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, 2000
-----------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-6658
---------------------------------
SCIENTIFIC INDUSTRIES, INC.
---------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 04-2217279
------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Airport International Plaza,
70 Orville Drive, Bohemia, New York 11716
----------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (631) 567-4700
-----------------------------------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
------------------- -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.05 per share
--------------------------------------
(Title of Class)
-
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(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. $3,005,400
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 25, 2000 is $455,400.
The number of shares outstanding of the issuer's common stock, par
value $.05 per share ("Common Stock") as of August 25, 2000 is 835,540
shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
PART I
Item 1. Description of Business.
General. Scientific Industries, Inc., (the "Company"), a Delaware
corporation, formed in 1954 is engaged in manufacturing and marketing
laboratory equipment consisting primarily of a vortex mixer, the
Vortex-Genie 2 (registered trademark), and related accessories
(devices used to mix the contents of test tubes, beakers and other
various containers by placing such containers on a rotating cup or other
attachments which cause the contents to be mixed at varying speeds).
During the past three years, the Company has been developing new
products, which include the Roto-Shake Genie (trademark), a
multi-purpose rotator/rocker, and most recently a new multi-functional
incubator/refrigerator referred to as the Enviro-Genie (trademark).
The Enviro-Genie (trademark) is an innovative new product comprising
of a unique environmentally controlled benchtop 5-in-1
refrigerator/incubator/rotator/rocker/stirrer designed for the study of
micro-organisms and cell growth under strictly controlled conditions of
temperature and agitation. Unlike the Company's other products, the
Company expects customers to view the Enviro-Genie (trademark) as a
piece of capital equipment which generally costs more and therefore is
subject to stricter budgetary controls. As a result, quantities sold
tend to be less. However, the per unit profit amount tends to be
larger.
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. The Company seeks to increase its customer base through
the use of various marketing media, including trade shows, trade
publications, brochures and catalogs.
Raw Materials. The Company currently manufactures its products
from readily available components supplied by various independent
contractors, and does not rely on any one principal supplier, except
where it's not practicable to have multiple suppliers.
Patents, Trademarks, Licenses and Franchises. The Company has a
U.S. Patent on a utilitarian feature of its Vortex-Genie 2 (registered
trademark) mixer. This patent expires on November 2, 2005. The
Company licenses this patent on a non-exclusive basis through its
expiration to Troemner, Inc., ("Troemner"), under the settlement
agreement referred to in Note 13 of the financial statements in Item 7.
The Company also has a patent for the TurboMix (trademark) expiring in
September, 2015, which is an attachment to the existing Vortex-Genie 2
(registered trademark) mixer. In addition, during the past fiscal
year, the Company acquired a new patent on the Roto-Shake Genie
(trademark) which expires in July 2016. The Company intends to file
additional patent applications, when appropriate, for
technology and products which it considers important for the
protection of its business. Litigation to defend against or assert
claims of infringement or otherwise related to proprietary rights
could result in substantial costs to the Company. Refer to Note 13
of the financial statements in Item 7 for additional information
regarding patent-related litigation.
The Company has various proprietary marks including Vortex-Genie 2
(registered trademark), TurboMix (trademark), Roto-Shake Genie
(trademark), and Enviro-Genie (trademark) which it considers important
to the success of its products.
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 U.S. distributors for the Company, accounted for
approximately 38% and 6% respectively, of the Company's net sales for
the fiscal year ended June 30, 2000, ("fiscal 2000"). The Company
sells primarily the Vortex-Genie 2 (registered trademark) mixer and
related accessories, to Fisher and VWR. The loss of any of these
customers would have a material adverse effect upon the business of
the Company. At the end of calendar year 1998, VWR informed the
Company that it would no longer be purchasing the Vortex-Genie 2
(registered trademark) mixer from the Company as their private label
vortex mixer effective January 1, 1999. However, during fiscal year
2000 the Company began selling the Scientific Industries brand
Vortex-Genie 2 (registered trademark) mixer to VWR. Refer to Note 13
of the financial statements in Item 7 for additional information
regarding VWR.
Backlog. The Company's backlog is not significant because the
Company's current line of products is comprised of standard catalog
items. The typical lead time is approximately two weeks, and backlog
is kept to no more than three weeks.
Competition. The Company dominates the vortex mixers market in
the U.S. and is widely recognized in the international vortex mixers
market. 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. In the general area of laboratory equipment,
the Company's major competitors are Barnstead/Thermolyne Corporation,
a subsidiary of Sybron International, IKA, a German corporation,
and Troemner.
Research and Development. The Company incurred research and
development expenses of $285,900 during fiscal 2000 compared to
$195,400 during the fiscal year ended June 30, 1999, ("fiscal 1999"),
in connection with the development of new products. Refer to Item 6
for detailed information regarding the Company's research and
development activities.
Government and Environmental Regulation. The Company does not
require any government approval of any of its principal products. The
Company's manufacturing operations, like those of the industry in
general, are subject to numerous existing and proposed federal, state,
and local regulations designed to protect the environment, to establish
occupational safety and health standards and to cover other matters.
The Company believes that its operations are in compliance with such
existing regulations. The cost to comply with environmental and
occupational safety and health laws pertaining to federal, state,
and local laws is not significant to the Company.
Employees. At the end of fiscal 2000, 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 August 25, 2000, the Company employed
21 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 August 25, 2000, the Company's offices and manufacturing
facilities consisted of the following:
Square Lease Annual
Location of Use of Feet Expiration Rental
Space Space (Approx.) Date Payments(*)
----------------- --------- --------- ---------- ----------
70 Orville Drive Executive 25,000 December 31, $212,700
Bohemia, NY 11716 Offices/ 2004
Manufact-
uring
(*) Reflects future minimum rental payments for fiscal year 2001.
The offices and manufacturing facilities leased by the Company are
suitable and adequate for such use. In the opinion of management,
the property is adequately covered by insurance.
See Note 8 to the Financial Statements for information about the
Company's lease obligations.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
(a) The Company's Common Stock is traded in the
over-the-counter market. The following table sets forth the
low and high bid quotations for each quarter of fiscal 2000
and fiscal 1999, 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
------------------------- --------- --------
09/30/98 1 3/4 1 15/16
12/31/98 1 3/4 1 3/4
03/31/99 21/32 1 3/4
06/30/99 3/8 23/32
09/30/99 17/32 23/32
12/31/99 11/32 0/16
03/31/00 3/8 1
06/30/00 3/4 1
(b) There were, as of August 25, 2000, 903 record holders
of the Company's Common Stock.
(c) The Company paid no dividends during the last two fiscal years.
Although the Company paid no dividends on its common stock, there
are no limitations on its ability to do so.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operation. Net sales for fiscal 2000 decreased slightly
compared to last year primarily as a result of the decreased sales to
VWR. VWR, the Company's second largest customer, decided to purchase
their private labeled vortex mixers from Troemner instead of the
Company. As discussed in detail in footnote 13 of the financial
statements in Item 7, the Company filed a complaint against VWR and
Troemner in January 1999 and a settlement was reached in December 1999.
Our previously announced new products, the Roto-Shake Genie (trademark)
rotator/rocker and the TurboMix (trademark) attachment for our vortex
mixer accounted for approximately 5% of our net sales for fiscal 2000
compared to 4% for fiscal 1999. The gross profit percentage of 33.8%
for fiscal 2000 decreased from 35.3% for fiscal 1999 primarily as a
result of lower selling prices resulting from price pressures
brought on by Troemner.
Research and development expenses increased $90,500 (46.3%) for
fiscal 2000 compared to fiscal 1999 as a result of increased activity
related to the Company's new product, the Enviro-Genie (trademark),
which the Company began marketing during the last fiscal year, and
expects to begin producing in the first half of fiscal year 2001.
Unlike the Company's other products, the Company expects customers to
view the Enviro-Genie (trademark) as a piece of capital equipment
which generally costs more and therefore is subject to stricter
budgetary controls. As a result, quantities sold tend to be
less. However, the per unit profit amount tends to be larger.
The Company intends to continue investing in research and
development activities at approximately the same rate in
fiscal year 2001.
The Company incurred $262,600 in litigation costs in fiscal 2000
and $519,100 in fiscal 1999 in connection with the litigation
discussed in footnote 13 of the financial statements in Item 7, which
was settled during fiscal 2000. The proceeds from the litigation
settlement in the amount of $250,000 pertain to the cash portion of
the settlement agreement. Interest and other income decreased because
the Company's holdings in investment securities were lower compared to
fiscal 1999 as a result of the cash outflow for litigation expenses.
The Company incurred no income tax expense in fiscal 2000 due to
the loss, and a tax benefit of $43,000 in fiscal 1999. The Company's
effective tax rates were as follows: (0.0%) for fiscal 2000 and
(11.0%) for fiscal 1999. The effective tax rates differed from
the statutory rates for both years primarily due to the valuation
allowance for deferred income tax assets and research and development
credits. As of June 30, 2000 the Company had net operating loss
and tax credit carryforwards of approximately $260,000, $114,000
expiring in 2019 and $146,000 expiring in 2020. In addition,
as of June 30, 2000, the Company had tax credit carryforwards
of $29,500, $11,900 expiring in 2014 and $17,600 expiring in 2015.
Such carryforwards were accounted for as deferred tax assets.
A valuation allowance has been recognized to offset the full amount
of the Company's net deferred tax assets as of June 30, 2000 and 1999
due to the uncertainty of realizing these assets in the future.
The realization of the deferred tax assets depends on future
income. Therefore, an assessment was made as to whether, in the
judgment of management, income in future years will be sufficient to
realize the deferred tax assets. It was determined based on
consideration of positive and negative factors that it is more
likely than not that the deferred tax assets will not
be realized. The positive factors included: the success of the
Vortex-Genie 2 (registered trademark) mixer; the litigation
settlement; and the development of new products for product line
diversification. The negative factors included: the net loss for both
fiscal years 2000 and 1999; the fact that 95% of net sales are derived
from one single product which now faces increased competition;
significantly lower sales to VWR; increased reliance on the
Company's existing largest customer; and the long time period required
to establish new products.
Liquidity and Capital Resources. The Company's working capital
for fiscal 2000 decreased $96,800 to $1,155,600 as compared to
$1,252,400 for fiscal 1999, primarily due to the litigation costs
related to the litigation discussed in Note 13 of the financial
statements in Item 7. The litigation costs had a material impact
on the Company's liquid resources. However, management believes
that it will be able to meet its cash flow requirements
during the next fiscal year from its available financial resources
which may include future cash generated from operations and its cash
and cash equivalents and investment securities. In addition,
the Company has available a secured bank line of credit of $200,000
with North Fork Bank. The credit line expires on November 1, 2000
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. During fiscal 2000, 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 2001. It is anticipated, as in past fiscal
years, that the funds for such expenditures, if any, will be funded
from the Company's operations or available working capital.
Inflation. Due to the demand for medical cost containment,
management believes that inflation will continue to have a material
effect on the Company's existing products. Although the Company's
laboratory products are not considered medical equipment, they are
used in laboratories in medically-related areas. Therefore, the
existing products will be sensitive to inflationary pressures since
it will be difficult to fully pass on cost increases.
Item 7. Financial Statements.
The Financial Statements required by this item are attached hereto
on pages F1-F19.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 9. Directors, Executive Officers; Compliance With Section
16(a) of the Exchange Act.
Directors
---------
The name, principal occupation for the last five years, selected
biographical information and period of service as a director of the
Company of each director are set forth below.
Arthur M. Borden, Esq. (age 80) has been partner and counsel to
Rosenman & Colin LLP during the past five year period. Mr. Borden was
first elected to the Board of Directors of the Company in 1974 and his
term as director expires at this year's annual meeting.
James S. Segasture (age 64) has been a private investor since
February 1990. Mr. Segasture was first elected to the Board of
Directors of the Company in 1991 and his term as director expires
at this year's annual meeting.
Joseph I. Kesselman (age 75) is a consultant to various
corporations, and a director of Nuclear and Environmental Protection
Inc., Perrot Duval Holding S.A. (a Swiss public company) and
Infranor Inc. (a developer and manufacturer of servo systems).
Prior to November 1994, he was both Chairman and Chief Executive
Officer of Greentree Software, Inc. (a developer and provider of
proprietary inventory control software) and during
the last year, he acted as a consultant to that company. Mr.
Kesselman was first elected to the Board of Directors of the Company
in 1961 and his current term as director expires in 2001.
Lowell A. Kleiman (age 59) has been employed by the Company for
over thirty years, and has been President since September 1974. Mr.
Kleiman was first elected to the Board of Directors of the Company
in 1970 and his current term as director expires in 2002.
Roger B. Knowles (age 75) is semi-retired. During the past five
year period, he was President of various corporations, including
Conductive Systems, Inc. (a manufacturer of EMI and RFI shielding
material), and G.H. Realty Company (real estate), and a director of
Ionic, Inc. (an investment company). Mr. Knowles was first elected
to the Board of Directors of the Company in 1965 and his current term
as director expires in 2002.
Executive Officers
------------------
Lowell A. Kleiman, President (age 59) is the President and
Treasurer of the Company. Biographical information for Mr. Kleiman is
set forth under Item 10.
Helena R. Santos, CPA (age 36) has been employed by the Company
since 1994, and has served as Vice President, Controller since 1997.
Ms. Santos is responsible for inventory control, administrative and
all accounting and financial reporting functions. Prior to joining
the Company, Ms. Santos was an internal auditor with a major defense
contractor, and prior to that was employed in public accounting.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Based solely on the Company's review of Forms 5 thereto furnished to
the Company during its most recent fiscal year with respect to its
most recent fiscal year, the Company believes that, for the period
July 1, 1999 to June 30, 2000, all filing requirements of Section
16(a) of the Securities Act of 1934, as amended, applicable to its
officers, directors and 10% stockholders were complied with, other
than the non-timely filing of a Form 5 by Mr. Knowles.
The filing was effected prior to the filing of this form 10-KSB.
Item 10. Executive Compensation.
The following table summarizes all compensation paid by the
Company to Lowell A. Kleiman with respect to each of the three fiscal
years ended June 30, 2000 for services in all capacities as the
Company's chief executive officer and President. No other executive
officer earned in excess of $100,000 in any of such fiscal periods.
Summary Compensation Table
Annual Compensation
--------------------------------------------------------------------
All Other
Name and Principal Year Salary Bonus Compen-
Position $ $ sation
------------------ ---- -------- -------- ---------
Lowell A. Kleiman 2000 $160,000 $ - $3,200(1)
CEO, President 1999 $160,000 $ - $3,200(1)
1998 $160,000 $ - $3,200(1)
(1) Represents the Company's matching contribution to Mr. Kleiman's
account under the Company's 401(k) Plan.
Aggregated Option Exercises in Last Fiscal Year And FY-End Option
Values
Number of
Shares of Securities Value of
Common Underlying Unexercised
Stock Unexercised in-the-Money
Acquired Value Options Options
on Real- at FY-End (#) at FY-End($)
Exercise ized Exercisable/ Exercisable/
Name #) ($) Unexercisable Unexercisable(1)
--------- --------- ----- ------------- ----------------
Lowell A. Kleiman N/A - 60,000/10,000 $59,600/0(2)
(1) Calculated by multiplying the number of shares of Common Stock
subject to options by the difference between the market price and
exercise price, per share, on June 30, 2000.
(2) On June 30, 2000 the market price of $1.34 was lower than the
exercise price of $1.50.
Directors' Compensation
-----------------------
The Company currently pays each non-employee director a quarterly
retainer of $750 and a fee of $500 for each meeting attended, plus
reimbursement for out-of-pocket expenses incurred in connection with
attendance of board meetings in the amount of $50 or the director's
itemized expenses, whichever is greater.
During the fiscal year ended June 30, 2000, the Company paid fees in
the amount of $14,000 to non-employee directors.
On February 11, 1992, before the adoption of the Company's 1992 Stock
Option Plan, the Company issued to each of its four non-employee
directors, Messrs. Arthur M. Borden, Joseph I. Kesselman, Roger B.
Knowles and James S. Segasture, ten year non-qualified options to
purchase 12,000 shares of Common Stock, 4,000 shares of Common Stock
of which were immediately exercisable, 4,000 shares of Common Stock
of which were fully exercisable on and after the first anniversary
of the date of such grant and 4,000 shares of Common Stock which
were fully exercisable after the second anniversary of the date
of such grant; all such options were exercisable at $.35. In March of
1993, Messrs. Borden, Kesselman and Segasture each exercised 8,000
shares of Common Stock pursuant to such options.
The Company's 1992 Stock Option Plan called for options to purchase
3,000 shares of Common Stock at the then fair market value to be
issued each March for four years to each non-employee director who
was on the Board of Directors on the first business day of each
March, beginning in March 1993. In addition, in December 1997,
the Board of Directors approved the issuance of an annual grant of
options to purchase 4,000 shares of Common Stock for
each non-employee director beginning in December 1997 at the fair
market value on the date of grant. The fair market value per share
of Common Stock on the date of grant was $.829 in fiscal 2000,
$1.875 in 1999, $2.00 in 1998, $1.2813 in 1996, $1.3125 in 1995,
$.9375 in 1994, and $.50 in 1993. All options were immediately
exercisable.
Employment Agreement
--------------------
On June 23, 2000 the Company extended an employment contract with its
President through June 30, 2002. The contract provides for an annual
salary of $160,000 beginning in fiscal 1998 and also granted Mr.
Kleiman a five-year stock option for 10,000 shares of Common Stock
exercisable under certain circumstances. The contract 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 Mr. Kleiman 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
insurance proceeds.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth, as of year end, the number of shares
of Common Stock beneficially owned by (i) the persons known to the
Company to be the owners of more than 5% of the Common Stock, (ii)
each director of the Company, (iii) each named executive officer
of the Company, identified in the Summary Compensation table included
elsewhere herein, and (iv) all directors and executive officers as
a group.
Sole Voting and Dispositive Power
---------------------------------
Five Percent Stockholders,
Directors and Executive
Officers: Number Percentage Of
Class
------------------------- -------- ----------------
Class A Directors:
------------------
Arthur M. Borden 54,540 (1) 6.3%
James S. Segasture 168,757 (1) 19.5%
(and Kristine K. Segasture)
Class B Director:
-----------------
Joseph I. Kesselman 55,520 (2) 6.4%
Class C Directors:
------------------
Lowell A. Kleiman 149,581 (3) 16.5%
Roger B. Knowles 83,705 (4)(5) 9.6%
All current directors and 562,418 (6)(7) 52.3%
executive officers as a
group
(1) Includes 28,000 shares of Common Stock issuable upon exercise
of currently exercisable options.
(2) Includes 28,000 shares of Common Stock issuable upon exercise
of currently exercisable options. Includes 735 shares of Common
Stock owned jointly with Mrs. Kesselman.
(3) Includes 70,000 shares of Common Stock issuable upon exercise
of currently exercisable options.
(4) Includes 44,158 shares of Common Stock owned by Mrs. Knowles;
includes 1,337 shares of Common Stock owned by a trust of which
Mr. Knowles is a trustee, beneficial ownership of which is
disclaimed by Mr. Knowles.
(5) Includes 36,000 shares of Common Stock issuable upon exercise
of currently exercisable options.
(6) Includes 240,000 shares of Common Stock issuable upon exercise
of currently exercisable options.
(7) Includes 50,000 shares of Common Stock issuable upon exercise
of currently exercisable options granted to executive officers
who are not directors.
Item 12. Certain Relationships and Related Transactions.
During the last two years, there were no transactions or proposed
transactions between the Company and any director, executive officer,
nominee for election as a director, security holder, or any member of
their immediate families.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits to this report are listed in the Exhibit Index at the
end of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of
fiscal 2000 covered by this report with the Commission.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned,
thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
/s/ Lowell A. Kleiman
---------------------------
Lowell A. Kleiman
President and Treasurer
Principal Executive and Financial Officer
/s/ Helena R. Santos
----------------------------
Helena R. Santos
Vice President, Controller
Principal Accounting Officer
Date: September 27, 2000
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name Title Date
----------------- ------------------- ------------------
/s/ Lowell A. Kleiman President, Treasurer September 25, 2000
Lowell A. Kleiman and Director
(Principal Executive
and Financial Officer)
/s/ Arthur M. Borden Director September 25, 2000
Arthur M. Borden
/s/ Joseph I. Kesselman Director September 25, 2000
Joseph I. Kesselman
/s/ Roger B. Knowles Director September 25, 2000
Roger B. Knowles
/s/ James S. Segasture Director September 25, 2000
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
Extension of employment contract between the
Company and Lowell A. Kleiman filed herewith.
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 filed herewith.
(Exhibit 10)
EMPLOYMENT AGREEMENT OF LOWELL A. KLEIMAN
EXTENSION AGREEMENT
AGREEMENT made this 23rd day of June, 2000 and effective on the 1st
day of July, 2000, by and between SCIENTIFIC INDUSTRIES, INC., (the
"Company") and LOWELL A. KLEIMAN ("Employee").
As approved by the Board of Directors of the Company, the
employment agreement between the Company and Employee dated
December 24, 1992 as amended and extended on August 14, 1997
and further amended on November 20, 1997 and the supplemental
compensation agreement dated January 1, 1993 and extended on
August 14, 1997 are hereby extended in all respects and unless
further extended shall terminate on June 30, 2002.
In WITNESS WHEREOF, the parties have executed this Extension
Agreement this 23rd day of June, 2000.
SCIENTIFIC INDUSTRIES, INC.
By: /s/ Helena R. Santos
Helena R. Santos,
Assistant Secretary
Accepted and agreed to: (employee):
/s/ Lowell A. Kleiman
Lowell A. Kleiman
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, 2000
and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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, 2000 and
1999, 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.
Nussbaum Yates & Wolpow, P.C.
Melville, New York
August 18, 2000
F-1
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
ASSETS
-----------
2000 1999
----------- -----------
Current assets:
Cash and cash equivalents $ 394,600 $ 229,100
Investment securities 171,600 522,500
Trade accounts receivable,
less allowance for doubtful
accounts of $7,400 in 2000
and 1999 319,900 323,000
Inventories 416,900 366,000
Recoverable income taxes - 102,000
Prepaid expenses and other
current assets 26,900 48,300
----------- -----------
Total current assets 1,329,900 1,590,900
----------- -----------
Property and equipment, net 182,300 180,500
----------- -----------
Other assets and deferred charges:
Intangible assets, less
accumulated amortization of
$17,700 and $57,700 in
2000 and 1999 18,700 42,500
Other 159,200 144,100
----------- ----------
177,900 186,600
----------- ----------
$1,690,100 $1,958,000
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 84,000 $ 244,000
Accrued expenses 90,300 94,500
----------- -----------
Total current liabilities 174,300 338,500
Deferred compensation 106,500 94,300
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.05 par value;
authorized 7,000,000 shares;
issued 855,342 shares in 2000
and 1999 42,800 42,800
Additional paid-in capital 869,500 869,500
Accumulated other comprehensive
loss, unrealized holding loss
on investment securities ( 4,600) ( 1,000)
Retained earnings 554,000 666,300
--------- ---------
1,461,700 1,577,600
Less common stock held in
treasury, at cost,
19,802 shares 52,400 52,400
--------- ---------
1,409,300 1,525,200
--------- ---------
$1,690,100 $1,958,000
========== ==========
See notes to consolidated financial statements
F-2
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
---------- ----------
Net sales $3,005,400 $3,171,300
Cost of sales 1,988,600 2,053,000
---------- ----------
Gross profit 1,016,800 1,118,300
---------- ----------
Operating expenses:
General and administrative 730,700 717,100
Selling 116,100 121,300
Research and development 285,900 195,400
---------- ----------
1,132,700 1,033,800
---------- ----------
Income (loss) from operations ( 115,900) 84,500
---------- ----------
Other income (expenses):
Litigation settlement
proceeds 250,000 -
Litigation costs ( 262,600) ( 519,100)
Interest and other income 16,200 44,000
------------ ---------
3,600 ( 475,100)
------------ ---------
Loss before income
taxes (benefit) ( 112,300) ( 390,600)
------------ ---------
Income taxes (benefit):
Current - ( 86,900)
Deferred - 43,900
------------ ---------
- ( 43,000)
------------ ---------
Net loss ($ 112,300) ($ 347,600)
=========== ===========
Net loss per
common share - basic ($ .13) ($ .42)
============ ===========
Net loss per
common share - diluted ($ .13) ($ .42)
============ ===========
See notes to consolidated financial statements
F-3
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
Accumulated
Additional Other
Common Stock Paid-in Comprehensive
-------------- Capital Income (Loss)
Shares Amount
------ ------- ---------- -------------
Balance, July 1, 1998 854,374 $42,700 852,500 $ 3,400
Net loss - - - -
Other comprehensive loss:
Unrealized holding gains
arising during period - - - 600
Less: reclassification adjust-
ment for gains included in
net loss - - - ( 5,000)
Comprehensive loss - - - -
Exercise of stock options 968 100 17,000 -
-------- ------- ---------- ------------
Balance, June 30, 1999 855,342 42,800 869,500 ( 1,000)
-------- ------- -------- ------------
Net loss - - - -
Other comprehensive loss:
Unrealized holding losses
arising during period - - - ( 2,800)
Less: reclassification
adjustment for gains
included in net loss - - - ( 800)
Comprehensive loss - - - -
-------- ------- -------- ------------
Balance, June 30, 2000 855,342 $42,800 $869,500 ($ 4,600)
======== ======= ======== ============
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Total
Retained Treasury Stock Shareholders'
Earnings Shares Amount Equity
-------- ------ ------ -------------
Balance, July 1, 1998 $1,031,000 19,802 $52,400 $ 1,877,200
-------------
Net loss ( 347,600) - - ( 347,600)
Other comprehensive loss:
Unrealized holding gains
arising during period - - - 600
Less: reclassification
adjustment for gains
included in net loss - - - ( 5,000)
-------------
Comprehensive loss - - - ( 352,000)
-------------
Exercise of stock
options ( 17,100) - - -
----------- ------ ------ -------------
Balance, June 30, 1999 666,300 19,802 52,400 1,525,200
-------------
Net loss ( 112,300) - - ( 112,300)
Other comprehensive loss:
Unrealized holding losses
arising during period - - - ( 2,800)
Less: reclassification
adjustment for gains
included in net loss - - - ( 800)
-------------
Comprehensive loss - - - ( 115,900)
-------- ------- ------- -------------
Balance, June 30, 2000 $ 554,000 19,802 $52,400 $ 1,409,300
======== ====== ======= =============
See notes to consolidated financial statements
F-4
SCIENTIFIC INDUSTRIES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
----------- -----------
Operating activities:
Net loss ($ 112,300) ($ 347,600)
Adjustments to reconcile net loss ------------- -----------
to net cash used in
operating activities:
Gain on sale of investments ( 800) ( 5,000)
Loss on disposal of fixed assets 6,300 -
Depreciation and amortization 92,700 94,500
Deferred income taxes - 43,900
Changes in assets and liabilities:
Accounts receivable 3,100 ( 53,700)
Inventories ( 50,900) ( 25,000)
Prepaid expenses and other 123,400 ( 90,900)
current assets ( 15,100) ( 8,500)
Other assets ( 8,500) ( 8,500)
Accounts payable ( 160,000) 135,400
Accrued expenses ( 4,200) ( 73,400)
Customer advances - ( 15,200)
Deferred compensation 12,200 6,500
------------- ----------
Total adjustments 6,700 8,600
------------- ----------
Net cash used in
operating activities ( 105,600) ( 339,000)
------------- ----------
Investing activities:
Purchase of investment securities,
principally held to maturity ( 159,600) (1,193,700)
Redemption of investments,
principally held to maturity 506,900 1,693,700
Capital expenditures ( 74,800) ( 91,100)
Proceeds from sale of fixed
assets 1,900 -
Purchase of intangible assets ( 3,300) ( 6,700)
------------- -----------
Net cash provided by
investing activities 271,100 402,200
------------- -----------
Net increase in cash and
cash equivalents 165,500 63,200
Cash and cash equivalents,
beginning of year 229,100 165,900
------------- -----------
Cash and cash equivalents, end of year $ 394,600 $ 229,100
============= ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 400 $ 3,200
Non-cash financing activities:
See Note 11 for 1999 exercise of stock options.
See notes to consolidated financial statements
F-5
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Scientific Industries, Inc. and Scientific Packaging
Industries, Inc., its inactive wholly-owned subsidiary (collectively
referred to as the "Company"). All material intercompany balances
and transactions have been eliminated.
Revenue Recognition
Sales are recorded when the goods are shipped to customers.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Investment Securities
Securities which the Company has the ability and positive intent
to hold to maturity are carried at amortized cost. All
held-to-maturity securities mature within one year. Securities
available for sale are carried at fair value with unrealized gains or
losses reported in a separate component of shareholders' equity.
Realized gains or losses are determined based on the specific
identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation of
computer equipment, machinery and equipment and furniture and
fixtures is provided for primarily by the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are
amortized by the straight-line method over the term of the related
lease or the estimated useful lives of the assets, whichever is
shorter. The carrying amount of all long-lived assets
is evaluated periodically to determine if adjustment to the useful
life or to the undepreciated balance is warranted.
F-6
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company accounts for income taxes according to the provisions
of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Under the liability method specified
by SFAS 109, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.
Deferred income taxes result principally from the timing of the
deductibility of the rent accrual, inventory adjustments,
deferred compensation, the use of accelerated methods of depreciation
and amortization for tax purposes, and net operating loss and
tax credit carryforwards.
Stock-Based Compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by this standard, will continue to
apply the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25 to its stock options and
other stock-based employee compensation awards and
provide the pro forma disclosures required by SFAS No. 123.
Use of Estimates
In preparing financial statements in conformity with 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.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss
by the weighted-average number of shares outstanding. Diluted net
loss per share includes the dilutive effect, if any, of stock options.
F-7
1. Summary of Significant Accounting Policies (Continued)
Comprehensive Income
For the year ended June 30, 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income," which established standards for
reporting and display of comprehensive income in financial statements.
2. Line of Business and Concentration of Credit Risk
The Company is engaged in the manufacturing and marketing of
scientific equipment for hospital and industrial laboratories and
other healthcare related entities. The Company believes that it has
only one reportable segment. Approximately 95% of all sales are
generated from the Vortex-Genie 2 (registered trademark) mixer and
related accessories. The Company does not obtain collateral for its
accounts receivable.
Certain information relating to the Company's export sales and
principal customers are as follows:
2000 1999
----------- ----------
Export sales (net) (principally
Europe and Asia) $1,201,000 $1,166,100
Customers in excess of 10% of
net sales:
Largest in 2000 and 1999 1,128,200 1,154,000
Second largest in 2000 and 1999 185,500 390,900
F-8
3. Investment Securities
Details as to investment securities are as follows:
Gross Cost or Unrealized
Amortized Fair Holding
Cost Value Loss
------------- ---------- ----------
At June 30, 2000:
-----------------
Available for sale:
Equity securities $ 20,700 $ 16,100 ($ 4,600)
========= ========= ==========
Held-to-maturity:
State and municipal bonds $ 90,500 $ 90,400 ($ 100)
Certificates of deposit 50,000 50,000 -
Other bonds 15,000 14,800 ( 200)
---------- ---------- ----------
$ 155,500 155,200 ($ 300)
========== ========== ==========
At June 30, 1999:
-----------------
Available for sale:
Equity securities $ 19,400 $ 18,400 ($ 1,000)
========= ========== =========
Held-to-maturity:
State and municipal bonds $ 471,100 $ 471,100 $ -
Certificates of Deposit 33,000 33,000 -
--------- ---------- ---------
$ 504,100 $ 504,100 $ -
========= ========== =========
4. Inventories
2000 1999
-------- --------
Raw materials $374,800 $301,300
Work-in-process 30,700 11,200
Finished goods 11,400 53,500
-------- --------
$416,900 $366,000
======== ========
F-9
-----
5. Property and Equipment, Net
Useful Lives
(Years) 2000 1999
---------- ---------- -----------
Computer equipment 3 - 5 $161,700 $150,600
Machinery and equipment 3 - 7 200,500 153,700
Furniture and fixtures 4 - 10 41,200 38,000
Leasehold improvements 3 - 8 34,900 32,400
-------- --------
438,300 374,700
Less accumulated depreciation and
amortization 256,000 194,200
-------- --------
$182,300 $180,500
======== ========
6. Bank Line of Credit
The Company has a $200,000 secured bank line of credit collateralized
by all the assets of the Company. The credit line expires on
November 1, 2000 and bears interest at prime plus 1%. The Company
did not utilize this credit line. To support the line of credit
available, the Company is required to maintain 20% of the credit
line in average monthly balances.
7. Employee Benefit Plan
The Company has a 401(k) profit sharing plan for all eligible
employees as defined in the plan. The plan provides for voluntary
employee salary contributions from 1% to 15% not to exceed the
statutory limitation provided by the Internal Revenue Code.
The Company shall match 50% of each participant's salary deferral
election, up to a maximum amount for each participant
of 2% of 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 $16,700 in 2000
and $15,500 in 1999.
F-10
8. Commitments and Contingencies
Leases
The Company is obligated through December 2004 under a
noncancelable operating lease for its premises, which requires
minimum annual rentals and certain other expenses, including real
estate taxes and insurance. Rental expense under the above lease
amounted to approximately:
2000 1999
-------- --------
Minimum rent expense $193,100 $163,100
Other charges 9,500 6,800
-------- --------
$202,600 $169,900
======== ========
As of June 30, 2000, the Company's approximate future minimum
rental payments on all operating leases are as follows:
Fiscal Years
2001 $212,700
2002 217,100
2003 228,100
2004 239,700
2005 122,900
In accordance with generally accepted accounting principles, the
future minimum annual rental expense, computed on a level basis, will
be approximately $223,100 under the terms of the lease. Accrued rent,
payable in future years, amounted to $10,700 and $17,400 at
June 30, 2000 and 1999.
F-11
8. Commitments and Contingencies (Continued)
Employment Contract
On June 23, 2000, the Company extended an employment contract
with its President through June 30, 2002. The contract provides
for an annual salary of $160,000 and also granted the President a
five-year option to purchase 10,000 shares of common stock at $1.50
per share. An additional agreement with the President provides
that, in the event of termination of his employment within three
years after a change of control of the Company, as defined, the
Company would be liable for a maximum of approximately three years'
salary plus certain benefits.
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,
2000 and 1999, $106,500 and $94,300 was segregated into such an account
and is included in other assets. The balance due to him is payable out
of (but not secured by) the account, in five equal annual installments
commencing after the termination of employment. In the event of a
change in control of the Company, the entire balance is immediately
payable.
9. Income Taxes
Income taxes (benefit) for 2000 and 1999 were different from the
amounts computed by applying the Federal income tax rate to the income
or loss before income taxes due to the following:
2000 1999
--------------- ----------------
% of % of
Pretax Pretax
Amount Loss Amount Income
-------- ------ -------- ------
Computed "expected" income
tax (benefit) ($ 38,200) (34.0%) ($132,800) (34.0%)
Differences due to graduated
tax rates - - 9,200 2.4
Non-taxable interest income ( 1,700) ( 1.5) ( 9,600) ( 2.5)
Research and development
credits ( 17,600) (15.7) ( 11,900) ( 3.0)
Other ( 9,000) ( 8.0) ( 700) ( .2)
Increase in valuation
allowance 66,500 59.2 102,800 26.3
-------- ------ -------- ------
Actual income taxes (benefit)($ - ) ( 0.0%) ($ 43,000)( 1.0%)
======== ====== ======== ======
F-12
9. Income Taxes (Continued)
Deferred tax assets and liabilities consist of the following:
2000 1999
---------- ----------
Deferred tax assets:
Amortization of intangibles $ 5,300 $ 14,500
Deferred compensation 36,200 32,100
Net operating loss carryforwards 88,500 36,700
Rent accrual 3,600 5,900
Tax credit carryforwards 29,500 11,900
Other 7,700 8,800
---------- ----------
170,800 109,900
Deferred tax liability:
Depreciation of property and
equipment ( 1,500) ( 7,100)
----------- ----------
169,300 102,800
Valuation allowance ( 169,300) ( 102,800)
----------- ----------
Net deferred tax assets $ - $ -
=========== ==========
At June 30, 2000, the Company has net operating loss
carryforwards of approximately $260,000, $114,000 expiring in 2019
and $146,000 expiring in 2020. In addition, at June 30, 2000, the
Company has tax credit carryforwards of $29,500, $11,900 expiring in
2014 and $17,600 in 2015. A valuation allowance has been recognized
to offset the full amount of deferred tax assets at June 30, 2000 due
to the uncertainty of realizing these assets in the future.
F-13
10. Stock Options
The Company has established a stock option plan which provides
for the grant of options to purchase up to 300,000 shares of common
stock of the Company, par value $.05 per share, ("Common Stock"),
through February 2002. The plan provides for the granting of incentive
stock options and non-incentive stock options. Incentive stock
options may be granted to employees at an exercise price equal
to 100% (or 110% if the optionee owns directly or indirectly more
than 10% of the outstanding voting stock) of the fair market value
of the shares of Common Stock on the date of the grant.
Non-incentive stock options shall be granted at an exercise price
not less than 85% of the fair market value of the shares of
Common Stock on the date of grant. The plan also provides that each
non-employee member of the board of directors shall be granted,
annually commencing in March 1993, for a period of four years,
a ten-year option to purchase 3,000 shares of Common
Stock at the fair market value on the date of grant and commencing
annually in December 1997, for as long as a director, a ten-year
option to purchase 4,000 shares of Common Stock at the fair market
value on the date of grant. These outstanding options expire at
various dates through December 2009. There are 12,667 shares of
Common Stock reserved and available for future grants at
June 30, 2000 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 for
options granted under fixed plans when the option price is not less
than the fair market value of the underlying common stock
on the date of grant. Pro forma information regarding net income
(loss) and earnings (loss) per share, however, is required under
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," (SFAS No. 123) for entities
continuing to apply APB No. 25. For disclosure purposes, the Company
has estimated the fair value of its employee stock options on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for stock options granted in 2000
and 1999, respectively:
2000 1999
--------- ----------
Expected life (in years) 10 10
Risk-free interest rate 6.86% 5.60%
Expected volatility 20.39% 34.82%
Dividend yield 0.00% 0.00%
F-14
10. Stock Options (Continued)
Under the Black-Scholes model, the total value of stock options
granted in 2000 and 1999 was $13,900 and $40,100, respectively,
which would be amortized ratably on a pro forma basis over the vesting
periods of ten years. Had the Company determined compensation cost
for these plans in accordance with SFAS No. 123, the Company's
pro forma net loss would have been $124,700 in 2000 and $356,600 in
1999. The Company's pro forma net loss per share (basic and diluted)
would have been ($.15) in 2000 and ($.43) in 1999. The SFAS No. 123
method of accounting does not apply to options granted prior to
January 1, 1995, and, accordingly, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
During the year ended June 30, 1999, an officer exercised options
to acquire 10,000 shares at $1.75 per share and paid for such shares
by tendering 9,032 shares of Common Stock with an aggregate market
value of $17,500. The tendered shares were immediately retired.
Option activity under the above stock option plan is summarized
as follows:
Fiscal 2000 Fiscal 1999
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ---------- ----------- -----------
Shares under option:
Outstanding at
beginning of year 267,000 $ .99 241,000 $ 1.02
Granted 16,000 .83 45,000 1.21
Expired - - ( 1,000) 1.41
Forfeited ( 14,000) .82 ( 8,000) 1.94
Exercised - - ( 10,000) 1.75
--------- ----- --------- ------
Outstanding at end
of year 269,000 $ .99 267,000 $ .99
========= ===== ========= ======
Options exercisable at
year-end 223,333 $ .94 203,333 $ .91
========= ===== ========= ======
Weighted average fair value
per share of options granted
during fiscal 2000 and 1999 $ .87 $ .89
===== ======
F-15
10. Stock Options (Continued)
The following table summarizes information about the options
under the above plan outstanding at June 30, 2000:
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 164,000 4.08 $ .57 144,667 $ .53
$1.2813 - 2.00 105,000 5.97 $1.65 78,666 $1.69
In addition, in February 1992, the Company granted to four
non-employee members of the board of directors, ten-year options
for each to purchase 12,000 shares of Common Stock, at an exercise
price of $.35, not covered under the above plan. The options
are exercisable one-third within one year from the date of grant and
one-third in each of the following two years. In March 1993, three
directors each exercised 8,000 options.
11. Net Loss Per Common Share
Net loss per common share data was computed as follows:
2000 1999
--------- ---------
Net loss ($112,300) ($347,600)
========= =========
Weighted average common shares outstanding 835,540 834,601
Effect of dilutive securities, stock options - -
--------- ---------
Weighted average dilutive common
shares outstanding 835,540 834,601
========= =========
Net loss per common share - basic ($ .13) ($ .42)
========= =========
Net loss per common share - diluted($ ( .13) ($ .42)
========= =========
F-16
11. Net Loss Per Common Share (Continued)
The potential effect of dilution from the assumed exercise of
stock options, amounting to 106,192 and 125,847 shares of Common Stock
as of June 30, 2000 and 1999, were not included in determining dilutive
EPS because to do so would be anti-dilutive due to the Company
incurring a net loss for both years. Unexercised employee
stock options to purchase 71,000 shares of Common Stock at $1.50
to $2.00 per share were outstanding as of June 30, 2000 and 112,360
shares of Common Stock at $1.28 to $2.00 per share were outstanding
as of June 30, 1999, but were not included in the foregoing
potential computation because the options' exercise price was greater
than the average market price of the Company's Common Stock.
12. Fair Value of Financial Instruments
The financial statements include various estimated fair value
information as of June 30, 2000 and 1999, as required by Statement
of Financial Accounting Standards 107, "Disclosure about Fair Value
of Financial Instruments." Such information, which pertains to the
Company's financial instruments, is based on the requirements
set forth in that statement and does not purport to represent the
aggregate net fair value of the Company. The following methods and
assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate
that value.
The carrying value of cash and cash equivalents and investment
securities approximates fair market value because of the short
maturity of those instruments.
The following table provides summary information on the fair
value of significant financial instruments included in the
financial statements:
2000 1999
------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
Assets:
Cash and cash equivalents $394,600 $394,600 $229,100 $229,100
Investment securities
(Note 3) 171,600 171,300 522,500 522,500
F-17
13. Litigation
In January 1999, Troemner, Inc. ("Troemner"), began supplying VWR
Scientific Products ("VWR"), the Company's second largest customer in
terms of net sales, with a vortex mixer the Company believed violated
the trade dress rights of the Company's Vortex-Genie 2 (registered
trademark) mixer and one of the Company's utility patents.
The Vortex-Genie 2 (registered trademark) mixer and related
accessories which the Company sold to VWR (the Company's second largest
customer) as their private label mixer for many years is the Company's
primary product accounting for approximately 95% of the total net
sales during 2000. The Company also learned that Troemner began
soliciting business from the Company's other customers for Troemner's
vortex mixer at a markedly lower price than the Vortex-Genie 2
(registered trademark) mixer price. As a result, on January 26, 1999,
the Company filed a complaint against VWR and Troemner in the United
States District Court for the Eastern District of New York
(the "District Court") alleging, among other things, that VWR and
Troemner's manufacture, sale, promotion and distribution of a vortex
mixer called the "VWRbrand (registered trademark) Mini-Vortexer"
infringed the Company's trade dress rights in the housing
configuration of the Vortex-Genie 2 (registered trademark) mixer,
infringed one of the Company's patents, and constituted unfair
competition. The Company sought an award for monetary
damages trebeled, recovery of its attorneys' fees and expenses,
as well as permanent injunctive relief.
On March 8, 1999, the defendants denied the material allegations
of the complaint and asserted certain affirmative defenses and
counterclaims against the Company for unfair competition and a
declaratory judgment of non-infringement and invalidity of
the Company's patent. On March 17, 1999, the Company denied the
material allegations of the counterclaim and made a motion that
VWR and Troemner be preliminarily enjoined from making, selling,
promoting and distributing the VWRbrand (registered trademark)
Mini-Vortexer. On May 11, 1999, the District Court granted the
Company's motion for a preliminary injunction on the grounds that
the Company would likely succeed on its trade dress
infringement claim. In connection with the granting of the
preliminary injunction, the District Court required the Company
to post an injunction bond in the amount of $500,000 which it did
on May 7, 1999. Subsequent to the granting of the preliminary
injunction, Troemner began supplying VWR with a modified version of
their VWRbrand (registered trademark) Mini-Vortexer. This mixer,
which was not before the District Court is currently being marketed
by VWR. The District Court's preliminary injunction order was
appealed to the United States Court of Appeals for the Federal
Circuit.
F-18
13. Litigation (Continued)
On December 1, 1999, a settlement agreement was reached among the
parties. Under the settlement, VWR and Troemner agreed not to
manufacture, sell or distribute any vortex mixer that infringes
the Company's trade dress in the housing configuration
of the Vortex-Genie 2 (registered trademark) and, for a limited time,
whose accessories are interchangeable with the Vortex-Genie 2
(registered trademark) mixer's accessories. Troemner and VWR also
agreed not to sell the original VWRbrand (registered trademark)
Mini-Vortexer manufactured by Troemner. Troemner is entitled to
manufacture, market and sell to VWR, and VWR is entitled to market
and sell the modified version of Troemner's VWRbrand
(registered trademark) Mini-Vortexer. The VWRbrand (registered
trademark) Mini-Vortexer includes the existing coupling under a patent
license from the Company. In addition, VWR began purchasing vortex
mixers from the Company under the Company's own brand.
The settlement agreement included an immediate purchase commitment
from VWR of $200,000 which included significant quantities of the
Vortex-Genie 2 (registered trademark) mixer and, to a lesser
extent, quantities of the Company's new products, the Roto-Shake Genie
(trademark) and the Enviro-Genie (trademark). The settlement
agreement included a cash payment to the Company of $250,000 from
Troemner, which has been reflected in the accompanying
financial statements, and certain promotional considerations from
VWR amounting up to a maximum of $250,000 based on a percentage of
sales of the Company's products. The promotional activities
are to be performed during 2000, 2001, and 2002. Since the
fair value of the promotional activities cannot be
determined, the Company has not recorded any value thereon.
F-19
