SCIENTIFIC INDUSTRIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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☒
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended
June 30,
2019
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☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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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, $.05 par value
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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 repor
ts
☐
Yes
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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
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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)
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Yes
☒
No
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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 6, 2019 is
$8,035,000.
The number of shares outstanding of the registrant’s common
stock, par value $.05 per share (“Common Stock”) as of
September 6, 2019 is 1,494,112 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
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PART I
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BUSINESS
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4
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RISK
FACTORS
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6
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PROPERTIES
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8
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LEGAL PROCEEDINGS
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8
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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8
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PART II
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MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
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8
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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9
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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10
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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10
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CONTROLS
AND PROCEDURES
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10
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OTHER
INFORMATION
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10
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PART III
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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11
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EXECUTIVE COMPENSATION
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12
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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14
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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16
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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16
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PART IV
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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17
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21
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CERTIFICATION
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22
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CERTIFICATION
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23
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Forward Looking
Statements
. The Company and its
representatives may from time to time make written or oral
forward-looking statements with respect to the Company’s
annual or long-term goals, including statements contained in its
filings with the Securities and Exchange Commission and in its
reports to stockholders.
The
words or phrases "will likely result", “will be”,
“will”, "are expected to", "will continue to", "is
anticipated", "estimate", "project" or similar expressions identify
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from historical earnings and those
presently anticipated or projected. Readers are cautioned not to
place undue reliance on any such forward-looking statements, which
speak only as of the date made.
PART I
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 and sample
preparation 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 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,
and pharmacy and laboratory balances and scales, 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 32% and 37% of the Company’s total net revenues
for each of the fiscal years ended June 30, 2019 (“fiscal
2019”) and June 30, 2018 (“fiscal 2018”), and 46%
and 48% of the segment’s sales for fiscal 2019 and fiscal
2018, respectively.
The
Company’s 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 a 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 incubated shakers, 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, and a four-place general
purpose stirrer.
The
Company’s Torbal brand line of products includes 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.
Altamira’s
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 1,200 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 for patents expiring through December
2023. The Company is also engaged in the design and development of
bioprocessing products, principally products incorporating coaster
systems using disposable sensors in vessels that include T-Flasks
and shake flasks.
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 internal engineering
capabilities in areas such as industrial and electronics
design.
4
Major
Customers
. Sales to three
customers, principally of the Vortex-Genie 2 Mixer, represented 15%
for both fiscal 2019 and fiscal 2018 of total net revenues, and 21%
and 20% of Benchtop Laboratory Equipment product sales, for fiscal
2019 and fiscal 2018, respectively. 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 2019, sales to two customers accounted for 27%
of the segment’s sales (5% of total net revenues) and in
fiscal 2018 sales to four customers (one of which was a customer in
2019) accounted for 78% of the segment’s sales (13% 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 in the U.S. and a consultant in Europe.
In
general, due to the reliance on sales through distribution, it
takes two to three years for a new Genie brand 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 facility in
Pittsburgh where it conducts product development and plans to
operate future small scale production for the Bioprocessing Systems
operations. 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, although no
assurances can be provided.
Patents, Trademarks
and Licenses
.
The
Company holds a United States patent which expires in November 2022
on the MagStir Genie® and on the MultiMagStir Genie®. Two
additional patents held by the Company relating to Bioprocessing
Systems expire in January 2029 for a biocompatible bag with
integral sensors. The last patent held by the Company expires in
2036 on an apparatus for detecting pH and dissolved oxygen. The
Company also holds a patent that relates to a future vortexing
product which is still in development stages. 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™, Genie Temp-Shaker™, 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™, VIVID™, 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 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. Total
license fees paid or owed by the Company under this license for
fiscal 2019 and fiscal 2018 amounted to $1,035,400 and $517,000,
respectively.
Foreign
Sales
. The Company’s
sales to overseas customers, principally in Asia and Europe,
accounted for approximately 50% and 48% of the Company’s net
revenues for fiscal 2019 and 2018, 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, 2019 was $124,200, all
of which is expected to be filled by June 30, 2020, as compared to
a backlog of $509,600 as of June 30, 2018, all of which was filled
in fiscal 2019.
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.
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.
5
The
primary competition for the Company’s Catalyst Research
Instrument products is in the form of instruments produced
internally by research laboratory staff of potential customers.
Major competitors in the United States include Anton Paar (which is
also a customer) and Micromeritics Instrument Corporation, each a
privately-held company. The Company sells instruments to Anton Paar
(formerly Quantachrome Instruments) 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 $530,500
during fiscal 2019 compared to $520,900 during fiscal 2018. The
Company expects that research and development expenditures in the
fiscal year ending June 30, 2020 will increase substantially due to
increased product development efforts for the Bioprocessing
Systems.
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 6, 2019, the Company employed 39 persons (28 for
the Benchtop Laboratory Equipment operations, 9 for the Catalyst
Research Instruments operations, and 2 for the Bioprocessing
Systems operations) of whom 31 were full-time, including its five
executive officers. In addition, certain 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 2019,
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 2019
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://www.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 the top three Benchtop Laboratory Equipment operations customers
accounted for a combined aggregate of 21% and 20% of the
segment’s total sales for fiscal 2019 and 2018, respectively
(15% of its total net revenues for both fiscal 2019 and
2018).
No
representation can be made that the Company will be successful in
retaining any of these customers, or not suffer a material
reduction in sales, either of 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 46% and 48% of Benchtop Laboratory Equipment sales,
for fiscal 2019 and fiscal 2018, (32% and 37% of total net revenues
for fiscal 2019 and fiscal 2018, 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 ($7,078,800 for fiscal 2019 and $6,403,400 for fiscal
2018) 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 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 increase
revenues and reduce 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
non Vortex-Genie Benchtop Laboratory Equipment products including
Torbal products only amounted to $3,843,500 (54% of the
segment’s sales and 38% of total revenues) for fiscal 2019
and $3,300,500, (52% of the segment’s sales and 39% of total
revenues) for fiscal 2018. 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.
6
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 their 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 recently
expanded its outside sales force.
The
success of the Company’s Bioprocessing Systems operation will
be heavily dependent on its ability to successfully develop and
produce new products. Commencing approximately in the last quarter
of fiscal 2019, the Company began to commit substantial resources
in the form of consulting, employees, materials, supplies, and
facilities to accelerate its new product development efforts. 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
Company expects the sale and marketing of these new products, at
least initially, to be through the Company’s attendance at
trade shows, website, online marketing, and a few select
distributors. The Company plans to incur significant marketing
expenditures on initial marketing of the Bioprocessing Systems
products.
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, sales to overseas customers, including sales
in China, account for approximately 50% of the Company’s net
revenues. The high value of the dollar relative to foreign
currencies has a negative impact on sales because the
Company’s products, which are paid in dollars, become more
expensive to overseas customers.
The
current political situation as it pertains to tariffs and a trade
war could have a negative effect on the Company’s level of
future exports. In addition, any tariffs will have a negative
effect on the Company’s gross margins since various
components used in the Company’s products are produced
overseas, even if purchased from a US supplier, and the Company is
unable to pass such cost increases to its customers.
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, such as current and potential future tariffs. 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. The Company seeks to mitigate
the effect of the tariffs on its component costs through supplier
negotiations, however, alternate suppliers are not always feasible
for various reasons including complexity and cost of toolings. 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, however such patents expire in
calendar year 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 services from either of Ms. Helena Santos, the
Company’s President, Chief Executive, Financial Officer and
Treasurer, Mr. Robert Nichols, the President of the Company’s
Genie Products Division of the Benchtop Laboratory operations, Mr.
Karl Nowosielski, the President of the Torbal Products Division of
the Benchtop Laboratory operations, or Mr. Anthony Mitri, the
President of Altamira 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.
7
The
Common Stock of the Company is Thinly Traded and is Subject to
Volatility
As
of September 6, 2019, there were 1,494,112 shares of Common Stock
of the Company outstanding, of which 424,821 (28%) 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 2019 on which no trades of the
Company’s Common Stock were reported. Accordingly, the market
price for the Common Stock is subject to great
volatility.
Item 2. Properties.
The
Company’s executive office and principal manufacturing
facility for its Benchtop Laboratory Equipment operations comprises
approximately 19,000 square feet. This facility is located in
Bohemia, New York and is held under 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 which expires in
November 2020. The Bioprocessing Systems operations are conducted
from an approximately a 1,200 square foot laboratory facility in
Pittsburgh Pennsylvania under a lease which expires in November
2020. 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.
Item 3
.
Legal
Proceedings.
The
Company is not a party to any pending legal
proceedings.
No
matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2019.
PART II
Item 5
.
Market for the Registrant's
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The
Company's Common Stock is traded in the over-the-counter market.
The following table sets forth the low and high bid quotations for
each quarter of fiscal 2018 and fiscal 2019, 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
|
|
09/30/17
|
2.92
|
3.50
|
|
12/31/17
|
2.85
|
3.20
|
|
03/31/18
|
2.85
|
3.30
|
|
06/30/18
|
3.05
|
3.30
|
|
09/30/18
|
2.82
|
3.24
|
|
12/31/18
|
2.99
|
4.00
|
|
03/31/19
|
3.50
|
4.50
|
|
06/30/19
|
3.88
|
4.75
|
As
of September 6, 2019, there were 273 record holders of the
Company's Common Stock.
8
Forward-Looking
statements.
Certain statements contained
in this report are not based on historical facts, but are
forward-looking statements that are based upon various assumptions
about future conditions. Actual events in the future could differ
materially from those described in the forward-looking information.
Numerous unknown factors and future events could cause such
differences, including but not limited to, product demand, market
acceptance, success of marketing strategy, success of expansion
efforts, impact of competition, adverse economic conditions, and
other factors affecting the Company’s business that are
beyond the Company’s control, which are discussed elsewhere
in this report. Consequently, no forward-looking statement can be
guaranteed. The Company undertakes no obligation to publicly update
forward-looking statements, whether as a result of new information,
future events or otherwise. This Management’s Discussion and
Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Company’s financial statements
and the related notes included elsewhere in this
report.
Overview.
The
Company reflected income before income tax expense of $776,100 for
fiscal 2019 compared to income before income tax expense of $1,400
for fiscal 2018, primarily due to the increased royalty income
derived by the Bioprocessing Operations and increased sales and
profits of the Benchtop Laboratory Equipment operations and
increased sales and a decreased loss by the Catalyst Research
Instruments operations. The results reflected total non-cash
amounts for depreciation, amortization, and adjustments to
contingent consideration liabilities of approximately $778,500 for
fiscal 2019 and approximately $714,000 for fiscal
2018.
Results of
Operations.
Net revenues for
fiscal 2019 increased $1,718,400 (20.3%) to $10,199,800 from
$8,481,400 for fiscal 2018, reflecting an increase of approximately
$637,000 (95.2%) in royalties earned by the Bioprocessing Systems
operations due to higher sales derived from its sublicense in
Europe, an increase of approximately $675,400 (10.5%) in sales of
Benchtop Laboratory Equipment derived from increased sales of new
Torbal brand products and increased sales for Genie brand products
in the United States, and an increase of approximately $406,000
(28.8%) in net sales of Catalyst Research Instruments, primarily to
overseas customers.
Sales of Catalyst Research Instruments are
comprised of a small number of large orders, while the sales of
Benchtop Laboratory Equipment are comprised of a large number of
small orders. As of June 30, 2019, the order backlog for Catalyst
Research Instruments was $124,200, all of which is expected to be
shipped during fiscal year ending June 30, 2020, compared to
$509,600 as of June 30, 2018.
The gross profit percentage for fiscal 2019 was
42.8% compared to 38.0% for fiscal 2018. The current year reflected
higher gross profit margins on sales of Catalyst Research
Instruments primarily due to increased sales of higher margin
custom products including more custom products at higher margins.
The Company’s gross margin on Benchtop Laboratory Equipment
also increased due to customer mix including more online sales that
have higher margins. The Bioprocessing Systems Operations also
reflected higher gross margin due to higher revenues.
General and administrative expenses for fiscal
2019 increased by approximately $175,600 (10.0%) to $1,924,400
compared to $1,748,800 for fiscal 2018 due primarily to an increase
in various items across all business segments including legal fees,
director meetings due to new directors, and consulting
expenses.
Selling
expenses for fiscal 2019 increased approximately $178,600 (18.7%)
to $1,136,100 from $957,500 for fiscal 2018, primarily due to
increased sales commissions and related salaries on higher sales
for both the Benchtop Laboratory Equipment operations and the
Catalyst Research Instruments operations, online marketing costs
for the Torbal brand products, and market research costs for the
Bioprocessing Systems operations.
Research and development expenses amounted to
$530,500 for fiscal 2019 compared to $520,900 for fiscal 2018. The
Company increased its new product development efforts in the last
quarter of fiscal 2019 for the Bioprocessing Systems operations.
During the last quarter of fiscal 2019, the Company's Bioprocessing
Systems operations began to expand and increased its product
development efforts with the hiring of an engineer. Since
year end the Company hired two additional engineers and is
committing additional resources for materials and supplies for
development of Bioprocessing Systems
.
Total
other income (loss), net was -$5,900 for fiscal 2019 compared to
$6,900 income in fiscal 2018 due to holding losses on investment
securities.
The
Company reflected income tax expense of $124,600 for fiscal 2019
compared to $161,900 for fiscal 2018, primarily due to lower
effective tax rate.
As
a result of the foregoing, the Company recorded net income of
$645,600 for fiscal 2019 compared to a net loss of $160,500 for
fiscal 2018.
Liquidity and Capital
Resources.
Cash and cash
equivalents increased by $549,400 to $1,602,500 as of June 30, 2019
from $1,053,100 as of June 30, 2018.
Net cash provided by operating activities was
$1,159,500 for fiscal 2019 compared to $256,900 for fiscal 2018.
The current fiscal year reflected significantly higher operating
income, higher accounts receivable balances, and a higher amount
for change in fair value adjustment of contingent
consideration.
Net cash used in investing activities was
$218,400 for fiscal 2019 compared to $79,500 for fiscal 2018 due
mainly to new capital expenditures related to new toolings and ERP
system, increased intangible asset purchases related to new patents
and trademarks, and purchases of investment securities. The Company
used $391,700 in financing activities in fiscal 2019 compared to
$149,400 in fiscal 2018, mainly due to higher payments of
contingent consideration related to the SBI acquisition and payment
of a cash dividend.
The
Company's working capital increased by $887,600 to $5,005,800 as of
June 30, 2019 compared to $4,118,200, as of June 30, 2018,
primarily due to increased cash generated from higher operating
income. For fiscal 2019, the Company reclassified $245,400 of trade
accounts receivable from long term to short term
assets.
The
Company has a Demand Line of Credit through December 2019 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 5.25%. Advances on the line are
secured by a pledge of the Company’s assets including
inventory, accounts receivable, chattel paper, equipment and
general intangibles of the Company. As of June 30, 2019, no
borrowings were outstanding under such line.
Management
believes that the Company will be able to meet its cash flow needs
during the next 12 months from its available financial resources
including the lines of credit, its cash and investment securities,
and operations. Commencing in the fourth quarter the Company
began committing significant resources for the Bioprocessing
Systems operations for new engineering personnel, market research,
and administration. Management believes that the Company will
be able to meet its cash flow needs during the next 12 months from
its available financial resources including the lines of credit,
its cash and investment securities, and operations.
Commencing in the fourth quarter the Company began committing
significant resources for the Bioprocessing Systems operations for
new engineering personnel, market research, and
administration.
9
Capital
Expenditures
. During fiscal
2019, the Company incurred $187,800 in capital expenditures. The
Company expects that based on its current operations, its capital
expenditures will be approximately the same for the fiscal year
ending June 30, 2020.
Off-Balance Sheet
Arrangements
.
None.
I
tem
8.
Financial Statements and Supplementary
Data.
The
Financial Statements required by this item are attached hereto on
pages F1-F20.
Not
applicable.
Item
9A.
Controls and
Procedures.
Evaluation of Disclosure
Controls and Procedures
. As of
the end of the period covered by this Annual Report on Form 10-K,
based on an evaluation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934), the Chief Executive Officer and
Chief Financial Officer of the Company has concluded that the
Company's disclosure controls and procedures were not effective as
of June 30, 2019 because of the identification of a material
weakness in internal control over financial reporting which related
to the accounting of the Company’s tax provision calculation.
Notwithstanding the material weakness that existed at June 30,
2019, the Chief Executive and Chief Financial Officer of the
Company has concluded that the financial statements included in
this Annual Report on Form 10-K present fairly, in all material
respects, the financial position, results of operations, and cash
flows of the Company and its subsidiaries in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”).
Management and the
Board of Directors are committed to the continued improvement of
the Company's overall system of internal controls over financial
reporting. The Company's remediation plan is to implement
additional processes, controls and procedures relating to the
preparation and review process of its quarterly and annual income
tax provision calculation. The Company is continuing to
implement remedial measures to improve and develop internal
controls, processses and procedures in the income tax provision
process in order to address the material
weakness.
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 Officer and Chief Financial Officer of the Company
conducted an evaluation of the effectiveness of the Company’s
internal controls over financial reporting as of June 30, 2019
based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control
– Integrated Framework.
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.
Except as otherwise discussed above, 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 Officer
and Chief Financial Officer, believes that its disclosure on
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 on
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.
Not
applicable.
10
PART III
Directors
The
Company has the following seven Directors:
Joseph G. Cremonese
(age 84), 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.
Marcus Frampton
(age 39), a Director
since March 2019 is the Chief Investment Officer of the Alaska
Permanent Fund Corporation and serves on the Board of Directors of
Twin Creeks Timber, LLC and Nyrada, Inc., a drug development
company. He served as Director of Investments, Real Assets and
Absolute Return of the Alaska Permanent Fund from 2016 to 2018 and
Director of Investments, Private Markets of the Alaska Permanent
Fund from 2012 to 2016 for the Alaska Permanent Fund
Corporation.
John A. Moore
(age 53), a Director
since January 2019 has been providing consulting services to the
Company’s subsidiary, Scientific Bioprocessing, Inc. since
March 2019. Mr. Moore serves as Executive Chairman of Nyrada, Inc.,
a drug development company since July 2019 and prior to that served
as a director with Noxopharm Limited, a drug development company,
and is also the Chairman of Trialogics, a clinical trial software
provider. Mr. Moore was President, Chief Executive Officer and
director of Acorn Energy, Inc. from 2006 to 2016.
Grace S. Morin
(age 71), 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 55), a Director since 2009, has
been employed by the Company since 1994, and has served since
August 2002 as its President, Chief Executive Officer, Chief
Financial Officer and Treasurer. She had served as Vice President,
Controller from 1997 and as Secretary from May
2001.
James S. Segasture
(age 83), a Director since 1991, has
been retired for the last five years.
John F.F. Watkins
(age 52), 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 as follows: the fiscal year ended June 30, 2019 -
three directors (Mr. Frampton, Mr. Moore, and Ms. Morin, Class B),
the fiscal year ending June 30, 2020 – two directors (Mr.
Cremonese and Mr. Watkins, Class C), and the fiscal year ending
June 30, 2021 - two directors (Ms. Santos and Mr. Segasture, Class
A).
Board Committees
The
Company has three committees – The Stock Option Committee,
the Compensation Committee, and the Audit Committee, each of which
is comprised of the entire Board of Directors.
Executive Officers
See above for the employment history of
Ms.
Santos
.
Robert P. Nichols
(age 58), 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 74), 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 39), is the President of the
Torbal Products Division of the Benchtop Laboratory Equipment
operations and Director of Marketing for the Company. He was Vice
President of Fulcrum, Inc. (the seller of the Torbal Products
Division assets) from 2004 until February 2014.
Anthony J. Mitri
(age 37), has been the
President of Altamira since May 2017. Prior to that he had been
Director of Operations and Engineer since he began his employment
with the Company in 2004.
Section 16(a) Beneficial Ownership Reporting
Compliance
The
Company believes that, for fiscal 2019, 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.
11
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 Compensation 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,
2019 and 2018.
SUMMARY COMPENSATION TABLE
|
Name and
Principal Position
(a)
|
Fiscal Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock Awards
($)
(e)
|
Option Awards
($)
(f)
|
Non- Equity
Incentive Plan Compensation ($)
(g)
|
Non- Qualified
Deferred Compensation
Earnings
($)
(h)
|
Changes in
Pension Value and Non-Qualified Deferred Compensation
Earnings
|
All Other
Compensation ($)
(i)
|
Total
($)
(j)
|
|
Helena R.
Santos,
CEO,
President, CFO
|
2019
|
180,300
|
0
|
0
|
13,100(1)
|
0
|
0
|
0
|
4,900(5)
|
198,300
|
|
2018
|
175,000
|
25,000
|
0
|
13,100(1)
|
0
|
0
|
0
|
6,700(5)
|
219,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookman P.
March,
Vice President
Corporate Strategy, VP, Sales of Altamira
|
2019
|
159,600
|
0
|
0
|
3,900(2)
|
0
|
0
|
0
|
6,400(5)
|
169,900
|
|
2018
|
155,000
|
10,000
|
0
|
3,900(2)
|
0
|
0
|
0
|
6,200(5)
|
175,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Mitri,
President of
Altamira
|
2019
|
120,000
|
0
|
0
|
6,500(3)
|
0
|
0
|
0
|
4,800(5)
|
131,300
|
|
2018
|
110,000
|
0
|
0
|
1,600(3)
|
0
|
0
|
0
|
4,400(5)
|
116,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert P.
Nichols,
President of
Genie Division
|
2019
|
157,600
|
0
|
0
|
3,900(2)
|
0
|
0
|
0
|
6,800(5)
|
168,300
|
|
2018
|
153,000
|
10,000
|
0
|
3,900(2)
|
0
|
0
|
0
|
6,300(5)
|
173,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl D.
Nowosielski
President of
Torbal Division and Director of Marketing
|
2019
|
163,300
|
10,000
|
0
|
7,400(4)
|
0
|
0
|
0
|
6,400(5)
|
187,100
|
|
2018
|
161,700
|
10,000
|
0
|
7,400(4)
|
0
|
0
|
0
|
6,400(5)
|
185,500
|
(1)
The amounts represent compensation expense for the stock options
granted on July 1, 2017 valued utilizing the Black-Scholes-Merton
options pricing model, disregarding estimates of forfeitures
related to service-based vesting considerations. The option was
valued at a total of $39,200 of which $13,100 was expensed in each
of fiscal 2019 and fiscal 2018.
(2)
The amounts represent compensation expense for the July 1, 2017
stock options granted valued utilizing the Black-Scholes-Merton
options pricing model, disregarding estimates of forfeitures
related to service-based vesting considerations. The option was
valued at a total of $11,800 for each individual, of which $3,900
was expensed in each of fiscal 2019 and fiscal 2018.
(3)
The amounts represent compensation expense for the stock options
granted on June 30, 2018 and December 31, 2017 valued utilizing the
Black-Scholes-Merton options pricing model. The option was valued
at a total of $10,000 and $9,500, respectively, utilizing the
Black-Scholes options pricing model, of which a total of $6,500 and
$1,600 was expensed in fiscal 2019 and fiscal 2018,
respectively.
(4)
The amounts represent compensation expense for the stock options
granted on July 1, 2017, and February 26, 2017, valued utilizing
the Black-Scholes-Merton options pricing model, disregarding
estimates of forfeitures related to service-based vesting
considerations. The stock options were granted as part of his
employment agreement. The options were valued at a total of
$11,800, and $10,500, respectively, of which $7,400 was expensed in
each of fiscal 2019 and 2018.
(5)
The amounts represent the Company’s matching contribution
under the Company’s 401(k).
12
GRANTS
OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30,
2019
There were no options granted to named executives
during fiscal 2019
.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
Option
Awards
|
|||||
|
Name
(a)
|
Number
of
Securities
Under-
lying
Unexercised
Options
(#)
Exercisable
(b)
|
Number
of
Securities
Under-
lying
Unexercised
Options
(#)
Unexerci-
sable
(c)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expiration
Date
(f)
|
|
Helena
Santos
|
8,333
|
16,667
|
0
|
3.08
|
07/2027
|
|
Anthony
Mitri
|
3,334
|
6,666
|
0
|
3.05-3.27
|
09/2018-06/2028
|
|
Brookman
March
|
9,500
|
5,000
|
0
|
3.71-3.96
|
05/2022-07/2027
|
|
Robert
Nichols
|
4,500
|
5,000
|
0
|
3.50
|
12/2023-07/2027
|
|
Karl
Nowosielski
|
17,500
|
7,000
|
0
|
3.05-4.05
|
02/2024-07/2027
|
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 agreement provides
for an annual base salary for the fiscal year ended 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 ended June 30, 2018 and on a discretionary basis
thereafter. No bonuses were granted during fiscal 2019. The
agreement also provided for a grant of options to purchase 25,000
shares of the Company’s stock which were granted during the
year ended June 30, 2018. The agreement does not provide for the
grant of stock options in 2019.
On
July 1, 2017, the Company 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 agreement provides
for an annual base salary for the fiscal year ended 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 ended June 30, 2018 and on a discretionary basis
thereafter. No bonuses were granted during fiscal 2019. The
agreement also provided for a grant of options to purchase 7,500
shares of the Company’s stock which were granted during the
year ended June 30, 2018. The agreement does not provide for the
grant of stock options in 2019.
On July 1, 2017, the Company 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 agreement provides for an annual base salary for the fiscal
year ended 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 ended June 30,
2018 and on a discretionary basis thereafter. No bonuses were
granted during fiscal 2019. The agreement also provided for a grant
of options to purchase 7,500 shares of the Company’s stock
which were granted during the year ended June 30, 2018. The
agreement does not provide for the grant of stock options in
2019.
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 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 agreement provides
for an annual base salary for the fiscal year ended 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 2019. The
agreement also provided for a grant of options to purchase 7,500
shares of the Company’s stock which were granted during the
year ended June 30, 2018. The agreement does not provide for the
grant of stock options in 2019.
On
May 16, 2017, the Company entered into a new employment agreement
with Mr. Anthony Mitri through June 30, 2019 with the option to
extend for one additional year period, which was exercised by
mutual agreement. The agreement provides for an annual base salary
for the fiscal year ended June 30, 2019 of $120,000 and $110,000
for the fiscal year ending June 30, 2018 plus incentive pay based
on achievement of certain sales and income levels of Altamira
Instruments, Inc. No incentive pay was earned for the fiscal year
ended June 30, 2019 or 2018. The agreement also provided for the
grant of stock options to purchase up to an aggregate of 10,000
shares, all of which were granted during the fiscal year ended June
30, 2018. No shares were granted during the year ended June 30,
2019.
The
employment agreements for Ms. Santos, Mr. Nichols, Mr. March, Mr.
Nowosielski, and Mr. Mitri contain confidentiality and
non-competition covenants. The employment agreements for all the
named executives above, except Mr. Mitri, 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
$1.00.
13
Directors’ Compensation and Options
DIRECTORS’ COMPENSATION
For the Year Ended June 30, 2019
|
Name
(a)
|
Fees
Earned or Paid in Cash ($)
(b)
|
Stock
Awards ($)
(c)
|
Option
Awards($)
(d)
|
Non-Equity
Incentive Plan Compensation ($)
(e)
|
Changes
in Pension Value and Non-qualified Deferred Compensation
Earnings($)
(f)
|
Non-qualified
Deferred Comp-sensation Earnings ($)
(g)
|
All
Other
Comp-
ensation
($)
(h)
|
Total
($)
(i)
|
|
Joseph
G.Cremonese
|
41,200
|
0
|
0
|
0
|
0
|
0
|
43,200
(1)
|
84,400
|
|
Marcus
Frampton
|
2,800
|
0
|
0
|
0
|
0
|
0
|
0
|
2,800
|
|
John
A. Moore
|
9,800
|
0
|
12,000
|
0
|
0
|
0
|
40,000
|
61,800
|
|
Grace
S.Morin
|
20,800
|
0
|
0
|
0
|
0
|
0
|
18,200
(2)
|
39,000
|
|
James
S.Segasture
|
16,800
|
0
|
0
|
0
|
0
|
0
|
0
|
16,800
|
|
John
F.F. Watkins
|
20,800
|
0
|
0
|
0
|
0
|
0
|
0
|
20,800
|
(1)
Represents amount paid to his affiliate pursuant to a marketing
consulting agreement (see Items 12 and 13).
(2)
Represents compensation received for his administrative services as
consultant for SBI (see items 12 and 13).
(3)
Represents compensation received for her administrative services as
a consultant for Altamira (see Items 12 and 13).
The
Company paid each Director who is not an employee of the Company or
a subsidiary a quarterly retainer fee of $2,200 and a meeting fee
of $2,000 for each meeting attended for fiscal 2019 and fiscal
2018, respectively. 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 $1,700 per month. During fiscal
2019, total director compensation to non-employee Directors
aggregated $213,600, including the consulting fees paid to Mr.
Cremonese’s affiliate, Mr. Moore, and Ms. Morin.
Mr.
Moore was awarded on a monthly basis options valued at $3,000
utilizing the Black-Scholes option pricing model (a total of 6,705
options) for each of March, April, May, and June 2019 as part of
his consulting agreement with the Company. 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.
Item 12
.
Security Ownership of Certain
Beneficial Owners and Management
and Related Stockholder
Matters.
The
following table sets forth, as of June 30, 2019, 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
|
|
Falcon
Juneau, LLC
800
F Street Unit #P2
Juneau,
AK 99801
|
77,085
(1)
|
5.2
%
|
|
Fulcrum,
Inc.
100
Delawanna Avenue
Clifton,
NJ 07014
|
117,370
(2)
|
7.9
%
|
|
Joseph
G. Cremonese
|
138,262
(3)
|
9.2
%
|
|
Marcus
Frampton
|
2,250
(4)
|
0.2
%
|
|
John
A. Moore
|
6,705
(5)
|
0.0
%
|
|
Grace
S. Morin
|
97,450
(6)
|
6.5
%
|
|
Helena
R. Santos
|
40,779
(7)
|
2.7
%
|
|
James
S. Segasture
|
162,500
(8)
|
10.9
%
|
|
John
F. F. Watkins
|
0
|
0.0
%
|
|
Karl
D. Nowosielski
|
34,183
(9)
|
2.3
%
|
|
Brookman
P. March
|
97,450
(10)
|
6.5
%
|
|
Anthony
J. Mitri
|
10,000
(11)
|
0.0
%
|
|
Robert
P. Nichols
|
27,897
(12)
|
1.9
%
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (11
persons)
|
510,026
(13)
|
32.1
%
|
14
|
(1)
Based
upon form Schedule 13G filed with the Securities and Exchange
Commission on January 23, 2019. Mr. Frampton, a director of the
Company, has voting power over these shares.
|
|
|
(2)
Stock
ownership in conjunction with the 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
shares owned by Mr. Frampton.
|
|
|
(5)
Represents
shares issuable upon exercise of options.
|
|
|
(6)
Includes
14,500 shares issuable upon exercise of options held by her
husband, Mr. March.
|
|
|
(7)
Includes
25,000 shares issuable upon exercise of options.
|
|
|
(8)
Shares
owned jointly with his wife.
|
|
|
(9)
Includes
9,683 stock issued in connection with the acquisition of the Torbal
Division in February 2014. Includes 24,500 shares issuable upon
exercise of options.
|
|
|
(10)
Represents
82,950 shares owned by Ms. Morin, his wife and includes 14,500
shares issuable upon exercise of options.
|
|
|
(11)
Represents
shares issuable upon exercise of options.
|
|
|
(12)
Includes
9,500 shares issuable upon exercise of options.
|
|
|
(13)
Includes
95,205 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, 2019.
|
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
|
97,200
|
3.24
|
20,800
|
|
Equity
Compensation plans not approved by security holders
|
N/A
|
N/A
|
N/A
|
|
Total
|
97,200
|
3.24
|
20,800
|
15
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, 2019. 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 2019 and 2018.
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, 2019 at the
rate of $85 per hour, resulting in payments of $18,200 and $7,000
for fiscal 2019 and fiscal 2018, respectively. The agreement
contains confidentiality and non-competition
covenants.
Mr.
John A. Moore, a Director since January 2019, has been providing
consulting services to the Company since March 2019 pursuant to a
consulting agreement which expired on August 31, 2019 but which has
been renewed for an additional six months. The agreement currently
provides that Mr. Moore shall render, at the request of the
Company, consulting services as to the operations of Scientific
Bioprocessing, Inc., a wholly-owned subsidiary of the Company for a
monthly payment of $10,000 plus the issuance of stock options
valued at $3,000. The agreement contains confidentiality and
non-competition covenants. The Company paid fees of $40,000 and
granted options with a value of $12,000 pursuant to the agreement
for fiscal 2019.
The
following is a description of the fees incurred by the Company for
services by the firm of Nussbaum Berg Klein & Wolpow, CPAs LLP
(the “Firm”) during fiscal 2019 and fiscal
2018.
The
Company incurred for the services of the Firm fees of approximately
$73,000 and $70,000 for fiscal 2019 and fiscal 2018, respectively,
in connection with the audit of the Company’s annual
financial statements and quarterly reviews; and $7,500 and $6,000
for the preparation of the Company’s corporate tax returns
for fiscal 2019 and fiscal 2018, respectively.
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.
16
PART
IV
Financial
Statements
. The required
financial statements of the Company are attached hereto on pages
F1-F20.
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.)
|
|
|
|
|
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:
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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:
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Lease
agreement dated August 8, 2014 by and between the Company and 80
Orville Drive Associates LLC.
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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)
|
|
|
|
|
|
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 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2017, and
incorporated by reference thereto).
|
17
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2017, and
incorporated by reference thereto).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Agreement extension dated February 16, 2018 to Amended and Restated
Consulting Agreement by and between the Company and Mr. Cremonese
and affiliates (filed as Exhibit 10-A1 to the Company’s
Current Report on Form 8-K filed on March 9, 2018, and incorporated
with reference thereto).
|
|
|
|
|
|
Agreement
extension dated January 23, 2019 to Amended and Restated Consulting
Agreement by and between the Company and Mr. Cremonese and
affiliates (filed as Exhibit 10-1 to the Company’s Current
Report on Form 8-K filed on January 25, 2019, and incorporated with
reference thereto).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
18
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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 to the Company's Annual Report
on Form 10-K filed on June 30, 2017, and incorporated by reference
thereto).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
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).
|
|
|
|
|
|
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.
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Agreement dated February 16, 2018 to extend Consulting Agreement
(filed as Exhibit 10A-2 to the Company’s Current Report on
Form 8-K filed on March 9, 2018, and incorporated by reference
thereto).
|
|
|
|
|
|
Agreement
dated January 23, 2019 to extend Consulting Agreement (filed as
Exhibit 10-2 to the Company’s Current Report on Form 8-K
filed on January 25, 2019, and incorporated by reference
thereto).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
19
|
|
|
|
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)
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Registration Rights Ag
r
eement,
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).
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Commercial Security Agreement dated July 5, 2016 by and among the
Company, and First National Bank of Pennsylvania.
|
|
|
|
|
|
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).
|
|
|
|
|
|
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).
|
|
|
|
|
|
Consulting
Agreement dated March 1, 2019 between the Company and Mr. John A.
Moore (filed as Exhibit 10A-1 to the Company’s Current Report
on Form 8-K filed on March 6, 2019.
|
|
|
|
|
|
Code of Ethics (filed as Exhibit 14 to the Company’s Annual
10KSB filed on September 28, 2007 and incorporated by reference
thereto).
|
|
|
|
|
|
21
|
Subsidiaries of the Registrant
|
|
|
|
|
|
Altamira Instruments, Inc., a Delaware Corporation, is a
wholly-owned subsidiary of the Company.
|
|
|
|
|
|
Scientific Bioprocessing, Inc., a Delaware Corporation, is a
wholly-owned subsidiary of the Company since November
2011.
|
|
|
|
|
|
Scientific Packaging Industries, Inc., a New York corporation, is a
wholly-owned inactive subsidiary of the Company.
|
|
|
|
|
31.01
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.01
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
|
20
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: October 04, 2019
|
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/Helena
R. Santos
|
|
|
Helena R. Santos
President, Chief Executive Officer,
Chief Financial Officer and Treasurer
|
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
|
|
|
|
|
|
|
|
|
|
Helena R. Santos
|
President, Chief Executive Officer, Chief Financial Officer and
Treasurer
|
October 04, 2019
|
|
|
|
|
|
Joseph G. Cremonese
|
Chairman of the Board
|
October 04, 2019
|
|
|
|
|
|
Marcus Frampton
|
Director
|
October 04, 2019
|
|
|
|
|
|
John A. Moore
|
Director
|
October 04, 2019
|
|
|
|
|
|
Grace S. Morin
|
Director
|
October 04, 2019
|
|
|
|
|
|
James S. Segasture
|
Director
|
October 04, 2019
|
|
|
|
|
|
John F.F. Watkins
|
Director
|
October 04, 2019
|
21
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE YEARS ENDED
JUNE 30, 2019 AND 2018
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
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 stockholders’ equity
|
F-5
|
|
|
|
|
Statements of cash
flows
|
F-6
|
|
|
|
|
Notes
to financial statements
|
F-7
– F-20
|
Report of Independent Registered Public Accounting
Firm
To the
Stockholders’ and the Board of Directors of Scientific
Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and its subsidiaries (the
“Company”) as of June 30, 2019 and 2018, the related
consolidated statements of operations, comprehensive income (loss),
changes in stockholders' equity and cash flows for the years then
ended, and the related notes to the consolidated financial
statements (collectively, the “financial statements”).
In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of June
30, 2019 and 2018, and the 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.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting 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.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
We have
served as the Company’s auditor since 1991.
/s/
Nussbaum Berg Klein
& Wolpow, CPAs LLP
Nussbaum
Berg Klein & Wolpow, CPAs LLP
Melville, New York
October
04, 2019
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2019 AND 2018
ASSETS
|
|
2019
|
2018
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
1,602,500
|
$
1,053,100
|
|
Investment
securities
|
330,900
|
314,700
|
|
Trade accounts
receivable, less allowance for doubtful accounts of $15,000 and
$11,600, respectively
|
1,974,200
|
1,722,300
|
|
Inventories
|
2,592,300
|
2,267,900
|
|
Prepaid expenses
and other current assets
|
91,200
|
33,500
|
|
Total current
assets
|
6,591,100
|
5,391,500
|
|
|
|
|
|
Property and
equipment, net
|
318,800
|
199,500
|
|
|
|
|
|
Intangible assets,
net
|
175,000
|
338,700
|
|
|
|
|
|
Goodwill
|
705,300
|
705,300
|
|
|
|
|
|
Trade accounts
receivable, less current portion
|
-
|
245,400
|
|
|
|
|
|
Other
assets
|
54,700
|
52,500
|
|
|
|
|
|
Deferred
taxes
|
431,100
|
392,600
|
|
|
|
|
|
Total
assets
|
$
8,276,000
|
$
7,325,500
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
569,000
|
$
428,000
|
|
Accrued expenses
and taxes, current portion
|
608,300
|
657,700
|
|
Contract
liabilities
|
-
|
63,800
|
|
Bank
overdraft
|
140,000
|
-
|
|
Contingent
consideration, current portion
|
268,000
|
118,000
|
|
Notes
payable
|
-
|
5,800
|
|
Total current
liabilities
|
1,585,300
|
1,273,300
|
|
|
|
|
|
Accrued expenses,
less current portion
|
-
|
60,000
|
|
|
|
|
|
Contingent
consideration payable, less current portion
|
350,000
|
290,000
|
|
|
|
|
|
Total
liabilities
|
1,935,300
|
1,623,300
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Common stock, $.05
par value; 7,000,000 shares authorized; 1,513,914 shares issued;
1,494,112 shares outstanding, respectively
|
75,700
|
75,700
|
|
Additional paid-in
capital
|
2,592,700
|
2,545,900
|
|
Accumulated other
comprehensive income
|
-
|
1,200
|
|
Retained
earnings
|
3,724,700
|
3,131,800
|
|
|
6,393,100
|
5,754,600
|
|
Less common stock
held in treasury at cost, 19,802 shares
|
52,400
|
52,400
|
|
|
|
|
|
Total
stockholders’ equity
|
6,340,700
|
5,702,200
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
$
8,276,000
|
$
7,325,500
|
See
notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
|
|
2019
|
2018
|
|
|
|
|
|
Revenues
|
$
10,199,800
|
$
8,481,400
|
|
|
|
|
|
Cost of
revenues
|
5,832,700
|
5,259,700
|
|
|
|
|
|
Gross
profit
|
4,367,100
|
3,221,700
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
General and
administrative
|
1,924,400
|
1,748,800
|
|
Selling
|
1,136,100
|
957,500
|
|
Research and
development
|
530,500
|
520,900
|
|
|
|
|
|
Total operating
expenses
|
3,591,000
|
3,227,200
|
|
|
|
|
|
Income (loss) from
operations
|
776,100
|
(5,500
)
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
Interest
income
|
3,400
|
6,100
|
|
Other income
(loss), net
|
(7,800
)
|
2,500
|
|
Interest
expense
|
(1,500
)
|
(1,700
)
|
|
|
|
|
|
Total other income
(expense)
|
(5,900
)
|
6,900
|
|
|
|
|
|
Income before
income tax expense
|
770,200
|
1,400
|
|
|
|
|
|
Income tax
expense:
|
|
|
|
Current
|
166,600
|
50,400
|
|
Deferred
|
(42,000
)
|
111,500
|
|
|
|
|
|
Total income tax
expense
|
124,600
|
161,900
|
|
|
|
|
|
Net income
(loss)
|
$
645,600
|
$
(160,500
)
|
|
|
|
|
|
Basic earnings
(loss) per common share
|
$
.43
|
$
(.11
)
|
|
|
|
|
|
Diluted earnings
(loss) per common share
|
$
.43
|
$
(.11
)
|
|
|
|
|
|
Weighted average
common shares, basic
|
1,494,112
|
1,494,112
|
|
|
|
|
|
Weighted average
common shares outstanding, assuming dilution (in 2019)
|
1,512,178
|
1,494,112
|
|
|
|
|
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, 2019 AND 2018
|
|
2019
|
2018
|
|
|
|
|
|
Net income
(loss)
|
$
645,600
|
$
(160,500
)
|
|
|
|
|
|
Other comprehensive
income:
|
|
|
|
Unrealized holding
gain
|
|
|
|
arising during
period,
|
|
|
|
net of
tax
|
-
|
4,700
|
|
|
|
|
|
Comprehensive
income (loss)
|
$
645,600
|
$
(155,800
)
|
See
notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
|
|
|
Additional
|
Accumulated
Other
|
|
|
Total
|
||
|
|
Common
Stock
|
Paid-in
|
Comprehensive
|
Retained
|
Treasury
Stock
|
Stockholders’
|
||
|
|
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Earnings
|
Shares
|
Amount
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1,
2017
|
1,513,914
|
$
75,700
|
$
2,515,900
|
$
(3,500
)
|
$
3,292,300
|
19,802
|
$
52,400
|
$
5,828,000
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
(160,500
)
|
-
|
-
|
(160,500
)
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on
investment securities, net of tax
|
-
|
-
|
-
|
4,700
|
-
|
-
|
-
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
30,000
|
-
|
-
|
-
|
-
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2018
|
1,513,914
|
75,700
|
2,545,900
|
1,200
|
3,131,800
|
19,802
|
52,400
|
5,702,200
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of the adoption
of
|
-
|
-
|
-
|
(22,000
)
|
22,000
|
-
|
-
|
-
|
|
ASU 2016-01 – Financial
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
-
|
-
|
-
|
-
|
645,600
|
-
|
-
|
645,600
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared and paid,
$.05
|
-
|
-
|
-
|
-
|
(74,700
)
|
-
|
-
|
(74,700
)
|
|
|
|
|
|
|
|
|
|
|
|
Holding loss on investment
securities, net of tax
|
-
|
-
|
-
|
20,800
|
-
|
-
|
-
|
20,800
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
-
|
-
|
46,800
|
-
|
-
|
-
|
-
|
46,800
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2019
|
1,513,914
|
$
75,700
|
$
2,592,700
|
$
-
|
$
3,724,700
|
19,802
|
$
52,400
|
$
6,340,700
|
See
notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
|
|
2019
|
2018
|
|
|
|
|
|
Operating
activities:
|
|
|
|
Net income
(loss)
|
$
645,600
|
$
(160,500
)
|
|
Adjustments to
reconcile net income (loss) to net
cash
provided by operating activities:
|
|
|
|
Loss on sale of investment
securities
|
13,200
|
-
|
|
Depreciation and
amortization
|
257,300
|
305,100
|
|
Deferred income tax
(benefit) expense
|
(38,500
)
|
112,500
|
|
Unrealized holding
gain on investment securities
|
(3,000
)
|
-
|
|
Stock-based
compensation
|
46,800
|
30,000
|
|
Change in fair
value of contingent consideration
|
521,200
|
253,700
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
(6,500
)
|
(543,300
)
|
|
Inventories
|
(324,400
)
|
(306,700
)
|
|
Prepaid expenses
and other assets
|
(60,100
)
|
46,800
|
|
Accounts
payable
|
141,000
|
288,800
|
|
Contract
liabilities
|
(63,800
)
|
63,800
|
|
Accrued
expenses and taxes
|
(109,300
)
|
166,700
|
|
Bank overdraft
|
140,000
|
-
|
|
|
|
|
|
Total
adjustments
|
513,900
|
417,400
|
|
|
|
|
|
Net cash provided
by operating activities
|
1,159,500
|
256,900
|
|
|
|
|
|
Investing
activities:
|
|
|
|
Purchase of
investment securities
|
(157,900
)
|
(14,500
)
|
|
Redemption of
investment securities
|
151,900
|
-
|
|
Capital
expenditures
|
(187,800
)
|
(61,400
)
|
|
Purchase of
intangible assets
|
(24,600
)
|
(3,600
)
|
|
|
|
|
|
Net cash used in
investing activities
|
(218,400
)
|
(79,500
)
|
|
|
|
|
|
Financing
activities:
|
|
|
|
Principal payments
on notes payable
|
(5,800
)
|
(6,700
)
|
|
Cash dividend
declared and paid
|
(74,700
)
|
-
|
|
Line of credit
proceeds
|
50,000
|
40,000
|
|
Line of credit
repayments
|
(50,000
)
|
(40,000
)
|
|
Payments for
contingent consideration
|
(311,200
)
|
(142,700
)
|
|
|
|
|
|
Net cash used in
financing activities
|
(391,700
)
|
(149,400
)
|
|
Net increase in
cash and cash equivalents
|
549,400
|
28,000
|
|
|
|
|
|
Cash and cash
equivalents, beginning of year
|
1,053,100
|
1,025,100
|
|
|
|
|
|
Cash and cash
equivalents, end of year
|
$
1,602,500
|
$
1,053,100
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
Income
taxes
|
$
56,700
|
$
16,000
|
|
Interest
|
$
1,500
|
$
1,700
|
See
notes to consolidated financial statements.
F-6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
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. Additionally, the
Company has two other locations 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 products
sold by the Company includes mixers, shakers, stirrers,
refrigerated incubators, pharmacy balances and scales, force
gauges, 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
On July 1, 2018 the Company adopted Accounting
Standards Codification (“ASC”) Topic 606 “Revenue
from Contracts with Customers, as amended” (“ASC Topic
606”), using the modified retrospective method applied to
those contracts which were not completed as of the adoption
date.
The adoption of the
standard did not have a material impact on how the Company
recognizes its revenues. In accordance with Topic 606, the Company
accounts for a customer contract when both parties have approved
the contract and are committed to perform their respective
obligations, each party’s rights can be identified, payment
terms can be identified, the contract has commercial substance, and
it is probable that the Company will collect substantially all of
the consideration to which it is entitled. Revenue is recognized
when, or as, performance obligations are satisfied by transferring
control of a promised product or service to a
customer.
Nature of Products and Services
We
generate revenues from the following sources: (1) Benchtop
Laboratory Equipment, (2) Catalyst Research Instruments, and (3)
Royalties.
The
following table summarizes the Company’s disaggregation of
revenues for the years ended June 30, 2019 and 2018.
|
|
Benchtop
Laboratory
Equipment
|
Catalyst
Research
Instruments
|
Bioprocessing
Systems
|
Consolidated
|
|
June 30,
2019:
|
|
|
|
|
|
Revenues
|
$
7,078,800
|
$
1,814,900
|
$
1,306,100
|
$
10,199,800
|
|
Foreign
Sales
|
2,680,300
|
1,102,300
|
1,301,200
|
5,083,800
|
|
|
|
|
|
|
|
June 30,
2018:
|
|
|
|
|
|
Revenues
|
$
6,403,400
|
$
1,408,900
|
$
669,100
|
$
8,481,400
|
|
Foreign
Sales
|
2,669,000
|
707,200
|
669,100
|
4,045,300
|
Benchtop
laboratory equipment sales comprise primarily of standard benchtop
laboratory equipment from its stock to laboratory equipment
distributors, or to end users primarily via e-commerce. The sales
cycle from time of receipt of order to shipment is very short
varying from a day to a few weeks. Customers either pay by credit
card (online sales) or Net 30-90, depending on the customer. Once
the item is shipped under the FOB terms specified in the order,
which is primarily “FOB Factory”, other than a standard
warranty, there are no other obligations to the customer. Warranty
usually comprises of one to two year parts and labor and is deemed
immaterial.
F-7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
1.
Summary of Significant Accounting Policies (Continued)
Revenue Recognition (Continued)
Nature of Products and Services (Continued)
Catalyst
research instrument sales comprise primarily of large instruments
which begin with a standard model and then are customized to a
customer’s specifications. The sales cycle can be quite long,
typically ranging from one to three months, from the time an order
is received to the time the instrument is shipped to the customer.
Payment terms vary from customer to customer and can include
advance payments which are recorded as contract liabilities. Some
contracts call for training and installation, which is considered
ancillary and not a material part of the contract. Due to the size
and nature of the instruments, the Company subjects the instruments
to an extensive factory acceptance testing process prior to
shipment to ensure that they are fully operational once they reach
the customer’s site. Normally, the Company warrantees its
instruments for a period of twelve months for parts and labor which
normally consists of replacement of small components or software
support. Catalyst research instruments are never returned for
repairs.
Royalty
revenues pertain to royalties earned by the Company, which are paid
on a calendar year basis, under a licensing agreement from a single
licensee and its sublicensees. The Company is then obligated to pay
50% of all royalties received to the entity that licenses the
intellectual property to the Company. During the year, the
Company’s management uses its best judgement to estimate the
royalty revenues earned during the period.
The
Company determines revenue recognition through the following
steps:
|
|
●
|
Identification
of the contract, or contracts, with a customer
|
|
|
●
|
Identification
of the performance obligations in the contract
|
|
|
●
|
Determination
of the transaction price
|
|
|
●
|
Allocation
of the transaction price to the performance obligations in the
contract
|
|
|
●
|
Recognition
of revenue when, or as, a performance obligation is
satisfied
|
The
Company has made the following accounting policy elections and
elected to use certain practical expedients, as permitted by the
Financial Accounting Standards Board ("FASB"), in applying ASC
Topic 606: 1) All revenues are recorded net of returns, allowances,
customer discounts, and incentives; 2) Although sales and other
taxes are immaterial, the Company accounts for amounts collected
from customers for sales and other taxes, if any, net of related
amounts remitted to tax authorities; 3) The Company expenses costs
to obtain a contract as they are incurred if the expected period of
benefit, and therefore the amortization period, is one year or
less; 4) The Company accounts for shipping and handling activities
that occur after control transfers to the customer as a fulfillment
cost rather than an additional promised service and these
fulfillment costs fall within selling expenses; 5) The Company is
always considered the principal and never an agent, because it has
full control and responsibility until title is transferred to the
customer; 6) The Company does not assess whether promised goods or
services are performance obligations if they are immaterial in the
context of the contract with the customer such as is the case with
catalyst instruments.
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,
2019, and 2018, $1,328,600 and $593,700, 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.
Contract Liabilities
Contract
liabilities consists of billings or payments received in advance of
revenue recognition and is recognized as the revenue recognition
criteria are met. Amounts that have been invoiced are initially
recorded in accounts receivable and contract liabilities. The
Company invoices its customers in accordance with the terms of the
underlying contract. Accordingly, the contract liabilities balance
does not represent the total contract value of outstanding
arrangements. Contract liabilities that are expected to be
recognized during the subsequent 12-month period are recorded as
current and the remaining portion as noncurrent. Customer advances
of $63,800 for the year ended June 30, 2018 were reclassified to
contract liabilities on the balance sheet, which was all recognized
as revenue during the year ended June 30, 2019.
Investment Securities
Investment
securities consist of equity securities and mutual funds with
realized gains and losses recorded using the specific
identification method. Changes in fair value are recorded as
unrealized holding gains or losses on the income statement. We
determine the cost of the investment sold based on an average cost
basis at the individual security level, and record the interest
income and realized gains or losses on the sale of these
investments in other income (loss), net. Prior to the year ended
June 30, 2019, the Company’s investment securities were
classified as available-for-sale securities and measured and
recorded at fair value with unrealized changes in fair value
recorded through other comprehensive income.
F-8
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND
2018
1.
Summary of Significant Accounting Policies (Continued)
Inventories
Inventories are
valued at the lower of cost (determined on a first-in, first-out
basis) or net realizable value, and have been reduced by an
allowance for excess and obsolete inventories. The estimate is
based on management’s review of inventories on hand compared
to estimated future usage and sales. Cost of work-in-process and
finished goods inventories include material, labor and
manufacturing overhead.
Property and Equipment
Property and
equipment are stated at cost. Depreciation of 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, 2019 and 2018, 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. The Company concluded as of June 30,
2019 and 2018, there was no impairment of long-lived
assets.
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 $207,500
and $174,700 for the years ended June 30, 2019 and 2018,
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.
F-9
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
1.
Summary of Significant Accounting Policies (Continued)
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, 2019 and 2018, 20,795 and
26,000 shares respectively, of Common Stock were available for
grant of options under the 2012 Plan.
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, 2019 and 2018, the Company granted 6,705
and 57,500 options, respectively, to employees that had a fair
value of $12,000 and $51,000, respectively. The fair value of the
options granted during the years ended June 30, 2019 and 2018 were
determined using the Black-Scholes-Merton option-pricing model. The
weighted average assumptions used for the years ended June 30, 2019
and 2018 was an expected life of 10 years; risk free interest rate
of 2.44% and 2.43%; volatility of 35% and 47%, and dividend yield
of 1.29% and .85%, respectively. The Company declared a dividend of
$0.05 per share during the year ended June 30, 2019. The Company
did not declare dividends during the year ended June 30, 2018. The
weighted-average value per share of the options granted during the
years ended June 30, 2019 and 2018 was $1.79 and $1.64,
respectively, and total stock-based compensation costs were $46,800
and $30,000 for the years ended June 30, 2019 and 2018,
respectively. Stock-based compensation costs related to nonvested
awards expected to be recognized in the future are $38,600 and
$73,500 as of June 30, 2019 and 2018, 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.
Recent Accounting Pronouncements
In
February 2016, the FASB issued authoritative guidance that requires
lessees to account for most leases on their balance sheets with the
liability being equal to the present value of the lease payments.
The right-of-use asset will be based on the lease liability
adjusted for certain cost such as direct costs. Lease expense will
be recognized similar to current accounting guidance with operating
leases resulting in a straight-line expense and financing leases
resulting in a front-loaded expense similar to the current
accounting for capital leases. This guidance becomes effective for
the Company’s fiscal 2020 first quarter, with early adoption
permitted. This guidance must be adopted using a modified
retrospective transition approach for leases that exist or are
entered into after the beginning of the earliest comparative period
in the financial statements, and provides for certain practical
expedients. We anticipate the adoption of this standard will result
in an increase in our right of use assets and lease liabilities
recorded on our consolidated balance sheets on July 1, 2019. The
Company does not believe the adoption of this guidance will have a
material impact on its consolidated results of operations or cash
flows.
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 theentire 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 expects that
the adoption of this ASU will have no material impact to the
Company's financial statement.
F-10
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
1.
Summary of Significant Accounting Policies (Continued)
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 adopted this pronouncement during the interim period
September 30, 2018, which resulted in a $22,000 cumulative effect
adjustment to retained earnings in the condensed consolidated
balance sheet as of the beginning of the year ended June 30, 2019.
The adoption of this pronouncement also resulted in the recognition
of holding loss of $8,500 in the Company's consolidated statement
of operations for the year ended June 30, 2019.
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. The Company has performed a
review of the requirements of the new guidance and has identified
which of its revenue streams will be within the scope of ASC 606.
The Company has applied the five-step model of the new standard to
a selection of contracts within each of its revenue streams and has
compared the results to its prior accounting practices. The Company
adopted the provisions of these pronouncements on July 1, 2018,
using the modified retrospective approach. Revenue from the
Company’s sales continue to generally be recognized when
products are shipped (i.e. point in time). As such, the adoption of
ASU 2016-10 did not have a material impact to the Company’s
financial position or results of operations.
Reclassification
Customer advances
of $63,800 for the year ended June 30, 2018 were reclassified to
contract liabilities.
2.
Segment Information
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
|
Bioprocessing
Systems
|
Corporate
and
Other
|
Consolidated
|
|
June 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
7,078,800
|
$
1,814,900
|
$
1,306,100
|
$
-
|
$
10,199,800
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
2,680,300
|
1,102,300
|
1,301,200
|
-
|
5,083,800
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
541,700
|
(130,600
)
|
365,000
|
-
|
776,100
|
|
|
|
|
|
|
|
|
Assets
|
5,280,700
|
1,443,200
|
790,100
|
762,000
|
8,276,000
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
194,500
|
2,200
|
15,700
|
-
|
212,400
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
217,800
|
1,000
|
38,500
|
-
|
257,300
|
F-11
SCIENTIFIC
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND
2018
Segment information
is reported as follows:
|
|
Benchtop
Laboratory
Equipment
|
Catalyst
Research
Instruments
|
Bioprocessing
Systems
|
Corporate
and
Other
|
Consolidated
|
|
June 30,
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
6,403,400
|
$
1,408,900
|
$
669,100
|
$
-
|
$
8,481,400
|
|
|
|
|
|
|
|
|
Foreign
Sales
|
2,669,000
|
707,200
|
669,100
|
-
|
4,045,300
|
|
|
|
|
|
|
|
|
Income (Loss) From
Operations
|
297,000
|
(248,000
)
|
(54,500
)
|
-
|
(5,500
)
|
|
|
|
|
|
|
|
|
Assets
|
4,141,200
|
1,482,200
|
1,002,800
|
699,300
|
7,325,500
|
|
|
|
|
|
|
|
|
Long-Lived Asset
Expenditures
|
60,500
|
1,900
|
2,600
|
-
|
65,000
|
|
|
|
|
|
|
|
|
Depreciation and
Amortization
|
265,100
|
2,800
|
37,200
|
-
|
305,100
|
3.
Fair Value of Financial Instruments
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.
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, 2019 and 2018 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,
2019
|
Level
1
|
Level
2
|
Level
3
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
1,602,500
|
$
1,602,500
|
$
-
|
$
-
|
|
Investment
securities
|
330,900
|
330,900
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$
1,933,400
|
$
1,933,400
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$
618,000
|
$
-
|
$
-
|
$
618,000
|
F-12
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
3.
Fair Value of Financial Instruments (Continued)
|
|
|
Fair
Value Measurements Using Inputs Considered as
|
||
|
|
Fair Value
at
June 30,
2018
|
Level
1
|
Level
2
|
Level
3
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
1,053,100
|
$
1,053,100
|
$
-
|
$
-
|
|
Investment
securities
|
314,700
|
314,700
|
-
|
-
|
|
|
|
|
|
|
|
Total
|
$
1,367,800
|
$
1,367,800
|
$
-
|
$
-
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
$
408,000
|
$
-
|
$
-
|
$
408,000
|
The
following table sets forth an analysis of changes during the years
ended June 30, 2019 and 2018 in Level 3 financial liabilities of
the Company:
|
|
2019
|
2018
|
|
|
|
|
|
Beginning
balance
|
$
408,000
|
$
297,000
|
|
Increase in
contingent consideration liability
|
521,200
|
408,900
|
|
Payments and
accruals
|
(311,200
)
|
(297,900
)
|
|
|
|
|
|
Ending
balance
|
$
618,000
|
$
408,000
|
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, 2019 and 2018, the Company
recorded an increase in the estimated fair value of contingent
liabilities of approximately $521,200 and $408,900, respectively
related to its Bioprocessing Systems Operations
segment.
Investments
in marketable securities classified by security type at June 30,
2019 and 2018 consisted of the following:
|
|
Cost
|
Fair
Value
|
Unreealized
Holding
Gain
(Loss)
|
|
At June 30,
2019:
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
47,100
|
$
72,000
|
$
24,900
|
|
Mutual
funds
|
292,300
|
258,900
|
(33,400
)
|
|
|
|
|
|
|
|
$
339,400
|
$
330,900
|
$
(8,500
)
|
|
|
Cost
|
Fair
Value
|
Unrealized
Holding
Gain
(Loss)
|
|
At June 30,
2018:
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
45,700
|
$
67,800
|
$
22,100
|
|
Mutual
funds
|
267,800
|
246,900
|
(20,900
)
|
|
|
|
|
|
|
|
$
313,500
|
$
314,700
|
$
1,200
|
F-13
SCIENTIFIC
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND
2018
In conformity with
ASC 205-10 “Presentation of Financial Statements”, as
it relates to the comparability of financial statements, because
ASU 2016-01 was not implemented retroactively, in order for the
amounts presented in the 2019 financial statements to be comparable
to the same period in 2018, the following table illustrates the
impact the implementation of the standard would have had on the
year ended June 30, 2018:
|
|
As Reported
|
Adjustments
|
Balance with ASU 2016-01
Adoption
|
|
Unrealized gain on marketable
securities
|
$
-
|
$
1,200
|
$
1,200
|
|
Income before income tax
expense
|
1,400
|
1,200
|
2,600
|
|
Income tax expense
|
161,900
|
-
|
161,900
|
|
Net loss
|
(160,500
)
|
1,200
|
(159,300
)
|
|
|
|
|
|
|
Earnings per common share (basic and
diluted)
|
$
(.11
)
|
$
-
|
$
(.11
)
|
4.
Inventories
|
|
2019
|
2018
|
|
|
|
|
|
Raw
materials
|
$
1,738,300
|
$
1,488,000
|
|
Work-in-process
|
106,400
|
352,700
|
|
Finished
goods
|
747,600
|
427,200
|
|
|
|
|
|
|
$
2,592,300
|
$
2,267,900
|
5.
Property and Equipment
|
|
Useful Lives
|
|
|
|
|
(years)
|
2019
|
2018
|
|
|
|
|
|
|
Automobiles
|
5
|
$
22,000
|
$
22,000
|
|
Computer
equipment
|
3-5
|
233,900
|
173,400
|
|
Machinery and
equipment
|
3-7
|
986,500
|
870,400
|
|
Furniture and
fixtures
|
4-10
|
205,900
|
205,900
|
|
Leasehold
improvements
|
3-10
|
45,300
|
34,200
|
|
|
|
1,493,600
|
1,305,900
|
|
|
|
|
|
|
Less accumulated
depreciation and amortization
|
|
1,174,800
|
1,106,400
|
|
|
|
|
|
|
|
|
$
318,800
|
$
199,500
|
Depreciation
expense was $67,300 and $61,200 for the years ended June 30, 2019
and 2018, respectively.
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, 2019 and
2018, all of which is expected to be deductible for tax
purposes.
The
components of other intangible assets are as follows:
|
|
Useful
Lives
|
Cost
|
Accumulated
Amortization
|
Net
|
|
|
(Years)
|
|
|
|
|
At June 30,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$
663,800
|
$
661,700
|
$
2,100
|
|
Trade
names
|
6 yrs.
|
140,000
|
124,400
|
15,600
|
|
Websites
|
5 yrs.
|
210,000
|
210,000
|
-
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
308,100
|
48,900
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
224,100
|
69,900
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
384,000
|
-
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other intangible
assets
|
5 yrs.
|
221,700
|
183,200
|
38,500
|
|
|
|
|
|
|
|
|
$
2,380,500
|
$
2,205,500
|
$
175,000
|
|
F-14
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
6.
Goodwill and Other Intangible Assets (Continued)
|
|
Useful
Lives
|
Cost
|
Accumulated
Amortization
|
Net
|
|
|
|
|
|
|
|
At June 30,
2018:
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
trademarks
|
5/10
yrs.
|
$
662,800
|
$
613,400
|
$
49,400
|
|
Trade
names
|
6 yrs.
|
140,000
|
101,100
|
38,900
|
|
Websites
|
5 yrs.
|
210,000
|
182,000
|
28,000
|
|
Customer
relationships
|
9/10
yrs.
|
357,000
|
294,800
|
62,200
|
|
Sublicense
agreements
|
10
yrs.
|
294,000
|
194,800
|
99,200
|
|
Non-compete
agreements
|
5 yrs.
|
384,000
|
348,000
|
36,000
|
|
IPR&D
|
3 yrs.
|
110,000
|
110,000
|
-
|
|
Other intangible
assets
|
5 yrs.
|
198,100
|
173,100
|
25,000
|
|
|
|
|
|
|
|
|
$
2,355,900
|
$
2,017,200
|
$
338,700
|
|
Total
amortization expense was $190,000 and $243,900 in 2019 and 2018,
respectively.
Estimated future
amortization expense of intangible assets as of June 30, 2019 is as
follows:
|
Year Ended June
30,
|
|
|
|
|
|
2020
|
$
70,500
|
|
2021
|
54,300
|
|
2022
|
31,700
|
|
2023
|
15,000
|
|
2024
|
3,500
|
|
|
|
|
Total
|
$
175,000
|
7.
Line of Credit
The
Company has a Demand Line of Credit through December 2019 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 5.25%. 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 receivable,
chattel paper, equipment and general intangibles of the Company. As
of June 30, 2019 and 2018, there were no borrowings
outstanding under the line.
8.
Notes Payable
The
Company had 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 note had
an outstanding balance of $5,800 as of June 30, 2018 which was paid
in full as of June 30, 2019.
F-15
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
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 $69,600 and $74,500 for
the years ended June 30, 2019 and 2018, 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 $187,200 and $183,300 for the years ended June 30,
2019 and 2018, respectively. Accrued rent, payable in future years,
amounted to $66,600 and $65,600 at June 30, 2019 and 2018,
respectively.
The
Company has an operating lease for its facility in Pittsburgh,
Pennsylvania, which requires monthly minimum rental payments
through November 2020, plus common area expenses. Total rent
expense for the Pittsburgh facility was $91,500 and $106,000 for
the years ended June 30, 2019 and 2018, respectively. The Company
also entered into another operating lease in Pittsburgh for product
development and engineering space for its Bioprocessing Systems
Operations from June 2019 through November 2020. Rental expense was
$2,300 for the year ended June 30, 2019.
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 required monthly minimum rental payments
through June 2018, plus common area expenses. The Company is
operating under a second one year renewal option through June 30,
2020. However, the Company is currently under negotiations for
lease termination at the request of the landlord due to sale of the
property, and entering into a new lease of similar terms in the
same geographic area. Total rent expense for the New Jersey
facility, was $24,300 and $23,000 for the years ended June 30, 2019
and 2018, respectively.
The
Company’s approximate future minimum rental payments under
all operating leases as of June 30, 2019 are as
follows:
|
Year Ended June
30,
|
|
|
|
|
|
2020
|
$
284,100
|
|
2021
|
222,500
|
|
2022
|
184,600
|
|
2023
|
190,200
|
|
2024
|
195,900
|
|
Thereafter
|
91,600
|
|
|
|
|
|
$
1,168,900
|
F-16
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
10.
Commitments and Contingencies (Continued)
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 year ended 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 year ended June 30, 2018, and a
discretionary bonus for subsequent years. The agreement also
provides for a grant of options to purchase 25,000 shares of the
Company’s stock, which were granted during the year ended
June 30, 2018. No shares were granted during the year ended June
30, 2019.
The
Company has a three-year employment contract with its President of
the Genie Products Division of the Benchtop Laboratory Equipment
Operations and Corporate Secretary effective July 1, 2017. The
agreement provides for an annual base salary of $153,000 for the
year ended June 30, 2018, with subsequent annual increases of 3% or
percentage increase in the CPI, whichever is higher, plus $10,000
cash bonus for the year ended June 30, 2018, and a discretionary
bonus for subsequent years. The agreement also provides for a grant
of options to purchase 7,500 shares of the Company’s stock,
which were granted during the year ended June 30, 2018. No shares
were granted during the year ended June 30, 2019.
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 year ended June 30, 2018, with subsequent annual
increases of 3% or percentage increase in the CPI, whichever is
higher, plus $10,000 cash bonus for the year ended June 30, 2018,
and a discretionary bonus for subsequent years. The agreement also
provides for a grant of options to purchase 7,500 shares of the
Company’s stock, which were granted during the year ended
June 30, 2018. No shares were granted during the year ended June
30, 2019.
The
Company has a three-year employment contract with its President of
Torbal Products Division of the Benchtop Laboratory Equipment
Operations and Director of Marketing effective July 1, 2017. The
agreement provides for an annual base salary of $157,000 for the
year ended June 30, 2018, with subsequent annual increases of 4% or
percentage increase in the CPI, whichever is higher, plus $10,000
cash bonus for the year ended 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,
which were granted during the year ended June 30, 2018. No shares
were granted during the year ended June 30, 2019. A
performance-based bonus of $10,000 was awarded for the year ended
June 30, 2019.
The
Company has a two-year agreement with its President of Altamira
Instruments, Inc. effective July 1, 2017, which was extended by
mutual agreement through June 30, 2020. The agreement provides for
an annual base salary of $120,000 and $110,000 for the years ended
June 30, 2019 and 2018, respectively, plus incentive pay based on
achievement of certain revenue and income levels, which were not
achieved in both fiscal years and therefore there was no incentive
pay. The agreement also provides for a grant of options for an
aggregate of 10,000 shares of the Company’s common stock,
which were granted during the year ended June 30, 2018. No shares
were granted during the year ended June 30, 2019.
F-17
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
10.
Commitments and Contingencies (Continued)
The
Company has a consulting agreement, which expires on December 31,
2019, 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 each of the years
ended June 30, 2019 and 2018, respectively.
The
Company has a consulting agreement, which expires December 31,
2019, with another member of its Board of Directors for
administrative services provided that the consultant be paid at the
rate of $85 per hour. Consulting expense related to this agreement
amounted to $18,200 and $7,000 for the years ended June 30, 2019
and 2018, respectively.
The
Company entered into a new consulting agreement during the year
ended June 30, 2019, which expired in August 2019. This consulting
agreement is expected to be renewed for another six months with a
member of its Board of Directors as it relates to its Bioprocessing
Systems Operations. Consulting expense related to this agreement
amounted to $40,000 for the year ended June 30, 2019.
The
Company is required to make payments of 30% of the net royalties
received from the license and sublicense acquired in the SBI
acquisition in fiscal 2014. Total contingent consideration payments
made for this acquisition amounted to $311,200 and $142,700 for the
years ended June 30, 2019 and 2018, respectively.
The
fair value of contingent consideration estimated to be paid as of
June 30, 2019 is as follows:
|
Year ended June
30,
|
Amount
|
|
|
|
|
2020
|
$
268,000
|
|
2021
|
228,000
|
|
2022
|
54,000
|
|
2023
|
46,000
|
|
2024
|
22,000
|
|
|
|
|
|
$
618,000
|
11.
Income Taxes
The
reconciliation of the provision for income taxes at the federal
statutory rate of 21% to the actual tax expense or benefit for the
applicable fiscal year was as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Computed
“expected” income tax (benefit)
|
$
161,700
|
$
300
|
|
Research and
development credits
|
(24,300
)
|
(32,700
)
|
|
Change in tax
rate
|
-
|
224,300
|
|
Other,
net
|
(12,800
)
|
(30,000
)
|
|
|
|
|
|
Income tax
expense
|
$
124,600
|
$
161,900
|
F-18
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
11.
Income Taxes (Continued)
Deferred tax assets
and liabilities consist of the following:
|
|
2019
|
2018
|
|
Deferred tax
assets:
|
|
|
|
Amortization of
intangible assets
|
$
303,900
|
$
326,500
|
|
Various
accruals
|
173,600
|
54,700
|
|
Other
|
13,300
|
48,200
|
|
|
|
|
|
|
490,800
|
429,400
|
|
Deferred tax
liability:
|
|
|
|
Depreciation of
property and equipment
|
(59,700
)
|
(36,800
)
|
|
|
|
|
|
Net deferred tax
assets
|
$
431,100
|
$
392,600
|
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, 2019 and 2018, 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 ended June 30, 2016 and after. The Company does not
anticipate any material amount of unrecognized tax benefits within
the next 12 months.
12.
Stock Options
Option
activity is summarized as follows:
|
|
June
30, 2019
|
June
30, 2018
|
||
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
Average
|
|
Average
|
|
|
|
Exercise
|
|
Exercise
|
|
|
Shares
|
Price
|
Shares
|
Price
|
|
Shares under
option:
|
|
|
|
|
|
Outstanding,
beginning of year
|
92,000
|
$
3.15
|
34,500
|
$
3.25
|
|
Granted
|
6,705
|
4.54
|
57,500
|
3.08
|
|
Exercised
|
-
|
-
|
-
|
-
|
|
Forfeited
|
1,500
|
3.27
|
-
|
-
|
|
|
|
|
|
|
|
Outstanding, end of
year
|
97,205
|
3.24
|
92,000
|
3.15
|
|
|
|
|
|
|
|
Options exercisable
at year-end
|
50,167
|
$
3.29
|
28,834
|
$
3.46
|
|
|
|
|
|
|
|
Weighted average
fair value per share of options granted during the fiscal
year
|
-
|
$
1.79
|
-
|
$
1.64
|
F-19
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
12.
Stock Options (Continued)
|
|
As
of June 30, 2019
Options
Outstanding
|
As
of June 30, 2019
Exercisable
|
|||
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
Weighted-
|
|
Weighted-
|
|
Range
|
|
Remaining
|
Average
|
|
Average
|
|
Exercise
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|
Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Outstanding
|
Price
|
|
|
|
|
|
|
|
|
$
2.91 - $3.08
|
70,500
|
7.81
|
$
3.07
|
30,167
|
$
2.80
|
|
|
|
|
|
|
|
|
$
3.65 - $4.65
|
26,705
|
5.57
|
$
4.02
|
20,000
|
$
3.84
|
|
|
|
|
|
|
|
|
|
97,205
|
|
|
50,167
|
|
|
|
As of June 30,
2018
Options
Outstanding
|
As of June 30,
2018
Exercisable
|
|||
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
Weighted-
|
|
Weighted-
|
|
Range
|
|
Remaining
|
Average
|
|
Average
|
|
Exercise
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|
Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Outstanding
|
Price
|
|
|
|
|
|
|
|
|
$
3.50 - $4.05
|
20,000
|
5.13
|
$
3.84
|
20,000
|
$
3.84
|
|
|
|
|
|
|
|
|
$
2.91 - $3.27
|
72,000
|
8.63
|
$
3.07
|
8,834
|
$
3.06
|
|
|
|
|
|
|
|
|
|
92,000
|
|
|
28,834
|
|
13.
Earnings (Loss) Per Common Share
Earnings (loss) per
common share data was computed as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Net income
(loss)
|
$
645,600
|
$
(160,500
)
|
|
|
|
|
|
Weighted average
common shares outstanding
|
1,494,112
|
1,494,112
|
|
Effect of dilutive
securities
|
18,066
|
-
|
|
Weighted average
dilutive common shares outstanding
|
1,512,178
|
1,494,112
|
|
|
|
|
|
Basic and diluted
earnings (loss) per common share
|
$
.43
|
$
(.11
)
|
Approximately 1,600
and 92,000 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,
2019 and 2018, respectively, because the effect would be
anti-dilutive.
F-20
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For The Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules