UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
__________
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2012
__________________
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to______
Commission file number 0-6658
____________________
SCIENTIFIC INDUSTRIES, INC.
___________________________________________________________________
(Exact Name of Registrant in Its Charter)
Delaware 04-2217279
_______________________________ ______________________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
70 Orville Drive, Bohemia, New York 11716
_______________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 567-4700
______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
___________________ _________________________________________
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [ x ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ x ]
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), except for a
Report on Form 8-K required to be filed in November 2011 with respect
to an acquisition and (2) has been subject to such filing requirements
for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post
such files). Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ x ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act) Yes [ ] No [ x ]
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock,
as of August 31, 2012 is $1,172,300.
The number of shares outstanding of the registrant's common stock, par
value $.05 per share ("Common Stock") as of August 31, 2012 is 1,335,712
shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
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SCIENTIFIC INDUSTRIES, INC.
Table of Contents
PART I
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 8
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 14
ITEM 9A. CONTROLS AND PROCEDURES 14
ITEM 9B. OTHER INFORMATION 15
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE 15
ITEM 11. EXECUTIVE COMPENSATION 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE 15
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 15
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 16
SIGNATURES 21
EXHIBIT-31. CERTIFICATION 22
EXHIBIT-32. CERTIFICATION 24
3
Forward Looking Statements. The Company and its
representatives may from time to time make written or oral forward-
looking statements with respect to the Company's annual or long-term
goals, including statements contained in its filings with the Securities
and Exchange Commission and in its reports to stockholders.
The words or phrases "will likely result," "will be,"
"will," "are expected to," "will continue to," "is anticipated,"
"estimate," "project" or similar expressions identify "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.
Readers are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
PART I
Item 1. Business.
General. Incorporated in 1954, Scientific Industries,
Inc., a Delaware corporation (which along with its subsidiaries, the
"Company") is engaged in the design, manufacture, and marketing of
standard benchtop laboratory equipment ("Benchtop Laboratory Equipment"),
customized catalyst research instruments ("Catalyst Research
Instruments"), under its wholly-owned subsidiary, Altamira Instruments,
Inc., and since November 2011 through its then organized subsidiary,
Scientific Bioprocessing, Inc., ("SBI"), the design of bioprocessing
systems and products ("Bioprocessing Systems"). The Company's
products are used primarily for research purposes by universities,
pharmaceutical companies, national laboratories, medical device
manufacturers, petrochemical companies and other industries performing
laboratory-scale research.
Operating Segments. The Company views its operations
as three segments: the manufacture and marketing of standard Benchtop
Laboratory Equipment for research in university and industrial
laboratories sold primarily through laboratory equipment distributors,
the manufacture and marketing of custom-made Catalyst Research
Instruments for universities, government laboratories, and chemical
and petrochemical companies, and the production, marketing and
sublicensing of bioprocessing systems and products for research in
university and industrial laboratories. For certain financial
information regarding the Company's operating segments, see Note 3
to the consolidated financial statements included under Item 8.
Products.
Benchtop Laboratory Equipment. The Company's
Benchtop Laboratory Equipment products consist of mixers and shakers,
rotators/rockers, refrigerated and shaking incubators, and magnetic
stirrers. Sales of the Vortex-Genie(R) 2 Mixer, excluding accessories,
the Company's principal product, represented approximately 42% and 52%
of the Company's total net sales for the fiscal years ended June 30,
2012 ("fiscal 2012") and June 30, 2011 ("fiscal 2011"), respectively,
and 63% and 68%, of the segment's sales for fiscal 2012 and fiscal
2011, respectively.
The vortex mixer is used to mix the contents of
test tubes, beakers, and other various containers by placing such
containers on a rotating cup or other attachments which cause the
contents to be mixed at varying speeds.
The Company's additional mixers and shakers include
a high speed touch mixer; a mixer with an integral timer, a patented
cell disruptor; microplate mixers, two vortex mixers incorporating
digital control and display; a large capacity multi-vessel vortex
mixer and shaker, and a large capacity orbital shaker.
4
The Company also offers various benchtop multi-
purpose rotators and rockers, designed to rotate and rock a wide
variety of containers, and a refrigerated incubator and an incubator
shaker, both of which are multi-functional benchtop environmental
chambers designed to perform various shaking and stirring functions
under controlled environmental conditions.
Its line of magnetic stirrers include a patented
high/low programmable magnetic stirrer; a four-place high/low
programmable magnetic stirrer; a large volume magnetic stirrer a
vailable in analog and digital versions; and a four-place general
purpose stirrer also available in analog and digital versions.
Catalyst Research Instruments. The Catalyst
Research Instrument products are offered through the Company's
subsidiary, Altamira. Its flagship product is the AMI-200(TM),
which is used to perform traditional catalyst characterization
experiments on an unattended basis. The product also features
a stand-alone personal computer to control the instrument and
incorporates proprietary LabVIEW(R)-based software. The Company's
AMI-300(TM) Catalyst Characterization Instrument incorporates
a sophisticated data handling package and is designed to perform
dynamic temperature-programmed catalyst characterization experiments.
All AMI model instruments are designed or adapted to a customer's
individual requirements.
Its other Catalyst Research Instrument products
include reactor systems, high throughput systems and micro-activity
reactors, including the Company's BenchCAT(TM) custom reactor systems.
They are available with single and multiple reactor paths and with
reactor temperatures up to 1200 degrees Celsius. The systems feature
multiple gas flows, are available in gas and gas/liquid configurations,
and feature one or more stand-alone personal computers with the
LabVIEW(R)-based control software. In June 2011, the Company
introduced its MicroBenchCat Microreactor, a fully automated reactor
system.
Bioprocessing Systems. The Company, through SBI,
is engaged in the design and development of bioprocessing systems,
principally microreactor systems using disposable sensors for
vessels with volumes ranging from 250 milliliter to five liters.
Upon development systems will be offered for sale or pursuant to
royalty agreements. As of August 31, 2012, SBI had sublicensing
agreements with two sublicensees which provided gross licensing
fees of $160,600 for fiscal 2012, of which $76,800 was paid to
the University of Maryland, Baltimore County, ("UMBC") based on
the terms of the related license. Sales of approximately $17,400
comprised small bioprocessing items and accessories.
Product Development. The Company designs and
develops substantially all of its products. Company personnel
formulate plans and concepts for new products and improvements
or modifications of existing products. The Company engages outside
consultants to augment its capabilities in areas such as
industrial and electronics design.
Major Customer. Sales, principally of the Vortex-
Genie 2 Mixer, to one customer, which is one of the two major
distributors of laboratory equipment, represented 7% of total sales
for fiscal 2012, and 10.5% of Benchtop Laboratory Equipment product
sales. For fiscal 2011, sales to the customer accounted for 11.2%
of total sales and 14.6% of the segment's sales. Sales of Catalyst
Research Instrument products are generally pursuant to a few large
orders amounting on average to over $100,000 to a limited number
of customers. In fiscal 2012 no customer represented over 10% of
total sales, however there were three customers that each
represented over 10% of that segment's sales, or an aggregate of
44% of the segment's sales (14% of total sales). In fiscal 2011,
sales to two customers, each of which represented at least 10% of
that segment's sales, accounted for an aggregate of 30% of the
segment's sales (7% of total sales).
5
Marketing.
Benchtop Laboratory Equipment. The Company's
Benchtop Laboratory Equipment products are generally distributed
and marketed through an established network of domestic and
overseas laboratory equipment distributors, who sell the
Company's products through printed catalogs, websites and
sales force. See "Major Customer". The Company also markets
products through attendance at industry trade shows, trade
publication advertising, brochures and catalogs, the Company's
website, and commencing in fiscal 2010 through the efforts of
its first sales managers.
In general, due to the reliance on sales through
the catalog distribution system, it takes two to three years for
a new benchtop laboratory equipment product to begin generating
meaningful sales.
Catalyst Research Instruments. The Company's
Catalyst Research Instruments are sold directly worldwide to
universities, government laboratories, and chemical and
petrochemical companies through its sales personnel and
independent representatives engaged on a commission basis.
Its marketing efforts include attendance at various trade shows,
Altamira's website, outside sales representatives, and printed
materials.
Bioprocessing Systems. The Company's
Bioprocessing Systems products, which are currently under
development, will be offered both directly and through
distribution worldwide to university, industrial, and government
laboratories. It is anticipated that the related marketing
efforts will mainly comprise attendance at various trade shows,
publications, website, and dealer-related activities.
Assembly and Production. The Company has an
operating facility in Bohemia, New York from which its
Benchtop Laboratory Equipment Operations are conducted and
another in Pittsburgh, Pennsylvania from which its Catalyst
Research Instruments Operations are conducted. The Company's
production operations principally involve assembly of
components supplied by various domestic and international
independent suppliers. The Company has not commenced production
of bioprocessing products, but anticipates that its current
facilities will be adequate for such purpose.
Patents, Trademarks, and Licenses.
The Company holds several United States patents
relating to its products, including a patent which expires in
September 2015 for the TurboMix(TM), an accessory to the Vortex-
Genie 2 Mixer, a patent which expires in July 2016 on the Roto-
Shake Genie(R); a patent which expires in November 2022 on the
MagStir Genie(R), MultiMagStir Genie(R), and Enviro-Genie(R), and
a patent which expires in January 2023 on a biocompatible bag with
integral sensors.
The Company has various proprietary marks,
including AMI(TM), BenchCAT(TM), BioGenie(R), Cellphase(R),
Cellstation(R), Disruptor Beads(TM), Disruptor Genie(R), Enviro
-Genie(R), Genie(TM), Incubator Genie(TM), MagStir Genie(R),
MegaMag Genie(R), MicroPlate Genie(R), MultiMagStir Genie(R),
Multi-MicroPlate Genie(R), Orbital-Genie(R), QuadMag Genie(R),
Rotator Genie(R), Roto-Shake Genie(R), TurboMix(TM), and
Vortex-Genie(R), each of which it considers important to the
success of the related product. The Company also has several
trademark applications pending. No representation can be made
that any application will be granted or as to the protection
that any existing or future trademark may provide.
The Company has several licensing agreements
for technology and patents used in the Company's business,
including an exclusive license from UMBC with respect to rights
and know-how under a patent held by UMBC related to non-disposable
sensor technology, which the Company further sublicenses on an
exclusive basis to a German company, except for non-exclusive
rights held by the Company as it relates to the use of the
technology with vessels of sizes ranging from 250 milliliters to 5
liters, and to applications in sub-milliliter volumes licensed to
a third party. The Company also holds a license as to the
technology related to its patent for the Roto-Shake
6
Genie, and a patent related to its TurboMix attachment for the
Vortex-Genie and Disruptor Genie. Total license fees paid by
the Company under all its licenses for fiscal 2012 and fiscal
2011 amounted to $87,300 and $11,700, respectively.
Foreign Sales. The Company's sales to overseas
customers, principally in Asia and Europe, accounted for
approximately 54% of the Company's net sales for each of fiscal
2012 and fiscal 2011. Payments are in United States dollars
and are therefore not subject to risks of currency fluctuation,
foreign duties and customs.
Seasonality. The Company does not consider its
business to be seasonal.
Backlog. The amount of backlog for Benchtop
Laboratory Equipment products is not a significant factor
because this line of products is comprised of standard catalog
items requiring lead times which usually are not longer than two
weeks. There is no backlog for Bioprocessing Systems. The
backlog for Catalyst Research Instrument products as of June 30,
2012 was $303,200, all of which is expected to be filled by June
30, 2013, as compared to a backlog of $424,600 as of June 30, 2011,
all of which was filled in fiscal 2012.
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 technical specifications, price, and product recognition
and acceptance. The Company's main competition for its Benchtop
Laboratory Equipment products derives from private label brand
mixers offered by laboratory equipment distributors in the United
States and Europe. The Company believes its vortex mixer
products and trademarks are factors in the world-wide market.
The Company's major competitors for its Benchtop
Laboratory Equipment are Henry Troemner, Inc. (a private label
supplier to the two largest laboratory equipment distributors
in the U.S. and Europe), IKA-Werke GmbH & Co. KG, a German
company, Benchmark Scientific, Inc., (a United States importer
of China-produced products), and Heidolph Instruments GmbH, a
German company.
The primary competition for the Company's
Catalyst Research Instrument products is in the form of instruments
produced internally by research laboratory staffs of potential
customers. Major competitors in the United States include
Quantachrome Instruments, and Micromeritics Instrument
Corporation, each a privately-held company.
The potential major competitors for the Company's
Bioprocessing Systems are Applikon Biotechnology, B.V.
(Netherlands), DASGIP Technology GmbH (Germany), and
PreSens - Precision Sensing GmbH (Germany).
Research and Development. The Company incurred
research and development expenses, the majority of which related
to new Benchtop Laboratory Equipment products, of $375,900
during fiscal 2012 compared to $324,400 during fiscal 2011.
The Company expects research and development expenditures in the
fiscal year ending June 30, 2013 to increase primarily due to the
new product development activities related to new bioprocessing
systems.
Government and Environmental Regulation. The
Company's products and claims with respect thereto have not required
approval of the Food and Drug Administration or any other government
approval. The Company's manufacturing operations, like those of the
industry in general, are subject to numerous existing and proposed,
if adopted, federal, state, and local regulations to protect the
environment, establish occupational safety and health standards and
cover other matters. The Company believes that its operations are
in compliance with existing laws and regulations and the cost to
comply is not significant to the Company.
7
Employees. As of August 31, 2012, the Company employed
28 persons (18 for the Benchtop Laboratory Equipment Operations and 10
for the Catalyst Research Instruments Operations) of whom 24 were
full-time, including its three executive officers. There were no
employees for the Bioprocessing Systems Operations as all activities
are being performed by employees of the other two operations. None of
the Company's employees are represented by any union.
Available Information. The Company's Annual Report to
Stockholders for fiscal 2012, includes its Annual Report on Form 10-K.
The Annual Report will be mailed to security holders together with the
Company's proxy material and solicitation as it relates to the Company's
2012 Annual Meeting of Stockholders. All the Company's reports, including
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and other information filed with, or furnished to,
the Securities and Exchange Commission (the "SEC" or the "Commission"),
including amendments to such reports, are available on the SEC's website
that contains such reports, proxy and information statements, and other
information regarding companies that file electronically with the
Commission. This information is available at www.sec.gov. In addition,
all the Company's public filings can be accessed through the Company's
website at http://scientificindustries.com/secfilings.html.
Item 1A. Risk Factors.
In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, important risk factors
are identified below that could affect the Company's financial
performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed
with respect to such future periods in any current statements. The
Company undertakes no obligation to publicly revise any forward-looking
announcements to reflect future events or circumstances.
Dependence on Major Customers
Sales to one customer, a major laboratory equipment
distributor in the United States, represented 10.5% and 14.6% of the
segment's sales for fiscal 2012 and 2011, respectively. Sales to
another customer, an overseas laboratory equipment distributor also
accounted for 12.1% and 11.8% of the sales of Benchtop Laboratory
Equipment for fiscal 2012 and 2011, respectively.
No representation can be made that the Company will
be successful in continuing to retain either or both customers, the
loss of which could have an adverse effect on future operating
results of the Company.
One Benchtop Laboratory Equipment Product Accounts for a Substantial
Portion of Revenues
The Company has a limited number of Benchtop
Laboratory Equipment products with one product, the Vortex-Genie 2
Mixer, accounting for approximately 63% and 68% of Benchtop Laboratory
Equipment sales, for fiscal 2012 and fiscal 2011 respectively, and
42% and 52% of total sales for fiscal 2012 and fiscal 2011, respectively.
The Company is a Small Participant in Each of the Industries in
Which It Operates
The Benchtop Laboratory Equipment industry is a highly
competitive mature industry. Although the Vortex-Genie 2 Mixer has
been widely accepted, the annual sales of the Benchtop Laboratory
Equipment products ($4,160,500 for fiscal 2012 and $4,525,100 for
fiscal 2011) are significantly lower than the annual sales of many
of its competitors in the industry. The principal competitors are
substantially larger with much greater financial, production and
marketing resources than the Company. There are constant new entrants
into the vortex mixer market, including those offering products
imported from China.
8
The production and sale of Catalyst Research
Instruments products is highly competitive. Altamira's competitors
include several companies with greater resources and many laboratories
which produce their own instruments.
The Company's Bioprocessing Systems operation is a participant
in the fast-growing laboratory-scale sector of the larger bioprocessing
products industry, which is dominated by several large companies
with much greater resources than the Company.
The Company's Ability to Grow and Compete Effectively Depends In Part
on Its Ability to Develop and Effectively Market New Products
Over the past ten years, the Company has continuously
invested in the development and marketing of new Benchtop Laboratory
Equipment products with a view to increasing revenues and reducing
the Company's dependence on the Vortex-Genie 2 Mixer. Gross revenues
derived from such other Benchtop Laboratory Equipment products (those
other than the Vortex-Genie 2 Mixer) increased to $1,545,400 for
fiscal 2012 from $1,484,000, for fiscal 2011. However, the segment's
ability to compete will depend upon the Company's success in
continuing to develop and market new laboratory equipment as to
which no assurance can be given.
The Company relies primarily on distributors and
their catalogs to market its Benchtop Laboratory Equipment products,
as is customary in the industry. Accordingly, sales of new products
are heavily dependent on the distributors' decision to include and
retain a new product in the distributors' catalogs and on their
websites. It may be at least 24 to 36 months between the
completion of development of a product and the distribution of
the catalog in which it is first offered; not all distributors
feature the Company's products in their catalogs. In fiscal 2010,
the Company hired a new sales manager to bolster its sales efforts
in the United States, and in fiscal 2011, the Company engaged a
consultant overseas as its European Sales Manager.
The Company's Catalyst Research Instruments line
of products consists of only a few products. The ability of the
Company to compete in this segment and expand the line will depend
on its ability to make engineering improvements to existing
products and develop and add new products incorporating more
current technology. Over the last two fiscal years the Company
has introduced two new catalyst research products to increase its
product offerings and has continuously sought to expand its
outside sales force.
The success of the Company's new Bioprocessing
Systems operation will be heavily dependent on its ability to
develop and market new products. New products are being or are
to be developed under research and development agreements with
the sellers of the SBI assets augmented by the Company's other
internal and external resources. Such products are of a complex
nature of which the Company does not have previous experience.
They will be subject to beta testing by end users, which
could result in design and/or production changes which could
delay development time. The sale and marketing of the products,
at least initially, will be through the Company's attendance at
trade shows, website, and a few select distributors.
No assurance can be given that the amounts
allocated by the Company for its new product development and sales
and marketing programs will be sufficient to develop additional
commercially feasible products which will be accepted by the
marketplace, or that any distributor will include or retain any
particular product in their catalogs and websites.
9
The Company May Be Subject to General Economic, Political, and
Social Factors
Orders for the Company's products, particularly its
Catalyst Research Instruments products, depend in part, on the
customer's ability to secure funds to finance purchases.
Availability of funds can be affected by budgetary constraints.
Factors including a general economic recession, such as the one
which commenced in fiscal 2009 and negatively affected the
Company since fiscal 2011, the European crisis, or major terrorist
attack would likely have a negative impact on the availability of
funding including government or academic grants to potential
customers.
The Company's ability to secure new Catalyst
Research Instruments orders can also be affected by changes in
domestic and international policies pertaining to energy and
the environment, which could affect funding of potential customers.
The Company is Heavily Dependent on Outside Suppliers for the
Components of Its Products
The Company purchases all its components from
outside suppliers and relies on a few single suppliers for certain
of its Benchtop Laboratory Equipment components, including the
Vortex-Genie 2, mostly due to cost considerations. Many of the
Company's suppliers, including United States vendors, produce the
components directly or indirectly in overseas factories, and orders
are subject to long lead times and potential other risks related
to production in a foreign country. To minimize the risk of supply
shortages, the Company keeps more than normal quantities on hand
of the critical components that cannot easily be procured or, where
feasible and cost effective, purchases are made from more than
one supplier.
The Company's Ability to Compete Depends in Part on Its Ability
To Secure and Maintain Proprietary Rights to its Products
The Company has no patent protection for its principal
Benchtop Laboratory Equipment product, the Vortex-Genie 2 Mixer, or
for its Catalyst Research products and limited patent protection on
a few other Benchtop Laboratory Equipment products. There are
several competitive products available in the marketplace
possessing similar technical specifications and design.
As part of the asset purchase by SBI during fiscal 2012,
the Company acquired the rights to various patents for bioprocessing
products which it licenses from UMBC.
There can be no assurance that any patent issued, licensed
or sublicensed to the Company provides or will provide the Company
with competitive advantages or will not be challenged by third
parties. Furthermore, there can be no assurance that others will
not independently develop similar products or design around the
patents. Any of the foregoing activities could have a material
adverse effect on the Company. Moreover, the enforcement by the
Company of its patent or license rights may require substantial
litigation costs.
The Company Has Limited Management Resources
The loss of the services of any of Ms. Helena Santos,
the Company's Chief Executive and Financial Officer and President,
Mr. Robert Nichols, the Company's Executive Vice President and Mr.
Brookman March, President of Altamira, or any material expansion of
the Company's operations could place a significant additional strain
on the Company's limited management resources and could be
materially adverse to the Company's operating results and
financial condition.
10
The Common Stock of the Company is Thinly Traded and is Subject
to Volatility
As of August 31, 2012, there were only 1,335,712 shares
of Common Stock of the Company outstanding, of which 326,772
shares (24%) were held by the directors and officers of the Company.
The Common Stock of the Company is traded on the Over-the-Counter
Bulletin Board and, historically, has been thinly traded. There
have been a number of trading days during fiscal 2012 on which no
trades of the Company's Common Stock were reported. Accordingly,
the market price for the Common Stock is subject to great
volatility.
Item 2. Properties.
The Company's executive offices and principal
manufacturing facility for its Benchtop Laboratory Equipment
Operations comprise approximately 25,000 square feet, are located
in Bohemia, New York and held pursuant to a lease expiring in
January 2015. The Company's Catalyst Research Instruments
Operations are conducted from an approximately 9,000 square foot
facility in Pittsburgh, Pennsylvania which the Company leases on
a month-to-month basis, since July 31, 2011, until a new long-
term lease is negotiated. The Bioprocessing Systems operation
does not occupy a separate physical location. See Note 10 to the
Financial Statements in Item 8. The leased facilities are suitable
and adequate for each of the Company's operations. In the opinion
of management, all properties are adequately covered by insurance.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security
holders during the fourth quarter of fiscal 2012.
PART II
Item 5. Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock is traded in the over-the-
counter market. The following table sets forth the low and high
bid quotations for each quarter of fiscal 2011 and fiscal 2012, 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
_________________________ _______ ________
09/30/10 2.56 3.40
12/31/10 2.85 3.25
03/31/11 3.05 3.30
06/30/11 3.15 3.55
09/30/11 2.30 3.26
12/31/11 2.26 3.25
03/31/12 1.49 2.76
06/30/12 1.95 2.25
11
(a) As of August 31, 2012, there were 410 record
holders of the Company's Common Stock.
(b) On November 13, 2011, the Company paid a cash dividend
of $.05 per share to stockholders of record on September 26, 2011.
On December 15, 2010, the Company paid a cash dividend of $.09
per share to stockholders of record on October 18, 2010. The
Company is not subject to any agreement which prohibits or
restricts the Company from paying dividends on its Common Stock.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking statements. Certain statements
contained in this report are not based on historical facts,
but are forward-looking statements that are based upon various
assumptions about future conditions. Actual events in the
future could differ materially from those described in the
forward-looking information. Numerous unknown factors and
future events could cause such differences, including but not
limited to, product demand, market acceptance, success of
marketing strategy, success of expansion efforts, impact of
competition, adverse economic conditions, and other factors
affecting the Company's business that are beyond the
Company's control, which are discussed elsewhere in this report.
Consequently, no forward-looking statement can be guaranteed.
The Company undertakes no obligation to publicly update
forward-looking statements, whether as a result of new
information, future events or otherwise. This Management's
Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's
financial statements and the related notes included
elsewhere in this report.
Overview. Income before income taxes
decreased by 80% to $61,900 for fiscal 2012 from $307,200
for fiscal 2011, primarily as a result of the reduction in
income and net sales of the Benchtop Laboratory Equipment
Operations, and the operation of and acquisition costs of
its recently commenced Bioprocessing Systems Operations. The
Catalyst Research Instruments Operations also recorded a loss
in fiscal 2012, albeit lower than that of fiscal 2011 due to
significantly higher sales.
The Company continues to be negatively impacted
by adverse global economic conditions, reflecting the
dependence of the Company's customers on discretionary funding
for research.
Results of Operations. Net sales for fiscal
2012 increased $332,800 (5.7%) to $6,202,600 from $5,869,800
for fiscal 2011 reflecting an increase of $596,200 (44.3%) in
net sales of catalyst research instruments and the revenues
of $101,200 (primarily in the form of net royalties received)
by the recently commenced Bioprocessing Systems Operations,
partially offset by a decrease of $364,600 (8.1%) in sales
of benchtop laboratory equipment resulting from lower sales
to U.S. customers.
Sales of catalyst research instruments are
comprised of a small number of large orders, typically
averaging more than $100,000 each. As of June 30, 2012, the
order backlog for these products was $303,200 compared to
$424,600 as of June 30, 2011.
Revenues derived from the new Bioprocessing
Systems Operations consists of net royalties received from
sublicensees and sales of new products currently under
development.
The gross profit percentage for fiscal 2012
was 38.0% compared to 41.0% for fiscal 2011 due to lower
margins resulting from the sales mix between the Benchtop
Laboratory Equipment Operations and the Catalyst Research
Instruments Operations.
General and administrative expenses for fiscal
2012 increased $55,500 (4.7%) to $1,230,600 compared to
$1,175,100 for fiscal 2011, primarily the result of amortization
expense for the intangible assets and the acquisition costs of
the Bioprocessing Systems Operations.
Selling expenses for fiscal 2012 increased by
$75,700 (11.9%) to $714,200 from $638,500 for fiscal 2011,
primarily due to increased selling activities by the Benchtop
Laboratory Equipment Operations.
12
Research and development expenses increased by
$51,500 (15.9%) to $375,900 compared to $324,400 for fiscal
2011, primarily the result of increased new product development
by the Benchtop Laboratory Equipment Operations in the fourth
quarter, and costs incurred by the Bioprocessing Systems
Operations.
Total other income decreased by $11,200 (30.8%)
to $25,200 for fiscal 2012 from $36,400 for fiscal 2011, mainly
due to smaller cash balances and lower interest rates, and the
interest expense incurred by the new Bioprocessing Systems
Operations.
The income tax benefit for fiscal 2012 was
$4,200 compared to $79,600 income tax expense for fiscal 2011
resulting from the future deductions attributable to the SBI
acquisition and research and development credits.
As a result of the foregoing, net income for
fiscal 2012 was $66,100, a decrease of $161,500 (71.0%) from
$227,600 for fiscal 2011.
Liquidity and Capital Resources. Cash and
cash equivalents decreased by $138,500 to $769,300 as of June
30, 2012 from $907,800 as of June 30, 2011.
Net cash provided by operating activities was
$331,800 for fiscal 2012 as compared to $652,500 for fiscal
2011 due to lower income and a smaller change in accounts
receivable balances. The prior year reflected a large
collection by Altamira of accounts receivable outstanding
as of June 30, 2010. Cash used in investing activities
increased to $350,300 for fiscal 2012 compared to $269,700
for fiscal 2011 mostly due to the cash included in the asset
purchase consideration by SBI. Net cash used in financing
activities increased to $120,000 for fiscal 2012 compared to
fiscal 2011 mainly due to the additional cash outlays required
for the asset purchase, partially offset by the lower dividend
paid in fiscal 2012.
The Company's working capital was $3,417,200
as of June 30, 2012 compared to $3,724,000 as of June 30, 2011,
primarily the result of lower operating income and the asset
purchase by SBI.
The Company has a line of credit with its bank,
JPMorgan Chase Bank, N.A. which provides for maximum borrowings
of up to $700,000, bearing interest at 3.08 percentage points
above the LIBOR Index, which was approximately 3.32% at June
30, 2012 and is to be secured by a pledge of collateral
consisting of the inventory, accounts, chattel paper, equipment
and general intangibles of the Company. Outstanding amounts
are due and payable by June 13, 2013 with a requirement that
the Company is to reduce the outstanding principal balance to
zero during the 30 day period ending on the anniversary date
of the promissory note. As of August 31, 2012, no borrowings
under the line are outstanding.
On September 21, 2012, the Board of Directors
of the Company declared a cash dividend of $.03 per share of
Common Stock payable on November 1, 2012 to holders of record
as of the close of business on October 1, 2012.
Management believes that the Company will be
able to meet, absent a material capital expenditure, its cash
flow needs during the 12 months ending June 30, 2013 from its
available financial resources including its cash and investment
securities, and operations.
Capital Expenditures. During fiscal 2012,
the Company incurred $75,300 in capital expenditures. The
Company expects that based on its current operations, its
capital expenditures will not be materially higher for the
fiscal year ending June 30, 2013.
Off-Balance Sheet Arrangements. None.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements required by this
item are attached hereto on pages F1-F25.
13
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and
Procedures. As of the end of the period covered by this
Annual Report on Form 10-K, based on an evaluation of
the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934), the Chief Executive
and Chief Financial Officer of the Company has
concluded that the Company's disclosure controls and
procedures are effective to ensure that information
required to be disclosed by the Company in its Exchange
Act reports is recorded, processed, summarized and
reported within the applicable time periods specified
by the SEC's rules and forms. The Company also concluded
that information required to be disclosed in such
reports is accumulated and communicated to the Company's
management, including its principal executive and
principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Management's Annual Report on Internal
Control Over Financial Reporting. Management is
responsible for establishing and maintaining adequate
internal control over the Company's financial reporting,
as such term is defined in Securities Exchange Act
Rule 13a-15(f) and 15d-15(f). The Company's internal
controls over financial reporting are designed to
provide reasonable assurance regarding the
reliability of financial reporting and the preparation
of financial statements for external purposes in
accordance with generally accepted accounting principles.
The Chief Executive and Chief Financial
Officer of the Company conducted an evaluation of the
effectiveness of the Company's internal controls over
financial reporting as of June 30, 2012 based on
the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework.
Based on the assessment of the Company's
Chief Executive and Chief Financial Officer of the
Company, it was concluded that as of June 30, 2012, the
Company's internal controls over financial reporting
were effective based on these criteria.
This annual report does not include an
attestation report of the Company's registered public
accounting firm regarding internal control over
financial reporting. Management's report was not subject
to attestation by the Company's registered public
accounting firm pursuant to the rules of the Securities
and Exchange Commission that permit the Company to
provide only management's report in this annual report.
Changes in Internal Control Over Financial
Reporting. There was no change in the Company's internal
controls over financial reporting that occurred during the
most recent fiscal quarter that materially affected or is
reasonably likely to materially affect the Company's
internal controls over financial reporting.
Inherent Limitations on Effectiveness of
Controls. The Company's management, including its Chief
Executive and Chief Financial Officer, believes that its
disclosure controls and procedures and internal controls
over financial reporting are designed to provide reasonable
assurance of achieving their objectives and are effective
at the reasonable assurance level. However, management does
not expect that its disclosure controls and procedures or
its internal control over financial reporting will prevent
all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances
of fraud, if any, have been detected. These inherent
limitations include the realities that judgments in decision
making can be faulty, and that breakdowns can occur because
of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by
collusion of two or more people or by management override
of the controls. The design of any system of controls also
is based in part upon
14
certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with
policies or procedures may deteriorate. Because of the inherent
limitations in a cost effective control system, misstatements
due to error or fraud may occur and not be detected.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance.
The information with respect to directors
and executive officers of the Company will be set forth under the
heading "Election of Directors" in the Company's definitive
proxy statement which is being filed on or prior to October 28,
2012 under the Securities Exchange Act of 1934, as amended and
is incorporated herein by reference thereto.
Item 11. Executive Compensation.
The information with respect to executive
compensation will be set forth under the heading "Election of
Directors" in the Company's definitive proxy statement which is
being filed on or prior to October 28, 2012 under the Securities
Exchange Act of 1934, as amended and is incorporated herein by
reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Information with respect to security ownership
of certain beneficial owners and management will be set forth
under the heading "Election of Directors" in the Company's
definitive proxy statement which is being filed on or prior to
October 28, 2012 under the Securities Exchange Act of 1934, as
amended and is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
Information with respect to certain
relationships and related transactions, and director
independence, will be set forth under the heading "Election
of Directors" in the Company's definitive proxy statement which
is being filed on or prior to October 28, 2012 under the
Securities Exchange Act of 1934, as amended and is incorporated
herein by reference thereto.
Item 14. Principal Accountant Fees and Services.
Information with respect to principal accountant
fees and services, will be set forth under the heading
"Appointment of Independent Registered Public Accounting Firm" in
the Company's definitive proxy statement which is being filed on
or prior to October 28, 2012 under the Securities Exchange Act
of 1934, as amended and is incorporated herein by reference
thereto.
15
Part IV
Item 15. Exhibits and Financial Statements.
Financial Statements. The required financial statements
of the Company are attached hereto on pages F1-F25.
Exhibits. The following Exhibits are filed as part of
this report on Form 10-K:
Exhibit Number Exhibit
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company
as amended. (filed as Exhibit 1(a-1) to the Company's General Form
for Registration of Securities on Form 10 dated February 14, 1973
and incorporated by reference thereto.)
3(b) Certificate of Amendment of the Company's
Certificate of Incorporation, as filed on January 28, 1985 (filed
as Exhibit 3(a) to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1985 and incorporated by reference
thereto.)
3(c) By-Laws of the Company, as restated and
amended. (filed as Exhibit 3(ii) to the Company's Current Report
on Form 8-K filed on January 6, 2003 and Exhibit 3(ii) to the
Company's Current Report on Form 8-K filed on December 5, 2007 and
incorporated by reference thereto).
4 Instruments defining the rights of
security holders:
4(a) 2002 Stock Option Plan (filed as Exhibit
99-1 to the Company's Current Report on Form 8-K filed on November
25, 2002 and incorporated by reference thereto).
4(b) 2012 Stock Option Plan (filed as Exhibit
10 to the Company's Current Report on Form 8-K filed on January 23,
2012 and incorporated by reference thereto).
10 Material Contracts:
10(a) Lease between Registrant and AIP Associates,
predecessor-in-interest of current lessor, dated October, 1989 with
respect to Company's offices and facilities in Bohemia, New York.
(filed as Exhibit 10(a) to the Company's Form 10-KSB filed on
September 28, 2005 and incorporated by reference thereto).
10(a)-1 Amendment to lease between Registrant and
REP A10 LLC, successor in interest of AIP Associates, dated September
1, 2004 (filed as Exhibit 10A-1 to the Company's Current Report on
Form 8-K filed on September 2, 2004, and incorporated by reference
thereto).
10(a)-2 Second amendment to lease between Registrant
and REP A10 LLC dated November 5, 2007 (filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on November 8, 2007, and
incorporated by reference thereto).
10(b) Employment Agreement dated January 1, 2003,
by and between the Company and Ms. Santos (filed as Exhibit 10(a) to
the Company's Current Report on Form 8-K filed on January 22, 2003,
and incorporated by reference thereto).
16
10(b)-1 Employment Agreement dated September 1, 2004,
by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to
the Company's Current Report on Form 8-K filed on September 1, 2004,
and incorporated by reference thereto).
10(b)-2 Employment Agreement dated December 29, 2006,
by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to
the Company's Current Report on Form 8-K filed on December 29, 2006,
and incorporated by reference thereto).
10(b)-3 Employment Agreement dated July 31, 2009 by
and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on August 7, 2009, and
incorporated by reference thereto).
10(b)-4 Employment Agreement dated May 14, 2010 by
and between the Company and Ms. Santos (filed as Exhibit 10A-1 to
the Company's Current Report on Form 8-K filed on May 18, 2010, and
incorporated by reference thereto).
10(b)-5 Employment Agreement dated September 13, 2011
by and between the Company and Ms. Santos. (filed as exhibit 10(b)-5
to the Company's Annual Report on form 10-K for the fiscal year ended
June 30, 2011, and incorporated with reference thereto).
10(c) Employment Agreement dated January 1, 2003,
by and between the Company and Mr. Robert P. Nichols (filed as Exhibit
10A-1 to the Company's Current Report on Form 8-K filed on January
22, 2003, and incorporated by reference thereto).
10(c)-1 Employment Agreement dated September 1, 2004,
by and between the Company and Mr. Nichols (filed as Exhibit 10A-1 to
the Company's Current Report on Form 8-K filed on September 1, 2004,
and incorporated by reference thereto).
10(c)-2 Employment Agreement dated December 29, 2006,
by and between the Company and Mr. Nichols (filed as Exhibit 10A-1
to the Company's Current Report on Form 8-K filed on December 29, 2006,
and incorporated by reference thereto).
10(c)-3 Employment Agreement dated July 31, 2009 by
and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to
the Company's Current Report on Form 8-K filed on August 7, 2009, and
incorporated by reference thereto).
10(c)-4 Employment Agreement dated May 14, 2010 by
and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to
the Company's Current Report on Form 8-K filed on May 18, 2010, and
incorporated by reference thereto).
10(c)-5 Employment Agreement dated September 13, 2011
by and between the Company and Mr. Nichols. (filed as Exhibit 10(c)-5
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2011, and incorporated by reference thereto).
10(d) Consulting Agreement dated January 1, 2003 by
and between the Company and Mr. Cremonese and his affiliate, Laboratory
Innovation Company, Ltd., (filed as Exhibit 10(b) to the Company's
Current Report on Form 8-K filed on January 6, 2003, and incorporated
by reference thereto).
10(d)-1 Amended and Restated Consulting Agreement
dated March 22, 2005, by and between the Company and Mr. Cremonese
and Laboratory Innovation Company, Ltd., (filed as Exhibit 10A-1 to
the Company's Current Report on Form 8-K filed on March 23, 2005, and
incorporated by reference thereto).
17
10(d)-2 Second Amended and Restated Consulting Agreement
dated March 15, 2007, by and between the Company and Mr. Cremonese and
Laboratory Innovation Company Ltd., (filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on March 16, 2007, and
incorporated by reference thereto).
10(d)-3 Third Amended and Restated Consulting Agreement
dated September 23, 2009, by and between the Company and Mr. Cremonese
and Laboratory Innovation Company, Ltd., (filed as exhibit 10 to the
Company's Annual Report on Form 10-K field on September 24, 2009, and
incorporated by reference thereto).
10(d)-4 Fourth Amended and Restated Consulting Agreement
dated January 7, 2011 (filed as Exhibit 10A-1 to the Company's Current
Report on Form 8-K filed on January 18, 2011, and incorporated by
reference thereto).
10(d)-5 Fifth Amendment and Restated Consulting
Agreement dated January 20, 2012 (filed as Exhibit 10 to the Company's
Current Report on Form 8-K filed on January 23, 2012, and incorporated
by reference thereto).
10(e) Sublicense from Fluorometrix Corporation
(filed as Exhibit 10(a)1 to the Company's Current Report on Form 8-K
filed on June 14, 2006, and incorporated by reference thereto).
10(f) Stock Purchase Agreement, dated as of November
30, 2006, by and among the Company and Grace Morin, Heather H. Haught
and William D. Chandler (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on December 5, 2006, and incorporated by
reference thereto).
10(g) Escrow Agreement, dated as of November 30, 2006,
by and among the Company and Grace Morin, Heather H. Haught and William
D. Chandler (filed as Exhibit 10(a) to the Company's Current Report on
Form 8-K filed on December 5, 2006, and incorporated by reference thereto).
10(h) Registration Rights Agreement, dated as of
November 30, 2006, by and among the Company and Grace Morin, Heather H.
Haught and William D. Chandler (filed as Exhibit 10(b) to the Company's
Current Report on Form 8-K filed on December 5, 2006, and incorporated
by reference thereto).
10(i) Employment Agreement, dated as of November 30,
2006, between Altamira Instruments, Inc. and Brookman P. March (filed as
Exhibit 10(c) to the Company's Current Report on Form 8-K filed on
December 5, 2006, and incorporated by reference thereto).
10(i)-1 Employment Agreement, dated as of October 30,
2008, between Altamira Instruments, Inc. and Brookman P. March (filed as
Exhibit 10A-2 to the Company's Current Report on Form 8-K filed on
October 30, 2008, and incorporated by reference thereto).
10(i)-2 Employment Agreement, dated as of October 1, 2010, between
Altamira Instruments, Inc., and Brookman P. March (filed as Exhibit
10A-1 to the Company's Current Report on Form 8-K filed on October 13,
2010, and incorporated by reference thereto).
18
10(i)-3 Employment Agreement, dated as of May 18, 2012
between Altamira Instruments, Inc. and Brookman P. March.
10(j) Indemnity Agreement, dated as of April 13, 2007
by and among the Company and Grace Morin, Heather H. Haught and William
D. Chandler (filed as Exhibit 10(j) to the Company's Form 10-KSB filed
on September 28, 2007 and incorporated by reference thereto).
10(k) Lease between Altamira Instruments, Inc. and
Allegheny Homes, LLC, with respect to the Company's Pittsburgh,
Pennsylvania facilities (filed as Exhibit 10(k) to the Company's Form
10-KSB filed on September 28, 2007 and incorporated by reference thereto).
10(l) Line of Credit Agreements dated October 30, 2008,
by and among the Company and Capital One, N.A. (filed as Exhibits 10-A1(a)
through (f) to the Company's Current Report on Form 8-K filed on October
30, 2008, and incorporated by reference thereto).
10(l)-1 Restated Promissory Note Agreement dated January
20, 2010 by and among the Company and Capital One N.A. (filed as Exhibit
99.1 to the Company's Current Report on Form 8-K filed on January 20, 2010,
and incorporated by reference thereto).
10(I)-2 Restated Promissory Note Agreement dated January
5, 2011 by and among the Company and Capital One N.A. (filed as Exhibit
99.1 to the Company's Current Report on Form 8-K filed on January 6, 2011,
and incorporated by reference thereto).
10(m) Consulting Agreement dated April 1, 2009 by and
between the Company and Grace Morin (filed as Exhibit 10A-1 to the
Company's Current Report on Form 8-K filed on April 1, 2009, and
incorporated by reference thereto).
10(n) Line of Credit Agreements dated June 14, 2011,
by and among the Company and JPMorgan Chase Bank, N.A. (filed as Exhibits
99.1 through 99.3 (to the Company's Current Report on Form 8-K filed on
June 16, 2011, and incorporated by reference thereto).
10(o) Purchase Agreement, dated as of November 14,
2011, by and among the Company, Scientific Bioprocessing, Inc. and
Fluorometrix Corporation (filed as Exhibit 2.1 to the Company's Report
on Form 8-K filed on November 17, 2011, and incorporated by reference
thereto).
10(p) Escrow Agreement, dated as of November 14, 2011,
by and among the Company, Scientific Bioprocessing, Inc. and Fluorometrix
Corporation (filed as Exhibit 10(A) to the company's Report on Form 8-K
filed on November 17, 2011, and incorporated by reference thereto).
10(q) Research and Development Agreement dated as of
November 14, 2011, by and between Scientific Bioprocessing, Inc. and
Biodox R&D Corporation (filed as Exhibit 10(B) to the Company's Report on
Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
19
10(r) Non-Competition Agreement, dated as of November
14, 2011, by and among the Company, Scientific Bioprocessing, Inc. and
Joseph E. Qualitz (filed as Exhibit 10(D) to the Company's Report on
Form 8-K filed on November 17, 2011, and incorporated by reference
thereto).
10(s) Promissory Note, dated as of November 14, 2011,
by and between the Company and the University of Maryland, Baltimore
County (filed as Exhibit 10(c) to the company's Report on Form 8-K
filed on November 17, 2011, and incorporated by reference thereto).
10(t) License Agreement, dated as of January 31,
2001 by and between University of Maryland, Baltimore County and
Fluorometrix Corporation (filed as Exhibit 10(E) to the Company's
Report on Form 8-K filed on November 21, 2011, and incorporated
by reference thereto).
14 Code of Ethics (filed as Exhibit 14 to the
Company's Form 10-KSB filed on September 28, 2007 and incorporated
by reference thereto).
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New York corporation, is a
wholly-owned inactive subsidiary of the Company.
Altamira Instruments, Inc., a Delaware Corporation, is a wholly-owned
subsidiary of the Company.
Scientific Bioprocessing, Inc., a Delaware Corporation, is a wholly-
owned subsidiary of the Company since November 2011.
31.01 Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act
of 2002.
32.01 Certification of Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley
Act of 2002.
20
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of
the Securities Exchange Act of 1934, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Helena R. Santos
____________________________
Helena R. Santos
President, Chief Executive Officer,
Treasurer
Chief Financial and Principal
Accounting Officer
Date: September 27, 2012
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Name Title Date
_______________________ __________________________ _________________
/s/ Helena R. Santos President and Treasurer (Chief September 27, 2012
Helena R. Santos Executive Officer and Financial
Officer) and Director
/s/ Joseph G. Cremonese Chairman of the Board September 27, 2012
Joseph G. Cremonese
/s/ Roger B. Knowles Director September 27, 2012
Roger B. Knowles
/s/ Grace S. Morin Director September 27, 2012
Grace S. Morin
/s/ James S. Segasture Director September 27, 2012
James S. Segasture
21
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE
YEARS ENDED JUNE 30, 2012 AND 2011
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
CONTENTS
Page
----
Report of independent registered public accounting firm F-1
Consolidated financial statements:
Balance sheets F-2
Statements of income F-3
Statements of comprehensive income F-4
Statements of shareholders' equity F-5
Statements of cash flows F-6 - F-7
Notes to financial statements F-8 - F-25
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Scientific Industries, Inc.
Bohemia, New York
We have audited the accompanying consolidated balance sheets of
Scientific Industries, Inc. and subsidiaries as of June 30, 2012
and 2011, and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for
the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform
an audit of its internal control over financial reporting.
Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Scientific Industries, Inc.
and subsidiaries as of June 30, 2012 and 2011, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Nussbaum Yates Berg Klein & Wolpow, LLP
___________________________________________
Nussbaum Yates Berg Klein & Wolpow, LLP
Melville, New York
September 27, 2012
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2012 AND 2011
ASSETS
2012 2011
_________ _________
Current assets
Cash and cash equivalents $ 769,300 $ 907,800
Investment securities 718,300 693,400
Trade accounts receivable, less
allowance for doubtful accounts
of $11,600 in 2012 and 2011 623,500 620,000
Inventories 1,613,700 1,639,800
Prepaid and other current assets 167,800 197,700
Deferred taxes 70,200 77,700
__________ __________
Total current assets 3,962,800 4,136,400
Property and equipment, net 180,500 175,100
Intangible assets, net 877,300 112,300
Goodwill 589,900 447,900
Other assets 25,700 25,700
Deferred taxes 136,000 115,800
__________ __________
Total assets $5,772,200 $5,013,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 114,800 $ 128,100
Customer advances 98,500 -
Accrued expenses and taxes 237,500 284,300
Contingent consideration, current 19,000 -
Notes payable, current portion 75,800 -
__________ __________
Total current liabilities 545,600 412,400
Contingent consideration payable,
less current portion 88,400 -
Notes payable, less current portion 105,000 -
__________ __________
Total liabilities 739,000 412,400
__________ __________
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 1,355,514 shares in 2012
and 1,216,379 in 2011 67,800 60,800
Additional paid-in capital 1,968,700 1,558,500
Accumulated other comprehensive loss,
unrealized holding loss on
investment securities (12,600) (21,500)
Retained earnings 3,061,700 3,055,400
__________ __________
5,085,600 4,653,200
Less common stock held in treasury at
cost, 19,802 shares 52,400 52,400
__________ __________
Total shareholders' equity 5,033,200 4,600,800
__________ __________
Total liabilities and
shareholders' equity $5,772,200 $5,013,200
========== ==========
See notes to consolidated financial statements.
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
2012 2011
__________ ____________
Net sales $6,202,600 $5,869,800
Cost of sales 3,845,200 3,461,000
__________ __________
Gross profit 2,357,400 2,408,800
__________ __________
Operating expenses:
General and administrative 1,230,600 1,175,100
Selling 714,200 638,500
Research and development 375,900 324,400
__________ __________
Total operating expenses 2,320,700 2,138,000
__________ __________
Income from operations 36,700 270,800
__________ __________
Other income (expense):
Interest income 12,800 21,900
Other income 17,000 14,500
Interest expense (4,600) -
__________ __________
Total other income 25,200 36,400
__________ __________
Income before income tax
expense (benefit) 61,900 307,200
__________ __________
Income tax expense (benefit):
Current 15,500 104,500
Deferred (19,700) (24,900)
__________ __________
Total income tax expense
(benefit) (4,200) 79,600
__________ __________
Net income $ 66,100 $ 227,600
========== ==========
Basic earnings per common share $ .05 $ .19
===== =====
Diluted earnings per common share $ .05 $ .19
===== =====
Weighted average common shares
outstanding, basic 1,283,118 1,196,577
========= =========
Weighted average common shares
outstanding, assuming dilution 1,293,589 1,213,482
========= =========
See notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIDARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
2012 2011
__________ __________
Net income $ 66,100 $ 227,600
Other comprehensive income:
Unrealized holding gain
arising during period,
net of tax 8,900 8,300
__________ __________
Comprehensive income $ 75,000 $ 235,900
========== ==========
See notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
Common Stock Additional Accumulated
______________ Paid-in Other Compr-
Shares Amount Capital ehensive Loss
_______ _______ __________ _____________
Balance, July 1, 2010 1,216,379 $60,800 $1,537,200 $ (29,800)
Net income - - - -
Unrealized holding gain
on investment securities,
net of tax - - - 8,300
Stock-based compensation - - 21,300 -
Cash dividend declared
and paid, $.09 per share - - - -
_________ _______ _________ ___________
Balance, June 30, 2011 1,216,379 60,800 1,558,500 (21,500)
Net income - - - -
Unrealized holding gain
on investment securities,
net of tax - - - 8,900
Exercise of stock options 4,000 200 9,400 -
Issuance of common stock 135,135 6,800 393,200 -
Stock-based compensation - - 7,000 -
Income tax benefit of
stock options exercised - - 600 -
Cash dividend declared
and paid, $.05 per share - - - -
_________ _______ __________ ___________
Balance, June 30, 2011 1,355,514 $67,800 $1,968,700 $ (12,600)
========= ======= ========== ===========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2012 AND 2011
Retained Treasury Stock Shareholders'
______________
Earnings Shares Amount Equity
__________ ______ _______ ____________
Balance, July 1, 2010 $2,935,500 19,802 $52,400 $4,451,300
Net income 227,600 - - 227,600
Unrealized holding loss
on investment securities,
net of tax - - - 8,300
Stock-based compensation - - - 21,300
Cash dividend declared
and paid, $.09 per share (107,700) - - (107,700)
__________ _______ _______ ___________
Balance, June 30, 2011 3,055,400 19,802 52,400 4,600,800
Net income 66,100 - - 66,100
Unrealized holding gain
on investment securities,
net of tax - - - 8,900
Exercise of stock options - - - 9,600
Issuance of common stock - - - 400,000
Stock-based compensation - - - 7,000
Income tax benefit of stock
options exercised - - - 600
Cash dividend paid, $.05
per share (59,800) - - (59,800)
__________ _______ ________ ___________
Balance, June 30, 2012 $3,061,700 19,802 $52,400 $5,033,200
========== ======= ======= ===========
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
2012 2011
__________ __________
Operating activities:
Net income $ 66,100 $ 227,600
__________ __________
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 185,900 188,400
Deferred income tax benefit (19,700) (24,900)
Income tax benefit of stock options
exercised 600 -
Loss on disposal of asset - 4,600
Loss on sale of investment securities 1,000 -
Stock-based compensation 7,000 21,300
Changes in operating assets and
liabilities:
Trade accounts receivable (3,500) 874,500
Inventories 26,100 (367,200)
Prepaid and other current assets 29,900 (110,500)
Accounts payable (13,300) (99,600)
Customer advances 98,500 -
Accrued expenses and taxes (46,800) (61,700)
__________ __________
Total adjustments 265,700 424,900
__________ __________
Net cash provided by
operating activities 331,800 652,500
__________ __________
Investing activities:
Additional consideration for acquisition
of Altamira - (182,600)
Payment for intangible assets acquired
in acquisition (Note 2) (260,000) -
Purchase of investment securities,
available for sale (10,900) (14,000)
Redemption of investment securities,
available for sale 800 -
Capital expenditures (75,300) (63,600)
Purchase of intangible assets (4,900) (9,500)
_________ _________
Net cash used in investing activities (350,300) (269,700)
_________ _________
Financing activities:
Line of credit proceeds 60,000 -
Line of credit repayments (60,000) -
Payment of contingent consideration (20,600) -
Proceeds from exercise of stock options 9,600 -
Cash dividend declared and paid (59,800) (107,700)
Principal payments on note payable (49,200) -
__________ _________
Net cash used in financing activities (120,000) (107,700)
__________ _________
F-6
2012 2011
__________ __________
Net increase (decrease) in cash and
cash equivalents (138,500) 275,100
Cash and cash equivalents, beginning
of year 907,800 632,700
_________ __________
Cash and cash equivalents, end of year $ 769,300 $ 907,800
========= ==========
Supplemental disclosures:
Cash paid during the period for:
Income taxes $ 3,200 $ 298,500
Interest 4,600 -
Non-cash investing and financing activities (Note 2)
See notes to consolidated financial statements.
F-7
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
1. Summary of Significant Accounting Policies
Nature of Operations
Scientific Industries, Inc. and its subsidiaries (the "Company") design,
manufacture, and market a variety of benchtop laboratory equipment,
bioprocessing products and catalyst research instruments. The Company
is headquartered in Bohemia, New York where it produces benchtop
laboratory equipment for research and has another location in
Pittsburgh, Pennsylvania, where it produces a variety of custom-made
catalyst research instruments and designs bioprocessing products.
The equipment sold by the Company includes mixers, shakers, stirrers,
refrigerated incubators, catalyst characterization instruments, reactor
systems and high throughput systems.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Scientific Industries, Inc., Scientific Packaging Industries, Inc.,
an inactive wholly-owned subsidiary, Altamira Instruments, Inc.
("Altamira"), a Delaware corporation and wholly-owned subsidiary, and
Scientific Bioprocessing, Inc. ("SBI"), a Delaware corporation and
wholly-owned subsidiary, (all collectively referred to as the "Company").
All material intercompany balances and transactions have been eliminated.
Revenue Recognition
Revenue from product sales is recognized when all the following criteria
are met:
* Receipt of a written purchase order agreement which is binding
on the customer.
* Goods are shipped and title passes.
* Prices are fixed.
* Collectability is reasonably assured.
* All material obligations under the agreement have been
substantially performed.
Substantially all orders are F.O.B. shipping point, all sales are final
without right of return or payment contingencies, and there are no
special sales arrangements or agreements with any customers.
Royalty revenue received under the Company's sublicenses is recorded
net of payments due to its licensors.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with a maturity of 90 days or less to be cash equivalents.
On November 9, 2010, the Federal Deposit Insurance Company ("FDIC")
issued a Final Rule providing unlimited insurance coverage of non-
interest bearing transaction accounts, regardless of balance, for
the period December 31, 2010 through December 31, 2012. At June 30,
2012, the Company held approximately $217,100 of its cash in non-
interest bearing accounts. The remainder of its cash balance is
subject to FDIC insurance limits.
F-8
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
1. Summary of Significant Accounting Policies (Continued)
Accounts Receivable
In order to record the Company's accounts receivable at their net
realizable value, the Company must assess their collectability.
A considerable amount of judgment is required in order to make
this assessment, including an analysis of historical bad debts and
other adjustments, a review of the aging of the Company's
receivables, and the current creditworthiness of the Company's
customers. The Company has recorded allowances for receivables
which it considered uncollectible, including amounts for the
resolution of potential credit and other collection issues such
as disputed invoices, customer satisfaction claims and pricing
discrepancies. However, depending on how such potential issues
are resolved, or if the financial condition of any of the Company's
customers was to deteriorate and its ability to make required
payments became impaired, increases in these allowances may be
required. The Company actively manages its accounts receivable
to minimize credit risk. The Company does not obtain collateral
for its accounts receivable.
Customer Advances
In the ordinary course of business, customers may make advance
payments for purchase orders. Such amounts, when received, are
categorized as liabilities under the caption customer advances.
Investment Securities
Securities available for sale are carried at fair value with
unrealized gains or losses reported in a separate component of
shareholders' equity. Realized gains or losses are determined based
on the specific identification method.
Inventories
Inventories are valued at the lower of cost (determined on a first
in, first out basis) or market value, and have been reduced by an
allowance for excess and obsolete inventories. The estimate is
based on management's review of inventories on hand compared to
estimated future usage and sales. Cost of work-in-process and finished
goods inventories include material, labor and manufacturing overhead.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property
and equipment is provided for primarily by the straight-line method
over the estimated useful lives of the assets. Leasehold improvements
are amortized by the straight-line method over the term of the
related lease or the estimated useful lives of the assets, whichever
is shorter.
F-9
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
1. Summary of Significant Accounting Policies (Continued)
Intangible Assets
Intangible assets consist primarily of acquired technology, customer
relationships, non-compete agreements, patents, licenses, trademarks
and trade names. All intangible assets are amortized over the
estimated useful lives of the respective assets, generally 5 to 10
years, except for customer relationships which are amortized on an
accelerated (declining-balance) basis over their estimated useful
lives. The Company continually evaluates the remaining estimated
useful lives of intangible assets that are being amortized to
determine whether events or circumstances warrant a revision to the
remaining period of amortization.
Goodwill and Long-Lived Assets
Goodwill represents the excess of purchase price over the fair value
of identifiable net assets acquired in a business combination.
Goodwill and long-lived intangible assets are tested for impairment
at least annually in accordance with the provisions of ASC No. 350,
"Intangibles-Goodwill and Other" ("ASC No. 350"). ASC No. 350
requires that goodwill be tested for impairment at the reporting unit
level (operating segment or one level below an operating segment) on an
annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying value. Application
of the goodwill impairment test requires judgment, including the
identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting
units, and determination of the fair value of each reporting unit.
The Company tests goodwill and long-lived assets annually as of June
30, the last day of its fiscal year, unless an event occurs that
would cause the Company to believe the value is impaired at an
interim date.
Impairment of Long-Lived Assets
The Company follows the provisions of ASC No. 360-10, "Property, Plant
and Equipment - Impairment or Disposal of Long-Lived Assets ("ASC No.
360-10"). ASC No. 360-10 requires evaluation of the need for an
impairment charge relating to long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If an evaluation for impairment is required,
the estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a
write down to a new depreciable basis is required. If required, an
impairment charge is recorded based on an estimate of future discounted
cash flows. No impairment charge has been recorded for the years
ended June 30, 2012, and 2011.
F-10
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal
income tax return. Income taxes are accounted for under the asset
and liability method. The Company provides for federal, and state
income taxes currently payable, as well as for those deferred due
to timing differences between reporting income and expenses for
financial statement purposes versus tax purposes. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributed to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted income tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of
a change in income tax rates is recognized as income or expense
in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the
change in judgment occurs.
Advertising
Advertising costs are expensed as incurred. Advertising expense
amounted to $26,700 and $26,000 for the years ended June 30, 2012
and 2011.
Shipping and Handling
The Company classifies costs associated with shipping and handling
fees as a component of cost of goods sold.
Stock Compensation Plan
The Company has a ten-year stock option plan (the "2012 Plan") which
provides for the grant of options to purchase up to 100,000 shares of
the Company's Common Stock, par value $.05 per share ("Common Stock"),
plus 57,000 options previously granted under the 2002 Stock Option
Plan of the Company (the "Prior Plan"). The 2012 Plan provides for the
granting of incentive or non-incentive stock options as defined in the
2012 Plan and options under the 2012 Plan may be granted until 2022.
Incentive stock options may be granted to employees at an exercise price
equal to 100% (or 110% if the optionee owns directly or indirectly more
than 10% of the outstanding voting stock) of the fair market value of the
shares of Common Stock on the date of the grant which shall not be less
than the book value per share of Common Stock as of the end of the most
recent fiscal quarter. Non-incentive stock options shall not be granted
at less than the fair market value of the shares of Common Stock on the
date of grant, and the per share book value. At June 30, 2012, 93,000
shares of Common Stock were available for grant under the 2012 Plan and
the Prior Plan.
F-11
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
1. Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)
Stock-based compensation is accounted for in accordance with ASC No.
718 "Compensation-Stock Compensation" ("ASC No. 718") which requires
compensation costs related to stock-based payment transactions to be
recognized. With limited exceptions, the amount of compensation cost is
measured based on the grant-date fair value of the equity or liability
instruments issued. In addition, liability awards are measured at each
reporting period. Compensation costs are recognized over the period that
an employee provides service in exchange for the award. During the years
ended June 30, 2012 and 2011, the Company granted 15,000 and 12,000
options that had a fair value of $15,700 and $19,900, respectively, to
employees and consultants. The fair value of the options granted during
fiscal years 2012 and 2011 were determined using the Black-Scholes-Merton
option-pricing model. The weighted average assumptions used for fiscal
2012 and 2011, respectively, were an expected life of 7 and 6 years;
risk free interest rate of 1.00% and 2.09%; volatility of 69% and 73%;
and dividend yield of 1.54% and 2.99%. The weighted-average value per
share of the options granted in 2012 and 2011 was $1.05 and $1.66,
respectively, and stock-based compensation costs were $7,000 and
$21,300 for the years ended June 30, 2012 and 2011, respectively.
Stock-based compensation costs related to nonvested awards to be
recognized in the future are $11,900 and $3,200 as of June 30, 2012
and 2011, respectively.
The Company did not grant any options or warrants as compensation for
goods or services to non-employees, except to a director who was
granted 10,000 options that had a fair value of $10,000 and $15,300 in
each of the years ended June 30, 2012 and 2011, respectively, for
consulting services.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and judgments that affect the amounts
reported in the financial statements and accompanying notes. The
actual results experienced by the Company may differ materially from
management's estimates.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by
the weighted-average number of shares outstanding. Diluted earnings
per common share includes the dilutive effect of stock options.
F-12
1. Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") no. 2011-08, Intangibles-
Goodwill and Other (Topic 350) - Testing Goodwill for Impairment
(ASU 2011-08), to allow entities to use a qualitative approach to
test goodwill for impairment. ASU 2011-08 permits an entity to first
perform a qualitative assessment to determine whether it is more
likely than not that the fair value of a reporting unit is less
than its carrying value. If it is concluded that this is the case,
it is necessary to perform the currently prescribed two-step goodwill
impairment test. Otherwise, the two-step goodwill impairment test
is not required. ASU 2011-08 is effective for the Company in fiscal
2013 and earlier adoption is permitted. The Company opted for early
adoption as of June 30, 2012. The adoption of ASU 2011-08 did not
have an impact on the Company's consolidated results of operations,
financial condition or cash flows.
In June 2011, the FASB issued Accounting Standards Update ("ASU")
No. 2011-05, "Comprehensive Income (ASC Topic 220): Presentation of
Comprehensive Income," ("ASU No. 2011-05") which amends current
comprehensive income guidance. This accounting update eliminates
the option to present the components of other comprehensive income as
part of the statement of stockholders' equity. Instead, it requires
the Company to report comprehensive income in either a single
continuous statement of comprehensive income which contains two
sections, net income and other comprehensive income, or in two separate
but consecutive statements. ASU 2011-05 is effective for public
companies during the annual periods beginning after December 15, 2011
with early adoption permitted. The Company opted for early adoption
as of March 31, 2012. The adoption of ASU 2011-05 did not have an
impact on the Company's consolidated results of operations, financial
condition or cash flows as it only requires a change in the format of
our current presentation.
2. Acquisition
On November 14, 2011 the Company through SBI, acquired substantially
all of the assets of a privately owned company consisting principally
of a license and sublicenses under patents held by the University of
Maryland, Baltimore County ("UMBC") with respect to the design,
development and production of bioprocessing methods, systems and products.
The acquisition was pursuant to an asset purchase agreement ("APA")
whereby the Company paid to the seller $260,000 in cash, issued 135,135
shares of Common Stock valued at $400,000, issued to UMBC a $230,000
36-month note payable, and agreed to make additional cash payments equal
to 30% of net royalties received under the acquired license and
sublicenses, to the sellers estimated at a present value of $128,000 on
the date of acquisition. The Company was unable to obtain audited
financial statements of the business acquired in connection with the
acquisition. The inability to include the related audited financial
statement as required by the Securities Exchange Act of 1934 in the
related Report on Form 8-K filing resulted in the inability of the
Company to register under the Securities Act of 1933, as amended,
offerings of the Company's securities during the one year period
ending November 2012.
F-13
2. Acquisition (Continued)
SBI's revenues are derived from royalties received by SBI under the
various sublicense agreements, net of royalty payments due to UMBC
and revenues from future sales of certain products being developed
under its existing license. University, government, and industrial
laboratories working primarily in the biotechnology industry worldwide
are its targeted customers.
Management of the Company allocated the purchase price based on its
valuation of the assets acquired, all of which are intangible, as
follows:
Technology, trademarks, and in-process
research & development ("IPR&D") $ 500,000
Sublicense agreements 294,000
Engineering drawings and software 64,000
Non-competition agreements 18,000
Goodwill* 142,000
__________
Total Purchase Price $1,018,000
==========
*See Note 7, "Goodwill and Other Intangible Assets".
The amounts allocated to Technology, Trademarks, and IPRD and
Sublicense Agreements are deemed to have a useful life of 10
years, and to the remaining intangible assets to have a useful
life 5 years, all of which are being amortized on a straight-line
basis, except for goodwill.
In connection with the acquisition, SBI entered into a research
and development agreement providing for the seller to perform services
with respect to the research and development of bioprocessing methods,
systems, and products pursuant to programs set forth in the agreement,
at a fee of $14,000 per month with SBI plus all related expenses. The
agreement is for a two year term with SBI having three one-year
extension options. SBI has the right to terminate the agreement in the
event of a failure to achieve the designated product development terms
set forth in the agreement.
F-14
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
2. Acquisition (Continued)
Pro forma results
The unaudited pro forma condensed consolidated financial information
in the table below summarizes the consolidated results of operations
of Scientific, Altamira, and SBI on a pro forma basis, as though the
companies had been consolidated as of the beginning of each of the
fiscal years presented. The unaudited pro forma condensed financial
information presented below is for informational purposes only and
is not intended to represent or be indicative of the consolidated
results of the operations that would have been achieved if the
acquisition had been completed as of the commencement of the fiscal
year presented. In addition, the Company was unable to obtain audited
historical financial statements and therefore the information
presented is based on management's best judgment using the unaudited
financial information provided and the effects of the acquisition
including amortization and interest expenses excluding total
acquisition related costs incurred of $78,500 for the year ended
June 30, 2012:
2012 2011
__________ __________
Net sales $6,352,700 $6,019,800
Net income (loss) $ (48,200) $ 83,400
Net income (loss) per
share - basic $ (.04) $ .06
Net income (loss) per
share - diluted $ (.04) $ .06
3. Segment Information and Concentrations
The Company views its operations as three segments: the manufacture
and marketing of standard benchtop laboratory equipment for research
in university, hospital and industrial laboratories sold primarily
through laboratory equipment distributors ("Benchtop Laboratory
Equipment Operations"), the manufacture and marketing of custom-made
catalyst research instruments for universities, government laboratories,
and chemical and petrochemical companies sold on a direct basis
("Catalyst Research Instruments Operations") and the design of
bioprocessing systems and products and related royalty income
("Bioprocessing Systems").
F-15
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
3. Segment Information and Concentrations (Continued)
Segment information is reported as follows:
Benchtop Catalyst Bio- Corporate
Laboratory Research processing and Conso-
Equipment Instruments Systems Other lidated
__________ ___________ __________ _________ __________
June 30, 2012:
Net Sales $4,160,500 $1,940,900 $ 101,200 $ - $6,202,600
Foreign Sales 2,505,300 884,000 3,600 - 3,392,900
Profit(Loss) 416,800 ( 190,400) ( 111,200) ( 78,500) 36,700
Assets 2,366,100 1,083,400 822,800 1,499,900 5,772,200
Long-Lived Asset
Expenditures 30,700 49,500 1,018,000 - 1,098,200
Depreciation and
Amortization 49,300 76,700 59,900 - 185,900
Benchtop Catalyst Corporate
Laboratory Research and Conso-
Equipment Instruments Other lidated
__________ __________ _________ _________
June 30, 2011:
Net Sales $4,525,100 $1,344,700 $ - $5,869,800
Foreign Sales 2,496,200 663,900 - 3,160,100
Profit(Loss) 584,400 (313,600) - 270,800
Assets 2,501,000 1,177,400 1,334,800 5,013,200
Long-Lived Asset
Expenditures 39,300 24,300 - 63,600
Depreciation and
Amortization 56,000 132,400 - 188,400
During the year ended June 30, 2011, one customer accounted for
approximately 11% of the Company's total sales.
Certain information relating to the Company's export sales follows:
2012 2011
__________ __________
Export sales (principally Europe and Asia) $3,392,900 $3,160,100
F-16
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
4. Fair Value of Financial Instruments
The Financial Accounting Standards Board defines the fair value of
financial instruments as the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value
measurements do not include transaction costs.
The accounting guidance also expands the disclosure requirements
around fair value and establishes a fair value hierarchy for valuation
inputs. The hierarchy prioritizes the inputs into three levels based
on the extent to which inputs used in measuring fair value are
observable in the market. Each fair value measurement is reported
in one of the three levels, which is determined by the lowest level
input that is significant to the fair value measurement in its
entirety. These levels are described below:
Level 1 Inputs that are based upon unadjusted quoted prices
for identical instruments traded in active markets.
Level 2 Quoted prices in markets that are not considered to
be active or financial instruments for which all
significant inputs are observable, either directly
or indirectly.
Level 3 Prices or valuation that require inputs that are
both significant to the fair value measurement and
unobservable.
The following tables set forth by level within the fair value hierarchy
the Company's financial assets that were accounted for at fair value on
a recurring basis at June 30, 2012 and 2011 according to the valuation
techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2012 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 769,300 $ 769,300 $ - $ -
Available for sale securities 718,300 718,300 - -
__________ __________ _______ ________
Total $1,487,600 $1,487,600 $ - $ -
========== ========== ======= ========
Liabilities:
Contingent consideration $ 107,400 $ - $ - $107,400
========== ========== ======= ========
Fair Value Measurements Using Inputs
Considered as
Assets:
Fair Value at
June 30, 2011 Level 1 Level 2 Level 3
______________ __________ _______ ________
Cash and cash equivalents $ 907,800 $ 907,800 $ - $ -
Available for sale securities 693,400 693,400 - -
__________ __________ _______ ________
Total $1,601,200 $1,601,200 $ - $ -
========== ========== ======= ========
F-17
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
4. Fair Value of Financial Instruments (Continued)
Investments in marketable securities classified as available-for-sale by
security type at June 30, 2012 and 2011 consisted of the following:
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2012:
Available for sale:
Equity securities $ 5,900 $ 16,000 $ 10,100
Mutual funds 725,000 702,300 (22,700)
__________ _________ __________
$ 730,900 $ 718,300 $ (12,600)
========== ========= ==========
Unrealized
Fair Holding Gain
Cost Value (Loss)
____________ _________ ____________
At June 30, 2011:
Available for sale:
Equity securities $ 7,800 $ 13,300 $ 5,500
Mutual funds 707,100 680,100 (27,000)
__________ _________ __________
$ 714,900 $ 693,400 $ (21,500)
========== ========= ==========
5. Inventories
2012 2011
__________ __________
Raw materials $1,146,800 $1,051,300
Work-in-process 221,900 408,200
Finished goods 245,000 180,300
__________ __________
$1,613,700 $1,639,800
========== ==========
F-18
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
6. Property and Equipment
Useful Lives
(Years) 2012 2011
____________ __________ __________
Automobiles 5 $ 14,900 $ 21,000
Computer equipment 3-5 125,600 123,400
Machinery and equipment 3-7 602,500 542,800
Furniture and fixtures 4-10 183,200 172,500
Leasehold improvements 3-5 66,900 64,100
_________ _________
993,100 923,800
Less accumulated depreciation
and amortization 812,600 748,700
_________ _________
$ 180,500 $ 175,100
========= =========
Depreciation expense was $70,000 and $77,000 for the years ended
June 30, 2012 and 2011, respectively.
7. Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired in connection with the Company's
acquisition of Altamira and SBI's acquisition of assets. Goodwill
amounted to $589,900 and $447,900 at June 30, 2012 and June 30, 2011,
all of which is expected to be deductible for tax purposes.
F-19
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
7. Goodwill and Other Intangible Assets (Continued)
The components of other intangible assets are as follows:
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
At June 30, 2012:
Technology, trademarks 5/10 yrs. $ 864,000 $ 339,300 $ 524,700
Customer relationships 10 yrs. 237,000 192,100 44,900
Sublicense agreements 10 yrs. 294,000 18,400 275,600
Non-compete agreements 5 yrs. 120,000 104,300 15,700
Other intangible assets 5 yrs. 143,900 127,500 16,400
__________ _________ _________
$1,658,900 $ 781,600 $ 877,300
========== ========= =========
Useful Accumulated
Lives Cost Amortization Net
______ ________ ____________ _________
At June 30, 2011:
Technology 5 yrs. $ 300,000 $ 275,000 $ 25,000
Customer relationships 10 yrs. 237,000 177,200 59,800
Non-compete agreements 5 yrs. 102,000 93,500 8,500
Other intangible assets 5 yrs. 139,000 120,000 19,000
________ _________ _________
$778,000 $ 665,700 $ 112,300
======== ========= =========
Total amortization expense was $115,900 and $111,400 in 2012 and 2011.
Estimated future amortization expense of intangible assets is as
follows:
Fiscal Years
____________
2013 $ 112,700
2014 108,800
2015 105,200
2016 109,400
2017 93,800
Thereafter 347,400
___________
$ 877,300
===========
F-20
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
8. Loan Payable, Bank
The Company has a line of credit with JPMorgan Chase Bank, N.A.
(the "Bank"), which provides for maximum borrowings of up to
$700,000, bearing interest at 3.08 percentage points above a
defined LIBOR Index, and secured by a pledge of collateral consisting
of the inventory, accounts, chattel paper, equipment and general
intangibles of the Company. Outstanding amounts are due and payable
by June 13, 2013 with a requirement that the Company is to reduce the
outstanding principal balance to zero during the 30 day period
ending on the anniversary date of the Note. The Company did not have
any amounts outstanding under the line at June 30, 2012 and 2011.
9. Employee Benefit Plans
The Company has 401(k) profit sharing plans covering its employees,
which provide for voluntary employee salary contributions not to
exceed the statutory limitations provided by the Internal Revenue Code.
One plan provides for Company matching of 50% of each Benchtop
Laboratory Equipment Operations participant's salary deferral election,
up to a maximum amount for each participant of 2% of their compensation,
while the second plan provides for matching the Catalyst Research
Instrument Operations employee contributions up to 4% of their
compensation. Total matching contributions amounted to $34,800 and
$39,300 for the years ended June 30, 2012 and 2011, respectively.
10. Commitments and Contingencies
The Company is obligated through January 2015 under a noncancelable
operating lease for its Bohemia, New York premises, which requires
minimum annual rental payments plus other expenses, including real
estate taxes and insurance. The future minimum annual rental expense,
computed on a straight-line basis, is approximately $209,400 under the
terms of the lease. Rental expense for the Bohemia facility amounted to
approximately $233,600 in 2012 and $233,700 in 2011. Accrued rent,
payable in future years, amounted to $59,800 and $67,500 at June 30,
2012 and 2011.
The Company was also obligated under an operating lease for its facility
in Pittsburgh, Pennsylvania. The lease expired on July 31, 2011 and the
Company is currently on a month-to-month tenancy while negotiating a new
lease agreement. Total rental expense for the Pittsburgh facility was
$56,000 in each of 2012 and 2011, plus $17,000 of related occupancy
expenses in 2012 and none in 2011.
F-21
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
10. Commitments and Contingencies (Continued)
The Company's approximate future minimum rental payments under all
operating leases are as follows:
Fiscal Years Total
____________ ____________
2013 $ 216,400
2014 234,800
2015 140,100
__________
$ 591,300
==========
The Company has two year employment contracts with its President and
Executive Vice President through June 30, 2013, providing for annual
base salaries of $138,000 and $126,300, respectively for the fiscal
year ended June 30, 2012 and $141,000 and $129,000, respectively, for
the fiscal year ending June 30, 2013, plus discretionary performance
bonus for each of the fiscal years for both officers. No bonuses have
been awarded for the year ended June 30, 2012. The Board of Directors
awarded bonuses of $4,000, to the President, and $3,000 to the
Executive President for the year ended June 30, 2011.
The Company has an employment contract with the President of Altamira
through June 30, 2014, which may be extended by mutual consent for an
additional year. The contract provides for an annual base salary of
$131,000 and $135,000 for each of the fiscal years ending June 30, 2013
and 2014, respectively, plus discretionary bonuses. No bonuses were
awarded for the fiscal year ended June 30, 2012, except for a stock
option granted during the year in connection with his services provided
with respect to the new subsidiary, SBI, valued at $5,600 using the
Black-Scholes-Merton option pricing model. A bonus of $5,000 was paid
in the fiscal year ended June 30, 2011 for his services during the twelve
month period ended November 30, 2010 under the previous contract.
The Company has a consulting agreement which expires on December 31, 2012
with an affiliate of the Chairman of the Board of Directors for marketing
consulting services. The agreement provides that the consultant be paid a
monthly fee of $3,300 for a certain number of consulting days as defined
in the agreement. Stock options were granted to him valued at $10,000 and
$15,300 during each of the years ended June 30, 2012 and 2011, respectively.
Consulting expense related to this agreement amounted to $42,800 and
$52,200 for the years ended June 30, 2012 and 2011, respectively.
The Company has a consulting agreement which expires March 31, 2013 with
another member of its Board of Directors for administrative services
providing that the consultant be paid at the rate of $85 per hour.
Consulting expense related to this agreement amounted to $5,100 and $9,000
for the fiscal years ended June 30, 2012 and 2011, respectively.
F-22
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
11. Income Taxes
The reconciliation of the provision for income taxes at the federal
statutory rate of 15% and 35%, respectively, to the actual tax expense
for the applicable fiscal year was as follows:
2012 2011
__________________ _________________
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
_________ _______ _________ _______
Computed "expected" income tax $ 9,300 15.0% $107,500 35.0%
Research and development
credits (11,300) (18.3) ( 15,000) (4.9)
Other, net ( 2,200) (3.5) ( 12,900) (4.2)
_________ _______ __________ ______
Income tax expense (benefit) $( 4,200) (6.8)% $ 79,600 25.9%
========= ======= ========== ======
Deferred tax assets and liabilities consist of the following:
2012 2011
__________ __________
Deferred tax assets:
Amortization of intangibles $ 149,700 $ 130,500
Various accruals 44,800 48,200
Other 55,100 55,200
_________ _________
249,600 233,900
Deferred tax liability:
Depreciation of property
and amortization of goodwill (43,400) (40,400)
__________ __________
Net deferred tax assets $ 206,200 $ 193,500
========== ==========
The breakdown between current and long-term deferred tax assets and
liabilities is as follows:
2012 2011
__________ __________
Current deferred tax assets $ 70,200 $ 77,700
_________ _________
Long-term deferred tax assets 179,400 156,200
Long-term deferred tax liabilities (43,400) (40,400)
__________ __________
Net long-term deferred tax asset 136,000 115,800
__________ __________
Net deferred tax assets $ 206,200 $ 193,500
========== ==========
F-23
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
11. Income Taxes (Continued)
ASC No. 740 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC No.
740 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure,
and transition. As of June 30, 2012 and 2011, the Company did not
have any unrecognized tax benefits related to various federal and
state income tax matters.
The Company's policy is to recognize interest and penalties on
any unrecognized tax benefits as a component of income tax expense.
The Company does not have any accrued interest or penalties associated
with any unrecognized tax benefits. The Company is subject to U.S.
federal income tax, as well as various state jurisdictions. The Company
is currently open to audit under the statute of limitations by the
federal and state jurisdictions for the years ending June 30, 2009
through 2011. The Company does not anticipate any material amount of
unrecognized tax benefits within the next 12 months.
12. Stock Options
Option activity is summarized as follows:
Fiscal 2012 Fiscal 2011
_________________ __________________
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
_______ _______ _______ ________
Shares under option:
Outstanding, beginning of year 57,000 $ 2.45 45,000 $ 2.24
Granted 15,000 3.54 12,000 3.21
Exercised (4,000) 2.40 - -
Forfeited (8,000) 2.40 - -
________ ________
Outstanding, end of year 60,000 2.73 57,000 2.45
________ _______ ________ ________
Options exercisable at year-end 52,833 $ 2.62 52,833 $ 2.40
________ _______ ________ ________
Weighted average fair value per
share of options granted
during fiscal 2012 and 2011 $ 1.04 $ 1.66
======= =======
F-24
12. Stock Options (Continued)
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2012 AND 2011
As of June 30, 2012 As of June 30, 2012
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.25-$1.88 20,000 1.54 $ 1.59 20,000 $ 1.59
$3.07-$3.71 40,000 4.72 $ 3.30 32,833 $ 3.25
________ ________
60,000 52,833
________ ________
As of June 30, 2011 As of June 30, 2011
Options Outstanding Exercisable
_______________________________________________ ______________________
Weighted-
Average Weighted- Weighted-
Range Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
_________ ___________ ____________ _________ ___________ _________
$1.25-$2.40 32,000 1.77 $ 1.89 32,000 $ 1.89
$3.07-$3.24 25,000 4.94 $ 3.16 20,833 $ 3.17
________ ________
57,000 52,833
________ ________
13. Earnings Per Common Share
Earnings per common share data was computed as follows:
2012 2011
__________ __________
Net income $ 66,100 $ 227,600
__________ __________
Weighted average common shares
outstanding 1,283,118 1,196,577
Effect of dilutive securities 10,471 16,905
__________ __________
Weighted average dilutive common
shares outstanding 1,293,589 1,213,482
__________ __________
Basic earnings per common share $ .05 $ .19
========== ==========
Diluted earnings per common share $ .05 $ .19
========== ==========
F-25