UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 20182021
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐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.) |
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| 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:
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Title of Class
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Common stock, $.05 par value
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
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Indicate by check mark whether the registrant(1)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☒ 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 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 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(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 |
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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 3, 2018October 8, 2021 is $3,348,600.$20,813,900.
The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of September 3, 2018October 8, 2021 is 1,494,1126,458,143 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
PART I - Financial Information | |
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| BUSINESS | 4 |
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| RISK FACTORS | 6
7 |
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| PROPERTIES | 8
11 |
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| LEGAL PROCEEDINGS | 8
11 |
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| SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 8
11 |
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| PART II | | |
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| MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 9
11 |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 10
12 |
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| FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 11
14 |
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| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 11
14 |
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| CONTROLS AND PROCEDURES | 11
14 |
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| OTHER INFORMATION | 11
14 |
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| PART III | | |
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| DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 12
15 |
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| EXECUTIVE COMPENSATION | 13
16 |
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| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 16
22 |
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| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | 16
24 |
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| PRINCIPAL ACCOUNTANT FEES AND SERVICES | 17
24 |
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| PART IV | | |
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| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 17
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| CERTIFICATION | 23
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| CERTIFICATION | 24
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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,"result", “will be,” “will,”be”, “will”, "are expected to,"to", "will continue to,"to", "is anticipated," "estimate,"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
General.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 Holdings, Inc. (“SBI”SBHI”), the licensing, design, manufacture, and developmentmarketing of bioprocessing systems and products (“Bioprocessing Systems”). SBHI has two wholly-owned subsidiaries – Scientific Bioprocessing, Inc., a Delaware corporation (“SBI”) and aquila biolabs GmbH (“Aquila”), a German corporation. 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. Until November 30, 2020, the Company was also engaged in the design, manufacture and marketing of customized catalyst research instruments through its wholly-owned subsidiary, Altamira Instruments, Inc, a Delaware corporation (“Altamira”). On November 30, 2020, the Company sold significantly all of Altamira’s assets and Altamira’s operations were discontinued.
Operating Segments. The Company views its operations as threetwo segments: the manufacture and marketing of standard Benchtop Laboratory Equipment which includes various types of equipment used 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, manufacture, and sublicensing of bioprocessing systems and products for research in university and industrial laboratories.products. 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 37%47% and 38%39% of the Company’s total net revenues for each of the fiscal years ended June 30, 20182021 (“fiscal 2018”2021”) and June 30, 20172020 (“fiscal 2017”2020”), 48% respectively,and 53%51% and 45% of the segment’s sales for fiscal 20182021 and fiscal 2017,2020, 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 speedhigh-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.
ItsThe Company’s line of magnetic stirrers includeincludes 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, mechanical and automated pill counters, and force gauges.gauges and test stands.
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 1200 degrees Celsius. The systems feature multiple gas flows, are available in gas and gas/liquid configurations, and feature one or more stand-alone personal computers with the LabVIEW®-based control software.
Bioprocessing Systems. The Company, through SBI,SBHI, sublicenses thecertain patents and technology it holds relating to bioprocessing systemsproducts exclusively under a license with the University of Maryland, Baltimore County (“UMBC”), for which it receives royalties. The Companyroyalties for patents expiring in August 2021 and December 2023. SBHI through its two wholly-owned subsidiaries, SBI and Aquila, is also engaged in the design, development, manufacture and developmentmarketing of bioprocessing products, principally products incorporating smart sensors and state of the art software analytics. Products offered for sale include the Cell Growth Quantifier (“CGQ”) for Biomass monitoring in shake flasks, the Liquid Injection System (“LIS”) for automated feeding in shake flasks, and a line of coaster systems using disposable sensorsand flow-through cells for vessels with volumes ranging from 250 milliliters to five liters.pH and DO monitoring.
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.
Major Customers. Sales to three customers, principally of the Vortex-Genie 2 Mixer, represented for fiscal 201821% and fiscal 2017, 15% and 17%11% of total net revenues for fiscal 2021 and fiscal 2020, respectively, and 20%23% and 23%13% of Benchtop Laboratory Equipment product sales, for fiscal 20182021 and fiscal 2017,2020, 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 2018, sales to four customers accounted for 78% of the segment’s sales (13% of total net revenues) and in fiscal 2017 sales to two customers (one of which was a customer in 2018) accounted for 74% of the segment’s sales (19% of total net revenues).
Marketing.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 websites, 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’s VIVID automated pill counter is sold through two exclusive distributors in North America. The Company also markets its products through attendance at industry trade shows, trade publication advertising, brochures and catalogs, the Company’s websites,website, one sales manager and one director of marketing in the U.S., and a consultant in Europe.Europe and, when practicable, attendance at industry trade shows.
In general, due to the reliance on sales through the catalog distribution, system, it takes two to three years for a new benchtop laboratory equipmentGenie brand Benchtop Laboratory Equipment product to begin generating meaningful sales.
Catalyst Research Instruments.Bioprocessing Systems. 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 currentlymarketed under developmenta newly created marketing category “Digitally Simplified Bioprocessing” through a direct sales force consisting of ten sales professionals and will be offered both directlyapplication scientists plus one distributor. Sales are supported via marketing through websites, content creation, application notes, mailings, trade shows, online marketing campaigns, and through distribution worldwide to university, industrial, and government laboratories.membership in various public/private research partnerships.
Assembly and Production. The Company has facilities in Bohemia, New York and Orangeburg, New York where is conducts its Benchtop Laboratory Equipment operations. The Company also 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. Thewhere it conducts sales, marketing, shipping, and administrative functions; and, beginning on April 29, 2021, as a result of the Company’s acquisition of Aquila, the Company also hasoperates a smallfacility in Baesweiller, Germany where it conducts product development, manufacturing, sales, marketing and marketing office in Oradell, New Jersey related to its Torbal division.administration. 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 several patents relating to its benchtop laboratory products which include a United States patent which expiresexpiring in November 2022 on the MagStir Genie®, and on the MultiMagStir Genie®, and Enviro-Genie®,another patent that relates to its Vortex-Genie Pulse expiring in January 2036, and a patent relating to Torbal’s VIVID® automated pill counter which expires in January 2029 onMarch 2039.
Two patents held by the Company relating to Bioprocessing Systems, for a biocompatible bag with integral sensors.sensors, expire in January 2029. Another patent on an apparatus for detecting PH and dissolved oxygen will expire in 2036. The Company has several patent applications pending. pending with the US Patent and Trademark Office (the “USPTO”), most of which relate to bioprocessing technology.
Aquila holds two US patents relating to bioprocessing which will expire in January 2035 and February 2038, respectively. In addition, Aquila holds several European and German patents and Patent Cooperation Treaty (the “PCT”) patents, and has several other patent applications pending in the United States, Europe, and under the PCT.
The Company does not anticipate any material adverse effect on its operations following the expiration of theany of its patents.
The Company has various proprietary trademarks, including AMI™aquila biolabs (in Germany), BenchCAT™Bead Genie®, Biocoaster™, BioGenie®BioGenie®, Cellphase®, Cellstation®, Disruptor Beads™, Disruptor Genie®, Enviro-Genie®, Genie™, Genie Temp-Shaker™, ID.Developer’s Kit™, 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.pending with the USPTO. 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 United States 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. TotalNet total license fees paid or owed byto the Company under this license and expired licenses for fiscal 20182021 and fiscal 20172020 amounted to $517,000$560,000 and $242,100,$1,286,800, respectively. This patent and the related license expire in December 2023.
Foreign Sales. The Company’s sales to overseas customers, principally in Asia and Europe, accounted for approximately 40%43% and 32%46% of the Company’s net revenues for fiscal 20182021 and fiscal 2017,2020, 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 BacklogThe 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, 2018 was $509,600, all of which is expected to be filled by June 30, 2019, as compared to a backlog of $89,300 as of June 30, 2017, all of which was filled in fiscal 2018.
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, and Avery Weigh-Tronix, an American company.
The primary competition for the Company’s Catalyst Research Instrument products is in the form of instruments produced internally by research laboratory staffs of potential customers. Major competitors in the United States include 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 TechnologyEppendorf AG GmbH (Germany), and Sartorius AGPyroScience (Germany).
Research and Development. The Company incurred research and development expenses, the majority of which related to its Benchtop Laboratory Equipment products,Bioprocessing Systems operations, of $520,900$1,623,800 during fiscal 20182021 compared to $437,500$1,139,700 during fiscal 2017.2020. The Company expects that research and development expenditures in the fiscal year ending June 30, 20192022 will be at approximately the same level as fiscal 2018.continue to increase due to increased product development efforts for 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.governmental authority. 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 3, 2018,24, 2021, the Company employed 3459 persons (26(28 for the Benchtop Laboratory Equipment Operationsoperations, and 831 for the Catalyst Research Instruments operations)Bioprocessing Systems operations, of which 19 were located in Germany) of whom 3055 were full-time, including its five executive officers. All activities of the Bioprocessing Systems operations are being performed by employees of the Company’s other operations and consultants.The Company augments its internal staff with outside consultants as deemed necessary. None of the Company's employees are represented by any union.
Available Information.Information. The Company’s Annual Report to Stockholders for fiscal 2018,2021, 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 20182021 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.
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 Operationsoperations customers accounted for a combined aggregate of 20%23% and 23%13% of the segment’s total sales for each of fiscal 20182021 and fiscal 2017, respectively (15%2020 (21% and 17%11% of its total net revenues for fiscal 20182021 and fiscal 2017,2020, respectively). During fiscal 2018, orders from four customers for catalyst instruments accounted for 78% of the segment’s sales (13% of total net revenues) and during fiscal 2017 orders from two customers for catalyst instruments accounted for 74% of the segment’s sales (19% of total net revenues).
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 48%51% and 53%45% of Benchtop Laboratory Equipment sales, for fiscal 20182021 and fiscal 2017, (37%2020 (47% and 38%39% of total net revenues for fiscal 20182021 and fiscal 2017,2020, 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 ($6,403,4009,043,600 for fiscal 20182021 and $5,784,400$6,783,600 for fiscal 2017)2020) 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 knownwell-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 operationoperations is a participant in the laboratory-scale sector of the larger bioprocessing products industry, which is dominated by several large companies that are significantly larger, and the operation is still in its start-up phase of operations. In the fourth quarter of fiscal 2021, the Company consummated its acquisition of Aquila to accelerate the Bioprocessing Operations, however there is no assurance that the Company will be successful in integrating Aquila into its Bioprocessing Operations or that it will be successful in competing with much greater resources than the Company.its larger competitors.
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 the 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.products. However, gross revenues derived from such othernon-Vortex-Genie Benchtop Laboratory Equipment products including Torbal products only amounted to $3,300,500 (39%$4,419,100 (49% of the segment’s sales and 45% of total revenues) for fiscal 20182021; and $2,705,800, (33%$3,712,800 (55% of the segment’s sales and 48% of total revenues) for fiscal 2017.2020. The segment’s ability to compete will depend upon the Company’s success in continuing to develop and market new laboratory equipment as to which no assurance can be given.
The Company relies 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 operationoperations will bedepend heavily dependent on its ability to successfully develop, produce, and producemarket new products. SuchCommencing in the last quarter of fiscal year ended June 30, 2019, the Company began to commit substantial resources to its Bioprocessing Systems operations in the form of employees, materials, supplies, marketing, and facilities to accelerate its product development efforts and marketing activities. Bioprocessing products are of a complex nature in an industry that the Company doeshas not operatetraditionally operated in and are takinghave taken much 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. On April 29, 2021, the Company acquired Aquila in an effort to further accelerate product development of its bioprocessing products. The Company expects the sale and marketing of these new products, at least initially,is incurring substantial product development costs related to be through the Company’s attendance at trade shows, website, online marketing, and a few select distributors.its Bioprocessing Operations.
No assurance can be given that the Company will be successful with its new product development andor 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.
Integration — The Company May Face Challenges with Integrating Acquisitions and Achieving the Financial and Other Results Anticipated at the Time of Acquisition
The Company may face challenges integrating its recent acquisition of Aquila or future acquisitions with its existing operations. These challenges could include difficulty in integrating or consolidating business processes and systems and challenges with integrating the business cultures, especially since Aquila is located in Germany. In addition, the process of integrating operations could result in an interruption of normal business operations.
Exchange Rates — The Company is Exposed to Foreign Exchange Rate Risk
Substantially all of the Company’s sales are in US dollars. As a result of the acquisition of Aquila, the Company is now subject to foreign exchange rate risk, both transactional and translational, which may negatively affect our financial performance. Transactional foreign exchange exposures result from exchange rate fluctuations, including in respect of the U.S. dollar and the Euro. Translational foreign exchange exposures result from exchange rate fluctuations in the conversion of the entity’s functional currency to U.S. dollars, consistent with the Company’s reporting currency, and may affect the reported value of the Company’s assets and liabilities and its income and expenses. In particular, the Company’s translational exposure may be impacted by movements in the exchange rate between the Euro against the U.S. dollar.
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.funding for research activities. Availability of funds can be affected by budgetary constraints. Factors including a general economic recession, thea 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. Please also see the separate COVID-19 pandemic related discussion in this “Risk Factors” section below.
As discussed in Item 1, sales to overseas customers, including sales in China, account for approximately 40%43% of the Company’s net revenues. The high value of the U.S. dollar againstrelative to foreign currencies hascan have a negative impact on sales because the Company’s products, which are paid in U.S. dollars, become more expensive to overseas customers.
The ongoing tariffs have not had a material impact on the Company, other than slightly higher component costs which the Company has been able to manage through alternative sources and passing on some of the increases through price increases. The current political situation as it pertains towith inflationary pressures and higher transportation costs is resulting in significantly higher costs for some of the Company’s components. Continuation of tariffs and/or increased trade tensions and a trade warinflationary pressures 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 Has Been Adversely Affected and Could Be Materially Adversely Impacted in the Future by the COVID-19 pandemic
The challenges posed by the COVID-19 pandemic on the global economy began to take effect and impact the Company’s operations at the end of the third quarter of the year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self-quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. The Bioprocessing Systems Operations’ SBI facility was shut down temporarily due to state mandates, however, the impact on operations was immaterial, and the Company has been able to retain its employees without furloughs or layoffs, in part, due to the Company’ receipt of two loans under the Federal Government’s Paycheck Protection Program (“PPP”). The Company received $563,800 and $433,800 in April 2020 and March 2021, respectively, under this program administered by the U.S. Small Business Administration through its bank. The first loan was forgiven in June 2021 except for $32,700 which was repaid. The remaining loan bears interest at 1% per annum and matures in March 2026 and contains no collateral or guarantee requirements. The Company expects to apply and receive forgiveness for the majority of the second loan. The Bioprocessing Systems Operations’ German operation, which was acquired on April 29, 2021, was negatively impacted in its ability to secure new Catalyst Research Instruments orders can also be affected by changesbecause Aquila had historically relied on face-to-face meetings at trade shows for its sales opportunities. While it has participated in domesticvirtual trade shows, management believes that certain sales opportunities are lost as a result. The Company has not experienced and international policies pertainingdoes not anticipate any material impact on its ability to energycollect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies which have benefitted from the Pandemic due to the nature of the products and have the ability to pay. However, there is a delay in the receipt of a receivable related to the Company’s discontinued operations due to the delay to complete the related installation as a result of the pandemic. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the environment,related length of its impact on the global economy, which couldare uncertain and cannot be predicted at this time. The Company is currently experiencing some delays from its supply chain which is having an impact on delayed delivery of some products, however this is deemed temporary and does not affect funding of potential customers.
the Company’s major product – the Vortex-Genie 2. In addition, due to the travel restrictions imposed by the United States and other governments worldwide, Company personnel may be restricted from traveling to conduct its operations including site visits, customer visits and installations, vendor facility visits, and other sales and marketing related travel that can negatively impact the Company.
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 Statesits U.S. 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 the current and potential future tariffs.tariffs, and the COVID-19 pandemic. 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 is seeking wayscurrently experiencing some delays in delivery of electronic components due to shortages of underlying raw materials, however these shortages pertain to low volume Benchtop Laboratory Equipment products and to the Company’s knowledge are not expected to have a material impact on the Company’s revenues. The Company also 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 beyond what it is currently experiencing or vendor inability to deliver due to shipping and cargo issues could halt production and have a material negative effect on the Company’s operations, and tariffs will have a negative effect on future gross margins, although the Company is unable to determine at this time whether such effect will be material.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, or the Torbal balances, or for its Catalyst Research Instruments products other than the VIVID pill counter, and it has 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 rightsThe Company’s patents related to various patents for bioprocessing productsits Bioprocessing Systems Operations pertaining to non-invasive sensor technology, which it licenses from UMBC, however suchUniversity of Maryland Baltimore County, expired in August 2021 and December 2023, and as a result, the Company expects a material reduction in license fees during calendar year 2021 and none past December 2023. The Company has some patent protection on certain of its products under development and other applications pending.
The Company’s Bioprocessing Operations through its newly acquired Aquila division holds several patents expiresprimarily in calendar 2023.Germany and across Europe related to its products and underlying technology, and has several patent applications pending in Germany, the European Union, and the United States of America.
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 Company’s patents. Any of the foregoing activities could have a material adverse effect on the Company. Moreover, the enforcement by the Company of its patent or license rights may require substantial litigation costs.
The Company Has Limited Management Resources
The loss of the services offrom any of Ms. Helena Santos, the Company’s President, Chief Executive, and Financial Officer and President,Treasurer, Mr. Robert Nichols, the President of the Company’s Genie Products Division President, Mr. Brookman March, Vice President of Corporate Development and Strategy and Vice President of Sales of Altamira,the Benchtop Laboratory operations, Mr. Karl Nowosielski, the President of the Torbal Products Division President,of the Benchtop Laboratory operations, Mr. Daniel Grunes, the Vice-President of Operations and Product Development of SBHI, or Mr. Anthony Mitri,John A. Moore, President of AltimiraSBI, 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 conditioncondition.
The Common Stock of the Company is Thinly Traded and is Subject to Volatility
As of September 3, 2018,October 8, 2021, there were 1,494,1126,458,143 shares of Common Stock of the Company outstanding, of which 422,571 shares (28%3,820,130 (59%) were held by the directorsaffiliates or Directors and officersOfficers 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 20182021 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.
The Company’s executive office and principal manufacturing facility for its Benchtop Laboratory Equipment operations comprises approximately 19,000 square feet,feet. This facility is located in Bohemia, New York and is held pursuant tounder a lease which expiresexpired in February 2025.2025, and was amended in September 2021 for an additional 5,000 square feet adjoining facility and increased term through October 2028. The Company’s Catalyst Research InstrumentsBioprocessing Systems operations are conducted from an approximately 9,000a 2,100 square foot laboratory facility in Pittsburgh Pennsylvania under a lease which expires in November 2020. The Bioprocessing Systems Operations subleases a portion of a 700 square foot laboratory facility in Pittsburgh on a month-to-month basis.May 2023. The Company has a 1,200 square foot facility in Oradell,Orangeburg, New JerseyYork from where it conducts its sales and marketing functions, primarily for the Torbal Products Division of the Benchtop Laboratory Equipment Operations.operations expiring in October 2022. As a result of its acquisition of Aquila, the Company also has a 480 square foot facility in Baesweiller, Germany comprised of manufacturing, engineering, and administrative space. See Note 1011 to the consolidated 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 2018.2021.
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 forat the end of each quarter of fiscal 20172020 and fiscal 2018,2021, 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 |
| 09/30/16 | 2.98 | 3.07 |
| 12/31/16 | 2.55 | 3.05 |
| 03/31/17 | 2.78 | 3.00 |
| 06/30/17 | 2.85 | 3.06 |
| 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 |
| For Fiscal Quarter Ended | | |
| 09/30/19 | 4.00 | 6.88 |
| 12/31/19 | 6.01 | 9.10 |
| 03/31/20 | 6.56 | 10.20 |
| 06/30/20 | 5.55 | 10.61 |
| 09/30/20 | 7.05 | 9.00 |
| 12/31/20 | 7.26 | 8.10 |
| 03/31/21 | 7.66 | 11.00 |
| 06/30/21 | 9.31 | 10.51 |
As of September 3, 2018,24, 2021, there were 279289 record holders of the Company's Common Stock.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking statements. Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company’s business that are beyond the Company’s control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.
Overview. The Company’s results reflect the results from the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations, which includes two months of results for Aquila, following its acquisition on April 29, 2021. The Company reflected incomerealized a loss from continuing operations before income tax expensebenefit of $1,400$4,055,000 for fiscal 20182021 compared to a loss of $667,400 for fiscal 2020, primarily due to increased operating expenses of its Bioprocessing Systems Operations, which included significant amounts for product development, sales and marketing, costs related to the acquisition of Aquila, and non-cash compensation expense related to stock options, partially offset by the profits generated by increased sales of the Benchtop Laboratory Equipment Operations. The results also reflected a loss before income tax benefit for discontinued operations of $146,800 for$769,900 compared to $472,500 in fiscal 2017, primarily due to2020. On November 30, 2020, the decreased losses generated byCompany sold substantially all of the assets of its Catalyst Research Instruments Operations which was operated through its wholly-owned subsidiary, Altamira Instruments, Inc.
The challenges posed by the COVID-19 pandemic on the global economy began to take effect and impact the Company’s operations at the end of the third quarter of the year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self-quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. The Bioprocessing Systems Operations’ SBI facility was shut down temporarily due to state mandates, however, the impact on operations was immaterial, and the Scientific Bioprocessing Operations. Although the Catalyst Research Instruments reflected lower sales, the current year’s sales mix was more profitableCompany has been able to retain its employees without furloughs or layoffs, in part, due to fewerthe Company’ receipt of two loans under the Federal Government’s Paycheck Protection Program (“PPP”). The Company received $563,800 and $433,800 in April 2020 and March 2021, respectively, under this program administered by the U.S. Small Business Administration through its bank. The first loan was forgiven in June 2021 except for $32,700 which was repaid. The remaining loan bears interest at 1% per annum and matures in March 2026 and contains no collateral or guarantee requirements. The Company expects to apply for and receive forgiveness for the majority of the second loan. The Bioprocessing Systems Operations’ German operation, which was acquired on April 29, 2021 ,was negatively impacted in its ability to secure new orders because Aquila had historically relied on face-to-face meetings at trade shows for its sales opportunities. While it has participated in virtual trade shows, management believes that certain sales opportunities are lost as a result. The Company has not experienced and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of low margin private label products. The Scientific Bioprocessing Operationsits customers, which are primarily distributors of laboratory equipment and supplies which have benefitted from a decreased lossthe Pandemic due to significantly higher royalties, partially offset by significant non-cash adjustmentsthe nature of the products and have the ability to pay. However, there is a delay in future contingent consideration paymentsthe receipt of a receivable from a customer related to the Company’s discontinued operations due to expectationa delay in the Company’s ability to complete the installation of increasedequipment purchased by the customer, as a result of the Pandemic. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future royalties.developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. The Benchtop Laboratory Equipment Operations reflected increasedCompany is currently experiencing some delays from its supply chain which is having an impact on delayed delivery of some products, however this is deemed temporary and does not affect the Company’s major product – the Vortex-Genie 2. In addition, due to the travel restrictions imposed by the United States and other governments worldwide, Company personnel may be restricted from traveling to conduct its operations including site visits, customer visits and installations, vendor facility visits, and other sales and gross margins, partially offset by increased operating expenses as discussed below. The results reflected total non-cash amounts for depreciation, amortization, and adjustments to contingent consideration liabilities of $714,000 for fiscal 2018 and $543,900 for fiscal 2017.marketing related travel that can negatively impact the Company.
Results of Operations. Net revenues for fiscal 20182021 increased $332,100 (4.1%$1,990,800 (25.6%) to $8,481,400$9,775,200 from $8,149,300$7,784,400 for fiscal 2017,2020, reflecting an increase of $619,000 (10.7%)$2,260,000 in net sales of benchtop laboratory equipment derived from increased salesBenchtop Laboratory Equipment Operations, in part related to its products being used in COVID-19 related research and testing, and a decrease of new Torbal brand products and increased sales for Genie brand sales both domestic and international, $374,400 (127.0%) increase$269,200 in net revenues fromof the Bioprocessing Systems Operations, derived from significant increases in royalties from its sublicense, partially offset by a decrease of $661,300 (31.9%) in net sales of catalyst research instruments, which wasprimarily due to lower private label product sales, althoughdecreased royalties earned during the sales mix was more profitable.current year period due to expiring patents.
Sales of catalyst research instruments are comprised of a small number of large orders, while the sales of benchtop laboratory equipment comprise of a large number of small orders. As of June 30, 2018, the order backlog for catalyst research instruments was $509,600, all of which is expected to be shipped during fiscal year ending June 30, 2018, compared to $89,300 as of June 30, 2017.
The gross profit percentage for fiscal 2018 was 38.0% compared to 35.3% for2021 of 50.9% approximated fiscal 2017. The current year reflected higher gross profit margins on sales of catalyst research instruments resulting from decreased sales of private label products which have significantly lower margins. The2020’s gross profit percentage for the Benchtop Laboratory Equipment Operations was lower due to higher material costs and sales mix. The Company expects that the tariffs being imposed by the United States Government on imports will have a negative effect on future gross margins since some of the components used in the production of its products are imported from China either directly or indirectly which cannot be readily sourced elsewhere at a lower cost, and cannot fully be passed on to customers due to competitive pressures. The Company also exports benchtop laboratory equipment and catalyst research instruments to China and the effect of current and potential tariffs on future exports, if any, is unknown.50.6%.
General and administrative expenses for fiscal 20182021 increased by $83,400 (5.0%approximately $1,753,100 (77.0%) to $1,748,800$4,028,500 compared to $1,665,400$2,275,400 for fiscal 20172020 due primarily to an increasecompensation-related costs resulting from stock option grants and increased costs from the Bioprocessing Systems Operations in administrative labor costs.part due to the acquisition of Aquila in the fourth quarter of fiscal 2021.
Selling expenses for fiscal 20182021 increased $68,700 (7.7%approximately $2,846,100 (240.0%) to $957,500$4,031,900 from $888,800$1,185,800 for fiscal 2017,2020, primarily due to increased sellingsales and marketing expenses incurred by the Bioprocessing Systems operations for sales and marketing personnel, sales and marketing activities, related to the Benchtop Laboratory Equipment Operations, including online advertising for new Torbal brand products.and compensation-related costs resulting from stock option grants.
Research and development expenses increased by $83,400 (19.1%$484,100 (42.5%) to $520,900$1,623,800 for fiscal 20182021 compared to $437,500$1,139,700 for fiscal 2017, primarily2020, due to increased new product development costsexpenditures by the Bioprocessing Systems operations, including such expenditures incurred by Aquila since its acquisition in the fourth quarter of fiscal 2021, partially offset by decreased product development expenditures incurred by the Benchtop Laboratory Equipment Operations for a new Torbal brand pill counter, and the Bioprocessing Systems Operations.
Total other income (loss), net was $6,900$653,800 for fiscal 20182021 compared to $13,600 income$(3,900) in fiscal 2017,2020. This increase was due primarily to lowerthe $531,100 forgiveness of the first PPP loan received by the Company, and increased interest income during fiscal 2018.resulting from increased investment securities balances.
The Company reflected an income tax expensebenefit for continuing operations of $161,900$945,000 for fiscal 2021 compared to aincome tax benefit of $74,200$214,000 for fiscal 2017,2020, primarily due to the adjustment to deferred tax assets as a result of the lower effective tax rate.loss incurred.
As a result of the foregoing, the Company recorded a net loss from continuing operations of $160,500$3,110,000 for fiscal 20182021 compared to a net loss from continuing operations of $453,400 for fiscal 2020.
The Company reflected a net loss from discontinued operations of $562,500 for fiscal 2021, compared to a $249,900 loss for fiscal 2020, primarily due to loss on the sale of the majority of the operation’s assets during the current fiscal year.
As a result of the above, the Company recorded a net loss of $3,672,500 for fiscal 2021 compared to a net loss of $72,600$703,300 for fiscal 2017.2020.
Liquidity and Capital Resources. Cash and cash equivalents increased by $28,000$2,115,500 to $1,053,100$9,675,200 as of June 30, 20182021 from $1,025,100$7,559,700 as of June 30, 2017.
Net cash provided by operating activities was $256,900 for fiscal 2018 compared to $46,100 for fiscal 2017, due primarily to increases2020. The Company received $563,800 and $433,800 in accrued expenses related to royaltiesApril 2020 and accounts payable balances related to inventory purchases.March 2021, respectively, Net cash used in investing activities was $79,500 for fiscal 2018 compared to net cash used in investing activities during fiscal 2017 of $41,100 due to increased capital expendituresunder the Payroll Protection Program administered by the Benchtop Laboratory Equipment Operations.U.S. Small Business Administration through its bank. The first loan was forgiven in June 2021 except for $32,700 which was repaid. The remaining loan bears interest at 1% per annum and matures in March 2026 and contains no collateral or guarantee requirements. The Company used $149,400 in financing activities in fiscal 2018 comparedexpects to $224,900 in fiscal 2017, because there was no cash dividend paidapply for and less contingent consideration paid during fiscal 2018.
The Company's working capital increased by $389,700 to $4,118,200 asreceive forgiveness for the majority of the second loan. In April and June 30, 2018 compared to $3,728,500, as of June 30, 2017. For fiscal 2017,2021, the Company reclassified $245,400received a total of trade accounts receivable and $129,000$16,074,000, net of deferred taxes to long term assets.
issuance costs, from the sale of its Common Stock as further described in Note 15 of the financial statements in Item 8. The Company has a Demand Line of Credit through December 2018 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 5.0%. Advances on the line are secured by a pledge of the Company’s assets including inventory, accounts, chattel paper, equipment and general intangibles of the Company. As of June 30, 2018 no borrowings were outstanding under such line.
Management believesexpects that the Companyit will be able to meet its cash flow needs during the next 12 months from cash derived from its available financial resources including the lines of credit, itsoperations and cash and investment securities, and operations.
Capital Expenditures. During fiscal 2018, the Company incurred $61,400 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, 2019.on-hand.
Off-Balance Sheet ArrangementsNet cash used in operating activities was $3,301,500 for fiscal 2021 compared to net cash used in operating activities of $168,100 for fiscal 2020, primarily due to the net loss for the current year.. None. Net cash used in investing activities was $10,884,000 for fiscal 2021 compared to $84,100 for fiscal 2020 due mainly to acquisition of Aquila in the current year and purchase of investment securities. Net cash provided by financing activities was $16,310,200 for fiscal 2021 compared to $6,209,400 during fiscal 2020 due mainly to proceeds from issuance of stock and the proceeds from the Payroll Protection Program loan.
The Company's working capital increased by $5,595,800 to $16,144,300 as of June 30, 2021 compared to $10,548,500, as of June 30, 2020, primarily due to the cash received from the equity financings.
Item Item8. Financial Statements and Supplementary Data.
The consolidated Financial Statements required by this item are attached hereto on pages F1-F25. F1-F28.
Item9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item9A. 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 are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) and 15d-15(f). The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Chief Executive 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, 20182021 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
Based on the assessment of the Company’s Chief Executive and Financial Officer of the Company, it was concluded that as of June 30, 2018, the Company’s internal controls over financial reporting were effective based on these criteria.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting. ThereExcept 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.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors
The Company has the following fiveseven Directors:
Christopher Cox(age 57),a director since February 2021, has been a Senior Vice President of Population Health Investment Co., Inc. since September 2020 and a Co-Founder and Managing Partner of Population Health Partners LLC since May 2020. Mr. Cox has been a corporate attorney for over 25 years, most recently at Cadwalader, Wickersham & Taft LLP, which he joined as a partner in January 2012 and where he served a co-chair of the global corporate group and a member of the firm’s management committee until February 2016. From February 2016 to March 2019, Mr. Cox was Executive Vice President and Chief Corporation Development Officer of Medicines Company. Prior to January 2012, Mr. Cox was a partner at Chill Gordon & Reindel.
Joseph G. Cremonese (age 82)86), a Director since November 2002 and Chairman of the Board sincefrom February 2006 to January 2020, 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.
Grace S. MorinMarcus Frampton (age 70)(age 41), a Director since December 4, 2006,March 2019 is the Chief Investment Officer of the Alaska Permanent Fund Corporation and serves on the Board of Directors of Managed Funds Association 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.
John A. Moore (age 56), a Director since January 2019 and Chairman of the Board since January 2020, is also the President of SBI since January 2020 and had been providing consulting services to SBI since March 2019. Mr. Moore serves as 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, DirectorChief Executive Officer and principal stockholderdirector of Altamira Instruments,Acorn Energy, 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.2016.
Helena R. Santos (age 54)57), 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. SegastureReinhard Vogt (age 82)65), a Director since 1991, has been retiredAugust 2020, is the Chairman of SBI and a business development consultant to SBI and Aquila. He served as Executive Vice President and on the Executive Board of Sartorius Stedim Biotech GmbH for the last five years.10 years prior to his retirement in July 2019.
John F.F. WatkinsJurgen Schumacher (age 51) 68), a Director since May 2021,is currently a corporateprivate investor in various startups 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.growth phase technology companies.
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 following:as follows: the fiscal year endedending June 30, 2018 – two2021 - three directors (Ms. Santos, Mr. Schumacher, and Mr. Segasture,Vogt, Class A), the fiscal year ending June 30, 2019 - one director (Ms. Morin,2022 – two directors (Mr. Frampton and Mr. Moore, Class B), and the fiscal year ending June 30, 20202023 – two directors (Mr. Cremonese and Mr. Watkins,Cox, Class C).
C.)
Board Committees
The Company’s Stock Option Committee administers the Company’s 2012 Stock Option Plan.Company has two committees – The members of the committee are non-management Directors of the Company – James S. Segasture and Joseph G. Cremonese. The members of the Committee serve at the discretion of the Board. During fiscal 2018 the Stock Option Committee held one meeting.
Grace S. Morin and James S. Segasture are the current members of the Company’s Compensation Committee serving atand the discretion of the Board. The Committee administers the Company’s compensation policies. During fiscal 2018, the Compensation Committee held one meeting.
The Board of Directors acts as the Company’s Audit Committee which in its function asare comprised of the Committee, held three meetings during fiscal 2018. Ms. Santos, who is not “independent” and Ms. Morin are “financial experts” as defined by the Securities and Exchange Commission.entire Board of Directors.
Executive Officers
See above for the employment history of Ms. SantosandMr. Moore.
Robert P. Nichols (age 57)60), is the President of the Genie Products Division of the Benchtop Laboratory Equipment Operationsoperations 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 73) 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 38)43), is the President of the Torbal Products Division of the Benchtop Laboratory Equipment Operationsoperations and Director of Marketing for the Company. He had been until February 2014was Vice President of Fulcrum, Inc. (the seller of the Torbal Products Division assets) since 2004.from 2004 until February 2014.
Anthony J. Mitri (age 36)Daniel Grunes(age 33), has beenis the Vice President of Altamira since May 2017.Research and Development and Operations of the Company’s Bioprocessing Operations. Prior to thatthe Company’s acquisition of Aquila, he had been Directorwas the Chief Executive Officer of Operations and Engineer since he began his employment with the Company in 2004.
aquila biolabs GmbH.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that, for fiscal 2018,2021, 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.
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, 20182021 and 2017.2020.
SUMMARY COMPENSATION TABLE
Name and Principal Position (a) | Fiscal Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non- Equity Incentive Plan Comp- ensation ($) (g) | Non- Qualified Deferred Compensation Earnings ($) (h) | Changes in Pension Value and Non-Qualified Deferred Compensation Earnings | All Other Comp- ensation ($) (i) | Total ($) (j) |
Helena R. Santos, CEO, President, CFO | 2018 | 175,000 | 25,000 | 0 | 13,100(1)
| 0 | 0 | 0 | 6,700(4) | 219,800 |
| 2017 | 162,000 | 20,000 | 0 | 0 | 0 | 0 | 0 | 6,500(4) | 188,500 |
| | | | | | | | | | | |
Brookman P. March, Vice President Corporate Strategy, VP, Sales of Altamira | 2018 | 155,000 | 10,000 | 0 | 3,900(5) | 0 | 0 | 0 | 6,200(4) | 175,100 |
| 2017 | 147,000 | 10,000 | 0 | 500(2) | 0 | 0 | 0 | 5,900(4) | 163,400 |
| | | | | | | | | | | |
Anthony Mitri, President of Altamira | 2018 | 110,000 | 0 | 0 | 1,600(6) | 0 | 0 | 0 | 4,400(4) | 116,000 |
| 2017 | 100,000 | 0 | 0 | 0 | 0 | 0 | 0 | 4,000(4) | 104,000 |
| | | | | | | | | | | |
Robert P. Nichols, President of Genie Division
| 2018 | 153,000 | 10,000 | 0 | 3,900(5) | 0 | 0 | 0 | 6,300(4) | 173,200 |
| 2017 | 146,000 | 10,000 | 0 | 500(2) | 0 | 0 | 0 | 5,800(4) | 162,300 |
| | | | | | | | | | | |
Karl D. Nowosielski President of Torbal Division and Director of Marketing | 2018 | 161,700 | 10,000 | 0 | 7,400(3) | 0 | 0 | 0 | 6,400(4) | 185,500 |
| 2017 | 143,000 | 10,000 | 0 | 1,200(3) | 0 | 0 | 0 | 5,700(4) | 159,900 |
Name and Principal Position (a) | | | | | Non- Equity Incentive Plan Compensation ($) (g) | Non- Qualified Deferred Compensation Earnings ($) (h) | Changes in Pension Value and Non-Qualified Deferred Compensation Earnings | All Other Compensation ($) (i) | |
Helena R. Santos, CEO, President, CFO | 191,200 | 100,000 | 0 | 553,600(1) | 0 | 0 | 0 | 9,600(6) | 854,400 |
Helena R. Santos, CEO, President, CFO | 185,700 | 50,000 | 0 | 13,100(1) | 0 | 0 | 0 | 9,400(6) | 258,200 |
| | | | | | | | | | |
John A. Moore, President of SBI | 175,000 | 100,000 | 0 | 553,600(2) | 0 | 0 | 0 | 7,000(6) | 835,600 |
John A. Moore, President of SBI | 145,000 | 50,000 | 0 | 36,000 | 0 | 0 | 0 | 28,900(7) | 259,900 |
| | | | | | | | | | |
Daniel Grunes, Vice President of R&D and Operations of Bioprocessig Operations | 30,200(3) | 20,000 | 0 | 23,200(3) | 0 | 0 | 0 | 10,000(3) | 83,400 |
Daniel Grunes, Vice President of R&D and Operations of Bioprocessig Operations | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| | | | | | | | | | |
Robert P. Nichols, President of Genie Division | 167,200 | 0 | 0 | 0 | 0 | 0 | 0 | 6,700(6) | 173,900 |
Robert P. Nichols, President of Genie Division | 162,300 | 5,000 | 0 | 3,900(4) | 0 | 0 | 0 | 6,700(6) | 177,900 |
| | | | | | | | | | |
Karl D. Nowosielski President of Torbal Division and Director of Marketing | 176,600 | 0 | 0 | 0 | 0 | 0 | 0 | 7,100(6) | 183,700 |
Karl D. Nowosielski President of Torbal Division and Director of Marketing
| 169,800 | 10,000 | 0 | 6,300(5) | 0 | 0 | 0 | 7,200(6) | 193,300 |
(1) The amounts represent compensation expense for the stock options granted on July 1, 2017 valued utilizing the Black-Scholes-Merton options pricing model. The option was valued at a total of $39,200 of which $13,100 was expensed in fiscal 2018.
(2) The amounts represent compensation expense for the 2014 stock options granted valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The 2014 option was valued at a total of $3,500 of which $500 was expensed in fiscal 2017.
(3) The amounts represent compensation expense for various options granted which included, the July 1, 2017, and the February 26, 2017, stock options granted as part of his employment agreement, valued utilizing the Black-Scholes-Merton options pricing model, disregarding estimates of forfeitures related to service-based vesting considerations. The options were valued at a total of $11,800, and $10,500, respectively, of which $7,400 and $1,200 were expensed in fiscal 2018 and 2017, respectively.
(4) The amounts represent the Company’s matching contribution under the Company’s 401(k) Plans.
(5) The amounts represent compensation expense for the stock options granted on July 1, 2017 valued utilizing the Black-Scholes-Merton options pricing model. The option was valued at a total of $11,800 of which $3,900 was expensed in fiscal 2018.
(6) The amounts represent compensation expense for the stock options granted on December 31, 2017 valued utilizing the Black-Scholes-Merton options pricing model. The option was valued at a total of $9,500 based off the black scholes calculation of which $1,600 was expensed in fiscal 2018.| (1) | The amount for 2021 represents compensation expense for stock options granted on June 23, 2020 valued utilizing the Black-Scholes-Merton options pricing model disregarding estimates of forfeitures related to service-based vesting considerations, which were valued at a total of $1,625,000 of which $553,600 was expensed in fiscal 2021 and none in 2020. The amounts for 2020 represent compensation expense for the stock options granted on July 1, 2017 which were valued at a total of $39,200 of which $13,100 was expensed in fiscal 2020. No expense was necessary in 2021. |
| (2) | The amount for 2021 represents compensation expense for stock options granted on June 23, 2020 valued utilizing the Black-Scholes-Merton options pricing model disregarding estimates of forfeitures related to service-based vesting considerations, which were valued at a total of $1,625,000 of which $553,600 was expensed in fiscal 2021 and none in 2020. The amounts for 2020 represent compensation expense for the stock options granted from March 2019 through June 2020 valued at $3,000 per month utilizing the Black-Scholes-Merton options pricing model, of which $36,000 was expensed in fiscal 2020. No expense was necessary in 2021. |
| (3) | Upon the acquisition of Aquila in April 2021, Mr. Grunes, who was Aquila’s CEO, became the VP of R&D and Operations for the Bioprocessing Operations. The Option Awards amounts represent the fiscal year 2021 compensation expense for stock options granted at the time of acquisition which were valued utilizing the Black-Scholes-Merton options pricing model disregarding estimates for forfeitures related to service-based vesting considerations, which were valued at a total of $409,300 of which $23,200 was expensed in fiscal 2021 and none in fiscal 2020. Other compensation represents retention bonus paid in accordance with his employment agreement upon consummation of acquisition. | |
| | |
| (4) | 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 options were valued at a total of $11,800, of which $3,900 was expensed in fiscal 2020. No expense was necessary in 2021. | |
| (5) | 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 $6,300 was expensed in fiscal 2020. No expense was necessary in 2021. | |
| (6) | The amounts represent the Company’s matching contribution under the Company’s 401(k). | |
| (7) | The amounts represent director and chairman fees paid to Mr. Moore through June 30, 2020. On July 1, 2020 Mr. Moore became an employee of the Company and thereafter was not paid any director fees. | |
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR ENDED JUNE 30, 20182021
Name (a) | Grant Date (b) | Estimated Future Payouts Under Non-Equity Incentive Plan $ (c) | Estimated Future Payouts Under Equity Incentive Plan $ (d) | All Other Stock Awards: Number Of Shares Of Stock Or Units (#) (e) | All Other Option Awards: Number Of Securities Underlying Options (#) (f) | Exercise Or Base Price Of Option Awards ($/Sh) (g) | Grant Date Fair Value of Stock And Option Awards ($) (h) |
| Helena Santos | 07/01/17 | 0 | 0 | 0 | 25,000 | 3.08 | 39,200 |
| Anthony Mitri | 06/30/18 | 0 | 0 | 0 | 5,000 | 3.15 | 10,000 |
| Anthony Mitri | 12/31/17 | 0 | 0 | 0 | 5,000 | 3.05 | 9,500 |
| Brookman March | 07/01/17 | 0 | 0 | 0 | 7,500 | 3.08 | 11,800 |
| Robert Nichols | 07/01/17 | 0 | 0 | 0 | 7,500 | 3.08 | 11,800 |
| Karl Nowosielski | 07/01/17 | 0 | 0 | 0 | 7,500 | 3.08 | 11,800 |
Name (a) | Grant Date (b) | Estimate Future Payouts Under Non-Equity Incentive Plan $ (c) | Estimated Future Payouts Under Equity Incentive Plan $ (d) | All Other Stock Awards Number of Shares of Stock or Units (#) (e) | All Other Option Awards: Number of Securities Underlying Options (#) (f) | Exercise Or Base Price of Option Awards ($/Sh) (g) | Grant Date Fair Value of Stock and Option Awards (h) |
| Daniel Grunes | 4/30/2021 | 0 | 0 | 0 | 56,000 | 10.00 | 409,300 |
| John A. Moore | 6/23/2020(*) | 0 | 0 | 0 | 215,366 | 7.50-9.00 | 1,625,000 |
| Helena R. Santos | 6/23/2020(*) | 0 | 0 | 0 | 215,366 | 7.50-9.00 | 1,625,000 |
* Although the grants were communicated on June 23, 2020, the awards were formally issued on February 23, 2021 upon shareholder approval of an increase in the number of shares available under the Company’s 2012 Stock Option Plan.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Option Awards | Option Awards | |
Name (a) | Number of Securities Under- lying Unexercised Options (#) Exercisable (b) | Number of Securities Under- lying Unexercised Options (#) Unexerci- sable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) | Number Of Securities Underlying Unexercised Options(#) Exercisable (b) | Number Of Securities Underlying Unexercised Options(#) Unexercisable (c) | Equity Incentive Plan Awards Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) |
| Helena Santos | 0 | 25,000 | 0 | 3.08 | 07/2027 | 88,788 | 143,578 | 0 | 3.08-9.00 | 07/2027-06/2031 |
| Anthony Mitri | 1,500 | 10,000 | 0 | 3.05-3.27 | 09/2018-06/2028 | |
| Brookman March | 7,000 | 7,500 | 0 | 3.71-3.96 | 05/2022-07/2027 | |
| John A. Moore | | 78,220 | 149,732 | 0 | 4.50-11.30 | 03/2029-06/2031 |
| Robert Nichols | 2,000 | 7,500 | 0 | 3.50 | 12/2023-07/2027 | 7,500 | 0 | 3.08 | 12/2023-07/2027 |
| Karl Nowosielski | 11,333 | 13,167 | 0 | 3.05-4.05 | 02/2024-07/2027 | 24,500 | 0 | 2.91-4.05 | 02/2024-07/2027 |
| Daniel Grunes | | 0 | 56,000 | 0 | 10.00 | 04/30/2031 |
Employment Agreements
OnThe Company has a three-year employment contract with its President, effective July 1, 2017, which was extended by mutual agreement for each one-year periods ending June 30, 2021 and 2022. The agreement provided for an annual base salary of $175,000 for the Company entered intoyear 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 new employmentdiscretionary bonus for subsequent years. Bonuses totaling $100,000 were awarded for the year ended June 30, 2021 and $50,000 in 2020. The agreement with Ms. Helena R. Santos throughalso 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. No shares were granted during the year ended June 30, 2021, and 215,366 shares were authorized to be granted by the Board of Directors during the year ended June 30, 2020, which shares were not available and subject to amendment to the Company’s 2012 Stock Option Plan which was approved in February 2021. The agreement also contains a provision that within one year of a change of control, if either the Company terminates the employment for any reason other than for "cause" or the Presidents terminates her employment for "good reason", the President 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 preceding such termination.
The Company has a three-year employment contract with its President of the option to extendGenie Products Division of the Benchtop Laboratory Equipment Operations and Corporate Secretary effective July 1, 2017, which was extended by mutual agreement for two additionaleach one-year periods.periods ending June 30, 2021 and 2022. The agreement provides for an annual base salary of $153,000 for the fiscal year ended June 30, 2018, of $175,000 with subsequent annual increases thereafter of 3% per annum or the percentage increase if any, in the Consumer Price Index,CPI, whichever is higher.higher, plus $10,000 cash bonus for the year ended June 30, 2018, and a discretionary bonus for subsequent years. No bonus was awarded for the year ended June 30, 2021 and a $5,000 bonus was awarded in 2020. The agreement also provides for a bonusgrant of $25,000 foroptions to purchase 7,500 shares of the fiscalCompany’s stock, which were granted during the year ended June 30, 20182018. No options were granted during the year ended June 30, 2021 or 2020.
The Company has a three-year employment contract with its President of Torbal Products Division of the Benchtop Laboratory Equipment Operations and on a discretionary basis thereafter. A bonusDirector of $20,000Marketing effective July 1, 2017, which was awarded during fiscal 2017. Theextended by mutual agreement also provides for the grant of stock options to purchase 25,000 shares during fiscal yeareach one-year periods ending June 30, 2018, subject to continued employment.
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.2021 and 2022. The agreement provides for an annual base salary of $157,000 for the fiscal year ended June 30, 2018, of $153,000 with subsequent annual increases thereafter of 3% per annum4% or the percentage increase if any, in the Consumer Price Index,CPI, whichever is higher.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 division’s EBITDA for the related year. The agreement also provides for a bonusgrant of $10,000 foroptions to purchase 7,500 shares of the fiscalCompany’s stock, which were granted during the year ended June 30, 2018 and on a discretionary basis thereafter.2018. No options were granted during the year ended June 30, 2021 or 2020. A performance-based bonus of $10,000 was awarded during fiscal 2017. The agreement also provides for the grant of stock options to purchase 7,500 shares during fiscal year endingended June 30, 2018, subject to continued employment.2020. No bonus was awarded for the year ended June 30, 2021.
OnThe Company has a three-year employment contract with its President of Scientific Bioprocessing, Inc., effective 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.2020. The agreement provides for an annual base salary of $175,000 for the fiscal year ended June 30, 2018 of $155,0002021, with subsequent annual increases thereafter of 3% per annum or the percentage increase if any, in the Consumer Price Index,CPI, whichever is higher.higher, plus discretionary bonuses. The agreement also provides for a bonusgrant of $10,000 foroptions to purchase 215,366 shares which were authorized to be granted by the fiscalBoard of Directors during the year ended June 30, 20182020 and issued on February 23, 2021, which shares were not available and subject to amendment to the Company’s 2012 Stock Option Plan which was approved in February 2021. Prior to July 1, 2020, the officer had a discretionary basis thereafter. Aconsulting agreement, which terminated upon becoming an employee of the Company. Consulting fees paid under this agreement amounted to $145,000 for the year ended June 30, 2020, plus stock options valued at $36,000 which were granted as part of the total compensation. Bonuses amounting to $100,000 were awarded during the year ended June 30, 2021 and a bonus of $10,000$50,000 was awarded in during fiscal 2017.the year ended June 30, 2020. The employment agreement also providescontains 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 employee resigns for "good reason" (as such term is defined there), the Company shall pay severance payments equal to either one year's salary at the rate of the compensation at the time of termination is employee is terminated within 12 months of the date of the agreement or six months' salary is the employee is terminated after 12 months of the date of the agreement, continue to pay the regular benefits provided by the Company for the grant of stock optionsperiod equal to purchase 7,500 shares during fiscal year ending June 30, 2018, subject to continued employment. Mr. March is the husband of Grace S. Morin, a Directorlength of the Companyseverance payments and pay a pro rata portion of Altamira and a former principal stockholderany bonus achieved prior to such termination of Altamira.
On July 1, 2017,April 30, 2021, the Company entered into a newan employment agreement with Mr. Karl Nowosielski through June 30, 2020 witheach of the option to extend for two additional one-year periods. The agreement providesfour managing directors and sellers of Aquila for an annual baseindefinite term, which can be terminated by either party upon six months’ written notice in accordance with German law. The agreements, which are identical, stipulate that in calendar year 2021, the employees will receive a salary of 105,000 euros, as well as a guaranteed bonus of 45,000 euros for the fiscala total of 150,000 euros per year ended June 30, 2018on a pro-rata basis, and in calendar year 2022, they will receive a salary of $157,000 with annual increases thereafter of 4% per annum. The agreement also provides for105,000 euros and a bonus of $10,000 for45,000 euros, subject to the fiscal year ending June 30, 2018 and $10,000 for each subsequent year, providedachievement by Aquila of certain targets. In addition, the employment agreements included a minimum 5% increase in the EBITDAone time retention bonus of 10,000 euros upon closing of the Torbal Products Division is achieved. Aacquisition which was paid in May 2021 by Aquila, and a retention bonus of $10,000 was awarded during fiscal 2017. The25,000 euros if the Employee does not terminate his employment with the Company within two years after the agreement also providesdate or the Company does not terminate his employment for the grant of stock options to purchase 7,500 shares during fiscal year ending June 30, 2018, subject to continued employment.good cause.
On May 16, 2017,All of 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. The agreement provides for an annual base salary for the fiscal year ended June 30, 2018 of $110,000 and $120,000 for the fiscal year ending June 30, 2019 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, 2018 or 2017. The agreement also provides for the grant of stock options to purchase up to an aggregate of 10,000 shares, 5,000 shares which were granted on December 31, 2017, and 5,000 shares on June 30, 2018.
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, exceptMs. Santos, Mr. Mitri,Nichols and Mr. Nowosielski, 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. The employment agreement for Mr. Moore contains 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 Mr. Moore resigns for “good reason” (as such term is defined therein), the Company shall pay severance payments equal to either one year’s salary at the rate of the compensation at the time of termination if Mr. Moore is terminated within 12 months of the date of his agreement or six months’ salary if Mr. Moore is terminated after 12 months of the date of his agreement, and the Company will continue to pay the regular benefits provided by the Company for the period equal to the length of the severance payments and pay a pro rata portion of any bonus achieved prior to such termination of employment. 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 $1.00.termination.
Directors’ Compensation and Options
DIRECTORS’ COMPENSATION
For the Year Ended June 30, 20182021
| Name(a) | Fees Earned or Paid in Cash ($) (b) | Stock Awards ($) (c) | Option Awards($) (d) | Non-Equity Incentive Plan Comp-ensation ($) (e) | Changes in Pension Value and Non-qualified Deferred Compens-ation Earnings($) (f) | Non-qualified Deferred Comp-ensation Earnings ($) (g) | All Other Comp- ensation ($) (h) | Total ($) (i) |
| Joseph G.Cremonese | 34,300 | 0 | 0 | 0 | 0 | 0 | 43,200 (1) | 77,500 |
| Grace S.Morin | 14,600 | 0 | 0 | 0 | 0 | 0 | 7,000 (2) | 21,600 |
| James S.Segasture | 14,600 | 0 | 0 | 0 | 0 | 0 | 0 | 14,600 |
| John F.F. Watkins | 14,600 | 0 | 0 | 0 | 0
| 0 | 0 | 14,600 |
Name (a) | Fees Earned or Paid in Cash ($) (b) | | | Non-Equity Incentive Plan Comp-ensation ($) (e) | Changes in Pension Value and Non-qualified Deferred Compensation Earnings($) (f) | Non-qualified Deferred Comp-ensation Earnings ($) (g) | All Other Comp- ensation ($) (h) | |
| Christopher Cox | 6,200 | 0 | 0 | 0 | 0 | 0 | 0 | 6,200 |
| Joseph G. Cremonese | 18,800 | 0 | 0 | 0 | 0 | 0 | 108,000(1) | 126,800 |
| Marcus Frampton | 18,800 | 0 | 0 | 0 | 0 | 0 | 0 | 18,800 |
| Jurgen Schumacher | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Reinhard Vogt | 14,400 | 0 | 758,700(4) | 0 | 0 | 0 | 207,900(2) | 981,000 |
| John F.F. Watkins (3) | 10,400 | 0 | 0 | 0 | 0 | 0 | 0 | 10,400 |
(1) Represents amount paid to him and his affiliate pursuant to a marketing consulting agreement (see Items 12 and 13).
(2) Represents compensation received for her administrative services asamount paid to him and his affiliate pursuant to a consultant for Altamiraconsulting agreement (see Items 12 and 13).
(3) Mr. Watkins resigned from the Board during fiscal 2021.
(4) Represents the grant date aggregate fair value of 125,000 option shares granted in connection with his consulting agreement.
The Company paid each Director who is not an employee of the Company or a subsidiary a quarterly retainer fee of $2,200 and $2,000 (up for 1,800 asa meeting fee of January 2018)$2,000 for each meeting attended for each of fiscal 20182021 and fiscal 2017, respectively.2020. 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 2018,2021, total director compensation to non-employee Directors aggregated $128,300,$388,900, including the consulting fees paid to Mr. Cremonese’sCremonese and his affiliate and to Ms. Morin.Mr. Vogt and his affiliate.
Since December 1, 2003,On June 23, 2020, Mr. Joseph G. Cremonese haswas awarded 20,000 options in connection with his consulting agreement with an aggregate grant date fair value of $108,500, all of which remain outstanding. Prior to that, Mr. Cremonese had 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.
On July 20, 2020, Mr. Vogt was awarded 125,000 options in connection with his consulting agreement with an aggregate grant date fair value of $758,700, all of which 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, 2018,2021, 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 | |
Fulcrum, Inc. 100 Delawanna Avenue Clifton, NJ 07014 | 117,370(1) | 7.9%
|
| Joseph G. Cremonese | 138,262(2) | 9.2% |
| Brookman P. March | 97,450(3) | 6.5% |
| Grace S. Morin | 97,450(4) | 6.5% |
| Robert P. Nichols | 27,897(5) | 1.9% |
| Karl D. Nowosielski | 34,183(6) | 2.2% |
| Helena R. Santos | 40,779(7) | 2.7% |
| James S. Segasture | 162,500(8) | 10.9% |
| John F. F. Watkins | 0 | 0.0% |
| All directors and executive officers as a group (7 persons) | 501,071(9) | 31.9% |
| Name | Amount and Nature of Beneficial Ownership | |
Roy T. Eddleman, Trustee, Roy T. Eddleman Trust UAD 8-7-2000 Troy Gould PC 1801 Century Park East Suite 1600 Los Angeles, CA 900067 | 2,127,264(1) | 28.9% |
| | |
| Veradace Capital Management LLC | 953,717(2) | 14.1% |
| | |
| Bleichroeder LP | 836,842(3) | 12.4% |
| | |
| Brian Pessin | 710,525(4) | 10.6% |
| | |
Christopher Cox One World Financial Center New York, NY 10281 | 444,000(5) | 6.6% |
| | |
Lyon Polk 1585 Broadway 22ndFloor New York, NY 10036 | 444,000(6) | 6.6% |
| | |
| Joseph G. Cremonese | 134,412(7) | 2.1% |
| | |
| Marcus Frampton | 8,135(8) | (*) |
| | |
| John A. Moore | 281,730(9) | 4.2% |
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| Helena R. Santos | 255,196(10) | 3.8% |
| | |
| Jurgen Schumacher | 37,893(11) | (*) |
| | |
| Reinhard Vogt | 132,893(12) | 2.0% |
| | |
| Daniel Grunes | 59,789(13) | (*) |
| | |
| Karl D. Nowosielski | 40,498(14) | (*) |
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| Robert P. Nichols | 30,241(15) | 1.0% |
| | |
| All directors and executive officers as a group (10 persons) | 951,052(16) | 19.2% |
(1) Stock ownership in conjunction with acquisition of the Torbal division assets from Fulcrum, Inc. on February 26, 2014.
(2)
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.
22(3)
Represents 82,950 shares owned by Ms. Morin, his wife and 14,500 shares issuable upon exercise of options.
(4)
Includes 14,500 shares issuable upon exercise of options held by her husband, Mr. March.
(5)
Includes 9,500 shares issuable upon exercise of options.
(6)
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.
(7)
Includes 25,000 shares issuable upon exercise of options.
(8)
Shares owned jointly with his wife.
(9)
Includes 78,500 shares issuable upon exercise of options.
(1) Based upon form Schedule 13D filed with the Securities and Exchange Commission (“SEC”) on July 14, 2021. Includes 894,376 shares issuable upon exercise of warrants. |
(2) Based upon form Schedule 13G filed with the SEC on May 7, 2021. Includes 315,789 shares issuable upon exercise of warrants. |
(3) Based upon form Schedule 13G filed with the SEC on June 25, 2021. Includes 278,947 shares issuable upon exercise of warrants. |
(4)Based upon form Schedule 13D filed with the SEC on July 13, 2021. Includes 210,526 shares issuable upon exercise of warrants. |
(5) Based upon form Schedule 13D filed with the SEC on June 29, 2020. |
(6) Based upon form Schedule 13G filed with the SEC on July 9, 2020. |
(7)102,412 shares are owned jointly with his wife, 7,000 shares are owned by his wife, and 25,000 shares are issuable upon exercise of options. |
(8) Based upon SEC form 4 filed with the SEC on June 29, 2021. |
(9)Includes 238,478 shares issuable upon exercise of options and warrants. |
(10) Includes 232,892 shares issuable upon exercise of options and warrants. |
(11) Includes 12,631 shares issuable upon exercise of warrants. |
(12) Includes 127,631 shares issuable upon exercise of options and warrants. |
(13) Includes 57,263 shares issuable upon exercise of options and warrants. |
(14) Includes (i) 9,683 shares of common stock issued in connection with the acquisition of the Torbal Division in February 2014 and (ii) 26,605 shares issuable upon exercise of options and warrants. |
(15) Includes 8,552 shares issuable upon exercise of options and warrants. |
| (16) Includes 951,052 shares issuable upon exercise of options and warrants. |
|
(*) - % of Class is less than 1%. |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to Company options, warrants and rights as of June 30, 2018.2021.
| 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) | 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 | 92,000 | 3.15 | 26,000 | 1,180,800 | $8.73 | 5,243 |
| Equity Compensation plans not approved by security holders | N/A | N/A | N/A | N/A |
| Total | 92,000 | 3.15 | 26,000 | 1,180,800 | $8.73 | 5,243 |
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 marketingprovides consulting services to the Company since January 1, 2003 pursuant tounder a consulting agreement expiring on December 31, 2018. The agreement currently provides that Mr. Cremonese and his affiliate shall render,2021 at the request of the Company, marketing consulting services for a monthly paymentretainer of $3,600.$9,000. The agreement contains confidentiality and non-competition covenants. The Company paid fees of $43,200 pursuant to the agreement$108,000 and $76,200 for each of fiscal 20182021 and 2017.fiscal 2020, respectively.
Ms. Grace S. Morin, was electedMr. Reinhard Vogt, a Director in December 2007 following the sale of her 90.36% ownership interest in Altamirasince July 2020, through his affiliate, Societät Reinhard and Noah Vogt AG GmbH, provides consulting services 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 providedunder a consulting services on a part-time basis pursuant to an agreement expiring December 31, 2018on July 20, 2022 at the ratea monthly retainer of $85 per hour, resulting in payments of $7,000 and $5,200 for fiscal 2018 and fiscal 2017, respectively.12,500 euros. The agreement contains confidentiality and non-competition covenants.
The Company paid fees of $207,900 in fiscal 2021 and none in fiscal 2020, and granted him a 125,000 share stock option valued at $758,700 on the grant date using the Black-Scholes-Merton option pricing model.
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 Yates Berg Klein & Wolpow, CPAs LLP (the “Firm”) during fiscal 20182021 and fiscal 2017.2020.
The Company incurred for the services of the Firm fees of approximately $70,000$85,200 and $69,000$77,500 for fiscal 20182021 and fiscal 2017,2020, respectively, in connection with the audit of the Company’s annual consolidated financial statements and quarterly reviews; $5,000 for additional audit related fees for fiscal 2021 and $6,000none for each fiscal year2020, $7,850 and $7,500 for the preparation of the Company’s corporate tax returns.returns for fiscal 2021 and fiscal 2020, respectively, and $2,750 in fiscal 2021 for other services related to tax services.
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.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Financial Statements. The required financial statements of the Company are attached hereto on pages F1-F25.F1-F-28.
Exhibits. The following Exhibits are filed as part of this report on Form 10-K:
| Exhibit Number | Exhibit |
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| |
| 3 | Articles | Certificate 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.) |
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| 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.) |
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| 3(c) | | By-Laws of the Company, as restated and amended (filed as Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on January 6, 2003 and Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on December 5, 2007 and incorporated by reference thereto). |
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| 3(d) | | Second Amended and Restated By-Laws of Scientific Industries, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on August 10, 2020 and incorporated by reference thereto). |
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| 3(e) | | Certificate of Amendment of Certificate of Incorporation of Scientific Industries, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 1, 2021 and incorporated by reference thereto). |
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| | Certificate of Amendment of Certificate of Incorporation of Scientific Industries, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021 and incorporated by reference thereto). |
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| 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). |
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| | 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). |
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| | Form of Warrant issued by the Company to Investors (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 19, 2020, and incorporated by reference thereto). |
| 4(d) | | |
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| 4(e) | | Amendment No. 2 to Scientific Industries, Inc. 2012 Stock Option Plan (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 1, 2021 and incorporated by reference thereto). |
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| 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). |
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| 10(a)-1 | | Amendment to lease between Registrant and REP A10 LLC, successor in interest of AIP Associates, dated September 1, 2004 (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on September 2, 2004, and incorporated by reference thereto). |
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| 10(a)-2 | | Second amendment to lease between Registrant and REP A10 LLC dated November 5, 2007 (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on November 8, 2007, and incorporated by reference thereto). |
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| 10(a)-3 | | Lease agreement dated August 8, 2014 by and between the Company and 80 Orville Drive Associates LLC. (filed as Exhibit 10 to the Company's Form 10-K filed on September 26, 2014, and incorporated by reference thereto). |
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| First amendment to lease dated September 20, 2021 by and betweeen the Company and REP 2035 LLC. |
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| 10(b) | | Employment Agreement dated January 1, 2003, by and between the Company and Ms. Santos (filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on January 22, 2003, and incorporated by reference thereto). |
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| 10(b)-1 | | Employment Agreement dated September 1, 2004, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on September 1, 2004, and incorporated by reference thereto). |
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| 10(b)-2 | | Employment Agreement dated December 29, 2006, by and between the Company and Ms. Santos (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on December 29, 2006, and incorporated by reference thereto). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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) |
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| 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). |
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| Employment agreement dated July 1, 2017 by and between the Company and Ms. Santos (filed as an exhibit to the Comany'sCompany's Annual Report on Form 10-K for the fiscal year ended June 30, 2017, and incorporated by reference thereto). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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).
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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10(d)-12 | Monthly Retainer Agreement between Scientific Bioprocessing, Inc. and Mr. Cremonese and affiliates (filed as Exhibit 10(d)-12 to the Company’s Quarterly Report on Form 10-Q on February 13, 2020, and incorporated by reference thereto). |
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| 10(d)-13 | Extension of Monthly Retainer Agreement between Scientific Bioprocessing, Inc. and Mr. Cremonese and affiliates (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 8, 2021, and incorporated with reference thereto). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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).
|
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| 10(i)-8 | Termination notice dated February 14, 2020 to Mr. March (filed as Exhibit 10(I-8) to the Company’s Current Report on Form 8-K filed on February 18, 2020, and incorporated by reference thereto). |
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| 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). |
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| 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). |
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| 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. |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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) |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
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| 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). |
| | |
| Code of EthicsConsulting Agreement dated March 1, 2019 between the Company and Mr. John A. Moore (filed as Exhibit 1410A-1 to the Company’s Annual 10KSBCurrent Report on Form 8-K filed on September 28, 2007March 6, 2019, and incorporated by reference thereto).
|
|
|
21 | Subsidiaries of the Registrant |
| | |
| 10(aa)-1 | Altamira Instruments, Inc., a Delaware Corporation, is a wholly-owned subsidiary ofAmendment to Consulting Agreement dated November 7, 2019 between the Company.Company and Mr. John A. Moore (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2019, and incorporated by reference thereto). |
| | |
| 10(aa)-2 | Employment Agreement dated July 1, 2020 between Scientific Bioprocessing, Inc., a Delaware Corporation, is a wholly-owned subsidiary of and John A. Moore (filed as Exhibit 10.1 to the Company since November 2011. |
| |
| Scientific Packaging Industries, Inc., a New York corporation, is a wholly-owned inactive subsidiary of the Company.Company’s Current Report on Form 8-K filed on June 25, 2020, and incorporated by reference thereto). |
| | |
| CertificationConsulting Agreement dated July 20, 2020 between the Company and Mr. Reinhard Vogt and his affiliate Societat Reinhard and Noah Vogt AG (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on July 22, 2020, and incorporated by reference thereto.) |
| |
| 10(bb)-1 | Amendment to Consulting Agreement between the Company and Societät Reinhard and Noah Vogt AG GmbH and Reinhard Vogt (filed as Exhibit 10A-1 to the Company’s Current Report on Form 8-K filed on March 8, 2021, and incorporated by reference thereto. |
| |
| 10(cc) | Employment Agreement dated July 1, 2020 between Scientific Bioprocessing, Inc. and James Polk (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 25, 2020, and incorporated by reference thereto). |
| |
| 10(dd) | Securities Purchase Agreement dated June 18, 2020 between the Company and Investors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2020, and incorporated by reference thereto). |
| |
| 10(dd)-1 | Form of Chief Executive OfficerAmendment of Securities Purchase Agreement, by and Chief Financial Officer pursuantbetween the Company and Investors (filed as Exhibit 10.1 to Section 302the Company’s Current Report on Form 8-K filed on April 13, 2021, and incorporated by reference thereto). |
| |
| 10(ee) | Loan Agreement under the U.S. Small Business Administration Paycheck Protection Program dated April 14, 2020 between the Company and First National Bank (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 21, 2020, and incorporated by reference thereto). |
| |
| 10(ff) | Asset Purchase Agreement dated November 30, 2020 between Altamira Instruments, Inc. andBeijing JWGB Sci. & Tech. Co., Ltd (filed as Exhibit 2 to the Company’s Current Report on Form 8-K filed on December 1, 2020, and incorporated by reference thereto). |
| |
| 10(gg) | Asset Purchase Agreement dated April 28, 2021 between the Company and the sellers of Sarbanes-Oxley Actaquila biolabs GmbH (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 30, 2021, and incorporate by reference thereto). |
| |
| 10(gg)-1 | Directors’ Service Contract dated April 29, 2021 between the Company and the sellers of 2002.aquila biolabs GmbH (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 30, 2021, and incorporate by reference thereto). |
| |
| 10(hh) | Securities Purchase Agreement dated April 29, 2021 between the Company and Investors (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 30, 2021, and incorporated by reference thereto). |
| |
| 10(hh)-1 | Registration Rights Agreement dated April 29, 2021 between the Company and Investors (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on April 30, 2021, and incorporated by reference thereto). |
| | |
| Certification of Chief Executive OfficerAmendment No. 1 to Registration Rights Agreement dated April 29, 2021 between the Company and Chief Financial Officer pursuantInvestors (filed as Exhibit 4.2 to Section 906 of Sarbanes-Oxley Act of 2002.the Company’s Current Report on Form 8-K filed on June 21, 2021, and incorporated by reference thereto). |
| |
| Securities Purchase Agreement dated June 18, 2021 between the Company and Investors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021, and incorporated by reference thereto). |
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: September 28, 2018October 14, 2021 | SCIENTIFIC INDUSTRIES, INC. (Registrant) /s/Helena R. Santos
|
| | Helena R. Santos President, Chief Executive Officer, Treasurer Chief Financial Officer and Principal Accounting OfficerTreasurer |
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 |
| | | |
| President and Treasurer (Chief Executive Officer and Financial Officer) and Director | September 28, 2018 |
Helena R. Santos | President, Chief Executive Officer, Chief Financial Officer and Treasurer | October 14, 2021 |
| Christopher Cox | Director | October 14, 2021 |
| | |
| Chairman of the Board | September 28, 2018 |
Joseph G. Cremonese | Director | October 14, 2021 |
| | |
Marcus Frampton | Director | September 28, 2018October 14, 2021 |
Grace S. Morin | | |
John A. Moore | DirectorChairman of the Board | September 28, 2018October 14, 2021 |
James S. Segasture | | |
Jurgen Schumacher | Director | September 28, 2018October 14, 2021 |
John F.F. Watkins | | |
Reinhard Vogt | Director | October 14, 2021 |
| | |
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE YEARS ENDED
JUNE 30, 20182021 AND 20172020
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
CONTENTS
| | Pa
Page |
| | |
| Report of independent registered public accounting firm | F-1 |
| | |
| Consolidated financial statements: | |
| | |
| Balance sheets | F-2 |
| | |
Statements of operationscomprehensive loss
| F-3 |
| |
Statements of comprehensive loss | F-4 |
| | |
Statements of changes in shareholders’stockholders’ equity | F-5F-4 |
| | |
| Statements of cash flows | F-6 – F-7F-5 |
| | |
| Notes to financial statements | F-8F-6 – F-25F-28 |
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE YEARS ENDED
JUNE 30, 2021 AND 2020
Report of Independent Registered Public Accounting Firm
Board of Directors and ShareholdersStockholders’
Scientific Industries, Inc.
Bohemia, New York
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, 20182021 and 2017,2020, the related consolidated statements of income, comprehensive loss, changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements and schedules (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, 20182021 and 2017,2020, 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)(“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 auditing 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to those charged with governance and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Business Combination
As described in Note 16 to the financial statements, the Company completed its acquisition of Aquila biolabs GmbH (“Aquila”) on April 29, 2021, for a total purchase price of $7,880,100, resulting in the addition of $6,655,415 of intangible assets. The acquisition was accounted for as a business combination.
The principal considerations for our determination that the valuation of acquired intangible assets is a critical audit matter is that the valuation of the acquired intangible assets was considered especially challenging and required significant auditor judgment due to the complex determination by management of the appropriate assumptions, such as discount rates, revenue projections, and projected profit margins, for the valuation of the acquired intangible assets. The Company, utilizing third-party specialists, used income valuation models including Relief from Royalty Method and the Multi-Period Excess Earning Method (MPEEM) to measure the identified intangible assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals having expertise in the valuation of acquired intangible assets, when performing audit procedures to evaluate management’s judgments and conclusions related to the valuation of the intangible assets.
To test the estimated fair values of the identified intangible assets, our audit procedures included, among others, reading the underlying agreements, testing management’s application of the relevant accounting guidance, and involving a specialist to assist us in the evaluation of the Company’s valuation methodology and testing of the significant assumptions used by the Company to develop forecasted results for Aquila, including projected revenue growth and operating margins. For example, we compared the significant assumptions to current industry, market and economic trends. Additionally, we tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.
/s/ Nussbaum Berg Klein & Wolpow, CPAs LLP
We have served as the Company'sCompany’s auditor since 1991.
/s/ Nussbaum Yates Berg Klein & Wolpow, LLP
Nussbaum Yates Berg Klein & Wolpow, LLP
Melville, New York
September 28, 2018October 14, 2021
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 20182021 AND 20172020
ASSETS
| | | | | |
| Current assets: | | |
| Cash and cash equivalents | $1,053,100 | $1,025,100 | $9,675,200 | $7,559,700 |
| Investment securities | 314,700 | 295,500 | 3,744,600 | 331,800 |
| Trade accounts receivable, less allowance fordoubtful accounts of $11,600 in 2018 and 2017 | 1,722,300 | 1,179,000 | |
| Trade accounts receivable, less allowance for doubtful accounts of $15,600 and $11,600, respectively | | 1,294,700 | 1,064,000 |
| Inventories | 2,267,900 | 1,961,200 | 2,977,100 | 2,541,000 |
| Income tax receivable | | 333,300 | 334,800 |
| Prepaid expenses and other current assets | 33,500 | 80,300 | 350,900 | 112,400 |
| Assets of discontinued operations | | 55,300 | 793,000 |
| | | |
| Total current assets | 5,391,500 | 4,541,100 | 18,431,100 | 12,736,700 |
| | | |
| Property and equipment, net | 199,500 | 199,300 | 412,600 | 278,300 |
| | | |
| Intangible assets, net | 338,700 | 579,000 | 2,557,800 | 128,700 |
| | | |
| Goodwill | 705,300 | 4,395,400 | 257,300 |
| | | |
| Trade accounts receivable, less current portion | 245,400 | |
| Operating lease right-of-use assets | | 665,300 | 803,300 |
| | | |
| Other assets | 52,500 | 54,300 | 56,000 |
| | | |
| Deferred taxes | 392,600 | 505,100 | 2,489,900 | 537,100 |
| | | |
| Total assets | $7,325,500 | $6,827,700 | $29,006,400 | $14,797,400 |
LIABILITIES AND SHAREHOLDERS’STOCKHOLDERS’ EQUITY
| Current liabilities: | | |
| Accounts payable | $428,000 | $139,200 |
| Accrued expenses and taxes, current portion | 657,700 | 491,000 |
| Customer advances | 63,800 | - |
| Contingent consideration, current portion | 118,000 | 175,700 |
| Notes payable, current portion | 5,800 | 6,700 |
| | | |
| Total current liabilities | 1,273,300 | 812,600 |
| | | |
| Accrued expenses, less current portion | 60,000 | 60,000 |
| Notes payable, less current portion | - | 5,800 |
| Contingent consideration payable, less current portion | 290,000 | 121,300 |
| | | |
| Total liabilities | 1,623,300 | 999,700 |
| | | |
| Shareholders’ equity: | | |
| Common stock, $.05 par value; authorized 7,000,000 shares; issued and outstanding 1,513,914 shares in 2018 and 2017 | 75,700 | 75,700 |
| Additional paid-in capital | 2,545,900 | 2,515,900 |
| Accumulated other comprehensive income (loss) | 1,200 | (3,500) |
| Retained earnings | 3,131,800 | 3,292,300 |
| | 5,754,600 | 5,880,400 |
| Less common stock held in treasury at cost, 19,802 shares | 52,400 | 52,400 |
| | | |
| Total shareholders’ equity | 5,702,200 | 5,828,000 |
| | | |
| Total liabilities and shareholders’ equity | $7,325,500 | $6,827,700 |
Current liabilities: | | |
| Accounts payable | $453,500 | $334,600 |
| Accrued expenses and taxes | 633,500 | 679,000 |
| Contract liabilities | - | 20,000 |
| Contingent consideration, current portion | 136,600 | 111,000 |
| Bank overdraft | 321,700 | 43,100 |
| Lease liabilities, current portion | 270,500 | 195,800 |
| 433,800 | 563,800 |
Liabilities of discontinued operations | 37,200 | 240,900 |
| | | |
| Total current liabilities | 2,286,800 | 2,188,200 |
| | | |
| Lease liabilities, less current portion | 460,500 | 640,800 |
| Contingent consideration payable, less current portion | 23,400 | 247,000 |
| Other long-term liabilities | 10,900 | - |
| | | |
| Total liabilities | 2,781,600 | 3,076,000 |
| | | |
| Stockholders’ equity: | | |
Common stock, $.05 par value; 15,000,000 shares authorized; 6,477,945 and 2,881,065 shares issued; 6,458,143 and 2,861,263 shares outstanding in 2021 and 2020, respectively | 324,000 | 144,100 |
| Additional paid-in capital | 26,613,500 | 8,608,300 |
Accumulated other comprehensive loss
| (9,200) | - |
| Retained earnings ( accumulated deficit) | (651,100) | 3,021,400 |
| | 26,277,200 | 11,773,800 |
| Less common stock held in treasury at cost, 19,802 shares | 52,400 | 52,400 |
| | | |
| Total stockholders’ equity | 26,224,800 | 11,721,400 |
| | | |
| Total liabilities and stockholders’ equity | $29,006,400 | $14,797,400 |
See notes to consolidated financial statements.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
| | | |
| | | |
| Revenues | $8,481,400 | $8,149,300 |
| | | |
| Cost of revenues | 5,259,700 | 5,270,000 |
| | | |
| Gross profit | 3,221,700 | 2,879,300 |
| | | |
| Operating expenses: | | |
| General and administrative | 1,748,800 | 1,665,400 |
| Selling | 957,500 | 888,800 |
| Research and development | 520,900 | 437,500 |
| Impairment of intangible assets | - | 48,000 |
| | | |
| Total operating expenses | 3,227,200 | 3,039,700 |
| | | |
| Loss from operations | (5,500) | (160,400) |
| | | |
| Other income (expense): | | |
| Interest income | 6,100 | 10,600 |
| Other income, net | 2,500 | 5,900 |
| Interest expense | (1,700) | (2,900) |
| | | |
| Total other income, net | 6,900 | 13,600 |
| | | |
| Income (loss) before income tax expense (benefit) | 1,400 | (146,800) |
| | | |
| Income tax expense (benefit): | | |
| Current | 50,400 | 13,400 |
| Deferred | 111,500 | (87,600) |
| | | |
| Total income tax expense (benefit) | 161,900 | (74,200) |
| | | |
| Net loss | $(160,500) | $(72,600) |
| | | |
| Basic and diluted loss per common share | $(.11) | $(.05) |
| | | |
| Weighted average common shares outstanding | 1,494,112 | 1,491,167 |
See notes to consolidated financial statements.
F-3
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
| | | |
| | | |
| Net loss | $(160,500) | $(72,600) |
| | | |
| Other comprehensive income (loss): | | |
| Unrealized holding gain (loss) | | |
| arising during period, | | |
| net of tax | 4,700 | (4,400) |
| | | |
| Comprehensive loss | $(155,800) | $(77,000) |
| | | |
| | | |
| Revenues | $9,775,200 | $7,784,400 |
| | | |
| Cost of revenues | 4,799,800 | 3,847,000 |
| | | |
| Gross profit | 4,975,400 | 3,937,400 |
| | | |
| Operating expenses: | | |
| General and administrative | 4,028,500 | 2,275,400 |
| Selling | 4,031,900 | 1,185,800 |
| Research and development | 1,623,800 | 1,139,700 |
| | | |
| Total operating expenses | 9,684,200 | 4,600,900 |
| | | |
| Loss from operations | (4,708,800) | (663,500) |
| | | |
| Other income (expense): | | |
| Interest income | 82,200 | 12,600 |
| Other income (expense), net | 571,600 | (16,500) |
| | | |
| Total other income (expense), net | 653,800 | (3,900) |
| | | |
| Loss from continuing operations before income tax benefit | (4,055,000) | (667,400) |
| | | |
| Income tax benefit, deferred | (945,000) | (214,000) |
| | | |
| Net loss from continuing operations | (3,110,000) | (453,400) |
| | | |
| Discontinued operations (Note 17): | | |
| | | |
Loss from discontinued operations, net of tax
| (562,500) | (249,900) |
| | | |
| Net loss | (3,672,500) | (703,300) |
| Other comprehensive loss: | | |
| Foreign currency translation adjustment | (9,200) | - |
| Comprehensive loss | $(3,681,700) | $(703,300) |
Basic and diluted loss per common share: | | |
| Continuing operations | $(0.97) | $(.30) |
| Discontinued operations | $(0.18) | $(.16) |
| Consolidated operations | $(1.15) | $(.46) |
| | | |
See notes to consolidated financial statements.
F-4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
| | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance, July 1, 2019 | 1,513,914 | 75,700 | 2,592,700 | - | 3,724,700 | 19,802 | 52,400 | 6,340,700 |
| | | | | | | | | |
| Net loss | - | - | - | - | (703,300) | - | - | (703,300) |
| | | | | | | | | |
| Issuance of Common Stock and Warrants, net of issuance costs (Note 15) | 1,349,850 | 67,500 | 5,936,900 | - | - | - | - | 6,004,400 |
| | | | | | | | | |
| Stock options exercised | 17,301 | 900 | 12,900 | - | - | - | - | 13,800 |
| | | | | | | | | |
| Stock-based compensation | - | - | 65,800 | - | - | - | - | 65,800 |
| | | | | | | | | |
| Balance, June 30, 2020 | 2,881,065 | $144,100 | $8,608,300 | - | $3,021,400 | 19,802 | $52,400 | $11,721,400 |
| | | | | | | |
| | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance, July 1, 2016 | 1,508,914 | $75,400 | $2,498,500 | $900 | $3,409,600 | 19,802 | $52,400 | $5,932,000 |
| | | | | | | | | |
| Net loss | - | - | - | - | (72,600) | - | - | (72,600) |
| | | | | | | | | |
| Cash dividend declared and paid $.03 | - | - | - | - | (44,700) | - | - | (44,700) |
| | | | | | | | | |
| Unrealized holding loss on investment securities, net of tax | - | - | - | (4,400) | - | - | - | (4,400) |
| | | | | | | | | |
| Exercise of stock options | 5,000 | 300 | 15,200 | - | - | - | - | 15,500 |
| | | | | | | | | |
| Stock-based compensation | - | - | 2,200 | - | - | - | - | 2,200 |
| | | | | | | | | |
| Balance, June 30, 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 |
| | | | | | | | | |
| - | - | 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 |
| Net loss | - | - | - | - | (3,672,500) | - | - | (3,672,500) |
| | | | | | | | | |
Foreign currecy translation adjustment
| - | - | - | (9,200) | - | - | - | (9,200) |
| | | | | | | | |
| Issuance of Common Stock and Warrants, net of issuance costs (Note 15) | 3,595,880 | 179,800 | 15,894,200 | - | - | - | - | 16,074,000 |
| | | | | | | | | |
| Stock options exercised | 1,000 | 100 | 3,000 | - | - | - | - | 3,100 |
| | | | | | | | | |
| Stock-based compensation | - | - | 2,108,000 | - | - | - | - | 2,108,000 |
| | | | | | | | | |
| Balance, June 30, 2021 | 6,477,945 | $324,000 | $26,613,500 | $(9,200) | $(651,100) | 19,802 | $52,400 | $26,224,800 |
See notes to consolidated financial statements.
F-5
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
| | | |
| Operating activities: | | |
| Net loss | $(3,672,500) | $(703,300) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | |
| Gain on sale of investment securities | (35,600) | (4,400) |
| Depreciation and amortization | 251,500 | 160,900 |
| Deferred income tax benefit | (1,152,500) | (106,000) |
| Unrealized holding loss on investment securities | 10,400 | 12,400 |
| Loss on disposal of subsidiary | 405,400 | - |
| Provision for bad debt | 4,000 | 3,400 |
| Extinguishment of debt | (531,100) | - |
| Gain on sale of fixed assets | - | (300) |
| Stock-based compensation | 2,108,000 | 65,800 |
| Change in fair value of contingent consideration | (30,000) | 112,600 |
| Changes in operating assets and liabilities: | | |
| Trade accounts receivable | (75,500) | 906,800 |
| Inventories | (560,000) | (292,400) |
| Income tax receivable | 1,500 | (334,800) |
| Prepaid expenses and other assets | (211,400) | (22,400) |
| Right-of-use assets | 138,000 | (803,300) |
| Accounts payable | 79,600 | (214,400) |
| Lease liabilities | (105,600) | 867,700 |
| Accrued expenses | (195,200) | 191,500 |
| Contract liabilities | (20,000) | 89,000 |
| Other long-term liabilities | 10,900 | - |
| Bank overdraft | 278,600 | (96,900) |
| | | |
| Total adjustments | 371,000 | 535,200 |
| | | |
| Net cash used in operating activities | (3,301,500) | (168,100) |
| | | |
| Investing activities: | | |
| Purchase of investment securities | (9,569,000) | (63,400) |
| Redemption of investment securities | 6,181,400 | 55,000 |
| Proceeds from sale of fixed assets | - | 1,000 |
| Capital expenditures | (198,700) | (50,900) |
| Proceeds from sale of Altamira | 440,000 | - |
| Purchase of Aquila, net of cash acquired | (7,679,000) | - |
| Purchase of intangible assets | (58,700) | (25,800) |
| | | |
| Net cash used in investing activities | (10,884,000) | (84,100) |
| | | |
| Financing activities: | | |
Repayment of 1st Payroll Protection Plan loan | (32,700) | - |
Proceeds from 2nd Payroll Protection Plan loan | 433,800 | 563,800 |
Proceeds from issuance of common stock and warrants
| 17,080,400 | 6,004,400 |
Issuance costs - common stock and warrants
| (1,006,400) | - |
| Proceeds from exercise of stock options | 3,100 | 13,800 |
| Payments for contingent consideration | (168,000) | (372,600) |
| | | |
| Net cash provided by financing activities | 16,310,200 | 6,209,400 |
| | | |
Effect of changes in foreign currency exchange rates on cash and cash eqivalents | (9,200) | - |
| | | |
| Net increase in cash and cash equivalents | 2,115,500 | 5,957,200 |
| | | |
| Cash and cash equivalents, beginning of year | 7,559,700 | 1,602,500 |
| | | |
| Cash and cash equivalents, end of year | $9,675,200 | $7,559,700 |
| | | |
| Supplemental disclosures: | | |
| Cash paid during the period for: | | |
| Income taxes | $2,500 | $40,900 |
| | | |
| | | |
| Operating activities: | | |
| Net loss | $(160,500) | $(72,600) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | |
| Depreciation and amortization | 305,100 | 355,900 |
| Impairment of intangible assets | - | 48,000 |
Deferred income tax (benefit) expense
| 112,500 | (87,600) |
| Gain on sale of investment securities | - | (3,200) |
| Stock-based compensation | 30,000 | 2,200 |
| Change in fair value of contingent consideration | 253,700 | 140,000 |
| Changes in operating assets and liabilities: | | |
| Trade accounts receivable | (543,300) | (192,500) |
| Inventories | (306,700) | 450,900 |
| Prepaid and other current assets | 46,800 | (33,100) |
| Accounts payable | 288,800 | (203,200) |
| Customer advances | 63,800 | - |
| Accrued expenses and taxes | 166,700 | (358,700) |
| | | |
| Total adjustments | 417,400 | 118,700 |
| | | |
| Net cash provided by operating activities | 256,900 | 46,100 |
| | | |
| Investing activities: | | |
| Purchase of investment securities, available for sale | (14,500) | (18,700) |
| Redemption of investment securities, available for sale | - | 11,100 |
| Capital expenditures | (61,400) | (17,000) |
| Purchase of other intangible assets | (3,600) | (16,500) |
| | | |
| Net cash used in investing activities | (79,500) | (41,100) |
| | | |
| Financing activities: | | |
| Principal payments on notes payable | (6,700) | (6,400) |
| Cash dividend paid | - | (44,700) |
| Line of credit proceeds | 40,000 | 250,000 |
| Line of credit repayments | (40,000) | (250,000) |
| Payments for contingent consideration | (142,700) | (189,300) |
| Proceeds from exercise of stock options | - | 15,500 |
| | | |
| Net cash used in financing activities | (149,400) | (224,900) |
| | | |
| | | |
| Net increase (decrease) in cash and cash equivalents | 28,000 | (219,900) |
| | | |
| Cash and cash equivalents, beginning of year | 1,025,100 | 1,245,000 |
| | | |
| Cash and cash equivalents, end of year | $1,053,100 | $1,025,100 |
| | | |
| Supplemental disclosures: | | |
| | | |
| Cash paid during the period for: | | |
| Income taxes | $16,000 | $213,500 |
| Interest | 1,700 | 2,900 |
See notes to consolidated financial statements.
F-7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
1.
Summary of Significant Accounting Policies
Nature of Operations | |
| 1. | Summary of Significant Accounting Policies |
Nature of Business
Scientific Industries, Inc. and its subsidiaries (the “Company”) design, manufacture, and market a variety of benchtop laboratory equipment and bioprocessing products and catalyst research instruments.products. The Company is headquartered in Bohemia, New York where it produces benchtop laboratory equipment for research andequipment. Additionally, the Company has another locationtwo other locations in Pittsburgh, Pennsylvania and Baesweiller, Germany, where it designs and produces a variety of custom-made catalyst research instruments and designs bioprocessing products, and an administrative facility in Oradell,Orangeburg, New JerseyYork related to sales and marketing. The equipmentproducts, which are sold by the Company includesto customers worldwide, include mixers, shakers, stirrers, refrigerated incubators, pharmacy balances and scales, catalyst characterization instruments, reactor systemsforce gauges, bioprocessing sensors and high throughput systems.analytical tools. The Company also sublicenses certain patents and technology under a license agreement with the University of Maryland, Baltimore County, and receives royalty fees from sublicenses (see Note 1- Revenue Recognition).
COVID-19 Pandemic
The challenges posed by the sublicensesCOVID-19 pandemic on the global economy began to take effect and impacted the Company’s operations at the end of the third quarter of the year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self-quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. The Bioprocessing Systems Operations’ SBI facility was shut down temporarily due to state mandates, however, the impact on operations was immaterial, and the Company has been able to retain its employees without furloughs or layoffs, in part, due to the Company’ receipt of two loans under the Federal Government’s Small Business Administration Paycheck Protection Program. The Company received $563,800 and $433,800 in Payroll Protection Program loans in April 2020 and March 2021, respectively. The first loan was forgiven in June 2021 except for $32,700 which was repaid by the Company. The Company expects to apply and receive forgiveness for the second loan.. The operations of aquila biolabs GmbH ("Aquila") which was acquired on April 29, 2021 was negatively impacted in its ability to secure new orders because Aquila had historically relied on face-to-face meetings at trade shows for its sales opportunities. While it has participated in virtual trade shows, management believes that certain sales opportunities are lost as a result. The Company has not experienced and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies which have benefitted from the Pandemic due to the nature of the products and have the ability to pay. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. The Company is currently experiencing some delays from its supply chain which is having an impact on delayed delivery of some products, however this is deemed temporary and does not affect the Company’s major product – the Vortex-Genie 2. In addition, due to the travel restrictions imposed by the United States and other governments worldwide, Company personnel may be restricted from traveling to conduct its operations including site visits, customer visits and installations, vendor facility visits, and other sales and marketing related travel that can negatively impact the Company.
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 (discontinued operation as of November 30, 2020), and Scientific Bioprocessing Holdings, Inc. (“SBHI”), a newly incorporated Delaware corporation and its wholly-owned subsidiaries, Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation, and wholly-owned subsidiary,Aquila, a German corporation, which was aquired on April 29, 2021, (all collectively referred to as the “Company”). On April 30, 2021 Scientific Industries, Inc. contributed 100% of the stock of Scientific Bioprpcessing, Inc. to its wholly owned subsidiary Scientific Bioprocessing Holdings, Inc. All material intercompany balances and transactions have been eliminated.eliminated in consolidation.
Revenue Recognition
Revenue from product sales is recognized when all the following criteria are met:
●
Persuasive evidence of an arrangement exists, including receipt of a written purchase order agreement which is binding on the customer.
F-6●
Goods are shipped and title passes.
●
Prices are fixed and determinable.
●
Collectability is reasonably assured.
●
All material obligations under the agreement have been substantially performed.
Revenues are net of normal discounts. Shipping and handling fees billed to customers are included in net revenues, while the related costs are included in cost of revenues.
Substantially all orders are F.O.B. shipping point, all sales are final without right of return or payment contingencies, and there are no special sales arrangements or agreements with any customers.
Royalty revenue received under the Company’s sublicenses is recorded net of payments due to its licensors.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
| 1. | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition
The company recognizes revenue in accordance with Financial Accounting Standards Board ('FASB") Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, (“ASC 606”), In accordance with ASC 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.
All of the Company's contracts have a single performance obligation. As permitted by ASC 606, the Company does not disclose the amount of unsatisfied performance obligations for client contracts with an original expected length of one year or less.
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 |
Nature of Products and Services
We generate revenues from the following sources: (1) Benchtop Laboratory Equipment and (2) Bioprocessing Systems.
| | Benchtop Laboratory Equipment | | |
| June 30, 2021: | | | |
| | | | |
| Revenues | $9,043,600 | 731,600 | $9,775,200 |
| | | | |
| Foreign Sales | 3,483,700 | 684,600 | 4,168,300 |
| | Benchtop Laboratory Equipment | | |
| June 30, 2020: | | | |
| | | | |
| Revenues | $6,783,600 | $1,000,800 | $7,784,400 |
| | | | |
| Foreign Sales | 2,589,800 | 1,000,400 | 3,590,200 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| 1. | Summary of Significant Accounting Policies (Continued) |
Revenue Recognition (Continued)
Nature of Products and Services (Continued)
Benchtop laboratory equipment sales comprise primarily of standard benchtop laboratory equipment 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. Revenue is recognized at a point in time when the risks and rewards of ownership have tranferred to the customer, which is generally upon shipment.
Bioprocessing revenues consist of royalty revenues generated through SBI and product revenues generated primarily through Aquila. Royalty revenues are earned by the Company under a licensing agreement from a single licensee and its sublicenses. The license agreement includes two United States patents and a European Union patent (through December 2019). In January 2020, the European Union patent which was due to expire in August 2020,was terminated and the Company will only receive royalties under the United States patents through December 2023, which will result in a material reduction in total royalties expected to be received. The Company is obligated to pay 50% of all royalties earned to the entity that licenses the intellectual property to the Company. Royalty revenue requires significant judgement in estimating royalty revenue to be recognized during the year.
The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the FASB, in applying ASC 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.
Summary of Significant Accounting Policies (Continued)
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| 1. | Summary of Significant Accounting Policies (Continued) |
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturityoriginal maturities 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, 20182021, and 2017, $593,7002020, $8,922,800 and $442,000,$6,729,300 respectively of cash balances were in excess of such limit.
Reclasses
Certain amounts on the balance sheet as of June 30, 2021 and 2020 pertaining to inventories, property and equipment, goodwill, accounts payable, accrued expenses, contract liabilities, and operating leases liabilities were reclassed as assets and liabilities of discontinued operations due to the sale of the Company's wholly ownedsubsidiary, Altamira Instruments, Inc. on November 30, 2020.
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 and customer satisfaction claims and pricing discrepancies.claims. 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. Based on its assessment, the Company concluded that there are no collection issues related to the COVID-19 Pandemic.
Customer AdvancesContract Liabilities
InContract liabilities consists of billings or payments received in advance of revenue recognition and is recognized as the ordinary courserevenue 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 business, customers may make advance payments for purchase orders. Such amounts, when received,the underlying contract. Accordingly, the contract liabilities balance does not represent the total contract value of outstanding arrangements. Contract liabilities that are categorizedexpected to be recognized during the subsequent 12-month period are recorded as current and the remaining portion as noncurrent. Contract liabilities under the caption customer advances.were not significant at June 30, 2021 and 2020, respectively.
Investment Securities
Securities available for sale are carried atInvestment securities consist of equity securities and mutual funds with realized gains and losses recorded using the specific identification method. Changes in fair value withare recorded as unrealized holding gains or losses reported in a separate componentother income (loss), net on the statement of shareholders’ equity. Realizedcomprehensive loss. The Company determines the cost of the investment sold based on an average cost basis at the individual security level, and records the interest income and realized gains or losses are determined based on the specific identification method.sale of these investments in other income (loss), net.
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.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
1.
| 1. | Summary of Significant Accounting Policies (Continued) |
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.
Research and Development Expenses
Research and development expenses are expensed as incurred and consist principally of internal and external costs which includes the cost of patent licenses, contract research services, laboratory supplies, in-process research and development acquired, as well as product developments and enhancements.
Finite Lived Intangible Assets
Intangible assets consist primarily of acquired technology, customer relationships, non-compete agreements, patents, licenses, websites, intellectual property and in process research and development (“IPR&D”), trademarks and trade names. All finite lived 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-LivedIndefinite Lived Intangible Assets
Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill and long-livedindefinite 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, 20182021 and 20172020, there was no impairment of goodwill.goodwill or indefinite lived intangible assets.
Impairment of Long-Lived Assets
The Company follows the provisions of ASC No. 360-10,360, “Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets (“ASC No. 360-10”360"). ASC No. 360-10360 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. For the year endedThe Company concluded as of June 30, 2017 the Company determined that the intangible assets of SBI were impaired,2021 and accordingly an impairment charge of $48,000 was recorded. There2020, there was no impairment for the year ended June 30, 2018.of long-lived assets.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
1.
Summary of Significant Accounting Policies (Continued)
| 1. | Summary of Significant Accounting Policies (Continued) |
Income Taxes
The Company and its subsidiaries file a consolidated U.S. federal income tax return. Income taxes are accounted for under the asset and liability method. The Company provides for federal, and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to $174,700$399,700 and $134,200$218,700 for the years ended June 30, 20182021 and 2017,2020, 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.
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 100,0001,193,000 shares of the Company’s Common Stock, par value $.05 per share (“Common Stock”), plus up to 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 untilthrough 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, 20182021 and 2017, 26,0002020, 5,243 and 83,500147,414 shares respectively, of Common Stock were available for grant of options under the 2012 Plan.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
1.
Summary of Significant Accounting Policies (Continued)
Stock Compensation Plan (Continued)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, theThe 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 recognizedissued and expensed ratably over the period that an employee providesrequisite service in exchange for the award. During the years ended Juneperiod.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 and 2017, the Company granted 57,500 and 6,000 options, respectively, to employees that had a fair value of $51,000 and $10,600, respectively. The fair value of the options granted during fiscal year 2018 and 2017 were determined using the Black-Scholes-Merton option-pricing model. The weighted average assumptions used for fiscal 2018 and 2017, was an expected life of 10 years; risk free interest rate of 2.43% and 2.53%; volatility of 47% and 59%, and dividend yield of .85% and 1.04% for fiscal 2018 and 2017. The Company declared a dividend of $0.03 per share during fiscal year ending June 30, 2017. The Company did not declare dividends during the year ended June 30, 2018. The weighted-average value per share of the options granted in 2018 and 2017 was $1.64 and $1.76, and total stock-based compensation costs were $30,000 and $2,200 for the years ended June 30, 2018 and 2017, respectively. Stock-based compensation costs related to nonvested awards expected to be recognized in the future are $73,500 and $10,300 as of June 30, 2018 and 2017, respectively.2021 AND 2019
| 1. | Summary of Significant Accounting Policies (Continued) |
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, andfair value of stock options, the fair values of intangibles and goodwill.goodwill, and provision or benefit for income taxes. The actual results experienced by the Company may differ materially from management’s estimates.
Earnings (Loss) Per Common Share
Basic earningsorloss per common share is computed by dividing net income (loss) by the weighted-averageweighted-average number of shares outstanding. Diluted earnings per common share includes the dilutive effect of stock options, if any.any. Since the Company was in a loss position during the years ended June 30, 2021 and 2020, respectively, basic net loss per share is the same as dilutive net loss per share as the inclusion of the weighted-average number of all potential dilutive common shares which consists of stock options and warrants are anti-dilutive.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2020-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently evaluating the impact of adopting this guidance.
Adopted Accounting Pronouncement
In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented
In February 2016, the FASB issued ASU No. 2016-02, Leases, which replaces previous lease guidance in its entirety with ASC 842 and requires lessees to recognize lease assets and lease liabilities for those arrangements classified as operating leases under previous guidance, with the exception of leases with a term of twelve months or less. The Company adopted ASU No. 2016-02 on July 1, 2019 using the additional transition method, which allows prior periods to be presented under previous lease accounting guidance. Refer to Note 11, "Leases", for related disclosures.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 2017
1.
Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 is currently evaluating the impact of the provisions of this new standard on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842). The FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the effect of the new standard.
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 current accounting practices. Based on this analysis, the Company does not currently expect a material impact on the Company’s consolidated financial statements. The Company is expecting to utilize the modified retrospective transition method of adoption. The Company is continuing to work through the remaining steps of the adoption plan to facilitate adoption for the fiscal year ending June 30, 2019. As part of this, the Company is assessing changes that might be necessary to information technology systems, processes, and internal controls to capture new data and address changes in financial reporting. The Company will be revising its revenue recognition accounting policy and expanding revenue disclosures to reflect the requirements of ASC 606, which include disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgements and assets recognized from the costs to obtain or fulfill a contract.
1.
Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is currently evaluating the effect of the standard. In December 2016, the FASB issued ASU No. 2016-20 “Technical Corrections and Improvements
to Topic 606: “Revenue from Contracts with Customers”, which makes miscellaneous corrections and modifications to the originally issued ASU 2014-09.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”. This update provides guidance on how to record eight specific cash flow issues. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and a retrospective transition method to each period should be presented. The Company is currently evaluating the effect of this update on its consolidated financial statements.
Adopted Accounting Pronouncements
On December 22, 2017, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act, or SAB 118,” which addresses situations where the accounting under the FASB, Accounting Standards Codification No. 740, Income Taxes, or ASC 740 is incomplete for certain income tax effects of Public Law No. 115-97, commonly referred to as Under ASC 740, entities are required to adjust current and deferred tax assets and liabilities for the effects of changes in tax laws or rates at their date of enactment. However, pursuant to SAB 118, if an entity does not have the necessary information available, prepared, or analyzed for certain income tax effects of the 2017 Tax Act at the time an entity’s financial statements are issued, an entity shall apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the enactment of the 2017 Tax Act. If the accounting for certain income tax effects of the 2017 Tax Act is incomplete, but an entity can determine a reasonable estimate for those effects, an entity can record provisional amounts during a measurement period, which ends on the earlier of when an entity has obtained, prepared, and analyzed the information necessary to complete the accounting requirements of ASC 740 and December 22, 2017.
The 2017 Tax Act includes significant changes to the U.S. income tax system. The 2017 Tax Act contains numerous provisions impacting the Company, the most significant of which reduces the Federal corporate statutory rate from 35% to 21%. The Company is a fiscal-year end taxpayer and is required to use a blended statutory federal tax rate, inclusive of the Federal rate change enacted on December 22, 2017 to compute its effective rate for the year ended June 30, 2018. Refer to Note 11 for additional information regarding the impact of the 2017 Tax Act on the Company.
Reclassification
Accounts receivable of $245,400 and deferred taxes of $129,000 was reclassified from current to long-term assets on the balance sheet as of June 30, 2017 to conform to the current period's presentation.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
2.
Segment Information and Concentrations
The Company views its operations as threetwo 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 | | | | Benchtop Laboratory Equipment | | | |
| | | |
| June 30, 2018: | | |
| June 30, 2021: | | |
| | | |
| Revenues | $6,403,400 | $1,408,900 | $669,100 | $- | $8,481,400 | $9,043,600 | $731,600 | $- | $9,775,200 |
| | | |
| Foreign Sales | 2,669,000 | 707,200 | - | 3,376,200 | 3,483,700 | 684,600 | | 4,168,300 |
| | | |
| Income (Loss) From Operations | 297,000 | (248,000) | (54,500) | - | (5,500) | 1,461,300 | (4,828,600) | (1,341,400) | (4,708,800) |
| | | |
| Assets | 4,141,200 | 1,482,200 | 1,002,800 | 699,300 | 7,325,500 | 14,783,000 | 8,735,100 | 5,488,300 | 29,006,400 |
| | | |
| Long-Lived Asset Expenditures | 60,500 | 1,900 | 2,600 | - | 65,000 | 60,500 | 196,900 | - | 257,400 |
| | | |
| Depreciation, Amortization and Impairment | 265,100 | 2,800 | 37,200 | - | 305,100 | |
| Depreciation and Amortization | | 103,100 | 148,400 | - | 251,500 |
| | Benchtop Laboratory Equipment | Catalyst Research Instruments | | | |
| | | | | | |
| June 30, 2017: | | | | | |
| | | | | | |
| Revenues | $5,784,400 | $2,070,200 | $294,700 | $- | $8,149,300 |
| | | | | | |
| Foreign Sales | 2,467,400 | 129,200 | - | - | 2,596,600 |
| | | | | | |
| Income (Loss) From Operations | 288,100 | (312,900) | (135,600) | - | (160,400) |
| | | | | | |
| Assets | 4,100,800 | 1,518,100 | 408,200 | 800,600 | 6,827,700 |
| | | | | | |
| Long-Lived Asset Expenditures | 20,700 | - | 12,800 | - | 33,500 |
| | | | | | |
| Depreciation, Amortization and Impairment | 292,600 | 14,000 | 97,300 | - | 403,900 |
| | Benchtop Laboratory Equipment | | | |
| June 30, 2020: | | | | |
| | | | | |
| Revenues | $6,783,600 | $1,000,800 | $- | $7,784,400 |
| | | | | |
| Foreign Sales | 2,589,800 | 1,000,400 | - | 3,590,200 |
| | | | | |
| Income (Loss) From Operations | 449,700 | (727,500) | (385,700) | (663,500) |
| | | | | |
| Assets | 12,232,600 | 546,100 | 2,018,700 | 14,797,400 |
| | | | | |
| Long-Lived Asset Expenditures | 36,000 | 40,700 | - | 76,700 |
| | | | | |
| Depreciation and Amortization | 116,900 | 42,700 | - | 159,600 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 2017
3.Fair Value of Financial Instruments
| 3. | Fair Value of Financial Instruments |
The FASB defines the fair value of financial instruments as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements do not include transaction costs.
The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
Level 1
Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
| Level 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 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.
| 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 areis 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.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
3.
Fair Value of Financial Instruments (Continued)
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, 20182021 and 20172020 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, 2018 | | | | | Fair Value Measurements Using Inputs Considered as |
| | | Fair Value at June 30, 2021 | | | |
| Assets: | | |
| Cash and cash equivalents | | $9,675,200 | $- |
| Investment securities | | 3,744,600 | 2,920,600 | 824,000 | - |
| | | |
| Cash and cash equivalents | $1,053,100 | $- | |
| Available for sale securities | 314,700 | - | |
| | | |
| Total | $1,367,800 | $- | $13,419,800 | $12,595,800 | $824,000 | $- |
| | | |
| Liabilities: | | |
| | | |
| Contingent consideration | $408,000 | $- | $408,000 | $160,000 | $- | $ | $160,000 |
| | | Fair Value Measurements Using Inputs Considered as |
| | Fair Value at June 30, 2017 | | | |
| | | | | |
| Assets: | | | | |
| | | | | |
| Cash and cash equivalents | $1,025,100 | $1,025,100 | $- | $- |
| Available for sale securities | 295,500 | 295,500 | - | - |
| | | | | |
| Total | $1,320,600 | $1,320,600 | $- | $- |
| | | | | |
| Liabilities: | | | | |
| | | | | |
| Contingent consideration | $297,000 | $- | $- | $297,000 |
| | | Fair Value Measurements Using Inputs Considered as |
| | Fair Value at June 30, 2020 | | | |
| Assets: | | | | |
| Cash and cash equivalents | $7,559,700 | $7,559,700 | $- | $- |
| Investment securities | 331,800 | 331,800 | - | - |
| | | | | |
| | | | | |
| Total | $7,891,500 | $7,891,500 | $- | $- |
| | | | | |
| Liabilities: | | | | |
| Contingent consideration | $358,000 | $- | $ | $358,000 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| 3. | Fair Value of Financial Instruments (Continued) |
The following table sets forth an analysis of changes during fiscalthe years 2018ended June 30, 2021 and 20172020, respectively, in Level 3 financial liabilities of the Company:
| | | | |
| | | | |
| Beginning balance | $297,000 | $346,300 | $358,000 | $618,000 |
| Increase in contingent consideration liability | 408,900 | 140,000 | |
| Payments and accruals | (297,900) | (189,300) | |
| Increase (decrease) in contingent consideration liability | | (30,000) | 112,600 |
| Payments | | (168,000) | (372,600) |
| | | |
| Ending balance | $408,000 | $297,000 | $160,000 | $358,000 |
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, 20182021 and June 30, 2017,2020, the Company recorded an increase (decrease) in the estimated fair value of contingent liabilities of approximately $408,900($30,000) and $140,000,$112,600, respectively related to its Bioprocessing Systems Operations segment.
Investments in marketable securities by security type at June 30, 2021 and 2020 consisted of the following:
| | | | Unrealized Holding Gain (Loss) |
| At June 30, 2021: | | | |
| | | | |
| Equity securities | $102,200 | $154,100 | $51,900 |
| Mutual funds | 2,752,400 | 2,766,500 | 14,100 |
| Debt securities | 832,700 | 824,000 | (8,700) |
| | | | |
| | $3,687,300 | $3,744,600 | $57,300 |
| | | | Unrealized Holding Gain (Loss) |
| At June 30, 2020: | | | |
| | | | |
| Equity securities | $77,600 | $101,900 | $24,300 |
| Mutual funds | 250,300 | 229,900 | (20,400) |
| | | | |
| | $327,900 | $331,800 | $3,900 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 2017
2020
3.
Fair Value of Financial Instruments (Continued)
Investments in marketable securities classified as available-for-sale by security type at June 30, 2018 and 2017 consisted of the following:| | | |
| | | |
| Raw materials | $2,170,400 | $1,726,400 |
| Work-in-process | 39,600 | 35,700 |
| Finished goods | 767,100 | 778,900 |
| | | |
| | $2,977,100 | $2,541,000 |
| | | | Unrealized Holding Gain (Loss) |
| At June 30, 2018: | | | |
| Available for sale: | | | |
| Equity securities | $45,700 | $67,800 | $22,100 |
| Mutual funds | 267,800 | 246,900 | (20,900) |
| | | | |
| | $313,500 | $314,700 | $1,200 |
| | | | Unrealized Holding Gain (Loss) |
| At June 30, 2017: | | | |
| Available for sale: | | | |
| Equity securities | $37,000 | $50,800 | $13,800 |
| Mutual funds | 262,000 | 244,700 | (17,300) |
| | | | |
| | $299,000 | $295,500 | $(3,500) |
| | | |
| | | |
| Raw materials | $1,488,000 | $1,373,800 |
| Work-in-process | 352,700 | 166,500 |
| Finished goods | 427,200 | 420,900 |
| | | |
| | $2,267,900 | $1,961,200 |
| Useful Lives | | |
| (Years) | | |
| | | |
| Automobiles 5 | $22,000 | $22,000 |
| Computer equipment 3-5 | 173,400 | 162,800 |
| Machinery and equipment 3-7 | 870,400 | 819,600 |
| Furniture and fixtures 4-10 | 205,900 | 205,900 |
| Leasehold improvements 3-10 | 34,200 | 34,200 |
| | | |
| | 1,305,900 | 1,244,500 |
| Less accumulated depreciation and amortization | 1,106,400 | 1,045,200 |
| | | |
| | $199,500 | $199,300 |
| | | | |
| | | | |
| | | | |
| Automobiles | 5 | $22,000 | $22,000 |
| Computer equipment | 3-5 | 233,500 | 215,300 |
| Machinery and equipment | 3-7 | 1,047,600 | 847,500 |
| Furniture and fixtures | 4-10 | 148,800 | 142,300 |
| Leasehold improvements | 3-10 | 64,400 | 50,300 |
| | | | |
| | | 1,516,300 | 1,277,400 |
| Less accumulated depreciation and amortization | | 1,103,700 | 999,100 |
| | | | |
| | | $412,600 | $278,300 |
Depreciation expense was $61,200$104,600 and $67,900$88,700 for the years ended June 30, 20182021 and 2017,2020, respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
6.
Goodwill and Other Intangible Assets
| 6. | Goodwill and Finite Lived 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$4,395,400 at June 30, 20182021 and 2017,257,300 at June 30, 2020, all of which is expected to be deductible for tax purposes.
The components of otherfinite lived intangible assets are as follows:
| | Useful Lives | | | | Useful Lives | | | |
| | | | |
| At June 30, 2018: | | | |
| At June 30, 2021: | | | |
| | | | | |
| Technology, trademarks | 5/10 yrs. | $662,800 | $613,400 | $49,400 | 5-10 yrs. | $364,700 | $362,200 | $2,500 |
| Trade names | 6 yrs. | 140,000 | 101,100 | 38,900 | 3-6 yrs. | 592,300 | 152,600 | 439,700 |
| Websites | 5 yrs. | 210,000 | 182,000 | 28,000 | 3-7 yrs. | 210,000 | - |
| Customer relationships | 9/10 yrs. | 357,000 | 294,800 | 62,200 | 4-10 yrs. | 372,200 | 102,400 | 269,800 |
| Sublicense agreements | 10 yrs. | 294,000 | 194,800 | 99,200 | 10 yrs. | 294,000 | 283,000 | 11,000 |
| Non-compete agreements | 5 yrs. | 384,000 | 348,000 | 36,000 | 4-5 yrs. | 1,060,500 | 308,600 | 751,900 |
| IPR&D | 3 yrs. | 110,000 | - | 3-5 yrs. | 852,100 | 134,800 | 717,300 |
| Other intangible assets | 5 yrs. | 198,100 | 173,100 | 25,000 | |
Patents
| | 5-7 yrs. | 591,500 | 225,900 | 365,600 |
| | | | | |
| | | $2,355,900 | $2,017,200 | $338,700 | | $4,337,300 | $1,779,500 | $2,557,800 |
| | Useful Lives | | | |
| | | | | |
| At June 30, 2017: | | | | |
| | | | | |
| Technology, trademarks | 5/10 yrs. | $662,800 | $541,100 | $121,700 |
| Trade names | 6 yrs. | 140,000 | 77,800 | 62,200 |
| Websites | 5 yrs. | 210,000 | 140,000 | 70,000 |
| Customer relationships | 9/10 yrs. | 357,000 | 281,400 | 75,600 |
| Sublicense agreements | 10 yrs. | 294,000 | 165,400 | 128,600 |
| Non-compete agreements | 5 yrs. | 384,000 | 294,000 | 90,000 |
| IPR&D | 3 yrs. | 110,000 | 110,000 | - |
| Other intangible assets | 5 yrs. | 194,500 | 163,600 | 30,900 |
| | | | |
| | $2,352,300 | $1,773,300 | $579,000 |
Total amortization expense was $243,900 and $288,000 in 2018 and 2017, respectively.
Estimated future amortization expense of intangible assets is as follows:
| Fiscal Years | |
| | |
| 2019 | $186,900 |
| 2020 | 66,400 |
| 2021 | 49,100 |
| 2022 | 26,100 |
| 2023 | 9,800 |
| Thereafter | 400 |
| | |
| Total | $338,700 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 2017
2020
| 6. | Goodwill and Finite Lived Intangible Assets (Continued) |
| | Useful Lives | | | |
| At June 30, 2020: | | | | |
| | | | | |
| Technology, trademarks | 5/10 yrs. | $664,700 | $662,000 | $2,700 |
| Trade names | 6 yrs. | 140,000 | 140,000 | - |
| Websites | 5 yrs. | 210,000 | 210,000 | - |
| Customer relationships | 9/10 yrs. | 357,000 | 321,400 | 35,600 |
| Sublicense agreements | 10 yrs. | 294,000 | 253,600 | 40,400 |
| Non-compete agreements | 5 yrs. | 384,000 | 384,000 | - |
| IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Patents
| 5 yrs. | 246,600 | 196,600 | 50,000 |
| | | | |
| | $2,406,300 | $2,277,600 | $128,700 |
Total amortization expense was $146,900 and $72,000 in 2021 and 2020, respectively.
Estimated future amortization expense of intangible assets as of June 30, 2021 is as follows:
| Year Ended June 30, | |
| | |
| 2022 | $525,700 |
| 2023 | 520,000 |
| 2024 | 508,800 |
| 2025 | 473,100 |
| 2026 | 530,200 |
| | |
| Total | $2,557,800 |
The Company has a Demand Line of Credit through December 20182021 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 5.0%3.25%. The agreement contains adoes not contain financial covenant requiring the Company to maintain a minimum net worthcovenants and borrowings are also secured by a pledge of the Company’s assets including inventory, accounts, chattel paper, equipment and general intangiblessubstantially all of the assets of the Company.As of June 30, 20182021 and 2017,2020, there were no borrowings outstanding under the line.
| 8. | Payroll Protection Program Loan |
The Company received $563,800 and $433,800 in Payroll Protection Program loans in April 2020 and March 2021, respectively, pursuant to the Paycheck Protection Program loan (“PPP”) administered by the U.S. Small Business Administration through its bank. The first loan was forgiven in June 2021, and reflected as other income in the accompanying statements of comprehensive loss , except for $32,700 which was repaid by the Company. The remaining loan bears interest at 1% per annum and matures in March 2026 and contains no collateral or guarantee requirements. The Company expects to apply and receive forgiveness for the second loan.
The Company has 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 outstanding balance remaining on this loan as of June 30, 2018 and June 30, 2017 was $5,800 and $12,500 with principal payments of $5,800 due over the next fiscal year.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
9.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee Benefit Plans
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
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 $74,500$90,700 and $75,100$84,100 for the years ended June 30, 20182021 and 2017,2020, respectively.
10.
Commitments and Contingencies
| 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 $183,300 in 2018 and $175,200 in 2017. Accrued rent, payable in future years, amounted to $65,600 and $59,600 at June 30, 2018 and 2017, respectively.
The Company is also obligated under 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 $106,000 and $106,500 for the fiscal years ended June 30, 2018 and 2017, respectively.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
10.
Commitments and Contingencies (Continued)
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 the lease’s one year renewal option through June 30, 2019. Total rent expense for the New Jersey facilities, was $23,000 and $22,500 for the years ended June 30, 2018 and 2017, respectively.
The Company’s approximate future minimum rental payments under all operating leases are as follows:
| Fiscal Years | |
| | |
| 2019 | $265,200 |
| 2020 | 249,700 |
| 2021 | 210,800 |
| 2022 | 184,600 |
| 2023 | 190,200 |
| Thereafter | 287,500 |
| | |
| | $1,388,000 |
The Company has a three yearthree-year employment contract with its President, effective July 1, 2017.2017, which was extended by mutual agreement for each one year periods ending June 30, 2021 and 2022. The agreement providesprovided for an annual base salary of $175,000 for the fiscal year endended June 30, 2018, with subsequent annual increases of 3% or the percentage increase in Consumer Price Index “CPI”(“CPI”), whichever is higher, plus $25,000 cash bonus for the fiscal year ended June 30, 2018, and a discretionary bonus for subsequent years. Bonuses totaling $100,000 and $50,000 were awarded for the years ended June 30, 2021 and 2020, respectively. The agreement also providesprovided 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. A bonus
No shares were granted during the year ended June 30, 2021, and 215,366 shares were authorized to be granted by the Board of $20,000 was also awardedDirectors during the year ended June 30, 2020, which shares were not available and subject to amendment to the Company’s 2012 Stock Option Plan which was approved in February 2021. The agreement also contains a provision that within one year of a change of control, if either the Company terminates the employment for any reason other than for "cause" or the Presidents terminates her employment for "good reason", the President duringwill have the fiscal year ending June 30, 2017.right to receive a lump sum payment equal to three times the average of her total annual compensation paid for the last five years preceding such termination.
The Company has a three yearthree-year employment contract with its President of the Genie Products Division of the Benchtop Laboratory Equipment Operations and Corporate Secretary effective July 1, 2017.2017, which was extended by mutual agreement for each one year period ending June 30, 2021 and 2022. The agreement provides for an annual base salary of $153,000 for the fiscal year endended June 30, 2018, with subsequent annual increases of 3% or percentage increase in Consumer Price Index “CPI”,the CPI, whichever is higher, plus $10,000 cash bonus for the fiscal year ended June 30, 2018, and a discretionary bonus for subsequent years. No bonus was awarded for the year ended June 30, 2021 and a $5,000 bonus was awarded in 2020. 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. A bonus of $10,000 was awarded to the Corporate Secretary during the fiscal year ending June 30, 2017.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2018 AND 2017
10.
Commitments and Contingencies (Continued)
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 fiscal year ended June 30, 2018 with subsequent annual increases of 3% or percentage increase in Consumer Price Index “CPI”, whichever is higher, plus $10,000 cash bonus for the fiscal year ended June 30, 2018 and discretionary for subsequent years. The agreement also provides for a grant ofNo options to purchase 7,500 shares of the Company’s stock which were granted during the year ended June 30, 2018. A bonus of $10,000 was awarded during the fiscal year ending June 30, 2017.2021 or 2020.
The Company has a three yearthree-year employment contract with its President and Director of Marketing of Torbal Products Division of the Benchtop Laboratory Equipment Operations and Director of Marketing effective July 1, 2017.2017, which was extended by mutual agreement for each one year periods ending June 30, 2021 and 2022. The agreement provides for an annual base salary of $157,000 for the fiscal year ended June 30, 2018, with subsequent annual increases of 4% or percentage increase in Consumer Price Index “CPI”,the CPI, whichever is higher, plus $10,000 cash bonus for the fiscal 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 options were granted during the year ended June 30, 2021 or 2020. A performance-based bonus of $10,000 was awarded during the fiscal year ending June 30, 2017.
The Company has a two year agreement with its President of Altamira Instruments, Inc. effective July 1, 2017. The agreement provides for an annual base salary of $110,000 and $120,000 for the fiscal years ending June 30, 2018 and 2019, respectively, plus incentive pay based on achievement of certain revenue and income levels. 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 fiscal year ended June 30, 2018.
The Company has a consulting agreement which expires on December 31, 2018 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 both years ended June 30, 2018 and 2017.
The Company has a consulting agreement which expires December 31, 2018 with another member of its Board of Directors for administrative services providing that the consultant be paid at the rate of $85 per hour. Consulting expense related to this agreement amounted to $7,000 and $5,200 for the fiscal years ended June 30, 2018 and 2017, respectively.
In connection with a February 26, 2014 acquisition of a privately owned company, The Company remained obligated to make its last additional payment to the seller based on a percentage of net sales of the business acquired equal to 11%2020. No bonus was awarded for the year ended June 30, 2017. Payments related to this contingent consideration for each period were due in September following the fiscal year. The Company is also required to make payments of 30% of the net royalties received from the license and sublicense acquired in the SBI acquisition in fiscal 2012. Total contingent consideration payments made for all acquisitions amounted to $142,700 and $189,300 for the years ended June 30, 2018 and 2017, respectively.2021.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 2017
| 10. | Commitments and Contingencies (Continued) |
Commitments
The Company has a three-year employment contract with its President of Scientific Bioprocessing, Inc., effective July 1, 2020. The agreement provides for an annual base salary of $175,000, with subsequent annual increases of 3% or percentage increase in Consumer Price Index (“CPI”), whichever is higher, plus discretionary bonuses. The agreement also provides for a grant of options to purchase 215,366 shares which were authorized to be granted by the Board of Directors during the year ended June 30, 2020, which shares were not available and Contingencies (Continued)subject to amendment to the Company’s 2012 Stock Option Plan which was approved in February 2021. Prior to July 1, 2020, the officer had a consulting agreement, which terminated upon becoming an employee of the Company. Consulting fees paid under this agreement amounted to $145,000 for the year ended June 30, 2020, respectively plus stock options valued at $36,000 were granted as part of the total compensation under the consulting agreement, for the year ended June 30, 2020. Bonuses amounting to $100,000 were awarded during the year ended June 30, 2021 and $50,000 in 2020. The employment agreement contains 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 employee resigns for "good reason"(as such term is defined in the agreement) , the Company shall pay severance payments equal to either one year's salary at the rate of the compensation at the time of termination is employee is terminated within 12 months of the date of the agreement or six months' salary is the employee is terminated after 12 months of the date of the agreement, continue to pay the regular benefits provided by the Company for the period equal to the length of the severance payments and pay a pro rata portion of any bonus achieved prior to such termination of employment.
On April 30, 2021, the Company entered into an employment agreement with each of the four managing directors and sellers of Aquila for an indefinite term, which can be terminated by either party upon six months’ written notice in accordance with German law. The agreements, which are identical, stipulate that in calendar year 2021, the employees will receive a salary of 105,000 euros, and a guaranteed bonus of 45,000 euros for a total of 150,000 euros per year on a pro-rata basis, and in calendar year 2022, they will receive a salary of 105,000 euros and a bonus of 45,000 euros, subject to the achievement by aquila of certain targets. In addition, the employment agreements included a one time retention bonus of 10,000 euros upon closing of the acquisition which was paid in May 2021 by Aquila, and a retention bonus of 25,000 euros if the employee does not terminate his employment with the Company within two years after the agreement date or the Company does not terminate his employment for good cause.
The fair valueCompany has a consulting agreement, which expires on December 31, 2021, with a Director of contingent consideration estimated tothe Company and his affiliate for product development consulting services. The agreement provides that the consultant be paid asa monthly retainer fee of $9,000, plus a grant of 20,000 options which were awarded during the year ended June 30, 2018 is as follows:2020. Consulting expense related to this agreement amounted to $108,000 and $76,200 for the years ended June 30, 2021 and 2020, respectively.
| Year ended June 30, | |
| | |
| 2019 | $118,000 |
| 2020 | 102,000 |
| 2021 | 88,000 |
| 2022 | 47,000 |
| 2023 | 38,000 |
| Thereafter | 15,000 |
| | |
| | $408,000 |
On July 20, 2020, the Company entered into a two-year consulting agreement with a Director and Chairman of the Board of SBI for consulting on strategic matters of the Company’s Bioprocessing Systems Operations. The agreement provided that the consultant be paid a monthly retainer of 5,000 euros which was increased to 12,500 euros effective March 2021 plus the issuance of 125,000 stock options of the Company which were awarded during the year ended June 30, 2021. Consulting expense related to this agreement amounted to $207,900 for the year ended June 30, 2021 and none in 2020, respectively.
The reconciliationCompany is required to make payments of 30% of the provisionnet royalties received from the license and sublicense acquired in the SBI acquisition in fiscal 2014 through December 2023, at which time the related patents will expire. Total contingent consideration payments made for income taxes at the federal statutory rate of 21%this acquisition amounted to the actual tax expense or benefit$168,000 and $372,600 for the applicable fiscal year was as follows:
| | | |
| | | |
| Computed “expected” income tax (benefit) | $300 | $(51,400) |
| Research and development credits | (32,700) | (13,100) |
| Change in tax rate | 224,300 | - |
| Other, net | (30,000) | (9,700) |
| | | |
| Income tax expense (benefit) | $161,900 | $(74,200) |
Deferred tax assetsyears ended June 30, 2021 and liabilities consist of the following:
| | | |
| | | |
| Deferred tax assets: | | |
| Amortization of intangible assets | $326,500 | $390,000 |
| Research and development credits | - | 3,400 |
| Various accruals | 54,700 | 102,300 |
| Other | 48,200 | 55,000 |
| | | |
| | 429,400 | 550,700 |
| Deferred tax liability: | | |
| Depreciation of property and amortization of goodwill | (36,800) | (45,600) |
| | | |
| Net deferred tax assets | $392,600 | $505,100 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20182021 AND 20172020
| 10. | Commitments and Contingencies (Continued) |
The fair value of contingent consideration estimated to be paid as of June 30, 2021 is as follows:
| Year ended June 30, | |
| | |
| 2022 | $136,600 |
| 2023 | 12,000 |
| 2024 | 11,400 |
| | |
| | 160,000 |
On July 1, 2019, the Company adopted the new accounting pronouncement as it relates to its leases which requires a lessee to recognize all long-term leases on its balance sheet as a liability for its lease obligation, measured at the present value of lease payments not yet paid, and a corresponding asset representing its right to use the underlying asset over the lease term and expands disclosure of key information about leasing arrangements.
The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) through January 2025 which was amended in September 2021 to increase the space by approximately 25% and lease term through approximately October 2028, a facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through May 2023, and a facility for sales and administration in Orangeburg, New York through October 2022. The Company had a lease for its discontinued operations through November 2020. There are no renewal options with any of the leases, no residual values or significant restrictions or covenants other than those customary in such arrangements, and no non-cash activities, and any rent escalations incorporated within the leases are included in the calculation of the future minimum lease payments, as further described below. All of the Company’s leases are deemed operating leases.
The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the Right-Of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate of 5.0% as the discount rate to calculate the present value of future lease payments, which was the interest rate that its bank would charge for a similar loan.
11.
Income Taxes (Continued)
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on an excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expenses in the period incurred. The Company’s lease agreements do not contain residual value guarantees.
The Company elected available practical expedients for existing or expired contracts of lessees wherein the Company is not required to reassess whether such contracts contain leases, the lease classification or the initial direct costs. The Company is not utilizing the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets. The Company utilized the transition method allowing entities to only apply the new lease standard in the year of adoption.
As of June 30, 2021, the weighted-average remaining lease term for operating lease liabilities was approximately 2.68 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $289,100 for the year ended June 30, 2021, of which $277,300 was recorded as lease expense.
The Company’s approximate future minimum rental payments under all leases existing at June 30, 2021, through January 2025 are as follows:
| Year ended June 30, | |
| | |
| 2022 | $260,300 |
| 2023 | 245,300 |
| 2024 | 195,900 |
| 2025 | 91,600 |
| | |
| Total future minimum payments | $793,100 |
| Less: Imputed interest | (62,100) |
| Total Present Value of Operating Lease Liabilities | $731,000 |
The reconciliation of the provision for income taxes at the federal statutory rate of 21% to the actual tax benefit for the applicable fiscal year was as follows:
| | | |
| | | |
| Computed “expected” income tax benefit | $(1,014,300) | $(239,400) |
| Research and development credits | (93,900) | (89,400) |
| Rate changes and NOL carrybacks | - | (122,600) |
Incentive Stock Option Expense
| 59,500 | 13,800 |
PPP Loan Foregivness
| (111,700) | 0 |
| Other, net | (7,900) | 1,000 |
| | | |
| Income tax benefit | $(1,152,500) | $(436,600) |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| 12. | Income Taxes (Continued) |
Deferred tax assets and liabilities consist of the following:
| | | |
| Deferred tax assets: | | |
Amortization of intangible assets, including goodwill
| $374,000 | $329,700 |
| Research and development credits | 164,600 | 89,400 |
| Various accruals | 64,600 | 150,700 |
| Stock options expense | 383,200 | - |
| Net operating loss | 1,515,800 | - |
| Other | 24,900 | 19,400 |
| | 2,527,100 | 589,200 |
| Deferred tax liability: | | |
| Depreciation of property and amortization of goodwill | (37,200) | (52,100) |
| | | |
| Net deferred tax assets | $2,489,900 | $537,100 |
The company has incurred cumulatively $715,800 of US net operating losses and $800,300 of German net operating losses as of June 30, 2021. These will be carried forward indefinitely without expiration, until fully utilized. The company expects to fully utilize these losses to offset taxable income in future years.
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, 20182021 and 2017,2020, 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 endingended June 30, 20152018 and after. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 monthsmonths.
Equity 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, 2021 and 2020, the Company granted 1,094,171 and 25,881 options, respectively, to employees that had a fair value of $7,929,600 and $144,500, respectively. The fair value of the options granted during the years ended June 30, 2021 and 2020, were determined using the Black-Scholes-Merton option-pricing model. The weighted average assumptions used for the years ended June 30, 2021 and 2020, was an expected life of 10 years; risk free interest rate of 1.40% and .89%; volatility of 66% and 74%, and dividend yield of 0% and .08%, respectively. The Company declared no dividends for the years ending June 30, 2021 or 2020. The weighted-average fair value per share of the options granted during the years ended June 30, 2021 and 2020, was $7.25 and $5.58, respectively, and total stock-based compensation costs were $2,108,000 and $65,800 for the years ended June 30, 2021 and 2020, respectively. Stock-based compensation costs related to nonvested awards expected to be recognized in the future are $5,935,000 and $113,400 as of June 30, 2021 and 2020, respectively.
The stockholders approved an amendment to the Company’s 2012 Stock Option Plan (“Plan”) to increase the number of shares available under the Plan by 943,000 shares, from 307,000 to 1,250,000 shares, which, together with 150,000 shares that were added to the Plan in 2020, were registered by the Company on a Form S-8 Registration Statement with the Securities and Exchange Commission on March 15, 2021. The Company’s Board of Directorsauthorized and approved the grant of St.ock Options in June 2020 and July 2020 to three key officers, subject to availability of option shares. In February 2021, upon availability, the Company issued these stock options to the Company’s Chairman of the Board, its Chief Executive Officer and President, and the Vice President of Sales-Americas of Company’s Bioprocessing Systems.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
13.
| Stock Options (Continued)
|
Option activity is summarized as follows:
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Shares under option: | | | | |
| Outstanding, beginning of year | 34,500 | $3.25 | 43,500 | $3.33 |
| Granted | 57,500 | 3.08 | 6,000 | 2.91 |
| Exercised | - | - | (5,000) | 3.10 |
| Forfeited | - | - | (10,000) | 3.45 |
| | | | | |
| Outstanding, end of year | 92,000 | 3.15 | 34,500 | 3.25 |
| | | | | |
| Options exercisable at year-end | 28,834 | $3.46 | 23,833 | $3.52 |
| | | | | |
| Weighted average fair value per share of options granted during the fiscal year | | $1.64 | | $1.76 |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Shares under option: | | | | |
| Outstanding, beginning of year | 96,586 | $4.35 | 97,205 | $3.24 |
| Granted | 1,094,171 | 9.07 | 25,881 | 7.47 |
| Exercised | (1,000) | 3.05 | (24,000) | 3.35 |
| Forfeited | (9,000) | 3.11 | (2,500) | 3.08 |
| | | | | |
| Outstanding, end of year | 1,180,757 | $8.73 | 96,586 | $4.35 |
| | | | | |
| Options exercisable at year-end | 296,821 | $7.69 | 49,236 | $3.29 |
| | | | | |
| Weighted average fair value per share of options granted during the fiscal year | | $7.25 | | $5.58 |
12.
Stock Options (Continued)
| As of June 30, 2018 Options Outstanding | As of June 30, 2018 Exercisable |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
$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 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| | As of June 30, 2017 Options Outstanding | As of June 30, 2017 Exercisable |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
$3.50 - $4.05 | 20,000 | 6.13 | $3.64 | 18,666 | $3.64 |
| | | | | |
$2.91 - $ 3.27 | 14,500 | 3.67 | $3.02 | 5,167 | $3.12 |
| | | | | |
| 34,500 | | | 23,833 | |
| 13. | Stock Options (Continued) |
| As of June 30, 2021 Options Outstanding | As of June 30, 2021 Exercisable |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
$5.35 - $ 11.30 | 1,120,052 | 9.35 | $9.03 | 238,351 | $8.76 |
| | | | | |
$2.91 - $ 4.65 | 60,705 | 5.28 | $3.36 | 58,470 | $3.32 |
| | | | | |
| 1,180,757 | | | 296,821 | |
| As of June 30, 2020 Options Outstanding | As of June 30, 2020 Exercisable |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
$5.35 - $ 11.30 | 25,881 | 9.87 | $7.47 | - | $0.00 |
| | | | | |
$2.91 - $ 4.65 | 70,705 | 6.46 | $3.33 | 49,236 | $3.29 |
| | | | | |
| 96,586 | | | 49,236 | |
Loss per common share data was computed as follows:
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
| | | |
| | | |
| Net loss | $(160,500) | $(72,600) |
| | | |
| Weighted average common shares outstanding | 1,494,112 | 1,491,167 |
| | | |
| Basic and diluted loss per common share | $(.11) | $(.05) |
| | | |
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
| 14. | Earnings (Loss) Per Common Share |
The Company presents the computation of earnings per share (“EPS”) on a basic basis. Basic EPS is computed by dividing net income or loss by the weighted average number of shares outstanding during the reported period. Diluted EPS is computed similarly to basic EPS, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential additional common shares that were dilutive had been issued. Common shares are excluded from the calculation if they are determined to be anti-dilutive. The following table sets forth the weighted average number of common shares outstanding for each period presented.
| | | |
| | | |
| Weighted average number of common shares outstanding | 3,189,602 | 1,515,103 |
| Effect of dilutive securities: | - | - |
| Weighted average number of dilutive common shares outstanding | 3,189,602 | 1,515,103 |
| | | |
| Basic and diluted loss per common share: | | |
| | | |
| Continuing operations | $(0.97) | $(.30) |
| Discontinued operations | $(0.18) | $(.16) |
| Consolidated operations | $(1.15) | $(.46) |
Approximately 92,00088,691 and 34,5002,481,783 shares of the Company's common stock issuable upon the exercise of outstandingstock options and warrants, respectively, were excluded from the calculation of diluted earnings per common share for the years ended June 30, 2018 and 2017, respectively, because the effect would be anti-dilutive.anti-dilutive due to the loss for the year ended June 30, 2021. Approximately 54,513 and 1,349,850 shares of the Company's common stock issuable upon the exercise of stock options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the year ended June 30, 2020.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
F-25
At the 2020 Annual Meeting of Stockholders, the stockholders of the Company approved an amendment to the Certificate of Incorporation of the Company to increase the number of authorized shares of the Company’s Common stock by 3,000,000shares from 7,000,000 to 10,000,000 shares, and a further amendment was approved by a majority of the Company’s shareholders on June 17, 2021 increasing the authorized shares to 15,000,000.
On June 18, 2020, the Company entered into a securities purchases agreement in the amount of $6,074,400 with several accredited investors for the sale and issuance of 1,349,850 shares of the Company’s Common Stock at an offering price of $4.50 per share and warrants to purchase up to 1,349,850 shares of the Company’s Common Stock exerciseable at $9.00 per share. The issuance cost realated to this stock issuance amounted to approximately $70,000. The proceeds were used to fund the operations of the Company’s Bioprocessing Systems Operations. The warrants were immediately exercisable and expire five years from the date of issuance. If at any time commencing twelve months from the date of the agreement, but before the expiration of the warrant, the volume weighted average price of the Company’s Common Stock exceeds $18 per share for each of thirty consecutive days, the Company may at any time in its sole discretion, call for the exercise of the Warrants, in their entirety.
On April 29, 2021, the Company received proceeds of approximately $7,580,400 from the sale of its securities to private investors upon the issuance of 1,595,880 shares of the Company’s Common Stock at an offering price of $4.75 per share which included warrants to purchase up to 797,940 shares of the Company’s Common Stock exercisable at $9.50 per share. The issuance costs related to this stock issuance amounted to approximately $581,000. In June 2021, the Company received an additional $9.5 million through the sale of an additional 2,000,000 shares of the Company’s Common Stock at $4.75 per share which also included warrants to purchase up to 999,993 of the Company's Common Stock exercisable at $9.50 per share. The issuance costs related to this stock issuance amounted to approximately $425,400. These warrants are exercisable immediately and expire five years from date of issuance. The Company utilized the services of brokers for both transactions and incurred a total of approximately $1.0 million in issuance related costs for broker and legal fees. The Company was required under a registration rights agreement to register the shares, which it did through an S-1 Registration Statement filed with the Securities and Exchange Commission, which became effective on August 13, 2021. The proceeds were used for the Aquila acquisition with the remainder being used to fund the Bioprocessing Systems Operations.
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
16. Acquisition of Aquila Biolabs GmbH
Effective April 29, 2021, pursuant to a Stock Purchase Agreement ("SPA") the Company acquired all the outstanding capital stock of Aquila biolabs GmbH, a German start-up company engaged from its facility in Baesweiler, Germany in the design, production, and sale of bioprocessing systems and products which focus on the control and analysis of bioprocesses in bioreactors and incubation shakers for an aggregate purchase price of $7,880,100 in cash upon closing. Aquila’s principal customers are universities, pharmaceutical companies, and industrial companies. The products are sold primarily on a direct basis and to a lesser extent, through distributors.
The acquisition was accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”) in which the Company is treated as the accounting acquirer. In accordance with ASC 805, the assets acquired and liabilities assumed have been measured at fair value.
For purposes of measuring the estimated fair value, where applicable, of the assets acquired and liabilities assumed, as reflected in the unaudited pro forma condensed consolidated financial information, the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) has been applied, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
Management of the Company allocated the purchase price based on its valuation of the assets acquired and liabilities assumed as follows:
| | Useful life |
| Fair value of assets acquired | | |
| | |
| Current assets: | | |
| | |
| Cash and cash equivalents | $201,100 | |
| Accounts receivable | 159,200 | |
| Inventory | 187,500 | |
| Prepaid expenses and other current assets | 25,400 | |
| Property, plant and equipment | 40,200 | |
| Deferred tax asset | 800,300 | |
| Tradename | 452,300 | 6 years |
| Non-compete agreements | 784,500 | 4 years |
| IPR&D | 742,100 | 5 years |
| Customer relationships | 252,200 | 9 years |
| Patents and other intangibles | 286,200 | 7 years |
| Total assets acquired | $3,931,000 | |
| | |
| Fair value of liabilities assumed: | | |
| | |
| Accounts payable | $(39,300) | |
| Accrued expenses | (90,300) | |
| Other current liabilities | (59,400) | |
| Total liabilities assumed | (189,000) | |
| | |
| Total identifiable net assets | 3,742,000 | |
| Fair value of consideration transferred | 7,880,100 | |
| Goodwill | $4,138,100 | |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
16. Acquisition of Aquila Biolabs GmbH (continued)
Accounting Periods Presented
Aquila’s fiscal year ended on December 31. Its historical results have been aligned to more closely conform to the Company’s June 30 fiscal year end by taking Aquila’s interim financial results for six months ended December 31, 2019 and for the six months ended June 30, 2020. In addition, certain historical Aquila balances have been reclassified to conform to the pro forma consolidated presentation. There were no transactions between the two companies during the period presented. No pro forma adjustments were made to conform Aquila’s accounting policies which follow Germany’s generally accepted accounting principles (“German GAAP”) to the Company’s accounting principles, as any differences were deemed immaterial.
Unaudited Pro forma information is as follows:
(In $000’s) | |
Revenues | $9,346 |
Net loss | (1,650) |
Earnings per share | |
Diluted | $(0.37) |
Basic | (0.37) |
| |
These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on July 1, 2019, nor are they intended to be a projection of future results. For additional information, please refer to the Company’s current report on Form 8-KA, filed on July12, 2021.
17.Discontinued Operations
Effective November 30, 2020, the Company, as part of its strategic shift to becoming a life sciences tool provider, sold its Catalyst Research Instruments Operations reporting segment through the sale by Altamira of substantially all of its assets, which comprised of fixed assets, and inventory to Beijing JWGB Sci. & Tech. Co. Ltd., a corporation formed under the laws of the People’s Republic of China (“JWGB”) for $440,000 payable in cash through January 2021, resulting in a $405,400 pre-tax loss. In order to preserve business continuity for the buyer, Altamira agreed to purchase certain components on behalf of JWGB for which JWGB agreed to reimburse Altamira. At March 31, 2021, JWGB paid the full $440,000 purchase price and $28,500 for component purchases made on its behalf. The Company retained all its receivables and payables related to sales made prior to November 30, 2020, certain inventory related to two work-in-process orders which will be shipped by the end of the fiscal year ending June 30, 2021, product warranty and other miscellaneous liabilities related to certain employee benefits, and expenses related to the closure of the Altamira facility, which was substantially completed at the end of December 2020.
As a result of the disposal described above, the operating results of the former Catalyst Research Instruments Operations segment have been presented as discontinued operations in the balance sheets, the statements of operations, and the statements of cash flows, as detailed below.
| Assets: | | |
| Accounts receivable | $52,000 | $- |
| Inventories | 3,300 | 343,700 |
| Property and equipment, net | - | 1,400 |
| Goodwill | - | 447,900 |
| | | |
| Discontinued operations | $55,300 | $793,000 |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 2021 AND 2020
17.Discontinued Operations(continued)
| Liabilities: | | |
| Accounts payable | $- | $20,100 |
| Accrued expenses and taxes | 20,700 | 120,700 |
| Contract liabilities | 16,500 | 69,000 |
| Operating lease liabilities, current portion | - | 31,100 |
| | | |
| | $37,200 | $240,900 |
| |
| | | |
| Revenues | $387,700 | $785,900 |
| Cost of goods sold | 471,800 | 869,900 |
| Gross profit | (84,100) | (84,000) |
| Selling, general and administrative expenses | 280,400 | 388,500 |
| Loss from operations | (364,500) | (472,500) |
| Loss on disposal | (405,400) | -- |
| Loss before income tax benefit | (769,900) | (472,500) |
| Income tax benefit, all deferred | (207,400) | (222,600) |
| Net income (loss) attributable to discontinued operations | $(562,500) | $(249,900) |
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash (used) and provided by operating activities from discontinued operations for twelve months ended June 30, 2021 and June 30, 2020 was ($75,000) and $66,100, respectively. Cash provided by investing activities from discontinued operations for the twelve months ended June 30, 2021 was $440,000 and $2,200 for the twelve months ended June 30, 2020. There was no cash provided or used by the discontinued operations for financing activities for both the current and prior year periods.
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