SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
( X )Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
SCIENTIFIC INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
( X ) No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, Schedule or Registration Statement Number:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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SCIENTIFIC INDUSTRIES, INC.
1998
ANNUAL REPORT
------------------
CORPORATE INFORMATION
OFFICERS EXECUTIVE OFFICES
- -------- -----------------
Lowell A. Kleiman Airport International Plaza
Chairman 70 Orville Drive
President, Chief Executive Bohemia, New York 11716
Officer and Treasurer
TRANSFER AGENT
Cathy Pulver-Dugan Continental Stock Transfer &
Vice President and Secretary Trust Company
New York, New York
Helena R. Santos, CPA
Vice President, Controller INDEPENDENT AUDITORS
and Assistant Treasurer Nussbaum Yates & Wolpow, P.C.
Melville, New York
DIRECTORS - (PRINCIPAL
OCCUPATIONS) STOCK INFORMATION
Arthur M. Borden Over-the-Counter
(Counsel, Rosenman & Colin LLP) Symbol: SCND
OTC Bulletin Board
Joseph I. Kesselman
(Private Investor) ANNUAL MEETING
10:00 a.m. Thursday
Lowell A. Kleiman November 19, 1998
Chairman Princeton Club
(President of the Company) 15 West 43rd Street
New York, New York
Roger B. Knowles
(President, Conductive Systems,
Inc.; a manufacturer of EMI and
RFI shielding materials)
James S. Segasture
(Private Investor)
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October 7, 1998
To our Shareholders:
Fiscal 1998 was another successful year, as we continue to build our
Company. We posted sales of $3,414,700 for fiscal 1998, an increase of 11
percent from $3,077,100 in fiscal 1997, as a result of continued strong
demand for our Vortex Genie 2(registered trademark) mixer and its accessories.
Net income for fiscal year 1998 increased $44,800 (33 percent) to $180,500
($.22 per share-basic) compared to $135,700 ($.16 per share-basic) for fiscal
year 1997.
As part of our plan for future growth, during the fiscal year we introduced
the first tangible results of our research and development. These new products
are the TurboMix(trademark) attachment for the Vortex Genie 2(registered
trademark) mixer, to vigorously mix up to 12 micro-centrifuge tubes, and the
Roto-Shake Genie(trademark) which is a unique 5-in-1 multi-purpose
rotator/rocker; both products are used in biologic and life science research.
Although, there has been encouraging enthusiasm for these new products from
our network of dealers, meaningful sales of these products will take some time
to realize due to the nature of the catalog-type distribution system in our
industry.
We continue to invest a significant portion of our operating income in
research and development, focusing on various projects that appear to have
good commercial potential and more readily realized profit potential.
Operating expenses for fiscal year 1998 increased $86,500 (8 percent)
from $1,062,000 for fiscal year 1997 to $1,148,500 in fiscal year 1998. This
increase is principally due to expenses incurred in the pursuit of external
business opportunities.
As reported to you last fiscal year, we began the fiscal year with the
objective of enhancing shareholder value. Our intention has been to build on
this objective through internal growth of our existing business including the
acquisition and development of new products, and by pursuing external strategic
alternatives. We continue to pursue these objectives. Of course, we will
promptly report any tangible results.
In summary, we would like to thank our shareholders for their continued
support and commitment, as we continue on the path of increasing the worth of
the company.
Sincerely,
/s/
--------------------
Lowell A. Kleiman
President and Chairman
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PROXY MATERIAL
SCIENTIFIC INDUSTRIES, INC.
BOHEMIA, NEW YORK
NOTICE OF 1998 ANNUAL MEETING OF
STOCKHOLDERS
NOVEMBER 19, 1998
To Our Stockholders:
The 1998 Annual Meeting of Stockholders of Scientific Industries,
Inc. (the "Company") will be held at the Princeton Club, 15 West 43rd
Street, New York, New York, on Thursday, November 19, 1998, at 10:00 am
(New York Time), for the following purposes:
1. To elect one Class B Director to the Company's
Board of Directors to serve until the 2001 Annual
Meeting.
2. To transact such other business as may properly
come before the meeting and any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on
September 25, 1998, as the Record Date for determination of
stockholders entitled to notice of and to vote at the meeting or any
adjournments or postponements thereof.
If you cannot personally attend the meeting, please promptly fill
in, sign and return the enclosed proxy card in the business reply
envelope enclosed, which requires no postage if mailed in the United
States. If you attend the Annual Meeting you may revoke the proxy
given and vote in person if you wish.
By Order of the Board of Directors,
/s/
---------------------
Bohemia, New York Cathy A. Pulver-Dugan
October 7, 1998 Secretary
PROXY MATERIAL
SCIENTIFIC INDUSTRIES, INC.
70 ORVILLE DRIVE
AIRPORT INTERNATIONAL PLAZA
BOHEMIA, NY 11716
(516) 567-4700
====================
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 1998
===================================
The enclosed Proxy is solicited by the Board of Directors of
Scientific Industries, Inc. (the "Company"), a Delaware Corporation, to
be voted at the 1998 Annual Meeting of Stockholders (the "Meeting") to
be held at the Princeton Club, 15 West 43rd Street, New York, New York,
on Thursday, November 19, 1998 at 10:00 a.m. (New York time), and at
any adjournments or postponements thereof.
Only stockholders of record as of the close of business on
September 25, 1998 (the "Record Date") are entitled to notice of and
to vote at the Meeting or any adjournments or postponements thereof.
As of that date, the Company had outstanding voting securities
consisting of 834,572 shares of Common Stock, par value $.05 per share
(the "Common Stock"), excluding treasury shares. Each share of Common
Stock is entitled to one vote.
The presence at the Annual Meeting, in person or by proxy, of a
majority of the Company's Common Stock entitled to vote is necessary to
constitute a quorum. All stockholders who deliver properly executed
and dated proxies to the Company prior to the date of the annual
meeting will be deemed present at the Annual Meeting regardless of
whether such proxies direct the proxy holders to vote for or against,
or to abstain from voting. The Proxies, when properly executed and
returned to the Company, unless otherwise indicated, will be voted for
the election of the specified nominee named herein as Director. Any
stockholder who executes and delivers a Proxy may revoke it at any time
prior to its use by delivery of a written notice of such revocation to
the Secretary of the Company at the address of the Company set forth
below, by submitting a later dated Proxy or by appearing at the Meeting
and requesting the return of the Proxy or by voting in person.
Stockholders vote at the Meeting by casting ballots (in person or by
proxy) which are tabulated by a person who is appointed by the Board of
Directors before the Meeting to serve as inspector of election at the
Meeting and who has executed and verified an oath of office.
Abstentions and broker "non-votes" are included in the determination of
the number of shares of Common Stock present at the Meeting for quorum
purposes but are not counted in the tabulations of the votes cast for
election of Director. A broker "non-vote" occurs when a nominee
holding shares of Common Stock for a beneficial owner does not vote on
a particular proposal because the nominee does not have discretionary
voting power with respect to that item and has not received
instructions from the beneficial owner. Directors of the Company are
elected by a plurality of the votes cast by stockholders entitled to
vote at a meeting which a quorum is present. A plurality means that
the nominees with the largest number of votes are elected as Directors,
up to a maximum number of Directors to be chosen at the Meeting. All
other matters submitted at the Meeting will be determined by a majority
of the votes cast.
It is anticipated that this Proxy Statement, the enclosed Proxy
card and the Annual Report to Stockholders will be mailed to the
Company's stockholders on or about October 16, 1998. The Company's
offices are located at 70 Orville Drive, Bohemia, New York 11716, and
its telephone number is (516) 567-4700.
PRINCIPAL STOCKHOLDERS
The following table shows, as of the Record Date, the number of
shares of Common Stock beneficially owned by (i) the persons known to
the Company to be the owners of more than 5% of the Common Stock, (ii)
each Director of the Company (one of whom is the president of the
Company), (iii) each named executive officer of the Company, identified
in the Summary Compensation table included elsewhere herein, and (iv)
all Directors and officers as a group.
Shares of
Term Expires Common Stock
at Annual Year "Beneficially"
Meeting of First Owned as of
Stockholders Principal Elected September 25, Percentage
to be held in Occupation Director 1998 Of Class
------------- ---------- -------- ------------- ----------
NOMINEE FOR DIRECTOR:
Class B Director:
Joseph I. Kesselman 1998 Pvt. Investor 1961 47,520 (2) 5.6%
DIRECTORS WHOSE TERMS DO
NOT EXPIRE AT THIS MEETING:
Class C Directors:
Lowell A. Kleiman 1999 President of 1970 158,613 (3) 17.3%
Company
Roger B. Knowles 1999 Industrialist 1965 75,705 (4)(5) 8.8%
Class A Directors:
Arthur M. Borden 2000 Counsel, Rosenman 1974 46,540 (1) 5.4%
& Colin LLP
James S. Segasture 2000 Pvt. Investor 1991 160,757 (1) 18.8%
(and Kristine K. Segasture)
Directors and Executive Officers 534,450 (6)(7) 51.0%
as a Group (seven persons)
(1) Includes 20,000 shares issuable upon exercise of currently
exercisable options.
(2) Includes 20,000 shares issuable upon exercise of currently
exercisable options. Includes 735 shares owned jointly with Mrs.
Kesselman.
(3) Includes 70,000 shares issuable upon exercise of currently
exercisable options. On August 27, 1998, Mr. Kleiman exercised
10,000 option shares, however as of the date of this proxy, the
shares of Common Stock have not yet been issued to him.
(4) Includes 44,158 shares owned by Mrs. Knowles; includes 1,337
shares owned by a trust of which Mr. Knowles is a trustee,
beneficial ownership of which is disclaimed by Mr. Knowles.
(5) Includes 28,000 shares issuable upon exercise of currently
exercisable options.
(6) Includes 213,000 shares issuable upon exercise of currently
exercisable options.
(7) Includes 45,000 shares issuable upon exercise of currently
exercisable options granted to two executive officers who are not
directors.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a
classified Board of Directors, consisting of three classes, each class
serving three year terms on a staggered basis. The Board of Directors
currently is comprised of five members, of which two are Class A
Directors, one is a Class B Director and two are Class C Directors. At
the Meeting, one Class B Director is to be elected to serve until the
2001 Annual Meeting of Stockholders and until his successor is duly
elected and qualified. It is intended that the shares of Common Stock
represented by Proxies solicited by the Board of Directors will be
voted for the nominee hereinafter named, unless authority is
specifically withheld. If for any reason said nominee shall become
unavailable for election, which is not now anticipated, the Proxies
will be voted for a substitute nominee designated by the Board of
Directors.
DIRECTORS WHOSE TERMS DO NOT EXPIRE AT THIS MEETING:
Lowell A. Kleiman (age 57) has been employed by the Company for
over thirty years, and has been President since September 1974.
Roger B. Knowles (age 73) is President of a number of
corporations, including Conductive Systems, Inc. (a manufacturer of EMI
and RFI shielding material), and G.H. Realty Company (real estate), and
is a director of Ionic, Inc. (an investment company).
Arthur M. Borden, Esq. (age 78) has been counsel to Rosenman &
Colin LLP since 1997, and for the prior five year period he was a
partner in that firm.
James S. Segasture (age 62) has been a private investor since
February 1990. Prior to this he was employed by various investment
houses including Burns Pauli Institutional Brokers where he held the
position of Senior Position Trader; Rowland Simon & Company where he
was appointed President; and I.M. Simon & Company where he held the
positions of General Partner and Senior Trader and was later appointed
Chairman of the Board.
NOMINEE FOR DIRECTOR:
Joseph I. Kesselman (age 73) is a consultant to various
corporations, and currently, a director of Nuclear and Environmental
Protection Inc., Perrot Duval Holding S.A. and Infranor Inc. (a
developer and manufacturer of servo systems). For the prior five year
period, he was both Chairman and Chief Executive Officer of Greentree
Software, Inc. (a developer and provider of proprietary inventory
control software). Prior thereto, Mr. Kesselman was a consultant to
various corporations including Cel Communications Inc., formerly The
Corporation for Entertainment & Learning, Inc. (a producer of films for
television and the educational markets), Nuclear & Environmental
Protection Inc. (a developer and manufacturer of garments and devices
to guard against nuclear contamination), and Perrot Duval Holding S.A.
(a public Swiss holding company).
The Company currently has no option, audit, compensation,
nominating or similar committees.
During the fiscal year ended June 30, 1998, the Board of Directors
held four meetings with all Directors present.
The Board of Directors recommend that stockholders vote in favor
of the re-election of the nominee for Class B Director, Mr. Kesselman.
EXECUTIVE OFFICERS
The executive officers of the Company are elected annually by the
Board of Directors and hold office until their respective successors
are elected and qualify. There is no arrangement or understanding
between any executive officer and any other person regarding selection
as an officer. There are no family relationships between any Director
and executive officer of the Company.
The executive officers of the Company are as follows: Lowell A.
Kleiman, 57, President of the Company; Cathy Pulver-Dugan, 48, Vice
President in charge of the manufacturing, inventory control, and
administration functions; and Helena R. Santos, CPA, 34, Vice
President, Controller in charge of all accounting functions.
Biographical information of executive officers of the Company who are
not directors is set forth below.
Cathy Pulver-Dugan (age 48) has been employed by the Company for
over twenty years and has served as Vice President of the Company since
1984.
Helena R. Santos, CPA (age 34) has been employed by the Company
since 1994, and was appointed Vice President, Controller in 1997.
Prior to joining the Company, Ms. Santos was an internal auditor with a
major defense contractor, and prior to that was employed in public
accounting.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by the
Company to Lowell A. Kleiman with respect to each of the three fiscal
years ended June 30, 1998 for services in all capacities as the
Company's chief executive officer. No other executive officer earned
in excess of $100,000 in any of such fiscal periods.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual
Compen-
Name and Principal Year Salary Bonuses sation
Position $ $ $
- ------------------ ---- ------ ------- -------
Lowell A. Kleiman 1998 $160,000 $ - N/A
President 1997 $120,700 $ 9,750 N/A
1996 $116,300 $19,500 N/A
LONG-TERM COMPENSATION
Awards Payments
------------------ ----------------
Re- All
stricted Other
Name and Principal Stock Options/ LTIP Compen-
Position Year Award(s) SARs Payments sation
- ------------------ ---- -------- -------- -------- -------
Lowell A. Kleiman 1998 N/A N/A N/A $3,200(1)
President 1997 N/A N/A N/A $3,025(1)
1996 N/A N/A N/A $2,648(1)
(1) Represents the Company's matching contribution to Mr. Kleiman's
account under the company's 401(k) Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION
VALUES
Shares of Number of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-Money
Acquired Value Options Options
on Real- At FY-End (#) at FY-End ($)
Exercise ized Exercisable/ Exercisable/Un-
Name ($) Unexercisable exercisable(1)
- ---- -------- ----- --------------------- ---------------
Lowell A. Kleiman N/A N/A 60,000/10,000(2) $87,000/5,000
(1) Calculated by multiplying the number of shares of Common Stock
subject to option by the difference between the market price and exercise
price, per share, on June 30, 1998.
(2) On August 27, 1998, Lowell A. Kleiman exercised 10,000 option shares,
however as of the date of this proxy, the shares of Common Stock have not
yet been issued to him.
EMPLOYMENT AGREEMENT
On August 14, 1997, the Company amended and extended an employment
contract with the Company's President, Lowell
A. Kleiman, through June 2000. The contract provides for an annual
salary of $160,000 beginning in fiscal 1998 and a bonus for fiscal 1998,
if certain gross profit levels are met. The contract also grants him a
five-year stock option for 10,000 shares of Common Stock exercisable
under certain circumstances. The contract contains provisions regarding
his termination of employment, within three years following any change of
control (as defined therein), under which the Company is obligated to pay
him additional compensation consisting of a base amount representing his
annual salary and other benefits for the period between the date of his
termination of employment and three years from any change of control
subject to the limitation of it not exceeding 2.99 times the base amount.
The other benefits include continued use of a Company car, four weeks
paid vacation each year and, in the event that Mr. Kleiman should die
within the employment period, the payment to his widow, if living, or, if
not, to his legal representatives of $5,000 as soon as practicable and an
amount equal to Mr. Kleiman's current annual salary payable in monthly
installments. In such event, if the Company receives $500,000 of
insurance proceeds, less any expenses incurred therein, $50,000 of those
benefits will be paid to his beneficiary as above. The Company is the
beneficiary for the balance of the proceeds.
DIRECTORS' COMPENSATION
During the fiscal year ended June 30, 1998, the Company paid each
non-employee Director a quarterly reimbursement retainer of $450 and a
fee of $300 for each meeting attended, plus reimbursement for out-of-
pocket expenses incurred in connection with attendance at Board meetings
in the amount of $50 or actual expenses incurred, if higher. However, in
December 1997, the Board increased the quarterly retainer to $750
effective January 1, 1998 as well as the meeting attendance fee to $500.
The Company currently pays each non-employee Director a quarterly
retainer of $750 and a fee of $500 for each meeting attended, plus
reimbursement for out-of-pocket expenses incurred in connection with
attendance at Board meetings in the amount of $50 or the Director's
itemized expenses, whichever is greater.
During the fiscal year ended June 30, 1998, the Company paid
Directors' fees in the amount of $16,200 to Directors other than Mr.
Kleiman (who does not receive Directors' fees) and fees of $3,170 for
legal services rendered by the law firm of Rosenman & Colin LLP, of which
Mr. Borden, a Director, is counsel.
On February 11, 1992, before the adoption of the 1992 Stock Option
Plan, the Company issued to each of its four outside Directors, Messrs.
Arthur M. Borden, Joseph I. Kesselman, Roger B. Knowles and James S.
Segasture, ten year non-qualified options with respect to 12,000 shares
of Common Stock, immediately exercisable as to 4,000 shares of Common
Stock, exercisable as to an additional 4,000 shares of Common Stock, on
and after the first anniversary of the date of grant and fully
exercisable after the second such anniversary; all such options are
exercisable at $.35. In the event of the death of a participant, while
in the employ or service of the Company, the options shall become
exercisable in full until the earlier of expiration of the option or one
year from date of death. In March of 1993, Messrs. Borden, Kesselman and
Segasture each exercised 8,000 shares of Common Stock pursuant to such
options.
The Company's 1992 Stock Option Plan calls for options for 3,000
shares of Common Stock at the then fair market value to be issued each
March for four years to each of the outside directors who shall then be
on the Board of Directors on the first business day of each March,
beginning March 1993. In addition, during the fiscal year ended June 30,
1998, the Board of Directors approved the issuance of options to purchase
4,000 shares of Common Stock for each of the outside directors beginning
in December, 1997, and each year thereafter, at the fair market value on
the date of grant. The fair market value per share on the date of grant
was $2.00 in 1998, $1.2813 in 1996, $1.3125 in 1995, $.9375 in 1994, and
$.50 in 1993.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, for the period July 1, 1997 to June 30,
1998, all filing requirements of Section 16(a) of the Securities Act of
1934 applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, other than the filing of Form 5
by each of the outside directors. The filings were effected in
September 1998.
INDEPENDENT PUBLIC ACCOUNTANTS
Nussbaum Yates & Wolpow, P.C. has been selected by management to
audit the Company's financial statements for the current fiscal year.
A representative of that firm is expected to be present at the Meeting
with an opportunity to make a statement to the stockholders if he
desires to do so and will be available to respond to appropriate
questions.
OTHER MATTERS
The Company is unaware of any matter, other than those mentioned
above, that will be brought before the Meeting; however, if other
matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote such Proxy in
accordance with their judgement on such matters.
THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR
ENDED JUNE 30, 1998 ON FORM 10-KSB, WHICH IS NOT PART OF THIS PROXY
MATERIAL, IS BEING MAILED TO STOCKHOLDERS WITH THIS PROXY SOLICITATION.
ON WRITTEN REQUEST, THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
RECORD OR BENEFICIAL HOLDER OF THE COMPANY'S COMMON STOCK AS OF
SEPTEMBER 25, 1998, ANOTHER COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-KSB AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE
FISCAL YEAR ENDED JUNE 30, 1998. REQUESTS SHOULD BE ADDRESSED TO MS.
CATHY PULVER-DUGAN, SECRETARY, SCIENTIFIC INDUSTRIES, INC., 70 ORVILLE
DRIVE, BOHEMIA, NEW YORK 11716.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited, personally
or by telephone or telegraph, by officers, Directors and regular
employees of the Company. No additional compensation will be paid for
such solicitation. The Company will also request securities brokers,
custodians, nominees and fiduciaries to forward soliciting material to
the beneficial owners of stock held of record and will reimburse them
for their reasonable out-of-pocket expenses in forwarding soliciting
material.
PROPOSALS OF SECURITY HOLDERS
Proposals, if any, of stockholders of the Company intended to be
presented at the 1999 Annual Meeting of Stockholders must be received
by the Company for inclusion in the appropriate proxy materials no
later than June 4, 1999.
SCIENTIFIC INDUSTRIES, INC.
October 7, 1998
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
-------------
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-6658
SCIENTIFIC INDUSTRIES, INC.
---------------------------
(Name of small business issuer in its charter)
DELAWARE 04-2217279
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 ORVILLE DRIVE, AIRPORT INTERNATIONAL
PLAZA, BOHEMIA, NEW YORK 11716
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 567-4700
--------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.05 PER SHARE
--------------------------------------
(Title of Class)
-
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ( X ) No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $3,414,700
----------
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 28, 1998 is $1,747,594.
The number of shares outstanding of the issuer's common stock, par value
$.05 per share as of August 28, 1998 is 834,572 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
PART III:
1) The Company's Proxy Statement for the 1998 Annual Meeting which
will be filed with the Commission within 30 days.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General. Scientific Industries, Inc., (the "Company"), a Delaware
corporation, formed in 1954 is engaged in manufacturing and marketing
laboratory equipment consisting primarily of vortex mixers (devices used to
mix the contents of test tubes, beakers and other various containers by
placing such containers on a rotating cup or other attachments which cause
the contents to be mixed at varying speeds) and miscellaneous laboratory
apparatus, including timers, rotators and pumps.
The Company's products are used by hospital and research
laboratories, clinics, pharmaceutical manufacturers, medical device
manufacturers and other industries. The Company's products are marketed
principally through a network of domestic and foreign dealers, by the
personal solicitation of the Company's President and other employees and
sales representatives. The Company seeks to increase its customer base
through the use of various marketing media, including trade publications,
trade shows, brochures and catalogs.
New Products. The Company introduced two new products during
fiscal year 1997. The first product is a new attachment to the existing
Vortex-Genie 2 (registered trademark) mixer referred to as the TurboMix(
trademark) attachment. The second product is a new multi-purpose
rotator/rocker referred to as the Roto-Shake Genie (trademark). The Company
purchased in fiscal year 1996 the technology and licensing rights to both new
products from inventors unaffiliated with the Company. The Company is
obligated to pay roaylties under these license agreements. The new products
were then developed by the Company using such acquired technology by the
Company's Research and Development department, which was established in
fiscal year 1996. Both new products are marketed through the Company's
network of domestic and foreign dealers. Future sales from these new products
are difficult to estimate due to the size and complexity of the distribution
system in the Company's industry.
The Company had also previously announced in fiscal year 1996 the
purchase of licensing rights of thermo-electrically cooled centrifuge
products. Based upon the research and development on this project, thus
far, it was determined that additional engineering and modification is still
required to the technology acquired in order to make such centrifuge
products marketable. Due to the small size of the Company's Research and
Development department, the Company decided to currently focus on projects
which have shorter development time and more readily realized profit
potential.
The majority of such projects are new attachments for the Company's
existing products.
Raw Materials. The Company currently manufactures its products
from readily available components supplied by various independent
contractors.
Patents, Trademarks, Licenses and Franchises. The Company does
not have broad patent protection for its existing products and does not
consider the absence of such patent protection to be material. However, the
Company does have a U.S. Patent on a design feature of its Vortex-Genie
2(registered trademark) mixer which, in the Company's opinion, provides the
Company with a certain degree of commercial advantage when compared to
competitive mixers. This patent expires on November 2, 2005. In addition,
the Company acquired a new patent during fiscal year 1997 for one of its new
products, the TurboMix(trademark), which is an attachment to the existing
Vortex-Genie 2(registered trademark) mixer. The TurboMix(trademark)
patent expires on September, 2015.
The Company has acquired the rights in the laboratory equipment
market to U.S. Patents issued in July 1995, September 1996, and March 1998
on thermo-electrically cooled centrifuges.
Seasonality. The Company does not consider its business to be
seasonal.
Largest Customers. Two of the Company's customers, Fisher
Scientific Company ("Fisher") and VWR Scientific Products ("VWR"), both of
which are distributors, accounted for approximately aggregate 32% and 26%
respectively, of the Company's net sales for the fiscal year ended June 30,
1998. The Company sells a variety of laboratory products, primarily vortex
mixers, to Fisher and VWR. The Company has a long-standing relationship
with these customers. The loss of any of these customers would have a
material adverse effect upon the business of the Company.
Backlog. The Company's backlog is not significant because the
Company's current line of products are standard catalog items. The typical
lead time is approximately two weeks, and backlog is kept to no more than
thirty days.
Competition. In the general area of laboratory equipment, the
Company's major competitors are Thermolyne Corporation, a subsidiary of
Sybron Corporation, Baxter Dade and Baxter Scientific Products, both of
which are divisions of Baxter Healthcare Corporation Yamato, Inc., a
Japanese corporation, and IKA, a German corporation. The Company dominates
the vortex mixers market in the U.S., and has a small share of the
market for manufacturing and distributing the other laboratory equipment
products it currently sells. Most of the Company's competitors are
substantially larger and have greater financial, production and marketing
resources than the Company. Competition is generally based upon quality,
technical specifications and price.
Research and Development. The Company incurred research and
development expenses of $174,700 during the fiscal year ended June 30, 1998
compared to $206,700 during the fiscal year ended June 30, 1997, in
connection with the development of new products.
Environmental Protection. The Company's manufacturing operations,
like those of the industry in general, are subject to numerous existing and
proposed federal and state regulations designed to protect the environment,
to establish occupational safety and health standards and to cover other
matters. The Company believes that its operations are in compliance with
such existing regulations.
Employees. At the end of fiscal year ending June 30, 1998, the
number of total persons employed by the Company was 22, of which 20 were
employed by the Company on a full-time basis. On September 1, 1998, the
Company employed 20 full-time persons and two part-time persons. None of
the Company's employees are represented by any unions.
ITEM 2. DESCRIPTION OF PROPERTY.
As of September 1, 1998, the Company's offices and manufacturing
facilities consisted of the following:
Square Lease Annual
Use of Feet Expiration Rental
Location of Space Space (Approx.) Date Payments(*)
- ----------------- ------- --------- ---------- ----------
70 Orville Drive Executive 25,000 December 31, $193,500
Airport International Offices/ 1999
Plaza Manufacturing
Bohemia, NY 11716
(*) Reflects future minimum rental payments for fiscal year 1999.
See Notes to the Financial Statements for information about the
Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal proceedings pending against the Company.
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 the Company's fiscal year ended June 30, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
(a) The Company's Common Stock is traded in the over-the-counter
market. The following table sets forth the low and high bid
quotations for the fiscal years ended June 30, 1998 and 1997, 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
------------------------- ------- --------
09/30/96 1 1/16 1 1/16
12/31/96 1 1/16 1 1/16
03/31/97 1 1/16 1 1/8
06/30/97 1 1/16 1 1/4
09/30/97 1 1/4 1 7/16
12/31/97 1 7/16 2 1/8
03/31/98 1 9/16 1 7/8
06/30/98 1 5/8 1 7/8
(b) There were, as of August 28, 1998, 944 record holders of the
Company's Common Stock.
(c) The Company paid no dividends during the last two fiscal years.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations. Net sales for the fiscal year ended June
30, 1998 ("fiscal 1998") increased $337,600 to $3,414,700 from $3,077,100
for the fiscal year ended June 30, 1997 ("fiscal 1997"). The 11.0% increase
in net sales was due primarily to increased demand for the Company's
existing laboratory products.
General and administrative expenses for fiscal 1998 of $834,600
increased $110,600 (15.3%) from $724,000 in fiscal 1997. The increase was
primarily due to expenses related to the pursuit of external business
opportunities, and legal fees.
Research and development expenses for fiscal 1998 of $174,700
decreased $32,000 (15.5%) from $206,700. The decrease is due to
material expenditures incurred in fiscal 1997 for the development of the
centrifuge products discussed in the "New Products" section of Part I,
Item 1. The amount of research and development expenses incurred in fiscal
1998 is still considered a significant portion of the Company's operational
income. As we have previously reported, the Company intends to continue
investing in research and development activities in the near future at
approximately the same rate as that of fiscal 1998.
Liquidity and Capital Resources. The Company's working capital
for fiscal 1998, increased $175,900 to $1,600,700 as compared to $1,424,800
for fiscal 1997, primarily due to increased income from operations.
Management believes that cash requirements for operations will continue to
be met by cash flows from operations.
The Company also has available a secured bank line of credit of
$200,000 with North Fork Bank. The credit line expires on November 30, 1998
and carries interest at prime plus 1%. The Company could utilize the
proceeds of these amounts for working capital needs. The Company has not
utilized this credit line.
Capital Expenditures and Inflation. During fiscal 1998, the
Company did not incur any material capital expenditures. The Company does
not expect to incur in the normal course of business any material capital
expenditures during fiscal year 1999. It is anticipated, as in past fiscal
years, that the funds for such expenditures, if any, will be funded from the
Company's operations or available working capital.
Due to the demand for medical cost containment, management
believes that inflation will have a more material effect on the Company's
existing products than has been the case in past fiscal years. Although the
Company's laboratory products are not considered medical equipment, they are
used in laboratories in medically-related areas. Therefore, the existing
products will be sensitive to inflationary pressures since it will be
difficult to fully pass on cost increases.
Year 2000. The Year 2000, ("Y2K"), issue has arisen because for
many years some computer software programs and systems have utilized only
two digits to specify the year. As a result they may not be able to
recognize and process dates beyond 1999, which may cause these programs to
malfunction or not be able to accurately process information. The Company's
accounting information is processed using computer software programs and
systems which are susceptible to the Y2K issue. As of June 30, 1998, the
majority of the Company's software programs have the ability to process
information with dates beyond 1999. The remaining programs and systems will
become compliant by the end of calendar year 1998. The costs related to the
Y2K issue are not material to the Company. It is difficult to predict what
the impact will be to the Company if the Company's suppliers and customers
are not able to comply with Y2K requirements. The Company will communicate
with its suppliers and customers in the near future to identify potential
problems relating to Y2K.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements required by this item are attached hereto
on pages F1-F17.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT.
The information with respect to directors and executive officers
of the Company will be set forth under the heading "Election of Directors"
and "Executive Compensation" in the Company's definitive proxy statement
which will be filed within 30 days with the Commission and is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to executive compensation will be set
forth under the heading "Executive Compensation" in the Company's definitive
proxy statement which will be filed with the Commission within thirty days
and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to security ownership of certain
beneficial owners and management will be set forth under the headings
"Election of Directors" and "Principal Stockholders" in the Company's
definitive proxy statement which will be filed with the Commission within
thirty days and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related
transactions will be set forth under the headings "Election of Directors",
"Executive Compensation" in the Company's definitive proxy statement which
will be filed with the Commission within thirty days and is incorporated
herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index at the end
of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report with the Securities and Exchange Commission.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/
-----------------------------------------
Lowell A. Kleiman
President and Treasurer
Principal Executive and Financial Officer
/s/
----------------------------------------
Helena R. Santos
Vice President, Controller and Assistant
Treasurer
Principal Accounting Officer
Date: September 25, 1998
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/
- ----------------- President, Treasurer and September 25, 1998
Lowell A. Kleiman Director (Principal Executive
and Financial Officer)
/s/
- ---------------- Director September 25, 1998
Arthur M. Borden
/s/
- ------------------- Director September 25, 1998
Joseph I. Kesselman
/s/
- ---------------- Director September 25, 1998
Roger B. Knowles
/s/
- ------------------ Director September 25, 1998
James S. Segasture
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
3 Articles of Incorporation and By-Laws:
3(a) Certificate of Incorporation of the Company as amended.
(Filed as Exhibit 1(a-1) to the Company's General Form
for Registration of Securities on Form 10 dated February
14, 1973 and incorporated by reference thereto.)
3(b) Certificate of Amendment of the Company's Certificate of
Incorporation, as filed on January 28, 1985. (Filed as
Exhibit 3(a) to the Company's annual report on Form 10-
K for the fiscal year ended June 30, 1985 and incorporated by
reference thereto.)
3(c) By-Laws of the Company, as amended. (Filed as Exhibit 3
(b) to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1985 and incorporated by reference
thereto).
10 Material Contracts
Amendment to employment contract between the Company and
Lowell A. Kleiman. (Filed as Exhibit 10 to the Company's
annual report on Form 10-KSB for the year ended June 30,
1997 and incorporated by reference thereto).
21 Subsidiaries of the Registrant
Scientific Packaging Industries, Inc., a New York
corporation, is a wholly-owned subsidiary of the
Company, and does business under the name "Scientific
Packaging Industries".
27 Financial Data Schedule
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Shareholders
Scientific Industries, Inc. and subsidiary
Bohemia, New York
We have audited the accompanying consolidated balance sheets of Scientific
Industries, Inc. and subsidiary as of June 30, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Scientific
Industries, Inc. and subsidiary as of June 30, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/
-----------------------------------------
Nussbaum, Yates & Wolpow, P.C.
August 28, 1998
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS
------
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 165,900 $ 146,600
Investment securities 1,035,600 898,300
Trade accounts receivable, less allowance for
doubtful accounts of $7,400 in 1998 and 1997 269,300 281,500
Inventories 341,000 330,000
Prepaid expenses and other current assets 59,400 82,500
Deferred income taxes 21,200 35,000
---------- ----------
Total current assets 1,892,400 1,773,900
---------- ----------
Property and equipment, net 150,800 143,200
---------- ----------
Other assets and deferred charges:
Intangible assets, less accumulated
amortization of $38,300 and $21,500
in 1998 and 1997 55,200 52,900
Deferred income taxes 22,700 16,100
Other 135,600 123,900
---------- ----------
213,500 192,900
---------- ----------
$2,256,700 $2,110,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 108,600 $ 82,800
Accrued expenses 167,900 262,500
Customer advances 15,200 3,800
---------- ----------
Total current liabilities 291,700 349,100
----------- ----------
Deferred compensation 87,800 77,900
----------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.05 par value; authorized
7,000,000 shares; issued 854,374 shares
in 1998 and 846,041 shares in 1997 42,700 42,300
Additional paid-in capital 852,500 842,300
Unrealized holding gain on investment securities 3,400 300
Retained earnings 1,031,000 850,500
----------- ----------
1,929,600 1,735,400
Less common stock held in treasury, at cost,
19,802 shares 52,400 52,400
----------- ----------
1,877,200 1,683,000
----------- ----------
$ 2,256,700 $2,110,000
=========== ==========
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Net sales $3,414,700 $3,077,100
Cost of sales 2,098,200 1,865,900
---------- ----------
Gross profit 1,316,500 1,211,200
---------- ----------
Operating expenses:
General and administrative 834,600 724,000
Selling 139,200 131,300
Research and development 174,700 206,700
---------- ----------
1,148,500 1,062,000
---------- ----------
Income from operations 168,000 149,200
Interest and other income 42,200 30,300
---------- ----------
Income before income taxes 210,200 179,500
---------- ----------
Income taxes:
Current 22,500 58,300
Deferred 7,200 ( 14,500)
---------- ----------
29,700 43,800
---------- ----------
Net income $ 180,500 $ 135,700
========== ==========
Net income per common share - basic $ .22 $ .16
========== ==========
Net income per common share - diluted $ .18 $ .14
========== ==========
See notes to consolidated financial statements
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<S>
Unrealized
Holding Gain Total
Additional (Loss) on Share-
<S>
Common Stock Paid-in Investment Retained Treasury Stock holders'
<S>
Shares Amount Capital Securities Earnings Shares Amount Equity
---------------- ---------- ---------- ---------- -------------- ----------
<S> <C> <C> <S>
<C>
Balance, July 1, 1996 846,041 $42,300 $842,300 ($1,400) $ 714,800 19,802 $52,400 $1,545,600
Unrealized holding gain on
investment securities - - - 1,700 - - - 1,700
Net income - - - - 135,700 - - 135,700
------- ------- -------- -------- ---------- ------- ------- ----------
Balance, June 30, 1997 846,041 42,300 842,300 300 850,500 19,802 52,400 1,683,000
Unrealized holding gain on
investment securities - - - 3,100 - - - 3,100
Exercise of stock
options 8,333 400 10,200 - - - - 10,600
Net income - - - - 180,500 - - 180,500
------- ------- -------- -------- --------- ------- ------- ----------
Balance, June 30, 1998 854,374 $42,700 $852,500 $3,400 $1,031,000 19,802 $52,400 $1,877,200
======= ======= ======== ======== ========== ======= ======= ==========
</TABLE>
See notes to consolidated financial statements
SCIENTIFIC INDUSTRIES INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
---- ----
Operating activities:
Net income $ 180,500 $ 135,700
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on disposition of fixed assets - 5,400
Loss on sale of investments 300 -
Depreciation and amortization 77,800 69,400
Deferred income taxes 7,200 ( 14,500)
Changes in assets and liabilities:
Accounts receivable 12,200 ( 97,100)
Inventories ( 11,000) ( 35,400)
Prepaid expenses and other current assets 23,100 33,800
Other assets ( 11,700) ( 21,000)
Accounts payable 25,800 38,300
Accrued expenses ( 94,600) 82,200
Customer advances 11,400 ( 500)
Deferred compensation 9,900 13,200
---------- ----------
Total adjustments 50,400 73,800
---------- ----------
Net cash provided by operating activities 230,900 209,500
---------- ----------
Investing activities:
Purchase of investment securities,
held to maturity (1,650,700) (1,444,500)
Redemption of investments principally
held to maturity 1,504,400 1,286,700
Capital expenditures ( 56,900) ( 70,900)
Purchase of intangible assets ( 19,000) ( 4,100)
---------- ----------
Net cash used in investing activities ( 222,200) ( 232,800)
---------- ----------
Financing activities,
issuance of common stock for options exercised 10,600 -
---------- ----------
Net increase (decrease) in cash and
cash equivalents 19,300 ( 23,300)
Cash and cash equivalents, beginning of year 146,600 169,900
---------- ----------
Cash and cash equivalents, end of year $ 165,900 $ 146,600
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 89,600 $ 400
========== ==========
See notes to consolidated financial statements
SCIENTIFIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Scientific Industries, Inc. and Scientific Packaging Industries, Inc.,
its wholly owned subsidiary (collectively referred to as the "Company").
All material intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Investment Securities
Securities which the Company has the ability and positive intent to
hold to maturity are carried at amortized cost. All held-to-maturity
securities mature within one year. Securities available for sale are carried
at fair value with unrealized gains or losses reported in a separate
component of shareholders' equity. Realized gains or losses are determined
based on the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis)
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation of computer
equipment, machinery and equipment and furniture and fixtures is provided for
primarily by the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized by the straight-line method over
the term of the related lease or the estimated useful lives of the assets,
whichever is shorter. The carrying amount of all long-lived assets is
evaluated periodically to determine if adjustment to the useful life or to the
undepreciated balance is warranted.
Intangible Assets
Intangible assets consist of licensing agreements, patents and trademarks
which are stated at cost. Amortization is provided for by the straight-line
method over five years.
Income Taxes
The Company accounts for income taxes according to the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes".
Under the liability method specified by SFAS 109, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities. Deferred income taxes result principally from the timing of the
deductibility of the rent accrual, inventory adjustments, the deferred
compensation agreement described in Note 9 and the use of accelerated
methods of depreciation and amortization for tax purposes.
Stock-Based Compensation
Effective July 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" and as permitted by this standard, will continue
to apply the recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25 to its stock options and other stock-based
employee compensation awards and provide the pro forma
disclosures required by SFAS No. 123 (see Note 11).
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used in accounting for income taxes, accrual for self-insurance
claims, and warranty reserves.
Earnings Per Share
For the year ended June 30, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share," which replaces the presentation of primary earnings per
share ("EPS") and fully diluted EPS with a presentation of basic EPS and
diluted EPS. Basic EPS excludes common stock equivalents and is computed
by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if common stock
equivalents such as stock options were exercised. EPS data for the year
ended June 30, 1997 has been restated to conform to the SFAS
No. 128 requirement.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." Adoption of this pronouncement is
required for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 130 for fiscal year ended June 30, 1999. Adoption of this
pronouncement will have no effect on operations of the Company.
2. Line of Business and Concentration of Credit Risk
The Company is engaged in the manufacturing and marketing of
scientific equipment for hospital and industrial laboratories and other
health-care related entities. The Company does not obtain collateral for its
accounts receivable.
Certain information relating to the Company's export sales and
principal customers are as follows:
1998 1997
---- ----
Export sales (net) (principally Europe and Asia) $1,137,100 $1,000,300
Customers in excess of 10% of net sales:
Largest in 1998 and 1997 1,079,700 920,300
Next largest in 1998 and 1997 896,700 720,500
3. Investment Securities
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding
At June 30, 1998: Cost Value Gain (Loss)
- ----------------- ------------- ----- -----------
Available for sale
Equity securities $ 16,100 $ 19,500 $ 3,400
Held-to-maturity:
State and municipal $1,016,100 $1,016,200 $ 100
At June 30, 1997:
- -----------------
Available for sale:
Equity securities $ 29,000 $ 29,300 $ 300
Held-to-maturity:
State and municipal $ 869,000 $ 868,900 ($ 100)
4. Inventories
1998 1997
---- ----
Raw materials $309,300 $305,500
Work-in-process 8,900 2,400
Finished goods 22,800 22,100
-------- --------
$341,000 $330,000
5. Property and Equipment, Net
Useful Lives
(Years) 1998 1997
------------ ------ ------
Computer equipment 4 - 5 $138,200 $99,200
Machinery and equipment 3 - 7 77,400 63,500
Furniture and fixtures 4 - 10 37,100 47,900
Leasehold improvements 3 - 8 30,900 30,900
-------- -------
283,600 241,500
Less accumulated depreciation and
amortization 132,800 98,300
-------- -------
$150,800 $143,200
6. Intangible Assets
On July 10, 1995, the Company entered into an agreement to license the
rights to certain laboratory equipment developed and manufactured by another
company. The carrying value of the license, including related costs, net of
accumulated amortization amounted to $32,500 and $45,500 at June 30, 1998
and 1997. The agreement provides that the Company may elect to
engage the sellers to perform certain consulting services for an agreed-upon
fee. Fifty percent of all consulting fees paid to the seller constitute
prepayment against any royalties payable to the seller. Prepaid royalties
under this agreement at June 30, 1998 and 1997 are $14,500. As of June
30, 1998 and 1997, no royalties have been earned.
7. Bank Line of Credit
The Company has a $200,000 secured bank line of credit collateralized by all
the assets of the Company. The credit line expires on November 30, 1998 and
bears interest at prime plus 1%. The Company did not utilize this credit
line. To support the line of credit available, the Company is to maintain
20% in average monthly balances.
8. Employee Benefit Plan
Effective April 1, 1994, the Company established a 401(k) profit sharing
plan for all eligible employees as defined in the plan.
The plan provides for voluntary employee salary contributions from 1%
to 15% not to exceed the statutory limitation provided by the Internal
Revenue Code. The Company shall match 50% of each participant's salary
deferral election, up to a maximum amount for each participant of 2% of his
compensation. The Company also has the option to make an additional
profit sharing contribution to the plan. Employer matching contributions to
the plan amounted to $14,100 in 1998 and $13,400 in 1997.
9. Commitments and Contingencies
Leases
The Company is obligated through December 1999 under a noncancelable
operating lease for its premises, which requires minimum annual rentals and
certain other expenses, including real estate taxes and insurance.
The Company has a five-year renewal option. Rental expense under the above
lease amounted to approximately:
1998 1997
---- ----
Minimum rent expense $163,100 $163,100
Other charges 5,800 8,800
-------- --------
$168,900 $171,900
As of June 30, 1998, the Company's approximate future minimum rental
payments are as follows:
Fiscal Years
-----------
1999 $193,500
2000 99,000
In accordance with generally accepted accounting principles, the future
minimum annual rental expense, computed on a level basis, will be
approximately $163,100. Accrued rent, payable in future years, amounted to
$47,800 and $69,500 at June 30, 1998 and 1997.
The Company is obligated under non-cancelable operating leases for two
vehicles expiring through April 2001. The approximate future minimum lease
payments at June 30, 1998 are as follows:
Fiscal Years
------------
1999 $13,000
2000 7,800
2001 5,900
Employment Contract
On August 14, 1997, the Company amended and extended an employment
contract with its President through June 2000. The contract provides for an
annual salary of $160,000 and for the payment of a bonus for fiscal 1998 if
certain gross profit levels, as defined, were met. A bonus was not provided
for in the 1998 financial statements since the levels were not met. The
contract also granted the President a five-year option to purchase 10,000
shares of common stock at $1.50 per share. An additional agreement with the
President provides that, in the event of termination of his employment within
three years after a change of control of the Company, as defined, the Company
would be liable for a maximum of three years' salary plus certain benefits.
The employment contract also provides that, at his option, a portion of
the compensation may be deferred to future years. The deferred amounts are
to be placed in a separate investment account and all earnings or losses will
be for his benefit. As of June 30, 1998 and 1997, $87,800 and $77,900 was
segregated into such an account and is included in other assets. The balance
due to him is payable out of (but not secured by) the account, in five equal
annual installments commencing after the termination of employment. In the
event of a change in control of the Company, the entire balance is
immediately payable.
10. Income Taxes
Income taxes for 1998 and 1997 were different from the amounts computed
by applying the federal income tax rate to the income before income taxes due
to the following:
1998 1997
--------------- ---------------
% of % of
Pretax Pretax
Amount Income Amount Income
------ ------ ------ ------
Computed "expected" income tax $71,500 34.0% $61,000 34.0%
State income taxes, net of federal
income tax effect 6,400 3.0 6,700 3.7
Differences due to graduated
tax rates ( 11,300) ( 5.4) ( 7,800) ( 4.3)
Non-taxable interest income ( 11,900) ( 5.7) ( 10,200) ( 5.7)
Research and development credits ( 10,700) ( 5.1) - -
Other ( 14,300) ( 6.8) ( 5,900) ( 3.3)
--------- ----- -------- -----
Actual income taxes $29,700 14.0% $43,800 24.4%
Deferred tax assets and liabilities consist of the following:
1998 1997
---- ----
Deferred tax assets:
Deferred compensation $25,400 $21,800
Rent accrual 13,900 19,500
Amortization of patents 8,000 4,900
Other 7,400 15,500
------- -------
$54,700 $61,700
Deferred tax liabilities:
Depreciation of property
and equipment $10,800 $10,600
11. Stock Options
In February 1992, the Company established a Stock Option Plan which
provides for thegrant of options to purchase up to 300,000 shares of common
stock through February 2002. The plan provides for the granting of incentive
stock options and non-incentive stock options. Incentive stock options may
be granted to employees at an exercise price equal to 100% (or 110% if the
optionee owns directly or indirectly more than 10% of the outstanding voting
stock) of the fair market value of the shares on the date of the grant.
Non-incentive stock options shall be granted at an exercise price not less
than 85% of the fair market value on the date of grant. The plan also
provides that each non-employee member of the Board of Directors shall be
granted, annually commencing in March 1993, for a period of four years, a
ten-year option to purchase 3,000 shares of stock at the fair market value on
the date of grant and commencing annually in December 1997, for as long as a
director, a ten-year option to purchase 4,000 shares of stock at the fair
market value on the date of grant. These outstanding options expire at
various dates through June 2008. There are 50,667 shares of common stock
reserved and available for future grants at June 30, 1998 under the plan.
The Company has elected to continue to account for its employee stock
options under APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation expense is recognized. Pro forma information
regarding net income and earnings per share, however, is required under
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123) for entities continuing to apply
APB No. 25. For disclosure purposes, the Company has estimated the fair
value of its employee stock options on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted in 1998 and 1997, respectively:
1998 1997
---- ----
Expected life (in years) 9 10
Risk-free interest rate 5.85% 6.83%
Expected volatility 21.80% 15.49%
Dividend yield 0.0% 0.0%
Under the Black-Scholes model, the total value of stock options granted
in 1998 and 1997 was $63,700 and $4,100, respectively, which would be
amortized ratably on a pro forma basis over the vesting periods, which range
from three to ten years. Had the Company determined compensation cost for
these plans in accordance with SFAS No. 123, the Company's pro forma
net income would have been $173,600 in 1998 and $132,300 in 1997. The
Company's pro forma earnings per share would have been $.21 in 1998
($.18 diluted) and $.16 in 1997 ($.14 diluted). The SFAS No. 123 method of
accounting does not apply to options granted prior to January 1, 1995, and,
accordingly, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Option activity under the above stock option plans is summarized as
follows:
Fiscal 1998 Fiscal 1997
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----------- ------ -----------
Shares under option:
Outstanding at
beginning of year 216,000 $ .81 203,000 $ .76
Granted 57,000 1.88 13,000 1.48
Expired ( 5,000) .38 - -
Forfeited ( 18,667) 1.29 - -
Exercised ( 8,333) 1.28 - -
--------- ------ ------- ------
Outstanding at
end of year 241,000 $ 1.02 216,000 $ .81
Options exercisable
at year end 186,000 $ .81 180,333 $ .70
Weighted average fair
value per share of
options granted during
fiscal 1998 and 1997 $ 1.12 $ 1.00
The following table summarizes information about the options
outstanding at June 30, 1998:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Outstanding Price
- -------- ----------- ------------ --------- ----------- ---------
$.35-.9375 129,000 4.16 $ .46 129,000 $ .46
$1.2813-2.00 112,000 7.54 $1.65 57,00 0 $1.60
In February 1992, the Company granted to four non-employee members of
the board of directors, ten year options for each to purchase 12,000 shares
of common stock, at an exercise price of $.35, not covered under the above
plan. The options are exercisable one-third within one year from the date
of grant and one-third in each of the following two years. In March 1993,
three directors each exercised 8,000 options.
12. Net Income Per Common Share
Net income per common share data was computed as follows:
1998 1997
---- ----
Net income $180,500 $135,700
======== ========
Weighted average common shares
outstanding 826,586 826,239
Effect of dilutive securities,
stock options 151,961 128,753
-------- --------
Weighted average dilutive common
shares outstanding 978,547 954,992
======== ========
Net income per common share - basic $ .22 $ .16
Net income per common share - diluted $ .18 $ .14
Unexercised employee stock options to purchase 10,000 shares of common
stock as of June 30, 1997 were not included in the 1997 computation of
diluted EPS because the option's exercise price of $1.75 was greater
than the average market price of the company's stock. The options, which
expire September 1, 1998, were still outstanding at June 30, 1998.
13. Fair Value of Financial Instruments
The financial statements include various estimated fair value
information as of June 30, 1998 and 1997, as required by Statement of
Financial Accounting Standards 107, "Disclosure about Fair Value of
Financial Instruments." Such information, which pertains to the Company's
financial instruments, is based on the requirements set forth in that
statement and does not purport to represent the aggregate net fair value of
the Company. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value.
The carrying value of cash and cash equivalents and short-term
investment securities approximates fair market value because of the short
maturity of those instruments.
The following table provides summary information on the fair value of
significant financial instruments included in the financial statements:
1998 1997
--------------------- ---------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Assets:
Cash and cash equivalents $ 165,900 $ 165,900 $ 146,600 $ 146,600
Investment securities
(Note 3) 1,035,600 1,035,700 898,300 898,200
- -------------------------------------------------------------------------------
SCIENTIFIC INDUSTRIES, INC.
70 Orville Drive, Bohemia, New York 11716
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 19, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Lowell A. Kleiman and Roger B.
Knowles, or either of them as Proxies, each with full power of
substitution, to represent and vote all the share of Common Stock of
the Company held on record by the undersigned on September 25, 1998,
which the undersigned is entitled to vote, with all powers the
undersigned would possess if personally present at the Annual Meeting
of Stockholders of the Company to be held at The Princeton Club, 15
West 43rd Street, New York, New York, on Thursday, November 19, 1998 at
10:00 a.m New York time, and at any adjournments thereof, with respect
to the proposals hereinafter set forth and upon such other matters as
may properly come before the Meeting and any adjournments thereof. The
undersigned acknowledges receipt of the accompanying Notice of Annual
Meeting and Proxy Statement.
1. Election of Class B Director:
( )For the nominee listed below (except as marked to the
contrary below).
( )WITHHOLD AUTHORITY to vote for nominee listed below.
(Instruction: To withhold authority for an individual
nominee, strike a line through the nominee's name listed
below).
JOSEPH I. KESSELMAN
2. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the
Meeting or any adjournments thereof.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE, PLEASE VOTE,
SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEE LISTED AS CLASS B
DIRECTOR, AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO ALL
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY
ADJOURNMENTS THEREOF.
(Please sign exactly as the name appears below. When shares are held
by joint owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If
a corporation, sign with full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name
by authorized person.)
Dated:__________________1998
Please mark, sign, date and return
the proxy card promptly using the
enclosed envelope.
-------------------------------
Signature
-------------------------------
Signature, if held jointly
