UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended DECEMBER 31, 2002
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
(Exact name of small business as specified in its charter)
Delaware 04-2217279
(State of incorporation) (IRS Employer Identification No.)
70 ORVILLE DRIVE, BOHEMIA, NEW YORK 11716
(Address of principal executive offices)
(631)567-4700
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of February 1, 2003: 954,541 shares outstanding
of the Company's Common Stock, par value, $ .05.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ x ]
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
ASSETS
December 31, 2002
Current Assets:
Cash and cash equivalents $ 189,900
Investment securities 552,300
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 397,100
Inventories 700,400
Prepaid expenses and other current assets 48,800
----------
Total current assets 1,888,500
----------
Property and equipment at cost, less accumulated
depreciation of $363,700 163,200
----------
Other assets and deferred charges:
Intangible assets, less accumulated amortization
of $34,400 6,700
Deferred Taxes 106,600
Other 81,500
194,800
-----------
$2,246,500
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 116,300
Accrued expenses 164,800
----------
Total current liabilities 281,100
----------
Deferred compensation 51,000
----------
Shareholders' equity:
Common stock $.05 par value 48,700
Additional paid-in capital 964,300
Accumulated other comprehensive loss, unrealized
holding loss on investment securities (2,200)
Retained earnings 956,000
----------
1,966,800
Less common stock held in treasury, at cost 52,400
----------
1,914,400
----------
$2,246,500
==========
See notes to condensed unaudited consolidated financial statements
1
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2002 2001 2002 2001
-------- -------- ---------- ----------
Net sales $833,700 $872,700 $1,684,000 $1,794,000
Cost of goods sold 494,600 539,600 997,100 1,069,000
-------- -------- ---------- ----------
Gross profit 339,100 333,100 686,900 725,000
-------- -------- ---------- ----------
Operating Expenses:
General & administrative 246,100 207,600 470,800 414,100
Selling 44,800 46,400 76,600 83,600
Research & development 56,900 68,800 144,300 147,800
-------- -------- ---------- ----------
347,800 322,800 691,700 645,500
-------- -------- ---------- ----------
Income (Loss) from
operations ( 8,700) 10,300 ( 4,800) 79,500
-------- -------- ---------- ----------
Other income (expenses):
Other ( 6,100) - ( 6,100) -
Interest & other income 6,500 5,300 10,600 13,600
-------- -------- ---------- ----------
400 5,300 4,500 13,600
-------- -------- ---------- ----------
Income (loss) before
income taxes (benefit) ( 8,300) 15,600 ( 300) 93,100
Income taxes (benefit) ( 1,400) 2,000 - 29,000
-------- -------- ---------- ----------
Net income (loss) $( 6,900) $ 13,600 $( 300) $ 64,100
======== ======== ========== ==========
Net income (loss) per common
share - basic $( .01) $ .01 $ . - $ .07
Net income (loss) per common
share - diluted $( .01) $ .01 $ . - $ .06
See notes to condensed unaudited consolidated financial statements
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Month Periods Ended
December 31, 2002 December 31, 2001
Operating activities:
Net Income (Loss) $ ( 300) $ 64,100
--------- ----------
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
(Gain) on sale of investments ( 600) ( 4,400)
Loss on disposal of assets 6,400 -
Depreciation and amortization 33,700 32,400
Change in assets and liabilities:
Accounts receivable (121,100) ( 58,000)
Inventories ( 21,300) (111,600)
Prepaid expenses and other
current assets 14,400 13,000
Other assets 13,000 5,400
Accounts payable 31,900 ( 20,200)
Accrued expenses ( 16,400) 50,600
Deferred compensation ( 8,500) -
--------- ----------
Total adjustments ( 68,500) ( 92,800)
--------- ----------
Net cash used in
operating activities ( 68,800) ( 28,700)
--------- ----------
Investing activities:
Purchase of investment securities,
available-for-sale (180,900) ( 80,600)
Purchase of investment securities,
held to maturity - (148,000)
Redemptions of investment securities,
available-for-sale 52,600 175,300
Redemptions of investment securities,
held to maturity 105,600 40,000
Capital expenditures ( 45,500) ( 10,000)
Proceeds from sale of assets 29,800 -
Purchase of intangible assets ( 3,400) -
--------- ----------
Net cash used in
investing activities ( 41,800) ( 23,300)
--------- ----------
Financing activities,
exercise of stock options 3,700 40,500
-------- ----------
Net decrease in cash and cash equivalents (106,900) ( 11,500)
--------- ----------
Cash and cash equivalents, beginning of
year 296,800 275,400
--------- ----------
Cash and cash equivalents, end of period $ 189,900 $ 263,900
========= ==========
Supplemental disclosures:
Cash paid during the period for:
Income Taxes $ 28,400 $ 6,500
========= ==========
See notes to condensed unaudited consolidated financial statements
3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General: The accompanying unaudited interim consolidated financial
statements are prepared pursuant to the Securities and
Exchange Commission's rules and regulations for reporting
on Form 10-QSB. Accordingly, certain information and
footnotes required by accounting principles generally
accepted in the United States for complete financial
statements are not included herein. The Company
believes all adjustments necessary for a fair
presentation of these interim statements have been
included and are of a normal and recurring nature.
These interim statements should be read in conjunction
with the Company's financial statements
and notes thereto, included in its Annual Report
on Form 10-KSB, for the fiscal year ended June 30, 2002.
The results for the three and six months ended
December 31, 2002, are not necessarily an indication
of the results of the full fiscal year.
1. Significant accounting policies:
Principles of consolidation:
The accompanying condensed consolidated financial statements include
the accounts of the Company and Scientific Packaging Industries,
Inc., a New York Corporation and an inactive wholly owned subsidiary
of the Company. All intercompany items and transactions have been
eliminated in consolidation.
2. Inventories:
Inventories for interim financial statement purposes are based on
perpetual inventory records at the end of the applicable periods.
Components of inventory are as follows:
December 31, 2002
-----------------
Raw Materials $ 577,500
Work in process 41,300
Finished Goods 81,600
-----------
$ 700,400
===========
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS,
(continued)
3. 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 per common share includes the dilutive effect of
stock options and a warrant.
Net income (loss) per common share was computed as follows:
For the Three Month For the Six Month
Periods Ended Periods Ended
December 31, December 31,
2002 2001 2002 2001
---------- -------- ---------- ---------
Net income (loss) ($ 6,900) $13,600 ($ 300) $ 64,100
---------- ------- ---------- --------
Weighted average common
shares outstanding 954,541 933,070 952,591 914,340
Effect of dilutive
securities - 75,384 - 96,787
---------- ------- --------- ---------
Weighted average dilutive
common shares outstanding 954,541 1,008,454 952,591 1,011,127
========== ========= ========= =========
Net income (loss) per
common share - basic ($ .01) $ .01 $ - $ .07
Net income (loss) per
common share - diluted ($ .01) $ .01 $ - $ .06
The potential effect of dilution of the incremental shares from the
assumed exercise of stock options was not included in determining the
diluted net loss per common share for the six and three month periods
ended December 31, 2002, because to do so would be anti-dilutive. In
addition to the shares subject to options which were included in
determining the diluted earnings per share, there were outstanding as of
December 31, 2001, unexercised employee stock options to purchase 51,000
shares of the Company's common stock at $1.92 to $2.40 per share, which
were not included in the foregoing potential computations because the
options' exercise price was greater than the average market price of the
Company's common stock.
4. Comprehensive Income:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," which
established standards for reporting and displaying comprehensive income
in financial statements. There was no significant difference between net
income and comprehensive income for the three and six months ended
December 31, 2002 and 2001.
5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Certain statements contained in this report are not based on historical
facts, but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the future could
differ materially from those described in the forward-looking information.
Numerous unknown factors and future events could cause such differences,
including but not limited to, product demand, market acceptance, impact
of competition, the ability to reach final agreements, adverse economic
conditions, and other factors affecting the Company's business that are
beyond the Company's control. Consequently, no forward-looking statement
can be guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Liquidity and Capital Resources
The Company's working capital as of December 31, 2002 increased $76,000
to $1,607,400 compared to $1,531,400 at June 30, 2002, mostly due to
certain investment securities becoming current assets. The Company has
available for its working capital needs, a secured bank line of credit of
$200,000 with North Fork Bank which expires on November 1, 2003 and
carries interest at prime plus 1%, all of which was available as of
December 31, 2002. Management believes that the Company will be able to
meet its cash flow needs during the next 12 months from its available
financial resources which include its cash and investment securities.
Results of Operations
Financial Overview
The Company's results of operations for the three and six month periods
ended December 31, 2002 (the "Fiscal 2003 Periods") were adversely
impacted by costs of $72,300 incurred with respect to a proxy contest
instituted unsuccessfully by the Company's former Chairman of the Board,
Chief Executive Officer and President (the "Former CEO") in connection
with the 2002 Annual Meeting of Stockholders. Absent such costs, the
results for the Fiscal 2003 Periods would not have been materially
different from the results of operations for the three and six month
periods ended December 31, 2001.
The Company anticipates that the termination of the compensation of the
Former CEO, partially offset by additional compensation for the new CEO
and President, who previously held the positions of Vice President,
Controller and Secretary, will result in a reduction of its general and
administrative expenses for the balance of fiscal 2003.
6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
The Company expects material increases in its selling expenses resulting
from the employment of a director of sales and marketing in January 2003.
In addition, the Company entered into a long term consulting agreement
providing for a material increase in the marketing consulting services of
its newly elected director, who had been employed by the Company's
principal customer, and has been providing marketing consulting to the
Company. Additional selling expenses will also include costs for
increased promotional and advertising activities.
No assurance, however, can be given that the foregoing changes and
additional costs will result in increased sales and improved results of
operations.
The Three Months Ended December 31, 2002 Compared with the Three Months
Ended December 31, 2001.
Net sales of $833,700 decreased $39,000 (4.5%) for the three months ended
December 31, 2002 compared to $872,700 for the three months ended December
31, 2001 primarily due to lower unit sales of the Vortex-Genie 2
(registered trademark) mixer from domestic distributors resulting from
increased competition, partially offset by an increase in unit sales of
the Vortex-Genie 1 and Vortex-Genie 2T mixers, which were introduced at
the end of fiscal year 2001. Total net sales for the current three month
period ended December 31, 2002 compared to the previous three month
period ended September 30, 2002 were $16,600 (1.9%) lower.
There was an increase of 6.5% in the gross profit percentage for the three
months ended December 31, 2002 (40.7%), compared to the three months ended
December 31, 2001 ( 38.2%) as a result of a reduction in factory labor
personnel.
General and administrative expenses for the three month period ended
December 31, 2002 included $72,300 of proxy costs incurred in connection
with the proxy contest initiated by the Former CEO, which resulted in an
increase in general and administrative expenses of $38,500 (18.5%)
compared to the same period last year. Absent, the proxy costs, general
and administrative expenses would have been lower due to the
discontinuation of the employment of the Former CEO, partially offset by
the increase in the current CEO's salary.
Selling expenses for the three month period ended December 31, 2002 of
$44,800, consisting mainly of trade show activity, fees for a marketing
consultant, and printed material were approximately the same level as that
of the prior year's comparable period ($46,400).
Research and development expenses decreased by $11,900 (17.2%) to $56,900
for the three months ended December 31, 2002 from $68,800 for the
comparable period of the past fiscal year as a result of the reduction of
in-house engineering staff and engagement of a lower cost outside
engineering firm.
Other income (expenses) reflects a loss of $6,100 arising from the
termination of the lease of an automobile used by the Former CEO.
7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
The Six Months Ended December 31, 2002 Compared with the Six Months Ended
December 31, 2001.
Net sales decreased $110,000 (6.1%)to $1,684,000 for the six months ended
December 31, 2002 compared to $1,794,000 for the six months ended December
31, 2001 primarily due to lower unit sales of the Vortex-Genieregistered
trademark 2 mixer
from domestic distributors resulting from increased competition, partially
offset by an increase in unit sales of the Vortex-Genie 1 and Vortex-Genie
2T mixers which were introduced at the end of fiscal year 2001.
The gross profit of 40.8% for the six months ended December 31, 2002,
approximated the gross profit of 40.4% for the six months ended December
31, 2001.
General and administrative expenses for the six months ended December 31,
2002 of $470,800 included $72,300 of proxy costs incurred in connection
with the proxy contest initiated by the Former CEO, which resulted in an
increase in general and administrative expenses of $56,700 (13.7%)
compared to the same period last year. Absent the proxy costs, general
and administrative expenses would have been lower due to the
discontinuation of the employment of the Former CEO, partially offset by
the increase in the current CEO's salary.
Selling expenses of $76,600 for the six months ended December 31, 2002
decreased $7,000 (8.4%) compared to $83,600 for the previous year's six
month period which included higher expenditures for new catalogs,
brochures, and website design. See "Financial Overview" above for
discussion of anticipated increases in future selling expenses.
Other income (expenses) reflects a loss of $6,100 arising from the
termination of a lease of an automobile used by the Former CEO.
ITEM 3. CONTROLS AND PROCEDURES
a. The Company's CEO who is also the Company's Chief Financial Officer,
evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13-a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended), (the "1934 Act") as of
a date within 90 days of filing this quarterly report (the
"Evaluation Date"), and has concluded, based on her evaluation, that
as of the Evaluation Date, the Company's disclosure controls and
procedures were effective to ensure timely collection, evaluation and
disclosure of information relating to the Company that would
potentially be subject to disclosure under the 1934 Act, and the
rules and regulations promulgated thereunder.
b. There were no significant changes in or any need for corrective
action as to the Company's internal controls or in other factors that
could significantly affect the internal controls subsequent to the
Evaluation Date.
8
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings. However, a
financial advisor employed by the Company pursuant to an engagement letter
that was not extended by the Company beyond its expiration date of March
31, 2002 asserted a claim against the Company in April 2002 in the amount
of $125,000 for alleged services rendered to the Company that were alleged
to be outside the scope of the letter. The Company denies engaging the
financial advisor for any services outside the scope of the engagement
letter or that any amounts are owing to the advisor. The Company's
counsel has advised the Company that based on its review of the engagement
letter and the Company's denial, it is unlikely that the financial advisor
will prevail if it institutes a legal proceeding.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2002 Annual Meeting of Stockholders held on November 18,
2002, adjourned first to November 19, 2002 and then to November 25, 2002
stockholders took the following actios:
3. Reelected Mr. Roger B. Knowles as a Class C director by 430,056
shares "For", 7,154 shares "Withheld", and elected Mr. Joseph G.
Cremonese as a Class C Director by 818,214 shares "For", 5,800 shares
"Withheld", each to serve until the Annual Meeting of Stockholders
with respect to the fiscal year ending June 30, 2005, and the due
election and qualification of his successor. The other members of
the Board of Directors are Arthur M. Borden and James S. Segasture,
both Class A directors, and Joseph I. Kesselman, the Class B
Director. Mr. Lowell A. Kleiman, a nominee opposed by the Board of
Directors was not elected, having received 386,804 shares "For", and
none "Withheld".
4. Approved the Company's 2002 Stock Option Plan relating to 100,000
shares of the Company's Common Stock, plus an additional 161,000
shares which are currently subject to outstanding options under the
Company's 1992 Stock Option Plan by 786,260 shares "For", 26,713
shares "Against", and 1,725 shares "Abstain".
5. Ratified the appointment of Nussbaum Yates & Wolpow P.C. as the
independent auditors with respect to the financial statements of the
Company for the year ending June 30, 2003 by 818,155 shares "For",
5,720 shares "Against", and 418 shares "Abstain".
9
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
6. Rejected a proposal by Mr. Lowell A. Kleiman, former director and
CEO, requesting that the Board of Directors adopt a policy, which
among other things, would require grants of options to independent
directors to be approved by the stockholders by 422,228 shares
"Against", 402,024 shares "For", and 39 shares "Abstain".
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number: Description
1 2002 Stock Option Plan
99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K: On December 20, 2002, the Company filed
a Current Report on Form 8-K with the
Commission, containing information under
Item 5.
10
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARY
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Scientific Industries, Inc.
Registrant
/s/ Helena R. Santos
______________________
Helena R. Santos
President, Chief Executive Officer
and Treasurer
Principal Executive, Financial and
Accounting Officer
Date: February 13, 2003
11
Exhibit 1
SCIENTIFIC INDUSTRIES, INC.
2002 STOCK OPTION PLAN
(Effective as of February 11, 2002)
1. Purpose.
The purposes of this 2002 Stock Option Plan (the "Plan") are to
induce certain individuals to remain in the employ or service of
Scientific Industries, Inc. (the "Company") and its present and
future subsidiary corporations (each a "Subsidiary"), as defined
in Section 425(f) of the Internal Revenue Code of 1986, as amended
(the "Code"), to attract new individuals to enter into such
employment and service and to encourage such individuals to secure
or increase on reasonable terms their stock ownership in the
Company. The Board of Directors of the Company (the "Board")
believes that the granting of stock options (the "Options") under
the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company
and aid in securing its continued growth and financial success.
Options will be either (a) "incentive stock options" (which term,
when used herein, shall have the meaning ascribed thereto by the
provisions of Section 422 (b) of the Code) or (b) options which
are not incentive stock options ("non-incentive stock options"),
as determined at the time of the grant thereof by the
Administrator referred to in Section 3(A) hereof.
2. Shares Subject to Plan.
Options may be granted to purchase up to one hundred thousand
(100,000) shares of the common stock, par value $0.05 per share
(the "Common Stock") of the Company. To the extent that options
previously granted under the 1992 Stock Option Plan of the
Company (the "Prior Plan") expire or terminate for any reason
without having been exercised, then options exercisable for
that same number of shares of Common Stock, up to a maximum of
one hundred sixty one thousand (161,000) shares, may be granted
pursuant to the Plan. For the purpose of this section 2, the
number of shares purchased upon the exercise of an Option shall
be determined without giving effect to the use by a Participant
of the right set forth in Section 8(C) hereof to deliver shares
of the Common Stock in payment of all or a portion of the option
price or the use by a Participant of the right set forth in
Section 12(C) hereof to cause the Company to withhold from the
shares of the Common Stock otherwise deliverable to him upon the
exercise of an Option shares of the Common Stock in payment of
all or a portion of his withholding obligation arising from such
exercise. If any Options expire or terminate for any reason without
having been exercised in full, new Options may thereafter be granted
to purchase the unpurchased shares subject to such expired or
terminated Options. Subject to the provisions of Section 11, the
maximum number of shares of Common Stock which may be issued in
accordance with the provisions of this Section 2 shall be two
hundred sixty one thousand (261,000) shares.
3. Administration.
(A) The Plan shall be administered by either the Board or, at the
option of the Board, a Committee which shall consist of two or more
members of the Board, both or all of whom shall be "disinterested
persons" within the meaning of Rule 16b-3(c)(2)(i) promulgated under
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange
Act"). The Committee, if appointed, shall be appointed annually by
the Board, which may at any time and from time to time remove any
member or members of the Committee, with or without cause, appoint
additional members to the Committee and fill vacancies, however
caused, in the Committee. A majority of the members of the Committee
shall constitute a quorum. All determinations of the Committee shall
be made by a majority of its members present at a meeting duly called
and held. Any decision or determination of the Committee reduced to
writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called
and held. The Committee, or if a Committee has not been appointed,
the Board, in its capacity as administrator of the Plan, is
hereinafter referred to as the "Administrator".
(B) Subject to the express provisions of the Plan, the Administrator
shall have complete authority, in its discretion, to interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of the respective option agreements
or certificates (which need not be identical), to determine the
individuals (each a "Participant") to whom and the times and the
prices at which Options shall be granted, the periods during which
each Option shall be exercisable, the number of shares of the Common
Stock to be subject to each Option and whether such Option shall be
an incentive stock option or a non-incentive stock option and to make
all other determinations necessary or advisable for the administration
of the Plan. In making such determinations, the Administrator may take
into account the nature of the services rendered by the respective
Participants, their present and potential contributions to the success
of the Company and the Subsidiaries and such other factors as the
Administrator in its discretion shall deem relevant. The Administrator's
determination on the matters referred to in this section 3(B) shall be
conclusive. Any dispute or disagreement which may arise under or as a
result of or with respect to any Option shall be determined by the
Administrator, in its sole discretion, and any interpretations by the
Administrator of the terms of any Option shall be final, binding and
conclusive.
4. Eligibility.
An Option may be granted only to (1) employees and key consultants of
the Company or a Subsidiary, (2) directors of the Company or a
Subsidiary who are not employees of the Company or a Subsidiary
("Outside Directors"), and (3) employees and key consultants of a
corporation which has been acquired by the Company or a Subsidiary,
whether by way of exchange or purchase of stock, purchase of assets,
merger or reverse merger, or otherwise, who hold options with respect
to the stock of such corporation which the Company has agreed to assume.
The foregoing notwithstanding, none of Messrs. Joseph I. Kesselman,
Arthur M. Borden, Roger B. Knowles, Lowell A. Kleiman and James S.
Segasture shall be eligible to receive Option grants under the Plan.
5. Option Prices.
(A) Except as otherwise provided in Sections 5(C) and 17 hereof,
the initial per share option price of any Option which is an incentive
stock option shall not be less than the fair market value of a share
of the Common Stock on the date of grant; provided, however, that, in
the case of a Participant who owns more than 10% of the total combined
voting power of the Common Stock at the time an Option which is an
incentive stock option is granted to him, the initial per share
option price shall not be less than 110% of the fair market value
of a share of the Common Stock on the date of grant.
(B) Except as otherwise provided in Sections 5(C) and 17 hereof,
the initial per share option price of any Option which is a
non-incentive stock option shall not be less than 85 % of the fair
market value of a share of the Common Stock on the date of grant.
(C) The initial per share option price of any Option which is
granted to an Outside Director shall be equal to the fair market
value of a share of the Common Stock on the date of grant.
(D) For all purposes of this Plan, the fair market value of a
share of the Common Stock on any date shall be equal to, if the
Common Stock is listed on a national securities exchange or traded
on the NASDAQ National Market System, the closing sale price of a
share of the Common Stock on such date or, if there is no sale of
the Common Stock on such date, the average of the bid and asked
prices on such exchange or system at the close of trading on such
date or, if the shares of the Common Stock are not listed on a
national securities exchange or such system on such date, the
last per share sales price of Common Stock on the market or system
of the NASD on which the Common Stock is then traded or listed
(the "Relevant Market System") during the three business days
ending on the date of grant or exercise as reported in the market
report for the Relevant Market System or if no sale has been
reported for such period, the higher of the (i) closing bid
price on the Relevant Market System on the date of grant or
exercise or (ii) the average of the closing bid prices on the
Relevant Market System for the three business days immediately
preceding the date of grant or exercise, in each case as
reported in the Market Report for the Relevant Market System
or, if the shares of the Common Stock are not traded or listed
on a market or system of the NASD, as shall be determined in
good faith by the Administrator.
6. Option Term.
Options shall be granted for such term as the Administrator shall
determine, not in excess of ten years from the date of the
granting thereof; provided, however, that, except as otherwise
provided in Section 17 hereof, in the case of a Participant who
owns more than 10% of the total combined voting power of the
Common Stock at the time an Option which is an incentive stock
option is granted to him, the term with respect to such Option
shall not be in excess of five years from the date of the
granting thereof; and provided, further, however, that the
term of an Option granted to an Outside Director shall be ten
years form the date of the granting thereof.
7. Limitation on Amount of Incentive Stock Options Granted.
Except as otherwise provided in Section 17 hereof, the aggregate
fair market value of the shares of the Common Stock for which any
Participant may be granted incentive stock options which are
exercisable for the first time in any calendar year (whether
under the terms of the Plan or any other stock option plan of
the Company) shall not exceed $100,000.
8. Exercise of Options.
(A) Except as otherwise provided in Section 17 hereof and, in
the case of an Option granted to an employee or key consultant,
except as otherwise determined by the Administrator at the time
of the grant thereof, a Participant may (i) during the period
commencing on the first anniversary of the date of the granting
of an Option to him and ending on the day preceding the second
anniversary of such date, exercise such Option with respect to
one-third of the shares granted thereby, (ii) during the period
commencing on such second anniversary and ending on the day
preceding the third anniversary of the date of the granting of
such Option, exercise such Option with respect to such number of
shares as when added to the number of shares previously purchased
under the Option does not exceed two-thirds of the shares granted
thereby, and (iii) during the period commencing on such third
anniversary, exercise such Option with respect to all of the
shares granted thereby.
(B) To the extent exercisable, an Option may be exercised either
in whole at any time or in part form time to time.
(C) An Option may be exercised only by a written notice of intent
to exercise such Option with respect to a specific number of shares
of Common Stock and payment to the Company of the amount of the
option price for the number of shares of the Common Stock so
specified; provided, however, that all or any portion of such
payment may be made in kind by the delivery of shares of the
Common Stock having a fair market value on the date of delivery
equal to the portion of the option price so paid; provided, further,
however, that, subject to the requirements of Regulation T promulgated
under the Exchange Act, the Administrator may implement procedures to
allow a broker chosen by a Participant to make payment of all or any
portion of the option price payable upon the exercise of an Option
and receive, on behalf of such Participant, all or any portion of the
shares of the Common Stock issuable upon such exercise.
(D) Except in the case of an Option granted to an Outside Director,
the Administrator may, in its discretion, permit any Option to be
exercised, in whole or in part, prior to the time when it would
otherwise be exercisable.
9. Transferability.
No Option shall be assignable or transferable except by will and/or
by the laws of descent and distribution and, during the life of any
Participant, each Option granted to him may be exercised only by him.
10. Termination of Service.
(A) In the event that prior to his 65th birthday, other than by
reason of death, a Participant leaves the employ or service of the
Company and the Subsidiaries or, in the case of an Outside Director,
does not stand for re-election or is not reelected, whether
voluntarily or otherwise, each Option theretofore granted to
him shall be exercisable to the extent exercisable immediately
prior to the date of termination of employment or service (or the
date the Director does not stand for reelection or is not reelected)
within the period ending the earlier to occur of (i) the expiration
of the period of three months after the date of such termination of
services or failure to stand for or be reelected a Director and (ii)
the date specified in such Option.
(B) In the event a Participant's employment or service (including
the service of an Outside Director) with the Company and the
Subsidiaries terminates by reason of his death, each Option
theretofore granted to him shall become immediately exercisable
in full and shall terminate upon the earlier to occur of (i) the
expiration of the period of one year after the date of such
Participant's death and (ii) the date specified in such Option.
(C) In the event that on or after his 65th birthday, a Participant
leaves the employ or service of the Company and the Subsidiaries by
reason of his or her disability (as such term is defined in Section
22(e)(3) of the Code) leaves the employ or service of the Company
and the Subsidiaries or, in the case of an Outside Director,
resigns or does not stand for re-election or is not reelected,
each Option theretofore granted to him shall become immediately
exercisable in full and shall terminate upon the earlier to occur
of (i) the expiration of the period of three months after the date
of such termination, resignation or failure to stand for election
or to be reelected and (ii) the date specified in such Option.
11. Adjustment of Number of Shares.
(A) In the event that a dividend shall be declared upon the Common
Stock payable in shares of the Common Stock, the number of shares
of the Common Stock then subject to any Option and the number of
shares of the Common Stock which may be purchased upon the exercise
of Options granted under the Plan but not yet covered by an Option
shall be adjusted by adding to each share the number of shares which
would be distributable thereon if such shares had been outstanding
on the date fixed for determining the stockholders entitled to receive
such stock dividend. In the event that the outstanding shares of
the Common Stock shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company
or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, sale of
assets, merger or consolidation in which the Company is the
surviving corporation, then, there shall be substituted for each
share of the Common Stock then subject to any Option and for each
share of the Common Stock which may be purchased upon the exercise
of Options granted under the Plan but not yet covered by an Option,
the number and kind of shares of stock or other securities into
which each outstanding share of the Common Stock shall be so changed
or for which each such share shall be exchanged.
(B) In the event that there shall be any change, other than as
specified in Section 11(A) hereof, in the number or kind of outstanding
shares of the Common Stock, or of any stock or other securities into
which the Common Stock, shall have been changed, or for which it shall
have been exchanged, then, if the Administrator shall, in its sole
discretion, determine that such change equitably requires an adjustment
in the number or kind of shares then subject to any Option and the
number or kind of shares available for issuance in accordance with
the provisions of the Plan but not yet covered by an Option, such
adjustment shall be made by the Administrator and shall be effective
and binding for all purposes of the Plan and of each Option.
(C) In the case or any substitution or adjustment in accordance
with the provisions of this Section 11, the option price in each
Option for each share covered thereby prior to such substitution
or adjustment shall be the option price for all shares of stock or
other securities which shall have been substituted for such share
or to which such share shall have been adjusted in accordance with
the provisions of this Section 11.
(D) No adjustment or substitution provided for in this Section 11
shall require the Company to sell a fractional share under any Option.
(E) In the event of the dissolution or liquidation of the Company,
the Board, in its discretion, may accelerate the exercisability of
each Option and/or terminate the same within a reasonable time
thereafter.
12. Purchase for Investment, Withholding and Waivers.
(A) Unless the delivery of the shares upon the exercise of an Option
by a Participant shall be registered under the Securities Act of 1933,
such Participant shall, as a condition of the Company's obligation to
deliver such shares, be required to give a representation in writing
that he is acquiring such shares for his own account as an investment
and not with a view to, or for sale in connection with, the
distribution of any thereof.
(B) In the event of the death of a Participant, an additional
condition of exercising any Option shall be the delivery to the
Company of such tax waivers and other documents as the Administrator
shall determine.
(C) An additional condition of exercising any non-incentive stock
option shall be the entry by the Participant into such arrangements
with the Company with respect to withholding as the Administrator
shall determine; provided, however, that such Participant may
direct the Company to satisfy all or a portion of such withholding
obligation by withholding from the shares of the Common Stock
issuable to him on such exercise shares of the Common Stock
having a fair market value equal to the portion of the withholding
obligation so satisfied.
13. Declining Market Price.
Except in the case of an Option granted to an Outside Director, in
the event the fair market value of the Common Stock declines below
the option price set forth in any Option, the Administrator may,
subject to the approval of the Board, at any time, adjust, reduce,
cancel and re-grant any unexercised Option or take any similar
action it deems to be for the benefit of the Participant in light
of the declining fair market value of the Common Stock.
14. No Stockholder Status; No Restrictions on Corporate Acts;
No Employment Right.
(A) Neither any Participant nor his legal representatives,
legatees or distributees shall be or be deemed to be the holder
of any share of the Common Stock covered by an Option unless and
until a certificate for such share has been issued. Upon payment
of the purchase price therefore, a share issued upon exercise of
an Option shall be fully paid and non-assessable.
(B) Neither the existence of the Plan nor any Option shall in any
way affect the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure
or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate
act or proceeding whether of a similar character or otherwise.
(C) Neither the existence of the Plan nor the grant of any Option
shall require the Company or any Subsidiary to continue any
Participant in the employ or service of the Company or such Subsidiary.
15. Termination and Amendment of the Plan.
(A) The Board may at any time terminate the Plan or make such
modifications of the Plan as it shall deem advisable; provided,
however, that the Board may not, without further approval of the
holders of the shares of the Common Stock, increase the number of
shares of the Common Stock as to which Options may be granted
under the Plan (as adjusted in accordance with the provisions
of Section 11 hereof), or change the class of persons eligible
to participate in the Plan, or change the manner of determining
the Option prices, or extend the period during which an Option
may be granted or exercised. Except as otherwise provided in
Section 16 hereof, no termination or amendment of the Plan may,
without the consent of the Participant to whom any Option shall
theretofore have been granted, adversely affect the rights of
such Participant under such Option.
(B) The provisions of Section 5(C) hereof may not be amended
except by the vote of the majority of the members of the Board
and by the vote of the majority of the members of the Board who
are not Outside Directors, and the provisions of said Section
5(C) shall not be amended more than once every six months,
other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974 or the Rules and
Regulations thereunder.
16. Expiration and Termination of the Plan.
The Plan shall terminate on February 10, 2012 or at such earlier
time as the Board may determine. Options may be granted under the
Plan at any time and from time to time prior to its termination.
Any Option outstanding under the Plan at the time of termination
of the Plan shall remain in effect until such Option shall have
been exercised or shall have expired in accordance with its terms.
17. Options Granted in Connection With Acquisitions.
The Administrator may determine, in connection with the acquisition
by the Company or a Subsidiary of another corporation which will
become a Subsidiary or division of the Company (such corporation
being hereafter referred to as an "Acquired Subsidiary"), that
Options may be granted hereunder to employees and other personnel
of an Acquired Subsidiary in exchange for then outstanding options
to purchase securities of the Acquired Subsidiary. The Administrator,
at its discretion shall determine as to such Options, the option
prices, may be exercisable immediately or at any time or times
either in whole or in part, and such other provisions not
inconsistent with the Plan, or the requirements set forth in
Section 15 hereof that certain amendments to the Plan be
approved by the stockholders of the Company.
Exhibit 99.1
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CERTIFICATION PURSUANT TO
18 U.S.C. SS.1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Helena R. Santos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Scientific
Industries, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a and 15d-14) for
the registrant and I have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures
based on my evaluation as of the Evaluation Date;
I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the registrant's board of Directors:
d) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
e) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
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5. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date
of my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
February 13, 2003
By: /s/ Helena R. Santos
_____________________________________________________________________
Helena R. Santos, Chief Executive Officer and Chief Financial Officer
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