UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
☒
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended
June 30,
2017
☐
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)
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Delaware
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04-2217279
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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80 Orville Drive, Suite 102, Bohemia, New York
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11716
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(Address of principal executive offices)
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(Zip Code)
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(631) 567-4700
(Registrant’s telephone number, including area
code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name of
each exchange on which registered
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None
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None
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Securities
registered pursuant to Section 12(g) of the Exchange
Act:
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Title of Class
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Common stock, $0.5 par value
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Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
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Yes
☒
No
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
☐
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 (§ 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
☐
No
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 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.
☒
Yes
☐
No
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting
company)
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Smaller reporting company
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Emerging Growth
☐
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Indicate by check
mark whether the registrant is a shell company
(as defined in Rule 12b-2 of
the Act)
☐
Yes
☒
No
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 1, 2017 is $3,049,200.
The
number of shares outstanding of the registrant’s common
stock, par value $.05 per share (“Common Stock”) as of
September 1, 2017 is 1,494,112 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SCIENTIFIC INDUSTRIES, INC.
Table
of Contents
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BUSINESS
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RISK
FACTORS
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PROPERTIES
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LEGAL
PROCEEDINGS
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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CONTROLS
AND PROCEDURES
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OTHER
INFORMATION
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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EXECUTIVE
COMPENSATION
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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CERTIFICATION
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CERTIFICATION
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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.
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 licensing 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
™” brand, pharmacy and laboratory balances, force
gauges, and moisture analyzers under the “Torbal®”
brand. Sales of the Company’s principal product, the
Vortex-Genie® 2 Mixer, excluding accessories, represented
approximately 38% and 28% of the Company’s total net revenues
for each of the fiscal years ended June 30, 2017 (“fiscal
2017”) and June 30, 2016 (“fiscal 2016”), 53% and
50% of the segment’s sales for fiscal 2017 and fiscal 2016,
respectively.
The
vortex mixer is used to mix the contents of test tubes, beakers,
and other various containers by placing such containers on a
rotating cup or other attachments which cause the contents to be
mixed at varying speeds.
The
Company’s additional mixers and shakers include a high speed
touch mixer; a mixer with an integral timer, a patented cell
disruptor; microplate mixers, two vortex mixers incorporating
digital control and display; a large capacity multi-vessel vortex
mixer and line of various 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.
Catalyst Research Instruments.
The
Catalyst Research Instrument products are offered through the
Company’s subsidiary, Altamira. Its flagship product is the
AMI-300™, 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®-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™ 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®-based control
software.
Bioprocessing Systems
. The Company,
through SBI, 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. The Company is also engaged in the
design and development of bioprocessing products, principally
coaster systems using disposable sensors for vessels with volumes
ranging from 250 milliliter to five liters.
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 2017 and fiscal 2016, 11% and 9% of total
net revenues, respectively, and 15% of Benchtop Laboratory
Equipment product sales, for both fiscal years. Sales of Catalyst
Research Instrument products are generally pursuant to a few large
orders amounting on average to over $50,000 to a limited number of
customers. In fiscal 2017, sales to two customers accounted for 74%
of the segment’s sales (19% of total net revenues) and in
fiscal 2016 sales to a different single customer accounted for 61%
of the segment’s sales (26% of total net
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 will be offered both directly and through
distribution worldwide to university, industrial, and government
laboratories.
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®; a patent which expires in November 2022 on
the MagStir Genie®, MultiMagStir Genie®, and
Enviro-Genie®, 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™,
BenchCAT™, Biocoaster™, BioGenie®,
Cellphase®, Cellstation®, Disruptor Beads™,
Disruptor Genie®, Enviro-Genie®, Genie™, Incubator
Genie™, MagStir Genie
®
, MegaMag Genie®, MicroPlate
Genie®, MultiMagStir Genie®, Multi-MicroPlate
Genie®, Orbital-Genie®, QuadMag Genie®, Rotator
Genie®, SBI®, Roto-Shake Genie
®
, Torbal
®,
TurboMix™, and
Vortex-Genie
®
, 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 2017 and fiscal 2016 amounted to $242,100 and $106,600,
respectively.
Foreign Sales
. The
Company’s sales to overseas customers, principally in Asia
and Europe, accounted for approximately 32% and 53% of the
Company’s net revenues for fiscal 2017 and fiscal 2016,
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, 2017 was
$89,300, all of which is expected to be filled by June 30, 2018, as
compared to a backlog of $995,000 as of June 30, 2016, all of which
was filled in fiscal 2017.
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), PreSens
GmbH (Germany). DASGIP Technology GmbH (Germany), and Sartorius AG
(Germany).
Research and Development
. The
Company incurred research and development expenses, the majority of
which related to its Benchtop Laboratory Equipment products, of
$437,500 during fiscal 2017 compared to $349,000 during fiscal
2016. The Company expects research and development expenditures in
the fiscal year ending June 30, 2018 will be slightly higher than
fiscal 2017.
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 1,
2017, the Company employed 33 persons (24 for the Benchtop
Laboratory Equipment Operations and 9 for the Catalyst Research
Instruments operations) of whom 29 were full-time, including its
four executive officers. All activities of the Bioprocessing
Systems operations are being performed by employees of the
Company’s other 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 2017,
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 2017
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.
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 15% of the segment’s total sales
for fiscal 2017 and fiscal 2016 (11% and 9% of its total net
revenues for fiscal 2017 and fiscal 2016, respectively). During
fiscal 2017, orders from two customers for catalyst instruments
accounted for 74% of the segment’s sales (19% of total net
revenues) and during fiscal 2016 one order from a different
customer for catalyst research instruments accounted for 61% of the
segment’s sales (26% of total net revenues).
No
representation can be made that the Company will be successful in
continuing to retain any of these 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 53% and 50% of Benchtop Laboratory Equipment sales,
for fiscal 2017 and fiscal 2016, respectively (38% and 28% of total
net revenues for fiscal 2017 and fiscal 2016,
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 ($5,784,400 for fiscal 2017 and $5,449,700 for fiscal
2016) 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 including Torbal
products only amounted to $2,705,800 for fiscal 2017 and
$2,718,300, for fiscal 2016. 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 Bioprocessing Systems operation will
be heavily dependent on its ability to develop and produce new
products. Such products are of a complex nature in an industry that
the Company does not operate in 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 Company will be successful with its
new product development and that its 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 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, and expire in calendar
2023.
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 Genie Products
Division President, Mr. Brookman March, Vice President of Corporate
Development and Strategy and Vice President of Sales of Altamira,
and Mr. Karl Nowosielski, Torbal Products 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 1, 2017, there were 1,494,112 shares of Common
Stock of the Company outstanding, of which 443,888 shares (30%)
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 2017 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.
The
Company’s executive office and principal manufacturing
facility for its Benchtop Laboratory Equipment operations comprises
approximately 19,000 square feet, is 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 Operations subleases a portion of a 700
square foot laboratory facility in Pittsburgh through October 2017.
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 Products 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.
I
tem 3
.
Legal
Proceedings.
The
Company is not a party to any pending legal
proceedings.
I
tem 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 2017.
I
tem 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 2016 and fiscal 2017, 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
|
|
09/30/15
|
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
|
|
09/30/16
|
2.98
|
3.07
|
|
12/31/16
|
2.55
|
3.05
|
|
03/31/17
|
2.78
|
3.00
|
|
06/30/17
|
2.85
|
3.06
|
As of
September 1, 2017, there were 295 record holders of the Company's
Common Stock.
I
tem 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
a loss before income tax benefit of $146,800 for fiscal 2017
compared to income before income tax expense of $218,900 for fiscal
2016, primarily due to the lower sales and low margins generated by
the Catalyst Research Instruments operations as discussed below,
while the Company reflected higher sales and profits from the
Benchtop Laboratory Equipment operations. The Bioprocessing
operations reflected a decreased loss due to higher royalty
revenues, partially offset by non-cash items for adjustment in
future contingent consideration payments and intangible asset
write-offs. The results reflected total non-cash amounts for
depreciation, amortization, and impairment of intangible assets of
$403,900 for fiscal 2017 and $641,600 for fiscal 2016.
Results of Operations.
Net
revenues for fiscal 2017 decreased $1,448,300 (15.1%) to $8,149,300
from $9,597,600 for fiscal 2016, reflecting a decrease of
$1,962,600 (48.7%) in net sales of catalyst research instruments,
due to a lower number of orders for large custom reactor systems
and an unusually large single order to an overseas customer in
fiscal 2016, partially offset by increases of $334,700 (6.1%) in
sales of benchtop laboratory equipment and $179,600 (156.0%) in
royalties earned by the Bioprocessing Systems Operations. The
benchtop laboratory equipment sales reflected $1,300,000 of Torbal
brand product sales for fiscal 2017, compared to $1,175,800 in
fiscal 2016.
Sales
of catalyst research instruments are comprised of a small number of
large orders, while the sales of benchtop laboratory equipment
comprise of a large number of small orders. As of June 30, 2017,
the order backlog for catalyst research instruments was $89,300,
all of which is expected to be shipped during fiscal year ending
June 30, 2018, compared to $995,000 as of June 30,
2016.
Revenues derived
from the Bioprocessing Systems Operations comprise primarily of net
royalties received from sublicensees, while it continues with its
product development efforts.
The
gross profit percentage for fiscal 2017 was 35.3% compared to 40.8%
for fiscal 2017. The current year reflected materially lower
margins on sales of catalyst research instruments resulting from
sales mix consisting primarily of OEM products which have
significantly lower margins. The gross profit percentage for the
Benchtop Laboratory Equipment Operations was slightly higher due to
lower fixed overhead costs.
General
and administrative expenses for fiscal 2017 amounted to $1,665,400
compared to $1,695,200 for fiscal 2016.
Selling
expenses for fiscal 2017 decreased $526,600 (37.2%) to $888,800
from $1,415,400 for fiscal 2016, because fiscal 2016 included a
significant amount of sales commission expenses for the large
catalyst research instrument order.
Research and
development expenses increased by $88,500 (25.4%) to $437,500 for
fiscal 2017 compared to $349,000 for fiscal 2016, primarily due to
increased new product development costs incurred by the Benchtop
Laboratory Equipment Operations and the Bioprocessing Systems
Operations.
Total
other income was $13,600 for fiscal 2017 compared to $26,100
expense in fiscal 2016, due primarily to the much lower interest
expense during fiscal 2017.
The
Company reflected an income tax benefit of $74,200 for fiscal 2017
compared to income tax expense of $53,300 for fiscal 2016,
primarily due to the loss incurred in fiscal 2017.
As a result
of the foregoing, the Company recorded a net loss of $72,600 for
fiscal 2017 compared to net income of $165,600 for fiscal
2016.
Liquidity and Capital
Resources.
Cash and cash equivalents decreased by $219,900
to $1,025,100 as of June 30, 2017 from $1,245,000 as of June 30,
2016.
Net cash provided by operating activities was
$46,100 for fiscal 2017 compared to $880,400 for fiscal 2016. The
current year reflected a loss, lower accrued expenses and accounts
payable balances, and lower inventories.
Net cash used in
investing activities was $41,100 for fiscal 2017 compared to net
cash provided by investing activities during fiscal 2016 of
$194,400. The prior year included a decrease in the restricted cash
as a result of revised terms for the Company’s line of
credit. The Company used $224,900 in financing activities in fiscal
2017 compared to $311,800 in fiscal 2016. The Company had lower
principal payments on debt, offset by payment of a dividend and
higher contingent consideration payments related to the
Bioprocessing Systems Operations. 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 $71,000 to $4,102,900 as of
June 30, 2017 compared to $4,031,900, as of June 30,
2016.
The
Company has a Demand Line of Credit through December 2017 with
First National Bank of Pennsylvania which provides for borrowings
of up to $300,000 for regular working capital needs, bearing
interest at prime, currently 4.25%. Advances on the line, 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, 2017 no borrowings were
outstanding under such line.
Management
believes that the Company will be able to meet its cash flow needs
during the 12 months ending June 30, 2018 from its available
financial resources including the lines of credit, its cash and
investment securities, and operations.
Capital
Expenditures
. During fiscal
2017, the Company incurred $17,000 in capital expenditures. The
Company expects that based on its current operations, its capital
expenditures will be higher for the fiscal year ending June 30,
2018, due to toolings for new products, all of which will be funded
from operations.
Off-Balance Sheet
Arrangements
.
None.
Financial Statements and Supplementary Data.
The
Financial Statements required by this item are attached hereto on
pages F1-F26.
Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not
applicable.
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, 2017 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, 2017, 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.
I
tem 9B. Other Information.
Not
applicable.
I
tem
10
.
Directors, Executive
Officers
and Corporate
Governance.
Directors
The
Company has the following five Directors:
Joseph G. Cremonese
(age 81), 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 the consulting services for the
Company.
Grace S. Morin
(age 69), 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.
Helena R. Santos
(age 53), 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.
James S. Segasture
(age 81), a Director
since 1991, has been retired for the last five years.
John F. F. Watkins
(age 50) is a
corporate and securities attorney and has been a member of Reitler
Kailas & Rosenblatt LLC since 2002. Mr. Watkins was first
elected to the Board of Directors of the Company in January
2017.
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, 2017
– two directors (Mr. Cremonese and Mr. Watkins, Class C), the
fiscal year ending June 30, 2018 – two directors (Ms. Santos
and Mr. Segasture, Class A), and the fiscal year ending June 30,
2019 - one director (Ms. Morin, Class B).
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 2017 the Stock
Option Committee held one meeting.
Grace
S. Morin and James S. Segasture are the current members of the
Company’s Compensation Committee serving at the discretion of
the Board. The Committee administers the Company’s
compensation policies. During fiscal 2017, 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 six meetings during
fiscal 2017. 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 56) is the
President of the Genie Products Division of the Benchtop Laboratory
Equipment Operations and Corporate Secretary and has been employed
by the Company since February 1998. Previously, he had been since
May 2001, the Company’s Vice President of
Engineering.
Brookman P. March
(age 72) has been
since July 1, 2017 Vice President of Corporate Development and
Strategy and Vice President of Sales of Altamira. Previously he had
been President and Director of Sales and Marketing of Altamira. He
had been Vice President and a Director of Altamira from December
2003 until it was acquired by the Company in 2006. Mr. March is the
husband of Ms. Morin, a Director of the Company.
Karl D. Nowosielski
(age 37), is the
President of the Torbal Products 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 Products Division assets) since
2004.
Section
16(a) Beneficial Ownership Reporting Compliance
The
Company believes that, for fiscal 2017, 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.
I
tem
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,
2017 and 2016.
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
(a)
|
|
|
|
|
|
Non- Equity Incentive Plan Comp-
ensation ($) (g)
|
Non- Qualified Deferred
Compensation Earnings ($) (h)
|
Changes in Pension Value and
Non-Qualified Deferred Compensation Earnings
|
All Other Comp- ensation ($)
(i)
|
|
|
Helena R.
Santos,
CEO, President,
CFO
|
2017
|
162,000
|
20,000
|
0
|
0
|
0
|
0
|
0
|
6,500
(1)
|
188,500
|
|
2016
|
157,100
|
0
|
0
|
0
|
0
|
0
|
0
|
6,300
(1)
|
163,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookman P.
March,
Vice President
Corporate Strategy, VP, Sales of Altamira
|
2017
|
147,000
|
10,000
|
0
|
500
(2)
|
0
|
0
|
0
|
5,900
(1)
|
163,400
|
|
2016
|
142,800
|
0
|
0
|
1,200
(2)
|
0
|
0
|
0
|
5,700
(1)
|
149,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert P.
Nichols,
President of Genie
Division and Corporate Secretary
|
2017
|
146,000
|
10,000
|
0
|
500
(2)
|
0
|
0
|
0
|
5,800
(1)
|
162,300
|
|
2016
|
141,800
|
0
|
0
|
1,200
(2)
|
0
|
0
|
0
|
5,700
(1)
|
148,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl D.
Nowosielski
President of Torbal
Division and Director of Marketing
|
2017
|
143,000
|
10,000
|
0
|
1,200
(3)
|
0
|
0
|
0
|
5,700
(1)
|
159,900
|
|
2016
|
141,900
|
0
|
0
|
9,500
(3)
|
0
|
0
|
0
|
5,700
(1)
|
157,100
|
(1) The
amounts represent the Company’s matching contribution under
the Company’s 401(k) Plans.
(2) 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 $500 and $1,200 was expensed in fiscal
2017 and 2016 respectively.
(3) The
amounts represent compensation expense for the 2017, 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
$10,500, $9,500 and $7,100, respectively.
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30,
2017
|
Name
(a)
|
Grant
Date
(b)
|
Estimated
Future
Payouts
Under
Non-Equity
Incentive
Plan
$
(c)
|
Estimated
Future
Payouts
Under
Equity
Incentive
Plan
$
(d)
|
All Other
Stock
Awards:
Number
Of
Shares
Of Stock
Or Units
(#)
(e)
|
All Other
Option
Awards:
Number
Of
Securities
Underlying
Options
(#)
(f)
|
Exercise
Or Base
Price
Of Option
Awards
($/Sh)
(g)
|
Grant
Date
Fair
Value of
Stock
And
Option
Awards
(h)
|
|
Karl
D.
Nowosielski
|
02/26/17
|
0
|
0
|
0
|
6,000
|
2.91
|
10,500
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
Option
Awards
|
|
Name
(a)
|
Number
of
Securities
Under-
lying
Unexercised
Options
(#)
Exercisable
(b)
|
Number
of
Securities
Under-
lying
Unexercised
Options
(#)
Unexerci-
sable
(c)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expiration
Date
(f)
|
|
Brookman P.
March
|
7,000
|
0
|
0
|
3.71-3.96
|
05/2022-12/2023
|
|
Robert
P. Nichols
|
2,000
|
0
|
0
|
3.50
|
12/2023
|
|
Karl
D. Nowosielski
|
6,333
|
10,667
|
0
|
3.05-4.05
|
02/2024-02/2027
|
Employment
Agreements
On July
1, 2017, the Company entered into a new employment agreement with
Ms. Helena R. Santos through June 30, 2020 with the option to
extend for two additional one-year periods. The agreements provide
for an annual base salary for the fiscal year ending June 30, 2018
of $175,000 with annual increases thereafter of 3% per annum or the
percentage increase, if any, in the Consumer Price Index, whichever
is higher. The agreement also provides for a bonus of $25,000 for
the fiscal year ending June 30, 2018 and on a discretionary basis
thereafter. A bonus of $20,000 was awarded during fiscal 2017 and
no bonus was awarded during fiscal 2016. The agreement also
provides for the grant of stock options to purchase 25,000 shares
during fiscal year ending June 30, 2018, subject to continued
employment.
On July
1, 2017, the Company also entered into a new employment agreement
with Mr. Robert P. Nichols through June 30, 2020 with the option to
extend for two additional one-year periods. The agreements provides
for an annual base salary for the fiscal year ending June 30, 2018
of $153,000 with annual increases thereafter of 3% per annum or the
percentage increase, if any, in the Consumer Price Index, whichever
is higher. The agreement also provides for a bonus of $10,000 for
the fiscal year ending June 30, 2018 and on a discretionary basis
thereafter. A bonus of $10,000 was awarded during fiscal 2017 and
no bonus was awarded during fiscal 2016. The agreement also
provides for the grant of stock options to purchase 7,500 shares
during fiscal year ending June 30, 2018, subject to continued
employment.
On July
1, 2017, the Company also entered into a new employment agreement
with Mr. Brookman P. March through June 30, 2020 with the option to
extend for two additional one-year periods. The agreements provides
for an annual base salary for the fiscal year ending June 30, 2018
of $155,000 with annual increases thereafter of 3% per annum or the
percentage increase, if any, in the Consumer Price Index, whichever
is higher. The agreement also provides for a bonus of $10,000 for
the fiscal year ending June 30, 2018 and on a discretionary basis
thereafter. A bonus of $10,000 was awarded during fiscal 2017 and
no bonus was awarded during fiscal 2016. The agreement also
provides for the grant of stock options to purchase 7,500 shares
during fiscal year ending June 30, 2018, subject to continued
employment. Mr. March is the husband of Grace S. Morin, a Director
of the Company and of Altamira and a former principal stockholder
of Altamira.
On July
1, 2017, the Company also entered into a new employment agreement
with Mr. Karl Nowosielski through June 30, 2020 with the option to
extend for two additional one-year periods. The agreements provides
for an annual base salary for the fiscal year ending June 30, 2018
of $157,000 with annual increases thereafter of 4% per annum. The
agreement also provides for a bonus of $10,000 for the fiscal year
ending June 30, 2018 and $10,000 for each subsequent year, provided
a minimum 5% increase in the EBITDA of the Torbal Products Division
is achieved. A bonus of $10,000 was awarded during fiscal 2017 and
no bonus was awarded during fiscal 2016. The agreement also
provides for the grant of stock options to purchase 7,500 shares
during fiscal year ending June 30, 2018, subject to continued
employment.
The
employment agreements for Ms. Santos, Mr. Nichols, Mr. March, and
Mr. Nowosielski contain confidentiality and non-competition
covenants. The employment agreements for all the named executives
above contain termination provisions stipulating that if the
Company terminates the employment other than for death, disability,
or cause (as such term is defined therein), or if the relevant
employee resigns for “good reason” (as such term is
defined therein), 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 one year from termination. Ms.
Santos’ employment agreement also contains a provision that
within one year of a change of control, if either the Company
terminates her employment for any reason other than for
“cause” or she terminates her employment for
“good reason”, she will have the right to receive a
lump sum payment equal to three times the average of her total
annual compensation paid for the last five years immediately
preceding such termination, minus $1.00.
Directors’
Compensation and Options
DIRECTORS’ COMPENSATION
For the Year Ended June 30, 2017
|
Name(a)
|
Fees Earned or Paid in Cash
($)
(b)
|
|
|
Non-Equity Incentive Plan
Comp-ensation ($) (e)
|
Changes in Pension Value and
Non-qualified Deferred Compens-ation
Earnings($)
(f)
|
Non-qualified Deferred
Comp-ensation Earnings ($) (g)
|
All Other
Comp-
ensation ($)
(h)
|
|
|
Joseph
G.Cremonese
|
35,900
|
0
|
0
|
0
|
0
|
0
|
43,200
(1)
|
79,100
|
|
Roger B. Knowles
(3)
|
4,000
|
0
|
0
|
0
|
0
|
0
|
0
|
4,000
|
|
Grace
S.Morin
|
18,100
|
0
|
0
|
0
|
0
|
0
|
5,200
(2)
|
23,300
|
|
James
S.Segasture
|
18,100
|
0
|
0
|
0
|
0
|
0
|
00
|
18,100
|
|
John F.F. Watkins
(3)
|
7,600
|
0
|
0
|
0
|
0
|
0
|
0
|
7,600
|
(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).
(3) On
January 19, 2017 Mr. Knowles resigned and Mr. Watkins became his
duly elected successor.
The
Company pays each Director who is not an employee of the Company or
a subsidiary a quarterly retainer fee of $2,200 and $1,800 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 $1,600 per month. During fiscal 2017, total
director compensation to non-employee Directors aggregated
$132,100, 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 5,000 remain unexercised. None of the
other directors have options outstanding.
I
t
em
12
.
Security Ownership of
Certain Beneficial Owners and Management
and Related Stockholder
Matters.
The
following table sets forth, as of June 30, 2017, 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.
|
Name
|
Amount
and
Nature
of Beneficial Ownership
|
% of
Class
|
|
Roy T.
Eddleman Trustee
c/o
Troy Gould PC
1801
Century Park East, Ste. 1600
Los
Angeles, CA 90067
|
124,736
(1)
|
8.3%
8.3%
|
|
Fulcrum,
Inc.
100
Delawanna Avenue
Clifton, NJ
07014
|
117,370
(2)
|
7.9%
|
|
Joseph
G. Cremonese
|
138,262
(3)
|
9.2%
|
|
Brookman P.
March
|
89,950
(4)
|
6.0%
|
|
Grace
S. Morin
|
89,950
(5)
|
6.0%
|
|
Robert
P. Nichols
|
20,397
(6)
|
1.4%
|
|
Karl
D. Nowosielski
|
26,683
(7)
|
1.8%
|
|
Helena
R. Santos
|
15,779
|
1.1%
|
|
James
S. Segasture
|
162,500
(8)
|
10.9%
|
|
John
F. F. Watkins
|
0
|
0.0%
|
|
All
directors and executive officers as a group (7
persons)
|
453,571
(9)
|
29.7%
|
(1)
Based on
information reported on Form 3 filed with the Securities and
Exchange Commission on June 11, 2017.
(2)
Stock ownership in
conjunction with acquisition of the Torbal division assets from
Fulcrum, Inc. on February 26, 2014.
(3)
126,262 shares are
owned jointly with his wife, 7,000 shares are owned by his wife,
and 5,000 shares are issuable upon exercise of
options.
(4)
Represents 82,950
shares owned by Ms. Morin, his wife and 7,000 shares issuable upon
exercise of options.
(5)
Includes 7,000
shares issuable upon exercise of options held by her husband, Mr.
March.
(6)
Includes 2,000
shares issuable upon exercise of options.
(7)
Includes 9,683
stock issued in connection with the acquisition of the Torbal
Division in February 2014. Includes 17,000 shares issuable upon
exercise of options.
(8)
Shares owned
jointly with his wife.
(9)
Includes 31,000
shares issuable upon exercise of options.
EQUITY COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to Company
options, warrants and rights as of June 30, 2017.
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights (a)
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights ($)
(b)
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column (a))
(c)
|
|
Equity
Compensation plans approved by security holders
|
34,500
|
3.25
|
83,500
|
|
Equity
Compensation plans not approved by security holders
|
N/A
|
N/A
|
N/A
|
|
Total
|
34,500
|
3.25
|
83,500
|
I
tem
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, 2017. 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 2017 and 2016.
Ms.
Grace S. Morin, was elected a Director in December 2007 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, 2017 at the
rate of $85 per hour, resulting in payments of $5,200 and $5,800
for fiscal 2017 and fiscal 2016, respectively. The agreement
contains confidentiality and non-competition
covenants.
I
tem 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 2017 and fiscal
2016.
The
Company incurred for the services of the Firm fees of approximately
$69,000 and $67,000 for fiscal 2017 and fiscal 2016, 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.
I
t
em 15. Exhibits and Financial Statement
Schedules.
Financial Statements
. The
required financial statements of the Company are attached hereto on
pages F1-F26.
Exhibits
. The following
Exhibits are filed as part of this report on
Form 10-K:
|
Exhibit
Number
|
Exhibit
|
|
|
|
|
3
|
Articles
of Incorporation and By-Laws:
|
|
|
|
|
3(a)
|
Certificate
of Incorporation of the Company as amended (filed as Exhibit 1(a-1)
to the Company's General Form for Registration of Securities on
Form 10 dated February 14, 1973 and incorporated by reference
thereto.)
|
|
|
|
|
3(b)
|
Certificate
of Amendment of the Company’s Certificate of Incorporation,
as filed on January 28, 1985 (filed as Exhibit 3(a) to the
Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 1985 and incorporated by reference
thereto.)
|
|
|
|
|
3(c)
|
By-Laws
of the Company, as restated and amended (filed as Exhibit 3(ii) to
the Company’s Current Report on Form 8-K filed on January 6,
2003 and Exhibit 3(ii) to the Company’s Current Report on
Form 8-K filed on December 5, 2007 and incorporated by reference
thereto).
|
|
|
|
|
4
|
Instruments
defining the rights of security holders:
|
|
|
|
|
4(a)
|
2002
Stock Option Plan (filed as Exhibit 99-1 to the Company’s
Current Report on Form 8-K filed on November 25, 2002 and
incorporated by reference thereto).
|
|
|
|
|
4(b)
|
2012
Stock Option Plan (filed as Exhibit 10 to the Company’s
Current Report on Form 8-K filed on January 23, 2012 and
incorporated by reference thereto).
|
|
|
|
|
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).
|
|
|
|
|
|
Employment
agreement dated July 1, 2017 by and between the Company and Ms.
Santos (filed as an exhibit herewith).
|
|
|
|
|
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
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
A 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
e 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).
|
|
|
Employment agreement dated July 1, 2017 by and between the Company
and Mr. Nichols (filed as an exhibit herewith).
|
|
|
|
|
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).
|
|
|
|
|
|
Employment agreement dated July 1, 2017 by and between the Company
and Mr. March (filed as an exhibit herewith).
|
|
|
|
|
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
|
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).
|
|
|
Employment agreement dated July 1, 2017 by and between the Company
and Mr. Karl Nowosielski (filed as an exhibit
herewith).
|
|
|
|
|
14
|
Code of Ethics (filed as Exhibit 14 to the Company’s
Annual
|
|
|
|
|
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.
|
|
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of Sarbanes-Oxley Act of
2002
.
|
|
|
|
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.
|
Date:
September 28, 2017
|
SCIENTIFIC
INDUSTRIES, INC.
(Registrant)
/s/
Helena R. Santos
|
|
|
|
Helena
R. Santos
President,
Chief Executive Officer, Treasurer
Chief
Financial and Principal Accounting Officer
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Name
|
Title
|
Date
|
|
|
|
|
|
/s/
Helena R. Santos
|
President
and Treasurer (Chief Executive Officer and Financial Officer) and
Director
|
September 28,
2017
|
|
Helena
R. Santos
|
|
|
|
/s/
Joseph G. Cremonese
|
Chairman
of the Board
|
September 28,
2017
|
|
Joseph
G. Cremonese
|
|
|
|
/s/
Grace S. Morin
|
Director
|
September 28,
2017
|
|
Grace
S. Morin
|
|
|
|
/s/
James S. Segasture
|
Director
|
September 28,
2017
|
|
James
S. Segasture
|
|
|
|
/s/
John F.F. Watkins
|
Director
|
September 28,
2017
|
|
John
F.F. Watkins
|
|
|
SCIENTIFIC
INDUSTRIES, INC.
AND
SUBSIDIARIES
FINANCIAL
STATEMENTS AND REPORT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR
THE YEARS ENDED
JUNE 30, 2017 AND 2016
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
CONTENTS
|
|
Page
|
|
|
|
|
Report
of independent registered public accounting firm
|
F-1
|
|
|
|
|
Consolidated
financial statements:
|
|
|
|
|
|
Balance
sheets
|
F-2
|
|
|
|
|
Statements of
operations
|
F-3
|
|
|
|
|
Statements of
comprehensive income (loss)
|
F-4
|
|
|
|
|
Statements of
changes in shareholders’ equity
|
F-5
|
|
|
|
|
Statements of cash
flows
|
F-6
– F-7
|
|
|
|
|
Notes
to financial statements
|
F-8
– F-26
|
Report of Independent Registered Public Accounting
Firm
Board of Directors and
Shareholders
Scientific Industries, Inc.
Bohemia, New York
We
have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and subsidiaries (the
“Company”) as of June 30, 2017 and 2016, and the
related consolidated statements of operations, comprehensive income
(loss), changes in 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 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, 2017 and 2016, 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
September 28, 2017
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2017 AND 2016
ASSETS
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
1,025,100
|
$
1,245,000
|
|
Investment
securities
|
295,500
|
290,100
|
|
Trade accounts
receivable, less allowance for doubtful accounts of $11,600 in 2017
and 2016
|
1,424,400
|
1,231,900
|
|
Inventories
|
1,961,200
|
2,412,100
|
|
Prepaid expenses
and other current assets
|
80,300
|
47,200
|
|
|
129,000
|
140,600
|
|
Total current
assets
|
4,915,500
|
5,366,900
|
|
|
|
|
|
Property and
equipment, net
|
199,300
|
251,100
|
|
|
|
|
|
Intangible assets,
net
|
579,000
|
897,600
|
|
|
|
|
|
Goodwill
|
705,300
|
705,300
|
|
|
|
|
|
Other
assets
|
52,500
|
52,500
|
|
|
|
|
|
Deferred
taxes
|
376,100
|
275,900
|
|
|
|
|
|
|
$
6,827,700
|
$
7,549,300
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
139,200
|
$
342,400
|
|
Accrued expenses
and taxes, current portion
|
491,000
|
849,700
|
|
Contingent
consideration, current portion
|
175,700
|
136,500
|
|
Notes payable,
current portion
|
6,700
|
6,400
|
|
|
|
|
|
Total current
liabilities
|
812,600
|
1,335,000
|
|
|
|
|
|
Accrued expenses,
less current portion
|
60,000
|
60,000
|
|
Notes payable, less
current portion
|
5,800
|
12,500
|
|
Contingent
consideration payable, less current portion
|
121,300
|
209,800
|
|
|
|
|
|
Total
liabilities
|
999,700
|
1,617,300
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Common stock, $.05
par value; authorized 7,000,000 shares; issued 1,513,914 shares in
2017 and 1,508,914 shares in 2016
|
75,700
|
75,400
|
|
Additional paid-in
capital
|
2,515,900
|
2,498,500
|
|
Accumulated other
comprehensive income (loss)
|
(3,500
)
|
900
|
|
Retained
earnings
|
3,292,300
|
3,409,600
|
|
|
5,880,400
|
5,984,400
|
|
Less common stock
held in treasury at cost, 19,802 shares
|
52,400
|
52,400
|
|
|
|
|
|
Total
shareholders’ equity
|
5,828,000
|
5,932,000
|
|
|
|
|
Total liabilities
and shareholders’ equity
|
$
6,827,700
|
$
7,549,300
|
See
notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
Revenues
|
$
8,149,300
|
$
9,597,600
|
|
|
|
|
|
Cost of
revenues
|
5,270,000
|
5,680,300
|
|
|
|
|
|
Gross
profit
|
2,879,300
|
3,917,300
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
General and
administrative
|
1,665,400
|
1,695,200
|
|
Selling
|
888,800
|
1,415,400
|
|
Research and
development
|
437,500
|
349,000
|
|
Impairment of
intangible assets
|
48,000
|
212,700
|
|
|
|
|
|
Total operating
expenses
|
3,039,700
|
3,672,300
|
|
|
|
|
|
Income (loss) from
operations
|
(160,400
)
|
245,000
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Interest
income
|
10,600
|
6,000
|
|
Other income,
net
|
5,900
|
1,800
|
|
Interest
expense
|
(2,900
)
|
(33,900
)
|
|
|
|
|
|
Total other income
(expense), net
|
13,600
|
(26,100
)
|
|
|
|
|
|
Income (loss)
before income tax expense (benefit)
|
(146,800
)
|
218,900
|
|
|
|
|
|
Income tax expense
(benefit):
|
|
|
|
Current
|
13,400
|
202,500
|
|
Deferred
|
(87,600
)
|
(149,200
)
|
|
|
|
|
|
Total income tax
expense (benefit)
|
(74,200
)
|
53,300
|
|
|
|
|
|
|
$
(72,600
)
|
$
165,600
|
|
|
|
|
Basic earnings
(loss) per common share
|
$
(.05
)
|
$
.11
|
|
|
|
|
Diluted earnings
(loss) per common share
|
$
(.05
)
|
$
.11
|
|
|
|
|
Weighted average
common shares outstanding, basic
|
1,491,167
|
1,489,112
|
|
|
|
|
Weighted average
common shares outstanding, assuming dilution (in 2016)
|
1,491,167
|
1,489,387
|
See
notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
(72,600
)
|
$
165,600
|
|
|
|
|
|
Other comprehensive
income (loss):
|
|
|
|
Unrealized holding
gain (loss)
|
|
|
|
arising during
period,
|
|
|
|
net of
tax
|
(4,400
)
|
4,200
|
|
|
|
|
Comprehensive
income (loss)
|
$
(77,000
)
|
$
169,800
|
See
notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1,
2015
|
1,508,914
|
$
75,400
|
$
2,486,700
|
$
(3,300
)
|
$
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
|
-
|
-
|
-
|
4,200
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
11,800
|
-
|
-
|
-
|
-
|
11,800
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2016
|
1,508,914
|
75,400
|
2,498,500
|
900
|
3,409,600
|
19,802
|
52,400
|
5,932,000
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
(72,600
)
|
|
|
(72,600
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
declared and paid $.03
|
|
|
|
|
(44,700
)
|
|
|
(44,700
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding
loss on investment securities, net of tax
|
|
|
|
(4,400
)
|
|
|
|
(4,400
)
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
5,000
|
300
|
15,200
|
|
|
|
|
15,500
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
2,200
|
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
1,513,914
|
$
75,700
|
$
2,515,900
|
$
(3,500
)
|
$
3,292,300
|
19,802
|
$
52,400
|
$
5,828,000
|
See
notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
Net income
(loss)
|
$
(72,600
)
|
$
165,600
|
|
Adjustments to
reconcile net income (loss) to net
cash
provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
355,900
|
428,900
|
|
Impairment of
intangible assets
|
48,000
|
212,700
|
|
Gain on sale of
property and equipment
|
-
|
(300
)
|
|
Deferred income tax
benefit
|
(87,600
)
|
(149,200
)
|
|
Gain on sale of
investment securities
|
(3,200
)
|
-
|
|
Stock-based
compensation
|
2,200
|
11,800
|
|
Change in fair
value of contingent consideration
|
140,000
|
110,000
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
(192,500
)
|
(150,200
)
|
|
Inventories
|
450,900
|
(198,400
)
|
|
Prepaid and other
current assets
|
(33,100
)
|
21,400
|
|
Accounts
payable
|
(203,200
)
|
114,800
|
|
Customer
advances
|
-
|
(76,400
)
|
|
Accrued expenses
and taxes
|
(358,700
)
|
389,700
|
|
|
|
|
|
Total
adjustments
|
118,700
|
714,800
|
|
|
|
|
|
Net cash provided
by operating activities
|
46,100
|
880,400
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Decrease in
restricted cash
|
-
|
300,000
|
|
Proceeds from sale
of property and equipment
|
-
|
3,000
|
|
Purchase of
investment securities, available for sale
|
(18,700
)
|
(2,700
)
|
|
Redemption of
investment securities, available for sale
|
11,100
|
-
|
|
Capital
expenditures
|
(17,000
)
|
(92,000
)
|
|
Purchase of other
intangible assets
|
(16,500
)
|
(13,900
)
|
|
|
|
|
|
Net cash provided
by (used in) investing activities
|
(41,100
)
|
194,400
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Proceeds from
notes
|
-
|
20,000
|
|
Principal payments
on notes payable
|
(6,400
)
|
(201,000
)
|
|
Cash dividend
paid
|
(44,700
)
|
-
|
|
Line of credit
proceeds
|
250,000
|
970,000
|
|
Line of credit
repayments
|
(250,000
)
|
(970,000
)
|
|
Payments for
contingent consideration
|
(189,300
)
|
(130,800
)
|
|
Proceeds from
exercise of stock options
|
15,500
|
-
|
|
|
|
|
|
Net cash used in
financing activities
|
(224,900
)
|
(311,800
)
|
See
notes to consolidated financial statements.
F-6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
(219,900
)
|
763,000
|
|
|
|
|
|
Cash and cash
equivalents, beginning of year
|
1,245,000
|
482,000
|
|
|
|
|
Cash and cash
equivalents, end of year
|
$
1,025,100
|
$
1,245,000
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$
213,500
|
$
34,500
|
|
Interest
|
2,900
|
33,900
|
See
notes to consolidated financial statements.
F-7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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 sales and marketing. 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. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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,
2017 and 2016, $442,000 and $497,200 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. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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,
2017 and 2016 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 years ended June 30, 2017 and
2016, the Company determined that the intangible assets of SBI were
impaired, and accordingly an impairment charge of $48,000 and
$212,700 respectively were recorded.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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 $111,400
and $79,800 for the years ended June 30, 2017 and 2016,
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, 2017 and 2016, 83,500 and
79,500 shares respectively, of Common Stock were available for
grant of options under the 2012 Plan.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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, 2017 and 2016, the Company granted 6,000
and 5,000 options, respectively, to employees that had a fair value
of $10,600 and $9,500, respectively. The fair value of the options
granted during fiscal year 2017 and 2016 were determined using the
Black-Scholes-Merton option-pricing model. The weighted average
assumptions used for fiscal 2017 and 2016, was an expected life of
10 years; risk free interest rate of 2.53% and 1.82%; volatility of
59% and 51%, and dividend yield of 1.04% and 0% for fiscal 2017 and
2016. The Company declared a dividend of $0.03 per share on
November 2016. The Company did not declare dividends during the
year ended June 30, 2016. Therefore a zero value for the expected
dividend value factor was used to determine the fair value of
options granted during 2016. The weighted-average value per share
of the options granted in 2017 and 2016 was $1.76 and $1.89, and
total stock-based compensation costs were $2,200 and $11,800 for
the years ended June 30, 2017 and 2016, respectively. Stock-based
compensation costs related to nonvested awards expected to be
recognized in the future are $10,300 and $1,000 as of June 30, 2017
and 2016, 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 (loss)
by the weighted-average number of shares outstanding. Diluted
earnings per common share includes the dilutive effect of stock
options, if any.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
1.
Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In July
2015, the Financial Accounting Standards Board (FASB) issued the
FASB Accounting Standards Update (ASU) No. 2015-11
“
Inventory (Topic
330)
:
Simplifying the
Measurement of Inventory” (“ASU 2015-11”).
The amendments in this Update do not apply to inventory that is
measured using last-in, first-out (LIFO) or the retail inventory
method. The amendments apply to all other inventory, which includes
inventory that is measured using first-in, first-out (FIFO) or
average cost. An entity should measure inventory within the scope
of this update 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 costs of
completion, disposal, and transportation. Subsequent measurement is
unchanged for inventory measured using LIFO or the retail inventory
method. For public business entities, the amendments in this update
are effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. The Company is
currently evaluating the effects of ASU 2015-11 on the consolidated
financial statements.
In
November 2015, the FASB issued ASU No. 2015-17, “Balance
Sheet Classification of Deferred Taxes”, which will require
entities to present deferred tax assets and deferred tax
liabilities as noncurrent in a classified balance sheet. The ASU
simplifies the current guidance, which requires entities to
separately present deferred tax assets and deferred tax liabilities
as current and noncurrent in a classified balance sheet. The ASU
may be applied either prospectively or retrospectively. The
amendments in this ASU are effective for annual reporting periods
beginning after December 15, 2016 and interim periods within those
annual periods. Earlier application is permitted as of the
beginning of an interim or annual period. The Company is currently
evaluating the effects of ASU 2015-17 on the consolidated financial
statements.
In
January 2016, the FASB issued ASU No. 2016-01, “Financial
Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities”.
The update addresses certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. For public
business entities, the amendments in this update are effective for
fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Early adoption is permitted only
for certain portions of the ASU related to financial liabilities.
The Company is currently evaluating the impact of the provisions of
this new standard on the consolidated financial
statements.
In
February 2016, the FASB issued ASU No. 2016-02,
“Leases” (Topic 842). The FASB issued this update to
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
and disclosing key information about leasing arrangements. The
updated guidance is effective for annual periods beginning after
December 15, 2018, including interim periods within those fiscal
years. Early adoption of the update is permitted. The Company is
currently evaluating the impact of the new standard.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
1.
Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation”
(Topic 718)
. The FASB issued this update to improve the
accounting for employee share-based payments and affect all
organizations that issue share-based payment awards to their
employees. Several aspects of the accounting for share-based
payment award transactions are simplified, including: (a) income
tax consequences; (b) classification of awards as either equity or
liabilities; and (c) classification on the statement of cash flows.
The updated guidance is effective for annual periods beginning
after December 15, 2016, including interim periods within those
fiscal years. Early adoption of the update is permitted. The
Company is currently evaluating the impact of the new
standard.
In
April 2016, the FASB issued ASU No. 2016-10,
“Revenue from Contracts with Customers:
Identifying Performance Obligations and Licensing (Topic
606)”.
In March 2016, the FASB issued ASU No. 2016-08,
“Revenue from Contracts with Customers: Principal versus
Agent Considerations (Reporting Revenue Gross verses Net) (Topic
606)”. These amendments provide additional clarification and
implementation guidance on the previously issued ASU 2014-09,
“Revenue from Contracts with Customers”. The amendments
in ASU 2016-10 provide clarifying guidance on materiality of
performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and
determining whether an entity’s promise to grant a license
provides a customer with either a right to use an entity’s
intellectual property or a right to access an entity’s
intellectual property. The amendments in ASU 2016-08 clarify how an
entity should identify the specified good or service for the
principal versus agent evaluation and how it should apply the
control principle to certain types of arrangements. The adoption of
ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s
adoption of ASU 2014-09, which the Company intends to adopt for
interim and annual reporting periods beginning after December 15,
2017. The Company is in the process of evaluating the standard and
does not expect the adoption will have a material effect on its
consolidated financial statements and disclosures.
In May
2016, the FASB issued ASU No. 2016-12,
“Revenue from Contracts with Customers
(Topic 606): Narrow-Scope Improvements and Practical
Expedients”,
which narrowly amended the revenue
recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is
effective during the same period as ASU 2014-09. The Company is
currently evaluating the standard and does not expect the adoption
will have a material effect on its consolidated financial
statements and disclosures.
In
August 2016, the FASB issued
ASU 2016-15, “
Classification of Certain Cash Receipts and
Cash Payments”
. This update provides guidance on how
to record eight specific cash flow issues. This update is effective
for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. Early adoption is permitted and
a retrospective transition method to each period should be
presented. The Company is currently evaluating the effect of this
update on its consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
1.
Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In
November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic
230)”
, requiring that the statement of cash flows
explain the change in the total cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. This guidance is effective for fiscal years, and
interim reporting periods therein, beginning after December 15,
2017 with early adoption permitted. The provisions of this guidance
are to be applied using a retrospective approach which requires
application of the guidance for all periods presented. The Company
is currently evaluating the impact of the new
standard.
In May
2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic
718): Scope of Modification Accounting,”
which
provides guidance about which changes to the terms or conditions of
a share-based payment award require an entity to apply modification
accounting in Topic 718. This standard is required to be adopted in
the first quarter of 2018. The Company is currently evaluating the
impact this guidance will have on its consolidated financial
statements and related disclosures.
In July
2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing
Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815): I. Accounting for Certain Financial Instruments with
Down Round Features; II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception”
. Part I of this
update addresses the complexity of accounting for certain financial
instruments with down round features. Down round features are
features of certain equity-linked instruments (or embedded
features) that result in the strike price being reduced on the
basis of the pricing of future equity offerings. Current accounting
guidance creates cost and complexity for entities that issue
financial instruments (such as warrants and convertible
instruments) with down round features that require fair value
measurement of the entire instrument or conversion option. Part II
of this update addresses the difficulty of navigating Topic
480, Distinguishing Liabilities from Equity, because of the
existence of extensive pending content in the FASB Accounting
Standards Codification. This pending content is the result of the
indefinite deferral of accounting requirements about mandatorily
redeemable financial instruments of certain nonpublic entities and
certain mandatorily redeemable noncontrolling interests. The
amendments in Part II of this update do not have an accounting
effect. This ASU is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2018. The Company
is evaluating the effect that ASU 2017-11 will have on
its financial statements and related disclosures.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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”).
Segment
information is reported as follows:
|
|
Benchtop
Laboratory
Equipment
|
Catalyst
Research
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
5,784,400
|
$
2,070,200
|
$
294,700
|
$
-
|
$
8,149,300
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
2,467,400
|
129,200
|
-
|
-
|
2,596,600
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
288,100
|
(312,900
)
|
(135,600
)
|
-
|
(160,400
)
|
|
|
|
|
|
|
|
|
Assets
|
4,100,800
|
1,518,100
|
408,200
|
800,600
|
6,827,700
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
20,700
|
-
|
12,800
|
-
|
33,500
|
|
|
|
|
|
|
|
|
Depreciation,
Amortization and Impairment
|
292,600
|
14,000
|
97,300
|
-
|
403,900
|
|
|
Benchtop
Laboratory
Equipment
|
Catalyst
Research
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
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
|
During
the years ended June 30, 2017 and 2016, one customer accounted for
approximately 11% and 26%, respectively, of total
revenues.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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.
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
following table.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
3.
Fair Value of Financial Instruments (Continued)
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, 2017 and 2016 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,
2017
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
1,025,100
|
$
1,025,100
|
$
-
|
$
-
|
|
Available for sale
securities
|
295,500
|
295,500
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$
1,320,600
|
$
1,320,600
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
$
297,000
|
$
-
|
$
-
|
$
297,000
|
|
|
|
Fair
Value Measurements Using Inputs Considered as
|
|
|
Fair Value
at
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
$
346,300
|
$
-
|
$
-
|
$
346,300
|
The
following table sets forth an analysis of changes during fiscal
years 2017 and 2016 in Level 3 financial liabilities of the
Company:
|
|
|
|
|
Beginning
balance
|
$
346,300
|
$
367,100
|
|
Increase in
contingent consideration liability
|
140,000
|
110,000
|
|
Payments
|
(189,300
)
|
(130,800
)
|
|
|
|
|
|
|
$
297,000
|
$
346,300
|
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 years ended June 30, 2017 and June 30, 2016, the Company
recorded an increase in the estimated fair value of contingent
liabilities of approximately $140,000 and $110,000, respectively
related to its Bioprocessing Systems Operations
segment.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
3.
Fair Value of Financial Instruments (Continued)
Investments in
marketable securities classified as available-for-sale by security
type at June 30, 2017 and 2016 consisted of the
following:
|
|
|
|
Unrealized
Holding
Gain
(Loss)
|
|
At June 30,
2017:
|
|
|
|
|
Available for
sale:
|
|
|
|
|
Equity
securities
|
$
37,000
|
$
50,800
|
$
13,800
|
|
Mutual
funds
|
262,000
|
244,700
|
(17,300
)
|
|
|
|
|
|
|
|
$
299,000
|
$
295,500
|
$
(3,500
)
|
|
|
|
|
Unrealized
Holding
Gain
(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
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
$
1,373,800
|
$
1,529,800
|
|
Work-in-process
|
166,500
|
425,300
|
|
Finished
goods
|
420,900
|
457,000
|
|
|
|
|
|
|
$
1,961,200
|
$
2,412,100
|
5.
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobiles
|
5
|
$
22,000
|
$
22,000
|
|
Computer
equipment
|
3-5
|
162,800
|
162,200
|
|
Machinery and
equipment
|
3-7
|
819,600
|
803,300
|
|
Furniture and
fixtures
|
4-10
|
205,900
|
205,900
|
|
Leasehold
improvements
|
3-10
|
34,200
|
34,200
|
|
|
|
|
|
|
|
|
1,244,500
|
1,227,600
|
|
Less accumulated
depreciation and amortization
|
|
1,045,200
|
976,500
|
|
|
|
|
|
|
|
|
$
199,300
|
$
251,100
|
Depreciation
expense was $67,900 and $76,300 for the years ended June 30, 2017
and 2016, respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
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, 2017 and
2016, all of which is expected to be deductible for tax
purposes.
The
components of other intangible assets are as follows:
|
|
Useful
Lives
|
|
|
|
|
|
|
|
|
|
|
At June 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$
662,800
|
$
541,100
|
$
121,700
|
|
Trade
names
|
6 yrs.
|
140,000
|
77,800
|
62,200
|
|
Websites
|
5 yrs.
|
210,000
|
140,000
|
70,000
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
281,400
|
75,600
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
165,400
|
128,600
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
294,000
|
90,000
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other intangible
assets
|
5 yrs.
|
194,500
|
163,600
|
30,900
|
|
|
|
|
|
|
|
$
2,352,300
|
$
1,773,300
|
$
579,000
|
|
|
Useful
Lives
|
|
|
|
|
|
|
|
|
|
|
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
|
Total
amortization expense was $288,000 and $352,600 in 2017 and 2016,
respectively.
Estimated future
amortization expense of intangible assets is as
follows:
|
Fiscal Years
|
|
|
|
|
|
2018
|
$
243,600
|
|
2019
|
185,800
|
|
2020
|
65,400
|
|
2021
|
48,000
|
|
2022
|
27,000
|
|
Thereafter
|
9,200
|
|
|
|
|
Total
|
$
579,000
|
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
The
Company has a Demand Line of Credit through December 2017 with
First National Bank of Pennsylvania which provides for borrowings
of up to $300,000 for regular working capital needs, bearing
interest at prime, currently 4.25%. The agreement contains a
financial covenant requiring the Company to maintain a minimum net
worth and borrowings are also secured by a pledge of the
Company’s assets including inventory, accounts, chattel
paper, equipment and general intangibles of the Company. The
Company also had an Export Related Revolving Line through June 2017
which as amended allowed for borrowings up to $200,000 bearing
interest at prime plus 1%. This line was not reviewed by the
Company upon expiration. As of June 30, 2017 and 2016, there were
no borrowings outstanding under either line.
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, 2017 and
June 30, 2016 was $12,500 and $18,900 with principal payments of
$6,700 and $5,800 due over the next two fiscal years.
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%.
Total matching contributions amounted to $75,100 and $69,500 for
the years ended June 30, 2017 and 2016, respectively.
10.
Commitments and Contingencies
The
Company entered into a lease in August 2014 for its 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 $175,200 in 2017 and $170,000 in 2016. Accrued rent,
payable in future years, amounted to $59,600 and $48,800 at June
30, 2017 and 2016, respectively.
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. The
Company is currently in negotiations for a lease extension. Total
rent expense for the Pittsburgh facility was $106,500 and $105,400
for the fiscal years ended June 30, 2017 and 2016,
respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
10.
Commitments and Contingencies (Continued)
In
addition, the Company maintains an office in Oradell, New Jersey
from which it performs its sales and marketing functions. The
Company is obligated under an operating lease for its facility in
Oradell, New Jersey, which requires monthly minimum rental payments
through June 2018, plus common area expenses. Total rent expense
for the New Jersey facilities, was $22,500 and $23,300 for the
years ended June 30, 2017 and 2016, respectively.
The
Company’s approximate future minimum rental payments under
all operating leases are as follows:
|
Fiscal Years
|
|
|
|
|
|
2018
|
$
220,000
|
|
2019
|
169,000
|
|
2020
|
174,000
|
|
2021
|
179,300
|
|
2022
|
184,600
|
|
Thereafter
|
477,700
|
|
|
|
|
|
$
1,404,600
|
The
Company has a three year employment contract with its President
effective July 1, 2017. The agreement provides for an annual base
salary of $175,000 for the fiscal year ending June 30, 2018 with
subsequent annual increases of 3% or percentage increase in
Consumer Price Index “CPI”, whichever is higher plus
$25,000 cash bonus for the fiscal year ending June 30, 2018 and
discretionary for subsequent years. The agreement also provides for
a grant of options to purchase 25,000 shares of the Company’s
stock during the year ending June 30, 2018. A bonus of $20,000 was
awarded to the President during the fiscal year ending June 30,
2017 and no bonus was awarded during the fiscal year ending June
30, 2016.
The
Company has a three year employment contract with its President of
the Genie Products Division and Corporate Secretary effective July
1, 2017. The agreement provides for an annual base salary of
$153,000 for the fiscal year ending June 30, 2018 with subsequent
annual increases of 3% or percentage increase in Consumer Price
Index “CPI”, whichever is higher, plus $10,000 cash
bonus for the fiscal year ending June 30, 2018 and discretionary
for subsequent years. The agreement also provides for a grant of
options to purchase 7,500 shares of the Company’s stock
during the year ending June 30, 2018. A bonus of $10,000 was
awarded to the Corporate Secretary during the fiscal year ending
June 30, 2017 and no bonus was awarded during the fiscal year
ending June 30, 2016.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
10.
Commitments and Contingencies (Continued)
The
Company has a three year employment contract with its Vice
President of Corporate Development and Strategy and Vice president
of Sales and Marketing of Altamira Instruments, Inc. effective July
1, 2017. The agreement provides for an annual base salary of
$155,000 for the fiscal year ending June 30, 2018 with subsequent
annual increases of 3% or percentage increase in Consumer Price
Index “CPI”, whichever is higher, plus $10,000 cash
bonus for the fiscal year ending June 30, 2018 and discretionary
for subsequent years. The agreement also provides for a grant of
options to purchase 7,500 shares of the Company’s stock
during the year ending June 30, 2018. A bonus of $10,000 was
awarded during the fiscal year ending June 30, 2017 and no bonuses
were awarded during the fiscal year ending June 30,
2016.
The
Company has a three year employment contract with its President of
Torbal Products Division and Director of Marketing effective July
1, 2017. The agreement provides for an annual base salary of
$157,000 for the fiscal year ending June 30, 2018 with subsequent
annual increases of 4% or percentage increase in Consumer Price
Index “CPI”, whichever is higher, plus $10,000 cash
bonus for the fiscal year ending June 30, 2018 and subsequent
years, subject to a minimum increase of 5% in the divisions’
EBITDA for the related year. The agreement also provides for a
grant of options to purchase 7,500 shares of the Company’s
stock during the year ending June 30, 2018. A bonus of $10,000 was
awarded during the fiscal year ending June 30, 2017 and no bonuses
were awarded during the fiscal year ending June 30,
2016.
The
Company has a consulting agreement which expires on December 31,
2017 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, 2017 and 2016.
The
Company has a consulting agreement which expires December 31, 2017
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
$5,200 and $5,800 for the fiscal years ended June 30, 2017 and
2016, respectively.
In
connection with a February 26, 2014 acquisition of a privately
owned company, The Company remained obligated to make its last
additional payment 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 were 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 $189,300 and $130,800 for the
years ended June 30, 2017 and 2016, respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
10.
Commitments and Contingencies (Continued)
The
fair value of contingent consideration estimated to be paid as of
June 30, 2017 is as follows:
|
Year ended June
30,
|
|
|
|
|
|
2018
|
$
175,700
|
|
2019
|
35,000
|
|
2020
|
30,000
|
|
2021
|
26,000
|
|
2022
|
14,000
|
|
Thereafter
|
16,300
|
|
|
|
|
|
$
297,000
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” income tax (benefit)
|
$
(51,400
)
|
(35.0
)%
|
$
76,600
|
35.0
%
|
|
Research and
development credits
|
(13,100
)
|
(8.9
)
|
(15,700
)
|
(7.2
)
|
|
Other,
net
|
(9,700
)
|
(6.6
)
|
(7,600
)
|
(3.5
)
|
|
|
|
|
|
|
Income tax expense
(benefit)
|
$
(74,200
)
|
(50.5
)%
|
$
53,300
|
24.3
%
|
Deferred tax assets
and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
Amortization of
intangible assets
|
$
390,000
|
$
287,000
|
|
Research and
development credits
|
3,400
|
-
|
|
Various
accruals
|
102,300
|
132,800
|
|
Other
|
55,000
|
48,900
|
|
|
|
|
|
|
550,700
|
468,700
|
|
Deferred tax
liability:
|
|
|
|
Depreciation of
property and amortization of goodwill
|
(45,600
)
|
(52,200
)
|
|
|
|
|
|
|
$
505,100
|
$
416,500
|
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
11.
Income Taxes (Continued)
The
breakdown between current and long-term deferred tax assets and
liabilities is as follows:
|
|
|
|
|
|
|
|
|
Current deferred
tax assets
|
$
129,000
|
$
140,600
|
|
|
|
|
|
Long-term deferred
tax assets
|
421,700
|
328,100
|
|
Long-term deferred
tax liabilities
|
(45,600
)
|
(52,200
)
|
|
|
|
|
|
Net long-term
deferred tax assets
|
376,100
|
275,900
|
|
|
|
|
|
|
$
505,100
|
$
416,500
|
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, 2017 and 2016, 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, 2014 and after. The Company does not
anticipate any material amount of unrecognized tax benefits within
the next 12 months.
Option
activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares under
option:
|
|
|
|
|
|
Outstanding,
beginning of year
|
43,500
|
$
3.33
|
38,500
|
$
3.33
|
|
Granted
|
6,000
|
2.91
|
5,000
|
3.05
|
|
Exercised
|
(5,000
)
|
3.10
|
-
|
|
|
Forfeited
|
(10,000
)
|
3.45
|
-
|
|
|
|
|
|
|
|
|
Outstanding, end of
year
|
34,500
|
3.25
|
43,500
|
3.33
|
|
|
|
|
|
|
|
Options exercisable
at year-end
|
23,833
|
$
3.52
|
32,200
|
$
3.43
|
|
|
|
|
|
|
|
Weighted average
fair value per share of options granted during the fiscal
year
|
|
$
1.76
|
|
$
1.89
|
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2017 AND 2016
12.
Stock Options (Continued)
|
|
As of June 30,
2017
Options
Outstanding
|
As of June 30,
2017
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
3.50
-$4.05
|
20,000
|
6.13
|
$
3.64
|
18,666
|
$
3.64
|
|
|
|
|
|
|
|
|
$
2.91
-$3.27
|
14,500
|
3.67
|
$
3.02
|
5,167
|
$
3.12
|
|
|
|
|
|
|
|
|
|
34,500
|
|
|
23,833
|
|
|
|
As of June 30,
2016
Options
Outstanding
|
As of June 30,
2016
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$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
|
|
13.
Earnings (Loss) Per Common Share
Earnings (loss) per
common share data was computed as follows:
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
(72,600
)
|
$
165,600
|
|
|
|
|
|
Weighted average
common shares outstanding
|
1,491,167
|
1,489,112
|
|
Effect of dilutive
securities
|
-
|
275
|
|
Weighted average
dilutive common shares outstanding
|
1,491,167
|
1,489,387
|
|
|
|
|
Basic earnings
(loss) per common share
|
$
(.05
)
|
$
.11
|
|
|
|
|
Diluted earnings
(loss) per common share
|
$
(.05
)
|
$
.11
|
Approximately
34,500 and 20,000 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, 2017 and 2016, respectively, because the effect
would be anti-dilutive.
EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT, dated as of July 1, 2017, is by and between
SCIENTIFIC INDUSTRIES, INC., a Delaware corporation with its
principal executive offices at 80 Orville Drive, Suite 102,
Bohemia, New York 11716 (the “Company”) and KARL
NOWOSIELSKI, an individual residing at 139 Pascack Road, Pearl
River, New York 10965 (“Employee”).
W I T N E S S E T H:
WHEREAS,
the Company desires to continue to employ Employee as a senior
executive of the Company, and Employee desires to continue to serve
in such capacity, all on the terms and conditions set forth
below.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Retention of Services; Term
.
The Company hereby retains the services of Employee, and Employee
agrees to furnish such services, upon the terms and conditions
hereinafter set forth. Subject to earlier termination on the terms
and conditions hereinafter provided, and further subject to certain
provisions hereof which survive the term of the employment of
Employee by the Company, the term of this Agreement shall be
comprised of a three year period of employment commencing on July
1, 2017 and ending on June 30, 2020 (the “Initial
Term”), and shall be extended thereafter for two additional
one-year periods (each an “Additional Term”, and
together with the Initial Term, the “Term”) unless or
until the Company or Employee provides no less than 90 days’
prior notice to the other party of the termination of this
Agreement at the end of the then-current Term.
2.
Duties and Extent of Services During
Period of Employment
.
During the Term, Employee shall: (a) remain employed by the Company
as (i) President of the Company’s Torbal Division and (ii)
Director of Marketing of the Company; (b) perform such duties and
services as are commensurate with Employee’s positions; (c)
devote Employee’s full business time and exclusive business
efforts to serving the Company; (d) perform all duties incident to
Employee’s position to the best of Employee’s ability
and in compliance with the policies and procedures of the Company,
applicable law and past practice with respect to Employee’s
responsibilities; and (e) perform all of Employee’s
responsibilities and duties hereunder in the Northeast United
States region, subject, however, to the reasonable travel
requirements of Employee’s position, which travel
requirements may include visits or occasional work at other offices
of the Company from time to time. Employee may work from home, from
time to time, with the prior consent of the Company’s Board
of Directors (the “Board”) or Chief Executive
Officer.
3.
Remuneration
. During the Term,
the Company shall pay to Employee as compensation for
Employee’s services hereunder:
(a)
a base salary equal
to $157,000 per annum for the period from the date hereof through
June 30, 2018, payable in a manner consistent with the
Company’s payroll practices, which amount shall increase
thereafter on first day of each fiscal year, commencing as of July
1, 2018, by the greater of (i) four percent (4%) per annum, or (ii)
the percentage increase, if any, in the Consumer Price Index for
all urban consumers as published by the U.S. Bureau of Labor
Statistics (“
CPI
”) at the end of the immediate
preceding year over the CPI as of the beginning of such year
(measured in each case from the nearest date on or prior to the
relevant anniversary date of the Term for which CPI data is
published);
(b)
an annual bonus of
(i) $10,000 for the fiscal year ending June 30, 2018, payable not
later than October 15, 2018, (ii) $10,000 for the fiscal year
ending June 30, 2019, subject to achievement of a minimum increase
of 5% in the Company’s Torbal division EBITDA over such
fiscal year, payable not later than October 15, 2019, (iii) $10,000
for the fiscal year ending June 30, 2020, subject to achievement of
a minimum increase of 5% in the Company’s Torbal division
EBITDA over such fiscal year, payable not later than October 15,
2020, and (iv) for each subsequent year such additional bonus or
bonuses as may be determined by the Board, or the compensation
committee thereof (the “Compensation Committee”), in
its sole discretion, in each case payable not later than the
97
th
day
of the next fiscal year; and
As soon
as reasonably practicable following the date of this Agreement, the
Company’s Stock Option Committee shall grant to Employee
non-qualified options (the “Stock Options”) to purchase
7,500 shares of common stock of the Company, par value $0.05 per
share (the “Common Stock”), exercisable at an exercise
price equal to the fair market value of the shares of Common Stock
of the Company on the date of grant, pursuant to the
Company’s 2012 Stock Option Plan, as amended (the
“Plan”). The Stock Options will (i) have a ten-year
term, including for the maximum period after any termination of
Employee’s employment by the Company permitted under the
Plan, and (ii) become exercisable one-third on each of the first,
second and third anniversaries of the date of grant; provided,
however, such vesting shall be accelerated by 12 months upon the
occurrence of a Change in Control of the Company (as defined
below), and shall contain a cashless exercise provision. For
purposes of this Agreement, a “Change in Control” of
the Company shall be deemed to have taken place (A) if as the
result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company within
twelve months before such transaction shall cease to constitute a
majority of the Board of the Company of any successor entity; (B)
the consummation of a merger or consolidation of the Company, with
or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the contributing or
surviving entity’s issued shares or securities outstanding
immediately after such merger, consolidation or other
reorganization is owned beneficially by persons other than the
shareholders who owned beneficially more than 50% of the combined
voting power of the Company’s securities immediately prior to
such merger, consolidation or other reorganization; (C) the sale,
transfer of other disposition of all or substantially all of the
Company’s assets.
4.
Employee Benefits;
Expenses
.
(a)
During the Term,
the Company shall provide to Employee the right to participate in
the Company’s then existing medical and dental insurance and
all other employee benefit plans and policies on the same terms as
are then generally available to the Company’s senior
executive employees, and not less than as currently provided to
Employee, including without limitation, medical insurance,
disability insurance, life insurance, holiday and sick pay, and the
right to participate in and receive matching contributions pursuant
to the Company’s plan under Section 401(k) of the Internal
Revenue Code.
(b)
Employee shall be
entitled to paid vacation each fiscal year during the Term at the
rate of twenty days per annum. Vacation shall be taken each year
and, if not taken, up to two weeks of unused vacation days shall be
carried over per year, for up to a maximum aggregate of 35 days
carried over. In the event that Employee’s employment by the
Company is terminated for any reason whatsoever, the Company shall
pay to Employee an amount equal to the number of unused vacation
days, including carried over vacation days, times Employee’s
then-current daily rate of salary pursuant to Section 3(a) above,
upon such termination. Employee shall also be entitled to six (6)
personal days per fiscal year during the Term. In the event that
Employee does not use all such personal days, the Company shall pay
to Employee for up to 3 days of unused personal days’ times
Employee’s then-current daily rate of salary pursuant to
Section 3(a) above.
(c)
The Company shall
reimburse Employee, in accordance with the practice followed from
time to time for other executive officers of the Company, for a
cellular telephone, a laptop computer, including all expenses
relating to operating a laptop computer and wireless connections
and suitable software thereon, and all reasonable and necessary
business and traveling expenses and other disbursements incurred by
Employee for or on behalf of the Company in the performance of
Employee’s duties hereunder, upon presentation by Employee to
the Company of appropriate documentation of such.
5.
Disability
. This
Agreement may be terminated at the option of the Company if, as a
result of any physical or mental disability, Employee is unable to
perform substantially all of Employee’s major duties
hereunder for a continuous period of four months or at least 90
days in any consecutive period of 180 days. Employee shall continue
to receive Employee’s full salary plus bonus payments payable
to Employee under Section 3 hereof regardless of any illness or
incapacity, unless and until this Agreement is terminated. If
Employee’s employment is terminated pursuant to this Section
5, Employee (or Employee’s personal representative, in the
case of Employee’s death) shall be entitled to receive
Employee’s full salary through the effective date of
termination.
6.
Confidential
Information; Proprietary Rights
.
(a)
In the course of Employee's employment by the Company, Employee
will have access to and possession of valuable and important
confidential or proprietary data or information of the Company.
Employee will not, during Employee's employment by the Company or
at any time thereafter, divulge or communicate to any person, nor
shall Employee direct any other employee, representative or agent
of the Company to divulge or communicate to any person or entity
(other than to a person or entity bound by confidentiality
obligations similar to those contained herein and other than as
necessary in performing Employee’s duties hereunder) or use
to the detriment of the Company, or for the benefit of any other
person or entity, including, without limitation, any competitor,
supplier, licensor, licensee or customer of the Company, any of
such confidential or proprietary data or information or make or
remove any copies thereof, whether or not marked or otherwise
identified as “confidential” or “secret.”
Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company
to a strict need-to-know basis and shall comply with any and all
security systems and measures adopted from time to time by the
Company to protect the confidentiality of confidential or
proprietary data or information.
(b)
The term "confidential or proprietary data or information" as used
in this Agreement shall mean information not generally available to
the public, including, without limitation,
any patent, patent application, license,
sublicense, copyright, trademark, trade name, service mark, service
name, "know-how", trade secrets, customer lists, vendor lists,
customer pricing or terms, details of client or consultant
contracts, pricing policies, cost information, operational methods,
marketing plans or strategies, product development techniques or
plans, business acquisition plans or any portion or phase of any
business, scientific or technical information, ideas, discoveries,
designs, computer programs (including source or object codes),
processes, procedures, formulae, improvements, information relating
to the products currently being sold, developed or contemplated, by
the Company, or which hereinafter may be sold, developed or
contemplated, by the Company through the date of termination of
this Agreement, including, but not limited to, the proprietary or
intellectual property of the Company, whether or not in written or
tangible form, and whether or not registered, and including all
memoranda, notes, summaries, plans, reports, records, documents and
other evidence thereof
. Notwithstanding the foregoing, data
or information shall not constitute "confidential or proprietary
data or information" hereunder if it:
(i)
is or becomes part
of the public domain other than due to the breach of this Agreement
by Employee
;
(ii)
is already known to
the Employee on a non-confidential basis at the time of disclosure
by the Company;
(iii)
becomes
known to the Employee from a source other than the Company,
provided that such source has not entered into a confidentiality
agreement with the Company with respect to such information or
obtained the information from an entity or person who is a party to
a confidentiality agreement with the Company, and without a breach
of this Agreement or without a breach of duty owed by any other
person or entity to the Company;
(iv)
is proven by
competent evidence by the Employee that it was independently
conceived or discovered by the Employee without reference to or use
of the Company’s confidential or proprietary information;
or
(v)
is required by law
to be disclosed by Employee.
(c)
Employee will at all times promptly disclose to the Company in such
form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological
innovations, including, without limitation, those relating to
programs, methods, forms, systems, services, designs, marketing
ideas, products or processes (whether or not capable of being
trademarked, copyrighted or patented) conceived or developed or
created by Employee during or in connection with Employee’s
employment with the Company and which relate to the business of the
Company (the "Intellectual Property"). Employee agrees that all
such Intellectual Property shall be the sole property of the
Company. Employee hereby assigns all of Employee’s right,
title and interest to the Intellectual Property to the Company.
Employee further agrees that Employee will execute such instruments
and perform such acts as may reasonably be requested by the Company
to transfer to and perfect in the Company all legally protectable
rights in such Intellectual Property. To the extent any moral
rights or other Intellectual Property rights are not legally
transferable to the Company, Employee hereby waives and agrees to
never assert any such rights against the Company or any of its
affiliates, even after termination of employment with the
Company.
(d)
All written materials, books, records and documents made by
Employee or coming into Employee’s possession during
Employee’s employment by the Company concerning any products,
processes or systems used, developed, investigated, purchased, sold
or considered by the Company or otherwise concerning the business
or affairs of the Company, including, without limitation, any
files, customer records such as names, telephone numbers, addresses
and e-mail addresses, lists, firm records, brochures and
literature, shall be the sole property of the Company, shall not be
removed from the Company’s premises or transmitted to third
parties by Employee, and upon termination of Employee’s
employment by the Company, or upon request of the Company during
Employee’s employment by the Company, Employee shall promptly
deliver the same to the Company. In addition, upon termination of
Employee’s employment by the Company, Employee will deliver
to the Company all other Company property in Employee’s
possession or under Employee’s control, including, but not
limited to, financial statements, marketing and sales data,
customer and supplier lists and information, account lists and
other account information, database information, plans, designs and
other documents, and Employee shall not retain any electronically
stored versions of the same.
(e)
During the term of this Agreement, Employee shall comply in all
respects with all applicable federal and state securities laws,
including without limitation with respect to insider trading, and
all policies and codes of conduct or ethics of the Company and its
affiliates with respect thereto.
7.
Non-Competition; Non-Interference;
Non-Solicitation
.
(a)
During the Term and for a period of twelve months thereafter (the
"Restricted Period"), Employee shall not, without the written
consent of the Company, directly or indirectly, (i) become
associated with, render services to, invest in, represent, advise
or otherwise participate in as an officer, employee, director,
stockholder, partner, member, promoter, agent of, consultant for or
otherwise, any business, wherever conducted, which is directly
competitive with the business conducted by the Company; or (ii) for
Employee’s own account or for the account of any other person
or entity (A) interfere with the Company’s relationship with
any of its suppliers, customers, accounts, brokers, representatives
or agents or (B) solicit or transact any business with any
customer, account or supplier of the Company who or which transacts
or has transacted business with the Company at any time during the
Term; or (iii) employ or otherwise engage, or solicit, entice or
induce on behalf of Employee or any other person or entity, the
services, retention or employment of any person who has been an
employee, principal, partner, stockholder, sales representative,
trainee, consultant to or agent of the Company within one year of
the date of such offer or solicitation. Notwithstanding any
provisions in this Section 7, (1) this Section 7 shall not prohibit
Employee from purchasing or owning up to five percent (5%) of the
outstanding capital stock of a company which is listed or
authorized for trading on any national securities exchange, Nasdaq
or the over-the-counter markets or has a class of securities
registered under Section 12 of the Securities Act of 1934, as
amended and (2) to the extent not inconsistent with
Employee’s obligations under this Agreement, Employee may
engage in charitable or civic activities and make passive
investments in businesses which are not competitive with the
business of the Company.
(b)
If any one or more of the restrictions contained in this Section 7
shall for any reason be held to be unreasonable with regard to
time, duration, geographic scope or activity, the parties
contemplate and hereby agree that such restriction shall be
modified and shall be enforced to the full extent compatible with
applicable law. The parties hereto intend that the covenants
contained in this Section 7 shall be deemed a series of separate
covenants for each country, state, county and city. If, in any
judicial proceeding, a court shall refuse to enforce all the
separate covenants deemed included in this Section 7 because, taken
together, they cover too extensive a geographic area, the parties
intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are least populous)
which if eliminated would permit the remaining separate covenants
to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of this
Section 7.
8.
Remedies
.
Employee acknowledges that the covenants contained in Sections 6
and 7 are fair and reasonable in order to protect the
Company’s business and were a material and necessary
inducement for the Company to agree to the terms of this Agreement
and to the employment of Employee by the Company. Employee further
acknowledges that any remedy at law for any breach or threatened or
attempted breach of the covenants contained in Sections 6 and 7 may
be inadequate and that the violation of any of the covenants
contained in Sections 6 and 7 will cause irreparable and continuing
damage to the Company. Accordingly, the Company shall be entitled
to specific performance or any other mode of injunctive and/or
other equitable relief to enforce its rights hereunder, including,
without limitation, an order restraining any further violation of
such covenants, or any other relief a court might award, without
the necessity of showing any actual damage or irreparable harm or
the posting of any bond or furnishing of other security, and that
such injunctive relief shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. The
covenants in Sections 6 and 7 shall run in favor of the Company and
its affiliates, successors and assigns. The provisions of Sections
6 and 7 and this Section 8 shall survive the termination of this
Agreement.
9.
Termination
.
(a)
The Company may terminate Employee’s services
hereunder "for cause" by delivering to Employee not less than ten
(10) days prior to the date on which the termination is to be
effective, a written notice of termination for cause specifying the
act, acts or failure to act that constitute the cause. For the
purposes of this Agreement, “for cause” shall mean: (i)
any act of material fraud or embezzlement; (ii) commission by
Employee of any felony or entry of a plea of nolo contendere to a
felony charge; (iii) commission by Employee of a crime involving
moral turpitude or any knowing violation of any federal or state
banking or securities law, (iii) any repeated refusal by Employee
to perform Employee’s duties consistent with the terms of
this Agreement after reasonable notice and opportunity to cure,
(iv) any material breach by Employee of this Agreement, if such
material breach, if capable of cure, is not cured within twenty
(20) days after written notice thereof, (v) the gross negligence or
gross misconduct (including conflict of interest in carrying out
Employee's duties under this Agreement), or (vi) the death of
Employee..
(b)
If (i) the Company terminates Employee’s employment hereunder
"for cause" as set forth in Section 9(a) hereof or (ii) Employee
voluntarily terminates Employee’s employment by the Company
other than for “Good Reason” (as defined below), the
Company shall pay to Employee any unpaid compensation payable
pursuant to Section 3 hereof, which payment (y) shall include all
compensation earned up until and including the date on which the
termination is effective, and (z) shall be made within 30 days
after the termination date, and no other compensation shall be
payable to Employee.
(c)
If the Company terminates Employee’s employment hereunder for
any reason other than "for cause" as set forth in Section 9(a)
hereof, or Employee terminates Employee’s employment
hereunder for “Good Reason” (as defined below), the
Company shall pay to Employee compensation payable pursuant to
Section 3 and Section 4 hereof, as specified herein, for one
calendar year from the date of termination (the “Severance
Payments”), including any accrued but unused vacation and
sick time, and provide the Employee with health insurance benefits
at the cost of the Company for one year after date of termination .
Employee and the Company acknowledge that the foregoing provisions
of this Section 9(c) are reasonable and are based upon the facts
and circumstances of the parties at the time of entering into this
Agreement, and with due regard to future expectations.
(d)
Resignation
for Good Reason
. Employee may terminate Employee's
employment hereunder for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean (i) a substantial diminution or
change of the duties of the Employee which is materially
inconsistent with Employee's duties and services provided for in
Section 2 hereof, (ii) a material breach by the Company of this
Agreement after notice and such breach has not been cured within
twenty days after receipt of such notice, or (iii) any purported
termination by the Company of Employee's employment otherwise than
expressly permitted by this Agreement.
10.
Indemnification;
Insurance
.
(a)
The Company agrees to indemnify Employee and hold Employee
harmless against any and all losses, claims, damages, liabilities
and costs (and all actions in respect thereof and any legal or
other expenses in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without
limitation, the reasonable costs of investigating, preparing or
defending any such action or claim, whether or not in connection
with litigation in which Employee is a party, as and when incurred,
directly or indirectly caused by, relating to, based upon or
arising out of any work performed by Employee in connection with
this Agreement to the full extent permitted by the Delaware General
Corporation Law and by the Certificate of Incorporation and Bylaws
of the Company, as may be amended from time to time.
(b) The
indemnification provision of this Section 10 shall be in addition
to any liability which the Company may otherwise have to
Employee.
(c) If
any action, proceeding or investigation is commenced as to which
Employee proposes to demand such indemnification, Employee shall
notify the Company with reasonable promptness. The Company shall
have the right to retain counsel of its own choice to represent
Employee, subject to Employee’s reasonable consent, and the
Company shall pay all reasonable fees and expenses of such counsel;
and such counsel shall, to the fullest extent consistent with such
counsel’s professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any settlement of any claim against Employee
made with the Company’s written consent, to the fullest
extent permitted by the Delaware General Corporation Law and any
other applicable law, the Certificate of Incorporation and Bylaws
of the Corporation, as may be amended from time to time. No such
settlement of any claim shall be made by Employee without the
written consent of the Company.
(d) Further,
the Company agrees to include Employee
in the coverage of any directors' and officers' liability it
provides on behalf of its directors or senior executive officers
and, if Employee is a fiduciary under a Company plan, coverage
under the applicable fiduciary liability insurance
policy.
11.
Taxes and Compliance with Section
409A
.
(a)
This Agreement is intended to comply with Section 409A of the
Internal Revenue Code (the “Code”) (as amplified by any
regulations promulgated thereunder (the “
Treasury Regulations
”) or other
Internal Revenue Service or U.S. Treasury Department guidance), and
shall be construed and interpreted in accordance with such intent.
If either the Company or Employee reasonably determine that the
Agreement does not meet the requirements of Code Section 409A and
that the Agreement may be amended or modified to meet the
requirements of Code Section 409A, the Agreement shall be amended
or modified in order to meet the requirements of Code Section 409A;
provided,
that any
such amendment or modification shall be subject to the mutual
agreement of Employee and the Company. Moreover, if, upon
Employee’s separation from service, Employee is then a
“specified employee” (as defined in Section 409A of the
Code), then only to the extent necessary to comply with Code
Section 409A and avoid imposition of taxes under Code Section 409A,
the Company will defer payment of certain of the amounts owed to
Employee under this Agreement until the earlier of Employee’s
death or the first business day of the seventh month following
Employee’s separation from service.
(b) Any
right to a series of installment payments pursuant to this
Agreement is to be treated as a right to a series of separate
payments. To the extent permitted under Section 409A of the Code,
any separate payment or benefit under this Agreement or otherwise
shall not be deemed “nonqualified deferred
compensation” subject to Section 409A of the Code to the
extent provided in the exceptions in Treasury Regulation Section
1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable
exception or provision of Section 409A of the Code.
(c) To
the extent that any payments or reimbursements provided to Employee
under this Agreement are deemed to constitute compensation to
Employee to which Treasury Regulation Section 1.409A-3(i)(1)(iv)
would apply, such amounts shall be paid or reimbursed reasonably
promptly, but not later than 75th day following the fiscal year in
which the expense was incurred. The amount of any such payments
eligible for reimbursement in one year shall not affect the
payments or expenses that are eligible for payment or reimbursement
in any other taxable year, and Employee’s right to such
payments or reimbursement of any such expenses shall not be subject
to liquidation or exchange for any other benefit. No offset by the
Company shall be permitted against amounts that constitute deferred
compensation subject to Code Section 409A.
12
Notices
.
All notices, claims or other communications to be given or
delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, when sent by email,
facsimile or other electronic transmission, the receipt of which is
electronically confirmed, or one (1) day after being sent to the
recipient by reputable overnight courier service (charges prepaid).
Such notices, claims and other communications shall be sent to the
addresses indicated below or to such other address or to the
attention of such other Person as the recipient party has specified
by prior written notice to the sending party. All notices, claims
and other communications hereunder may be given by any other means,
but shall not be deemed to have been duly given unless and until it
is actually received by the intended recipient:
|
If to
the Employee, to:
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Karl
Nowosielski
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139
Pascack Road
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Pearl
River, NY 10965
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Telephone:
201-925-7173
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|
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Email:
karlnowos@gmail.com
|
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With a
copy to:
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Kaufman
& Associates, LLC
|
|
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200
Motor Parkway, Suite B-13
|
|
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Hauppauge,
New York 11788
|
|
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Attention:
Neil M. Kaufman
|
|
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Telephone:
(631) 972-0042
|
|
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Facsimile:
(631) 410-1007
|
|
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Email:
nkaufman@kaufman-associates.com
|
|
If to
the Company, to:
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Scientific
Industries, Inc.
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|
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80
Orville Drive, Suite 102
|
|
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Bohemia,
New York 11716
|
|
|
Attention:
Chairman of Compensation Committee
|
|
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Telephone:
(631) 567-4700
|
|
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Facsimile:
(631) 567-5896
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|
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Email:
gmorin@altamirainstruments.com
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13.
Successors
and Assigns; Third Party Beneficiaries
. This Agreement shall
be binding upon and inure to the benefit of the successors and
assigns of the Company, and unless clearly inapplicable, all
references herein to the Company shall be deemed to include any
such successor. In addition, this Agreement shall be binding upon
and inure to the benefit of Employee and Employee’s heirs,
executors, legal representatives and assigns; provided, however,
that the obligations of Employee hereunder may not be delegated
without the prior written approval of the Company. In the event of
any consolidation or merger of the Company into or with any other
corporation during the term of this Agreement, or the sale of all
or substantially all of the assets of the Company to another
corporation, person or entity during the term of this Agreement,
such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof
applicable to the Company, and Employee's obligations hereunder
shall continue in favor of such successor corporation.
14.
Acknowledgment
.
Employee acknowledges that Employee has carefully read this
Agreement, has had an opportunity to consult counsel regarding this
Agreement and hereby represents and warrants to the Company that
Employee’s entering into this Agreement, and the obligations
and duties undertaken by Employee hereunder, will not conflict
with, constitute a breach of or otherwise violate the terms of any
other agreement to which Employee is a party and that Employee is
not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform Employee’s
obligations under this Agreement.
15.
Waiver of Jury
Trial
.
EACH
PARTY TO THIS AGREEMENT HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY RELATED
DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
16.
Enforcement
. It is
the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a
restriction contained in this Agreement is more restrictive than
permitted by the laws of any jurisdiction where this Agreement may
be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such
restriction in such jurisdiction, shall be the maximum restriction
allowed by the laws of such jurisdiction and such restriction shall
be deemed to have been revised accordingly herein. If any provision
of this Agreement shall be held by a court of competent
jurisdiction to be contrary to law or public policy, the remaining
provisions shall remain in full force and effect.
17.
Miscellaneous
.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard
to conflicts of laws. The parties hereto hereby irrevocably submit
to the exclusive jurisdiction of any New York State or Federal
court sitting in Suffolk County, New York over any suit, action or
proceeding arising out of or relating to this Agreement. This
Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes any other agreements
entered into between Employee and the Company prior to the date of
this Agreement relating thereto. This Agreement may not be altered,
modified, amended or terminated except by a written instrument
signed by each of the parties hereto. No term or provision hereof
shall be deemed waived and no breach consented to or excused,
unless such waiver, consent or excuse shall be in writing and
signed by the party claimed to have waived, consented or excused. A
consent, waiver or excuse of any breach shall not constitute a
consent to, waiver or, or excuse of any other or subsequent breach
whether or not of the same kind of the original breach. This
Agreement may be executed and delivered by facsimile signature and
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument. Counterparts may be delivered via facsimile,
electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000,
e.g.
, www.docusign.com) or other
transmission method and any counterpart so delivered shall be
deemed to have been duly and validly delivered and be valid and
effective for all purposes. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect
the meaning hereof.
[SIGNATURE PAGE TO
FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of and year first above written.
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Scientific Industries, Inc.
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By:
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/s/ Helena R. Santos
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Name: Helena R. Santos
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Title: President
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/s/ Karl Nowosielski
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Karl Nowosielski
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of July 1, 2017, is by and
between SCIENTIFIC INDUSTRIES, INC., a Delaware corporation with
its principal executive offices at 80 Orville Drive, Suite 102,
Bohemia, New York 11716 (the “Company”) and HELENA R.
SANTOS, an individual residing at 16 Gerta Court, Selden, New York
11784 (“Employee”).
W I T N E S S E T H:
WHEREAS,
the Company desires to continue to employ Employee as a senior
executive of the Company, and Employee desires to continue to serve
in such capacity, all on the terms and conditions set forth
below.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Retention of Services; Term
.
The Company hereby retains the services of Employee, and Employee
agrees to furnish such services, upon the terms and conditions
hereinafter set forth. Subject to earlier termination on the terms
and conditions hereinafter provided, and further subject to certain
provisions hereof which survive the term of the employment of
Employee by the Company, the term of this Agreement shall be
comprised of a three year period of employment commencing on July
1, 2017 and ending on June 30, 2020 (the “Initial
Term”), and shall be extended thereafter for two additional
one-year periods (each an “Additional Term”, and
together with the Initial Term, the “Term”) unless or
until the Company or Employee provides no less than 90 days’
prior notice to the other party of the termination of this
Agreement at the end of the then-current Term.
2.
Duties and Extent of Services During
Period of Employment
.
During the Term, Employee shall: (a) remain employed by the Company
as President, Chief Executive Officer and Chief Financial Officer
of the Company; (b) perform such duties and services as are
commensurate with Employee’s positions; (c) devote
Employee’s full business time and exclusive business efforts
to serving the Company; (d) perform all duties incident to
Employee’s position to the best of Employee’s ability
and in compliance with the policies and procedures of the Company,
applicable law and past practice with respect to Employee’s
responsibilities; and (e) perform all of Employee’s
responsibilities and duties hereunder in Western or Central Suffolk
County, Long Island, New York, subject, however, to the reasonable
travel requirements of Employee’s position, which travel
requirements may include visits or occasional work at other offices
of the Company from time to time.
3.
Remuneration
. During the Term,
the Company shall pay to Employee as compensation for
Employee’s services hereunder:
(a)
a base salary equal
to $175,000 per annum for the period from the date hereof through
June 30, 2018, payable in a manner consistent with the
Company’s payroll practices, which amount shall increase
thereafter on first day of each fiscal year, commencing as of July
1, 2018, by the greater of (i) three percent (3%) per annum, or
(ii) the percentage increase, if any, in the Consumer Price Index
for all urban consumers as published by the U.S. Bureau of Labor
Statistics (“
CPI
”) at the end of the immediate
preceding year over the CPI as of the beginning of such year
(measured in each case from the nearest date on or prior to the
relevant anniversary date of the Term for which CPI data is
published);
(b)
an annual bonus of
$25,000 for the fiscal year ending June 30, 2018, if Employee is
employed by the Company as of such date, and, for each subsequent
fiscal year, such bonus or bonuses as may be determined by the
Board of Directors of the Company (the “Board”), or the
compensation committee thereof (the “Compensation
Committee”), in its sole discretion, in each case payable not
later than the 97
th
day of the next
fiscal year; and
(c)
As soon as
reasonably practicable following the date of this Agreement, the
Company shall grant to Employee non-qualified options (the
“Stock Options”) to purchase up to 25,000 shares of
common stock of the Company, par value $.05 per share (the
“Common Stock”), exercisable at an exercise price equal
to the fair market value of the shares of Common Stock on the date
of grant, pursuant to the Company’s 2012 Stock Option Plan,
as amended (the “Plan”). The Stock Options will (i)
have a ten-year term, including for the maximum period after any
termination of Employee’s employment by the Company permitted
under the Plan, and (ii) become exercisable one-third on each of
the first, second and third anniversaries of the date of grant;
provided, however, such vesting shall be accelerated by 12 months
upon the occurrence of a Change in Control (as defined below) and
shall contain a cashless exercise provision.
4.
Employee Benefits;
Expenses
.
(a)
During the Term,
the Company shall provide to Employee the right to participate in
the Company’s then existing medical and dental insurance and
all other employee benefit plans and policies on the same terms as
are then generally available to the Company’s senior
executive employees, and not less than as currently provided to
Employee, including without limitation, medical insurance,
disability insurance, life insurance, holiday and sick pay, and the
right to participate in and receive matching contributions pursuant
to the Company’s plan under Section 401(k) of the Internal
Revenue Code.
(b)
Employee shall be
entitled to paid vacation each calendar year during the term of
this Agreement at the rate of twenty (20) days per annum. Vacation
shall be taken each year and, if not taken, up to two weeks of
unused vacation days shall be carried over for up to a maximum
aggregate of 35 days carried over. In the event that
Employee’s employment by the Company is terminated for any
reason whatsoever, the Company shall pay to Employee an amount
equal to the number of carried over vacation days’ times
Employee’s then-current daily rate of salary pursuant to
Section 3(a) above, upon such termination. Employee shall also be
entitled to six (6) personal days per fiscal year during the Term.
In the event that Employee does not use all such personal days, the
Company shall pay to Employee for up to three of unused days’
times Employee’s then-current daily rate of salary pursuant
to Section 3(a) above.
(c)
The Company shall
reimburse Employee, in accordance with the practice followed from
time to time for other executive officers of the Company, for a
cellular telephone, a laptop computer, including all expenses
relating to operating a laptop computer and wireless connections
and suitable software thereon, and all reasonable and necessary
business and traveling expenses and other disbursements incurred by
Employee for or on behalf of the Company in the performance of
Employee’s duties hereunder, upon presentation by Employee to
the Company of an appropriate documentation of such.
5.
Disability
.
This Agreement may be terminated at the option of the Company if,
as a result of any physical or mental disability, Employee is
unable to perform substantially all of Employee’s major
duties hereunder for a continuous period of four months or at least
90 days in any consecutive period of 180 days. Employee shall
continue to receive Employee’s full salary plus bonus
payments payable to Employee under Section 3 hereof regardless of
any illness or incapacity, unless and until this Agreement is
terminated. If Employee’s employment is terminated pursuant
to this Section 5, Employee (or Employee’s personal
representative, in the case of Employee’s death) shall be
entitled to receive Employee’s full salary through the
effective date of termination.
6.
Confidential Information; Proprietary
Rights
.
(a) In
the course of Employee's employment by the Company, Employee will
have access to and possession of valuable and important
confidential or proprietary data or information of the Company.
Employee will not, during Employee's employment by the Company or
at any time thereafter, divulge or communicate to any person, nor
shall Employee direct any other employee, representative or agent
of the Company to divulge or communicate to any person or entity
(other than to a person or entity bound by confidentiality
obligations similar to those contained herein and other than as
necessary in performing Employee’s duties hereunder) or use
to the detriment of the Company, or for the benefit of any other
person or entity, including, without limitation, any competitor,
supplier, licensor, licensee or customer of the Company, any of
such confidential or proprietary data or information or make or
remove any copies thereof, whether or not marked or otherwise
identified as “confidential” or “secret.”
Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company
to a strict need-to-know basis and shall comply with any and all
security systems and measures adopted from time to time by the
Company to protect the confidentiality of confidential or
proprietary data or information.
(b) The
term "confidential or proprietary data or information" as used in
this Agreement shall mean information not generally available to
the public, including, without limitation,
any patent, patent application, license,
sublicense, copyright, trademark, trade name, service mark, service
name, "know-how", trade secrets, customer lists, vendor lists,
customer pricing or terms, details of client or consultant
contracts, pricing policies, cost information, operational methods,
marketing plans or strategies, product development techniques or
plans, business acquisition plans or any portion or phase of any
business, scientific or technical information, ideas, discoveries,
designs, computer programs (including source or object codes),
processes, procedures, formulae, improvements, information relating
to the products currently being sold, developed or contemplated, by
the Company, or which hereinafter may be sold, developed or
contemplated, by the Company through the date of termination of
this Agreement, including, but not limited to, the proprietary or
intellectual property of the Company, whether or not in written or
tangible form, and whether or not registered, and including all
memoranda, notes, summaries, plans, reports, records, documents and
other evidence thereof
. Notwithstanding the foregoing, data
or information shall not constitute "confidential or proprietary
data or information" hereunder if it:
(i)
is or becomes part
of the public domain other than due to the breach of this Agreement
by Employee
;
(ii)
is
already known to Employee on a non-confidential basis at the time
of disclosure by the Company;
(iii)
becomes
known to Employee from a source other than the Company, provided
that such source has not entered into a confidentiality agreement
with the Company with respect to such information or obtained the
information from an entity or person who is a party to a
confidentiality agreement with the Company, and without a breach of
this Agreement or without a breach of duty owed by any other person
or entity to the Company;
(iv)
is
proven by competent evidence by Employee that it was independently
conceived or discovered by Employee without reference to or use of
the Company’s confidential or proprietary information;
or
(v)
is required by law
to be disclosed by Employee.
(c) Employee
will at all times promptly disclose to the Company in such form and
manner as the Company may reasonably require, any inventions,
improvements or procedural or methodological innovations,
including, without limitation, those relating to programs, methods,
forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted
or patented) conceived or developed or created by Employee during
or in connection with Employee’s employment with the Company
and which relate to the business of the Company (the "Intellectual
Property"). Employee agrees that all such Intellectual Property
shall be the sole property of the Company. Employee hereby assigns
all of Employee’s right, title and interest to the
Intellectual Property to the Company. Employee further agrees that
Employee will execute such instruments and perform such acts as may
reasonably be requested by the Company to transfer to and perfect
in the Company all legally protectable rights in such Intellectual
Property. To the extent any moral rights or other Intellectual
Property rights are not legally transferable to the Company,
Employee hereby waives and agrees to never assert any such rights
against the Company or any of its affiliates, even after
termination of employment with the Company.
(d) All
written materials, books, records and documents made by Employee or
coming into Employee’s possession during Employee’s
employment by the Company concerning any products, processes or
systems used, developed, investigated, purchased, sold or
considered by the Company or otherwise concerning the business or
affairs of the Company, including, without limitation, any files,
customer records such as names, telephone numbers, addresses and
e-mail addresses, lists, firm records, brochures and literature,
shall be the sole property of the Company, shall not be removed
from the Company’s premises or transmitted to third parties
by Employee, and upon termination of Employee’s employment by
the Company, or upon request of the Company during Employee’s
employment by the Company, Employee shall promptly deliver the same
to the Company. In addition, upon termination of Employee’s
employment by the Company, Employee will deliver to the Company all
other Company property in Employee’s possession or under
Employee’s control, including, but not limited to, financial
statements, marketing and sales data, customer and supplier lists
and information, account lists and other account information,
database information, plans, designs and other documents, and
Employee shall not retain any electronically stored versions of the
same.
(e)
During the term of this Agreement, Employee shall comply in all
respects with all applicable federal and state securities laws,
including without limitation with respect to insider trading, and
all policies and codes of conduct or ethics of the Company and its
affiliates with respect thereto.
7.
Non-Competition; Non-Interference;
Non-Solicitation
.
(a)
During the Term and for a period of twelve months thereafter (the
"Restricted Period"), Employee shall not, without the written
consent of the Company, directly or indirectly, become associated
with, render services to, invest in, represent, advise or otherwise
participate in as an officer, employee, director, stockholder,
partner, member, promoter, agent of, consultant for or otherwise,
any business, wherever conducted, which is directly competitive
with the business conducted by the Company; or (ii) for
Employee’s own account or for the account of any other person
or entity (A) interfere with the Company’s relationship with
any of its suppliers, customers, accounts, brokers, representatives
or agents or (B) solicit or transact any business with any
customer, account or supplier of the Company who or which transacts
or has transacted business with the Company at any time during the
Term; or (iii) employ or otherwise engage, or solicit, entice or
induce on behalf of Employee or any other person or entity, the
services, retention or employment of any person who has been an
employee, principal, partner, stockholder, sales representative,
trainee, consultant to or agent of the Company within one year of
the date of such offer or solicitation. Notwithstanding any
provisions in this Section 7, (1) this Section 7 shall not prohibit
Employee from purchasing or owning up to five percent (5%) of the
outstanding capital stock of a company which is listed or
authorized for trading on any national securities exchange, Nasdaq
or the over-the-counter markets or has a class of securities
registered under Section 12 of the Securities Act of 1934, as
amended and (2) to the extent not inconsistent with
Employee’s obligations under this Agreement, Employee may
engage in charitable or civic activities and make passive
investments in businesses which are not competitive with the
business of the Company.
(b) If
any one or more of the restrictions contained in this Section 7
shall for any reason be held to be unreasonable with regard to
time, duration, geographic scope or activity, the parties
contemplate and hereby agree that such restriction shall be
modified and shall be enforced to the full extent compatible with
applicable law. The parties hereto intend that the covenants
contained in this Section 7 shall be deemed a series of separate
covenants for each country, state, county and city. If, in any
judicial proceeding, a court shall refuse to enforce all the
separate covenants deemed included in this Section 7 because, taken
together, they cover too extensive a geographic area, the parties
intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are least populous)
which if eliminated would permit the remaining separate covenants
to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of this
Section 7.
8.
Remedies
.
Employee acknowledges that the covenants contained in Sections 6
and 7 are fair and reasonable in order to protect the
Company’s business and were a material and necessary
inducement for the Company to agree to the terms of this Agreement
and to the employment of Employee by the Company. Employee further
acknowledges that any remedy at law for any breach or threatened or
attempted breach of the covenants contained in Sections 6 and 7 may
be inadequate and that the violation of any of the covenants
contained in Sections 6 and 7 will cause irreparable and continuing
damage to the Company. Accordingly, the Company shall be entitled
to specific performance or any other mode of injunctive and/or
other equitable relief to enforce its rights hereunder, including,
without limitation, an order restraining any further violation of
such covenants, or any other relief a court might award, without
the necessity of showing any actual damage or irreparable harm or
the posting of any bond or furnishing of other security, and that
such injunctive relief shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. The
covenants in Sections 6 and 7 shall run in favor of the Company and
its affiliates, successors and assigns. The provisions of Sections
6 and 7 and this Section 8 shall survive the termination of this
Agreement.
(a) The
Company may terminate Employee’s services hereunder "for
cause" by delivering to Employee not less than ten (10) days prior
to the date on which the termination is to be effective, a written
notice of termination for cause specifying the act, acts or failure
to act that constitute the cause. For the purposes of this
Agreement, “for cause” shall mean: (i) any act of
material fraud or embezzlement, (ii) commission by Employee of any
felony or entry of a plea of nolo contendere to a felony charge;
(iii) commission by Employee of a crime involving moral turpitude
or any knowing violation of any federal or state banking or
securities law, (iii) any repeated refusal by Employee to perform
Employee’s duties consistent with the terms of this Agreement
after reasonable notice and opportunity to cure, (iv) any material
breach by Employee of this Agreement, if such material breach, if
capable of cure, is not cured within twenty (20) days after written
notice thereof, (v) the gross negligence or gross misconduct
(including conflict of interest in carrying out Employee's duties
under this Agreement), or (vi) the death of Employee.
(b) If
(i) the Company terminates Employee’s employment hereunder
"for cause" as set forth in Section 9(a) hereof or (ii) Employee
voluntarily terminates Employee’s employment by the Company
other than for “Good Reason” (as defined below), the
Company shall pay to Employee any unpaid compensation payable
pursuant to Section 3 hereof, which payment (y) shall include all
compensation earned up until and including the date on which the
termination is effective, and (z) shall be made within 30 days
after the termination date, and no other compensation shall be
payable to Employee.
(c) If
the Company terminates Employee’s employment hereunder for
any reason other than "for cause" as set forth in Section 9(a)
hereof, including by non-renewal of the Term, or Employee
terminates Employee’s employment hereunder for “Good
Reason” (as defined below), the Company shall pay to Employee
compensation payable pursuant to Section 3(a) hereof, as specified
herein, for one calendar year from the date of termination (the
“Severance Payments”), including any accrued but unused
vacation and sick time as of the termination date pursuant to
Section 4(b), and provide the Employee with health insurance
benefits at the cost of the Company for one year after date of
termination;
provided
, however, that no
Severance Payments shall be paid to Employee if Employee is paid
the Change of Control Payment (as defined below). Employee and the
Company acknowledge that the foregoing provisions of this Section
9(c) are reasonable and are based upon the facts and circumstances
of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
(d)
Resignation
for Good Reason
. Employee may terminate Employee 's
employment hereunder for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean (i) a substantial diminution or
change of the duties of the Employee which is materially
inconsistent with Employee's duties and services provided for in
Section 2 hereof, (ii) a material breach by the Company of this
Agreement after notice and such breach has not been cured within
twenty days after receipt of such notice, or (iii) any purported
termination by the Company of Employee's employment otherwise than
expressly permitted by this Agreement.
10.
Change
of Control
.
(a)
In the event that
Employee’s employment is terminated by the Company, or any
successor thereof, for any reason other than "for cause" as set
forth in Section 9(a) hereof, or Employee terminates
Employee’s employment hereunder for Good Reason, within one
year following a Change in Control (as defined below), Employee
shall have the right to immediately receive as a lump sum payment
an amount equal to three (3) times the average of the total annual
compensation paid by the Company to Employee, with respect to the
five fiscal years of the Company immediately prior to the Change of
Control, minus $1.00 (the “Change of Control
Payment”).
(b)
For purposes of this Agreement, a “Change in Control”
of the Company shall be deemed to have taken place (A) if as the
result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company within
twelve months before such transaction shall cease to constitute a
majority of the Board of the Company of any successor entity; (B)
the consummation of a merger or consolidation of the Company, with
or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the contributing or
surviving entity’s issued shares or securities outstanding
immediately after such merger, consolidation or other
reorganization is owned beneficially by persons other than the
shareholders who owned beneficially more than 50% of the combined
voting power of the Company’s securities immediately prior to
such merger, consolidation or other reorganization; (C) the sale,
transfer of other disposition of all or substantially all of the
Company’s assets.
11.
Indemnification;
Insurance
.
(a) The
Company agrees to indemnify Employee and hold Employee harmless
against any and all losses, claims, damages, liabilities and costs
(and all actions in respect thereof and any legal or other expenses
in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation, the
reasonable costs of investigating, preparing or defending any such
action or claim, whether or not in connection with litigation in
which Employee is a party, as and when incurred, directly or
indirectly caused by, relating to, based upon or arising out of any
work performed by Employee in connection with this Agreement to the
full extent permitted by the Delaware General Corporation Law and
by the Certificate of Incorporation and Bylaws of the Company, as
may be amended from time to time.
(b) The
indemnification provision of this Section 11 shall be in addition
to any liability which the Company may otherwise have to
Employee.
(c) If
any action, proceeding or investigation is commenced as to which
Employee proposes to demand such indemnification, Employee shall
notify the Company with reasonable promptness. The Company shall
have the right to retain counsel of its own choice to represent
Employee, subject to Employee’s reasonable consent, and the
Company shall pay all reasonable fees and expenses of such counsel;
and such counsel shall, to the fullest extent consistent with such
counsel’s professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any settlement of any claim against Employee
made with the Company’s written consent, to the fullest
extent permitted by the Delaware General Corporation Law and any
other applicable law, the Certificate of Incorporation and Bylaws
of the Corporation, as may be amended from time to time. No such
settlement of any claim shall be made by Employee without the
written consent of the Company.
(d) Further,
the Company agrees to include Employee
in the coverage of any directors' and officers' liability it
provides on behalf of its directors or senior executive officers
and, if Employee is a fiduciary under a Company plan, coverage
under the applicable fiduciary liability insurance policy. Employee
agrees to cooperate with the Company in the Company's efforts to
obtain and maintain a term insurance policy on the life of Employee
with the Company as sole beneficiary in such principal amount as
may be determined by the Board.
12.
Taxes
and Compliance with Section 409A
.
(a)
This Agreement is intended to comply with Section 409A of the
Internal Revenue Code (the “Code”) (as amplified by any
regulations promulgated thereunder (the “
Treasury Regulations
”) or other
Internal Revenue Service or U.S. Treasury Department guidance), and
shall be construed and interpreted in accordance with such intent.
If either the Company or Employee reasonably determine that the
Agreement does not meet the requirements of Code Section 409A and
that the Agreement may be amended or modified to meet the
requirements of Code Section 409A, the Agreement shall be amended
or modified in order to meet the requirements of Code Section 409A;
provided,
that any
such amendment or modification shall be subject to the mutual
agreement of Employee and the Company. Moreover, if, upon
Employee’s separation from service, Employee is then a
“specified employee” (as defined in Section 409A of the
Code), then only to the extent necessary to comply with Code
Section 409A and avoid imposition of taxes under Code Section 409A,
the Company will defer payment of certain of the amounts owed to
Employee under this Agreement until the earlier of Employee’s
death or the first business day of the seventh month following
Employee’s separation from service.
(b) Any
right to a series of installment payments pursuant to this
Agreement is to be treated as a right to a series of separate
payments. To the extent permitted under Section 409A of the Code,
any separate payment or benefit under this Agreement or otherwise
shall not be deemed “nonqualified deferred
compensation” subject to Section 409A of the Code to the
extent provided in the exceptions in Treasury Regulation Section
1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable
exception or provision of Section 409A of the Code.
(c) To
the extent that any payments or reimbursements provided to Employee
under this Agreement are deemed to constitute compensation to
Employee to which Treasury Regulation Section 1.409A-3(i)(1)(iv)
would apply, such amounts shall be paid or reimbursed reasonably
promptly, but not later than the 75
th
day of the fiscal
year following the year in which the expense was incurred. The
amount of any such payments eligible for reimbursement in one year
shall not affect the payments or expenses that are eligible for
payment or reimbursement in any other taxable year, and
Employee’s right to such payments or reimbursement of any
such expenses shall not be subject to liquidation or exchange for
any other benefit. No offset by the Company shall be permitted
against amounts that constitute deferred compensation subject to
Code Section 409A.
13.
Notices
.
All notices, claims or other communications to be given or
delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, when sent by email,
facsimile or other electronic transmission, the receipt of which is
electronically confirmed, or one (1) day after being sent to the
recipient by reputable overnight courier service (charges prepaid).
Such notices, claims and other communications shall be sent to the
addresses indicated below or to such other address or to the
attention of such other Person as the recipient party has specified
by prior written notice to the sending party. All notices, claims
and other communications hereunder may be given by any other means,
but shall not be deemed to have been duly given unless and until it
is actually received by the intended recipient:
|
If to
the Employee, to:
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Helena
Santos
|
|
|
16
Gerta Court
|
|
|
Selden, New York
11784
|
|
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Telephone: (631)
813-0386
|
|
|
Facsimile:
(631)736-7341
|
|
|
Email:
santoshelenar@gmail.com
|
|
With a
copy to:
|
Kaufman &
Associates, LLC
|
|
|
200
Motor Parkway, Suite B-13
|
|
|
Hauppauge, New
York 11788
|
|
|
Attention: Neil M.
Kaufman
|
|
|
Telephone: (631)
972-0042
|
|
|
Facsimile: (631)
410-1007
|
|
|
Email:
nkaufman@kaufman-associates.com
|
|
If to
the Company, to:
|
Scientific
Industries, Inc.
|
|
|
80
Orville Drive, Suite 102
|
|
|
Bohemia, New York
11716
|
|
|
Attention:
Chairman of Compensation Committee
|
|
|
Telephone: (631)
567-4700
|
|
|
Facsimile: (631)
567-5896
|
|
|
Email:
gmorin@altamirainstruments.com
|
14.
Successors
and Assigns; Third Party Beneficiaries
. This Agreement shall
be binding upon and inure to the benefit of the successors and
assigns of the Company, and unless clearly inapplicable, all
references herein to the Company shall be deemed to include any
such successor. In addition, this Agreement shall be binding upon
and inure to the benefit of Employee and Employee’s heirs,
executors, legal representatives and assigns; provided, however,
that the obligations of Employee hereunder may not be delegated
without the prior written approval of the Company. In the event of
any consolidation or merger of the Company into or with any other
corporation during the term of this Agreement, or the sale of all
or substantially all of the assets of the Company to another
corporation, person or entity during the term of this Agreement,
such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof
applicable to the Company, and Employee's obligations hereunder
shall continue in favor of such successor corporation.
15.
Acknowledgment
.
Employee acknowledges that Employee has carefully read this
Agreement, has had an opportunity to consult counsel regarding this
Agreement and hereby represents and warrants to the Company that
Employee’s entering into this Agreement, and the obligations
and duties undertaken by Employee hereunder, will not conflict
with, constitute a breach of or otherwise violate the terms of any
other agreement to which Employee is a party and that Employee is
not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform Employee’s
obligations under this Agreement.
16.
Waiver of Jury
Trial
.
EACH
PARTY TO THIS AGREEMENT HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY RELATED
DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
17.
Enforcement
. It is
the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a
restriction contained in this Agreement is more restrictive than
permitted by the laws of any jurisdiction where this Agreement may
be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such
restriction in such jurisdiction, shall be the maximum restriction
allowed by the laws of such jurisdiction and such restriction shall
be deemed to have been revised accordingly herein. If any provision
of this Agreement shall be held by a court of competent
jurisdiction to be contrary to law or public policy, the remaining
provisions shall remain in full force and effect.
18.
Miscellaneous
.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard
to conflicts of laws. The parties hereto hereby irrevocably submit
to the exclusive jurisdiction of any New York State or Federal
court sitting in Suffolk County, New York over any suit, action or
proceeding arising out of or relating to this Agreement. This
Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes any other agreements
entered into between Employee and the Company prior to the date of
this Agreement relating thereto. This Agreement may not be altered,
modified, amended or terminated except by a written instrument
signed by each of the parties hereto. No term or provision hereof
shall be deemed waived and no breach consented to or excused,
unless such waiver, consent or excuse shall be in writing and
signed by the party claimed to have waived, consented or excused. A
consent, waiver or excuse of any breach shall not constitute a
consent to, waiver or, or excuse of any other or subsequent breach
whether or not of the same kind of the original breach. This
Agreement may be executed and delivered by facsimile signature and
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument. Counterparts may be delivered via facsimile,
electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000,
e.g.
, www.docusign.com) or other
transmission method and any counterpart so delivered shall be
deemed to have been duly and validly delivered and be valid and
effective for all purposes. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect
the meaning hereof.
[SIGNATURE PAGE TO
FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of and year first above written.
|
|
Scientific Industries, Inc.
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|
|
|
|
|
|
|
By:
|
/s/ Robert P. Nichols
|
|
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|
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Name: Robert P. Nichols
|
|
|
|
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Title: Secretary
|
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|
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/s/ Helena Santos
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|
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Helena Santos
|
|
EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT, dated as of July 1, 2017, is by and between
SCIENTIFIC INDUSTRIES, INC., a Delaware corporation with its
principal executive offices at 80 Orville Drive, Suite 102,
Bohemia, New York 11716 (the “Company”) and ROBERT
NICHOLS, an individual residing at 16 Adams Street, Rocky Point,
New York 11778 (“Employee”).
W I T N E S S E T H:
WHEREAS, the
Company desires to continue to employ Employee as a senior
executive of the Company, and Employee desires to continue to serve
in such capacity, all on the terms and conditions set forth
below.
NOW,
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Retention of Services; Term
.
The Company hereby retains the services of Employee, and Employee
agrees to furnish such services, upon the terms and conditions
hereinafter set forth. Subject to earlier termination on the terms
and conditions hereinafter provided, and further subject to certain
provisions hereof which survive the term of the employment of
Employee by the Company, the term of this Agreement shall be
comprised of a three year period of employment commencing on July
1, 2017 and ending on June 30, 2020 (the “Initial
Term”), and shall be extended thereafter for two additional
one-year periods (each an “Additional Term”, and
together with the Initial Term, the “Term”) unless or
until the Company or Employee provides no less than 90 days’
prior notice to the other party of the termination of this
Agreement at the end of the then-current Term.
2.
Duties and Extent of Services During
Period of Employment
.
During the Term, Employee shall: (a) remain employed by the Company
as President of the Genie Products Division and Secretary of the
Company; (b) perform such duties and services as are commensurate
with Employee’s positions; (c) devote Employee’s full
business time and exclusive business efforts to serving the
Company; (d) perform all duties incident to Employee’s
position to the best of Employee’s ability and in compliance
with the policies and procedures of the Company, applicable law and
past practice with respect to Employee’s responsibilities;
and (e) perform all of Employee’s responsibilities and duties
hereunder in Western or Central Suffolk County, Long Island, New
York, subject, however, to the reasonable travel requirements of
Employee’s position, which travel requirements may include
visits or occasional work at other offices of the Company from time
to time.
3.
Remuneration
. During the Term,
the Company shall pay to Employee as compensation for
Employee’s services hereunder:
(a)
a base salary equal
to $153,000 per annum for the period from the date hereof through
June 30, 2018, payable in a manner consistent with the
Company’s payroll practices, which amount shall increase
thereafter on first day of each fiscal year, commencing as of July
1, 2018, by the greater of (i) three percent (3%) per annum, or
(ii) the percentage increase, if any, in the Consumer Price Index
for all urban consumers as published by the U.S. Bureau of Labor
Statistics (“
CPI
”) at the end of the immediate
preceding year over the CPI as of the beginning of such year
(measured in each case from the nearest date on or prior to the
relevant anniversary date of the Term for which CPI data is
published);
(b)
an annual bonus of
$10,000 for the fiscal year ending June30, 2018, if Employee is
employed by the Company as of such date, and for each subsequent
fiscal year, such bonus or bonuses as may be determined by the
Board of Directors of the Company (the “Board”), or the
compensation committee thereof (the “Compensation
Committee”), in its sole discretion, in each case payable not
later than the 97th day of the next fiscal year; and
(c)
As soon as
reasonably practicable following the date of this Agreement, the
Company’s Stock Option Committee shall grant to Employee
non-qualified options (the “Stock Options”) to purchase
7,500 shares of common stock of the Company, par value $0.05 per
share (the “Common Stock”), exercisable at an exercise
price equal to the fair market value of the shares of Common Stock
of the Company on the date of grant, pursuant to the
Company’s 2012 Stock Option Plan, as amended (the
“Plan”). The Stock Options will (i) have a ten-year
term, including for the maximum period after any termination of
Employee’s employment by the Company permitted under the
Plan, and (ii) become exercisable one-third on each of the first,
second and third anniversaries of the date of grant; provided,
however, such vesting shall be accelerated by 12 months upon the
occurrence of a Change in Control (as defined below) and shall
contain a cashless exercise provision. For purposes of this
Agreement, a “Change in Control” of the Company shall
be deemed to have taken place (A) if as the result of, or in
connection with, any cash tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were
directors of the Company within twelve months before such
transaction shall cease to constitute a majority of the Board of
the Company of any successor entity; (B) the consummation of a
merger or consolidation of the Company, with or into another entity
or any other corporate reorganization, if more than 50% of the
combined voting power of the contributing or surviving
entity’s issued shares or securities outstanding immediately
after such merger, consolidation or other reorganization is owned
beneficially by persons other than the shareholders who owned
beneficially more than 50% of the combined voting power of the
Company’s securities immediately prior to such merger,
consolidation or other reorganization; (C) the sale, transfer of
other disposition of all or substantially all of the
Company’s assets.
4.
Employee Benefits;
Expenses
.
(a)
During the Term,
the Company shall provide to Employee the right to participate in
the Company’s then existing medical and dental insurance and
all other employee benefit plans and policies on the same terms as
are then generally available to the Company’s senior
executive employees, and not less than as currently provided to
Employee, including without limitation, medical insurance,
disability insurance, life insurance, holiday and sick pay, and the
right to participate in and receive matching contributions pursuant
to the Company’s plan under Section 401(k) of the Internal
Revenue Code.
(b)
Employee shall be
entitled to paid vacation each fiscal year during the Term at the
rate of twenty days per annum. Vacation shall be taken each year
and, if not taken, up to two weeks of unused vacation days shall be
carried over per year, for up to a maximum aggregate of 35 days
carried over. In the event that Employee’s employment by the
Company is terminated for any reason whatsoever, the Company shall
pay to Employee an amount equal to the number of unused vacation
days, including carried over vacation days, times Employee’s
then-current daily rate of salary pursuant to Section 3(a) above,
upon such termination. Employee shall also be entitled to six (6)
personal days per fiscal year during the Term. In the event that
Employee does not use all such personal days, the Company shall pay
to Employee for up to three unused personal days’ times
Employee’s then-current daily rate of salary pursuant to
Section 3(a) above.
(c)
The Company shall
reimburse Employee, in accordance with the practice followed from
time to time for other executive officers of the Company, for a
cellular telephone, a laptop computer, including all expenses
relating to operating a laptop computer and wireless connections
and suitable software thereon, and all reasonable and necessary
business and traveling expenses and other disbursements incurred by
Employee for or on behalf of the Company in the performance of
Employee’s duties hereunder, upon presentation by Employee to
the Company of appropriate documentation of such.
5.
Disability
.
This Agreement may be terminated at the option of the Company if,
as a result of any physical or mental disability, Employee is
unable to perform substantially all of Employee’s major
duties hereunder for a continuous period of four months or at least
90 days in any consecutive period of 180 days. Employee shall
continue to receive Employee’s full salary plus bonus
payments payable to Employee under Section 3 hereof regardless of
any illness or incapacity, unless and until this Agreement is
terminated. If Employee’s employment is terminated pursuant
to this Section 5, Employee (or Employee’s personal
representative, in the case of Employee’s death) shall be
entitled to receive Employee’s full salary through the
effective date of termination.
6.
Confidential Information; Proprietary
Rights
.
(a) In
the course of Employee's employment by the Company, Employee will
have access to and possession of valuable and important
confidential or proprietary data or information of the Company.
Employee will not, during Employee's employment by the Company or
at any time thereafter, divulge or communicate to any person, nor
shall Employee direct any other employee, representative or agent
of the Company to divulge or communicate to any person or entity
(other than to a person or entity bound by confidentiality
obligations similar to those contained herein and other than as
necessary in performing Employee’s duties hereunder) or use
to the detriment of the Company, or for the benefit of any other
person or entity, including, without limitation, any competitor,
supplier, licensor, licensee or customer of the Company, any of
such confidential or proprietary data or information or make or
remove any copies thereof, whether or not marked or otherwise
identified as “confidential” or “secret.”
Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company
to a strict need-to-know basis and shall comply with any and all
security systems and measures adopted from time to time by the
Company to protect the confidentiality of confidential or
proprietary data or information.
(b) The
term "confidential or proprietary data or information" as used in
this Agreement shall mean information not generally available to
the public, including, without limitation,
any patent, patent application, license,
sublicense, copyright, trademark, trade name, service mark, service
name, "know-how", trade secrets, customer lists, vendor lists,
customer pricing or terms, details of client or consultant
contracts, pricing policies, cost information, operational methods,
marketing plans or strategies, product development techniques or
plans, business acquisition plans or any portion or phase of any
business, scientific or technical information, ideas, discoveries,
designs, computer programs (including source or object codes),
processes, procedures, formulae, improvements, information relating
to the products currently being sold, developed or contemplated, by
the Company, or which hereinafter may be sold, developed or
contemplated, by the Company through the date of termination of
this Agreement, including, but not limited to, the proprietary or
intellectual property of the Company, whether or not in written or
tangible form, and whether or not registered, and including all
memoranda, notes, summaries, plans, reports, records, documents and
other evidence thereof
. Notwithstanding the foregoing, data
or information shall not constitute "confidential or proprietary
data or information" hereunder if it:
(i)
is or becomes part
of the public domain other than due to the breach of this Agreement
by Employee
;
(ii)
is
already known to the Employee on a non-confidential basis at the
time of disclosure by the Company;
(iii)
becomes
known to the Employee from a source other than the Company,
provided that such source has not entered into a confidentiality
agreement with the Company with respect to such information or
obtained the information from an entity or person who is a party to
a confidentiality agreement with the Company, and without a breach
of this Agreement or without a breach of duty owed by any other
person or entity to the Company;
(iv)
is
proven by competent evidence by the Employee that it was
independently conceived or discovered by the Employee without
reference to or use of the Company’s confidential or
proprietary information; or
(v)
is required by law
to be disclosed by Employee.
(c) Employee
will at all times promptly disclose to the Company in such form and
manner as the Company may reasonably require, any inventions,
improvements or procedural or methodological innovations,
including, without limitation, those relating to programs, methods,
forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted
or patented) conceived or developed or created by Employee during
or in connection with Employee’s employment with the Company
and which relate to the business of the Company (the "Intellectual
Property"). Employee agrees that all such Intellectual Property
shall be the sole property of the Company. Employee hereby assigns
all of Employee’s right, title and interest to the
Intellectual Property to the Company. Employee further agrees that
Employee will execute such instruments and perform such acts as may
reasonably be requested by the Company to transfer to and perfect
in the Company all legally protectable rights in such Intellectual
Property. To the extent any moral rights or other Intellectual
Property rights are not legally transferable to the Company,
Employee hereby waives and agrees to never assert any such rights
against the Company or any of its affiliates, even after
termination of employment with the Company.
(d) All
written materials, books, records and documents made by Employee or
coming into Employee’s possession during Employee’s
employment by the Company concerning any products, processes or
systems used, developed, investigated, purchased, sold or
considered by the Company or otherwise concerning the business or
affairs of the Company, including, without limitation, any files,
customer records such as names, telephone numbers, addresses and
e-mail addresses, lists, firm records, brochures and literature,
shall be the sole property of the Company, shall not be removed
from the Company’s premises or transmitted to third parties
by Employee, and upon termination of Employee’s employment by
the Company, or upon request of the Company during Employee’s
employment by the Company, Employee shall promptly deliver the same
to the Company. In addition, upon termination of Employee’s
employment by the Company, Employee will deliver to the Company all
other Company property in Employee’s possession or under
Employee’s control, including, but not limited to, financial
statements, marketing and sales data, customer and supplier lists
and information, account lists and other account information,
database information, plans, designs and other documents, and
Employee shall not retain any electronically stored versions of the
same.
(e)
During the term of this Agreement, Employee shall comply in all
respects with all applicable federal and state securities laws,
including without limitation with respect to insider trading, and
all policies and codes of conduct or ethics of the Company and its
affiliates with respect thereto.
7.
Non-Competition; Non-Interference;
Non-Solicitation
.
(a)
During the Term and for a period of twelve months thereafter (the
"Restricted Period"), Employee shall not, without the written
consent of the Company, directly or indirectly, (i) become
associated with, render services to, invest in, represent, advise
or otherwise participate in as an officer, employee, director,
stockholder, partner, member, promoter, agent of, consultant for or
otherwise, any business, wherever conducted, which is directly
competitive with the business conducted by the Company; or (ii) for
Employee’s own account or for the account of any other person
or entity (A) interfere with the Company’s relationship with
any of its suppliers, customers, accounts, brokers, representatives
or agents or (B) solicit or transact any business with any
customer, account or supplier of the Company who or which transacts
or has transacted business with the Company at any time during the
Term; or (iii) employ or otherwise engage, or solicit, entice or
induce on behalf of Employee or any other person or entity, the
services, retention or employment of any person who has been an
employee, principal, partner, stockholder, sales representative,
trainee, consultant to or agent of the Company within one year of
the date of such offer or solicitation. Notwithstanding any
provisions in this Section 7, (1) this Section 7 shall not prohibit
Employee from purchasing or owning up to five percent (5%) of the
outstanding capital stock of a company which is listed or
authorized for trading on any national securities exchange, Nasdaq
or the over-the-counter markets or has a class of securities
registered under Section 12 of the Securities Act of 1934, as
amended and (2) to the extent not inconsistent with
Employee’s obligations under this Agreement, Employee may
engage in charitable or civic activities and make passive
investments in businesses which are not competitive with the
business of the Company.
(b) If
any one or more of the restrictions contained in this Section 7
shall for any reason be held to be unreasonable with regard to
time, duration, geographic scope or activity, the parties
contemplate and hereby agree that such restriction shall be
modified and shall be enforced to the full extent compatible with
applicable law. The parties hereto intend that the covenants
contained in this Section 7 shall be deemed a series of separate
covenants for each country, state, county and city. If, in any
judicial proceeding, a court shall refuse to enforce all the
separate covenants deemed included in this Section 7 because, taken
together, they cover too extensive a geographic area, the parties
intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are least populous)
which if eliminated would permit the remaining separate covenants
to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of this
Section 7.
8.
Remedies
.
Employee acknowledges that the covenants contained in Sections 6
and 7 are fair and reasonable in order to protect the
Company’s business and were a material and necessary
inducement for the Company to agree to the terms of this Agreement
and to the employment of Employee by the Company. Employee further
acknowledges that any remedy at law for any breach or threatened or
attempted breach of the covenants contained in Sections 6 and 7 may
be inadequate and that the violation of any of the covenants
contained in Sections 6 and 7 will cause irreparable and continuing
damage to the Company. Accordingly, the Company shall be entitled
to specific performance or any other mode of injunctive and/or
other equitable relief to enforce its rights hereunder, including,
without limitation, an order restraining any further violation of
such covenants, or any other relief a court might award, without
the necessity of showing any actual damage or irreparable harm or
the posting of any bond or furnishing of other security, and that
such injunctive relief shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. The
covenants in Sections 6 and 7 shall run in favor of the Company and
its affiliates, successors and assigns. The provisions of Sections
6 and 7 and this Section 8 shall survive the termination of this
Agreement.
(a) The
Company may terminate Employee’s services hereunder "for
cause" by delivering to Employee not less than ten (10) days prior
to the date on which the termination is to be effective, a written
notice of termination for cause specifying the act, acts or failure
to act that constitute the cause. For the purposes of this
Agreement, “for cause” shall mean: (i) any act of
material fraud or embezzlement, (ii) commission by Employee of any
felony or entry of a plea of nolo contendere to a felony charge;
(iii) commission by Employee of a crime involving moral turpitude
or any knowing violation of any federal or state banking or
securities law, (iii) any repeated refusal by Employee to perform
Employee’s duties consistent with the terms of this Agreement
after reasonable notice and opportunity to cure, (iv) any material
breach by Employee of this Agreement, if such material breach, if
capable of cure, is not cured within twenty (20) days after written
notice thereof, (v) the gross negligence or gross misconduct
(including conflict of interest in carrying out Employee's duties
under this Agreement), or (vi) the death of Employee..
(b) If
(i) the Company terminates Employee’s employment hereunder
"for cause" as set forth in Section 9(a) hereof or (ii) Employee
voluntarily terminates Employee’s employment by the Company
other than for “Good Reason” (as defined below), the
Company shall pay to Employee any unpaid compensation payable
pursuant to Section 3 hereof, which payment (y) shall include all
compensation earned up until and including the date on which the
termination is effective, and (z) shall be made within 30 days
after the termination date, and no other compensation shall be
payable to Employee.
(c) If
the Company terminates Employee’s employment hereunder for
any reason other than "for cause" as set forth in Section 9(a)
hereof, or Employee terminates Employee’s employment
hereunder for “Good Reason” (as defined below), the
Company shall pay to Employee compensation payable pursuant to
Section 3 and Section 4 hereof, as specified herein, for one
calendar year from the date of termination (the “Severance
Payments”), including any accrued but unused vacation and
sick time, and provide the Employee with health insurance benefits
at the cost of the Company for one year after date of termination.
Employee and the Company acknowledge that the foregoing provisions
of this Section 9(c) are reasonable and are based upon the facts
and circumstances of the parties at the time of entering into this
Agreement, and with due regard to future expectations.
(d)
Resignation
for Good Reason
. Employee may terminate Employee's
employment hereunder for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean (i) a substantial diminution or
change of the duties of the Employee which is materially
inconsistent with Employee's duties and services provided for in
Section 2 hereof, (ii) a material breach by the Company of this
Agreement after notice and such breach has not been cured within
twenty days after receipt of such notice, or (iii) any purported
termination by the Company of Employee's employment otherwise than
expressly permitted by this Agreement.
10.
Indemnification;
Insurance
.
(a) The
Company agrees to indemnify Employee and hold Employee harmless
against any and all losses, claims, damages, liabilities and costs
(and all actions in respect thereof and any legal or other expenses
in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation, the costs of
investigating, preparing or defending any such action or claim,
whether or not in connection with litigation in which Employee is a
party, as and when incurred, directly or indirectly caused by,
relating to, based upon or arising out of any work performed by
Employee in connection with this Agreement to the full extent
permitted by the Delaware General Corporation Law and by the
Certificate of Incorporation and Bylaws of the Company, as may be
amended from time to time.
(b) The
indemnification provision of this Section 10 shall be in addition
to any liability which the Company may otherwise have to
Employee.
(c) If
any action, proceeding or investigation is commenced as to which
Employee proposes to demand such indemnification, Employee shall
notify the Company with reasonable promptness. The Company shall
have the right to retain counsel of its own choice to represent
Employee, subject to Employee’s reasonable consent, and the
Company shall pay all reasonable fees and expenses of such counsel;
and such counsel shall, to the fullest extent consistent with such
counsel’s professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any settlement of any claim against Employee
made with the Company’s written consent, to the fullest
extent permitted by the Delaware General Corporation Law and any
other applicable law, the Certificate of Incorporation and Bylaws
of the Corporation, as may be amended from time to time. No such
settlement of any claim shall be made by Employee without the
written consent of the Company.
(d) Further,
the Company agrees to include Employee
in the coverage of any directors' and officers' liability it
provides on behalf of its directors or senior executive officers
and, if Employee is a fiduciary under a Company plan, coverage
under the applicable fiduciary liability insurance
policy.
11.
Taxes and Compliance with Section
409A
.
(a)
This Agreement is intended to comply with Section 409A of the
Internal Revenue Code (the “Code”) (as amplified by any
regulations promulgated thereunder (the “
Treasury Regulations
”) or other
Internal Revenue Service or U.S. Treasury Department guidance), and
shall be construed and interpreted in accordance with such intent.
If either the Company or Employee reasonably determine that the
Agreement does not meet the requirements of Code Section 409A and
that the Agreement may be amended or modified to meet the
requirements of Code Section 409A, the Agreement shall be amended
or modified in order to meet the requirements of Code Section 409A;
provided,
that any
such amendment or modification shall be subject to the mutual
agreement of Employee and the Company. Moreover, if, upon
Employee’s separation from service, Employee is then a
“specified employee” (as defined in Section 409A of the
Code), then only to the extent necessary to comply with Code
Section 409A and avoid imposition of taxes under Code Section 409A,
the Company will defer payment of certain of the amounts owed to
Employee under this Agreement until the earlier of Employee’s
death or the first business day of the seventh month following
Employee’s separation from service.
(b) Any
right to a series of installment payments pursuant to this
Agreement is to be treated as a right to a series of separate
payments. To the extent permitted under Section 409A of the Code,
any separate payment or benefit under this Agreement or otherwise
shall not be deemed “nonqualified deferred
compensation” subject to Section 409A of the Code to the
extent provided in the exceptions in Treasury Regulation Section
1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable
exception or provision of Section 409A of the Code.
(c) To
the extent that any payments or reimbursements provided to Employee
under this Agreement are deemed to constitute compensation to
Employee to which Treasury Regulation Section 1.409A-3(i)(1)(iv)
would apply, such amounts shall be paid or reimbursed reasonably
promptly, but not later than the 75
th
day following the
fiscal year in which the expense was incurred. The amount of any
such payments eligible for reimbursement in one year shall not
affect the payments or expenses that are eligible for payment or
reimbursement in any other taxable year, and Employee’s right
to such payments or reimbursement of any such expenses shall not be
subject to liquidation or exchange for any other benefit. No offset
by the Company shall be permitted against amounts that constitute
deferred compensation subject to Code Section 409A.
12.
Notices
.
All notices, claims or other communications to be given or
delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, when sent by email,
facsimile or other electronic transmission, the receipt of which is
electronically confirmed, or one (
1) day after being sent to the
recipient by reputable overnight courier service (charges prepaid).
Such notices, claims and other communications shall be sent to the
addresses indicated below or to such other address or to the
attention of such other Person as the recipient party has specified
by prior written notice to the sending party. All notices, claims
and other communications hereunder may be given by any other means,
but shall not be deemed to have been duly given unless and until it
is actually received by the intended recipient:
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If to
the Employee, to:
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Robert
Nichols
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16
Adams Street
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Rocky
Point, NY 11778
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Telephone:
631-921-4011
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Email:
genie2si@yahoo.com
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With a
copy to:
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Kaufman &
Associates, LLC
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200
Motor Parkway, Suite B-13
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Hauppauge, New
York 11788
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Attention: Neil M.
Kaufman
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Telephone: (631)
972-0042
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Facsimile: (631)
410-1007
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Email:
nkaufman@kaufman-associates.com
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If to
the Company, to:
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Scientific
Industries, Inc.
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80
Orville Drive, Suite 102
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Bohemia, New York
11716
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Attention:
Chairman of Compensation Committee
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Telephone: (631)
567-4700
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Facsimile: (631)
567-5896
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Email:
gmorin@altamirainstruments.com
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13.
Successors
and Assigns; Third Party Beneficiaries
. This Agreement shall
be binding upon and inure to the benefit of the successors and
assigns of the Company, and unless clearly inapplicable, all
references herein to the Company shall be deemed to include any
such successor. In addition, this Agreement shall be binding upon
and inure to the benefit of Employee and Employee’s heirs,
executors, legal representatives and assigns; provided, however,
that the obligations of Employee hereunder may not be delegated
without the prior written approval of the Company. In the event of
any consolidation or merger of the Company into or with any other
corporation during the term of this Agreement, or the sale of all
or substantially all of the assets of the Company to another
corporation, person or entity during the term of this Agreement,
such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof
applicable to the Company, and Employee's obligations hereunder
shall continue in favor of such successor corporation.
14.
Acknowledgment
.
Employee acknowledges that Employee has carefully read this
Agreement, has had an opportunity to consult counsel regarding this
Agreement and hereby represents and warrants to the Company that
Employee’s entering into this Agreement, and the obligations
and duties undertaken by Employee hereunder, will not conflict
with, constitute a breach of or otherwise violate the terms of any
other agreement to which Employee is a party and that Employee is
not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform Employee’s
obligations under this Agreement.
15.
Waiver of Jury
Trial
.
EACH
PARTY TO THIS AGREEMENT HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY RELATED
DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
16.
Enforcement
. It is
the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a
restriction contained in this Agreement is more restrictive than
permitted by the laws of any jurisdiction where this Agreement may
be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such
restriction in such jurisdiction, shall be the maximum restriction
allowed by the laws of such jurisdiction and such restriction shall
be deemed to have been revised accordingly herein. If any provision
of this Agreement shall be held by a court of competent
jurisdiction to be contrary to law or public policy, the remaining
provisions shall remain in full force and effect.
17.
Miscellaneous
.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard
to conflicts of laws. The parties hereto hereby irrevocably submit
to the exclusive jurisdiction of any New York State or Federal
court sitting in Suffolk County, New York over any suit, action or
proceeding arising out of or relating to this Agreement. This
Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes any other agreements
entered into between Employee and the Company prior to the date of
this Agreement relating thereto. This Agreement may not be altered,
modified, amended or terminated except by a written instrument
signed by each of the parties hereto. No term or provision hereof
shall be deemed waived and no breach consented to or excused,
unless such waiver, consent or excuse shall be in writing and
signed by the party claimed to have waived, consented or excused. A
consent, waiver or excuse of any breach shall not constitute a
consent to, waiver or, or excuse of any other or subsequent breach
whether or not of the same kind of the original breach. This
Agreement may be executed and delivered by facsimile signature and
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument. Counterparts may be delivered via facsimile,
electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000,
e.g.
, www.docusign.com) or other
transmission method and any counterpart so delivered shall be
deemed to have been duly and validly delivered and be valid and
effective for all purposes. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect
the meaning hereof.
[SIGNATURE
PAGE TO FOLLOW]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of and year first above written.
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Scientific Industries, Inc.
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By:
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/s/ Helena R. Santos
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Name: Helena R. Santos
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Title: President
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/s/ Robert Nichols
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Robert Nichols
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EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT, dated as of July 1, 2017, is by and between
SCIENTIFIC INDUSTRIES, INC., a Delaware corporation with its
principal executive offices at 80 Orville Drive, Suite 102,
Bohemia, New York 11716 (the “Company”) and BROOKMAN
MARCH, an individual residing at 2200 Kings Highway 3-L, #206, Port
Charlotte, Florida 33980 (“Employee”).
W I T N E S S E T H:
WHEREAS,
the Company desires to continue to employ Employee as a senior
executive of the Company, and Employee desires to continue to serve
in such capacity, all on the terms and conditions set forth
below.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1.
Retention of Services; Term
.
The Company hereby retains the services of Employee, and Employee
agrees to furnish such services, upon the terms and conditions
hereinafter set forth. Subject to earlier termination on the terms
and conditions hereinafter provided, and further subject to certain
provisions hereof which survive the term of the employment of
Employee by the Company, the term of this Agreement shall be
comprised of a three year period of employment commencing on July
1, 2017 and ending on June 30, 2020 (the “Initial
Term”), and shall be extended thereafter for two additional
one-year periods (each an “Additional Term”, and
together with the Initial Term, the “Term”) unless or
until the Company or Employee provides no less than 90 days’
prior notice to the other party of the termination of this
Agreement at the end of the then-current Term.
2.
Duties and Extent of Services During
Period of Employment
.
During the Term, Employee shall: (a) remain employed by the Company
as Vice President of Corporate Development and Strategy of the
Company and Vice President of Sales and Marketing of the
Company’s wholly owned subsidiary Altamira Instruments, Inc.;
(b) perform such duties and services as are commensurate with
Employee’s positions; (c) devote Employee’s full
business time and exclusive business efforts to serving the
Company; (d) perform all duties incident to Employee’s
position to the best of Employee’s ability and in compliance
with the policies and procedures of the Company, applicable law and
past practice with respect to Employee’s responsibilities;
and (e) perform all of Employee’s responsibilities and duties
hereunder in southwestern Florida, Maine, or Pennsylvania as deemed
appropriate by Employee, subject, however, to the reasonable travel
requirements of Employee’s position, which travel
requirements may include visits or occasional work at other offices
of the Company from time to time.
3.
Remuneration
. During the Term,
the Company shall pay to Employee as compensation for
Employee’s services hereunder:
(a)
a base salary equal
to $155,000 per annum for the period from the date hereof through
June 30, 2018, payable in a manner consistent with the
Company’s payroll practices, which amount shall increase
thereafter on first day of each fiscal year, commencing as of July
1, 2018, by the greater of (i) three percent (3%) per annum, or
(ii) the percentage increase, if any, in the Consumer Price Index
for all urban consumers as published by the U.S. Bureau of Labor
Statistics (“
CPI
”) at the end of the immediate
preceding year over the CPI as of the beginning of such year
(measured in each case from the nearest date on or prior to the
relevant anniversary date of the Term for which CPI data is
published);;
(b)
an annual bonus of
$10,000 for the fiscal year ending June 30, 2018, if Employee is
employed by the Company as of such date, and for each subsequent
fiscal year, such bonus or bonuses as may be determined by the
Board of Directors of the Company (the “Board”), or the
compensation committee thereof (the “Compensation
Committee”), in its sole discretion, in each case payable not
later than the 97th day of the next fiscal year; and
(c)
As soon as
reasonably practicable following the date of this Agreement, the
Company’s Stock Option Committee shall grant to Employee
non-qualified options (the “Stock Options”) to purchase
7,500 shares of common stock of the Company, par value $0.05 per
share (the “Common Stock”), exercisable at an exercise
price equal to the fair market value of the shares of Common Stock
of the Company on the date of grant, pursuant to the
Company’s 2012 Stock Option Plan, as amended (the
“Plan”).. The Stock Options will (i) have a ten-year
term, including for the maximum period after any termination of
Employee’s employment by the Company permitted under the
Plan, and (ii) become exercisable one-third on each of the first,
second and third anniversaries of the date of grant; provided,
however, such vesting shall be accelerated by 12 months upon the
occurrence of a Change in Control (as defined below) and shall
contain a cashless exercise provision. For purposes of this
Agreement, a “Change in Control” of the Company shall
be deemed to have taken place (A) if as the result of, or in
connection with, any cash tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were
directors of the Company within twelve months before such
transaction shall cease to constitute a majority of the Board of
the Company of any successor entity; (B) the consummation of a
merger or consolidation of the Company, with or into another entity
or any other corporate reorganization, if more than 50% of the
combined voting power of the contributing or surviving
entity’s issued shares or securities outstanding immediately
after such merger, consolidation or other reorganization is owned
beneficially by persons other than the shareholders who owned
beneficially more than 50% of the combined voting power of the
Company’s securities immediately prior to such merger,
consolidation or other reorganization; (C) the sale, transfer of
other disposition of all or substantially all of the
Company’s assets.
4.
Employee Benefits;
Expenses
.
(a)
During the Term,
the Company shall provide to Employee the right to participate in
the Company’s then existing medical and dental insurance and
all other employee benefit plans and policies on the same terms as
are then generally available to the Company’s senior
executive employees, and not less than as currently provided to
Employee, including without limitation, medical insurance,
disability insurance, life insurance, holiday and sick pay, and the
right to participate in and receive matching contributions pursuant
to the Company’s plan under Section 401(k) of the Internal
Revenue Code.
(b)
Employee shall be
entitled to paid vacation each fiscal year during the Term at the
rate of twenty days per annum. Vacation shall be taken each year
and, if not taken, up to two weeks of unused vacation days shall be
carried over per year, for up to a maximum aggregate of 35 days
carried over. In the event that Employee’s employment by the
Company is terminated for any reason whatsoever, the Company shall
pay to Employee an amount equal to the number of unused vacation
days, including carried over vacation days, times Employee’s
then-current daily rate of salary pursuant to Section 3(a) above,
upon such termination. Employee shall also be entitled to six (6)
personal days per fiscal year during the Term. In the event that
Employee does not use all such personal days, the Company shall pay
to Employee for up to 3 unused personal days times Employee’s
then-current daily rate of salary pursuant to Section 3(a)
above.
(c)
The Company shall
reimburse Employee, in accordance with the practice followed from
time to time for other executive officers of the Company, for a
cellular telephone, a laptop computer, including all expenses
relating to operating a laptop computer and wireless connections
and suitable software thereon, and all reasonable and necessary
business and traveling expenses and other disbursements incurred by
Employee for or on behalf of the Company in the performance of
Employee’s duties hereunder, upon presentation by Employee to
the Company of appropriate documentation of such.
5.
Disability
.
This Agreement may be terminated at the option of the Company if,
as a result of any physical or mental disability, Employee is
unable to perform substantially all of Employee’s major
duties hereunder for a continuous period of four months or at least
90 days in any consecutive period of 180 days. Employee shall
continue to receive Employee’s full salary plus bonus
payments payable to Employee under Section 3 hereof regardless of
any illness or incapacity, unless and until this Agreement is
terminated. If Employee’s employment is terminated pursuant
to this Section 5, Employee (or Employee’s personal
representative, in the case of Employee’s death) shall be
entitled to receive Employee’s full salary through the
effective date of termination.
6.
Confidential Information; Proprietary
Rights
.
(a) In
the course of Employee's employment by the Company, Employee will
have access to and possession of valuable and important
confidential or proprietary data or information of the Company.
Employee will not, during Employee's employment by the Company or
at any time thereafter, divulge or communicate to any person, nor
shall Employee direct any other employee, representative or agent
of the Company to divulge or communicate to any person or entity
(other than to a person or entity bound by confidentiality
obligations similar to those contained herein and other than as
necessary in performing Employee’s duties hereunder) or use
to the detriment of the Company, or for the benefit of any other
person or entity, including, without limitation, any competitor,
supplier, licensor, licensee or customer of the Company, any of
such confidential or proprietary data or information or make or
remove any copies thereof, whether or not marked or otherwise
identified as “confidential” or “secret.”
Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company
to a strict need-to-know basis and shall comply with any and all
security systems and measures adopted from time to time by the
Company to protect the confidentiality of confidential or
proprietary data or information.
(b) The
term "confidential or proprietary data or information" as used in
this Agreement shall mean information not generally available to
the public, including, without limitation,
any patent, patent application, license,
sublicense, copyright, trademark, trade name, service mark, service
name, "know-how", trade secrets, customer lists, vendor lists,
customer pricing or terms, details of client or consultant
contracts, pricing policies, cost information, operational methods,
marketing plans or strategies, product development techniques or
plans, business acquisition plans or any portion or phase of any
business, scientific or technical information, ideas, discoveries,
designs, computer programs (including source or object codes),
processes, procedures, formulae, improvements, information relating
to the products currently being sold, developed or contemplated, by
the Company, or which hereinafter may be sold, developed or
contemplated, by the Company through the date of termination of
this Agreement, including, but not limited to, the proprietary or
intellectual property of the Company, whether or not in written or
tangible form, and whether or not registered, and including all
memoranda, notes, summaries, plans, reports, records, documents and
other evidence thereof
. Notwithstanding the foregoing, data
or information shall not constitute "confidential or proprietary
data or information" hereunder if it:
(i)
is or becomes part
of the public domain other than due to the breach of this Agreement
by Employee
;
(ii)
is
already known to the Employee on a non-confidential basis at the
time of disclosure by the Company;
(iii)
becomes
known to the Employee from a source other than the Company,
provided that such source has not entered into a confidentiality
agreement with the Company with respect to such information or
obtained the information from an entity or person who is a party to
a confidentiality agreement with the Company, and without a breach
of this Agreement or without a breach of duty owed by any other
person or entity to the Company;
(iv)
is
proven by competent evidence by the Employee that it was
independently conceived or discovered by the Employee without
reference to or use of the Company’s confidential or
proprietary information; or
(v)
is required by law
to be disclosed by Employee.
(c) Employee
will at all times promptly disclose to the Company in such form and
manner as the Company may reasonably require, any inventions,
improvements or procedural or methodological innovations,
including, without limitation, those relating to programs, methods,
forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted
or patented) conceived or developed or created by Employee during
or in connection with Employee’s employment with the Company
and which relate to the business of the Company (the "Intellectual
Property"). Employee agrees that all such Intellectual Property
shall be the sole property of the Company. Employee hereby assigns
all of Employee’s right, title and interest to the
Intellectual Property to the Company. Employee further agrees that
Employee will execute such instruments and perform such acts as may
reasonably be requested by the Company to transfer to and perfect
in the Company all legally protectable rights in such Intellectual
Property. To the extent any moral rights or other Intellectual
Property rights are not legally transferable to the Company,
Employee hereby waives and agrees to never assert any such rights
against the Company or any of its affiliates, even after
termination of employment with the Company.
(d) All
written materials, books, records and documents made by Employee or
coming into Employee’s possession during Employee’s
employment by the Company concerning any products, processes or
systems used, developed, investigated, purchased, sold or
considered by the Company or otherwise concerning the business or
affairs of the Company, including, without limitation, any files,
customer records such as names, telephone numbers, addresses and
e-mail addresses, lists, firm records, brochures and literature,
shall be the sole property of the Company, shall not be removed
from the Company’s premises or transmitted to third parties
by Employee, and upon termination of Employee’s employment by
the Company, or upon request of the Company during Employee’s
employment by the Company, Employee shall promptly deliver the same
to the Company. In addition, upon termination of Employee’s
employment by the Company, Employee will deliver to the Company all
other Company property in Employee’s possession or under
Employee’s control, including, but not limited to, financial
statements, marketing and sales data, customer and supplier lists
and information, account lists and other account information,
database information, plans, designs and other documents, and
Employee shall not retain any electronically stored versions of the
same.
(e)
During the term of this Agreement, Employee shall comply in all
respects with all applicable federal and state securities laws,
including without limitation with respect to insider trading, and
all policies and codes of conduct or ethics of the Company and its
affiliates with respect thereto.
7.
Non-Competition; Non-Interference;
Non-Solicitation
.
(a)
During the Term and for a period of twelve months thereafter (the
"Restricted Period"), Employee shall not, without the written
consent of the Company, directly or indirectly, (i) become
associated with, render services to, invest in, represent, advise
or otherwise participate in as an officer, employee, director,
stockholder, partner, member, promoter, agent of, consultant for or
otherwise, any business, wherever conducted, which is directly
competitive with the business conducted by the Company; or (ii) for
Employee’s own account or for the account of any other person
or entity (A) interfere with the Company’s relationship with
any of its suppliers, customers, accounts, brokers, representatives
or agents or (B) solicit or transact any business with any
customer, account or supplier of the Company who or which transacts
or has transacted business with the Company at any time during the
Term; or (iii) employ or otherwise engage, or solicit, entice or
induce on behalf of Employee or any other person or entity, the
services, retention or employment of any person who has been an
employee, principal, partner, stockholder, sales representative,
trainee, consultant to or agent of the Company within one year of
the date of such offer or solicitation. Notwithstanding any
provisions in this Section 7, (1) this Section 7 shall not prohibit
Employee from purchasing or owning up to five percent (5%) of the
outstanding capital stock of a company which is listed or
authorized for trading on any national securities exchange, Nasdaq
or the over-the-counter markets or has a class of securities
registered under Section 12 of the Securities Act of 1934, as
amended and (2) to the extent not inconsistent with
Employee’s obligations under this Agreement, Employee may
engage in charitable or civic activities and make passive
investments in businesses which are not competitive with the
business of the Company.
(b) If
any one or more of the restrictions contained in this Section 7
shall for any reason be held to be unreasonable with regard to
time, duration, geographic scope or activity, the parties
contemplate and hereby agree that such restriction shall be
modified and shall be enforced to the full extent compatible with
applicable law. The parties hereto intend that the covenants
contained in this Section 7 shall be deemed a series of separate
covenants for each country, state, county and city. If, in any
judicial proceeding, a court shall refuse to enforce all the
separate covenants deemed included in this Section 7 because, taken
together, they cover too extensive a geographic area, the parties
intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are least populous)
which if eliminated would permit the remaining separate covenants
to be enforced in such proceeding shall, for the purpose of such
proceeding, be deemed eliminated from the provisions of this
Section 7.
8.
Remedies
.
Employee acknowledges that the covenants contained in Sections 6
and 7 are fair and reasonable in order to protect the
Company’s business and were a material and necessary
inducement for the Company to agree to the terms of this Agreement
and to the employment of Employee by the Company. Employee further
acknowledges that any remedy at law for any breach or threatened or
attempted breach of the covenants contained in Sections 6 and 7 may
be inadequate and that the violation of any of the covenants
contained in Sections 6 and 7 will cause irreparable and continuing
damage to the Company. Accordingly, the Company shall be entitled
to specific performance or any other mode of injunctive and/or
other equitable relief to enforce its rights hereunder, including,
without limitation, an order restraining any further violation of
such covenants, or any other relief a court might award, without
the necessity of showing any actual damage or irreparable harm or
the posting of any bond or furnishing of other security, and that
such injunctive relief shall be cumulative and in addition to any
other rights or remedies to which the Company may be entitled. The
covenants in Sections 6 and 7 shall run in favor of the Company and
its affiliates, successors and assigns. The provisions of Sections
6 and 7 and this Section 8 shall survive the termination of this
Agreement.
(a) The
Company may terminate Employee’s services hereunder "for
cause" by delivering to Employee not less than ten (10) days prior
to the date on which the termination is to be effective, a written
notice of termination for cause specifying the act, acts or failure
to act that constitute the cause. For the purposes of this
Agreement, “for cause” shall mean: (i) any act of
material fraud or embezzlement, (ii) commission by Employee of any
felony or entry of a plea of nolo contendere to a felony charge;
(iii) commission by Employee of a crime involving moral turpitude
or any knowing violation of any federal or state banking or
securities law, (iii) any repeated refusal by Employee to perform
Employee’s duties consistent with the terms of this Agreement
after reasonable notice and opportunity to cure, (iv) any material
breach by Employee of this Agreement, if such material breach, if
capable of cure, is not cured within twenty (20) days after written
notice thereof, (v) the gross negligence or gross misconduct
(including conflict of interest in carrying out Employee's duties
under this Agreement), or (vi) the death of Employee.
(b) If
(i) the Company terminates Employee’s employment hereunder
"for cause" as set forth in Section 9(a) hereof or (ii) Employee
voluntarily terminates Employee’s employment by the Company
other than for “Good Reason” (as defined below), the
Company shall pay to Employee any unpaid compensation payable
pursuant to Section 3 hereof, which payment (y) shall include all
compensation earned up until and including the date on which the
termination is effective, and (z) shall be made within 30 days
after the termination date, and no other compensation shall be
payable to Employee.
(c) If
the Company terminates Employee’s employment hereunder for
any reason other than "for cause" as set forth in Section 9(a)
hereof, or Employee terminates Employee’s employment
hereunder for “Good Reason” (as defined below), the
Company shall pay to Employee compensation payable pursuant to
Section 3 and Section 4 hereof, as specified herein, for one
calendar year from the date of termination (the “Severance
Payments”), including any accrued but unused vacation and
sick time, and provide the Employee with health insurance benefits
at the cost of the Company for one year after date of termination .
Employee and the Company acknowledge that the foregoing provisions
of this Section 9(c) are reasonable and are based upon the facts
and circumstances of the parties at the time of entering into this
Agreement, and with due regard to future expectations.
(d)
Resignation
for Good Reason
. Employee may terminate Employee's
employment hereunder for "Good Reason". For purposes of this
Agreement, "Good Reason" shall mean (i) a substantial diminution or
change of the duties of the Employee which is materially
inconsistent with Employee's duties and services provided for in
Section 2 hereof, (ii) a material breach by the Company of this
Agreement after notice and such breach has not been cured within
twenty days after receipt of such notice, or (iii) any purported
termination by the Company of Employee's employment otherwise than
expressly permitted by this Agreement.
10.
Indemnification;
Insurance
.
(a) The
Company agrees to indemnify Employee and hold Employee harmless
against any and all losses, claims, damages, liabilities and costs
(and all actions in respect thereof and any legal or other expenses
in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation, the
reasonable costs of investigating, preparing or defending any such
action or claim, whether or not in connection with litigation in
which Employee is a party, as and when incurred, directly or
indirectly caused by, relating to, based upon or arising out of any
work performed by Employee in connection with this Agreement to the
full extent permitted by the Delaware General Corporation Law and
by the Certificate of Incorporation and Bylaws of the Company, as
may be amended from time to time.
(b) The
indemnification provision of this Section 10 shall be in addition
to any liability which the Company may otherwise have to
Employee.
(c) If
any action, proceeding or investigation is commenced as to which
Employee proposes to demand such indemnification, Employee shall
notify the Company with reasonable promptness. The Company shall
have the right to retain counsel of its own choice to represent
Employee, subject to Employee’s reasonable consent, and the
Company shall pay all reasonable fees and expenses of such counsel;
and such counsel shall, to the fullest extent consistent with such
counsel’s professional responsibilities, cooperate with the
Company and any counsel designated by the Company. The Company
shall be liable for any settlement of any claim against Employee
made with the Company’s written consent, to the fullest
extent permitted by the Delaware General Corporation Law and any
other applicable law, the Certificate of Incorporation and Bylaws
of the Corporation, as may be amended from time to time. No such
settlement of any claim shall be made by Employee without the
written consent of the Company.
(d) Further,
the Company agrees to include Employee
in the coverage of any directors' and officers' liability it
provides on behalf of its directors or senior executive officers
and, if Employee is a fiduciary under a Company plan, coverage
under the applicable fiduciary liability insurance
policy.
11.
Taxes and Compliance with Section
409A
.
(a)
This Agreement is intended to comply with Section 409A of the
Internal Revenue Code (the “Code”) (as amplified by any
regulations promulgated thereunder (the “
Treasury Regulations
”) or other
Internal Revenue Service or U.S. Treasury Department guidance), and
shall be construed and interpreted in accordance with such intent.
If either the Company or Employee reasonably determine that the
Agreement does not meet the requirements of Code Section 409A and
that the Agreement may be amended or modified to meet the
requirements of Code Section 409A, the Agreement shall be amended
or modified in order to meet the requirements of Code Section 409A;
provided,
that any
such amendment or modification shall be subject to the mutual
agreement of Employee and the Company. Moreover, if, upon
Employee’s separation from service, Employee is then a
“specified employee” (as defined in Section 409A of the
Code), then only to the extent necessary to comply with Code
Section 409A and avoid imposition of taxes under Code Section 409A,
the Company will defer payment of certain of the amounts owed to
Employee under this Agreement until the earlier of Employee’s
death or the first business day of the seventh month following
Employee’s separation from service.
(b) Any
right to a series of installment payments pursuant to this
Agreement is to be treated as a right to a series of separate
payments. To the extent permitted under Section 409A of the Code,
any separate payment or benefit under this Agreement or otherwise
shall not be deemed “nonqualified deferred
compensation” subject to Section 409A of the Code to the
extent provided in the exceptions in Treasury Regulation Section
1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable
exception or provision of Section 409A of the Code.
(c) To
the extent that any payments or reimbursements provided to Employee
under this Agreement are deemed to constitute compensation to
Employee to which Treasury Regulation Section 1.409A-3(i)(1)(iv)
would apply, such amounts shall be paid or reimbursed reasonably
promptly, but not later than the 75
th
day following the
fiscal year in which the expense was incurred. The amount of any
such payments eligible for reimbursement in one year shall not
affect the payments or expenses that are eligible for payment or
reimbursement in any other taxable year, and Employee’s right
to such payments or reimbursement of any such expenses shall not be
subject to liquidation or exchange for any other benefit. No offset
by the Company shall be permitted against amounts that constitute
deferred compensation subject to Code Section 409A.
12.
Notices
.
All notices, claims or other communications to be given or
delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, when sent by email,
facsimile or other electronic transmission, the receipt of which is
electronically confirmed, or one (1) day after being sent to the
recipient by reputable overnight courier service (charges prepaid).
Such notices, claims and other communications shall be sent to the
addresses indicated below or to such other address or to the
attention of such other Person as the recipient party has specified
by prior written notice to the sending party. All notices, claims
and other communications hereunder may be given by any other means,
but shall not be deemed to have been duly given unless and until it
is actually received by the intended recipient:
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If to
the Employee, to:
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Brookman
March
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2200
Kings Highway 3-L, #206
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Port
Charlotte, FL 33980
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Telephone:
412-418-1833
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Email:
bmarch@altamirainstruments.com
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With a
copy to:
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Kaufman
& Associates, LLC
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200
Motor Parkway, Suite B-13
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Hauppauge,
New York 11788
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Attention:
Neil M. Kaufman
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Telephone:
(631) 972-0042
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Facsimile:
(631) 410-1007
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Email:
nkaufman@kaufman-associates.com
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If to
the Company, to:
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Scientific
Industries, Inc.
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80
Orville Drive, Suite 102
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Bohemia,
New York 11716
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Attention:
Chairman of Compensation Committee
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Telephone:
(631) 567-4700
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Facsimile:
(631) 567-5896
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Email:
gmorin@altamirainstruments.com
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13.
Successors
and Assigns; Third Party Beneficiaries
. This Agreement shall
be binding upon and inure to the benefit of the successors and
assigns of the Company, and unless clearly inapplicable, all
references herein to the Company shall be deemed to include any
such successor. In addition, this Agreement shall be binding upon
and inure to the benefit of Employee and Employee’s heirs,
executors, legal representatives and assigns; provided, however,
that the obligations of Employee hereunder may not be delegated
without the prior written approval of the Company. In the event of
any consolidation or merger of the Company into or with any other
corporation during the term of this Agreement, or the sale of all
or substantially all of the assets of the Company to another
corporation, person or entity during the term of this Agreement,
such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof
applicable to the Company, and Employee's obligations hereunder
shall continue in favor of such successor corporation.
14.
Acknowledgment
.
Employee acknowledges that Employee has carefully read this
Agreement, has had an opportunity to consult counsel regarding this
Agreement and hereby represents and warrants to the Company that
Employee’s entering into this Agreement, and the obligations
and duties undertaken by Employee hereunder, will not conflict
with, constitute a breach of or otherwise violate the terms of any
other agreement to which Employee is a party and that Employee is
not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform Employee’s
obligations under this Agreement.
15.
Waiver of Jury
Trial
.
EACH
PARTY TO THIS AGREEMENT HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY RELATED
DOCUMENTS, ANY DEALINGS BETWEEN OR AMONG THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT.
16.
Enforcement
. It is
the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, to the extent that a
restriction contained in this Agreement is more restrictive than
permitted by the laws of any jurisdiction where this Agreement may
be subject to review and interpretation, the terms of such
restriction, for the purpose only of the operation of such
restriction in such jurisdiction, shall be the maximum restriction
allowed by the laws of such jurisdiction and such restriction shall
be deemed to have been revised accordingly herein. If any provision
of this Agreement shall be held by a court of competent
jurisdiction to be contrary to law or public policy, the remaining
provisions shall remain in full force and effect.
17.
Miscellaneous
.
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard
to conflicts of laws. The parties hereto hereby irrevocably submit
to the exclusive jurisdiction of any New York State or Federal
court sitting in Suffolk County, New York over any suit, action or
proceeding arising out of or relating to this Agreement. This
Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes any other agreements
entered into between Employee and the Company prior to the date of
this Agreement relating thereto. This Agreement may not be altered,
modified, amended or terminated except by a written instrument
signed by each of the parties hereto. No term or provision hereof
shall be deemed waived and no breach consented to or excused,
unless such waiver, consent or excuse shall be in writing and
signed by the party claimed to have waived, consented or excused. A
consent, waiver or excuse of any breach shall not constitute a
consent to, waiver or, or excuse of any other or subsequent breach
whether or not of the same kind of the original breach. This
Agreement may be executed and delivered by facsimile signature and
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument. Counterparts may be delivered via facsimile,
electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000,
e.g.
, www.docusign.com) or other
transmission method and any counterpart so delivered shall be
deemed to have been duly and validly delivered and be valid and
effective for all purposes. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect
the meaning hereof.
[SIGNATURE PAGE TO
FOLLOW]
IN WITNESS WHEREOF, the parties
hereto have executed this Agreement as of the day of and year first
above written.
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Scientific Industries, Inc.
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By:
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/s/ Helena R. Santos
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Name: Helena R. Santos
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Title: President
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/s/ Brookman March
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Brookman March
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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.
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Scientific Industries, Inc.
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Date: September 28, 2017
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By:
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/s/ Helena R. Santos
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Helena R. Santos
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Chief Executive Officer and
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Chief Financial Officer
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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, 2017 (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.
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Scientific Industries, Inc.
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Date: September 28, 2017
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By:
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/s/ Helena R. Santos
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Helena R. Santos
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Chief Executive Officer and
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Chief Financial Officer
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