10-K 1 scientificindustriesincsu.htm 10-K Blueprint
 
  
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
 
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2019
 
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from _______ to________
 
Commission file number 0-6658
 
SCIENTIFIC INDUSTRIES, INC.
(Exact Name of Registrant in Its Charter)
 
 
Delaware
04-2217279
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
80 Orville Drive, Suite 102, Bohemia, New York
11716
(Address of principal executive offices)
(Zip Code)
 
(631) 567-4700
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
Name of each exchange on which registered
None
None
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
 
Title of Class
Common stock, $.05 par value
 
 
 
Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports ☐Yes ☒ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☒
 
Emerging Growth ☐
 
 
 
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) ☐ Yes ☒ No
 
 
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 September 6, 2019 is $8,035,000.
 
The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of September 6, 2019 is 1,494,112 shares.
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
 
 
 
 
SCIENTIFIC INDUSTRIES, INC.
 
Table of Contents
 
 
PART I
 
 
 
 
BUSINESS
4
 
 
 
RISK FACTORS
6
 
 
 
PROPERTIES
8
 
 
 
LEGAL PROCEEDINGS       
 8
 
 
 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
8
 
 
 
PART II
 
 
 
 
 
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
8
 
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 9
 
 
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
10
 
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
10
 
 
 
CONTROLS AND PROCEDURES
 10
 
 
 
OTHER INFORMATION
10
 
 
 
PART III
 
 
 
 
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
11
 
 
 
EXECUTIVE COMPENSATION
12
 
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
14
 
 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
16
 
 
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
16
 
 

PART IV
 
 
 
 
 
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
17
 
 
 
 
21
 
 
 
 
 
 
CERTIFICATION
22
 
 
 
CERTIFICATION
23
 
 
 
 
 
 
 
  
Forward Looking Statements. The Company and its representatives may from time to time make written or oral forward-looking statements with respect to the Company’s annual or long-term goals, including statements contained in its filings with the Securities and Exchange Commission and in its reports to stockholders.
 
The words or phrases "will likely result", “will be”, “will”, "are expected to", "will continue to", "is anticipated", "estimate", "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made.
 
PART I
 
Item 1. Business.
 
General.Incorporated in 1954, Scientific Industries, Inc., a Delaware corporation (which along with its subsidiaries, the “Company”) is engaged in the design, manufacture, and marketing of standard benchtop laboratory equipment (“Benchtop Laboratory Equipment”), customized catalyst research instruments (“Catalyst Research Instruments”) under its wholly-owned subsidiary, Altamira Instruments, Inc. (“Altamira”) and through its wholly-owned subsidiary Scientific Bioprocessing, Inc. (“SBI”), the licensing and development of bioprocessing systems and products (“Bioprocessing Systems”). The Company’s products are used primarily for research purposes by universities, pharmaceutical companies, pharmacies, national laboratories, medical device manufacturers, petrochemical companies and other industries performing laboratory-scale research.
 
Operating Segments. The Company views its operations as three segments: the manufacture and marketing of standard Benchtop Laboratory Equipment for research and sample preparation in university, pharmacy and industrial laboratories sold primarily through laboratory equipment distributors and online; the manufacture and marketing of custom-made Catalyst Research Instruments for universities, government laboratories, and chemical and petrochemical companies; and the development and sublicensing of bioprocessing systems for research in university and industrial laboratories. For certain financial information regarding the Company’s operating segments, see Note 2 to the consolidated financial statements included under Item 8.
 
Products.
 
Benchtop Laboratory Equipment. The Company’s Benchtop Laboratory Equipment products consist of mixers and shakers, rotators/rockers, refrigerated and shaking incubators, and magnetic stirrers sold under the “Genie ™” brand, and pharmacy and laboratory balances and scales, force gauges, and moisture analyzers under the “Torbal®” brand. Sales of the Company’s principal product, the Vortex-Genie® 2 Mixer, excluding accessories, represented approximately 32% and 37% of the Company’s total net revenues for each of the fiscal years ended June 30, 2019 (“fiscal 2019”) and June 30, 2018 (“fiscal 2018”), and 46% and 48% of the segment’s sales for fiscal 2019 and fiscal 2018, respectively.
 
The Company’s vortex mixer is used to mix the contents of test tubes, beakers, and other various containers by placing such containers on a rotating cup or other attachments which cause the contents to be mixed at varying speeds.
 
The Company’s additional mixers and shakers include a high speed touch mixer, a mixer with an integral timer, a patented cell disruptor, microplate mixers, two vortex mixers incorporating digital control and display, a large capacity multi-vessel vortex mixer and a line of various orbital shakers.
 
The Company also offers various benchtop multi-purpose rotators and rockers, designed to rotate and rock a wide variety of containers, and a refrigerated incubator and incubated shakers, which are multi-functional benchtop environmental chambers designed to perform various shaking and stirring functions under controlled environmental conditions.
 
Its line of magnetic stirrers include a patented high/low programmable magnetic stirrer, a four-place high/low programmable magnetic stirrer, a large volume magnetic stirrer, and a four-place general purpose stirrer.
 
The Company’s Torbal brand line of products includes pharmacy, laboratory, and industrial digital scales, mechanical balances, moisture analyzers, and force gauges.
 
Catalyst Research Instruments. The Catalyst Research Instrument products are offered through the Company’s subsidiary, Altamira. Its flagship product is the AMI-300™, which is used to perform traditional catalyst characterization experiments on an unattended basis. The product also features a stand-alone personal computer to control the instrument and incorporates proprietary LabVIEW®-based software. The Company’s AMI-300 Catalyst Characterization Instrument incorporates a sophisticated data handling package and is designed to perform dynamic temperature-programmed catalyst characterization experiments. All AMI model instruments are designed or adapted to a customer’s individual requirements.
 
Altamira’s other Catalyst Research Instrument products include reactor systems, high throughput systems and micro-activity reactors, including the Company’s BenchCAT™ custom reactor systems. They are available with single and multiple reactor paths and with reactor temperatures up to 1,200 degrees Celsius. The systems feature multiple gas flows, are available in gas and gas/liquid configurations, and feature one or more stand-alone personal computers with the LabVIEW®-based control software.
 
Bioprocessing Systems. The Company, through SBI, sublicenses the patents and technology it holds relating to bioprocessing systems exclusively under a license with the University of Maryland, Baltimore County (“UMBC”), for which it receives royalties for patents expiring through December 2023. The Company is also engaged in the design and development of bioprocessing products, principally products incorporating coaster systems using disposable sensors in vessels that include T-Flasks and shake flasks.
 
Product Development. The Company designs and develops substantially all of its products. Company personnel formulate plans and concepts for new products and improvements or modifications of existing products. The Company engages outside consultants to augment its internal engineering capabilities in areas such as industrial and electronics design.
 
 
 4
 
 
 
Major Customers. Sales to three customers, principally of the Vortex-Genie 2 Mixer, represented 15% for both fiscal 2019 and fiscal 2018 of total net revenues, and 21% and 20% of Benchtop Laboratory Equipment product sales, for fiscal 2019 and fiscal 2018, respectively. Sales of Catalyst Research Instrument products are generally pursuant to a few large orders amounting on average to over $50,000 to a limited number of customers. In fiscal 2019, sales to two customers accounted for 27% of the segment’s sales (5% of total net revenues) and in fiscal 2018 sales to four customers (one of which was a customer in 2019) accounted for 78% of the segment’s sales (13% of total net revenues).
 
Marketing.
 
Benchtop Laboratory Equipment. The Company’s Benchtop Laboratory Equipment products sold under the “Genie” brand are generally distributed and marketed through an established network of domestic and overseas laboratory equipment distributors who sell the Company’s products through printed catalogs, websites and sales force.
 
The Company’s “Torbal” brand products are primarily marketed and sold online, and primarily on a direct basis, with only a few distributors. The Company also markets products through attendance at industry trade shows, trade publication advertising, brochures and catalogs, the Company’s websites, one sales manager in the U.S. and a consultant in Europe.
 
In general, due to the reliance on sales through distribution, it takes two to three years for a new Genie brand Benchtop Laboratory Equipment product to begin generating meaningful sales.
 
Catalyst Research Instruments. The Company’s Catalyst Research Instrument products are sold directly worldwide to universities, government laboratories, and chemical and petrochemical companies through its sales personnel and independent representatives engaged on a commission basis. Its marketing efforts include attendance at various trade shows, Altamira’s website, outside sales representatives and printed materials.
 
Bioprocessing Systems.The Company’s Bioprocessing Systems products are currently under development and will be offered both directly and through distribution worldwide to university, industrial and government laboratories.
 
Assembly and Production. The Company has an operating facility in Bohemia, New York at which its Benchtop Laboratory Equipment operations are conducted and one in Pittsburgh, Pennsylvania at which its Catalyst Research Instruments operations are conducted. The Company also has a small facility in Pittsburgh where it conducts product development and plans to operate future small scale production for the Bioprocessing Systems operations. The Company’s production operations principally involve assembly of components supplied by various domestic and international independent suppliers. The Company has not commenced production of bioprocessing products, but anticipates that its current facilities will be adequate for such purpose, although no assurances can be provided.
 
Patents, Trademarks and Licenses.
 
The Company holds a United States patent which expires in November 2022 on the MagStir Genie® and on the MultiMagStir Genie®. Two additional patents held by the Company relating to Bioprocessing Systems expire in January 2029 for a biocompatible bag with integral sensors. The last patent held by the Company expires in 2036 on an apparatus for detecting pH and dissolved oxygen. The Company also holds a patent that relates to a future vortexing product which is still in development stages. The Company has several patent applications pending. The Company does not anticipate any material adverse effect on its operations following the expiration of the patents.
 
The Company has various proprietary trademarks, including AMI™, BenchCAT™, Biocoaster™, BioGenie®, Cellphase®, Cellstation®, Disruptor Beads™, Disruptor Genie®, Enviro-Genie®, Genie™, Genie Temp-Shaker™, Incubator Genie™, MagStir Genie®, MegaMag Genie®, MicroPlate Genie®, MultiMagStir Genie®, Multi-MicroPlate Genie®, Orbital Genie®, QuadMag Genie®, Rotator Genie®, SBI®, Roto-Shake Genie®, Torbal®, TurboMix™, VIVID™, and Vortex-Genie®, each of which it considers important to the success of the related product. The Company also has several trademark applications pending. No representation can be made that any application will be granted or as to the protection that any existing or future trademark may provide.
 
  The Company has an exclusive license from UMBC with respect to rights and know-how under a patent held by UMBC related to disposable sensor technology, which the Company further sublicenses on an exclusive basis to a German company, and non-exclusive rights held by the Company as it relates to the use of the technology with vessels of sizes ranging from 250 milliliters to 5 liters. Total license fees paid or owed by the Company under this license for fiscal 2019 and fiscal 2018 amounted to $1,035,400 and $517,000, respectively.
 
Foreign Sales. The Company’s sales to overseas customers, principally in Asia and Europe, accounted for approximately 50% and 48% of the Company’s net revenues for fiscal 2019 and 2018, respectively. Payments are in United States dollars and are therefore not subject to risks of currency fluctuation, foreign duties and customs.
 
Seasonality. The Company does not consider its business to be seasonal.
 
Backlog. Backlog for Benchtop Laboratory Equipment products is not a significant factor because this line of products is comprised of standard catalog items requiring lead times which usually are not longer than two weeks. There is no backlog for Bioprocessing Systems. The backlog for Catalyst Research Instrument products as of June 30, 2019 was $124,200, all of which is expected to be filled by June 30, 2020, as compared to a backlog of $509,600 as of June 30, 2018, all of which was filled in fiscal 2019.
 
Competition. Most of the Company's principal competitors are substantially larger and have greater financial, production and marketing resources than the Company. Competition is generally based upon technical specifications, price, and product recognition and acceptance. The Company’s main competition for its Benchtop Laboratory Equipment products derives from private label brand mixers offered by laboratory equipment distributors in the United States and Europe and products exported from China.
 
The Company's major competitors for its Genie brand Benchtop Laboratory Equipment are Henry Troemner, Inc. (a private label supplier to the two largest laboratory equipment distributors in the U.S. and Europe), IKA-Werke GmbH & Co. KG, a German company, Benchmark Scientific, Inc., (a United States importer of China-produced products), and Heidolph Instruments GmbH, a German company. The Company’s main competitors for its Torbal brand products are Ohaus Corporation, an American company, A&D Company Ltd., a Japanese company, and Adam Equipment Co., Ltd., a British company.
 
 5
 
  
The primary competition for the Company’s Catalyst Research Instrument products is in the form of instruments produced internally by research laboratory staff of potential customers. Major competitors in the United States include Anton Paar (which is also a customer) and Micromeritics Instrument Corporation, each a privately-held company. The Company sells instruments to Anton Paar (formerly Quantachrome Instruments) under an OEM agreement.
 
        The potential major competitors for the Company’s Bioprocessing Systems are Applikon Biotechnology, B.V. (Netherlands), PreSens GmbH (Germany), DASGIP Technology GmbH (Germany), and Sartorius AG (Germany).
   
Research and Development. The Company incurred research and development expenses, the majority of which related to its Benchtop Laboratory Equipment products, of $530,500 during fiscal 2019 compared to $520,900 during fiscal 2018. The Company expects that research and development expenditures in the fiscal year ending June 30, 2020 will increase substantially due to increased product development efforts for the Bioprocessing Systems.
 
Government and Environmental Regulation. The Company’s products and claims with respect thereto have not required approval of the Food and Drug Administration or any other government approval. The Company's manufacturing operations, like those of the industry in general, are subject to numerous existing and proposed, if adopted, federal, state, and local regulations to protect the environment, establish occupational safety and health standards and cover other matters. The Company believes that its operations are in compliance with existing laws and regulations and the cost to comply is not significant to the Company.
 
Employees. As of September 6, 2019, the Company employed 39 persons (28 for the Benchtop Laboratory Equipment operations, 9 for the Catalyst Research Instruments operations, and 2 for the Bioprocessing Systems operations) of whom 31 were full-time, including its five executive officers. In addition, certain activities of the Bioprocessing Systems operations are being performed by employees of the Company’s other operations and consultants. None of the Company's employees are represented by any union.
 
Available Information. The Company’s Annual Report to Stockholders for fiscal 2019, includes its Annual Report on Form 10-K. The Annual Report will be mailed to security holders together with the Company’s proxy material and solicitation as it relates to the Company’s 2019 Annual Meeting of Stockholders. All the Company’s reports, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other information filed with, or furnished to, the Securities and Exchange Commission (the “SEC” or the “Commission”), including amendments to such reports, are available on the SEC’s website that contains such reports, proxy and information statements, and other information regarding companies that file electronically with the Commission. This information is available at www.sec.gov. In addition, all the Company’s public filings can be accessed through the Company’s website at https://www.scientificindustries.com/sec-filings.
 
   
Item 1A. Risk Factors.
 
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, important risk factors are identified below that could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to such future periods in any current statements. The Company undertakes no obligation to publicly revise any forward-looking announcements to reflect future events or circumstances.
 
Dependence on Major Customers
 
Although the Company does not depend on any one single major customer, sales to the top three Benchtop Laboratory Equipment operations customers accounted for a combined aggregate of 21% and 20% of the segment’s total sales for fiscal 2019 and 2018, respectively (15% of its total net revenues for both fiscal 2019 and 2018).
 
No representation can be made that the Company will be successful in retaining any of these customers, or not suffer a material reduction in sales, either of which could have an adverse effect on future operating results of the Company.
 
One Benchtop Laboratory Equipment Product Accounts for a Substantial Portion of Revenues
 
The Company has a limited number of Benchtop Laboratory Equipment products with one product, the Vortex-Genie 2 Mixer, accounting for approximately 46% and 48% of Benchtop Laboratory Equipment sales, for fiscal 2019 and fiscal 2018, (32% and 37% of total net revenues for fiscal 2019 and fiscal 2018, respectively).
 
The Company is a Small Participant in Each of the Industries in Which It Operates
 
The Benchtop Laboratory Equipment industry is a highly competitive mature industry. Although the Vortex-Genie 2 Mixer has been widely accepted, the annual sales of the Benchtop Laboratory Equipment products ($7,078,800 for fiscal 2019 and $6,403,400 for fiscal 2018) are significantly lower than the annual sales of many of its competitors in the industry. The principal competitors are substantially larger with much greater financial, production and marketing resources than the Company. There are constant new entrants into the vortex mixer market, including those offering products imported from China, which the Company is unable to compete with on price. The Torbal line of products is also a small market participant in its industry with significant competition from well known brands.
 
The production and sale of Catalyst Research Instruments products is highly competitive. Altamira’s competitors include several companies with greater resources and many laboratories which produce their own instruments.
 
        The Company’s Bioprocessing Systems operation is a participant in the laboratory-scale sector of the larger bioprocessing products industry, which is dominated by several large companies with much greater resources than the Company.
 
The Company’s Ability to Grow and Compete Effectively Depends In Part on Its Ability to Develop and Effectively Market New Products
 
The Company continuously invests in development and marketing of new Benchtop Laboratory Equipment products with a view to increase revenues and reduce the Company’s dependence on the Vortex-Genie 2 Mixer, including the acquisition of the Torbal line of products in fiscal 2014. However, gross revenues derived from non Vortex-Genie Benchtop Laboratory Equipment products including Torbal products only amounted to $3,843,500 (54% of the segment’s sales and 38% of total revenues) for fiscal 2019 and $3,300,500, (52% of the segment’s sales and 39% of total revenues) for fiscal 2018. The segment’s ability to compete will depend upon the Company’s success in continuing to develop and market new laboratory equipment as to which no assurance can be given.
 
 
 6
 
 
 
 
The Company relies heavily on distributors and their catalogs to market the majority of its Benchtop Laboratory Equipment products, as is customary in the industry. Accordingly, sales of new products are heavily dependent on the distributors’ decision to include and retain a new product in their catalogs and on their websites. It may be at least 24 to 36 months between the completion of development of a product and the distribution of the catalog in which it is first offered; furthermore, not all distributors feature the Company’s products in their catalogs.
 
The Company’s line of Catalyst Research Instruments consists of only a few products. The ability of the Company to compete in this segment and expand the line will depend on its ability to make engineering improvements to existing products and develop and add new products incorporating more current technology. Over the last few years the Company has introduced two new catalyst research products to increase its product offerings and has recently expanded its outside sales force.
 
The success of the Company’s Bioprocessing Systems operation will be heavily dependent on its ability to successfully develop and produce new products. Commencing approximately in the last quarter of fiscal 2019, the Company began to commit substantial resources in the form of consulting, employees, materials, supplies, and facilities to accelerate its new product development efforts. Such products are of a complex nature in an industry that the Company does not operate in and are taking longer to develop than previously anticipated. In addition, they will be subject to beta testing by end users, which could result in design and/or production changes which could further delay development time. The Company expects the sale and marketing of these new products, at least initially, to be through the Company’s attendance at trade shows, website, online marketing, and a few select distributors. The Company plans to incur significant marketing expenditures on initial marketing of the Bioprocessing Systems products.
 
No assurance can be given that the Company will be successful with its new product development and that its sales and marketing programs will be sufficient to develop additional commercially feasible products which will be accepted by the marketplace, or that any distributor will include or retain any such products in its catalogs and websites.
 
The Company May Be Subject to General Economic, Political and Social Factors
 
Orders for the Company’s products, particularly its Catalyst Research Instruments products, depend in part, on the customer’s ability to secure funds to finance purchases, especially government funding. Availability of funds can be affected by budgetary constraints. Factors including a general economic recession, the European crisis, slowdown in Asian economies, or a major terrorist attack may have a negative impact on the availability of funding including government or academic grants to potential customers.
 
As discussed in Item 1, sales to overseas customers, including sales in China, account for approximately 50% of the Company’s net revenues. The high value of the dollar relative to foreign currencies has a negative impact on sales because the Company’s products, which are paid in dollars, become more expensive to overseas customers.
 
The current political situation as it pertains to tariffs and a trade war could have a negative effect on the Company’s level of future exports. In addition, any tariffs will have a negative effect on the Company’s gross margins since various components used in the Company’s products are produced overseas, even if purchased from a US supplier, and the Company is unable to pass such cost increases to its customers.
 
        The Company’s ability to secure new Catalyst Research Instruments orders can also be affected by changes in domestic and international policies pertaining to energy and the environment, which could affect funding of potential customers.
 
The Company is Heavily Dependent on Outside Suppliers for the Components of Its Products
 
The Company purchases all its components from outside suppliers and relies on a few suppliers for some components, mostly due to cost considerations. Most of the Company’s suppliers, including United States vendors, produce the components directly or indirectly in overseas factories, and orders are subject to long lead times and potential other risks related to production in a foreign country, such as current and potential future tariffs. To minimize the risk of supply shortages, the Company keeps more than normal quantities on hand of the critical components that cannot easily be procured or, where feasible and cost effective, purchases are made from more than one supplier. The Company seeks to mitigate the effect of the tariffs on its component costs through supplier negotiations, however, alternate suppliers are not always feasible for various reasons including complexity and cost of toolings. A shortage of such components could halt production and have a material negative effect on the Company’s operations.
 
The Company’s Ability to Compete Depends in Part on Its Ability To Secure and Maintain Proprietary Rights to its Products
 
The Company has no patent protection for its principal Benchtop Laboratory Equipment product, the Vortex-Genie 2 Mixer, the Torbal balances, or for its Catalyst Research Instruments products and limited patent protection on a few other Benchtop Laboratory Equipment products. There are several competitive products available in the marketplace possessing similar technical specifications and design.
 
As part of the asset purchase by SBI during fiscal 2012, the Company acquired the rights to various patents for bioprocessing products which it licenses from UMBC, however such patents expire in calendar year 2023.
 
There can be no assurance that any patent issued, licensed or sublicensed to the Company provides or will provide the Company with competitive advantages or will not be challenged by third parties. Furthermore, there can be no assurance that others will not independently develop similar products or design around the patents. Any of the foregoing activities could have a material adverse effect on the Company. Moreover, the enforcement by the Company of its patent or license rights may require substantial litigation costs.
 
The Company Has Limited Management Resources
 
The loss of services from either of Ms. Helena Santos, the Company’s President, Chief Executive, Financial Officer and Treasurer, Mr. Robert Nichols, the President of the Company’s Genie Products Division of the Benchtop Laboratory operations, Mr. Karl Nowosielski, the President of the Torbal Products Division of the Benchtop Laboratory operations, or Mr. Anthony Mitri, the President of Altamira or any material expansion of the Company’s operations could place a significant additional strain on the Company’s limited management resources and could be materially adverse to the Company’s operating results and financial condition.
 
 
 7
 
 
 
The Common Stock of the Company is Thinly Traded and is Subject to Volatility
 
As of September 6, 2019, there were 1,494,112 shares of Common Stock of the Company outstanding, of which 424,821 (28%) were held by the directors and officers of the Company. The Common Stock of the Company is traded on the Over-the-Counter Bulletin Board and, historically, has been thinly traded. There have been a number of trading days during fiscal 2019 on which no trades of the Company’s Common Stock were reported. Accordingly, the market price for the Common Stock is subject to great volatility.
 
  Item 2. Properties.
 
The Company’s executive office and principal manufacturing facility for its Benchtop Laboratory Equipment operations comprises approximately 19,000 square feet. This facility is located in Bohemia, New York and is held under a lease which expires in February 2025. The Company’s Catalyst Research Instruments operations are conducted from an approximately 9,000 square foot facility in Pittsburgh, Pennsylvania under a lease which expires in November 2020. The Bioprocessing Systems operations are conducted from an approximately a 1,200 square foot laboratory facility in Pittsburgh Pennsylvania under a lease which expires in November 2020. The Company has a 1,200 square foot facility in Oradell, New Jersey from where it conducts its sales and marketing functions, primarily for the Torbal Products Division of the Benchtop Laboratory Equipment operations. See Note 10 to the Financial Statements in Item 8. The leased facilities are suitable and adequate for each of the Company’s operations. In the opinion of management, all properties are adequately covered by insurance.
 
Item 3. Legal Proceedings.
 
The Company is not a party to any pending legal proceedings.
 
Item 4.Submission of Matters to a Vote of Security Holders.
 
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2019.
 
 
PART II
 
Item 5.Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
The Company's Common Stock is traded in the over-the-counter market. The following table sets forth the low and high bid quotations for each quarter of fiscal 2018 and fiscal 2019, 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
 
09/30/17
  2.92 
  3.50 
12/31/17
  2.85 
  3.20 
03/31/18
  2.85 
  3.30 
06/30/18
  3.05 
  3.30 
09/30/18
  2.82 
  3.24 
12/31/18
  2.99 
  4.00 
03/31/19
  3.50 
  4.50 
06/30/19
  3.88 
  4.75 
 
As of September 6, 2019, there were 273 record holders of the Company's Common Stock.
 
 
    
 
 8
 
   
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking statements. Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company’s business that are beyond the Company’s control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.
 
Overview.The Company reflected income before income tax expense of $776,100 for fiscal 2019 compared to income before income tax expense of $1,400 for fiscal 2018, primarily due to the increased royalty income derived by the Bioprocessing Operations and increased sales and profits of the Benchtop Laboratory Equipment operations and increased sales and a decreased loss by the Catalyst Research Instruments operations. The results reflected total non-cash amounts for depreciation, amortization, and adjustments to contingent consideration liabilities of approximately $778,500 for fiscal 2019 and approximately $714,000 for fiscal 2018.
 
Results of Operations. Net revenues for fiscal 2019 increased $1,718,400 (20.3%) to $10,199,800 from $8,481,400 for fiscal 2018, reflecting an increase of approximately $637,000 (95.2%) in royalties earned by the Bioprocessing Systems operations due to higher sales derived from its sublicense in Europe, an increase of approximately $675,400 (10.5%) in sales of Benchtop Laboratory Equipment derived from increased sales of new Torbal brand products and increased sales for Genie brand products in the United States, and an increase of approximately $406,000 (28.8%) in net sales of Catalyst Research Instruments, primarily to overseas customers.
 
        Sales of Catalyst Research Instruments are comprised of a small number of large orders, while the sales of Benchtop Laboratory Equipment are comprised of a large number of small orders. As of June 30, 2019, the order backlog for Catalyst Research Instruments was $124,200, all of which is expected to be shipped during fiscal year ending June 30, 2020, compared to $509,600 as of June 30, 2018.
 
        The gross profit percentage for fiscal 2019 was 42.8% compared to 38.0% for fiscal 2018. The current year reflected higher gross profit margins on sales of Catalyst Research Instruments primarily due to increased sales of higher margin custom products including more custom products at higher margins. The Company’s gross margin on Benchtop Laboratory Equipment also increased due to customer mix including more online sales that have higher margins. The Bioprocessing Systems Operations also reflected higher gross margin due to higher revenues.
 
        General and administrative expenses for fiscal 2019 increased by approximately $175,600 (10.0%) to $1,924,400 compared to $1,748,800 for fiscal 2018 due primarily to an increase in various items across all business segments including legal fees, director meetings due to new directors, and consulting expenses.
 
Selling expenses for fiscal 2019 increased approximately $178,600 (18.7%) to $1,136,100 from $957,500 for fiscal 2018, primarily due to increased sales commissions and related salaries on higher sales for both the Benchtop Laboratory Equipment operations and the Catalyst Research Instruments operations, online marketing costs for the Torbal brand products, and market research costs for the Bioprocessing Systems operations.
 
Research and development expenses amounted to $530,500 for fiscal 2019 compared to $520,900 for fiscal 2018. The Company increased its new product development efforts in the last quarter of fiscal 2019 for the Bioprocessing Systems operations. During the last quarter of fiscal 2019, the Company's Bioprocessing Systems operations began to expand and increased its product development efforts with the hiring of an engineer.  Since year end the Company hired two additional engineers and is committing additional resources for materials and supplies for development of Bioprocessing Systems.
 
Total other income (loss), net was -$5,900 for fiscal 2019 compared to $6,900 income in fiscal 2018 due to holding losses on investment securities.
 
The Company reflected income tax expense of $124,600 for fiscal 2019 compared to $161,900 for fiscal 2018, primarily due to lower effective tax rate.
 
As a result of the foregoing, the Company recorded net income of $645,600 for fiscal 2019 compared to a net loss of $160,500 for fiscal 2018.
 
Liquidity and Capital Resources. Cash and cash equivalents increased by $549,400 to $1,602,500 as of June 30, 2019 from $1,053,100 as of June 30, 2018.
 
Net cash provided by operating activities was $1,159,500 for fiscal 2019 compared to $256,900 for fiscal 2018. The current fiscal year reflected significantly higher operating income, higher accounts receivable balances, and a higher amount for change in fair value adjustment of contingent consideration. Net cash used in investing activities was $218,400 for fiscal 2019 compared to $79,500 for fiscal 2018 due mainly to new capital expenditures related to new toolings and ERP system, increased intangible asset purchases related to new patents and trademarks, and purchases of investment securities. The Company used $391,700 in financing activities in fiscal 2019 compared to $149,400 in fiscal 2018, mainly due to higher payments of contingent consideration related to the SBI acquisition and payment of a cash dividend.
 
The Company's working capital increased by $887,600 to $5,005,800 as of June 30, 2019 compared to $4,118,200, as of June 30, 2018, primarily due to increased cash generated from higher operating income. For fiscal 2019, the Company reclassified $245,400 of trade accounts receivable from long term to short term assets.
 
The Company has a Demand Line of Credit through December 2019 with First National Bank of Pennsylvania which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 5.25%. Advances on the line are secured by a pledge of the Company’s assets including inventory, accounts receivable, chattel paper, equipment and general intangibles of the Company. As of June 30, 2019, no borrowings were outstanding under such line.
 
Management believes that the Company will be able to meet its cash flow needs during the next 12 months from its available financial resources including the lines of credit, its cash and investment securities, and operations.  Commencing in the fourth quarter the Company began committing significant resources for the Bioprocessing Systems operations for new engineering personnel, market research, and administration. Management believes that the Company will be able to meet its cash flow needs during the next 12 months from its available financial resources including the lines of credit, its cash and investment securities, and operations.  Commencing in the fourth quarter the Company began committing significant resources for the Bioprocessing Systems operations for new engineering personnel, market research, and administration. 
 
 
 9
 
 
 Capital Expenditures. During fiscal 2019, the Company incurred $187,800 in capital expenditures. The Company expects that based on its current operations, its capital expenditures will be approximately the same for the fiscal year ending June 30, 2020.
 
Off-Balance Sheet Arrangements. None.
 
Item 8. Financial Statements and Supplementary Data.
 
The Financial Statements required by this item are attached hereto on pages F1-F20.
 
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
 
Not applicable.
 
Item 9A. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Annual Report on Form 10-K, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive Officer and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2019 because of the identification of a material weakness in internal control over financial reporting which related to the accounting of the Company’s tax provision calculation. Notwithstanding the material weakness that existed at June 30, 2019, the Chief Executive and Chief Financial Officer of the Company has concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations, and cash flows of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
 
Management and the Board of Directors are committed to the continued improvement of the Company's overall system of internal controls over financial reporting.  The Company's remediation plan is to implement additional processes, controls and procedures relating to the preparation and review process of its quarterly and annual income tax provision calculation.  The Company is continuing to implement remedial measures to improve and develop internal controls, processses and procedures in the income tax provision process in order to address the material weakness.
 
Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) and 15d-15(f). The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
The Chief Executive Officer and Chief Financial Officer of the Company conducted an evaluation of the effectiveness of the Company’s internal controls over financial reporting as of June 30, 2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
 
  This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
 
Changes in Internal Control Over Financial Reporting. Except as otherwise discussed above, there was no change in the Company's internal controls over financial reporting that occurred during the most recent fiscal quarter that materially affected or is reasonably likely to materially affect the Company's internal controls over financial reporting.
 
Inherent Limitations on Effectiveness of Controls.  The Company’s management, including its Chief Executive Officer and Chief Financial Officer, believes that its disclosure on controls and procedures and internal controls over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that its disclosure on controls and procedures or its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
 
Item 9B. Other Information.
 
Not applicable.
 
 
 10
 
 
  PART III
 
Item 10. Directors, Executive Officers and Corporate Governance.
 
Directors
 
The Company has the following seven Directors:
 
Joseph G. Cremonese (age 84), a Director since November 2002 and Chairman of the Board since February 2006, has been, through his affiliate, a marketing consultant to the Company since 1996. Mr. Cremonese has been since 1991, President of his affiliate, Laboratory Innovation Company, Ltd, which is a vehicle for the consulting services for the Company.
 
Marcus Frampton (age 39), a Director since March 2019 is the Chief Investment Officer of the Alaska Permanent Fund Corporation and serves on the Board of Directors of Twin Creeks Timber, LLC and Nyrada, Inc., a drug development company. He served as Director of Investments, Real Assets and Absolute Return of the Alaska Permanent Fund from 2016 to 2018 and Director of Investments, Private Markets of the Alaska Permanent Fund from 2012 to 2016 for the Alaska Permanent Fund Corporation.
 
John A. Moore (age 53), a Director since January 2019 has been providing consulting services to the Company’s subsidiary, Scientific Bioprocessing, Inc. since March 2019. Mr. Moore serves as Executive Chairman of Nyrada, Inc., a drug development company since July 2019 and prior to that served as a director with Noxopharm Limited, a drug development company, and is also the Chairman of Trialogics, a clinical trial software provider. Mr. Moore was President, Chief Executive Officer and director of Acorn Energy, Inc. from 2006 to 2016.
 
Grace S. Morin (age 71), a Director since December 4, 2006, had been President, Director and principal stockholder of Altamira Instruments, Inc. from December 2003 until its acquisition in November 2006 by the Company. Ms. Morin had been employed by Altamira to supervise its administrative functions at the Pittsburgh, Pennsylvania facility as a full-time employee through March 31, 2009 and since that date as a part-time consultant.
 
Helena R. Santos (age 55), a Director since 2009, has been employed by the Company since 1994, and has served since August 2002 as its President, Chief Executive Officer, Chief Financial Officer and Treasurer. She had served as Vice President, Controller from 1997 and as Secretary from May 2001.
 
James S. Segasture (age 83), a Director since 1991, has been retired for the last five years.
 
John F.F. Watkins (age 52), is a corporate and securities attorney and has been a member of Reitler Kailas & Rosenblatt LLC since 2002. Mr. Watkins was first elected to the Board of Directors of the Company in January 2017.
 
The Directors are elected to three-year staggered terms. The current terms of the Directors expire at the annual meeting of stockholders of the Company as follows: the fiscal year ended June 30, 2019 - three directors (Mr. Frampton, Mr. Moore, and Ms. Morin, Class B), the fiscal year ending June 30, 2020 – two directors (Mr. Cremonese and Mr. Watkins, Class C), and the fiscal year ending June 30, 2021 - two directors (Ms. Santos and Mr. Segasture, Class A).
 
 
Board Committees
 
The Company has three committees – The Stock Option Committee, the Compensation Committee, and the Audit Committee, each of which is comprised of the entire Board of Directors.
 
Executive Officers
 
See above for the employment history of Ms. Santos.
 
Robert P. Nichols (age 58), is the President of the Genie Products Division of the Benchtop Laboratory Equipment operations and Corporate Secretary and has been employed by the Company since February 1998. Previously, he had been since May 2001, the Company’s Vice President of Engineering.
 
Brookman P. March (age 74), has been since July 1, 2017 Vice President of Corporate Development and Strategy and Vice President of Sales of Altamira. Previously he had been President and Director of Sales and Marketing of Altamira. He had been Vice President and a Director of Altamira from December 2003 until it was acquired by the Company in 2006. Mr. March is the husband of Ms. Morin, a Director of the Company.
 
Karl D. Nowosielski (age 39), is the President of the Torbal Products Division of the Benchtop Laboratory Equipment operations and Director of Marketing for the Company. He was Vice President of Fulcrum, Inc. (the seller of the Torbal Products Division assets) from 2004 until February 2014.
 
Anthony J. Mitri (age 37), has been the President of Altamira since May 2017. Prior to that he had been Director of Operations and Engineer since he began his employment with the Company in 2004.
 
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
The Company believes that, for fiscal 2019, its officers, directors and 10% stockholders timely complied with all filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
 
Code of Ethics
 
The Company has adopted a code of ethics that applies to the Executive Officers and Directors. A copy of the code of ethics can be found on the Company’s website.
 
 
 11
 
 
 
Item 11.Executive Compensation.
 
Compensation Discussion and Analysis. The Compensation Committee reviews and recommends to the Board of Directors the compensation to be paid to each executive officer. Executive compensation, in all instances except for the compensation for the Chief Executive Officer (“CEO”), is based on recommendations from the CEO. The CEO makes a determination by comparing the performance of each executive being reviewed with objectives established at the beginning of each fiscal year and with objectives established during the business year with regard to the success of the achievement of such objectives and the successful execution of management targets and goals.
 
With respect to the compensation of the CEO, the Committee considers performance criteria, 50% of which is related to the direction, by the CEO, of the reporting executives, the establishment of executive objectives as components for the successful achievement of Company goals and the successful completion of programs leading to the successful completion of the Business Plan for the Company and 50% is based on the achievement by the Company of its financial and personnel goals tempered by the amount of the income or loss of the Company during the fiscal year.
 
The compensation at times includes grants of options under its stock option plan to the named executives. Each officer is employed pursuant to a long-term employment agreement, containing terms proposed by the Compensation Committee and approved as reasonable by the Board of Directors. The Board is cognizant that as a relatively small company, the Company has limited resources and opportunities with respect to recruiting and retaining key executives. Accordingly, the Company has relied upon long-term employment agreements and grants of stock options to retain qualified personnel.
 
Compensation for each of its executive officers provided by their employment agreements were based on the foregoing factors and the operating and financial results of the segments under their management.
 

                            The following table summarizes all compensation paid by the Company to each of its executive officers for the fiscal years ended June 30, 2019 and 2018.
 
 
SUMMARY COMPENSATION TABLE
 
 
Name and Principal Position
(a)
 
Fiscal Year (b)
 
 
Salary ($)
(c)
 
Bonus ($)
(d)
 
Stock Awards ($)
(e)
 
Option Awards ($)
(f)
 
Non- Equity Incentive Plan Compensation ($)
(g)
 
Non- Qualified Deferred Compensation
Earnings ($)
(h)
 
Changes in Pension Value and Non-Qualified Deferred Compensation Earnings
 
All Other Compensation ($)
(i)
 
Total ($)
(j)
 
Helena R. Santos,
CEO, President, CFO
2019
180,300
0
0
13,100(1)
0
0
0
4,900(5)
198,300
2018
175,000
25,000
0
13,100(1)
0
0
0
6,700(5)
219,800
 
 
 
 
 
 
 
 
 
 
 
Brookman P. March,
Vice President Corporate Strategy, VP, Sales of Altamira
2019
159,600
 0
0
3,900(2)
0
0
0
6,400(5)
169,900
2018
155,000
10,000
0
3,900(2)
0
0
0
6,200(5)
175,100
 
 
 
 
 
 
 
 
 
 
 
Anthony Mitri,
President of Altamira
2019
120,000
0
0
6,500(3)
0
0
0
4,800(5)
131,300
2018
110,000
0
0
1,600(3)
0
0
0
4,400(5)
116,000
 
 
 
 
 
 
 
 
 
 
 
Robert P. Nichols,
President of Genie Division
2019
157,600
0
0
3,900(2)
0
0
0
6,800(5)
168,300
2018
153,000
10,000
0
3,900(2)
0
0
0
6,300(5)
173,200
 
 
 
 
 
 
 
 
 
 
 
Karl D. Nowosielski
President of Torbal Division and Director of Marketing
2019
163,300
10,000
0
7,400(4)
0
0
0
6,400(5)
187,100
2018
161,700
10,000
0
7,400(4)
0
0
0
6,400(5)
185,500
 
(1) The amounts represent compensation expense for the stock options granted on July 1, 2017 valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The option was valued at a total of $39,200 of which $13,100 was expensed in each of fiscal 2019 and fiscal 2018.
 
(2) The amounts represent compensation expense for the July 1, 2017 stock options granted valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The option was valued at a total of $11,800 for each individual, of which $3,900 was expensed in each of fiscal 2019 and fiscal 2018.
 
(3) The amounts represent compensation expense for the stock options granted on June 30, 2018 and December 31, 2017 valued utilizing the Black-Scholes-Merton options pricing model. The option was valued at a total of $10,000 and $9,500, respectively, utilizing the Black-Scholes options pricing model, of which a total of $6,500 and $1,600 was expensed in fiscal 2019 and fiscal 2018, respectively.
 
(4) The amounts represent compensation expense for the stock options granted on July 1, 2017, and February 26, 2017, valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The stock options were granted as part of his employment agreement. The options were valued at a total of $11,800, and $10,500, respectively, of which $7,400 was expensed in each of fiscal 2019 and 2018.
 
(5) The amounts represent the Company’s matching contribution under the Company’s 401(k).
 
 
 
 
 12
 
 
 GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 2019
 
There were no options granted to named executives during fiscal 2019.
 
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
 
 
Option Awards
 
Name
(a)
 
Number
of
Securities
Under-
lying
Unexercised
Options (#)
Exercisable
(b)
 
 
Number
of
Securities
Under-
lying
Unexercised
Options (#)
Unexerci-
sable
(c)
 
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
(d)
 
 
Option
Exercise
Price
($)
(e)
 
 
Option
Expiration
Date
(f)
 
Helena Santos
  8,333 
  16,667 
  0 
  3.08 
 07/2027
Anthony Mitri
  3,334 
  6,666 
  0 
  3.05-3.27 
 
09/2018-06/2028
 
Brookman March
  9,500 
  5,000 
  0 
  3.71-3.96 
 
05/2022-07/2027
 
Robert Nichols
  4,500 
  5,000 
  0 
  3.50 
 
12/2023-07/2027
 
Karl Nowosielski
  17,500 
  7,000 
  0 
  3.05-4.05 
 
02/2024-07/2027
 
 
 
Employment Agreements
 
On July 1, 2017, the Company entered into a new employment agreement with Ms. Helena R. Santos through June 30, 2020 with the option to extend for two additional one-year periods. The agreement provides for an annual base salary for the fiscal year ended June 30, 2018 of $175,000 with annual increases thereafter of 3% per annum or the percentage increase, if any, in the Consumer Price Index, whichever is higher. The agreement also provides for a bonus of $25,000 for the fiscal year ended June 30, 2018 and on a discretionary basis thereafter. No bonuses were granted during fiscal 2019. The agreement also provided for a grant of options to purchase 25,000 shares of the Company’s stock which were granted during the year ended June 30, 2018. The agreement does not provide for the grant of stock options in 2019.
 
On July 1, 2017, the Company entered into a new employment agreement with Mr. Robert P. Nichols through June 30, 2020 with the option to extend for two additional one-year periods. The agreement provides for an annual base salary for the fiscal year ended June 30, 2018 of $153,000 with annual increases thereafter of 3% per annum or the percentage increase, if any, in the Consumer Price Index, whichever is higher. The agreement also provides for a bonus of $10,000 for the fiscal year ended June 30, 2018 and on a discretionary basis thereafter. No bonuses were granted during fiscal 2019. The agreement also provided for a grant of options to purchase 7,500 shares of the Company’s stock which were granted during the year ended June 30, 2018. The agreement does not provide for the grant of stock options in 2019.
 
On July 1, 2017, the Company entered into a new employment agreement with Mr. Brookman P. March through June 30, 2020 with the option to extend for two additional one-year periods. The agreement provides for an annual base salary for the fiscal year ended June 30, 2018 of $155,000 with annual increases thereafter of 3% per annum or the percentage increase, if any, in the Consumer Price Index, whichever is higher. The agreement also provides for a bonus of $10,000 for the fiscal year ended June 30, 2018 and on a discretionary basis thereafter. No bonuses were granted during fiscal 2019. The agreement also provided for a grant of options to purchase 7,500 shares of the Company’s stock which were granted during the year ended June 30, 2018. The agreement does not provide for the grant of stock options in 2019. March is the husband of Grace S. Morin, a Director of the Company and of Altamira and a former principal stockholder of Altamira.
 
On July 1, 2017, the Company entered into a new employment agreement with Mr. Karl Nowosielski through June 30, 2020 with the option to extend for two additional one-year periods. The agreement provides for an annual base salary for the fiscal year ended June 30, 2018 of $157,000 with annual increases thereafter of 4% per annum. The agreement also provides for a bonus of $10,000 for the fiscal year ending June 30, 2018 and $10,000 for each subsequent year, provided a minimum 5% increase in the EBITDA of the Torbal Products Division is achieved. A bonus of $10,000 was awarded during fiscal 2019. The agreement also provided for a grant of options to purchase 7,500 shares of the Company’s stock which were granted during the year ended June 30, 2018. The agreement does not provide for the grant of stock options in 2019.
 
On May 16, 2017, the Company entered into a new employment agreement with Mr. Anthony Mitri through June 30, 2019 with the option to extend for one additional year period, which was exercised by mutual agreement. The agreement provides for an annual base salary for the fiscal year ended June 30, 2019 of $120,000 and $110,000 for the fiscal year ending June 30, 2018 plus incentive pay based on achievement of certain sales and income levels of Altamira Instruments, Inc. No incentive pay was earned for the fiscal year ended June 30, 2019 or 2018. The agreement also provided for the grant of stock options to purchase up to an aggregate of 10,000 shares, all of which were granted during the fiscal year ended June 30, 2018. No shares were granted during the year ended June 30, 2019.
 
The employment agreements for Ms. Santos, Mr. Nichols, Mr. March, Mr. Nowosielski, and Mr. Mitri contain confidentiality and non-competition covenants. The employment agreements for all the named executives above, except Mr. Mitri, contain termination provisions stipulating that if the Company terminates the employment other than for death, disability, or cause (as such term is defined therein), or if the relevant employee resigns for “good reason” (as such term is defined therein), the Company shall pay severance payments equal to one year’s salary at the rate of the compensation at the time of termination, and continue to pay the regular benefits provided by the Company for a period of one year from termination. Ms. Santos’ employment agreement also contains a provision that within one year of a change of control, if either the Company terminates her employment for any reason other than for “cause” or she terminates her employment for “good reason”, she will have the right to receive a lump sum payment equal to three times the average of her total annual compensation paid for the last five years immediately preceding such termination, minus $1.00.
 
 
 13
 
 
 
 
Directors’ Compensation and Options
 
DIRECTORS’ COMPENSATION
For the Year Ended June 30, 2019
 
 
Name
(a)
 
Fees Earned or Paid in Cash ($)
(b)
 
 
Stock Awards ($)
(c)
 
 
Option Awards($)
(d)
 
 
Non-Equity Incentive Plan Compensation ($)
(e)
 
 
Changes in Pension Value and Non-qualified Deferred Compensation Earnings($)
(f)
 
 
Non-qualified Deferred Comp-sensation Earnings ($)
(g)
 
 
All Other
Comp-
ensation ($)
(h)
 
 
Total ($)
(i)
 
Joseph G.Cremonese
  41,200 
  0 
  0 
  0 
  0 
  0 
  43,200(1)
  84,400 
Marcus Frampton
  2,800 
  0 
  0 
  0 
  0 
  0 
  0 
  2,800 
John A. Moore
  9,800 
  0 
  12,000 
  0 
  0 
  0 
  40,000 
  61,800 
Grace S.Morin
  20,800 
  0 
  0 
  0 
  0 
  0 
  18,200(2)
  39,000 
James S.Segasture
  16,800 
  0 
  0 
  0 
  0 
  0 
  0 
  16,800 
John F.F. Watkins
  20,800 
  0 
  0 
  0 
  0 
  0 
  0 
  20,800 
 
 
(1) Represents amount paid to his affiliate pursuant to a marketing consulting agreement (see Items 12 and 13).
 
(2) Represents compensation received for his administrative services as consultant for SBI (see items 12 and 13). 
 
(3) Represents compensation received for her administrative services as a consultant for Altamira (see Items 12 and 13).
 
The Company paid each Director who is not an employee of the Company or a subsidiary a quarterly retainer fee of $2,200 and a meeting fee of $2,000 for each meeting attended for fiscal 2019 and fiscal 2018, respectively. In addition, the Company reimburses each Director for out-of-pocket expenses incurred in connection with attendance at board meetings. Mr. Cremonese, as Chairman of the Board receives an additional fee of $1,700 per month. During fiscal 2019, total director compensation to non-employee Directors aggregated $213,600, including the consulting fees paid to Mr. Cremonese’s affiliate, Mr. Moore, and Ms. Morin.
 
              Mr. Moore was awarded on a monthly basis options valued at $3,000 utilizing the Black-Scholes option pricing model (a total of 6,705 options) for each of March, April, May, and June 2019 as part of his consulting agreement with the Company. Since December 1, 2003, Mr. Joseph G. Cremonese, has been awarded a total of 45,000 stock options under the Company's 2002 and 2012 Stock Option Plans of which 5,000 remain unexercised. None of the other directors have options outstanding.
 
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The following table sets forth, as of June 30, 2019, the number of shares of Common Stock beneficially owned by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each named executive officer of the Company, and (iv) all directors and executive officers as a group. Shares not outstanding but deemed beneficially owned by virtue of the right of any individual to acquire shares within 60 days are treated as outstanding only when determining the amount of and percentage of outstanding shares of Common Stock owned by such individual. Each person has sole voting and investment power with respect to the shares shown, except as noted. Except as indicated in the table, the address for each of the following is c/o Scientific Industries, Inc., 80 Orville Drive, Bohemia, New York 11716.
 
 
Name
 
 
Amount and Nature of Beneficial Ownership
 
 
% of Class
 
Falcon Juneau, LLC
800 F Street Unit #P2
Juneau, AK 99801
  77,085(1)
  5.2%
Fulcrum, Inc.
100 Delawanna Avenue
Clifton, NJ 07014
  117,370(2)
  7.9%
Joseph G. Cremonese
  138,262(3)
  9.2%
Marcus Frampton
  2,250(4)
  0.2%
John A. Moore
  6,705(5)
  0.0%
Grace S. Morin
  97,450(6)
  6.5%
Helena R. Santos
  40,779(7)
  2.7%
James S. Segasture
  162,500(8)
  10.9%
John F. F. Watkins
  0 
  0.0%
Karl D. Nowosielski
  34,183(9)
  2.3%
Brookman P. March
  97,450(10)
  6.5%
Anthony J. Mitri
  10,000(11)
  0.0%
Robert P. Nichols
  27,897(12)
  1.9%
 
    
    
 
    
    
All directors and executive officers as a group (11 persons)
  510,026(13)
  32.1%
 
 
 
 14
 
 
 
(1) Based upon form Schedule 13G filed with the Securities and Exchange Commission on January 23, 2019. Mr. Frampton, a director of the Company, has voting power over these shares.
(2) Stock ownership in conjunction with the acquisition of the Torbal division assets from Fulcrum, Inc. on February 26, 2014.
(3) 126,262 shares are owned jointly with his wife, 7,000 shares are owned by his wife, and 5,000 shares are issuable upon exercise of options.
(4) Represents shares owned by Mr. Frampton.
(5) Represents shares issuable upon exercise of options.
(6) Includes 14,500 shares issuable upon exercise of options held by her husband, Mr. March.
(7) Includes 25,000 shares issuable upon exercise of options.
(8) Shares owned jointly with his wife.
(9) Includes 9,683 stock issued in connection with the acquisition of the Torbal Division in February 2014. Includes 24,500 shares issuable upon exercise of options.
(10) Represents 82,950 shares owned by Ms. Morin, his wife and includes 14,500 shares issuable upon exercise of options.
(11) Represents shares issuable upon exercise of options.
(12) Includes 9,500 shares issuable upon exercise of options.
(13) Includes 95,205 shares issuable upon exercise of options.
 
 
EQUITY COMPENSATION PLAN INFORMATION
 
The following table sets forth information with respect to Company options, warrants and rights as of June 30, 2019.
 
 
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a)
 
 
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($)
(b)
 
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column
(a)) (c)
 
Equity Compensation plans approved by security holders
  97,200 
  3.24 
  20,800 
Equity Compensation plans not approved by security holders
  N/A 
  N/A 
  N/A 
Total
  97,200 
  3.24 
  20,800 
 
 
 15
 
 
 
Item 13.Certain Relationships and Related Transactions and Director Independence.
 
Mr. Joseph G. Cremonese, a Director since November 2002, through his affiliate, Laboratory Innovation Company, Ltd., has been providing independent marketing consulting services to the Company since January 1, 2003 pursuant to a consulting agreement expiring December 31, 2019. The agreement currently provides that Mr. Cremonese and his affiliate shall render, at the request of the Company, marketing consulting services for a monthly payment of $3,600. The agreement contains confidentiality and non-competition covenants. The Company paid fees of $43,200 pursuant to the agreement for each of fiscal 2019 and 2018.
 
Ms. Grace S. Morin, was elected a Director in December 2007 following the sale of her 90.36% ownership interest in Altamira to the Company in November 2006. Up until March 31, 2009, Ms. Morin had been employed by Altamira as an administrative employee. Since April 1, 2009, she has provided consulting services on a part-time basis pursuant to an agreement expiring December 31, 2019 at the rate of $85 per hour, resulting in payments of $18,200 and $7,000 for fiscal 2019 and fiscal 2018, respectively. The agreement contains confidentiality and non-competition covenants.
 
Mr. John A. Moore, a Director since January 2019, has been providing consulting services to the Company since March 2019 pursuant to a consulting agreement which expired on August 31, 2019 but which has been renewed for an additional six months. The agreement currently provides that Mr. Moore shall render, at the request of the Company, consulting services as to the operations of Scientific Bioprocessing, Inc., a wholly-owned subsidiary of the Company for a monthly payment of $10,000 plus the issuance of stock options valued at $3,000. The agreement contains confidentiality and non-competition covenants. The Company paid fees of $40,000 and granted options with a value of $12,000 pursuant to the agreement for fiscal 2019.
 
Item 14. Principal Accountant Fees and Services.
 
The following is a description of the fees incurred by the Company for services by the firm of Nussbaum Berg Klein & Wolpow, CPAs LLP (the “Firm”) during fiscal 2019 and fiscal 2018.
 
The Company incurred for the services of the Firm fees of approximately $73,000 and $70,000 for fiscal 2019 and fiscal 2018, respectively, in connection with the audit of the Company’s annual financial statements and quarterly reviews; and $7,500 and $6,000 for the preparation of the Company’s corporate tax returns for fiscal 2019 and fiscal 2018, respectively.
 
In approving the engagement of the independent registered public accounting firm to perform the audit and non-audit services, the Board of Directors as the Company’s audit committee evaluates the scope and cost of each of the services to be performed including a determination that the performance of the non-audit services will not affect the independence of the firm in the performance of the audit services.
 
 
 
 
  
 16
 
 
  PART IV
 
Item 15. Exhibits and Financial Statement Schedules.
 
Financial Statements. The required financial statements of the Company are attached hereto on pages F1-F20.
 
Exhibits. The following Exhibits are filed as part of this report on Form 10-K:
 
 
Exhibit Number
Exhibit
 
 
3
Articles of Incorporation and By-Laws:
 
 
3(a)
Certificate of Incorporation of the Company as amended (filed as Exhibit 1(a-1) to the Company's General Form for Registration of Securities on Form 10 dated February 14, 1973 and incorporated by reference thereto.)
 
 
3(b)
Certificate of Amendment of the Company’s Certificate of Incorporation, as filed on January 28, 1985 (filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 1985 and incorporated by reference thereto.)
 
 
By-Laws of the Company, as restated and amended (filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on January 6, 2003 and Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on December 5, 2007 and incorporated by reference thereto).
 
 
4
Instruments defining the rights of security holders:
 
 
2002 Stock Option Plan (filed as Exhibit 99-1 to the Company’s Current Report on Form 8-K filed on November 25, 2002 and incorporated by reference thereto).
 
 
2012 Stock Option Plan (filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on January 23, 2012 and incorporated by reference thereto).
 
 
Amendment to the Company’s 2012 Stock Option Plan (Filed as Exhibit 4(c) to the Company’s Quarterly Report on Form 10-Q filed on May 12, 2016 and incorporated by reference thereto).
 
 
10
Material Contracts:
 
 
Lease between Registrant and AIP Associates, predecessor-in-interest of current lessor, dated October, 1989 with respect to Company's offices and facilities in Bohemia, New York (filed as Exhibit 10(a) to the Company’s Annual Report on Form 10-KSB filed on September 28, 2005 and incorporated by reference thereto).
 
 
Amendment to lease between Registrant and REP A10 LLC, successor in interest of AIP Associates, dated September 1, 2004 (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on September 2, 2004, and incorporated by reference thereto).
 
 
Second amendment to lease between Registrant and REP A10 LLC dated November 5, 2007 (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on November 8, 2007, and incorporated by reference thereto).
 
 
Lease agreement dated August 8, 2014 by and between the Company and 80 Orville Drive Associates LLC.
 
 
Employment Agreement dated January 1, 2003, by and between the Company and Ms. Santos (filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on January 22, 2003, and incorporated by reference thereto).
 
 
Employment Agreement dated September 1, 2004, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on September 1, 2004, and incorporated by reference thereto).
 
 
Employment Agreement dated December 29, 2006, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on December 29, 2006, and incorporated by reference thereto).
    
Employment Agreement dated July 31, 2009 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on August 7, 2009, and incorporated by reference thereto).
 
 
Employment Agreement dated May 14, 2010 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on May 18, 2010, and incorporated by reference thereto).
 
Employment Agreement dated September 13, 2011 by and between the Company and Ms. Santos (filed as exhibit 10(b)-5 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and incorporated by reference thereto).
 
 
Amended Employment Agreement dated May 20, 2013 by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on May 20, 2013, and incorporated by reference thereto).
 
 
Agreement extension dated June 9, 2015 to amend employment agreement by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto)
 
 
Agreement extension dated May 25, 2016 to amend employment agreement by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on May 31, 2016, and incorporated by reference thereto).
 
 
Employment agreement dated July 1, 2017 by and between the Company and Ms. Santos (filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017, and incorporated by reference thereto).
 
 
 17
 
   
 
Employment Agreement dated January 1, 2003, by and between the Company and Mr. Robert P. Nichols (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on January 22, 2003, and incorporated by reference thereto).
 
 
Employment Agreement dated September 1, 2004, by and between the Company and Mr. Nichols (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on September 1, 2004, and incorporated by reference thereto).
 
 
Employment Agreement dated December 29, 2006, by and between the Company and Mr. Nichols (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on December 29, 2006, and incorporated by reference thereto).
 
 
Employment Agreement dated July 31, 2009 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on August 7, 2009, and incorporated by reference thereto).
 
 
Employment Agreement dated May 14, 2010 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on May 18, 2010, and incorporated by reference thereto).
 
 
Employment Agreement dated September 13, 2011 by and between the Company and Mr. Nichols (filed as Exhibit 10(c)-5 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, and incorporated by reference thereto).
 
 
Amended Employment Agreement dated May 20, 2013 by and between the Company and Mr. Nichols (filed as Exhibit 10A-2 to the Company’s current Report on Form 8-K filed on May 20, 2013, and incorporated by reference thereto).
 
 
Agreement extension dated June 9, 2015 to amend employment agreement with Mr. Nichols (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto).
 
 
Agreement e Agreement extension dated May 25, 2016 to amend employment agreement with Mr. Nichols (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on May 31, 2016, and incorporated by reference thereto).
 
 
Employment agreement dated July 1, 2017 by and between the Company and Mr. Nichols (filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2017, and incorporated by reference thereto).
 
 
Consulting Agreement dated January 1, 2003 by and between the Company and Mr. Cremonese and his affiliate, Laboratory Innovation Company, Ltd. (filed as Exhibit 10(b) to the Company’s Current Report on Form 8-K filed on January 6, 2003, and incorporated by reference thereto).
 
 
Amended and Restated Consulting Agreement dated March 22, 2005, by and between the Company and Mr. Cremonese and Laboratory Innovation Company, Ltd. (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on March 23, 2005, and incorporated by reference thereto).
 
 
Second Amended and Restated Consulting Agreement dated March 15, 2007, by and between the Company and Mr. Cremonese and Laboratory Innovation Company Ltd. (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on March 16, 2007, and incorporated by reference thereto).
 
 
Third Amended and Restated Consulting Agreement dated September 23, 2009, by and between the Company and Mr. Cremonese and Laboratory Innovation Company, Ltd. (filed as Exhibit 10 to the Company’s Annual Report on Form 10-K field on September 24, 2009, and incorporated by reference thereto).
 
 
Fourth Amended and Restated Consulting Agreement dated January 7, 2011 (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K (filed on January 18, 2011, and incorporated by reference thereto).
 
Fifth Amendment and Restated Consulting Agreement dated January 20, 2012 (filed as Exhibit 10 to the Company’s Current Report on Form 8-K (filed on January 23, 2012, and incorporated by reference thereto).
 
 
Agreement extension dated November 29, 2012 to Amended and Restated Consulting Agreement (filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on December 4, 2012, and incorporated by reference thereto).
 
 
Agreement extension dated December 12, 2013 to Amended and Restated Consulting Agreement (filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on December 12, 2013, and incorporated by reference thereto).
 
 
Agreement extension dated January 14, 2015 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on January 15, 2015, and incorporated with reference thereto).
 
 
Agreement extension dated January 7, 2016 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on January 26, 2016, and incorporated with reference thereto).
 
 
Agreement extension dated February 16, 2018 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10-A1 to the Company’s Current Report on Form 8-K filed on March 9, 2018, and incorporated with reference thereto).
 
 
Agreement extension dated January 23, 2019 to Amended and Restated Consulting Agreement by and between the Company and Mr. Cremonese and affiliates (filed as Exhibit 10-1 to the Company’s Current Report on Form 8-K filed on January 25, 2019, and incorporated with reference thereto).
 
 
Sublicense from Fluorometrix Corporation (filed as Exhibit 10(a)1 to the Company’s Current Report on Form 8-K filed on June 14, 2006, and incorporated by reference thereto).
 
 
Stock Purchase Agreement, dated as of November 30, 2006, by and among the Company and Grace Morin, Heather H. Haught and William D. Chandler (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 5, 2006, and incorporated by reference thereto).
 
 
Escrow Agreement, dated as of November 30, 2006, by and among the Company and Grace Morin, Heather H. Haught and William D. Chandler (filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on December 5, 2006, and incorporated by reference thereto).
 
 
 18
 
 
 
 
 
Registration Rights Agreement, dated as of November 30, 2006, by and among the Company and Grace Morin, Heather H. Haught and William D. Chandler (filed as Exhibit 10(b) to the Company’s Current Report on Form 8-K filed on December 5, 2006, and incorporated by reference thereto).
 
 
Employment Agreement, dated as of November 30, 2006, between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10(c) to the Company’s Current Report on Form 8-K filed on December 5, 2006, and incorporated by reference thereto).
 
 
Employment Agreement, dated as of October 30, 2008, between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on October 30, 2008, and incorporated by reference thereto).
 
 
Employment Agreement, dated as of October 1, 2010, between Altamira Instruments, Inc., and Brookman P. March (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on October 13, 2010, and incorporated by reference thereto).
 
 
Employment Agreement, dated as of May 18, 2012 between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10(i)-3 to the Company’s Annual Report on Form 10-K filed on September 27, 2012, and incorporated by reference thereto).
 
 
Agreement Extension, dated as of May 21, 2014 between Altamira Instruments, Inc. and Brookman P. March (filed as Exhibit 10 to the Company’s Current Report on Form 8-K filed on May 21, 2014, and incorporated by reference thereto).
 
 
Agreement extension dated June 9, 2015 to amend employment agreement (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on June 9, 2015, and incorporated by reference thereto).
 
 
Agreement extension dated May 25, 2016 to amend employment agreement (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on May 31, 2016, and incorporated by reference thereto).
 
 
Employment agreement dated July 1, 2017 by and between the Company and Mr. March (filed as an exhibit to the Company's Annual Report on Form 10-K filed on June 30, 2017, and incorporated by reference thereto).
 
 
Indemnity Agreement, dated as of April 13, 2007 by and among the Company and Grace Morin, Heather H. Haught and William D. Chandler (filed as Exhibit 10(j) to the Company’s Annual Report on Form 10-KSB filed on September 28, 2007 and incorporated by reference thereto).
 
 
Lease between Altamira Instruments, Inc. and Allegheny Homes, LLC, with respect to the Company’s Pittsburgh, Pennsylvania facilities (filed as Exhibit 10(k) to the Company’s Annual Report on Form 10-KSB filed on September 28, 2007 and incorporated by reference thereto).
 
Lease between Altamira Instruments, Inc. and Allegheny Homes, LLC, with respect to the Company’s Pittsburgh, Pennsylvania facilities (filed as Exhibit 10(k)-1 to the Company’s Quarterly Report on Form 10-Q filed on February 14, 2013, and incorporated by reference thereto).
 
 
Line of Credit Agreements dated October 30, 2008, by and among the Company and Capital One, N.A. (filed as Exhibits 10-A1(a) through (f) to the Company’s Current Report on Form 8-K filed on October 30, 2008, and incorporated by reference thereto.
 
 
Restated Promissory Note Agreement dated January 20, 2010 by and among the Company and Capital One N.A. (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on January 20, 2010, and incorporated by reference thereto).
 
 
Consulting Agreement dated April 1, 2009 by and between the Company and Grace Morin (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on April 1, 2009, and incorporated by reference thereto).
 
 
Agreement dated January 12, 2015 to extend Consulting Agreement (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on January 15, 2015, and incorporated by reference thereto).
 
 
Agreement dated January 7, 2016 to extend Consulting Agreement (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on January 26, 2016, and incorporated by reference thereto).
 
 
Agreement dated February 16, 2018 to extend Consulting Agreement (filed as Exhibit 10A-2 to the Company’s Current Report on Form 8-K filed on March 9, 2018, and incorporated by reference thereto).
 
 
Agreement dated January 23, 2019 to extend Consulting Agreement (filed as Exhibit 10-2 to the Company’s Current Report on Form 8-K filed on January 25, 2019, and incorporated by reference thereto).
 
 
Line of Credit Agreements dated June 14, 2011, by and among the Company and JPMorgan Chase Bank, N.A. (filed as Exhibits 99.1 through 99.3 to the Company’s Current Report on Form 8-K filed on June 16, 2011, and incorporated by reference thereto).
 
 
Promissory Note dated June 5, 2013 by and among the Company and JP Morgan Chase Bank, N.A. (filed as Exhibit 99 to the Company’s Current Report on Form 8-K filed on June 7, 2013, and incorporated by reference thereto).
 
 
Purchase Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Fluorometrix Corporation (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
 
 
Escrow Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Fluorometrix Corporation (filed as Exhibit 10(A) to the Company’s Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
 
 
Research and Development Agreement dated as of November 14, 2011, by and between Scientific Bioprocessing, Inc. and Biodox R&D Corporation (filed as Exhibit 10(B) to the Company’s Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
 
 
 19
 
   
 
Notice of termination of Research and Development Agreement dated June 12, 2013 (filed as Exhibit 99 to the Company’s Current Report on Form 8-K filed on June 27, 2013, and incorporated by reference thereto)
 
 
Non-Competition Agreement, dated as of November 14, 2011, by and among the Company, Scientific Bioprocessing, Inc., and Joseph E. Qualitz (filed as Exhibit 10(D) to the Company’s Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
 
 
Promissory Note, dated as of November 14, 2011, by and between the Company and the University of Maryland, Baltimore County (filed as Exhibit 10(c) to the Company’s Current Report on Form 8-K filed on November 17, 2011, and incorporated by reference thereto).
 
 
License Agreement, dated as of January 31, 2001 by and between University of Maryland, Baltimore County and Fluorometrix Corporation (filed as Exhibit 10(E) to the Company’s Current Report on Form 8-K filed on November 21, 2011, and incorporated by reference thereto).
 
 
Line of Credit Agreements dated June 25, 2014, by and among the Company and Bank of America Merrill Lynch (filed as Exhibits 99.1 through 99.2 (to the Company’s Current Report on Form 8-K filed on July 2, 2014, and incorporated by reference thereto).
 
 
Asset Purchase Agreement, dated as of February 26, 2014, by and among the Company and Fulcrum, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
 
 
Escrow Agreement, dated as of February 26, 2014, by and among the Company, and Fulcrum, Inc. (filed as Exhibit 10(e) to the Company’s Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
 
 
Non-Competition Agreements, dated as of February 26, 2014, by and among the Company, and James Maloy and Karl Nowosielski (filed as Exhibits 10(b) and 10(c) to the Company’s Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
 
 
Registration Rights Agreement, dated as of February 26, 2014, by and among the Company, and Fulcrum, Inc. (filed as Exhibit 10(d) to the Company’s Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
 
Supply Agreement, dated as of February 20, 2014, by and among the Company, and Axis Sp 3.O.O. (filed as Exhibit 10(g) to the Company’s Current Report on Form 8-K filed on February 28, 2014, and incorporated by reference thereto).
 
 
Line of Credit Agreements dated June 26, 2015, by and among the Company and First National Bank of Pennsylvania (filed as Exhibit 10.1 through 10.4 to the Company’s Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
 
 
Commercial Security Agreement dated July 5, 2016 by and among the Company, and First National Bank of Pennsylvania.
 
 
Note Purchase Agreements with James Maloy dated May 7, 2015 (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
 
 
Note Purchase Agreements with Grace March dated May 19, 2015 (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 30, 2015, and incorporated by reference thereto).
 
 
Consulting Agreement dated March 1, 2019 between the Company and Mr. John A. Moore (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on March 6, 2019.
 
 
Code of Ethics (filed as Exhibit 14 to the Company’s Annual 10KSB filed on September 28, 2007 and incorporated by reference thereto).
 
 
21
Subsidiaries of the Registrant
 
 
 
Altamira Instruments, Inc., a Delaware Corporation, is a wholly-owned subsidiary of the Company.
 
 
 
Scientific Bioprocessing, Inc., a Delaware Corporation, is a wholly-owned subsidiary of the Company since November 2011.
 
 
 
Scientific Packaging Industries, Inc., a New York corporation, is a wholly-owned inactive subsidiary of the Company.
 
 
31.01
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
 
 
32.01
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
 
 
 
 20
 
 
 
SIGNATURES
 
 
 
Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Date: October 04, 2019
 
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
 
 
/s/Helena R. Santos
 
Helena R. Santos
President, Chief Executive Officer,
Chief Financial Officer and Treasurer
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
 
Name
Title
Date
 
 
 
 
 
 
Helena R. Santos
President, Chief Executive Officer, Chief Financial Officer and Treasurer
October 04, 2019
 
 
 
Joseph G. Cremonese
Chairman of the Board
October 04, 2019
 
 
 
Marcus Frampton
Director
October 04, 2019
 
 
 
John A. Moore
Director
October 04, 2019
 
 
 
Grace S. Morin
Director
October 04, 2019
 
 
 
James S. Segasture
Director
October 04, 2019
 
 
 
John F.F. Watkins
Director
October 04, 2019
 
 
 
 21
 
    
 
 
 
 
 
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
 
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
AS OF AND FOR THE YEARS ENDED
JUNE 30, 2019 AND 2018
 
 
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
CONTENTS
 
 
 
     Page                   
 
 
Report of independent registered public accounting firm
F-1
 
 
Consolidated financial statements:
 
 
 
Balance sheets
F-2
 
 
Statements of operations
F-3
 
 
Statements of comprehensive income (loss)
F-4
 
 
Statements of changes in stockholders’ equity
F-5
 
 
Statements of cash flows
F-6
 
 
Notes to financial statements
F-7 – F-20
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
 

 
To the Stockholders’ and the Board of Directors of Scientific Industries, Inc.
 
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Scientific Industries, Inc. and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
We have served as the Company’s auditor since 1991.
 
/s/  Nussbaum Berg Klein & Wolpow, CPAs LLP
Nussbaum Berg Klein & Wolpow, CPAs LLP
 
Melville, New York
October 04, 2019
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
AS OF JUNE 30, 2019 AND 2018
 
ASSETS
 
 
 
 2019 
 
 
 2018 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $1,602,500 
 $1,053,100 
Investment securities
  330,900 
  314,700 
Trade accounts receivable, less allowance for doubtful accounts of $15,000 and $11,600, respectively
  1,974,200 
  1,722,300 
Inventories
  2,592,300 
  2,267,900 
Prepaid expenses and other current assets
  91,200 
  33,500 
Total current assets
  6,591,100 
  5,391,500 
 
    
    
Property and equipment, net
  318,800 
  199,500 
 
    
    
Intangible assets, net
  175,000 
  338,700 
 
    
    
Goodwill
  705,300 
  705,300 
 
    
    
Trade accounts receivable, less current portion
 - 
  245,400 
 
    
    
Other assets
  54,700 
  52,500 
 
    
    
Deferred taxes
  431,100 
  392,600 
 
    
    
Total assets
 $8,276,000 
 $7,325,500 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
 $569,000 
 $428,000 
Accrued expenses and taxes, current portion
  608,300 
  657,700 
Contract liabilities
 - 
  63,800 
Bank overdraft
  140,000 
  - 
Contingent consideration, current portion
  268,000 
  118,000 
Notes payable
 - 
  5,800 
Total current liabilities
  1,585,300 
  1,273,300 
 
    
    
Accrued expenses, less current portion
 - 
  60,000 
 
    
    
Contingent consideration payable, less current portion
  350,000 
  290,000 
 
    
    
Total liabilities
  1,935,300 
  1,623,300 
 
    
    
Stockholders’ equity:
    
    
Common stock, $.05 par value; 7,000,000 shares authorized; 1,513,914 shares issued; 1,494,112 shares outstanding, respectively
  75,700 
  75,700 
Additional paid-in capital
  2,592,700 
  2,545,900 
Accumulated other comprehensive income
  - 
  1,200 
Retained earnings
  3,724,700 
  3,131,800 
 
  6,393,100 
  5,754,600 
Less common stock held in treasury at cost, 19,802 shares
  52,400 
  52,400 
 
    
    
Total stockholders’ equity
  6,340,700 
  5,702,200 
 
    
    
Total liabilities and stockholders’ equity
 $8,276,000 
 $7,325,500 
See notes to consolidated financial statements.
 
F-2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 2019 
 
 
 2018 
 
 
 
 
 
 
 
 
Revenues
 $10,199,800 
 $8,481,400 
 
    
    
Cost of revenues
  5,832,700 
  5,259,700 
 
    
    
Gross profit
  4,367,100 
  3,221,700 
 
    
    
Operating expenses:
    
    
General and administrative
  1,924,400 
  1,748,800 
Selling
  1,136,100 
  957,500 
Research and development
  530,500 
  520,900 
 
    
    
Total operating expenses
  3,591,000 
  3,227,200 
 
    
    
Income (loss) from operations
  776,100 
  (5,500)
 
    
    
Other income (expense):
    
    
Interest income
  3,400 
  6,100 
Other income (loss), net
  (7,800)
  2,500 
Interest expense
  (1,500)
  (1,700)
 
    
    
Total other income (expense)
  (5,900)
  6,900 
 
    
    
Income before income tax expense
  770,200 
  1,400 
 
    
    
Income tax expense:
    
    
Current
  166,600 
  50,400 
Deferred
  (42,000)
  111,500 
 
    
    
Total income tax expense
  124,600 
  161,900 
 
    
    
Net income (loss)
 $645,600 
 $(160,500)
 
    
    
Basic earnings (loss) per common share
 $.43 
 $(.11)
 
    
    
Diluted earnings (loss) per common share
 $.43 
 $(.11)
 
    
    
Weighted average common shares, basic
  1,494,112 
  1,494,112 
 
    
    
Weighted average common shares outstanding, assuming dilution (in 2019)
  1,512,178 
  1,494,112 
 
    
    
 
See notes to consolidated financial statements.
 
F-3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 2019
 
 
 2018 
 
 
 
 
 
 
 
 
Net income (loss)
 $645,600
 
 $(160,500)
 
    
    
Other comprehensive income:
    
    
Unrealized holding gain
    
    
arising during period,
    
    
net of tax
  - 
  4,700 
 
    
    
Comprehensive income (loss)
  $645,600 
 $(155,800)
 
See notes to consolidated financial statements.
 
F-4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 
 
 
 
 Additional
 
 
 Accumulated
 Other
 
 
 
 
 
 
 
 
 Total
 
 
 
Common Stock
 
 
 Paid-in
 
 
Comprehensive
 
 
 Retained
 
 
Treasury Stock
 
 
Stockholders’
 
 
 
 Shares 
 
 
 Amount 
 
 
 Capital 
 
 
 Income (Loss) 
 
 
 Earnings 
 
 
 Shares 
 
 
 Amount 
 
 
 Equity 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2017
  1,513,914 
 $75,700 
 $2,515,900 
 $(3,500)
 $3,292,300 
  19,802 
 $52,400 
 $5,828,000 
 
    
    
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  (160,500)
  - 
  - 
  (160,500)
 
    
    
    
    
    
    
    
    
Unrealized holding gain on investment securities, net of tax
  - 
  - 
  - 
  4,700 
  - 
  - 
  - 
  4,700 
 
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  30,000 
  - 
  - 
  - 
  - 
  30,000 
 
    
    
    
    
    
    
    
    
Balance, June 30, 2018
  1,513,914 
  75,700 
  2,545,900 
  1,200 
  3,131,800 
  19,802 
  52,400 
  5,702,200 
 
    
    
    
    
    
    
    
    
Cumulative effect of the adoption of
  - 
  - 
  - 
  (22,000)
  22,000 
  - 
  - 
  -
 
ASU 2016-01 – Financial Instruments
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  645,600 
  - 
  - 
  645,600 
 
 
 
 
 
    
    
    
    
Cash dividend declared and paid, $.05
 - 
  -
 - 
 - 
  (74,700)
  - 
  - 
  (74,700)
 
    
    
    
    
    
    
    
    
Holding loss on investment securities, net of tax
  - 
  - 
  - 
  20,800 
  - 
  - 
  - 
  20,800 
 
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  46,800 
  -
 
  - 
  - 
  - 
  46,800 
 
    
    
    
    
    
    
    
    
Balance, June 30, 2019
  1,513,914 
 $75,700 
 $2,592,700 
 $-
 
 $3,724,700 
  19,802 
 $52,400 
 $6,340,700 
 
 
See notes to consolidated financial statements.
 
F-5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
 
 2019 
 
 
 2018 
 
 
 
 
 
 
 
 
Operating activities:
 
 
 
 
 
 
Net income (loss)
 $645,600 
 $(160,500)
Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
    
    
        Loss on sale of investment securities
  13,200 
  - 
Depreciation and amortization
  257,300 
  305,100 
Deferred income tax (benefit) expense
  (38,500)
  112,500 
Unrealized holding gain on investment securities
  (3,000)
  - 
Stock-based compensation
  46,800 
  30,000 
Change in fair value of contingent consideration
  521,200 
  253,700 
Changes in operating assets and liabilities:
    
    
Trade accounts receivable
  (6,500)
  (543,300)
Inventories
  (324,400)
  (306,700)
Prepaid expenses and other assets
  (60,100)
  46,800 
Accounts payable
  141,000 
  288,800 
Contract liabilities
  (63,800)
  63,800 
Accrued expenses and taxes
 (109,300)
  166,700 
                   Bank overdraft
 140,000 
 - 
 
    
    
Total adjustments
  513,900 
  417,400 
 
    
    
Net cash provided by operating activities
  1,159,500 
  256,900 
 
    
    
Investing activities:
    
    
Purchase of investment securities
  (157,900)
  (14,500)
Redemption of investment securities
  151,900 
  - 
Capital expenditures
  (187,800)
  (61,400)
Purchase of intangible assets
  (24,600)
  (3,600)
 
    
    
Net cash used in investing activities
  (218,400)
  (79,500)
 
    
    
Financing activities:
    
    
Principal payments on notes payable
  (5,800)
  (6,700)
Cash dividend declared and paid
  (74,700)
  - 
Line of credit proceeds
  50,000 
  40,000 
Line of credit repayments
  (50,000)
  (40,000)
Payments for contingent consideration
  (311,200)
  (142,700)
 
    
    
Net cash used in financing activities
  (391,700)
  (149,400)
   
Net increase in cash and cash equivalents
  549,400 
  28,000 
 
    
    
Cash and cash equivalents, beginning of year
  1,053,100 
  1,025,100 
 
    
    
Cash and cash equivalents, end of year
 $1,602,500 
 $1,053,100 
 
    
    
Supplemental disclosures:
    
    
 
    
    
Cash paid during the period for:
    
    
Income taxes
 $56,700 
 $16,000 
Interest
 $1,500 
 $1,700 
See notes to consolidated financial statements.
 
F-6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
1.         Summary of Significant Accounting Policies
 
 
Nature of Operations
 
Scientific Industries, Inc. and its subsidiaries (the “Company”) design, manufacture, and market a variety of benchtop laboratory equipment, bioprocessing products and catalyst research instruments. The Company is headquartered in Bohemia, New York where it produces benchtop laboratory equipment. Additionally, the Company has two other locations in Pittsburgh, Pennsylvania, where it produces a variety of custom-made catalyst research instruments and designs bioprocessing products, and an administrative facility in Oradell, New Jersey related to sales and marketing. The products sold by the Company includes mixers, shakers, stirrers, refrigerated incubators, pharmacy balances and scales, force gauges, catalyst characterization instruments, reactor systems and high throughput systems. The Company also sublicenses certain patents and technology under a license with the University of Maryland, Baltimore County, and receives royalty fees from the sublicenses.
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary, Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary, and Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation and wholly-owned subsidiary, (all collectively referred to as the “Company”). All material intercompany balances and transactions have been eliminated.
 
Revenue Recognition
 
On July 1, 2018 the Company adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, as amended” (“ASC Topic 606”), using the modified retrospective method applied to those contracts which were not completed as of the adoption date. The adoption of the standard did not have a material impact on how the Company recognizes its revenues. In accordance with Topic 606, the Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
 
Nature of Products and Services
 
We generate revenues from the following sources: (1) Benchtop Laboratory Equipment, (2) Catalyst Research Instruments, and (3) Royalties.
 
The following table summarizes the Company’s disaggregation of revenues for the years ended June 30, 2019 and 2018.
 
 
 
 
 Benchtop
 Laboratory
 Equipment 
 
 
 Catalyst
 Research
 Instruments 
 
 
Bioprocessing
 Systems 
 
 
 Consolidated 
 
June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $7,078,800 
 $1,814,900 
 $1,306,100 
 $10,199,800 
Foreign Sales
  2,680,300 
  1,102,300 
  1,301,200 
  5,083,800 
 
    
    
    
    
June 30, 2018:
    
    
    
    
Revenues
 $6,403,400 
 $1,408,900 
 $669,100 
 $8,481,400 
Foreign Sales
  2,669,000 
  707,200 
  669,100 
  4,045,300 
 
Benchtop laboratory equipment sales comprise primarily of standard benchtop laboratory equipment from its stock to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment is very short varying from a day to a few weeks. Customers either pay by credit card (online sales) or Net 30-90, depending on the customer. Once the item is shipped under the FOB terms specified in the order, which is primarily “FOB Factory”, other than a standard warranty, there are no other obligations to the customer. Warranty usually comprises of one to two year parts and labor and is deemed immaterial.
 
 F-7
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
1.
Summary of Significant Accounting Policies (Continued)
 
Revenue Recognition (Continued)
 
Nature of Products and Services (Continued)
 
Catalyst research instrument sales comprise primarily of large instruments which begin with a standard model and then are customized to a customer’s specifications. The sales cycle can be quite long, typically ranging from one to three months, from the time an order is received to the time the instrument is shipped to the customer. Payment terms vary from customer to customer and can include advance payments which are recorded as contract liabilities. Some contracts call for training and installation, which is considered ancillary and not a material part of the contract. Due to the size and nature of the instruments, the Company subjects the instruments to an extensive factory acceptance testing process prior to shipment to ensure that they are fully operational once they reach the customer’s site. Normally, the Company warrantees its instruments for a period of twelve months for parts and labor which normally consists of replacement of small components or software support. Catalyst research instruments are never returned for repairs.
 
Royalty revenues pertain to royalties earned by the Company, which are paid on a calendar year basis, under a licensing agreement from a single licensee and its sublicensees. The Company is then obligated to pay 50% of all royalties received to the entity that licenses the intellectual property to the Company. During the year, the Company’s management uses its best judgement to estimate the royalty revenues earned during the period.
 
The Company determines revenue recognition through the following steps:
 
 
●
 Identification of the contract, or contracts, with a customer
 
●
 Identification of the performance obligations in the contract
 
●
 Determination of the transaction price
 
●
 Allocation of the transaction price to the performance obligations in the contract
 
●
 Recognition of revenue when, or as, a performance obligation is satisfied
 
The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the Financial Accounting Standards Board ("FASB"), in applying ASC Topic 606: 1) All revenues are recorded net of returns, allowances, customer discounts, and incentives; 2) Although sales and other taxes are immaterial, the Company accounts for amounts collected from customers for sales and other taxes, if any, net of related amounts remitted to tax authorities; 3) The Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; 4) The Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling expenses; 5) The Company is always considered the principal and never an agent, because it has full control and responsibility until title is transferred to the customer; 6) The Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer such as is the case with catalyst instruments.
 
            Cash and Cash Equivalents
 
The Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents. At times, cash balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. As of June 30, 2019, and 2018, $1,328,600 and $593,700, respectively of cash balances were in excess of such limit.
 
Accounts Receivable
 
In order to record the Company’s accounts receivable at their net realizable value, the Company must assess their collectability. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company’s receivables, and the current creditworthiness of the Company’s customers. The Company has recorded allowances for receivables which it considered uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company’s customers was to deteriorate and its ability to make required payments became impaired, increases in these allowances may be required. The Company actively manages its accounts receivable to minimize credit risk. The Company does not obtain collateral for its accounts receivable.
 
Contract Liabilities
 
Contract liabilities consists of billings or payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. Amounts that have been invoiced are initially recorded in accounts receivable and contract liabilities. The Company invoices its customers in accordance with the terms of the underlying contract. Accordingly, the contract liabilities balance does not represent the total contract value of outstanding arrangements. Contract liabilities that are expected to be recognized during the subsequent 12-month period are recorded as current and the remaining portion as noncurrent. Customer advances of $63,800 for the year ended June 30, 2018 were reclassified to contract liabilities on the balance sheet, which was all recognized as revenue during the year ended June 30, 2019.
 
Investment Securities
 
Investment securities consist of equity securities and mutual funds with realized gains and losses recorded using the specific identification method. Changes in fair value are recorded as unrealized holding gains or losses on the income statement. We determine the cost of the investment sold based on an average cost basis at the individual security level, and record the interest income and realized gains or losses on the sale of these investments in other income (loss), net. Prior to the year ended June 30, 2019, the Company’s investment securities were classified as available-for-sale securities and measured and recorded at fair value with unrealized changes in fair value recorded through other comprehensive income.
 
 
 F-8
 
 
                           
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 
                                                        
 
1.        
Summary of Significant Accounting Policies (Continued)
  
Inventories
 
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value, and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on management’s review of inventories on hand compared to estimated future usage and sales. Cost of work-in-process and finished goods inventories include material, labor and manufacturing overhead.
 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation of property and equipment is provided for primarily by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized by the straight-line method over the remaining term of the related lease or the estimated useful lives of the assets, whichever is shorter.
 
Intangible Assets
 
Intangible assets consist primarily of acquired technology, customer relationships, non-compete agreements, patents, licenses, websites, intellectual property and research and development (“IPR&D”), trademarks and trade names. All intangible assets are amortized on a straight-line basis over the estimated useful lives of the respective assets, generally 3 to 10 years. The Company continually evaluates the remaining estimated useful lives of intangible assets that are being amortized to determine whether events or circumstances warrant a revision to the remaining period of amortization.
 
Goodwill and Long-Lived Assets
 
Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of ASC No. 350, “Intangibles-Goodwill and Other” (“ASC No. 350”). ASC No. 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. The Company tests goodwill and long-lived assets annually as of June 30, the last day of its fiscal year, unless an event occurs that would cause the Company to believe the value is impaired at an interim date. The Company concluded as of June 30, 2019 and 2018, there was no impairment of goodwill.
 
Impairment of Long-Lived Assets
 
The Company follows the provisions of ASC No. 360-10, “Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets (“ASC No. 360-10”). ASC No. 360-10 which requires evaluation of the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation for impairment is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write down to a new depreciable basis is required. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. The Company concluded as of June 30, 2019 and 2018, there was no impairment of long-lived assets.
 
Income Taxes
 
The Company and its subsidiaries file a consolidated U.S. federal income tax return. Income taxes are accounted for under the asset and liability method. The Company provides for federal, and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.
 
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
 
Advertising
 
Advertising costs are expensed as incurred. Advertising expense amounted to $207,500 and $174,700 for the years ended June 30, 2019 and 2018, respectively.
 
Research and Development
 
Research and development costs consisting of expenses for activities that are useful in developing and testing new products, as well as expenses that may significantly improve existing products, are expensed as incurred.
 
F-9
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
1.        
Summary of Significant Accounting Policies (Continued)
 
Stock Compensation Plan
 
The Company has a ten-year stock option plan (the “2012 Plan”) which provides for the grant of options to purchase up to 100,000 shares of the Company’s Common Stock, par value $.05 per share (“Common Stock”), plus 57,000 shares under options previously granted under the 2002 Stock Option Plan of the Company (the “Prior Plan”). The 2012 Plan provides for the granting of incentive or non-incentive stock options as defined in the 2012 Plan and options under the 2012 Plan may be granted until 2022. Incentive stock options may be granted to employees at an exercise price equal to 100% (or 110% if the optionee owns directly or indirectly more than 10% of the outstanding voting stock) of the fair market value of the shares of Common Stock on the date of the grant. Non-incentive stock options shall be granted at the fair market value of the shares of Common Stock on the date of grant. At June 30, 2019 and 2018, 20,795 and 26,000 shares respectively, of Common Stock were available for grant of options under the 2012 Plan.
 
Stock-based compensation is accounted for in accordance with ASC No. 718 “Compensation-Stock Compensation” (“ASC No. 718”) which requires compensation costs related to stock-based payment transactions to be recognized. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are measured at each reporting period. Compensation costs are recognized over the period that an employee provides service in exchange for the award. During the years ended June 30, 2019 and 2018, the Company granted 6,705 and 57,500 options, respectively, to employees that had a fair value of $12,000 and $51,000, respectively. The fair value of the options granted during the years ended June 30, 2019 and 2018 were determined using the Black-Scholes-Merton option-pricing model. The weighted average assumptions used for the years ended June 30, 2019 and 2018 was an expected life of 10 years; risk free interest rate of 2.44% and 2.43%; volatility of 35% and 47%, and dividend yield of 1.29% and .85%, respectively. The Company declared a dividend of $0.05 per share during the year ended June 30, 2019. The Company did not declare dividends during the year ended June 30, 2018. The weighted-average value per share of the options granted during the years ended June 30, 2019 and 2018 was $1.79 and $1.64, respectively, and total stock-based compensation costs were $46,800 and $30,000 for the years ended June 30, 2019 and 2018, respectively. Stock-based compensation costs related to nonvested awards expected to be recognized in the future are $38,600 and $73,500 as of June 30, 2019 and 2018, respectively.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the allowance for doubtful accounts, slow-moving inventory reserves, depreciation and amortization, assumptions made in valuing equity instruments issued for services, and the fair values of intangibles and goodwill. The actual results experienced by the Company may differ materially from management’s estimates.
 
 Earnings Per Common Share
 
Basic earnings per common share is computed by dividing net income (loss) by the weighted-average number of shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options, if any.
 
Recent Accounting Pronouncements
 
In February 2016, the FASB issued authoritative guidance that requires lessees to account for most leases on their balance sheets with the liability being equal to the present value of the lease payments. The right-of-use asset will be based on the lease liability adjusted for certain cost such as direct costs. Lease expense will be recognized similar to current accounting guidance with operating leases resulting in a straight-line expense and financing leases resulting in a front-loaded expense similar to the current accounting for capital leases. This guidance becomes effective for the Company’s fiscal 2020 first quarter, with early adoption permitted. This guidance must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and provides for certain practical expedients. We anticipate the adoption of this standard will result in an increase in our right of use assets and lease liabilities recorded on our consolidated balance sheets on July 1, 2019. The Company does not believe the adoption of this guidance will have a material impact on its consolidated results of operations or cash flows.
 
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of theentire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company expects that the adoption of this ASU will have no material impact to the Company's financial statement.
 
 F-10
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
1.
Summary of Significant Accounting Policies (Continued)
 
            Adopted Accounting Pronouncements
 
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The update addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted only for certain portions of the ASU related to financial liabilities. The Company adopted this pronouncement during the interim period September 30, 2018, which resulted in a $22,000 cumulative effect adjustment to retained earnings in the condensed consolidated balance sheet as of the beginning of the year ended June 30, 2019. The adoption of this pronouncement also resulted in the recognition of holding loss of $8,500 in the Company's consolidated statement of operations for the year ended June 30, 2019.
 
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (Topic 606)”. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)”. These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09. The Company has performed a review of the requirements of the new guidance and has identified which of its revenue streams will be within the scope of ASC 606. The Company has applied the five-step model of the new standard to a selection of contracts within each of its revenue streams and has compared the results to its prior accounting practices. The Company adopted the provisions of these pronouncements on July 1, 2018, using the modified retrospective approach. Revenue from the Company’s sales continue to generally be recognized when products are shipped (i.e. point in time). As such, the adoption of ASU 2016-10 did not have a material impact to the Company’s financial position or results of operations.
 
Reclassification
 
Customer advances of $63,800 for the year ended June 30, 2018 were reclassified to contract liabilities.
 
2.
Segment Information
 
The Company views its operations as three segments: the manufacture and marketing of standard benchtop laboratory equipment for research in university, hospital and industrial laboratories sold primarily through laboratory equipment distributors and laboratory and pharmacy balances and scales (“Benchtop Laboratory Equipment Operations”), the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical and petrochemical companies sold on a direct basis (“Catalyst Research Instruments Operations”) and the design and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems”).
 
Segment information is reported as follows:
 
 
 
 Benchtop
 Laboratory
 Equipment 
 
 
 Catalyst
 Research
 Instruments 
 
 
Bioprocessing
 Systems 
 
 
Corporate
and
Other 
 
 
 Consolidated 
 
June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $7,078,800 
 $1,814,900 
 $1,306,100 
 $- 
 $10,199,800 
 
    
    
    
    
    
Foreign Sales
  2,680,300 
  1,102,300 
  1,301,200 
  -  
  5,083,800 
 
    
    
    
    
    
Income (Loss) From Operations
  541,700 
  (130,600)
  365,000 
  - 
  776,100 
 
    
    
    
    
    
Assets
  5,280,700 
  1,443,200 
  790,100 
  762,000 
  8,276,000 
 
    
    
    
    
    
Long-Lived Asset Expenditures
  194,500 
  2,200 
  15,700 
  - 
  212,400 
 
    
    
    
    
    
Depreciation and Amortization
  217,800 
  1,000 
  38,500 
  - 
  257,300 
 
 
 F-11
 
 
 
  SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 
 
 
 
 
         Segment information is reported as follows:
 
 
 Benchtop
 Laboratory
 Equipment 
 
 
 Catalyst
 Research
 Instruments 
 
 
Bioprocessing
 Systems 
 
 
 Corporate
 and
 Other 
 
 
 Consolidated 
 
June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $6,403,400 
 $1,408,900 
 $669,100 
 $-  
 $8,481,400 
 
    
    
    
    
    
Foreign Sales
  2,669,000 
  707,200 
  669,100 
  -  
  4,045,300 
 
    
    
    
    
    
Income (Loss) From Operations
  297,000 
  (248,000)
  (54,500)
  -  
  (5,500)
 
    
    
    
    
    
Assets
  4,141,200 
  1,482,200 
  1,002,800 
  699,300 
  7,325,500 
 
    
    
    
    
    
Long-Lived Asset Expenditures
  60,500 
  1,900 
  2,600 
  -  
  65,000 
 
    
    
    
    
    
Depreciation and Amortization
  265,100 
  2,800 
  37,200 
  -  
  305,100 
 
 
3.
Fair Value of Financial Instruments
 
        The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.  Each fair value measurement is reported in one of the three                  levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
 
Level 1 
Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
 
Level 2 
Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
 
Level 3 
Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.
 
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
 
The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the following table.
 
The following tables set forth by level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at June 30, 2019 and 2018 according to the valuation techniques the Company used to determine their fair values:
 
 
 
 
 
 
Fair Value Measurements Using Inputs Considered as
 
 
 
 Fair Value at
 June 30, 2019 
 
 
Level 1 
 
 
Level 2 
 
 
Level 3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $1,602,500 
 $1,602,500 
 $- 
 $- 
Investment securities
  330,900 
  330,900 
  - 
  - 
 
    
    
    
    
Total
 $1,933,400 
 $1,933,400 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
 
    
    
    
    
Contingent consideration
 $618,000 
 $- 
 $- 
 $618,000 
 
 
 
 
 F-12
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
 
3.
Fair Value of Financial Instruments (Continued)
 
 
 
 
 
 
Fair Value Measurements Using Inputs Considered as
 
 
 
 Fair Value at
 June 30, 2018 
 
 
Level 1 
 
 
Level 2 
 
 
 Level 3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $1,053,100 
 $1,053,100 
 $- 
 $- 
Investment securities
  314,700 
  314,700 
  - 
  - 
 
    
    
    
    
Total
 $1,367,800 
 $1,367,800 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
 
    
    
    
    
Contingent consideration
 $408,000 
 $- 
 $- 
 $408,000 
 
 
The following table sets forth an analysis of changes during the years ended June 30, 2019 and 2018 in Level 3 financial liabilities of the Company:
 
 
 
2019 
 
 
2018 
 
 
 
 
 
 
 
 
Beginning balance
 $408,000 
 $297,000 
Increase in contingent consideration liability
  521,200 
  408,900 
Payments and accruals
  (311,200)
  (297,900)
 
    
    
Ending balance
 $618,000 
 $408,000 
 
The Company’s contingent obligations require cash payments to the sellers of certain acquired operations based on royalty payments received or operating results achieved. These contingent considerations are classified as liabilities and the liabilities are remeasured to an estimated fair value at each reporting date. During the years ended June 30, 2019 and 2018, the Company recorded an increase in the estimated fair value of contingent liabilities of approximately $521,200 and $408,900, respectively related to its Bioprocessing Systems Operations segment.
 
   Investments in marketable securities classified by security type at June 30, 2019 and 2018 consisted of the following:
 
 
Cost 
 
 
Fair Value 
 
 
Unreealized
Holding
Gain (Loss) 
 
At June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 $47,100 
 $72,000 
 $24,900 
Mutual funds
  292,300 
  258,900 
  (33,400)
 
    
    
    
 
 $339,400 
 $330,900 
 $(8,500)
  
 
 Cost 
 
 
 Fair Value 
 
 
Unrealized
Holding
 Gain (Loss) 
 
At June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 $45,700 
 $67,800 
 $22,100 
Mutual funds
  267,800 
  246,900 
  (20,900)
 
    
    
    
 
 $313,500 
 $314,700 
 $1,200 
 
 
 F-13
 
   
  SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018 
     
 
In conformity with ASC 205-10 “Presentation of Financial Statements”, as it relates to the comparability of financial statements, because ASU 2016-01 was not implemented retroactively, in order for the amounts presented in the 2019 financial statements to be comparable to the same period in 2018, the following table illustrates the impact the implementation of the standard would have had on the year ended June 30, 2018:

 
 As Reported   
 
 
 Adjustments
 
 
 Balance with ASU 2016-01 Adoption
 
 Unrealized gain on marketable securities
 $- 
 $1,200 
 $1,200 
 Income before income tax expense
  1,400 
  1,200 
  2,600 
 Income tax expense
  161,900 
  - 
  161,900 
 Net loss
  (160,500)
  1,200 
  (159,300)
 
    
    
    
 Earnings per common share (basic and diluted)
 $(.11)
 $- 
 $(.11)
 
   
4.
Inventories
 
 
 
2019 
 
 
 2018 
 
 
 
 
 
 
 
 
Raw materials
 $1,738,300 
 $1,488,000 
Work-in-process
  106,400 
  352,700 
Finished goods
  747,600 
  427,200 
 
    
    
 
 $2,592,300 
 $2,267,900 
 
 
5.
Property and Equipment
   

 
Useful Lives
 
 
 
 
 
 
 

 
(years)
 
 
2019 
 
 
2018 
 
 
 
 
 
 
 
 
 
 
 
Automobiles
5
 $22,000 
 $22,000 
Computer equipment
3-5
  233,900 
  173,400 
Machinery and  equipment 
3-7
  986,500 
  870,400 
Furniture and fixtures
4-10
  205,900 
  205,900 
Leasehold improvements
3-10
  45,300 
  34,200 
 
  
  1,493,600 
  1,305,900 
 
    
    
    
Less accumulated depreciation and amortization
    
  1,174,800 
  1,106,400 
 
    
    
    
 
    
 $318,800 
 $199,500 
   
Depreciation expense was $67,300 and $61,200 for the years ended June 30, 2019 and 2018, respectively.
 
6.
Goodwill and Other Intangible Assets
 
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the Company’s acquisitions. Goodwill amounted to $705,300 at June 30, 2019 and 2018, all of which is expected to be deductible for tax purposes.
 
The components of other intangible assets are as follows:
 
 
            Useful Lives              
 
Cost 
 
 
Accumulated
Amortization 
 
 
Net 
 
 
(Years)
 
 
 
 
 
 
 
 
 
At June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology, trademarks
5/10 yrs.
 $663,800 
 $661,700 
 $2,100 
Trade names
6 yrs.
  140,000 
  124,400 
  15,600 
Websites
5 yrs.
  210,000 
  210,000 
  - 
Customer relationships
9/10 yrs.
  357,000 
  308,100 
  48,900 
Sublicense agreements
10 yrs.
  294,000 
  224,100 
  69,900 
Non-compete agreements
5 yrs.
  384,000 
  384,000 
  - 
IPR&D
3 yrs.
  110,000 
  110,000 
  - 
Other intangible assets
5 yrs.
  221,700 
  183,200 
  38,500 
 
    
    
    
 
 $2,380,500 
 $2,205,500 
 $175,000 
 
 
F-14
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
6.
Goodwill and Other Intangible Assets (Continued)
 
 
Useful
            Lives              
 
Cost 
 
 
Accumulated
Amortization 
 
 
Net 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Technology, trademarks
5/10 yrs.
 $662,800 
 $613,400 
 $49,400 
Trade names
6 yrs.
  140,000 
  101,100 
  38,900 
Websites
5 yrs.
  210,000 
  182,000 
  28,000 
Customer relationships
9/10 yrs.
  357,000 
  294,800 
  62,200 
Sublicense agreements
10 yrs.
  294,000 
  194,800 
  99,200 
Non-compete agreements
5 yrs.
  384,000 
  348,000 
  36,000 
IPR&D
3 yrs.
  110,000 
  110,000 
  - 
Other intangible assets
5 yrs.
  198,100 
  173,100 
  25,000 
 
    
    
    
 
 $2,355,900 
 $2,017,200 
 $338,700 
 
Total amortization expense was $190,000 and $243,900 in 2019 and 2018, respectively.
 
Estimated future amortization expense of intangible assets as of June 30, 2019 is as follows:
 
Year Ended June 30,
 
 
 
 
 
 
 
2020
 $70,500 
2021
  54,300 
2022
  31,700 
2023
  15,000 
2024
  3,500 
 
    
Total
 $175,000 
 
 
7.
Line of Credit
 
The Company has a Demand Line of Credit through December 2019 with First National Bank of Pennsylvania which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 5.25%. The agreement contains a financial covenant requiring the Company to maintain a minimum net worth and borrowings are also secured by a pledge of the Company’s assets including inventory, accounts receivable, chattel paper, equipment and general intangibles of the Company. As of June 30, 2019 and 2018, there were no borrowings outstanding under the line.
 
8.
Notes Payable
 
The Company had a $20,000 36-month auto loan through April 2019, with its bank, with monthly payments of $600 bearing interest at 4% for a vehicle used by the Company’s sales manager. The note had an outstanding balance of $5,800 as of June 30, 2018 which was paid in full as of June 30, 2019.
 
 
F-15
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
9.
Employee Benefit Plans
 
The Company has a 401(k) profit sharing plan covering all its employees, which provides for voluntary employee salary contributions not to exceed the statutory limitations provided by the Internal Revenue Code. The plan provides for Company matching contribution equal to 100% of employee’s deferral up to 3% of pay, plus 50% of employee’s deferral over 3% of pay up to 5%. Total matching contributions amounted to $69,600 and $74,500 for the years ended June 30, 2019 and 2018, respectively.
 
10.
Commitments and Contingencies
 
The Company entered into a lease in August 2014 for its Bohemia, New York premises through February 2025 which requires minimum annual rental payments plus other expenses, including real estate taxes and insurance. The future minimum annual rental expense, computed on a straight-line basis, is approximately $170,000 under the terms of the lease. Rental expense for the Bohemia facility amounted to approximately $187,200 and $183,300 for the years ended June 30, 2019 and 2018, respectively. Accrued rent, payable in future years, amounted to $66,600 and $65,600 at June 30, 2019 and 2018, respectively.
 
The Company has an operating lease for its facility in Pittsburgh, Pennsylvania, which requires monthly minimum rental payments through November 2020, plus common area expenses. Total rent expense for the Pittsburgh facility was $91,500 and $106,000 for the years ended June 30, 2019 and 2018, respectively. The Company also entered into another operating lease in Pittsburgh for product development and engineering space for its Bioprocessing Systems Operations from June 2019 through November 2020. Rental expense was $2,300 for the year ended June 30, 2019.
 
In addition, the Company maintains an office in Oradell, New Jersey from which it performs its sales and marketing functions. The Company is obligated under an operating lease for its facility in Oradell, New Jersey, which required monthly minimum rental payments through June 2018, plus common area expenses. The Company is operating under a second one year renewal option through June 30, 2020. However, the Company is currently under negotiations for lease termination at the request of the landlord due to sale of the property, and entering into a new lease of similar terms in the same geographic area. Total rent expense for the New Jersey facility, was $24,300 and $23,000 for the years ended June 30, 2019 and 2018, respectively.
 
The Company’s approximate future minimum rental payments under all operating leases as of June 30, 2019 are as follows:
 
Year Ended June 30,
 
 
 
 
 
 
 
2020
 $284,100 
2021
  222,500 
2022
  184,600 
2023
  190,200 
2024
  195,900 
Thereafter
  91,600 
 
    
 
 $1,168,900 
 
 
F-16
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
10.
Commitments and Contingencies (Continued)
 
The Company has a three-year employment contract with its President, effective July 1, 2017. The agreement provides for an annual base salary of $175,000 for the year ended June 30, 2018, with subsequent annual increases of 3% or percentage increase in Consumer Price Index (“CPI”), whichever is higher, plus $25,000 cash bonus for the year ended June 30, 2018, and a discretionary bonus for subsequent years. The agreement also provides for a grant of options to purchase 25,000 shares of the Company’s stock, which were granted during the year ended June 30, 2018. No shares were granted during the year ended June 30, 2019.
 
The Company has a three-year employment contract with its President of the Genie Products Division of the Benchtop Laboratory Equipment Operations and Corporate Secretary effective July 1, 2017. The agreement provides for an annual base salary of $153,000 for the year ended June 30, 2018, with subsequent annual increases of 3% or percentage increase in the CPI, whichever is higher, plus $10,000 cash bonus for the year ended June 30, 2018, and a discretionary bonus for subsequent years. The agreement also provides for a grant of options to purchase 7,500 shares of the Company’s stock, which were granted during the year ended June 30, 2018. No shares were granted during the year ended June 30, 2019.
 
The Company has a three-year employment contract with its Vice President of Corporate Development and Strategy and Vice president of Sales and Marketing of Altamira Instruments, Inc. effective July 1, 2017. The agreement provides for an annual base salary of $155,000 for the year ended June 30, 2018, with subsequent annual increases of 3% or percentage increase in the CPI, whichever is higher, plus $10,000 cash bonus for the year ended June 30, 2018, and a discretionary bonus for subsequent years. The agreement also provides for a grant of options to purchase 7,500 shares of the Company’s stock, which were granted during the year ended June 30, 2018. No shares were granted during the year ended June 30, 2019.
 
The Company has a three-year employment contract with its President of Torbal Products Division of the Benchtop Laboratory Equipment Operations and Director of Marketing effective July 1, 2017. The agreement provides for an annual base salary of $157,000 for the year ended June 30, 2018, with subsequent annual increases of 4% or percentage increase in the CPI, whichever is higher, plus $10,000 cash bonus for the year ended June 30, 2018 and subsequent years, subject to a minimum increase of 5% in the divisions’ EBITDA for the related year. The agreement also provides for a grant of options to purchase 7,500 shares of the Company’s stock, which were granted during the year ended June 30, 2018. No shares were granted during the year ended June 30, 2019. A performance-based bonus of $10,000 was awarded for the year ended June 30, 2019.
 
The Company has a two-year agreement with its President of Altamira Instruments, Inc. effective July 1, 2017, which was extended by mutual agreement through June 30, 2020. The agreement provides for an annual base salary of $120,000 and $110,000 for the years ended June 30, 2019 and 2018, respectively, plus incentive pay based on achievement of certain revenue and income levels, which were not achieved in both fiscal years and therefore there was no incentive pay. The agreement also provides for a grant of options for an aggregate of 10,000 shares of the Company’s common stock, which were granted during the year ended June 30, 2018. No shares were granted during the year ended June 30, 2019.
 
 
 F-17
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
10.
Commitments and Contingencies (Continued)
 
The Company has a consulting agreement, which expires on December 31, 2019, with an affiliate of the Chairman of the Board of Directors for marketing consulting services. The agreement provides that the consultant be paid a monthly fee of $3,600 for a certain number of consulting days as defined in the agreement. Consulting expense related to this agreement amounted to $43,200 for each of the years ended June 30, 2019 and 2018, respectively.
 
The Company has a consulting agreement, which expires December 31, 2019, with another member of its Board of Directors for administrative services provided that the consultant be paid at the rate of $85 per hour. Consulting expense related to this agreement amounted to $18,200 and $7,000 for the years ended June 30, 2019 and 2018, respectively.
 
The Company entered into a new consulting agreement during the year ended June 30, 2019, which expired in August 2019. This consulting agreement is expected to be renewed for another six months with a member of its Board of Directors as it relates to its Bioprocessing Systems Operations. Consulting expense related to this agreement amounted to $40,000 for the year ended June 30, 2019.
 
The Company is required to make payments of 30% of the net royalties received from the license and sublicense acquired in the SBI acquisition in fiscal 2014. Total contingent consideration payments made for this acquisition amounted to $311,200 and $142,700 for the years ended June 30, 2019 and 2018, respectively.
 
The fair value of contingent consideration estimated to be paid as of June 30, 2019 is as follows:
 
Year ended June 30,
 
 Amount 
 
 
 
 
 
2020
 $268,000 
2021
  228,000 
2022
  54,000 
2023
  46,000 
2024
  22,000 
 
    
 
 $618,000 
 
 
11.
Income Taxes
 
The reconciliation of the provision for income taxes at the federal statutory rate of 21% to the actual tax expense or benefit for the applicable fiscal year was as follows:
 
 
 
2019 
 
 
2018 
 
 
 
 
 
 
 
 
Computed “expected” income tax (benefit)
 $161,700 
 $300 
Research and development credits
  (24,300)
  (32,700)
Change in tax rate
 - 
  224,300 
Other, net
  (12,800)
  (30,000)
 
    
    
Income tax expense
 $124,600 
 $161,900 
 
 
F-18
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
 
11.
Income Taxes (Continued)
 
Deferred tax assets and liabilities consist of the following:
 
 
 
2019 
 
 
2018 
 
Deferred tax assets:
 
 
 
 
 
 
Amortization of intangible assets
 $303,900 
 $326,500 
Various accruals
  173,600 
  54,700 
Other
  13,300 
  48,200 
 
    
    
 
  490,800 
  429,400 
Deferred tax liability:
    
    
Depreciation of property and equipment
  (59,700)
  (36,800)
 
    
    
Net deferred tax assets
 $431,100 
 $392,600 
 
ASC No. 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC No. 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of June 30, 2019 and 2018, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters.
 
The Company’s policy is to recognize interest and penalties on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits. The Company is subject to U.S. federal income tax, as well as various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ended June 30, 2016 and after. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
 
 
12.
Stock Options
 
Option activity is summarized as follows:
 
 
 
June 30, 2019 
 
 
June 30, 2018 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-
 
 
 
 
 
Weighted-
 
 
 
 
 
 
 Average
 
 
 
 
 
 Average
 
 
 
 
 
 
 Exercise
 
 
 
 
 
 Exercise
 
 
 
 Shares 
 
 
 Price 
 
 
 Shares 
 
 
 Price 
 
Shares under option:
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, beginning of year
  92,000 
 $3.15 
  34,500 
 $3.25 
Granted
  6,705 
  4.54 
  57,500 
  3.08 
Exercised
  - 
  - 
  - 
  - 
Forfeited
  1,500 
  3.27 
  - 
  - 
 
    
    
    
    
Outstanding, end of year
  97,205 
  3.24 
  92,000 
  3.15 
 
    
    
    
    
Options exercisable at year-end
  50,167 
 $3.29 
  28,834 
 $3.46 
 
    
    
    
    
Weighted average fair value per share of options granted during the fiscal year
  -  
 $1.79 
  -  
 $1.64 
 
 
F-19
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
AS OF AND FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
 
12.
Stock Options (Continued)
 
 
 
 
 
As of June 30, 2019
Options Outstanding
 
 
As of June 30, 2019
Exercisable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
 
 
Weighted-
 
 
 
 
 
Weighted-
 
 
Range
 
 
 
 
 
Remaining
 
 
Average
 
 
 
 
 
Average
 
 
Exercise
 
 
Number
 
 
Contractual
 
 
Exercise
 
 
Number
 
 
Exercise
 
 
Prices 
 
 
Outstanding
 
 
Life (Years)
 
 
 Price 
 
 
Outstanding
 
 
 Price 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $2.91 - $3.08 
  70,500 
  7.81 
 $3.07 
  30,167 
 $2.80 
    
    
    
    
    
    
 $3.65 - $4.65 
  26,705 
  5.57 
 $4.02 
  20,000 
 $3.84 
    
    
    
    
    
    
   
  97,205 
   
   
  50,167 
   
   
  
As of June 30, 2018
Options Outstanding
 
 
As of June 30, 2018
Exercisable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
 
 
Weighted-
 
 
 
 
 
Weighted-
 
 
Range
 
 
 
 
 
Remaining
 
 
Average
 
 
 
 
 
Average
 
 
Exercise
 
 
Number
 
 
Contractual
 
 
Exercise
 
 
Number
 
 
Exercise
 
 
 Prices 
 
 
Outstanding
 
 
Life (Years)
 
 
 Price 
 
 
Outstanding
 
 
 Price 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $3.50 - $4.05 
  20,000 
  5.13 
 $3.84 
  20,000 
 $3.84 
    
    
    
    
    
    
 $2.91 - $3.27 
  72,000 
  8.63 
 $3.07 
  8,834 
 $3.06 
    
    
    
    
    
    
   
  92,000 
   
   
  28,834 
   
 
 
13.
Earnings (Loss) Per Common Share
 
Earnings (loss) per common share data was computed as follows:
 
 
 
 2019 
 
 
 2018 
 
 
 
 
 
 
 
 
Net income (loss)
 $645,600 
 $(160,500)
 
    
    
Weighted average common shares outstanding
  1,494,112 
  1,494,112 
Effect of dilutive securities
  18,066 
  - 
Weighted average dilutive common shares outstanding
  1,512,178 
  1,494,112 
 
    
    
Basic and diluted earnings (loss) per common share
 $.43 
 $(.11)
 
Approximately 1,600 and 92,000 shares of the Company's common stock issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share for the years ended June 30, 2019 and 2018, respectively, because the effect would be anti-dilutive.
 
 
 
 
 
 F-20