SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ( X )
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( )Preliminary Proxy Statement
( )Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
( X )Definitive Proxy Statement
( )Definitive Additional Materials
( )Soliciting Material Pursuant to Section 240.14a-12
SCIENTIFIC INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
( X ) No fee required.
( ) Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount previously paid:
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SCIENTIFIC INDUSTRIES, INC.
2001
ANNUAL REPORT
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CORPORATE INFORMATION
Officers Executive Offices
Lowell A. Kleiman Airport International Plaza
Chairman, 70 Orville Drive
President, Chief Executive Bohemia, New York 11716
Officer and Treasurer
Transfer Agent
Helena R. Santos, CPA Continental Stock Transfer &
Vice President, Controller Trust Company
and Secretary New York, New York
Directors - (Principal Independent Auditors
Occupations) Nussbaum Yates & Wolpow, P.C.
Arthur M. Borden Melville, New York
(Counsel, Rosenman & Colin LLP)
Stock Information
Joseph I. Kesselman Over-the-Counter
(Consultant) Symbol: SCND
OTC Bulletin Board
Lowell A. Kleiman
Chairman Annual Meeting
(President of the Company) 10:00 a.m. Wednesday
March 13, 2002
Roger B. Knowles Princeton Club
(Director, 15 West 43rd Street
Ionic, Inc) New York, New York
James S. Segasture
(Private Investor)
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PRESIDENTS' LETTER February 11, 2002
Dear Fellow Stockholders:
We are pleased to report increased net sales for the fiscal year
ended June 30, 2001 ("fiscal 2001"), of $3,435,000, up 14.2% from
$3,005,400 for fiscal year ended June 30, 2000 ("fiscal 2000").
Net sales increased primarily as a result of greater international
sales and re-establishment of the Company's normal selling price
structure following settlement of its litigation against VWR and
Troemner in December 1999.
Our income from operations for fiscal 2001 was $193,300 compared to
a loss from operations of $115,900 for fiscal 2000, primarily as a
result of increased sales and improved profit margins.
For fiscal 2001, our net income was $325,100, $.38 per basic share,
compared to a net loss of $112,300, ($.13) per basic share, for
fiscal 2000. Fiscal 2000 results reflected litigation costs and
the proceeds received from the litigation. Fiscal 2001 also
reflected a tax benefit of $101,600, while we did not reflect any
tax expense or benefit for fiscal 2000.
During fiscal 2001 our R&D program began to come to fruition as a
number of new products were introduced and their initial marketing
was commenced. We started selling the Enviro-Genie(trademark), a
major new product introduced in fiscal 2000. The Enviro-Genie is
an innovative new product which is a unique environmentally
controlled benchtop 6-in-1 refrigerated incubator/rotator/rocker/
stirrer/shaker designed for the study of micro-organisms and
cell growth under strictly controlled conditions of temperature and
agitation. We also completed development of an extended line of
mixers derived from the Vortex-Genie(registered trademark) 2,
including the Vortex-Gneie(registered trademark) 1 - the strongest
touch vortex mixer available; the Vortex-Genie(registered trademark)
2T - the Vortex-Genie 2 with an integrated auto-off timer; and the
Disruptor Genie(trademark) - a fast, economical and very effective
cell disruptor. These additions to the Vortex-Genie line are
targeted at the existing vortex mixer market and expand the
potential applications for our products thereby increasing the
opportunities for additional sales.
For the three months ended September 30, 2001, sales increased by
$134,000 (17.0%) to $921,300 from $787,300 for the comparable three
month period in fiscal 2001 reflecting an increase in volume of
unit sales.
Net income amounted to $50,500, $.06 per basic share, for the three
months ended September 30, 2001 compared to $58,800, $.07 per basic
share, for the comparable prior fiscal year period. The reduction
in net income was primarily the result of an increase in operating
expenses of $54,600 incurred to pursue external business
opportunities and increased marketing activities and an income
tax expense of $27,000 for the three months ended September 30, 2001
as compared with no income tax expense for the same period in the
prior fiscal year.
We expect to continue our strategy of building your Company through
both internal and external growth during fiscal year 2002. We are
continuing to develop new products to add to our growing line of
innovative and unique products. Our marketing program will be
devoted to the more vigorous pursuit of expanded sales opportunities.
I thank all of our employees and stockholders for their continued
support and commitment and look forward to your continued support.
PLEASE FIND ENCLOSED HEREIN THE ANNUAL REPORT FOR THE FISCAL YEAR
ENDED JUNE 30, 2001 FOR SCIENTIFIC INDUSTRIES, INC. (THE "COMPANY").
THIS LETTER SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE RELATED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" INCLUDED IN THE
COMPANY'S FORM 10-KSB WHICH IS ALSO ENCLOSED HEREIN.
Sincerely,
/s/ Lowell A. Kleiman
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LOWELL A. KLEIMAN
CHAIRMAN, CHIEF EXECUTIVE
OFFICER
AND PRESIDENT
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SCIENTIFIC INDUSTRIES, INC.
LOWELL A. KLEIMAN 70 ORVILLE DRIVE
CHAIRMAN, CHIEF EXECUTIVE OFFICER, BOHEMIA, NY 11716
AND PRESIDENT
February 11, 2002
Dear Fellow Stockholders:
You are cordially invited to attend the 2001 Annual Meeting
of Stockholders of Scientific Industries, Inc. which will be held
at 10:00 a.m. (New York time) on Wednesday, March 13, 2002 at the
Princeton Club, 15 West 43rd Street, New York, New York.
At the meeting, we will elect one Class B Director, act upon
the ratification of the appointment of Nussbaum Yates & Wolpow,
P.C. as our independent auditors for the fiscal year ending June
30, 2002, and act upon such other business as may properly come
before the meeting and any adjournments thereof, all as described
in the attached Notice of Annual Meeting of Stockholders and
Proxy Statement.
It is important that your shares be represented at the
meeting and voted in accordance with your wishes. Whether or not
you plan to attend the meeting, we urge you to complete, date,
sign and return your proxy card in the enclosed business reply
envelope, which requires no postage if mailed in the United
States, as promptly as possible so that your shares will be
represented at the Annual Meeting. This will not limit your
right to vote in person or to attend the meeting.
Sincerely,
/s/Lowell A. Kleiman
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Lowell A. Kleiman
Chairman, Chief Executive
Officer and President
SCIENTIFIC INDUSTRIES, INC.
70 Orville Drive
Bohemia, New York 11716
_____________
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
To be held Wednesday, March 13, 2002
To the stockholders of
SCIENTIFIC INDUSTRIES, INC.:
Notice is hereby given that the 2001 Annual Meeting of
Stockholders (the "Annual Meeting") of Scientific Industries,
Inc., a Delaware Corporation (the "Company") will be held at the
Princeton Club, 15 West 43rd Street, New York, New York, on
Wednesday, March 13, 2002, at 10:00 am (New York time), for the
following purposes:
1. To elect one Class B Director to the
Company's Board of Directors to serve
until the Company's annual meeting
of stockholders with respect to the year ended June 30,
2004 and until the election and qualification of his
respective successor.
2. To ratify the appointment of Nussbaum
Yates & Wolpow, P.C. as the Company's
independent auditors for the fiscal year
ending June 30, 2002.
3. To transact such other business as may
properly come before the Annual Meeting and
any adjournments thereof.
The accompanying Proxy Statement more fully describes the
matters to be considered at the Annual Meeting. The Board of
Directors has fixed the close of business on January 18, 2002, as
the record date for determination of stockholders entitled to
notice of and to vote at, the Annual Meeting and at any
adjournments thereof. A complete list of the stockholders
entitled to vote at the Annual Meeting will be available for
inspection by any stockholder of the Company at the Annual
Meeting. In addition, the list will be open for examination by
any stockholder of the Company, for any purpose germane to the
Annual Meeting, during ordinary business hours, for a period of
ten days prior to the Annual Meeting at the offices of the
Company.
To ensure that your vote will be counted, please promptly
complete, date, sign and return the enclosed proxy card in the
enclosed business reply envelope, which requires no postage if
mailed in the United States, whether or not you plan to attend
the Annual Meeting. You may revoke your proxy in the manner
described in the Proxy Statement at any time before the proxy
has been voted at the Annual Meeting.
By Order of your Board of
Directors,
/s/ Lowell A. Kleiman
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Bohemia, New York Lowell A. Kleiman
February 11, 2002 Chairman, Chief Executive Officer
and President
PROXY STATEMENT
_________________
FOR THE
2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON March 13, 2002
_________________
Solicitation of Proxies
This proxy statement is furnished by and on behalf of the
Board of Directors (the "Board") of Scientific Industries, Inc.,
a Delaware Corporation (the "Company") in connection with the
solicitation of proxies to be voted at the 2001 Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Princeton
Club, 15 West 43rd Street, New York, New York, on Wednesday,
March 13, 2002, at 10:00 a.m. (New York time), and at any
adjournments thereof.
At the Annual Meeting, stockholders of the Company will be
asked to: (1) elect a Director of the Company to serve until the
Company's annual meeting of stockholders with respect to fiscal
year ended June 30, 2004, and until the election and
qualification of his successor; (2) ratify the appointment of
Nussbaum Yates & Wolpow, P. C., the Company's independent
accountants, as its auditors for the fiscal year ending June 30,
2002; and (3) transact such other business as may properly come
before the Annual Meeting and any adjournments thereof.
The principal offices of the Company are located at 70 Orville
Drive, Bohemia, New York 11716 and the Company's telephone number
is (631)567-4700.
Record Date, Voting Rights
Only stockholders of record of the Company's Common Stock,
par value $0.05 per share (the "Common Stock") as of the close of
business on January 18, 2002 (the "Record Date"), are entitled to
notice of and to vote at the Annual Meeting and any adjournments
thereof. On the Record Date, there were 938,540 shares of Common
Stock issued and outstanding. Each share of Common Stock is
entitled to one vote.
With respect to all matters expected to be presented for a
vote of stockholders, the presence at the Annual Meeting, in
person or by properly executed proxy, of the holders of a
majority of the Company's Common Stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum. Abstentions
and broker "non-votes" are included in the determination of the
number of shares of Common Stock present at the Annual Meeting
for quorum purposes but are not counted in the tabulations of the
votes cast for election of the director. With respect to the
proposal relating to the ratification of the appointment of
auditors, abstentions will have the same effect as a vote against
the proposal and broker non-votes will be disregarded and will
have no effect on the outcome of the vote on the proposal. A
broker "non-vote" occurs when a nominee holding shares of Common
Stock for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions
from the beneficial owner.
Voting of Proxies, Revocation, Solicitation
All stockholders who deliver properly executed and dated
proxies to the Company prior to the date of the Annual Meeting
will be deemed present at the Annual Meeting regardless of
whether such proxies direct the proxy holders to vote for or
against, or to abstain from voting. The proxies, when properly
executed and returned to the Company, unless otherwise indicated,
will be voted in accordance with the instructions given therein
by the person executing the proxy. In the absence of
instructions, properly executed proxies will be voted FOR (1) the
election of management's nominee, Joseph I. Kesselman as a
Director of the Company, and (2) the ratification of the
appointment of Nussbaum Yates & Wolpow, P.C., independent
accountants, as the Company's auditors for the fiscal year ending
June 30, 2002.
Any stockholder who executes and delivers a proxy may revoke
it at any time before it is voted by delivering a written notice
of such revocation to the Secretary of the Company at the address
of the Company set forth in this proxy statement, by submitting a
properly executed proxy bearing a later date, or by appearing at
the Annual Meeting and requesting the return of the proxy or by
voting in person. In accordance with applicable rules, boxes and
a designated space are provided on the proxy card for
stockholders to mark if they wish either to withhold authority to
vote for management's nominee for director or to abstain from the
vote to ratify the appointment of Nussbaum Yates & Wolpow, P.C.,
as the Company's independent auditors for the fiscal year ending
June 30, 2002. A stockholder's attendance at the Annual Meeting
will not, by itself, revoke a proxy given by that stockholder.
Stockholders vote at the Annual Meeting by casting ballots (in
person or by proxy) which are tabulated by a person who is
appointed by the Board of Directors before the Annual Meeting to
serve as inspector of election at the Annual Meeting and who has
executed and verified an oath of office.
The entire cost of soliciting proxies will be borne by the
Company. In addition to the use of the mails, proxies may be
solicited by officers, directors and regular employees of the
Company personally or by telephone or telegram. No additional
compensation will be paid to such persons for any additional
solicitations. The Company will also request securities brokers,
custodians, nominees and fiduciaries who hold shares of Common
Stock of record to forward solicitation material to the
beneficial owners of such shares, and will reimburse them for
their reasonable out-of-pocket expenses in forwarding such
soliciting materials.
It is anticipated that this proxy statement, the
enclosed proxy card and the Annual Report to stockholders will be
mailed to the Company's stockholders on or about February 13,
2002.
PROPOSAL 1
ELECTION OF DIRECTORS
General Information
The Company's certificate of incorporation provides for a
classified Board of Directors, consisting of three classes, each
class serving three year terms on a staggered basis. The Board
of Directors is currently comprised of five members, of which two
are Class A Directors, one is a Class B Director and two are
Class C Directors. At the Annual Meeting, one Class B Director
is to be elected to serve until the annual meeting of
stockholders with respect to the fiscal year ended June 30, 2004,
and until his successor is duly elected and qualified. Shares of
Common Stock represented by proxies solicited by the Board of
Directors will be voted for the nominee hereinafter named, if
authority to do so is not specifically withheld. If for any
reason said nominee shall become unavailable for election, which
is not now anticipated, the proxies will be voted for a
substitute nominee designated by the Board of Directors.
Directors of the Company are elected by the affirmative vote
of the holders of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting
and entitled to vote. A plurality means that the nominee with
the largest number of votes is elected as director. In tabulating
the vote, abstentions and broker non-votes will be disregarded
and will have no effect on the outcome of the vote.
The Board of Directors unanimously recommends that
stockholders vote FOR the election of the nominee identified
below to the Board of Directors.
Nominee for Election as Director
Joseph I. Kesselman (age 76), a Director since 1961, is a
consultant to various corporations, and a director of Nuclear and
Environmental Protection Inc., Perrot Duval Holding S.A., a Swiss
public company, Hopare Holding, S.A., a Swiss holding company,
and Infranor Inc., a developer and manufacturer of servo systems.
Prior to November 1994, he was both Chairman and Chief Executive
Officer of Greentree Software, Inc., a developer and provider of
proprietary inventory control software, and during the last year
of his tenure, he acted as a consultant to that company.
Directors whose terms do not expire at this Annual Meeting
Lowell A. Kleiman (age 61), a Director since 1970, has been
employed by the Company for over thirty years, and has been
President since September 1974. His current term as Director
expires at the Annual Meeting for Fiscal 2002.
Roger B. Knowles (age 77), a Director since 1965, is semi-
retired. During the past five years, he was President of various
corporations, including Conductive Systems, Inc., a manufacturer
of EMI and RFI shielding material, and G.H. Realty Company, a
real-estate company, and a director of Ionic, Inc., an investment
company. His current term as Director expires at the Annual
Meeting for Fiscal 2002.
Arthur M. Borden, Esq. (age 81), a Director since 1974, has
been partner and counsel to Rosenman & Colin LLP during the past
five years. His current term as Director expires at the Annual
Meeting for Fiscal 2003.
James S. Segasture (age 65), a Director since 1991, has
been a private investor since February 1990. His current term as
Director expires at the Annual Meeting for Fiscal 2003.
Meetings of the Board of Directors
The Company currently has no option, audit, compensation,
nominating or similar committees.
During the fiscal year ended June 30, 2001, the Board of
Directors held two meetings with all directors present.
Directors' Compensation
The Company currently pays each non-employee director a
quarterly retainer of $750 and a fee of $500 for each meeting
attended, plus reimbursement for out-of-pocket expenses incurred in
connection with attendance of board meetings in the amount of $50
or the director's itemized expenses, whichever is greater. The
Company paid fees in the amount of $16,000 to non-employee directors
for the fiscal year ended June 30, 2001.
On February 11, 1992, before the adoption of the Company's
1992 Stock Option Plan, the Company issued to each of its four non-
employee directors, Messrs. Arthur M. Borden, Joseph I. Kesselman,
Roger B. Knowles and James S. Segasture, ten year non-qualified
options to purchase 12,000 shares of Common Stock, 4,000 shares of
Common Stock which were immediately exercisable, 4,000 shares of
Common Stock which were fully exercisable on and after the first
anniversary of the date of such grant and 4,000 shares of Common
Stock which were fully exercisable after the second anniversary of
the date of such grant; all such options were exercisable at $.35.
All 36,000 options granted to Messrs. Borden, Kesselman, and
Segasture have been exercised, with Messrs. Borden and Segasture
each exercising options with respect to 4,000 shares in October
201 and Mr. Kesselman exercising options with respect to 4,000
shares in January 2002.
Pursuant to the Company's 1992 Stock Option Plan, the Company
granted beginning in March 1993 options to purchase 3,000 shares
of Common Stock at the then fair market value
to be issued each March for four years to each non-employee
director who was on the Board of Directors on the first business
day of the month. In addition, in December 1997, the Board of
Directors approved annual grants beginning in December 1997 of
options to purchase 4,000 shares of Common Stock for each non-
employee director at the fair market value on the date of grant.
As of December 31, 2001, the Company had granted under the Plan
in the aggregate to non-employee directors options to purchase
128,000 shares of Common Stock, or for each such Director options
to purchase 32,000 shares of Common Stock. Options to purchase
an aggregate of 31,000 shares of Common Stock have been exercised
by them. The exercise price (fair market value per share of
Common Stock on the dates of the grant) ranged from $.50 in 1993
to $2.40 in 2001 and their average exercise price is $1.14 per
share. As of December 31, 2001, all options are immediately
exercisable.
PROPOSAL 2
INDEPENDENT AUDITORS
Nussbaum Yates & Wolpow, P.C. ("NY&W")have been appointed by
the Board of Directors as the Company's independent auditors for
the fiscal year ending June 30, 2002. The Board of Directors has
directed that the appointment of the independent auditors be
submitted for ratification by the stockholders at the Annual
Meeting. NY&W has audited the consolidated financial statements of
the Company since 1991. A representative of that firm is expected
to be present at the Annual Meeting, will have an opportunity to
make a statement to the stockholders and will be available to
respond to appropriate questions.
The ratification of the appointment for the fiscal year
ending June 30, 2002, will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock
present in person or represented by proxy at the Annual Meeting
and entitled to vote.
Stockholder ratification of the appointment of NY&W as the
Company's independent accountants is not required by the Company's
Certificate of Incorporation or By-laws or otherwise. The Board of
Directors is submitting the appointment of NY&W to stockholders for
ratification as a matter of good corporate practice. If the
stockholders fail to ratify the appointment, the Board of Directors
will reconsider whether to retain that firm. Even if the
appointment is ratified, the Board of Directors in its discretion
may direct the appointment of a different independent accounting
firm at any time during the year if the Board of Directors
determines that such a change would be in the best interests of the
Company and its stockholders.
The Board of Directors unanimously recommends that the
stockholders vote FOR the ratification of the appointment of
Nussbaum Yates & Wolpow, P.C. as the Company's independent
auditors for the fiscal year ending June 30, 2002.
Disclosure of Auditor Fees
The following is a description of the fees billed to the
Company by NY&W during the fiscal year ended June 30, 2001:
Audit Fees: The Company paid fess of approximately $25,500
to NY&W in connection with NY&W's audit of the Company's financial
statements for the year ended June 30, 2001, NY&W's review of the
Company's interim financial statements included in the Company's
Quarterly Reports on Form 10-QSB during the fiscal year ended
June 30, 2001, and preparation of the corporate tax returns.
Financial Information Systems Design and Implementation Fees
and other fees: The Company did not engage during the fiscal year
ended June, 30, 2001, NY&W to provide advice to the Company
regarding financial information systems design and implementation,
or to perform other non-audit services.
EXECUTIVE OFFICERS
The executive officers of the Company are elected annually
by the Board of Directors and hold office until their respective
successors are elected and qualified. There is no arrangement or
understanding between any executive officer and any other person
regarding election as an officer (except for an employment
agreement with Mr. Kleiman). There are no family relationships
between any director and any executive officer of the Company.
The executive officers of the Company are as follows:
Lowell A. Kleiman, (age 61), has been President and
Treasurer of the Company since 1974.
Helena R. Santos, CPA (age 37) has been employed by the
Company since 1994, and has served as Vice President, Controller
since 1997 and Secretary since May 2001. Ms. Santos is
responsible for inventory control, administrative and all
accounting and financial reporting functions. Prior to joining
the Company, Ms. Santos was an internal auditor with a major
defense contractor, and prior to that was employed in public
accounting.
Executive Compensation
The following table summarizes the compensation paid by the
Company to Lowell A. Kleiman in each of the three most recently
completed fiscal years ended June 30, 2001, for services in all
capacities as the Company's Chief Executive Officer. No other
executive officer earned in excess of $100,000 in any of such
fiscal periods.
Summary Compensation Table
Annual Compensation
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All Other
Name and Principal Year Salary Bonus Compen-
Position Ended $ $ sation
June 30
------------------ ---- -------- -------- ---------
Lowell A. Kleiman 2001 $160,000 $ - $3,200(1)
CEO, President 2000 $160,000 $ - $3,200(1)
1999 $160,000 $ - $3,200(1)
(1) Represents the Company's matching contribution to Mr. Kleiman's
account under the Company's 401(k) Plan.
Aggregated Option Exercises in Last Fiscal Year And FY-End Option
Values
Number of
Shares of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-Money
Acquired Value Options Options
on Real- at FY-End (#) at FY-End($)
Exercise ized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable(1)
--------- --------- ----- ------------- ----------------
Lowell A. Kleiman 60,000 $74,625(2) 0/10,000 $0/$6,000
(1) Calculated by multiplying the number of shares of Common Stock
subject to options by the difference between the fair market value
and exercise price per share, on June 30, 2001.
(2) Calculated by multiplying the number of shares of Common Stock
acquired upon exercise of options by the difference between the
fair market value on March 20, 2001 (date of exercise) and
the exercise price.
Employment Agreement
On June 23, 2000 the Company extended an employment contract
with its President through June 30, 2002. The contract provides
for an annual salary of $160,000 and also the grant to
Mr. Kleiman of a five-year stock option for 10,000 shares of
Common Stock exercisable under certain circumstances. The contract
provides that in the event of his termination of employment,
within three years following a change of control (as defined
therein), the Company will be obligated to pay Mr. Kleiman his
annual salary and other benefits for the period between the date of
his termination of employment and a date three years from the
change of control, but not to exceed an amount that is 2.99 times
the base amount. Other benefits provided in the contract include
continued use of a Company car, four weeks paid vacation each year
and, in the event that Mr. Kleiman should die within the employment
period, the payment to his widow or his legal representative, of
$5,000 as soon as practicable and an amount equal to Mr. Kleiman's
current annual salary payable in equal weekly installments. In
such event, if the Company receives $500,000 of insurance proceeds,
$50,000 of such proceeds are to be paid to his widow or legal
representative, as the case may be, with the balance of the
insurance proceeds less any expenses incurred with respect
thereto, to be retained by the Company. The employment contract
also provides that, at his option, a portion of the compensation
may be deferred to future years. The deferred amounts are to be
placed in a separate investment account and all earnings and losses
will be for his benefit. As of June 30, 2001 and 2000, $88,900
and $106,500, respectively, was segregated in the account and
are included in other assets. The balance due to him is payable out
of (but not secured by) the account, in five equal annual
installments commencing after the termination of employment, except
in the event of a change in control of the Company in which event
the entire balance is immediately payable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of the Record Date, the
number of shares of Common Stock beneficially owned by (i) the
persons known to the Company to be the owners of more than 5% of
the outstanding Common Stock, (ii) each director of the Company,
(iii) each named executive officer of the Company, identified in
the Summary Compensation table included herein, and (iv) all
directors and executive officers as a group.
Sole voting and Dispositive Power
Number Percentage
------ ----------
Five Percent Stockholders,
Directors and Executive Officers:
---------------------------------
Class A Directors:
Arthur M. Borden 62,540 (1) 6.5%
James S. Segasture 176,757 (2) 18.8%
Class B Director:
Joseph I. Kesselman 63,520 (3) 6.5%
Class C Directors:
Lowell A. Kleiman 149,581 (4) 15.8%
Roger B. Knowles 91,705 (5) 9.3%
All current directors and 569,103 (6) 52.6%
executive officers as a group
(six persons)
(1) Includes 29,000 shares issuable upon exercise
of options.
(2) Includes 4,000 shares issuable upon exercise
of options and shares beneficially owned by his wife.
(3) Includes 32,000 shares issuable upon exercise
of options and 735 shares of Common Stock owned jointly with
his wife.
(4) Includes 10,000 shares issuable upon exercise
of options.
(5) Includes 44,158 shares owned by his wife,
includes 1,337 shares of Common Stock owned by a trust of
which Mr. Knowles is a trustee, beneficial ownership of which
is disclaimed by him, and 44,000 shares
issuable upon exercise of options.
(6) Includes 144,000 shares issuable upon exercise
of options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Based solely on the Company's review of Forms 5 thereto
furnished to the Company during its most recent fiscal year with
respect to its most recent fiscal year, the Company believes that,
for the year ended June 30, 2001, all filings required under
Section 16(a) of the Securities Act of 1934, as amended, applicable
to its officers, directors and 10% stockholders were complied with
except for late filings of Form 5's by Messrs. Borden, Knowles,
Kesselman, and Segasture.
OTHER MATTERS
The Board of Directors is not aware of any matters other than
those set forth in this proxy statement that will be presented for
action at the Annual Meeting; however, if any other matters
properly come before the Annual Meeting, the persons named as
proxies intend to vote the shares of Common Stock they represent in
accordance with their judgement on such matters.
ADDITIONAL INFORMATION
The Company's Annual Report to Stockholders for the fiscal
year ended June 30, 2001, on Form 10-KSB, which is not part of this
proxy material, is being mailed to stockholders with this proxy
solicitation. On written request, the Company will provide without
charge to each person who makes a good faith representation that
such person was a beneficial holder of the Company's Common Stock as
of January 18, 2002, a copy of the Company's Annual Report on Form
10-KSB as filed with the Securities and Exchange Commission for the
fiscal year ended June 30, 2001. Requests should be addressed to
Ms. Helena Santos, Secretary, Scientific Industries, Inc., 70
Orville Drive, Bohemia, New York 11716.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company intended to be
presented at the Company's 2002 annual meeting of stockholders must
be received by the Secretary of the Company for inclusion in the
appropriate proxy materials no later than July 1, 2002.
SCIENTIFIC INDUSTRIES, INC.
February 11, 2002
--------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
-----------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
Commission file number 0-6658
---------------------------------
SCIENTIFIC INDUSTRIES, INC.
---------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 04-2217279
------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Airport International Plaza,
70 Orville Drive, Bohemia, New York 11716
----------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (631) 567-4700
-----------------------------------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
------------------- -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
--------------------------------------
(Title of Class)
-
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year. $3,435,000
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock,
as of August 24, 2001 is $1,880,600.
The number of shares outstanding of the issuer's common stock, par
value $.05 per share ("Common Stock") as of August 24, 2001
is 895,540 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General. Scientific Industries, Inc., (the "Company"), a Delaware
corporation, formed in 1954 is engaged in manufacturing and marketing
laboratory equipment consisting primarily of a vortex mixer, the Vortex-Genie
(REGISTERED TRADEMARK) 2, and related accessories (devices 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). During the past four years,
the Company has developed and introduced new products and new
accessories for all of its products. It recently introduced the Roto-Shake
Genieregistered trademark, a multi- purpose rotator/rocker; and
the Enviro-Genietrademark, a multi-functional benchtop refrigerated
incubator. The Enviro-Genie, introduced in the prior fiscal year, an
innovative which is a new product comprising of a unique environmentally
controlled benchtop 6-in-1 refrigerator/incubator/rotator/rocker/
stirrer/shaker designed for the study of micro-organisms and cell growth
under strictly controlled conditions of temperature and agitation.
In view of its sophistication and higher unit price than other products
of the Company, the Company anticipates lower volumes of unit sales, but
a higher profit margin per unit. Most recently the Company has developed
a line of mixers derived from the Vortex-Genie 2, including the Vortex-Genie
(registered trademark) 1, Vortex-Genie(registered trademark) 2T, and the
Disruptor Genie (trademark).
The Company's products are used by hospital and research laboratories,
clinics, pharmaceutical manufacturers, medical device manufacturers and other
industries. The products are marketed principally through a
network of domestic and foreign dealers who are solicited personally by
the Company's President and other employees. The Company seeks to increase
its customer base through the use of various marketing media, including
trade shows, trade publications, brochures and catalogs.
Raw Materials. The Company currently manufactures its products from readily
available components supplied by various independent contractors, and does not
rely on any one principal supplier, except as to a few components where it's not
practicable to have multiple suppliers.
Patents, Trademarks, Licenses and Franchises. The Company holds several
Unites States patents. It has a patent on a utilitarian feature of its
Vortex-Genie 2 mixer which expires on November 2, 2005. The Company licenses
this patent on a non-exclusive basis through its expiration to Troemner, Inc.,
("Troemner"), under the settlement agreement referred to in Note 13 of the
financial statements in Item 7. The Company's patent for the TurboMix
(trademark), an attachment to the existing Vortex-Genie 2 mixer, expires in
September 2015. Its patent on the Roto-Shake Genie expires in July 2016.
The Company intends to seek additional patent applications, when appropriate,
for technology and products which it considers important for the protection
of its business. No assurance can be given that any patent application will
result in the issuance of a patent or, if granted, will provide effective
protection. Litigation to defend against or assert claims of infringement
or otherwise related to proprietary rights could result in substantial costs
to the Company.
The Company has various proprietary marks including Vortex-Genie (REGISTERED
TRADEMARK) 2, TurboMix (trademark), Roto-Shake Genie (REGISTERED TRADEMARK),
and Enviro-Genie (TRADEMARK), which it considers important to the
success of its products.
Foreign Sales. The Company's sales to various distributors outside the United
States (principally Europe and Asia) accounted for approximately 42.7% of the
Company's net sales for the fiscal year ended June 30, 2001 ("fiscal 2001")
and 40.0% for the fiscal year ended June 30, 2000 ("fiscal 2000"). Such sales
are paid in United States dollars and are therefore not subject to risks of
currency fluctuation, foreign duties and customs.
Seasonality. The Company does not consider its business to be seasonal.
Largest Customer. Sales to Fisher Scientific Company ("Fisher"), a U.S.
distributor, accounted for approximately 36.3% of the Company's net sales for
fiscal 2001 and 37.5% for fiscal 2000. The Company sells primarily the
Vortex-Genie 2 mixer and related accessories, to Fisher. The loss of this
customer or a material reduction in its purchases would have a material
adverse effect upon the business of the Company.
Backlog. The Company's backlog is not significant because the Company's
current line of products is comprised of standard catalog items. The typical
lead time is approximately two weeks, and backlog is kept to no more than
three to four weeks.
Competition. Most of the Company's competitors are substantially larger and
have greater financial, production and marketing resources than the Company.
Competition is generally based upon quality, technical specifications and
price. The Company dominates the vortex mixers market in the United States
and is widely recognized in the international vortex mixers market. In the
general area of laboratory equipment, the Company's major competitors are
Troemner, Barnstead/Thermolyne Corporation, a subsidiary of Sybron
International, and IKA, a German corporation.
Research and Development. In connection with the development of new
products, the Company incurred research and development expenses of $251,800
during fiscal 2001 compared to $285,900 during fiscal 2000 as a result of
lower material expenditures for the Enviro-Genie benchtop incubated
refrigerator, which the Company began producing during fiscal 2001.
In view of its sophistication and higher unit price than other products of the
Company, the Company anticipates lower volumes of units sales but a higher
profit margin per unit. The Company intends to continue investing in research
and development activities at approximately the same rate in fiscal year 2002.
Government and Environmental Regulation. The Company's products and claims
with respect thereto do not require 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
may be subject to proposed additional federal, state, and local regulations
designed to protect the environment, to establish occupational safety
and health standards and to 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 August 24, 2001, the Company employed 27 persons of which
25 were full-time. None of the Company's employees are represented by any
unions.
ITEM 2. DESCRIPTION OF PROPERTY.
As of August 24, 2001, the Company's offices and manufacturing facilities
consisted of the following:
Square Lease Annual
Location of Use of Feet Expiration Rental
Space Space (Approx.) Date Payments(*)
----------------- --------- --------- ---------- ----------
70 Orville Drive Executive 25,000 December 31, $217,100
Bohemia, NY 11716 Offices/ 2004
Manufact-
uring
(*) Reflects future minimum rental payments for fiscal year 2002.
The offices and manufacturing facilities leased by the Company are suitable
and adequate for such use. In the opinion of management, the property is
adequately covered by insurance.
See Note 8 to the Financial Statements in Item 7 for information about the
Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
(a) 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 2001 and fiscal 2000, 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
------------------------- ------- --------
09/30/99 17/32 23/32
12/31/99 11/32 10/16
03/31/00 3/8 1
06/30/00 3/4 1
09/30/00 3/4 1 3/4
12/31/00 1 7/32 1 1/8
03/31/01 1 7/32 1 9/16
06/30/01 1 1/5 2 1/20
(b) There were, as of August 24, 2001, 892 record holders of the
Company's Common Stock.
(c) The Company paid no dividends during the last two fiscal years.
The Company is not subject to any agreement which prohibits
or restricts the Company from paying dividends on its
Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated by the forward-looking information.
Factors that may cause such differences include, but are not limited to,
product demand, market acceptance and other factors discussed elsewhere in
this report. This Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes included elsewhere in tis report.
Outlook. In December 1999, the Company settled litigation against its
then second largest customer, VWR Scientific Products ("VWR") and co-defendant
Troemner alleging patent and other violations (see Note 13 of the financial
statements in Item 7). Although VWR is no longer purchasing its private
labeled vortex mixer from the Company, it is purchasing the Company brand
vortex mixer, although the quantities are less. Among other things, the
settlement agreement provided for certain promotional considerations from
VWR amounting up to a maximum of $250,000 based on a percentage of sales
of the Company's products. These promotional activities were performed
during 2000, 2001, and continue through 2002. Consequently, the promotional
programs could have a positive effect on the Company's future sales to VWR.
In the meantime, sales to other customers, foreign and domestic, have been
steadily increasing, although past performance may not be indicative of
future sales.
Results of Operations. Net sales for fiscal 2001 increased $429,600
(14.2%) to $3,435,000, compared to $3,005,400 for fiscal 2000 primarily
as a result of an increase in foreign sales and re-establishment of the
Company's normal selling price structure following the litigation (See
Note 13 of the financial statements in Item 7.) The gross profit percentage
of 41.5% for fiscal 2001 increased from 33.8% for fiscal 2000 primarily as a
result of lower material costs, and re-establishment of the Company's normal
selling price structure.
General and administrative expenses for fiscal 2001 increased by $91,400
(12.5%) to $822,100 compared to $730,700 for the prior year as a result of
the expenses incurred for the pursuit of external business opportunities.
Selling expenses for fiscal year 2001 increased $43,100 (37.1%) to
$159,200 compared to $116,100 for fiscal year 2000 due to increased marketing
activity which consisted primarily of trade show exhibiting and advertising
in trade publications.
Research and development expenses for fiscal 2001 decreased by $34,100
(11.9%) to $251,800, compared to $285,900 for fiscal 2000 as a result of
lower material expenditures for the Enviro-Genie benchtop incubated
refrigerator, which the Company began producing during fiscal 2001.
In view of its sophistication and higher unit price than other products of the
Company, the Company anticipates a lower volume of unit sales but a higher
profit margin per unit. The Company intends to continue investing in research
and development activities at approximately the same rate in fiscal year 2002.
The Company did not incur any litigation costs in fiscal 2001. In fiscal
2000, the Company incurred $262,600 related to proceedings brought by the
Company against VWR and Troemner, which were settled in
that year resulting in, among other things, the making of a cash payment of
$250,000 to the Company by one defendant. See Footnote 13 of the financial
statements in Item 7 for additional information. The Litigation Settlement
Proceeds in the amount of $250,000 included in the prior fiscal year
represented the cash portion of the settlement agreement.
As of June 30, 2001, the Company had net operating loss carryforwards of
approximately $20,200 expiring in 2020 and tax credit carryforwards of $44,800
expiring in 2014 through 2016. A valuation allowance of $169,300 was
recognized to offset the full amount of deferred tax assets at June 30, 2000
due to the uncertainty of realizing these assets in the future.
During fiscal 2001, the Company determined that it was more likely than
not that the Company would realize the full benefit of the deferred tax assets
and, accordingly, the valuation allowance of $169,300 at June 30, 2000
was eliminated and included as part of the income tax benefit in 2001.
Liquidity and Capital Resources. The Company's working capital for
fiscal 2001 increased $253,900 to $1,409,500 as compared to $1,155,600
for fiscal 2000, primarily due to income from operations. The Company's
inventories increased primarily as a result of a build up in finished goods
to a sufficient level to properly fill orders within a shorter time period.
Additionally, raw material component inventory is also higher due to the
new products. Management believes that it will be able to meet its cash
flow requirements during the next fiscal year from its available financial
resources which may include future cash generated from operations and its
cash and cash equivalents and investment securities. In addition, the
Company has available a secured bank line of credit of $200,000 with North
Fork Bank. The credit line expires on November 1, 2001 and carries interest
at prime plus 1%. The Company could utilize the proceeds of this line for
working capital needs. The Company has not utilized this credit line.
Capital Expenditures. During fiscal 2001, the Company did not incur any
material capital expenditures. The Company does not expect to incur in the
normal course of business any material capital expenditures during fiscal 2002.
It is anticipated, as in past fiscal years, that the funds for such
expenditures, if any, will be funded from the Company's operations or
available working capital.
Inflation. Due to the demand for medical cost containment, management
believes that inflation will continue to have a material effect on the
Company's existing products. Although the Company's laboratory products are
not considered medical equipment, they are used in laboratories in
medically-related areas. Therefore, the existing products will be sensitive to
inflationary pressures since it will be difficult to fully pass on cost
increases.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements required by this item are attached hereto on
pages F1-F18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.
DIRECTORS
The Directors of the Company are elected to two year staggered terms.
The terms of the five Directors currently expire at the annual meeting
of stockholders of the Company to be held in 2001 as to one Director
(Mr. Kesselman, Class B), 2002 as to two Directors (Messrs. Kleiman and
Knowles, Class C) and 2003 as to two Directors (Messrs. Borden and Segasture,
Class A). The name, principal occupation for the last five years, selected
biographical information and period of service as a director of the Company
of each director are set forth below.
Joseph I. Kesselman (age 76), a Director since 1961, is a consultant to
various corporations, and a director of Nuclear and Environmental
Protection Inc., Perrot Duval Holding S.A. (a Swiss public company), Hopare
Holding, S.A. (a Swiss holding company), and Infranor Inc., a developer and
manufacturer of servo systems. Prior to November 1994, he was both Chairman
and Chief Executive Officer of Greentree Software, Inc., a developer and
provider of proprietary inventory control software, and during the last
year of his tenure, he acted as a consultant to that company.
Lowell A. Kleiman (age 60), a Director since 1970, has been employed by
the Company for over thirty years, and has been President since September 1974.
Roger B. Knowles (age 76), a Director since 1965, is semi-retired.
During the past five years, he was President of various corporations,
including Conductive Systems, Inc.,a manufacturer of EMI and RFI shielding
material, and G.H. Realty Company, a real-estate company, and a director of
Ionic, Inc., an investment company.
Arthur M. Borden, Esq. (age 81), a Director since 1974, has been partner
and counsel to Rosenman & Colin LLP during the past five years.
James S. Segasture (age 65), a Director since 1991, has been a private
investor since February 1990.
EXECUTIVE OFFICERS
Lowell A. Kleiman is the President and Treasurer of the Company.
Helena R. Santos, CPA (age 37) has been employed by the Company since
1994, and has served as Vice President, Controller since 1997 and Secretary
since May 2001.
Ms. Santos is responsible for inventory control, administrative and all
accounting and financial reporting functions. Prior to joining the
Company, she was an internal auditor with a major defense contractor
from March 1991 to April 1994. Prior to that she was employed in public
accounting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of Forms 5 thereto furnished to the
Company during its most recent fiscal year with respect to its most recent
fiscal year, the Company believes that, for the year ended
June 30, 2001, all filing requirements of Section 16(a) of the Securities
Act of 1934, as amended, applicable to its officers, directors and 10%
stockholders were complied with except for the filing of a Form 5 by
Messrs. Borden, Knowles, Kesselman, and Segasture which were effected
prior to the filing of this report.
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation paid by the Company to
Lowell A. Kleiman with respect to each of the three fiscal years ended
June 30, 2001 for services in all capacities as the Company's Chief Executive
Officer and President. No other executive officer earned in excess of
$100,000 in any of such fiscal periods.
Summary Compensation Table
Annual Compensation
--------------------------------------------------------------------
All Other
Name and Principal Year Salary Bonus Compen-
Position $ $ sation
------------------ ---- -------- -------- ---------
Lowell A. Kleiman 2001 $160,000 $ - $3,200(1)
CEO, President 2000 $160,000 $ - $3,200(1)
1999 $160,000 $ - $3,200(1)
(1) Represents the Company's matching contribution to Mr. Kleiman's account
under the Company's 401(k) Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Mr. Kleiman was the only executive officer to exercise stock options during
fiscal 2001. The following table sets forth information as to the exercise
and his other option.
Number of
Shares of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-Money
Acquired Value Options Options
on Real- at FY-End (#) at FY-End($)
Exercise ized Exercisable/ Exercisable/
Name #) ($) Unexercisable Unexercisable(1)
--------- --------- ----- ------------- ----------------
Lowell A. Kleiman 60,000 $74,625(2) 0/10,000 $0/$6,000
(1) Calculated by multiplying the number of shares of Common Stock subject to
options by the difference between the fair market value and exercise price
on June 30, 2001.
(2) Calculated by multiplying the number of shares of Common Stock subject to
options by the difference between the fair market value and exercise price
on March 20, 2001 (the date of exercise).
DIRECTORS' COMPENSATION
The Company currently pays each non-employee director a quarterly
retainer of $750 and a fee of $500 for each meeting attended, plus
reimbursement for out-of-pocket expenses incurred in connection with
attendance of board meetings in the amount of $50 or the director's itemized
expenses, whichever is greater.
During fiscal 2001, the Company paid fees in the amount of $18,000 to
non-employee directors.
On February 11, 1992, before the adoption of the Company's 1992 Stock
Option Plan, the Company issued to each of its four non-employee directors,
Messrs. Arthur M. Borden, Joseph I. Kesselman, Roger B. Knowles and James S.
Segasture, ten year non-qualified options to purchase 12,000 shares of Common
Stock, 4,000 shares of Common Stock of which were immediately exercisable,
4,000 shares of Common Stock of which were fully exercisable on and after the
first anniversary of the date of such grant and 4,000 shares of Common Stock
which were fully exercisable after the second anniversary of the date of such
grant; all such options were exercisable at $.35. In March of 1993, Messrs.
Borden, Kesselman and Segasture each exercised 8,000 shares of Common Stock
pursuant to such options.
The Company's 1992 Stock Option Plan called for options to purchase 3,000
shares of Common Stock at the then fair market value to be issued each March
for four years to each non-employee director who was on the Board of Directors
on the first business day of each March, beginning in March 1993. In addition,
in December 1997, the Board of Directors approved annual grants beginning in
December 1997 of options to purchase 4,000 shares of Common Stock for
each non-employee director at the fair market value on the date of grant. As
of December 31, 2000, the Company had granted in the aggregate to non-employee
Directors options to purchase 160,000 shares of Common Stock, or for each such
Director options to purchase 40,000 shares of Common Stock. The fair market
value per share of Common Stock on the dates of grant in the following fiscal
years were: $1.328 in 2001, $.829 in 2000, $1.875 in 1999, $2.00 in 1998,
$1.2813 in 1996, $1.3125 in 1995, $.9375 in 1994, and $.50 in 1993.
All options were immediately exercisable, except for 834 shares each
(an aggregate of 3,336 shares) under the options granted on December 31, 2000
which became available and exercisable on July 1, 2001.
EMPLOYMENT AGREEMENT
On June 23, 2000 the Company extended an employment contract with its
President through June 30, 2002. The contract provides for an annual salary
of $160,000 beginning in fiscal 1998 and also granted Mr. Kleiman a five-year
stock option for 10,000 shares of Common Stock exercisable under certain
circumstances. The contract provides that in the event of his termination
of employment, within three years following any change of control (as defined
therein), the Company will be obligated to pay Mr. Kleiman his annual salary
and other benefits for the period between the date of his termination of
employment and a date three years from any change of control, but not to exceed
an amount that is 2.99 times the base amount. Other benefits provided in the
contract include continued use of a Company car, four weeks paid vacation
each year and, in the event that Mr. Kleiman should die within the employment
period, the payment to his widow
or his legal representative, of $5,000 as soon as practicable and an amount
equal to Mr. Kleiman's current annual salary payable in equal weekly
installments. In such event, if the Company receives $500,000 of insurance
proceeds, less any expenses incurred, with respect thereto, $50,000 of such
proceeds are to be paid to his widow or legal representative, as the case
may be, with the balance of the insurance proceeds to be retained by the
Company. The employment contract also provides that, at his option, a portion
of the compensation may be deferred to future years. The deferred amounts
are to be placed in a separate investment account and all earnings and losses
will be for his benefit. As of June 30, 2001 and 2000, $88,900 and $106,500,
respectively, was segregated into such an account and is included in other
assets. The balance due to him is payable out of (but not secured by) the
account, in five equal annual installments commencing after the termination
of employment. In the event of a change in control of the Company, the
entire balance is immediately payable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of year end, the number of shares of
Common Stock beneficially owned by (i) the persons known to the Company to
be the owners of more than 5% of the Common Stock, (ii) each director of
the Company, (iii) each named executive officer of the Company, identified
in the Summary Compensation table included elsewhere herein, and (iv) all
directors and executive officers as a group.
Sole Voting and Dispositive Power
---------------------------------
Five Percent Stockholders,
Directors and Executive
Officers: Number of Percentage
Shares
------------------------- -------- ----------------
Class A Directors:
------------------
Arthur M. Borden 58,540 (1) 6.3%
James S. Segasture 172,757 (1) 18.6%
(and Kristine K. Segasture)
Class B Director:
-----------------
Joseph I. Kesselman 59,520 (2) 6.4%
Class C Directors:
------------------
Lowell A. Kleiman 149,581 (3) 16.5%
Roger B. Knowles 87,705 (4 9.4%
All current directors and 553,103(5 51.9%
executive officers as a
group
(1) Includes 31,166 shares of Common Stock issuable upon exercise of
currently exercisable options and 834 shares which became exercisable
on July 1, 2001.
(2) Includes 31,166 shares of Common Stock issuable upon exercise of
currently exercisable options and 834 shares which became exercisable
on July 1, 2001, and 735 shares of Common Stock owned jointly with
Mrs. Kesselman.
(3) Includes 10,000 shares of Common Stock issuable upon exercise of
currently exercisable options, assuming certain financial criteria is met.
(4) Includes 44,158 shares of Common Stock owned by Mrs. Knowles; 1,337
shares of Common Stock owned by a trust of which Mr. Knowles is a trustee,
beneficial ownership of which is disclaimed by Mr. Knowles; 39,166 shares
of Common Stock issuable upon exercise of currently exercisable options
and 834 shares which became exercisable on July 1, 2001.
(5) Includes 167,664 shares of Common Stock issuable upon exercise of
currently exercisable options and 3,336 shares which became exercisable
on July 1, 2001. Included in the 167,664 shares are 10,000 shares
issuable upon exercise of options whose exercise is subject to certain
financial criteria being met, and 25,000 shares of Common Stock issuable
upon exercise of currently exercisable options granted to one executive
officer who is not a director.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the last two years, there were no transactions or proposed
transactions between the Company and any director, executive officer,
nominee for election as a director, security holder, or any member of
their immediate families.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index at the end of
this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of fiscal
2001 covered by this report with the Commission.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Lowell A. Kleiman
Lowell A. Kleiman
President and Treasurer
Principal Executive and Financial Officer
/s/ Helena R. Santos
Helena R. Santos
Vice President, Controller
Principal Accounting Officer
Date: September 26, 2001
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Name Title Date
----------------- ------------------- ------------------
/s/ Lowell A. Kleiman President, Treasurer September 21, 2001
Lowell A. Kleiman and Director
(Principal Executive
and Financial Officer)
/s/ Arthur M. Borden Director September 21, 2001
Arthur M. Borden
/s/ Joseph I. Kesselman Director September 21, 2001
Joseph I. Kesselman
/s/ Roger B. Knowles Director September 21, 2001
Roger B. Knowles
/s/ James S. Segasture Director September 21, 2001
James S. Segasture
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company
as amended. (Filed as Exhibit 1(a-1) to the
Company's General Form for Registration of
Securities on Form 10 dated February 14, 1973
and incorporated by reference thereto.)
3(b) Certificate of Amendment of the Company's
Certificate of Incorporation, as filed on
January 28, 1985. (Filed as Exhibit 3(a)
to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1985 and
incorporated by reference thereto.)
3(c) By-Laws of the Company, as amended. (Filed
as Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended
June 30, 1985 and incorporated by reference
thereto).
4 Instruments defining the rights of security holders:
4(a) Stock Option Plan (Filed as Exhibit 4.1 to the Company's
Registration Statement filed on Form S-8 dated June 2,
1998 (File No. 333-55871) and incorporated by reference
thereto).
10 Material Contracts:
10(a) Employment Agreement dated June 23, 2000, by and
between the Company and Mr. Kleiman, as amended.
(Filed as Exhibit 10 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2000).
10(b) Letter of Intent to exercise 5-year option under
the Company's lease for its offices and manufacturing
facilities. (Filed as Exhibit 10 to the Company's
annual report on Form 10-K for the fiscal year ended
June 30, 1999).
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New
York corporation, is a wholly-owned subsidiary
of the Company, and does business under the name
"Scientific Packaging Industries".
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Scientific Industries, Inc. and subsidiary
Bohemia, New York
We have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and subsidiary as of June 30, 2001
and 2000, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Scientific Industries, Inc. and subsidiary as of June 30, 2001 and
2000, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Nussbaum Yates & Wolpow, P.C.
Nussbaum Yates & Wolpow, P.C.
Melville, New York
September 5, 2001
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
ASSETS
-----------
2001 2000
----------- -----------
Current assets:
Cash and cash equivalents $ 275,400 $ 394,600
Investment securities 412,000 171,600
Trade accounts receivable,
less allowance for doubtful
accounts of $7,400 in 2001
and 2000 300,400 319,900
Inventories 576,400 416,900
Prepaid expenses and other
current assets 71,700 26,900
----------- -----------
Total current assets 1,635,900 1,329,900
----------- -----------
Property and equipment, net 194,600 182,300
----------- -----------
Other assets:
Deferred taxes 101,600 -
Intangible assets, less
accumulated amortization of
$24,700 and $17,700 in
2001 and 2000 12,300 18,700
Other 150,900 159,200
----------- ----------
264,800 177,900
----------- ----------
$2,095,300 $1,690,100
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 152,500 $ 84,000
Accrued expenses 73,900 90,300
----------- -----------
Total current liabilities 226,400 174,300
----------- -----------
Deferred compensation 88,900 106,500
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 915,342 and 855,342
shares in 2001 and 2000 45,800 42,800
Additional paid-in capital 912,500 869,500
Accumulated other comprehensive
loss, unrealized holding loss
on investment securities ( 5,000) ( 4,600)
Retained earnings 879,100 554,000
--------- ---------
1,832,400 1,461,700
Less common stock held in
treasury, at cost,
19,802 shares 52,400 52,400
--------- ---------
1,780,000 1,409,300
--------- ---------
$2,095,300 $1,690,100
========== ==========
See notes to consolidated financial statements
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001 AND 2000
2001 2000
---------- ----------
Net sales $3,435,000 $3,005,400
Cost of sales 2,008,600 1,988,600
---------- ----------
Gross profit 1,426,400 1,016,800
---------- ----------
Operating expenses:
General and administrative 822,100 730,700
Selling 159,200 116,100
Research and development 251,800 285,900
---------- ----------
1,233,100 1,132,700
---------- ----------
Income (loss) from operations 193,300 ( 115,900)
---------- ----------
Other income (expenses):
Litigation settlement
proceeds - 250,000
Litigation costs - ( 262,600)
Interest and other income 30,200 16,200
------------ ----------
30,200 3,600
------------ ----------
Income (loss) before income
tax benefit 223,500 ( 112,300)
------------ ----------
Income tax benefit (deferred) ( 101,600) -
------------ ----------
Net income (loss) $ 325,100 ($ 112,300)
============ ==========
Net income (loss) per
common share - basic $ .38 ($ .13)
============ ==========
Net income (loss) per
common share - diluted $ .33 ($ .13)
============ ===========
See notes to consolidated financial statements
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2001 AND 2000
Accumulated
Additional Other
Common Stock Paid-in Comprehensive
-------------- Capital Loss
Shares Amount
------ ------- ---------- -------------
Balance, July 1, 1999 855,342 42,800 $ 869,500 ($ 1,000)
Net loss - - - -
Other comprehensive loss:
Unrealized holding losses
arising during period - - - ( 2,800)
Less: reclassification adjust-
ment for gains included in
net loss - - - ( 800)
Comprehensive loss - - - -
-------- ------- --------- ------------
Balance, June 30, 2000 855,342 42,800 869,500 ( 4,600)
-------- ------- --------- ------------
Net income - - - -
Exercise of stock options 60,000 3,000 18,000 -
Issuance of stock warrant - - 25,000 -
Other comprehensive income:
Unrealized holding loss
arising during period - - - ( 400)
Comprehensive income - - - -
-------- ------- -------- ------------
Balance, June 30, 2001 915,342 $45,800 $912,500 ($ 5,000)
======== ======= ======== ============
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2001 AND 2000
Total
Retained Treasury Stock Shareholders'
Earnings Shares Amount Equity
-------- ------ ------ -------------
Balance, July 1, 1999 $ 666,300 19,802 $52,400 $ 1,525,200
-------------
Net loss ( 112,300) - - ( 112,300)
Other comprehensive loss:
Unrealized holding losses
arising during period - - - ( 2,800)
Less: reclassification
adjustment for gains
included in net loss - - - ( 800)
-------------
Comprehensive loss - - - ( 115,900)
----------- ------ ------ -------------
Balance, June 30, 2000 554,000 19,802 52,400 1,409,300
-------------
Net income 325,100 - - 325,100
Exercise of stock options - - - 21,000
Issuance of stock warrant - - - 25,000
Other comprehensive income:
Unrealized holding loss
arising during period - - - ( 400)
-------------
Comprehensive income - - - 370,700
-------- ------- ------- -------------
Balance, June 30, 2001 $ 879,100 19,802 $52,400 $ 1,780,000
======== ====== ======= =============
See notes to consolidated financial statements
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001 AND 2000
2001 2000
------------ -----------
Operating activities:
Net income (loss) $ 325,100 ($ 112,300)
Adjustments to reconcile net income ------------ -----------
(loss)to net cash provided by
(used in) operating activities:
Gain on sale of investments - ( 800)
Loss on disposal of fixed assets - 6,300
Issuance of stock warrant
for services 25,000 -
Depreciation and amortization 71,800 92,700
Deferred income taxes ( 101,600) -
Changes in assets and liabilities:
Accounts receivable 19,500 3,100
Inventories ( 159,500) ( 50,900)
Prepaid expenses and other
current assets ( 44,800) 123,400
Other assets 8,300 ( 15,100)
Accounts payable 68,400 ( 160,000)
Accrued expenses ( 16,400) ( 4,200)
Deferred compensation ( 17,600) 12,200
------------- ----------
Total adjustments ( 146,900) 6,700
------------- ----------
Net cash provided by
(used in) operating
activities 178,200 ( 105,600)
------------- ----------
Investing activities:
Purchase of investment securities,
available for sale ( 381,200) ( 4,800)
Purchase of investment securities,
held to maturity ( 106,000) ( 154,800)
Redemption of investment
securities, available for sale - 4,300
Redemption of investment
securities, held to maturity 246,500 502,600
Capital expenditures ( 77,100) ( 74,800)
Proceeds from sale of fixed
assets - 1,900
Purchase of intangible assets ( 600) ( 3,300)
------------- -----------
Net cash provided by
(used in)investing
activities ( 318,400) 271,100
------------- -----------
Financing activities,
exercise of stock options 21,000 -
------------- -----------
Net increase (decrease) in cash and
cash equivalents ( 119,200) 165,500
Cash and cash equivalents,
beginning of year 394,600 229,100
------------- -----------
Cash and cash equivalents, end of year $ 275,400 $ 394,600
============= ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 700 $ 400
============ ===========
See notes to consolidated financial statements
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2001 AND 2000
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. and Scientific Packaging
Industries, Inc., its inactive wholly-owned subsidiary (collectively
referred to as the "Company"). All material intercompany balances
and transactions have been eliminated.
Revenue Recognition
Sales are recorded when the goods are shipped to customers.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Investment Securities
Securities which the Company has the ability and positive intent
to hold to maturity are carried at amortized cost. All
held-to-maturity securities mature within one year. Securities
available for sale are carried at fair value with unrealized gains or
losses reported in a separate component of shareholders' equity.
Realized gains or losses are determined based on the specific
identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation of
computer equipment, machinery and equipment and furniture and
fixtures is provided for primarily by the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are
amortized by the straight-line method over the term of the related
lease or the estimated useful lives of the assets, whichever is
shorter. The carrying amount of all long-lived assets
is evaluated periodically to determine if adjustment to the useful
life or to the undepreciated balance is warranted.
F-6
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company accounts for income taxes according to the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Under the liability method specified
by SFAS 109, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.
Deferred income taxes result principally from the timing of the
deductibility of the rent accrual, inventory adjustments,
deferred compensation, the use of accelerated methods of depreciation
and amortization for tax purposes, and net operating loss and
tax credit carryforwards.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by this standard, will continue to
apply the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25 to its stock options and
other stock-based employee compensation awards and
provide the pro forma disclosures required by SFAS No. 123.
Use of Estimates
In preparing financial statements in conformity with
accounting principles generally accepted in the United States of
America, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing
net income (loss) by the weighted-average number of shares outstanding.
Diluted net income (loss) per share includes the dilutive effect
of stock options and warrants.
F-7
2. Line of Business and Concentration of Credit Risk
The Company is engaged in the manufacturing and marketing of
scientific equipment for hospital and industrial laboratories and
other healthcare related entities. The Company believes that it has
only one reportable segment. Approximately 95% of all sales are
generated from the Vortex-Genie (registered trademark) 2 mixer and
related accessories. The Company does not obtain collateral for its
accounts receivable.
Certain information relating to the Company's export sales and
principal customers are as follows:
2001 2000
----------- ----------
Export sales (net) (principally
Europe and Asia) $1,466,100 $1,201,000
Customer (1) in excess of 10%
of net sales $1,245,800 1,128,200
3. Investment Securities
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding
Cost Value Loss
------------- ---------- ----------
At June 30, 2001:
-----------------
Available for sale:
Equity securities $ 401,900 $ 396,900 ($ 5,000)
========= ========= ==========
Held-to-maturity:
State and municipal bonds $ 15,000 $ 15,000 $ -
========== ========== ==========
F-8
3. Investment Securities (Continued)
Gross Cost or Unrealized
Amortized Fair Holding
Cost Value Loss
------------- ---------- ----------
At June 30, 2000:
-----------------
Available for sale:
Equity securities $ 20,700 $ 16,100 ($ 4,600)
========= ========== =========
Held-to-maturity:
State and municipal bonds $ 90,500 $ 90,400 ($ 100)
Certificates of deposit 50,000 50,000 -
Other bonds 15,000 14,800 ( 200)
---------- ---------- ----------
$ 155,500 155,200 ($ 300)
========== ========== ==========
4. Inventories
2001 2000
-------- --------
Raw materials $436,100 $374,800
Work-in-process 27,000 30,700
Finished goods 113,300 11,400
-------- --------
$576,400 $416,900
======== ========
F-9
-----
5. Property and Equipment, Net
Useful Lives
(Years) 2001 2000
---------- --------- ---------
Computer equipment 3 - 5 $180,700 $161,700
Machinery and equipment 3 - 7 230,200 200,500
Furniture and fixtures 4 - 10 69,600 41,200
Leasehold improvements 3 - 8 34,900 34,900
-------- --------
515,400 438,300
Less accumulated depreciation and
amortization 320,800 256,000
-------- --------
$194,600 $182,300
======== ========
6. Bank Line of Credit
The Company has a $200,000 secured bank line of credit collateralized
by all the assets of the Company. The credit line expires on
November 1, 2001 and bears interest at prime plus 1%. The Company
did not utilize this credit line. To support the line of credit
available, the Company is required to maintain 20% of the credit
line in average monthly balances.
7. Employee Benefit Plan
The Company has a 401(k) profit sharing plan for all eligible
employees as defined in the Plan. The Plan provides for voluntary
employee salary contributions from 1% to 15% not to exceed the
statutory limitation provided by the Internal Revenue Code.
The Company shall match 50% of each participant's salary deferral
election, up to a maximum amount for each participant
of 2% of their compensation. The Company also has the option to make
an additional profit sharing contribution to the Plan. Employer
matching contributions to the Plan amounted to $17,000 in 2001
and $16,700 in 2000.
F-10
8. Commitments and Contingencies
Leases
The Company is obligated through December 2004 under a
noncancelable operating lease for its premises, which requires
minimum annual rentals and certain other expenses, including real
estate taxes and insurance. Rental expense under the above lease
amounted to approximately $232,300 in 2001 and $202,600 in 2000.
As of June 30, 2001, the Company's approximate future minimum
rental payments on all operating leases are as follows:
Fiscal Years
------------
2002 224,800
2003 235,800
2004 245,500
2005 122,900
In accordance with generally accepted accounting principles, the
future minimum annual rental expense, computed on a level basis, will
be approximately $223,100 under the terms of the lease. Accrued rent,
payable in future years, amounted to $27,000 and $10,700 at
June 30, 2001 and 2000.
Employment Contract
On June 23, 2000, the Company extended an employment contract
with its President through June 30, 2002. The contract provides
for an annual salary of $160,000 and also granted the President a
five-year option to purchase 10,000 shares of common stock at $1.50
per share. An additional agreement with the President provides
that, in the event of termination of his employment within three
years after a change of control of the Company, as defined, the
Company would be liable for a maximum of approximately three years'
salary plus certain benefits.
F-11
8. Commitments and Contingencies
Employment Contract (Continued)
The employment contract also provides that, at his option, a
portion of the compensation may be deferred to future years. The
deferred amounts are to be placed in a separate investment account
and all earnings or losses will be for his benefit. As of June 30,
2001 and 2000, $88,900 and $106,500 was segregated into such an account
and is included in other assets. The balance due to him is payable out
of (but not secured by) the account, in five equal annual installments
commencing after the termination of employment. In the event of a
change in control of the Company, the entire balance is immediately
payable.
9. Income Taxes
Income taxes (benefit) for 2001 and 2000 were different from the
amounts computed by applying the Federal income tax rate to the income
or loss before income taxes due to the following:
2001 2000
--------------- ----------------
% of % of
Pretax Pretax
Amount Loss Amount Income
-------- ------ -------- ------
Computed "expected" income
tax (benefit) $ 76,000 34.0% ($ 38,200) ( 34.0%)
Non-taxable interest income - - ( 1,700) ( 1.5 )
Research and development
credits ( 15,300) ( 6.8) ( 17,600) ( 15.7 )
Other 7,000 3.1 ( 9,000) ( 8.0 )
Increase (decrease)in
valuation allowance ( 169,300) (75.7) 66,500 59.2
-------- ------ -------- ------
Actual income taxes (benefit)($101,600) (45.4%) ($ - ) ( 0.0%)
======== ====== ======== ======
F-12
9. Income Taxes (Continued)
Deferred tax assets and liabilities consist of the following:
2000 2000
---------- ----------
Deferred tax assets:
Amortization of intangibles $ 6,700 $ 5,300
Deferred compensation 30,200 36,200
Net operating loss carryforwards 6,900 88,500
Rent accrual 9,200 3,600
Tax credit carryforwards 44,800 29,500
Other 9,300 7,700
---------- ----------
107,100 170,800
Deferred tax liability:
Depreciation of property and
equipment ( 5,500) ( 1,500)
----------- ----------
101,600 169,300
Valuation allowance ( - ) ( 169,300)
----------- ----------
Net deferred tax assets $ 101,600 $ -
=========== ==========
At June 30, 2001, the Company has net operating loss
carryforwards of approximately $20,200 expiring in 2020. In
addition, at June 30, 2001, the Company has tax credit carryforwards
of $44,800 expiring in 2014 through 2016. A valuation allowance
was recognized to offset the full amount of deferred tax assets
at June 30, 2000 due to the uncertainty of realizing these assets
in the future.
During the year ended June 30, 2001, the Company determined that
it was more likely than not that the Company would realize the full
benefit of the deferred tax assets and, accordingly, the valuation
allowance of $169,300 at June 30, 2000 was eliminated and included as
part of the income tax benefit in 2001.
F-13
10. Stock Options and Warrant
The Company has established a stock option plan which provides
for the grant of options to purchase up to 300,000 shares of common
stock of the Company, par value $.05 per share, ("Common Stock"),
through February 2002. The Plan provides for the granting of incentive
stock options and non-incentive stock options. 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 an exercise price
not less than 85% of the fair market value of the shares of
Common Stock on the date of grant. The Plan also provides that each
non-employee member of the board of directors shall be granted,
annually commencing in March 1993, for a period of four years,
a ten-year option to purchase 3,000 shares of Common
Stock at the fair market value on the date of grant and commencing
annually in December 1997, for as long as a director, a ten-year
option to purchase 4,000 shares of Common Stock at the fair market
value on the date of grant. These outstanding options expire at
various dates through December 2010. There are no shares of
Common Stock reserved and available for future grants at
June 30, 2001 under the plan. As of June 30, 2001, there were
3,336 options granted, exercisable upon such shares being available
under the Plan which occured on July 1, 2001.
The Company has elected to continue to account for its employee
stock options under APB Opinion No. 25, "Accounting for Stock Issued
to Employees," under which no compensation expense is recognized for
options granted under fixed plans when the option price is not less
than the fair market value of the underlying common stock
on the date of grant. Pro forma information regarding net income
(loss) and earnings (loss) per share, however, is required under
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," (SFAS No. 123) for entities
continuing to apply APB No. 25. For disclosure purposes, the Company
has estimated the fair value of its employee stock options on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for stock options granted in 2001
and 2000, respectively:
2001 2000
--------- ----------
Expected life (in years) 10 10
Risk-free interest rate 5.36% 6.86%
Expected volatility 34.01% 20.39%
Dividend yield 0.00% 0.00%
F-14
10. Stock Options and Warrant (Continued)
Under the Black-Scholes model, the total value of stock options
granted in 2001 and 2000 was $13,500 and $13,900, respectively,
which would be amortized ratably on a pro forma basis over the vesting
periods of ten years. Had the Company determined compensation cost
for these plans in accordance with SFAS No. 123, the Company's
pro forma net income (loss) would have been $305,200 in 2001 and ($124,700)
in 2000. The Company's pro forma net income (loss) per share
would have been $.36 (basic) and $.31 (diluted) in
2001 and ($.15) (basic and diluted) in 2000. The SFAS No. 123
method of accounting does not apply to options granted prior to
January 1, 1995, and, accordingly, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
During the year ended June 30, 2001, an officer exercised options
to acquire 60,000 shares at $.35 per share.
Option activity under the above stock option plan is summarized
as follows:
Fiscal 2001 Fiscal 2000
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ---------- ----------- -----------
Shares under option:
Outstanding at
beginning of year 269,000 $ .99 267,000 $ .99
Granted 16,000 1.33 16,000 .83
Forfeited - - ( 14,000) .82
Exercised ( 60,000) .35 - -
--------- ----- --------- ------
Outstanding at end
of year 225,000 $1.19 269,000 $ .99
========= ===== ========= ======
Options exercisable at
year-end 192,001 $1.18 223,333 $ .94
========= ===== ========= ======
Weighted average fair value
per share of options granted
during fiscal 2001 and 2000 $ .84 $ .87
===== ======
F-15
10. Stock Options and Warrant (Continued)
The following table summarizes information about the options
under the above Plan outstanding at June 30, 2001:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
---------- ----------- ------------- ---------- ------------ ---------
$.35 - .9375 104,000 4.52 $ .70 94,334 $ .68
$1.2813 - 2.00 121,000 5.58 $1.61 97,667 $1.66
In addition, in February 1992, the Company granted to four
non-employee members of the board of directors, ten-year options
for each to purchase 12,000 shares of Common Stock, at an exercise
price of $.35, not covered under the above Plan. The options
are exercisable one-third within one year from the date of grant and
one-third in each of the following two years. In March 1993, three
directors each exercised 8,000 options.
The Company has a stock purchase warrant outstanding covering 17,391
shares of the Company's common stock issued during 2001 for services.
The warrant has an exercise price of $1.4375 per share and expires on
February 5, 2006.
F-16
11. Net Income (Loss) Per Common Share
Net incomne (loss) per common share data was computed as follows:
2001 2000
--------- ---------
Net income (loss) $325,100 ($112,300)
========= =========
Weighted average common shares outstanding 851,978 835,540
Effect of dilutive securities,
stock options and warrant 129,483 -
--------- ---------
Weighted average dilutive common
shares outstanding 981,461 835,540
========= =========
Net income (loss) per common share - basic $ .38 ($ .13)
========= =========
Net income (loss) per common share -
diluted $ .33 ($ .13)
========= =========
The potential effect of dilution from the assumed exercise of
stock options, amounting to 106,192 of Common Stock as of June 30, 2000
were not included in determining dilutive EPS because to do so would
be anti-dilutive due to the Company incurring a net loss for that year.
Unexercised employee stock options to purchase 71,000 shares of Common
Stock at $1.50 to $2.00 per share were outstanding as of June 30, 2000,
but were not included in the foregoing potential computation because
the options' exercise price was greater than the average market price
of the Company's Common Stock.
12. Fair Value of Financial Instruments
The financial statements include various estimated fair value
information as of June 30, 2001 and 2000, as required by Statement
of Financial Accounting Standards 107, "Disclosure about Fair Value
of Financial Instruments." Such information, which pertains to the
Company's financial instruments, is based on the requirements
set forth in that statement and does not purport to represent the
aggregate net fair value of the Company. The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate
that value.
The carrying value of cash and cash equivalents and investment
securities approximates fair market value because of the short
maturity of those instruments.
F-17
12. Fair Value of Financial Instruments (Continued)
The following table provides summary information on the fair
value of significant financial instruments included in the
financial statements:
2001 2000
------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Assets:
Cash and cash equivalents $275,400 $275,400 $394,600 $394,600
Investment securities
(Note 3) 411,900 411,900 171,600 171,300
13. Litigation
In January 1999, the Company commenced litigation against its
then second largest customer and another party alleging patent and
other violations. On December 1, 1999, a settlement agreement
was reached among the parties which included an immediate purchase
commitment from the customer of $200,000 which included significant
quantities of the Vortex-Genie 2 mixer and, to a lesser extent,
quantities of the Company's new products, the Roto-Shake Genie and the
Enviro-Genie, a cash payment to the Company of $250,000 which was
reflected in the accompanying financial statements as of June 30, 2000,
and certain promotional considerations amounting to a maximum of
$250,000 based on a percentage of sales of the Company's products.
The promotional activities are to be performed during 2000, 2001, and
2002. Since the fair value of the promotional activities cannot be
determined, the Company has not recorded any value thereon.
F-18
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SCIENTIFIC INDUSTRIES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 13, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Lowell A. Kleiman and Roger
B. Knowles, and each of them, with full power of substitution,
to vote, as a holder of the common stock, par value $0.05 per
share ("Common Stock"), of Scientific Industries, In., a
Delaware corporation (the "Company"), all the shares of Common
Stock which the undersigned is entitled to vote, through the
execution of a proxy with respect to the 2001 Annual Meeting of
Stockholders of the Company (the "Annual Meeting"), to be held
at The Princeton Club, 15 West 43rd Street, New York, New York,
on Wednesday, March 13, 2002 at 10:00 a.m New York time, and at
any adjournments or postponements thereof, and authorizes and
instructs said proxies to vote in the manner directed below.
1. Election of Class B Director:
Election of Joseph I. Kesselman
( )FOR nominee
( )WITHHOLD AUTHORITY for nominee
2. On proposal to ratify the appointment of Nussbaum,
Yates & Wolpower, P.C. as independent auditors for the
fiscal year ending June 30, 2002.
( )FOR ( )AGAINST ( )ABSTAIN
THIS PROXY IS CONTINUED ON THE REVERSE SIDE, PLEASE VOTE,
SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY.
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE SUCH MEETING OR ADJOURNMENTS OR POSTPONEMENTS
THEREOF. PROPERLY EXECUTED AND RETURNED PROXY CARDS
WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTIONS TO THE
CONTRARY ARE MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEE AS DIRECTOR, AND APPROVAL OF
PROPOSAL NO. 2 LISTED ON THE REVERSE SIDE.
You may revoke this proxy at any time before it is voted by (i)
filing a revocation with the Secretary of the Company, (ii)
submitting a duly executed proxy bearing a later date than the
date or time of the proxy being revoked; or (iii) attending the
Annual Meeting and voting in person. A stockholder's attendance
at the Annual Meeting will not itself revoke a proxy given by
the stockholder.
(Please sign exactly as the name appears below. Joint owners,
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as
such. If a corporation, please sign with full corporate name by
President or other authorized officer. If a partnership, please
sign in partnership name by authorized person.)
Dated:__________________
Please complete, sign, date and return
the proxy card promptly using the
enclosed envelope.
-------------------------------
Signature
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Signature, if held by joint
owners