approved
by security holders N/A N/A
_________________________________________________________________
Total 43,500 3.33
_________________________________________________________________
|
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 79,500 Equity Compensation plans not approved by security holders N/A _________________________________________________________________ Total 79,500 _________________________________________________________________ |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Mr. Joseph G. Cremonese, a Director since November 2002, through his affiliate, Laboratory Innovation Company, Ltd., has been providing independent marketing consulting services to the Company since January 1, 2003 pursuant to a consulting agreement expiring December 31, 2016. The agreement currently provides that Mr. Cremonese and his affiliate shall render, at the request of the Company, marketing consulting services for a monthly payment of $3,600. The agreement contains confidentiality and non- competition covenants. The Company paid fees of $43,200 pursuant to the agreement for each of fiscal 2016 and 2015.
Ms. Grace S. Morin, was elected a Director in December 2006 following the sale of her 90.36% ownership interest in Altamira to the Company in November 2006. Up until March 31, 2009, Ms. Morin had been employed by Altamira as an administrative employee. Since April 1, 2009, she has provided consulting services on a part-time basis pursuant to an agreement expiring December 31, 2016 at the rate of $85 per hour, resulting in payments of $5,800 and $4,300 for fiscal 2016 and fiscal 2015, respectively. The agreement contains confidentiality and non- competition covenants.
Item 14. Principal Accountant Fees and Services.
The following is a description of the fees incurred by the Company for services by the firm of Nussbaum Yates Berg Klein & Wolpow, LLP (the "Firm") during fiscal 2016 and fiscal 2015.
The Company incurred for the services of the Firm fees of approximately $67,000 and $65,000 for fiscal 2016 and 2015, respectively, in connection with the audit of the Company's annual financial statements and quarterly reviews; and $6,000 for each fiscal year for the preparation of the Company's corporate tax returns.
In approving the engagement of the independent registered public accounting firm to perform the audit and non-audit services, the Board of Directors as the Company's audit committee evaluates the scope and cost of each of the services to be performed including a determination that the performance of the non-audit services will not affect the independence of the firm in the performance of the audit services.
Part IV
Item 15. Exhibits and Financial Statement Schedules.
Financial Statements. The required financial statements of the Company are attached hereto on pages F1-F24.
Exhibits. The following Exhibits are filed as part of this report on Form 10-K:
Exhibit Number Exhibit ______________ _______ 3 Articles of Incorporation and By-Laws: 3(a) Certificate of Incorporation of the |
Company as amended (filed as Exhibit 1(a-1) to the Company's General Form for Registration of Securities on Form 10 dated February 14, 1973 and incorporated by reference thereto.)
3(b) Certificate of Amendment of the Company's Certificate of Incorporation, as filed on January 28, 1985 (filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1985 and incorporated by reference thereto.)
3(c) By-Laws of the Company, as restated and amended (filed as Exhibit 3(ii) to the Company's Current Report on Form 8-K filed on January 6, 2003 and Exhibit 3(ii) to the Company's Current Report on Form 8-K filed on December 5, 2007 and incorporated by reference thereto).
4 Instruments defining the rights of
security holders:
4(a) 2002 Stock Option Plan (filed as Exhibit
|
99-1 to the Company's Current Report on Form 8-K filed on November 25, 2002 and incorporated by reference thereto).
4(b) 2012 Stock Option Plan (filed as Exhibit 10 to the Company's Current Report on Form 8-K filed on January 23, 2012 and incorporated by reference thereto).
4(c) Amendment to the Company's 2012 Stock Option Plan (Filed as Exhibit 4(c) to the Company's Quarterly Report on Form 10-Q filed on May 12, 2016 and incorporated by reference thereto).
10 Material Contracts:
10(a) Lease between Registrant and AIP Associates, predecessor-in-interest of current lessor, dated October, 1989 with respect to Company's offices and facilities in Bohemia, New York (filed as Exhibit 10(a) to the Company's Annual Report on Form 10-KSB filed on September 28, 2005 and incorporated by reference thereto).
10(a)-1 Amendment to lease between Registrant and REP A10 LLC, successor in interest of AIP Associates, dated September 1, 2004 (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on September 2, 2004, and incorporated by reference thereto).
10(a)-2 Second amendment to lease between Registrant and REP A10 LLC dated November 5, 2007 (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on November 8, 2007, and incorporated by reference thereto).
10(a)-3 Lease agreement dated August 8, 2014 by and between the Company and 80 Orville Drive Associates LLC.
10(b) Employment Agreement dated January 1, 2003, by and between the Company and Ms. Santos (filed as Exhibit 10(a) to the Company's Current Report on Form 8-K filed on January 22, 2003, and incorporated by reference thereto).
10(b)-1 Employment Agreement dated September 1, 2004, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on September 1, 2004, and incorporated by reference thereto).
10(b)-2 Employment Agreement dated December 29, 2006, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on December 29, 2006, and incorporated by reference thereto).
10(b)-3 Employment Agreement dated July 31, 2009 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on August 7, 2009, and incorporated by reference thereto).
10(b)-4 Employment Agreement dated May 14, 2010 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on May 18, 2010, and incorporated by reference thereto).
10(b)-5 Employment Agreement dated September 13, 2011 by and between the Company and Ms. Santos (filed as exhibit 10(b)-5 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and incorporated by reference thereto).
10(b)-6 Amended Employment Agreement dated May 20, 2013 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on May 20, 2013, and incorporated by reference thereto).
10(b)-7 Agreement extension dated June 9, 2015 to amend employment agreement by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto).
10(b)-8 Agreement extension dated May 25, 2016 to amend employment agreement by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on May 31, 2016, and incorporated by reference thereto).
10(c) Employment Agreement dated January 1, 2003, by and between the Company and Mr. Robert P. Nichols (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on January 22, 2003, and incorporated by reference thereto).
10(c)-1 Employment Agreement dated September 1, 2004, by and between the Company and Mr. Nichols (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on September 1, 2004, and incorporated by reference thereto).
10(c)-2 Employment Agreement dated December 29, 2006, by and between the Company and Mr. Nichols (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on December 29, 2006, and incorporated by reference thereto).
10(c)-3 Employment Agreement dated July 31, 2009 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on August 7, 2009, and incorporated by reference thereto).
10(c)-4 Employment Agreement dated May 14, 2010 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on May 18, 2010, and incorporated by reference thereto).
10(c)-5 Employment Agreement dated September 13, 2011 by and between the Company and Mr. Nichols (filed as Exhibit 10(c)-5 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and incorporated by reference thereto).
10(c)-6 Amended Employment Agreement dated May 20, 2013 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company's current Report on Form 8-K filed on May 20, 2013, and incorporated by reference thereto).
10(c)-7 Agreement extension dated June 9, 2015 to amend employment agreement with Mr. Nichols (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto).
10(c)-8 Agreement extension dated May 25, 2016 to amend employment agreement with Mr. Nichols (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on May 31, 2016, 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 Amended and Restated Consulting Agreement dated March 22, 2005, by and between the Company and Mr. Cremonese and Laboratory Innovation Company, Ltd. (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on March 23, 2005, and incorporated by reference thereto).
10(d)-2 Second Amended and Restated Consulting Agreement dated March 15, 2007, by and between the Company and Mr. Cremonese and Laboratory Innovation Company Ltd. (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on March 16, 2007, and incorporated by reference thereto).
10(d)-3 Third Amended and Restated Consulting Agreement dated September 23, 2009, by and between the Company and Mr. Cremonese and Laboratory Innovation Company, Ltd. (filed as Exhibit 10 to the Company's Annual Report on Form 10-K field on September 24, 2009, and incorporated by reference thereto).
10(d)-4 Fourth Amended and Restated Consulting Agreement dated January 7, 2011 (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K (filed on January 18, 2011, and incorporated by reference thereto).
10(d)-5 Fifth Amendment and Restated Consulting Agreement dated January 20, 2012 (filed as Exhibit 10 to the Company's Current Report on Form 8-K (filed on January 23, 2012, and incorporated by reference thereto).
10(d)-6 Agreement extension dated November 29, 2012 to Amended and Restated Consulting Agreement (filed as Exhibit 10 to the Company's Current Report on Form 8-K filed on December 4, 2012, and incorporated by reference thereto).
10(d)-7 Agreement extension dated December 12, 2013 to Amended and Restated Consulting Agreement (filed as Exhibit 10 to the Company's Current Report on Form 8-K filed on December 12, 2013, and incorporated by reference thereto).
10(d)-8 Agreement extension dated January 14, 2015 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on January 15, 2015, and incorporated with reference thereto).
10(d)-9 Agreement extension dated January 7, 2016 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on January 26, 2016, and incorporated with 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(i)-1 Employment Agreement, dated as of October 30, 2008, between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on October 30, 2008, and incorporated by reference thereto).
10(i)-2 Employment Agreement, dated as of October 1, 2010, between Altamira Instruments, Inc., and Brookman P. March (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on October 13, 2010, and incorporated by reference thereto).
10(i)-3 Employment Agreement, dated as of May 18, 2012 between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10(i)-3 to the Company's Annual Report on Form 10-K filed on September 27, 2012, and incorporated by reference thereto).
10(i)-4 Agreement Extension, dated as of May 21, 2014 between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10 to the Company's Current Report on Form 8-K filed on May 21, 2014, and incorporated by reference thereto).
10(i)-5 Agreement extension dated June 9, 2015 to amend employment agreement (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto).
10(i)-6 Agreement extension dated May 25, 2016 to amend employment agreement (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on May 31, 2016, and incorporated by reference thereto).
10(j) Indemnity Agreement, dated as of April 13, 2007 by and among the Company and Grace Morin, Heather H. Haught and William D. Chandler (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-KSB filed on September 28, 2007 and incorporated by reference thereto).
10(k) Lease between Altamira Instruments, Inc. and Allegheny Homes, LLC, with respect to the Company's Pittsburgh, Pennsylvania facilities (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-KSB filed on September 28, 2007 and incorporated by reference thereto).
10(k)-1 Lease between Altamira Instruments, Inc. and Allegheny Homes, LLC, with respect to the Company's Pittsburgh, Pennsylvania facilities (filed as Exhibit 10(k)-1 to the Company's Quarterly Report on Form 10-Q filed on February 14, 2013, and incorporated by reference thereto).
10(l) Line of Credit Agreements dated October 30, 2008, by and among the Company and Capital One, N.A. (filed as Exhibits 10-A1(a) through (f) to the Company's Current Report on Form 8-K filed on October 30, 2008, and incorporated by reference thereto).
10(l)-1 Restated Promissory Note Agreement dated January 20, 2010 by and among the Company and Capital One N.A. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on January 20, 2010, and incorporated by reference thereto).
10(I)-2 Restated Promissory Note Agreement dated January 5, 2011 by and among the Company and Capital One N.A. (filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on January 6, 2011, and incorporated by reference thereto).
10(m) Consulting Agreement dated April 1, 2009 by and between the Company and Grace Morin (filed as Exhibit 10A-1 to the Company's Current Report on Form 8-K filed on April 1, 2009, and incorporated by reference thereto).
10(m)-1 Agreement dated January 12, 2015 to extend Consulting Agreement (filed as Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on January 15, 2015, and incorporated by reference thereto).
10(m)-2 Agreement dated January 7, 2016 to extend Consulting Agreement (filed as Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on January 26, 2016, and incorporated by reference thereto).
10(n) Line of Credit Agreements dated June 14, 2011, by and among the Company and JPMorgan Chase Bank, N.A. (filed as Exhibits 99.1 through 99.3 to the Company's Current Report on Form 8-K filed on June 16, 2011, and incorporated by reference thereto).
10(n)-1 Promissory Note dated June 5, 2013 by and among the Company and JP Morgan Chase Bank, N.A. (filed as Exhibit 99 to the Company's Current Report on Form 8-K filed on June 7, 2013, and incorporated by reference thereto).
10(o) Purchase Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Fluorometrix Corporation (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
10(p) Escrow Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Fluorometrix Corporation (filed as Exhibit 10(A) to the Company's Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
10(q) Research and Development Agreement dated as of November 14, 2011, by and between Scientific Bioprocessing, Inc. and Biodox R&D Corporation (filed as Exhibit 10(B) to the Company's Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
10(q)-1 Notice of termination of Research and Development Agreement dated June 12, 2013 (filed as Exhibit 99 to the Company's Current Report on Form 8-K filed on June 27, 2013, and incorporated by reference thereto).
10(r) Non-Competition Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Joseph E. Qualitz (filed as Exhibit 10(D) to the Company's Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
10(s) Promissory Note, dated as of November 14, 2011, by and between the Company and the University of Maryland, Baltimore County (filed as Exhibit 10(c) to the Company's Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
10(t) License Agreement, dated as of January 31, 2001 by and between University of Maryland, Baltimore County and Fluorometrix Corporation (filed as Exhibit 10(E) to the Company's Current Report on Form 8-K filed on November 21, 2011, and incorporated by reference thereto).
10(u) Line of Credit Agreements dated June 25, 2014, by and among the Company and Bank of America Merrill Lynch (filed as Exhibits 99.1 through 99.2 (to the Company's Current Report on Form 8-K filed on July 2, 2014, and incorporated by reference thereto).
10(v) Asset Purchase Agreement, dated as of February 26, 2014, by and among the Company and Fulcrum, Inc. (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
10(v)-1 Escrow Agreement, dated as of February 26, 2014, by and among the Company, and Fulcrum, Inc. (filed as Exhibit 10(e) to the Company's Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
10(v)-2 Non-Competition Agreements, dated as of February 26, 2014, by and among the Company, and James Maloy and Karl Nowosielski (filed as Exhibits 10(b) and 10(c) to the Company's Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
10(v)-3 Registration Rights Agreement, dated as of February 26, 2014, by and among the Company, and Fulcrum, Inc. (filed as Exhibit 10(d) to the Company's Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
10(v)-4 Supply Agreement, dated as of February 20, 2014, by and among the Company, and Axis Sp 3.O.O. (filed as Exhibit 10(g) to the Company's Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
10(w) Line of Credit Agreements dated June 26, 2015, by and among the Company and First National Bank of Pennsylvania (filed as Exhibit 10.1 through 10.4 to the Company's Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
10(w)-1 Commercial Security Agreement dated July 5, 2016 by and among the Company and First National Bank of Pennsylvania.
10(y) Note Purchase Agreements with James Maloy dated May 7, 2015 (filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
10(z) Note Purchase Agreements with Grace March dated May 19, 2015 (filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
14 Code of Ethics (filed as Exhibit 14 to the Company's Annual Report on Form 10-KSB filed on September 28, 2007 and incorporated by reference thereto).
21 Subsidiaries of the Registrant
Altamira Instruments, Inc., a Delaware Corporation, is a wholly-owned subsidiary of the Company.
Scientific Bioprocessing, Inc., a Delaware Corporation, is a wholly-owned subsidiary of the Company since November 2011.
Scientific Packaging Industries, Inc., a New York corporation, is a wholly-owned inactive subsidiary of the Company.
31.01 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.01 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Helena R. Santos
____________________
Helena R. Santos
President, Chief Executive
Officer, Treasurer
Chief Financial and Principal
Accounting Officer
Date: October 11, 2016
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Helena R. Santos President and Treasurer (Chief October 11, 2016
Helena R. Santos Executive Officer and Financial
Officer) and Director
/s/ Joseph G. Cremonese Chairman of the Board October 11, 2016
Joseph G. Cremonese
/s/ Roger B. Knowles Director October 11, 2016
Roger B. Knowles
/s/ Grace S. Morin Director October 11, 2016
Grace S. Morin
/s/ James S. Segasture Director October 11, 2016
James S. Segasture
|
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE
YEARS ENDED JUNE 30, 2016 AND 2015
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
CONTENTS
Page
----
Report of independent registered public accounting firm F-1
Consolidated financial statements:
Balance sheets F-2
Statements of income F-3
Statements of comprehensive income F-4
Statements of shareholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-25
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Scientific Industries, Inc.
Bohemia, New York
We have audited the accompanying consolidated balance sheets of Scientific Industries, Inc. and subsidiaries (the "Company") as of June 30, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Scientific Industries, Inc. and subsidiaries as of June 30, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Nussbaum Yates Berg Klein & Wolpow, LLP ___________________________________________ Nussbaum Yates Berg Klein & Wolpow, LLP Melville, New York October 11, 2016 |
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2016 AND 2015
ASSETS
2016 2015
_________ _________
Current assets:
Cash and cash equivalents $1,245,000 $ 482,000
Restricted cash - 300,000
Investment securities 290,100 281,800
Trade accounts receivable, less
allowance for doubtful accounts
of $11,600 in 2016 and 2015 1,231,900 1,081,700
Inventories 2,412,100 2,213,700
Prepaid and other current assets 47,200 68,600
Deferred taxes 140,600 114,200
__________ __________
Total current assets 5,366,900 4,542,000
Property and equipment, net 251,100 235,200
Intangible assets, net 897,600 1,451,900
Goodwill 705,300 705,300
Other assets 52,500 52,500
Deferred taxes 275,900 154,500
__________ __________
Total assets $7,549,300 $7,141,400
========== ==========
|
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 342,400 $ 227,600
Customer advances - 76,400
Accrued expenses and taxes,
current portion 849,700 519,900
Contingent consideration,
current portion 136,500 106,800
Notes payable, current portion 6,400 200,000
__________ __________
Total current liabilities 1,335,000 1,130,700
Accrued expenses, less current portion 60,000 -
Notes payable, less current portion 12,500 -
Contingent consideration payable,
less current portion 209,800 260,300
__________ __________
Total liabilities 1,617,300 1,391,000
__________ __________
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 1,508,914 shares in 2016
and 2015 75,400 75,400
Additional paid-in capital 2,498,500 2,486,700
Accumulated other comprehensive
income (loss) 900 (3,300)
Retained earnings 3,409,600 3,244,000
__________ __________
5,984,400 5,802,800
Less common stock held in treasury at
cost, 19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,932,000 5,750,400
__________ __________
Total liabilities and
shareholders' equity $7,549,300 $7,141,400
========== ==========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2016 2015
__________ ____________
Revenues $9,597,600 $7,848,400
Cost of revenues 5,680,300 4,726,800
__________ __________
Gross profit 3,917,300 3,121,600
__________ __________
Operating expenses:
General and administrative 1,695,200 1,700,900
Selling 1,415,400 1,045,300
Research and development 349,000 392,200
Impairment of intangible assets 212,700 -
__________ __________
Total operating expenses 3,672,300 3,138,400
__________ __________
Income (loss) from operations 245,000 (16,800)
__________ __________
Other income (expense):
Interest income 6,000 4,300
Other income, net 1,800 9,400
Interest expense (33,900) (4,200)
__________ __________
Total other income (expense),
net (26,100) 9,500
__________ __________
Income (loss) before income tax
expense (benefit) 218,900 (7,300)
__________ __________
Income tax expense (benefit):
Current 202,500 18,700
Deferred (149,200) ( 34,700)
__________ __________
Total income tax expense
(benefit) 53,300 ( 16,000)
__________ __________
Net income $ 165,600 $ 8,700
========== ==========
Basic earnings per common share $ .11 $ .01
======= =======
Diluted earnings per common share $ .11 $ .01
======= =======
Weighted average common shares
outstanding, basic 1,489,112 1,478,126
========= =========
Weighted average common shares
outstanding, assuming dilution 1,489,387 1,479,882
========= =========
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See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
Net income $ 165,600 $ 8,700
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during period,
net of tax 4,200 (4,400)
__________ _________
Comprehensive income $ 169,800 $ 4,300
========== =========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
Common Stock Additional Accumulated
______________ Paid-in Other Compr-
Shares Amount Capital ehensive Gain
(Loss)
_______ _______ __________ _____________
Balance, July 1, 2014 1,488,914 $74,400 $2,420,700 $ 1,100
Net income - - - -
Unrealized holding loss
on investment securities,
net of tax - - - ( 4,400)
Exercise of stock options 20,000 1,000 50,200 -
Stock-based compensation - - 10,900 -
Income tax benefit of
stock options exercised - - 4,900 -
_________ _______ __________ _________
Balance, June 30, 2015 1,508,914 75,400 2,486,700 (3,300)
Net income - - - -
Unrealized holding gain
on investment securities,
net of tax - - - 4,200
Stock-based compensation - - 11,800 -
_________ _______ __________ _________
Balance, June 30, 2016 1,508,914 $75,400 $2,498,500 $ 900
========= ======= ========== =========
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See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2016 AND 2015
Total
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
__________ ______ _______ ____________
Balance, July 1 , 2014 $3,235,300 19,802 $52,400 $5,679,100
Net income 8,700 - - 8,700
|
Unrealized holding loss
on investment securities,
net of tax - - - (4,400)
Exercise of stock options - - - 51,200
Stock-based compensation - - - 10,900
Income tax benefit of
stock options exercised - - - 4,900
__________ _______ ________ ___________
Balance, June 30, 2015 3,244,000 19,802 52,400 5,750,400
Net income 165,600 - - 165,600
Unrealized holding gain
on investment securities,
net of tax - - - 4,200
Stock-based compensation - - - 11,800
__________ _______ ________ ___________
Balance, June 30, 2016 $3,409,600 19,802 $52,400 $5,932,000
========== ======= ======== ===========
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2016 2015
__________ __________
Operating activities:
Net income $ 165,600 $ 8,700
__________ __________
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 428,900 434,800
Impairment of intangible assets 212,700 -
Gain on sale of property and equipment ( 300) -
Deferred income tax benefit (149,200) (34,700)
Loss on sale of investment securities - 4,200
Income tax benefit of stock options
exercised - 4,900
Stock-based compensation 11,800 10,900
Change in fair value of
contingent consideration 110,000 -
Changes in operating assets and
liabilities:
Trade accounts receivable (150,200) (325,000)
Inventories (198,400) 95,500
Prepaid and other current assets 21,400 54,500
Other assets - ( 24,300)
Accounts payable 114,800 (146,100)
Customer advances (76,400) (13,100)
Accrued expenses and taxes 389,700 77,100
__________ __________
Total adjustments 714,800 138,700
__________ __________
Net cash provided by
operating activities 880,400 147,400
__________ __________
Investing activities:
(Increase) decrease in restricted cash 300,000 (300,000)
Proceeds from sale of property and equipment 3,000 -
Purchase of investment securities,
available for sale ( 2,700) ( 3,800)
Redemption of investment securities,
available for sale - 127,000
Capital expenditures (92,000) (67,300)
Purchase of other intangible assets (13,900) ( 6,600)
_________ _________
Net cash provided by
(used in) investing activities 194,400 (250,700)
_________ _________
Financing activities:
Proceeds from notes 20,000 200,000
Principal payments on note payable (201,000) (26,700)
Line of credit proceeds 970,000 250,000
Line of credit repayments (970,000) (250,000)
Payments of contingent consideration (130,800) (132,900)
Proceeds from exercise of stock options - 51,200
__________ _________
Net cash provided by (used in)
financing activities (311,800) 91,600
__________ _________
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2016 2015
__________ __________
Net increase (decrease) in cash and
cash equivalents 763,000 ( 11,700)
Cash and cash equivalents, beginning
of year 482,000 493,700
_________ __________
Cash and cash equivalents, end of year $1,245,000 $ 482,000
========= ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 34,500 $ 1,800
Interest 33,900 4,200
|
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies
Nature of Operations
Scientific Industries, Inc. and its subsidiaries (the "Company") design, manufacture, and market a variety of benchtop laboratory equipment, bioprocessing products and catalyst research instruments. The Company is headquartered in Bohemia, New York where it produces benchtop laboratory equipment for research and has another location in Pittsburgh, Pennsylvania, where it produces a variety of custom- made catalyst research instruments and designs bioprocessing products, and an administrative facility in Oradell, New Jersey related to benchtop laboratory equipment. The equipment sold by the Company includes mixers, shakers, stirrers, refrigerated incubators, pharmacy balances and scales, catalyst characterization instruments, reactor systems and high throughput systems. The Company also sublicenses certain patents and technology under a license with the University of Maryland, Baltimore County, and receives royalty fees from the sublicenses.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary, Altamira Instruments, Inc. ("Altamira"), a Delaware corporation and wholly- owned subsidiary, and Scientific Bioprocessing, Inc. ("SBI"), a Delaware corporation and wholly-owned subsidiary, (all collectively referred to as the "Company"). All material intercompany balances and transactions have been eliminated.
Revenue Recognition
Revenue from product sales is recognized when all the following criteria are met:
* Persuasive evidence of an arrangement exists, including
receipt of a written purchase order agreement which is binding
on the customer.
* Goods are shipped and title passes.
* Prices are fixed and determinable.
* Collectability is reasonably assured.
* All material obligations under the agreement have been
substantially performed.
Revenues are net of normal discounts. Shipping and handling fees billed to customers are included in net revenues, while the related costs are included in cost of revenues.
Substantially all orders are F.O.B. shipping point, all sales are final without right of return or payment contingencies, and there are no special sales arrangements or agreements with any customers.
Royalty revenue received under the Company's sublicenses is recorded net of payments due to its licensors.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation ("FDIC") insurance limit. As of June 30, 2016 and 2015, $497,200 and $50,000 respectively of cash balances were in excess of such limit.
Accounts Receivable
In order to record the Company's accounts receivable at their net realizable value, the Company must assess their collectability. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company's receivables, and the current creditworthiness of the Company's customers. The Company has recorded allowances for receivables which it considered uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company's customers was to deteriorate and its ability to make required payments became impaired, increases in these allowances may be required. The Company actively manages its accounts receivable to minimize credit risk. The Company does not obtain collateral for its accounts receivable.
Customer Advances
In the ordinary course of business, customers may make advance payments for purchase orders. Such amounts, when received, are categorized as liabilities under the caption customer advances.
Investment Securities
Securities available for sale are carried at fair value with unrealized gains or losses reported in a separate component of shareholders' equity. Realized gains or losses are determined based on the specific identification method.
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market value, and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on management's review of inventories on hand compared to estimated future usage and sales. Cost of work-in-process and finished goods inventories include material, labor and manufacturing overhead.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided for primarily by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized by the straight- line method over the remaining term of the related lease or the estimated useful lives of the assets, whichever is shorter.
Intangible Assets
Intangible assets consist primarily of acquired technology, customer relationships, non-compete agreements, patents, licenses, websites, intellectual property and research and development ("IPR&D"), trademarks and trade names. All intangible assets are amortized on a straight-line basis over the estimated useful lives of the respective assets, generally 3 to 10 years. The Company continually evaluates the remaining estimated useful lives of intangible assets that are being amortized to determine whether events or circumstances warrant a revision to the remaining period of amortization.
Goodwill and Long-Lived Assets
Goodwill represents the excess of purchase price over the
fair value of identifiable net assets acquired in a business
combination. Goodwill and long-lived intangible assets are
tested for impairment at least annually in accordance with
the provisions of ASC No. 350, "Intangibles-Goodwill and
Other" ("ASC No. 350"). ASC No. 350 requires that goodwill
be tested for impairment at the reporting unit level
(operating segment or one level below an operating segment)
on an annual basis and between annual tests if an event
occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its
carrying value. Application of the goodwill impairment
test requires judgment, including the identification of
reporting units, assignment of assets and liabilities to
reporting units, assignment of goodwill to reporting units,
and determination of the fair value of each reporting unit.
The Company tests goodwill and long-lived assets annually
as of June 30, the last day of its fiscal year, unless an
event occurs that would cause the Company to believe the
value is impaired at an interim date. The Company concluded
as of June 30, 2016 and 2015 there was no impairment of
goodwill.
Impairment of Long-Lived Assets
The Company follows the provisions of ASC No. 360-10, "Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets ("ASC No. 360-10"). ASC No. 360-10 which requires evaluation of the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation for impairment is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write down to a new depreciable basis is required. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. For the year ended June 30, 2016, the Company determined that the intangible assets of SBI were impaired, and accordingly an impairment charge of $212,700 was recorded.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies
(Continued)
Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal income tax return. Income taxes are accounted for under the asset and liability method. The Company provides for federal, and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to $79,800 and $79,400 for the years ended June 30, 2016 and 2015, respectively.
Research and Development
Research and development costs consisting of expenses for activities that are useful in developing and testing new products, as well as expenses that may significantly improve existing products, are expensed as incurred.
Stock Compensation Plan
The Company has a ten-year stock option plan (the "2012 Plan") which provides for the grant of options to purchase up to 100,000 shares of the Company's Common Stock, par value $.05 per share ("Common Stock"), plus 57,000 shares under options previously granted under the 2002 Stock Option Plan of the Company (the "Prior Plan"). The 2012 Plan provides for the granting of incentive or non-incentive stock options as defined in the 2012 Plan and options under the 2012 Plan may be granted until 2022. Incentive stock options may be granted to employees at an exercise price equal to 100% (or 110% if the optionee owns directly or indirectly more than 10% of the outstanding voting stock) of the fair market value of the shares of Common Stock on the date of the grant. Non-incentive stock options shall be granted at the fair market value of the shares of Common Stock on the date of grant. At June 30, 2016 and 2015, 79,500 and 84,500 shares respectively, of Common Stock were available for grant of options under the 2012 Plan.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies
(Continued)
Stock Compensation Plan (Continued)
Stock-based compensation is accounted for in accordance with ASC No. 718 "Compensation-Stock Compensation" ("ASC No. 718") which requires compensation costs related to stock-based payment transactions to be recognized. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are measured at each reporting period. Compensation costs are recognized over the period that an employee provides service in exchange for the award. During the years ended June 30, 2016 and 2015, the Company granted 5,000 and 4,000 options, respectively, to employees that had a fair value of $9,500 and $7,100, respectively. The fair value of the options granted during fiscal year 2016 and 2015 were determined using the Black-Scholes-Merton option-pricing model. The weighted average assumptions used for fiscal 2016 and 2015, was an expected life of 10 years; risk free interest rate of 1.82% and 1.93%; volatility of 51% and 52%, and dividend yield of 0% for both years. The Company did not declare dividends during the years ended June 30, 2016 and 2015. Therefore a zero value for the expected dividend value factor was used to determine the fair value of options granted. The weighted-average value per share of the options granted in 2016 and 2015 was $1.89 and $1.77, and total stock-based compensation costs were $11,800 and $10,900 for the years ended June 30, 2016 and 2015, respectively. Stock-based compensation costs related to nonvested awards expected to be recognized in the future are $1,000 and $3,300 as of June 30, 2016 and 2015, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the allowance for doubtful accounts, slow-moving inventory reserves, depreciation and amortization, assumptions made in valuing equity instruments issued for services, and the fair values of intangibles and goodwill. 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.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies
(Continued)
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU")
2014-09, Revenue from Contracts with Customers amending
revenue recognition requirements for multiple-deliverable
revenue arrangements. This update provides guidance on
how revenue is recognized to depict the transfer of
promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to
be entitled in exchange for the goods or services. This
determination is made in five steps: (i) identify the
contract with the customer; (ii) identify the performance
obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price
to the performance obligations in the contract; and
(v) recognize revenue when (or as) the entity satisfies
a performance obligation. In July 2015, the FASB deferred
the effective date to fiscal years beginning after
December 15, 2018 and early adoption of the standard is
permitted, but not before the original effective date of
December 15, 2017. The Company is evaluating the effect
this guidance will have on the consolidated financial
statements and related disclosures.
In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share- Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved After the Requisite Service Period. This update affects reporting entities that grant their employee's targets that affects vesting could be achieved after the requisite service period. The new standard requires that a performance target that affects vesting and that could be achieved after the requisite services period be treated as a performance condition. The new standard will be effective for the Company beginning July 1, 2016. The Company does not expect the adoption to have a material impact on its financial condition, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory: Simplifying the Measurement of Inventory", that requires inventory not measured using either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. The new standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and will be applied prospectively. Early adoption is permitted. The Company does not expect the adoption to have a material impact on its financial condition, results of operations or cash flows.
In November 2015, the FASB issued new guidance simplifying the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the new guidance. The guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted as of the beginning of an interim or annual reporting period. The new guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not expect the adoption to have a material impact on its financial condition, results of operations or cash flows.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
1. Summary of Significant Accounting Policies
(Continued)
Recent Accounting Pronouncements (Continued)
In February 2016, the FASB issued authoritative guidance that requires lessees to account for most leases on their balance sheets with the liability being equal to the present value of the lease payments. The right-of-use asset will be based on the lease liability adjusted for certain costs such as direct costs. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense and financing leases resulting in a front-loaded expense similar to the current accounting for capital leases. This guidance becomes effective for the Company's fiscal 2020 first quarter, with early adoption permitted. This guidance must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and provides for certain practical expedients. The Company is currently evaluating the timing, impact and method of applying this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
"Compensation - Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting" (ASU 2016-09). Areas for simplification
in this update involve several aspects of
accounting for share-based payment transactions,
including the income tax consequences,
classification of awards as either equity or
liabilities, and classification on the statement
of cash flows. ASU 2016-09 is effective for
interim and annual reporting periods beginning
after December 15, 2016, with early application
permitted. The Company is currently evaluating
the timing, impact and method of applying this
guidance on its consolidated financial statements.
2. Segment Information and Concentrations
The Company views its operations as three segments:
the manufacture and marketing of standard benchtop
laboratory equipment for research in university,
hospital and industrial laboratories sold primarily
through laboratory equipment distributors and
laboratory and pharmacy balances and scales
("Benchtop Laboratory Equipment Operations"), the
manufacture and marketing of custom-made catalyst
research instruments for universities, government
laboratories, and chemical and petrochemical companies
sold on a direct basis ("Catalyst Research Instruments
Operations") and the design and marketing of
bioprocessing systems and products and related royalty
income ("Bioprocessing Systems").
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
2. Segment Information and Concentrations (Continued)
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
June 30, 2016:
Revenues $5,449,700 $4,032,800 $ 115,100 $ - $9,597,600
Foreign Sales 2,414,600 2,674,300 - - 5,088,900
Income (Loss)
From Operations 223,800 479,500 ( 458,300) - 245,000
Assets 4,120,700 2,292,100 429,900 706,600 7,549,300
Long-Lived Asset
Expenditures 92,500 4,000 9,400 - 105,900
Depreciation,
Amortization and
Impairment 299,000 31,900 310,700 - 641,600
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
June 30, 2015:
Revenues $5,410,500 $2,315,900 $ 122,000 $ - $7,848,400
Foreign Sales 2,584,100 1,322,400 - - 3,906,500
Income (Loss)
From Operations 90,600 19,700 ( 127,100) - ( 16,800)
Assets 4,240,100 1,614,400 736,400 550,500 7,141,400
Long-Lived Asset
Expenditures 65,300 1,000 7,600 - 73,900
Depreciation and
Amortization 302,000 34,800 98,000 - 434,800
|
During the year ended June 30, 2016, one customer accounted for approximately 26% of total revenues.
3. 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.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
3. Fair Value of Financial Instruments (Continued)
The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the table below:
The following tables set forth by level within the fair value hierarchy the Company's financial assets that were accounted for at fair value on a recurring basis at June 30, 2016 and 2015 according to the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2016 Level 1 Level 2 Level 3
______________ __________ _______ ________
Assets:
Cash and cash equivalents $1,245,000 $1,245,000 $ - $ -
Available for sale securities 290,100 290,100 - -
__________ __________ _______ ________
Total $1,535,100 $1,535,100 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 346,300 $ - $ - $346,300
========== ========== ======= ========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
3. Fair Value of Financial Instruments (Continued)
Fair Value Measurements Using Inputs
Considered as
Fair Value at
June 30, 2015 Level 1 Level 2 Level 3
______________ __________ _______ ________
Assets:
Cash and cash equivalents $ 482,000 $ 482,000 $ - $ -
Restricted cash 300,000 300,000 - -
Available for sale securities 281,800 281,800 - -
__________ __________ _______ ________
Total $1,063,800 $1,063,800 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 367,100 $ - $ - $367,100
========== ========== ======= ========
|
The following table sets forth an analysis of changes during fiscal years 2016 and 2015 in Level 3 financial liabilities of the Company:
2016 2015
___________ ___________
Beginning balance $ 367,100 $ 500,000
Increase in contingent consideration
liability 110,000 -
Payments (130,800) (132,900)
___________ ___________
Ending balance $ 346,300 $ 367,100
=========== ===========
|
The Company's contingent obligations require cash payments to the sellers of certain acquired operations based on royalty payments received or operating results achieved. These contingent considerations are classified as liabilities and the liabilities are remeasured to an estimated fair value at each reporting date. During the year ended June 30, 2016, the Company recorded an increase in the estimated fair value of contingent liabilities of approximately $110,000 related to its Bioprocessing Systems Operations segment.
Investments in marketable securities classified as available- for-sale by security type at June 30, 2016 and 2015 consisted of the following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2016:
Available for sale:
Equity securities $ 29,300 $ 40,700 $ 11,400
Mutual funds 259,900 249,400 (10,500)
__________ _________ __________
$ 289,200 $ 290,100 $ 900
========== ========= ==========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
3. Fair Value of Financial Instruments (Continued)
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2015:
Available for sale:
Equity securities $ 29,300 $ 35,800 $ 6,500
Mutual funds 255,800 246,000 ( 9,800)
__________ _________ __________
$ 285,100 $ 281,800 $ ( 3,300)
========== ========= ==========
4. Inventories
2016 2015
__________ __________
Raw materials $1,529,800 $1,420,800
Work-in-process 425,300 442,900
Finished goods 457,000 350,000
__________ __________
$2,412,100 $2,213,700
========== ==========
5. Property and Equipment
|
Useful Lives
(Years) 2016 2015
____________ __________ __________
Automobiles 5 $ 22,000 $ 14,900
Computer equipment 3-5 162,200 159,000
Machinery and equipment 3-7 803,300 741,600
Furniture and fixtures 4-10 205,900 205,900
Leasehold improvements 3-10 34,200 29,100
_________ _________
1,227,600 1,150,500
Less accumulated depreciation
and amortization 976,500 915,300
_________ _________
$ 251,100 $ 235,200
========= =========
|
Depreciation expense was $76,300 and $84,200 for the years ended June 30, 2016 and 2015, respectively.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
6. Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the Company's acquisitions. Goodwill amounted to $705,300 at June 30, 2016 and 2015, all of which is expected to be deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
At June 30, 2016:
Technology, trademarks 5/10 yrs. $ 722,800 $ 468,800 $ 254,000
Trade names 6 yrs. 140,000 54,400 85,600
Websites 5 yrs. 210,000 98,000 112,000
Customer relationships 9/10 yrs. 357,000 261,600 95,400
Sublicense agreements 10 yrs. 294,000 136,000 158,000
Non-compete agreements 5 yrs. 384,000 239,100 144,900
IPR&D 3 yrs. 110,000 85,500 24,500
Other intangible assets 5 yrs. 177,900 154,700 23,200
__________ _________ _________
$2,395,700 $1,498,100 $ 897,600
========== ========= =========
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
|
At June 30, 2015:
Technology, trademarks 5/10 yrs. $1,226,800 $ 624,200 $ 602,600
Trade names 6 yrs. 140,000 31,100 108,900
Websites 5 yrs. 210,000 56,000 154,000
Customer relationships 9/10 yrs. 357,000 236,200 120,800
Sublicense agreements 10 yrs. 294,000 106,600 187,400
Non-compete agreements 5 yrs. 384,000 182,700 201,300
IPR&D 3 yrs. 110,000 48,900 61,100
Other intangible assets 5 yrs. 164,000 148,200 15,800
__________ _________ _________
|
Total amortization expense was $352,600 and $350,600 in 2016 and 2015, respectively.
Estimated future amortization expense of intangible assets is as follows:
Fiscal Years
____________
2017 $ 297,300
2018 288,500
2019 210,600
2020 45,100
2021 43,500
Thereafter 12,600
_______________
$ 897,600
===============
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
7. Lines of Credit
The Company has two lines of credit with First National Bank of Pennsylvania - an Export-Related Revolving Line of Credit which is guaranteed by the Export-Import Bank of the United States which provided for export-related borrowings of up to $998,500 through June 2016 bearing interest at prime plus 2% and an annual fee of 1.75%. In June 2016, this line was amended to provide for borrowings up to $200,000 through June 2017 bearing interest at prime plus 1% and an annual fee of 1.75%. The Company also has a Demand Line of Credit which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 3.50% expiring June 2017. Through June 2016, the Company was required to maintain a cash collateral account of $300,000 to support the Demand Line of Credit. The agreement contains a financial covenant requiring the Company to maintain a minimum net worth and advances on both lines are also secured by a pledge of the Company's assets including inventory, accounts, chattel paper, equipment and general intangibles of the Company. As of June 30, 2016 and 2015, there were no borrowings outstanding under either line.
8. Notes Payable
The Company has a $20,000 36-month auto loan through April 2019, with its bank, with monthly payments of $600 bearing interest at 4% for a vehicle used by the Company's sales manager. The outstanding balance remaining on this loan as of June 30, 2016 was $18,900 with principal payments of $6,400, $6,700 and $5,800 due over the next three fiscal years.
In May 2015, the Company borrowed $200,000 under unsecured notes from two shareholders, one of whom is a Director of the Company, which were paid in June 2016, with interest at 5%.
9. Employee Benefit Plans
The Company has a 401(k) profit sharing plan covering all its employees, which provides for voluntary employee salary contributions not to exceed the statutory limitations provided by the Internal Revenue Code. The plan provides for Company matching contribution equal to 100% of employee's deferral up to 3% of pay, plus 50% of employee's deferral over 3% of pay up to 5%. Previously, the Company had two separate plans. Total matching contributions amounted to $69,500 and $66,400 for the years ended June 30, 2016 and 2015, respectively.
10. Commitments and Contingencies
The Company entered into a lease in August 2014 for its new Bohemia, New York premises through February 2025 which requires minimum annual rental payments plus other expenses, including real estate taxes and insurance. The future minimum annual rental expense, computed on a straight-line basis, is approximately $170,000 under the terms of the lease. Rental expense for the Bohemia facility amounted to approximately $170,000 in 2016 and $199,400 in 2015. Accrued rent, payable in future years, amounted to $48,800 and $46,700 at June 30, 2016 and 2015, respectively.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
10. Commitments and Contingencies (Continued)
The Company is also obligated under an operating lease for its facility in Pittsburgh, Pennsylvania, which requires monthly minimum rental payments through November 2017, plus common area expenses. Total rent expense for the Pittsburgh facility was $105,400 and $99,000 for the fiscal years ended June 30, 2016 and 2015, respectively.
In addition, the Company maintained an operating facility in Clifton, New Jersey and as of mid-July 2014 moved to a significantly smaller office facility in Oradell, New Jersey from which it performs its sales and marketing functions. The Company was obligated to pay $24,000 in fiscal 2015 for an early lease termination fee for the Clifton facility. Total rent expense for the New Jersey facilities, was $23,300 and $25,700 for the years ended June 30, 2016 and 2015, respectively.
The Company's approximate future minimum rental payments under all operating leases are as follows:
Fiscal Years
____________
2017 $ 260,200
2018 268,800
2019 205,000
2020 174,000
2021 179,300
Thereafter 841,600
___________
$ 1,928,900
===========
|
The Company has employment contracts with its President providing for an annual base salary of $162,000 for the fiscal year ending June 30, 2017 and with its Executive Vice President providing for an annual base salary of $146,000 for the fiscal year ending June 30, 2017. Both contracts also provide for discretionary performance bonuses. No bonuses were awarded for the fiscal years ended June 30, 2016 or 2015 to either executive.
The Company has an employment contract with the President of Altamira through June 30, 2017, which may be extended by mutual consent for an additional year. The contract provides for an annual base salary of $147,000 for the fiscal year ending June 30, 2017 plus discretionary bonuses. No bonuses were awarded for the fiscal years ended June 30, 2016 or 2015.
The Company has an employment agreement dated February 2014 with the President of its Torbal Division which expires in February 2017, which may be extended by mutual consent for an additional two years. The contract provides for an annual base salary of $140,000 subject to increases commencing with the second year based on percentage increases in the Consumer Price Index ("CPI") from the end of the immediately preceding year's CPI plus discretionary bonuses. No bonuses were awarded during the fiscal years ended June 30, 2016 or 2015, however as part of the employment agreement, he was granted stock option awards representing 5,000 and 4,000 shares during the years ended June 30, 2016 and 2015 valued at $9,500 and $7,100 using the Black-Scholes-Merton option pricing model, respectively. In addition, he is to be granted, subject to his continued employment in February 2017 options for 6,000 shares.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
10. Commitments and Contingencies (Continued)
The Company has a consulting agreement which expires on December 31, 2016 with an affiliate of the Chairman of the Board of Directors for marketing consulting services. The agreement provides that the consultant be paid a monthly fee of $3,600 for a certain number of consulting days as defined in the agreement. Consulting expense related to this agreement amounted to $43,200 for both years ended June 30, 2016 and 2015.
The Company has a consulting agreement which expires December 31, 2016 with another member of its Board of Directors for administrative services providing that the consultant be paid at the rate of $85 per hour. Consulting expense related to this agreement amounted to $5,800 and $4,300 for the fiscal years ended June 30, 2016 and 2015, respectively.
In connection with a February 26, 2014 acquisition of a privately owned company, as of June 30, 2016, the Company remains obligated to make additional payments to the seller based on a percentage of net sales of the business acquired equal to 11% for the year ended June 30, 2017. Payments related to this contingent consideration for each period are due in September following the fiscal year. The Company is also required to make payments of 30% of the net royalties received from the license and sublicense acquired in the SBI acquisition in fiscal 2012. Total contingent consideration payments made for all acquisitions amounted to $130,800 and $132,900 for the years ended June 30, 2016 and 2015, respectively.
The fair value of contingent consideration estimated to be paid as of June 30, 2016 are as follows:
Year ended June 30, Amount
___________________ ____________
2017 $ 136,500
2018 158,800
2019 16,000
2020 13,000
2021 10,000
Thereafter 12,000
__________
$ 346,300
==========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
11. Income Taxes
The reconciliation of the provision for income taxes at the federal statutory rate of 35% to the actual tax expense or benefit for the applicable fiscal year was as follows:
2016 2015
__________________ _________________
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
_______ _______ ________ _______
Computed "expected" income
tax (benefit) $ 76,600 35.0% $( 2,600) ( 35.0%)
Research and development
credits (15,700) (7.2) (11,200) (153.4 )
Other, net (7,600) (3.5) (2,200) ( 30.7 )
_________ _______ _________ ______
Income tax expense (benefit) $ 53,300 24.3% $(16,000) (219.1%)
========= ======= ========= ========
|
Deferred tax assets and liabilities consist of the following:
2016 2015
__________ __________
Deferred tax assets:
Amortization of intangible assets $ 287,000 $ 183,000
Research and development credits - 24,800
Various accruals 132,800 60,800
Other 48,900 46,100
_________ _________
468,700 314,700
Deferred tax liability:
Depreciation of property
and amortization of goodwill (52,200) (46,000)
__________ __________
Net deferred tax assets $ 416,500 $ 268,700
========== ==========
|
The breakdown between current and long-term deferred tax assets and liabilities is as follows:
2016 2015
__________ __________
Current deferred tax assets $ 140,600 $ 114,200
_________ _________
Long-term deferred tax assets 328,100 200,500
Long-term deferred tax liabilities (52,200) (46,000)
__________ __________
Net long-term deferred tax assets 275,900 154,500
__________ __________
Net deferred tax assets $ 416,500 $ 268,700
========== ==========
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
11. Income Taxes (Continued)
ASC No. 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC No. 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of June 30, 2016 and 2015, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters.
The Company's policy is to recognize interest and penalties on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits. The Company is subject to U.S. federal income tax, as well as various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2013 and after. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
12. Stock Options
Option activity is summarized as follows:
Fiscal 2016 Fiscal 2015
_________________ __________________
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
_______ _______ _______ ________
Shares under option:
Outstanding, beginning of year 38,500 $ 3.33 61,000 $ 3.11
Granted 5,000 3.05 4,000 2.80
Exercised - - (20,000) 2.56
Forfeited - - (6,500) 3.07
________ ________
Outstanding, end of year 43,500 3.33 38,500 3.37
________ _______ ________ _______
Options exercisable at year-end 32,200 $ 3.43 27,200 $ 3.10
________ _______ ________ _______
Weighted average fair value per
share of options granted
during the fiscal year $ 3.05 $ 2.80
_____ _____
|
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2016 AND 2015
12. Stock Options (Continued)
As of June 30, 2016 As of June 30, 2016
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$3.50-4.05 20,000 7.13 $ 3.64 13,700 $ 3.65
$3.07-3.45 23,500 2.83 $ 3.25 18,500 $ 3.30
________ ________
43,500 32,200
________ ________
|
As of June 30, 2015 As of June 30, 2015
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$2.80-3.10 11,000 5.08 $ 2.99 7,000 $ 3.09
$3.27-3.71 27,500 5.21 $ 3.52 20,200 $ 3.52
________ ________
38,500 27,200
________ ________
|
13. Earnings Per Common Share
Earnings per common share data was computed as follows:
2016 2015
__________ __________
Net income $ 165,600 $ 8,700
__________ __________
Weighted average common shares
outstanding 1,489,112 1,478,126
Effect of dilutive securities 275 1,756
__________ __________
Weighted average dilutive common
shares outstanding 1,489,387 1,479,882
__________ __________
Basic earnings per common share $ .11 $ .01
========== ==========
Diluted earnings per common share $ .11 $ .01
========== ==========
|
Approximately 20,000 and 26,000 shares of the Company's common stock issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share for the years ended June 30, 2016 and 2015, because the effect would be anti-dilutive.
Exhibit 31.0
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT
I, Helena R. Santos, certify that:
(1) I have reviewed this Annual Report on Form 10-K of Scientific Industries, Inc.;
(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 Securities 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 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) 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 purpose 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 (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; and
(5) I have disclosed, based on my most recent evaluation of internal control 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 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.
Date: October 11, 2016 By: /s/ Helena R. Santos Helena R. Santos |
Chief Executive Officer and
Chief Financial Officer
Exhibit 32.0
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
I, Helena R. Santos, the Chief Executive Officer and Chief Financial Officer of Scientific Industries, Inc. (the "Company"), certify, to the best of my knowledge that:
1. I have reviewed this Annual Report on Form 10-K of the Company for the year ended June 30, 2016 (the "Annual Report");
2. the Annual Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
3. the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of Scientific Industries, Inc.
Date: October 11, 2016
By: /s/ Helena R. Santos
Helena R. Santos
Chief Executive Officer and
Chief Financial Officer
|
COMMERCIAL SECURITY AGREEMENT
Grantor: Sciertific Industries,Inc.
80 Orville Drive, Suite 102
Bohemia, NY 11716
Lender: First National Bank of
Pennsylvania
BBU Pittsburgh
ONE FNB BLVD
HERMITAGE,PA 16148
THIS COMMERCIAL SECURITY AGREEMENT dated July 5, 2016, is made and executed between Scientific Industries, Inc. ("Grantor") and First National Bank of Pennsylvania ("Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performanceof all other obligations under the Note and this Agreement:
All Inventory, Chattel Paper, Accounts, Equipment, Documents and General Intangibles
In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and where er located:
(A) All accesions, attachments, accessories, tools, parts, supplies,
replacements of and additions to any of the collateral described herein,
whether added now or later.
(B) All products and produce of any of the property describedin this
Collateral section.
(C) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease,
consignment or other disposition of any of the property described
in this Collateral section.
(D) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section, and sums due from a third party who has
damaged or destroyed the Collateral or from that party's insurer,
whether due to judgment, settlement or other process.
(E) All records and data relating to any of the property described
in this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and interest in and to all
computer software required to utilize, createi maintain, and
process any such recordsor data on electronic media.
CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Granter to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Granter may be liable individually or jointly with others whether obligated as guarantor, surety, accommodationparty or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.
FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lenderto Granter regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.
RIGHT OF SETOFF. To the extent permitted by applicablelaw, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings or some other account and whether evidenced by a certificate of deposit). This includes all accounts Granter holds jointly with someone else and all accounts Granter may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing o the Indebtednessagainst any and all such accounts.
GRANTOR'S REPRESENTATIONSAND WARRANTIESWITH RESPEC TO THE COLLATERAL.
With respect to the Collateral, Grantor represents and promises to Lender
that:
Perfection of Security Interest. Granter agreesto take whatever actions are
requested by Lender to perfect and continue Lender's security interest
in the Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the Collateral,
and Grantor will note Lender's interest upon any and all chattel paper
and instruments if not delivered to Lender for possession by Lender. This
is a continuing Security Agreement and will continue in effect even though
all or any part of the Indebtednessis paid in full and even tho gh for a
period of time Grantor may not be indebted to Lender.
Notices to Lendor. Grantor will promptly notify Lender in writing at
Lender's address shown above (or such other addressesas Lender may
designate from time to time) prior to any (1) changein Grantor's name;
(2) change in Grantor's assumedbusiness name(s); (3) change in the
management of the Corporation Granteo; (4) change in the authorized
signer(s); (5) change in Grantor's principal office address;
(6) change in Grantor's state of organization; (7) conversion of Grantor
to a new or different type of business entity; or (8) change in
any other as eel of Grantor that directly or indirectly relatesto any
agreements between Grantor and Lender. No change in Grantor's name
or state of organization will take effect until after Lender has received
notice.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Granter is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, as defined by the
Uniform Commercial Code, the Collateral is enforceable in accordance with
its terms, is genuine, and fully complies with all applicable laws
and regulations concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as they
appea rto be on the Collateral. At the time any account becomes subject
to a security interest in favor of Lender, the account shall be a good and
valid account representing an undisputed, bonafide indebtedness incurred
by the account debtor, for merchandise held subject to delivery instructions
or previously shipped or delivered
pursuant to a contract of sale, or for services previously performed by
Grantor with or for the account debtor. So long as this Agreement
remains in effect, Grantor shall not, without Lender's prior written
consent, compromise, settle, adjust, or extend payment under or with
regard to any such Accounts. There shall be no setoffs or counterclaims
against any of the Collateral, and no agreement shall have been
made under which any deductions or discounts may be claimed concerning
the Collateral except those disclosed to Lender in writing.
Location of tlie Collateral. Except in the ordinary course of Grantor's
business, Grantor agrees to keep the Collateral (or to the extent the
Collateral consists of intangible property such as accounts or general
intangibles, the records concerning the Collateral) at Grantor's
address shown above or at such other locations as are acceptableto Lender.
Upon Lender's request, Grantor will deliver to Lender in form
satisfactory to Lender a schedule of real properties and Collateral
locations relating to Grantor's operations, including without limitation
the following: (1) all real property Grantor owns or is purchasing;
(2) all real property Grantor is renting or leasing; (3) all storage
facilities Grantor owns rents, leases, or uses; and (4) all other
properties where Collateral is or may be located.
Removal of the Collateral. Except in the ordinary course of Grantor's
business, including the sales of inventory, Grantor shall not remove
the Collateral from its existing location without Lender's prior written
consent. To the extent that the Collateral consists of vehicles, or
other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of New York, without Lender's prior written consent.
Grantor shall, whenever requested, advise Lender of the exact
Location of the Collateral. Except in the ordinary course of Grantor's
business, Grantor agrees to keep the Collateral (or to the extent the
Collateral consists of intangible property such as accounts or general
intangibles, the records concerning the Collateral) at Grantor's address
shown above or at such other locations as are acceptable to Lender. Upon
Lender's request, Grantor will deliver to Lender in form satisfactory
to Lender a schedule of real properties and Collateral locations relating
to Grantor's operations, including without limitation the following:
(1) all real property Grantor owns or is purchasing; (2) all real property
Grantor is renting or leasing; (3) all storage facilities Grantor owns,
rents, leases, or uses; and (4) all other properties where Collateral is or
may be located.
Transactions involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, or as
otherwise provided for in this Agreement, Grantor shall not sell, offer
to sell, or otherwise transfer or dispose of the Collateral. While
Grantor is no in default under this Agreement, Grantor may sell inventory,
but only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale in the
ordinary course of Grantor's business does not include a transfer in
partial or tota satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the Collateral to
be subject to any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without
the prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and slall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall immediately
deliver any such proceedsto Lender.
Title. Grantor represents and warrants to Lender that Grantor holds
good and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created
by this Agreement or to which Lender has specifically consented.
Grantor shall defend Lender's rights in the Collateral against the claims
and demands of all other persons.
Repairs and Maintenance. Grantor agrees to keep and maintain, and
to cause others to keep and maintain, the Collateral in good order,
repair and condition at all times while this Agreement remains in
effect. Grantor further agreesto pay when due all claims for work done
on, or services rendered or material furnished in connection with
the Collateral so that no lien or encumbrance may ever attach to or be
filed against the Collateral.
Inspection of Collateral. Lender and Lender's designated representatives
and agents shall have the right at all reasonable times to examine
and inspect the Collateral wherever located.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor
may withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest
the obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or othe security satisfactory to Lender in an amount adequate
to provide for the discharge of the lien plus any interest, costs,
reasonable attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend self and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings. Grantor further agrees to furnish Lender with
evidencetha such taxes, assessments, and governmentaland other charges
have been paid in full and in a timely manner. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to filay and so long as Lender's interest in the Collateral
is not jeopardized.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations
of all governmental authorities, now or hereafter in effect,
applicable to the ownership, production, disposition, or use of
the Collateral, including all laws or regulations relating to the
undue erosion of highly-erodible land or relating to the conversion
of wetlands for the production of an agricultural product or commodity.
Grantor may contest in good faith any such law, ordinance or regulation
and withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used in violation of any Environmental
Laws or for the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any Hazardous
Substance. The representationsand warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
Hazardous Substances. Grantor hereby (1) releases and waives any
future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any
Environmental Laws, and (2) agrees to indemnify, defend, and hold
harmless Lendera gainst any and all claims and losses resulting from a
breachof this provision of this Agreement. This obligation to indemnify
and defend shall survive the payment of the Indebtedness and the
satisfaction o'f this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insuranceas Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company
or companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain
any insurance as required under this Agreement, lender may (but
shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if Lender so chooses "single interest insurance,"
which will cover only Lender's interest in the Collateral.
Application o Insurance Proceeds. Grantor shall promptly notify
Lender of any loss or damage to the Collateral, whether or not such
casualty or loss is covered by insurance. Lender may make proof of
loss if Grantor fails to do so within fifteen (15) days of the
casualty.
All proceeds. If any insurance on the Collateral, including accrued
proceeds thereon, shall be held by Lender as part of the Collateral.
If Lender consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse grantor from the proceeds for the reasonable cost of repair
or restoration. If Lender does not consent to repair or replacement
of the Collateral, Lender shall retain a sufficient amount of the proceeds
to pay all of the Indebtedness, and shall pay the balance to Grantor.
Any proceeds which have not been disbursed within six (6) months after
their receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the Indebtedness.
Grantor hereby appoints Lender as its attorney-in-fact with full
power and authority to endorse in Grantor's name any check or draft
representing the proceeds of any insurance on the Collateral and to settle
or compromise in Grantor's name any claims with respect to such insurance.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall
be created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before
the premium ue date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve
funds are insufficient, Grantor shall upon demand pay any deficiency
to Lender. The reserve funds shall be held by Lender as a general
deposit and shall constitute a non-interest-bearing account which Lender
may satisfy by payment of the insurance premiums required to be
paid by Grantor as they become due. Lender does not hold the reserve funds
in trust for Grantor, and Lender is not the agent of Grantor for
payment of the insurance premiums required to be paid by Grantor.
The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information a Lender may reasonably request including the following:
(1) the name of the insurer; (2) the risks insured; (3) the amount
of the policy; (4) the property insured; (5) the then current value
on the basis of which insurance has been obtained and the manner of
determining that value; and (6) the expiration date of the policy.
In addition, Grantor shall upon request by Lender (however not more
often than annually) have an independent appraiser satisfactory to
Lender determine, as applicable, the cash value or replacement
cost of the Collateral.
Financing Statements. Grantor authorizes Lender to file a UCC financing
statement, or alternatively, a copy of this Agreement to perfect
Lender's security interest. At Lender's request, Granter additionally
agrees to sign all other documents that are necessary to perfect,
protect, and flontinue Lender's security interest in the Property.
Grantor will pay all filing fees, title transfer fees, and other fees
and costs involved unless prohibited by law or unless Lender is required
by law to pay such fees and costs. Grantor irrevocably appoints Lender to
execute documents necessary to transfer title if there is a default.
Lender may file a copy of this Agreement as a financing statement.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECTACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor
may have possession of the tangible personal property and beneficial use
of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents, provided that
Grantor's right to possession and beneficial use shall not apply to any
Collaleral where possession of the Collateral by Lender is required by
law to perfect Lender's security interest in such Collateral.
Until otherwise notified by Lender, Granter may collect any of the
Collateral consisting of accounts. At any time and even though no Default
exists, Lender ma exercise its rights to collect the accounts and to notify
account debtors to make payments directly to Lender for application to the
lndebtedness. If Lender at any time has possession of any Collateral,
whether before or after Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Granter shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the
circumstances, but failure to honor any request by Grantor shall not
of itself be deemed to be a failure to exercise reasonable care. Lender
shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that
would materially affect Lender's interest in the Collateral or if
Granter fails to comply with any provision of this Agreement or any
Related Documents, including but not limited to Grantor's failure to
discharge or pay when due any amounts Grantor is required to discharge
or pay under this Agreement or any Related Documents, Lender on Grantor's
behalf may (but shall not be obligated to) take any action that Lender
deems appropriate, including but not limited to discharging or paying
all taxes, liens, security interests, encumbrances and other claims,
at any time levied or placed on the Collateral and paying all costs for
insuring, maintaining and preserving the Collateral. All such expenditures
incurred or paid by Lender for such purposes will then bear interest at
the rate charged under the Note from the date incurred or paid by Lender
to the date of repayment by Grantor. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable
on demand; (B) be added to the balance of the Note and be apportioned
among and be payable with any installment payments to become due during
either (1) the term of any applicable insurance policy; or (2) the
remaining term of the Note; or (C) be treated as a balloon payment
which will be due and payable at the Note's maturity. The Agreement also
will secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be entitled upon
Default.
DEFAULT. Defaul will occur if payment in full is not made immediately
when due.
RIGHTS AND REMEDIES ON DEFAULT. If Default occurs under this Agreement,
at any time thereafter, Lender shall have all the rights of a
secured party under the New York Uniform Commercial Code. In addition
and without limitation, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Granter would be required
to pay, immediately due and payable, without notice of any kind to
Grantor.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates
of title and other do uments relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall
have full power to enter upon the property of Grantor to take
possession of and remove the collateral. If the Collateral contains
other goods not covered by this Agreement at the time of repossession,
Grantor agrees Lender may take such other goods, provided that Lender
makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
Lender's own name or that of Grantor. Lender may sell the Collateral
at public auction or private sale. Unless the Collateral threatens
to decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor, and other persons as
required by law, reasonable notice of the time and place of any public
sale, or the time after which any private sale or any other
disposition of the Collateral is to be made. However, no notice
need be provided to any person who, after Event of Default occurs,
enters into and authenticates an agreement waving that person's
right to notification of sale. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and
selling the Collateral (including legal fees and costs), shall
become a part of the Indebtedness secured by this Agreement and payable
from the proceeds of the disposition of the Collateral, and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. Lender shall have the right to have a receiver
appointed to take possession of all or any part of the Collateral,
with the power to protect and preserve the Collateral, to operate the
Collateral preceding foreclosure or sale, and to collect the
rents from the
Collateral and apply the proceeds, over and above the cost of
the receivership, against the Indebtedness. Lender's right to the
appointment of a receiver shall exist whether or not the apparent
value of the Collateral exceeds the Indebtednessby a substantial
amount. The right to a receiver shall be given to Lender
regardless of the solvency of Grantor and without any requirement
to give notice to Grantor.
Collect Revenues, Apply Accounts. Lender, either itself or through
a receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in Lender's discretion transfer
any Collateral into Lender's own name or that of Lender's nominee
and receive the payments, rents, income, and revenues therefrom and
hold the same as security for the Indebtednessor apply it to
payment of the Indebtedness in such order of preferenceas Lender may
determine. Insofar as the Collateral consists of accounts, general
intangibles, insurance policies, instruments, chattel paper, choses
in action, or similar property, Lender may demand, collect, receipt
for, settle, compromise, adjust, sue for, foreclose, or realize on
the Collateral as Lender may determine, whether or not Indebtedness
or Collateral is then due. For these purposes, Lender may, on behalf
of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and
payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to
payment, shipment, or storage of any Collateral. To facilitate
collection, Lender may notify ac ount debtors and obligors on
any Collateralto makepaymentsdirectly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a
deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and
remedies it may have available at law, in equity, or otherwise.
Election of Remedies. Except as may be prohibited by applicable
law, all of Lender's rights and remedies, whether evidenced by
this Agreement, the Related Documents, or by any other writing,
shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this
Agreement, after Grantor's failure to perform, shall not affect
Lender's right to declare a default and exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all
of Lender's costs and expenses, including Lender's reasonable
attorneys' fees and Lender's legal expenses, incurred in connection
with the enforcement of this Agreement. Lender may hire or pay
someone else to help enforce this Agreement, and Grantor shall pay
the costs and expenses of such enforcement. Costs and expenses
include Lender's reasonable attorneys' fees and legal expenses
whether or not there is a lawsuit, including reasonable attorneys'
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
Caption Headings. Caption headings in this Agreementare for
convenience purposes only and are not to be used to interpret
or define the provisions of this Agreement.
Governing Law. With respect to procedural matters related to the
perfection and enforcement of Lender's rights against the Collateral,
this Agreement will be governed by federal law applicable to Lender
and to the extent not preempted by federal law, the laws of the
State of New York. In all other respects, this Agreement will be
governed by federal law applicable to Lender and, to the extent
not preempted by federal law, we laws of the Commonwealth of
Pennsylvania without regard to its conflicts of law provisions.
However, if there ever is a question about whether any provision
of this Agreement is valid or enforceable, the provision that
is questioned will be governed by whichever state or federal law
would find the provision to be valid and enforceable. The loan
transaction that is evidenced by the Note and this Agreement has
been applied for, considered, approved and made, and all necessary
loan documents have been accepted by Lender in the Commonwealth of
Pennsylvania.
Choice of Venue. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of
Suffolk County, State of New York.
No Waiver by Lender. Lender shall not be deemed to have waived
any rights under this Agreement unless such waiver is given in writing
and signed by Lender. No delay or omission on the part of Lender
in exercising any right shall operate as a waiver of such right or any
other right. A waiver by Lender of a provision of this Agreement
shall not prejudice or constitute a waiver of Lender's right otherwise
to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lenderin any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall
be given in writing, and shall be effective when actually delivered,
when actually received by telefacsimile (unless otherwise required by
law), when deposited with a nationally recognized overnight courier,
or, if mailed, when deposited in the United States mail, as first
class, certified or registered mail postage prepaid, directed to the
addresses shown near the beginning of this Agreement. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. For notice purposes,
Grantor agrees to keep Lender informed at all times of Grantor's current
address. Unless otherwise provided or required by law, if there is
more than one Grantor, any notice given by Lender to any Grantor is
deemed to be notice given to all Grantors.
Power of Attorney. Grantor hereby appoints Lender as Grantor's
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect, amend, or to continue the security interest
granted in this Agreement or to demand termination of filings of other
secured parties. Lender may at any time, and without further
authorization from Grantor, file a carbon, photographic or other
reproduction of any financijng statement or of this Agreement for use
as a financing statement. Grantor will reimburse Lender for all
expenses for the perfection and the continuation of the perfection of
Lender's security interest in the Collateral. Grantor authorizes
Lender to file a financing statement covering the Collateral without
Grantor's signature pursuant to Uniform Commercial Code Section
9-402(2)(e).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be illegal, invalid, or unenforceable
as to any circumstance that finding shall not make the offending
provision illegal, invalid, or unenforceableas to any other
circumstance. If feasible,
the offending provision shall be considered modified so that it becomes
legal, valid and enforceable. If the offending provision cannot be so
modified, it shall be considered deleted from this Agreement. Unless
otherwise required by law, the illegality, invalidity, or unenforceability
of any provision of this Agreement shall not affect the legality, validity
or enforceability of any other provision of this Agreement.
Successors and Assigns. Subject to any limitations stated in this Agreement
on transfer of Grantor's interest, this Agreement shall be binding upon
and inure to the benefit of the parties, their successors and assigns.
If ownership of the Collateral becomes vested in a person other than Grantor,
Lender, without notice to Grantor, may deal with Grantor's successors with
reference to this Agreement and the Indebtedness by way of forbearance or
extension without releasing Grantor from the obligations of this Agreement
or liability under the Indebtedness.
Survival of Representations and Warranties. All representations, warranties,
and agreements made by Grantor in this Agreement shall survive the execution
and delivery of this Agreement, shall be continuing in nature, and shall
remain in full force and effect until such time as Grantor's Indebtedness
shall be paid in full.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waive Jury. All parties to this Agreement hereb ywaive the right to any
jury trial in any action, proceeding, or counterclaim brought by any
party against any other party.
DEFINITIONS. The following capitalized words and terms shall have the
following meanings when used in this Agreement. Unless specifically
statedto the contrary, all references to dollar amounts shall mean amounts
in lawful money of the United States of America. Words and terms
usedin the singular shall include the plural, and the plural shall include
the singular, as the context may require. Words and terms not otherwise
definedin this Agreement shall have the meanings attributed to such terms
in the Uniform Commercial Code:
Agreement. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
Borrower. The word "Borrower" means Scientific Industries, Inc. and
includes all co-signers and co-makers signing the Note and all their
successors and assigns.
Collateral. The word "Collateral" means all of Grantor's right, title
and interest in and to all the Collateral as described in the Collateral
Description section of this Agreement.
Default. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
Environmenta Laws. The words "EnvironmentalLaws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules, or regulations
adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of
default set forth in this Agreement in the default section of this
Agreement.
Grantor. The word "Grantor" means Scientific Industries, Inc..
Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to
human health or the environment when improperly used, treated, stored,
disposed of, generated, manufactured, transported or otherwise handled. The
words "Hazardous Substances" are used in their very broadest sense and include
without limitation any and all hazardousor toxic substances, materials or
waste as defined by or listed under the Environmental Laws. The term "Hazardous
Substances" also includes, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos.
Indebtedness. The word "Indebtedness" means and includes any and all of
Grantor's liabilities, obligations, debts, and indebtedness to Lender,
now existing or hereinafter incurred or created, including, without
limitation, all loans, advances, future advances, interest, costs, debts,
overdraft indebtedness, credit card indebtedness, leaseobligations, other
obligations, and liabilities of Grantor, or any of them, and any present or
future judgments against Grantor, or any of them; and whether any such
indebtedness is voluntarily or involuntarily incurred, due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined; whether Grantor may be liable individually or jointly with
others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the indebtedness may be or may become barred or
unenforceable against Grantor for any reason whatsoever; and whether
the indebtedness arises from transactions which may be voidable on
account of infancy,insanity, ultra vires or otherwise..
Lender. The word "Lender" means First National Bank of Pennsylvania, its
successorsand assigns.
Note. Thew word "Note" means the Note executed by Scientific Industries, Inc.;
in the principal amount of $300,000.00 dated June 26, 2015 together with all
renewals of, extensions of, modifications of, refinancing of, consolidations of,
and substitutions for the note or credit agreement.
Property. The word "Property" means all of Grantor's right, title and
interest in and to all the Property as described in the "Collateral
Description" section of this Agreement.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOODALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENTAND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 5, 2016.
GRANTOR:
SCIENTIFIC INDUSTRIES, INC.
By: /s/ Helena R. Santos __________________________________________________________________ Helena R. Santos, President and CEO of Scientific Industries, Inc. |
AGREEMENT TO PROVIDE INSURANCE
Principal Loan Date Maturity Loan No. Call/Coll
$300,000 07-05-2016 45668585 150
____________________________________________________________________
Account Officer Initials
2705
____________________________________________________________________
|
Grantor: Sciertific Industries,Inc.
80 Orville Drive, Suite 102
Bohemia, NY 11716
Lender: First National Bank of
Pennsylvania
BBU Pittsburgh
ONE FNB BLVD
HERMITAGE,PA 16148
INSURANCE REQUIREMENTS. Grantor, Scientific Industries, Inc. ("Grantor"), understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Granter by Lender. These requirements are set forth in the security documents for the loan. The following minimum insurance coverages must be provided on the following described collateral (the Collateral)
Collateral: All Inventory and Equipment.
Type: All risks, including fire, theft and liability.
Amount: Full Insurable Value.
Basis: Replacement value.
Endorsements: Lender loss payable clause with stipulation
that coverage will not be cancelled or diminished without
a minimum of 10 days prior written notice to lender.
INSURANCE COMPANY. Grantor mayobtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Lender.
Grantor understands that credit may not be denied solely because
insurance was not purchased through Lender.
INSURANCE MAILING ADDRESS. All documents and other materials
relating to insurance for this loan should be mailed, delivered
or directed to the following address:
FIRST NATIONAL BANK OF PENNSYLVANIA
PO BOX 703809
DALLAS,TX 75370-3809
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender,
on the latest delivery date stated above, proof of the required
insurance as provided above, with an effective date of July 5, 2016,
or earlier. Grantor acknowledges and agrees that if Grantor fails to
provide any required insurance or fails to continue such insurance
in force, Lender may do so at Grantor's expense as provided in the
applicable security document. The cost of any such insurance, at
the option of Lender, shall be added to the indebtedness as provided
in the security document.
GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE,
THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO AN AMOUNT EQUAL TO THE LESSER OF (1) THE
UNPAID BALANCE OF THE DEBT, EXCLUDING ANY UNEARNED FINANCE CHARGES,
OR (2) THE VALUE OF THE COLLATERAL; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE
MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION
AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY
LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Lender to provide to any person (including any
insurance agent or company) all information Lender deems appropriate,
whether regarding the Collateral, the loan or other financial
accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
JULY 5, 2016.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR:
SCIENTIFIC INDUSTRIES, INC.
By: /s/ Helena R. Santos __________________________________________________________________(Seal) Helena R. Santos, President and CEO of Scientific Industries, Inc. |