UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
June 30,☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
_______ to________Commission file number 0-6658
SCIENTIFIC INDUSTRIES, INC. | |
(Exact Name of Registrant in Its Charter) |
Delaware | 04-2217279 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
80 Orville Drive, Suite 102, Bohemia, New York | 11716 | |
(Address of principal executive offices) | (Zip Code) |
(631) 567-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
None | None |
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class |
Common stock, $.05 par value |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 repor
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Yes ☒ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates computed by reference to the average bid and asked prices of such stock, as of September 6, 2019December 31, 2021 is $8,035,000.
The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of September 6, 201923, 2022 is 1,494,1127,003,599 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 8 | |||
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 10 | |||
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 11 | |||
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 16 | |||
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE | 17 | |||
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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“will likely result"result”, “will be”, “will”, "are“are expected to"to”, "will“will continue to"to”, "is anticipated"“is anticipated”, "estimate"“estimate”, "project"“project” or similar expressions identify "forward-looking statements"“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. Incorporated in 1954, Scientific Industries, Inc., a Delaware corporation (which(“SI” and 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., a Delaware corporation (“SBI”SBHI”), the licensingdesign, 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, a German corporation (“Aquila”). The Company’s products are used primarily for research purposes by universities, pharmaceutical companies, pharmacies, national laboratories, medical device manufacturers, petrochemical companies and other industries performing laboratory-scale research.
Operating Segments
. The Company views its operations asProducts
.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 ™”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 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.
The 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 brandTorbal® division line of products includes pharmacy, laboratory, and industrial digital scales, mechanical balances, moisture analyzers, mechanical and VIVID® automated pill counters, force gauges.
Bioprocessing Systems. SBHI, through its two wholly-owned subsidiaries, SBI and Aquila, is also engaged in the design, development, manufacture and marketing of bioprocessing products, areprincipally products incorporating smart sensors and state of the art software analytics. Products offered throughfor sale include the Company’s subsidiary, Altamira. Its flagship product isCell Growth Quantifier (“CGQ”) for Biomass monitoring in shake flasks, the AMI-300™, which is used to perform traditional catalyst characterization experiments on an unattended basis. The product also featuresLiquid Injection System (“LIS”) for automated feeding in shake flasks, and 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.
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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, representedMarketing.
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 catalogsThe Company’s Catalyst Research Instrument“Torbal®” brand weighing products are primarily marketed and sold directly worldwide to universities, government laboratories,online, and chemical and petrochemical companies through its sales personnel and independent representatives engagedprimarily on a commission basis. Its marketing efforts includedirect basis, with only a few distributors. The Company’s VIVID® brand, automated pill counter is sold through two exclusive distributors in North America. The Company markets its products through online and trade publication advertising, brochures and catalogs, the Company’s websites, one sales manager in the U.S., a consultant in Europe and, when practicable, attendance at variousindustry trade shows, Altamira’s website, outside sales representatives and printed materials.
Bioprocessing Systems.
Assembly and Production
. The Company has facilities in Bohemia, New York and Orangeburg, New York where it conducts the Benchtop Laboratory Equipment operations. The Company also has an operating facility inPatents, 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®. Two additional patents held by the Company relating to Bioprocessing Systems expire in January 2029 for a biocompatible bag with integral sensors. The last patent held by the Company expires in 2036 on an apparatus for detecting pH and dissolved oxygen. The Company also holds a, another patent that relates to its Vortex-Genie Pulse expiring in January 2036, and a future vortexing productpatent relating to Torbal’s VIVID® automated pill counter which is stillexpires in development stages. March 2039.
The CompanyCompany’s Bioprocessing Systems operations’ Aquila subsidiary holds two US patents relating to bioprocessing which 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. 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™, Biocoaster™, BioGenie®, Cellphase®, Cellstation®Bead Genie®, Disruptor Beads™, Disruptor Genie®, DOTS™, Enviro-Genie®, Genie™, Genie Temp-Shaker™, Incubator Genie™, MagStir Genie
The Company hasheld 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 sublicensessublicensed on an exclusive basis to a German company, and non-exclusive rights held by the Company as it relatesrelated 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 for fiscal 20192022 and fiscal 20182021 amounted to $1,035,400$337,700 and $517,000,$560,000, respectively.
Foreign Sales
. The Company’s sales to overseas customers, principally in Asia and Europe, accounted for approximately4 |
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Seasonality
. The Company does not consider its business to be seasonal.Backlog.
Competition
. Most of theThe Company'sCompany’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 TorbalTorbal® brand products are Ohaus Corporation, an American company, A&D Company Ltd., a Japanese company, and Adam Equipment Co., Ltd., a British company.
The potential major competitors for the Company’s Bioprocessing Systems operations are Applikon Biotechnology, B.V. (Netherlands)ABER Instruments (United Kingdom), Hamilton (USA), Kuhner AG (Switzerland), Optek (Germany), 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 itsGovernment and Environmental Regulation
. The Company’s products and claims with respect thereto have not required approval of the Food and Drug Administration or any otherEmployees
. As of SeptemberAvailable Information.
Not required 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.
Item 1B. Unresolved Staff Comment.
Not required for a combined aggregate of 21% and 20% of the segment’s total sales for fiscal 2019 and 2018, respectively (15% of its total net revenues for both fiscal 2019 and 2018).
Item 2. Properties.
The Company’s executive office and principal manufacturing facility for its Benchtop Laboratory Equipment operations comprises approximately 19,000a total of 24,000 square feet. This facility is located in Bohemia, New York and is held under a lease which expireswas amended in February 2025. The Company’s Catalyst Research Instruments operations are conducted fromSeptember 2021 to increase the space by an approximately 9,000additional 5,000 square footfeet for an adjoining facility and extend the lease term ending in Pittsburgh, Pennsylvania under a lease which expires in November 2020. The Bioprocessing Systems operations are conducted from an approximately a 1,200 square foot laboratory facility in Pittsburgh Pennsylvania under a lease which expires in November 2020.January 2025 to October 2028. The Company hasleases a 1,200 square foot facility in Oradell,Orangeburg, New Jersey fromYork where it conducts its sales and marketing functions, primarily for the TorbalTorbal® Products Division of the Benchtop Laboratory Equipment operations. See Note 10operations, which was amended in June 2022 to extend the Financial Statementslease term ending in Item 8.October 2022 to November 2024. The Company’s Bioprocessing Systems operations are conducted in a leased facilities are suitable2,100 square foot facility in Pittsburgh, Pennsylvania, which lease expires in May 2023. As a result of its acquisition of Aquila, the Company also has a 3,972 square foot facility in Baesweiller, Germany comprised of manufacturing, engineering, 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 5
Common Stock
The Company'sCompany’s Common Stock is traded inon the over-the-counter market.Over-The-Counter (“OTC”) Market, under the trading symbol “SCND��. The following table sets forth the low and high bid quotations forat the end of each quarter of fiscal 20182021 and fiscal 2019,2022, as reported by the National Association of Securities Dealers, Inc. Electronic Bulletin Board. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:
For Fiscal Quarter Ended | Low Bid | High Bid |
09/30/17 | 2.92 | 3.50 |
12/31/17 | 2.85 | 3.20 |
03/31/18 | 2.85 | 3.30 |
06/30/18 | 3.05 | 3.30 |
09/30/18 | 2.82 | 3.24 |
12/31/18 | 2.99 | 4.00 |
03/31/19 | 3.50 | 4.50 |
06/30/19 | 3.88 | 4.75 |
For Fiscal Quarter Ended |
| Low Bid($) |
|
| High Bid($) |
| ||
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 |
|
09/30/21 |
|
| 4.99 |
|
|
| 10.80 |
|
12/31/21 |
|
| 5.00 |
|
|
| 7.50 |
|
03/31/22 |
|
| 5.51 |
|
|
| 6.50 |
|
06/30/22 |
|
| 4.73 |
|
|
| 6.13 |
|
As of September 6, 2019,23, 2022, there were 273276 record holders of the Company'sCompany’s Common Stock.
Recent sales of unregistered securities; use of proceeds from registered securities
Information as to the recent sales of unregistered securities and the use of proceeds from registered securities is incorporated herein by reference to our Form 8-K, filed on March 2, 2022 and Form S-8, filed on June 22, 2022.
Purchases of equity securities by the issuer and affiliated purchasers
None.
Item 6. [Reserve]
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Item 7
.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 gross margin on Benchtop Laboratory Equipment also increased due to customer mix including more online sales that have higher margins. The Bioprocessing Systems Operations also reflected higher gross margin due to higher revenues.
The challenges posed by the COVID-19 pandemic on the global economy affected the Company with minor or temporary disruptions to its operations. The Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, online marketing costsby implementing the Center for Disease Control’s guidelines for employers in order to protect the TorbalCompany’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. In fiscal years ended June 30, 2020 and June 30, 2021, the Company received loans from the Paycheck Protection Program (the “PPP”) administered by the U.S. Small Business Administration, all of which were repaid or forgiven through the fiscal year ended June 30, 2022. 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. The Company experienced some delays from its supply chain which caused delayed delivery of some products, however this is deemed temporary and does not affect the Company’s major product, the Vortex-Genie 2. The extent to which the COVID-19 outbreak ultimately impacts the Company’s business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and actions to curtail the virus, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may experience a significant impact to its business as a result of the global economic impact of COVID-19, including any economic downturn or recession that has occurred or may occur in the future. As a result of the impact of COVID-19 on capital markets, the availability, amount, and type of financing available to the Company in the near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors. The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become available.
Results of Operations.
Net revenues for fiscal 2022 increased $1,625,300 (16.6%) to $11,400,500 from $9,775,200 for fiscal 2021, reflecting an increase of approximately $937,500 in net sales of Benchtop Laboratory Equipment operations. The Benchtop Laboratory Equipment sales of Genie brand products increased year-over-year to $7,517,200 from $6,931,900 for fiscal 2022 and market researchfiscal 2021, respectively. Torbal® brand product sales totaled $2,463,900 and $2,111,700 for fiscal 2022 and fiscal 2021, respectively, primarily due to increased sales of its automated VIVID pill counter. Approximately $687,800 of the increase in net revenues for fiscal 2022 is primarily attributable to inclusion of a full fiscal year of Aquila sales as compared to two months of Aquila sales contribution in fiscal 2021, which sales were attributable to Aquila’s bioprocessing products including the CGQ for Biomass monitoring in shake flasks, the LIS for automated feeding in shake flasks, and a line of coaster systems and flow-through cells for pH and DO monitoring.
The gross profit percentage for fiscal 2022 of 50.3% approximated fiscal 2021’s gross profit percentage of 50.9%.
General and administrative expenses for fiscal 2022 increased by approximately $1,788,100 (44.4%) to $5,816,600 compared to $4,028,500 for fiscal 2021 due primarily to compensation-related costs forresulting from stock option grants and increased administrative costs from the Bioprocessing Systems operations.
Selling expenses for fiscal 2022 increased approximately $278,900 (6.9%) to $4,310,800 from $4,031,900 for fiscal 2021, primarily due to increased sales and marketing expenses incurred by the Bioprocessing Systems operations for sales and marketing personnel, sales and marketing activities.
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Research and development expenses amountedincreased $1,249,500 (76.9%) to $530,500$2,873,300 for fiscal 20192022 compared to $520,900$1,623,800 for fiscal 2018. The Company2021, due to increased its new product development efforts in the last quarter of fiscal 2019 forexpenditures by the Bioprocessing Systems operations. During the last quarter of fiscal 2019, the Company's Bioprocessing Systems operations began to expand and increased its product development efforts with the hiring of an engineer. Since year end the Company hired two additional engineers and is committing additional resources for materials and supplies for development of Bioprocessing Systems
Total other income, (loss), net was -$5,900$262,400 for fiscal 20192022 compared to $6,900 income$653,800 in fiscal 20182021. The decrease was due primarily to holding losses onthe increase in unrealized loss in investment securities.
The Company reflected income tax expensebenefit for continuing operations of $124,600$1,352,800 for fiscal 20192022 compared to $161,900income tax benefit of $945,000 for fiscal 2018,2021, primarily due to lower effective tax rate.
As a result of the foregoing, the Company recorded a loss from continuing operations of $5,648,800 for fiscal 2022 compared to a loss from continuing operations of $3,110,000 for fiscal 2021.
The Company reflected net income from discontinued operations of $645,600$4,400 for fiscal 20192022, compared to a net loss of $160,500$562,500 for fiscal 2018.
As a result of the above, the Company recorded a net loss of $5,644,400 for fiscal 2022 compared to a net loss of $3,672,500 for fiscal 2021.
Liquidity and Capital Resources.
Cash and cash equivalents increaseddecreased by $549,400$6,704,100 to $1,602,500$2,971,100 as of June 30, 20192022 from $1,053,100$9,675,200 as of June 30, 2018.
Net cash used in operating activities was $5,511,900 for fiscal 2022 compared to net cash used in operating activities of $3,301,500 for fiscal 2021, primarily due to the lines of credit, its cashincreased sales, marketing and investment securities, and operations. Commencing in the fourth quarter the Company began committing significant resources forproduct development expenditures by the Bioprocessing Systems operations in the current year.
Net cash used in investing activities was $3,749,300 for new engineering personnel, market research,fiscal 2022 compared to $10,884,000 for fiscal 2021, primarily due to the purchase of investment securities in fiscal 2022 and administration.primarily due to the acquisition of Aquila and the purchase of investment securities in fiscal 2021.
Net cash provided by financing activities was $2,628,400 for fiscal 2022 compared to $16,310,200 during fiscal 2021 due mainly to proceeds from the issuance of common stock and warrants in fiscal 2022 and 2021, respectively.
The Company’s working capital decreased by $2,105,200 to $14,039,100 as of June 30, 2022 compared to $16,144,300, as of June 30, 2021, primarily due to the increased usage of cash in operating activities.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On an ongoing basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 – Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors.
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Fair Value Estimates
Goodwill, Intangible and Long-Lived Assets
Goodwill is the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations.
The Company has the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount or to perform the quantitative impairment test.
We review the recoverability of our long-lived assets and finite-lived intangible assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its long-lived and finite-lived assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be ablerecognized if the asset’s fair value is determined to meetbe less than its carrying value. Fair value is determined by computing the expected future discounted cash flow needs duringflows.
During the next 12 months from its available financial resources including the lines of credit, its cash and investment securities, and operations. Commencing in the fourth quarter the Company began committing significant resources for the Bioprocessing Systems operations for new engineering personnel, market research, and administration.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not required for smaller reporting companies.
I
tem8. Financial Statements and Supplementary Data.The consolidated Financial Statements required by this item are attached hereto on pages F1-F20.
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 theManagement’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 the 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, 20192022 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
This annual report does not include an attestation report of the Company'sCompany’s registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by the Company'sCompany’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management'smanagement’s report in this annual report.
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Changes in Internal Control Over Financial Reporting.
Except as otherwise discussed above, there was no change in theInherent Limitations on Effectiveness of Controls.
The Company’s management, including its Chief Executive Officer and its 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.Not applicable.
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.
None.
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PART III
Directors
The Company has the following sevensix Directors:
Christopher Cox (age 58), 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 on the Board of Directors of Nyrada, Inc. since January 2019. 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
(ageMarcus Frampton
(ageJohn A. Moore
(ageHelena R. Santos
(ageJurgen Schumacher (age 83)69), a Director since 1991, has been retired forMay 2021, is currently a private investor in various startups and growth phase technology companies over the lastpast five years.
The Directors are elected to three-year staggered terms. The current terms of the Directors expire at the annual meeting of stockholders of the Company as follows: the fiscal year endedending June 30, 2019 - three2022 – two directors (Mr. Frampton and Mr. Moore, and Ms. Morin, Class B), the fiscal year ending June 30, 20202023 – two directors (Mr. Cremonese and Mr. Watkins,Cox, Class C), and the fiscal year ending June 30, 2021 - two directors2024 (Ms. Santos and Mr. Segasture,Dr. Schumacher, Class A).
Board Committees
The Company has threetwo committees – The Stock Option Committee, the Compensation Committee and the Audit Committee each of which isare comprised of the entire Board of Directors.
Executive Officers
See above for the employment history of
Ms. Santosand Mr. Moore.Reginald Averilla (age 44), is the Chief Financial Officer of the Company and has been employed by the Company since April 2022. He was the VP Controller of Medical Knowledge Group, a privately held company from July 2020 to April 2022. From 2017 to July 2020, he was the VP Controller for Film Expo Group, a privately held company. Prior to 2017, he was the Assistant Controller to SFX Entertainment, previously a publicly-traded company.
Robert P. Nichols
(age12 |
Table of Contents |
Karl D. Nowosielski
(ageDaniel Greunes (age 34), has beenis the PresidentChief Executive Officer of Altamira since May 2017.the Company’s Bioprocessing operations. Prior to thatthe Company’s acquisition of Aquila, he had been Director of Operations and Engineerserved as Aquila’s Chief Executive Officer since he began his employment with the Companyco-founded Aquila in 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that, for fiscal 2019,2022, 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
The following table summarizes all compensation paid by the Company to each of its Chief Executive Officers and the two other most highly compensated executive officers for the fiscal years ended June 30, 20192022 and 2018.
SUMMARY COMPENSATION TABLE
Name and Principal Position (a) | Fiscal Year (b) | Salary ($) (c) | Bonus ($) (d) | Stock Awards ($) (e) | Option Awards ($) (f) | Non- Equity Incentive Plan Compensation ($) (g) | Non- Qualified Deferred Compensation Earnings ($) (h) | Changes in Pension Value and Non-Qualified Deferred Compensation Earnings | All Other Compensation ($) (i) | Total ($) (j) |
Helena R. Santos, CEO, President, CFO | 2019 | 180,300 | 0 | 0 | 13,100(1) | 0 | 0 | 0 | 4,900(5) | 198,300 |
2018 | 175,000 | 25,000 | 0 | 13,100(1) | 0 | 0 | 0 | 6,700(5) | 219,800 | |
Brookman P. March, Vice President Corporate Strategy, VP, Sales of Altamira | 2019 | 159,600 | 0 | 0 | 3,900(2) | 0 | 0 | 0 | 6,400(5) | 169,900 |
2018 | 155,000 | 10,000 | 0 | 3,900(2) | 0 | 0 | 0 | 6,200(5) | 175,100 | |
Anthony Mitri, President of Altamira | 2019 | 120,000 | 0 | 0 | 6,500(3) | 0 | 0 | 0 | 4,800(5) | 131,300 |
2018 | 110,000 | 0 | 0 | 1,600(3) | 0 | 0 | 0 | 4,400(5) | 116,000 | |
Robert P. Nichols, President of Genie Division | 2019 | 157,600 | 0 | 0 | 3,900(2) | 0 | 0 | 0 | 6,800(5) | 168,300 |
2018 | 153,000 | 10,000 | 0 | 3,900(2) | 0 | 0 | 0 | 6,300(5) | 173,200 | |
Karl D. Nowosielski President of Torbal Division and Director of Marketing | 2019 | 163,300 | 10,000 | 0 | 7,400(4) | 0 | 0 | 0 | 6,400(5) | 187,100 |
2018 | 161,700 | 10,000 | 0 | 7,400(4) | 0 | 0 | 0 | 6,400(5) | 185,500 |
Name and Principal Position |
| Year |
| Salary($) |
|
| Bonus($) |
|
| Stock Awards($) |
|
| Option Awards($) |
|
| Non- Equity Incentive Plan Compensation($) |
|
| Non- Qualified Deferred Compensation Earnings($) |
|
| All Other Compensation($) |
|
| Total($) |
| ||||||||
(a) |
| (b) |
| (c) |
|
| (d) |
|
| (e) |
|
| (f) |
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| (g) |
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| (h) |
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| (i) |
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| (j) |
| ||||||||
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| ||||||||
Helena R. Santos, |
| 06/30/22 |
|
| 201,500 |
|
|
| 50,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,000 | (5) |
| $ | 259,500 |
|
CEO, President |
|
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|
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Helena R. Santos, |
| 06/30/21 |
|
| 191,200 |
|
|
| 100,000 |
|
|
| - |
|
|
| 553,600 | (1) |
|
| - |
|
|
| - |
|
|
| 9,600 | (5) |
| $ | 854,400 |
|
CEO, President, CFO |
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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John A. Moore, |
| 06/30/22 |
|
| 180,200 |
|
|
| 50,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,200 | (5) |
| $ | 237,400 |
|
Chairman of SBI |
|
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John A. Moore, |
| 06/30/21 |
|
| 175,000 |
|
|
| 100,000 |
|
|
| - |
|
|
| 553,600 | (2) |
|
| - |
|
|
| - |
|
|
| 7,000 | (5) |
| $ | 835,600 |
|
President of SBI |
|
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Daniel Greunes, |
| 06/30/22 |
|
| 166,900 |
|
|
| - |
|
|
| - |
|
|
| 44,100 | (3) |
|
| - |
|
|
| - |
|
|
| - |
|
| $ | 211,000 |
|
CEO of Bioprocessing Operations |
|
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Daniel Greunes, |
| 06/30/21 |
|
| 30,200 | (3) |
|
| 20,000 |
|
|
| - |
|
|
| 23,200 | (4) |
|
| - |
|
|
| 0 |
|
|
| 10,000 | (4) |
| $ | 83,400 |
|
Vice President of R&D and Operations of Bioprocessing Operations |
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13 |
Table of Contents |
____________
(1) | The amount for 2021 represents compensation expense for |
(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. |
(3) | The amount for 2022 represents compensation expense for stock options granted on February 25, 2022 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 $44,100. | ||
(4) | The amounts represent the fiscal year 2021 compensation expense for stock options granted at the time of the Aquila 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. |
(5) | The amounts represent the Company’s matching contribution under the Company’s 401(k). |
Employment Agreements
Helena Santos
The Company has an employment agreement with Helena Santos, its President and CEO, which expires on June 30, 2018 and December 31, 2017 valued utilizing the Black-Scholes-Merton options pricing model. The option was valued at a total of $10,000 and $9,500, respectively, utilizing the Black-Scholes options pricing model, of which a total of $6,500 and $1,600 was expensed in fiscal 2019 and fiscal 2018, respectively.
Option Awards | |||||
Name (a) | Number of Securities Under- lying Unexercised Options (#) Exercisable (b) | Number of Securities Under- lying Unexercised Options (#) Unexerci- sable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) (e) | Option Expiration Date (f) |
Helena Santos | 8,333 | 16,667 | 0 | 3.08 | 07/2027 |
Anthony Mitri | 3,334 | 6,666 | 0 | 3.05-3.27 | 09/2018-06/2028 |
Brookman March | 9,500 | 5,000 | 0 | 3.71-3.96 | 05/2022-07/2027 |
Robert Nichols | 4,500 | 5,000 | 0 | 3.50 | 12/2023-07/2027 |
Karl Nowosielski | 17,500 | 7,000 | 0 | 3.05-4.05 | 02/2024-07/2027 |
In addition, Ms. Santos’ employment agreement contains a provision that within one year of a change of control, if either (i) the Company terminates the employment for any reason other than for “cause” (as such term is defined in the employment agreement) or (ii) Ms. Santos terminates her employment for “good reason” (as such term is defined in the employment agreement), Ms. Santos 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 employment agreements for Ms. Santos, Mr. Nichols, Mr. March, Mr. Nowosielski, and Mr. Mitri contain confidentiality and non-competition covenants. The employment agreements for all the named executives above, except Mr. Mitri, containagreement also contains a termination provisions stipulating that if the Company terminates the employment other than for death, disability, or cause (as such term is defined therein), or if the relevant employee resigns for “good reason” (as such term is defined therein), the Company shall pay severance payments equal to one year’s salary at the rate of the compensation at the time of termination, and continue to pay the regular benefits provided by the Company for a period of one year from termination. Ms. Santos’
John A. Moore
The Company has an employment agreement with its Chairman, which expires on June 30, 2023. The agreement provides for an annual base salary of $175,000 for the year ended June 30, 2021, with subsequent annual increases of 3% plus discretionary bonuses. The agreement also containsprovides for a provision that within onegrant of options to purchase 215,366 shares which were authorized by the Board of Directors during the year ended June 30, 2020, subject to amendment of a changethe Company’s 2012 Stock Option Plan to increase the number of control, if eithershares authorized for issuance thereunder which was approved in February 2021, following which Mr. Moore’s options were issued on February 23, 2021. Bonuses aggregating $50,000 and $100,000 were awarded to Mr. Moore during fiscal 2022 and fiscal 2021, respectively. If the Company terminates herMr. Moore’s employment for any reason other than for “cause”death, disability, or shecause (as such term is defined therein), or if employee 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 employee is terminated within 12 months of the date of the agreement or six months’ salary if the employee is terminated after 12 months of the date of the agreement, and the Company shall 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.
The employment agreement contains termination provisions stipulating that if the Company terminates herthe 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.
14 |
Table of Contents |
Daniel Gruenes
The Company is party to an employment agreement with Daniel Gruenes, the CEO and President of SBI, for an indefinite term, which can be terminated by either party upon twelve months’ written notice in accordance with German law. The agreement stipulates that Mr. Gruenes will receive an annual salary of 170,000 euros, as well as a minimum annual bonus of 10,000 euros. In addition. the employment agreement includes payment of a retention bonus of 25,000 euros to Mr. Gruenes if he does not terminate his employment with the Company or the Company does not terminate his 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 $1.00.
Name (a) | Fees Earned or Paid in Cash ($) (b) | Stock Awards ($) (c) | Option Awards($) (d) | Non-Equity Incentive Plan Compensation ($) (e) | Changes in Pension Value and Non-qualified Deferred Compensation Earnings($) (f) | Non-qualified Deferred Comp-sensation Earnings ($) (g) | All Other Comp- ensation ($) (h) | Total ($) (i) |
Joseph G.Cremonese | 41,200 | 0 | 0 | 0 | 0 | 0 | 43,200(1) | 84,400 |
Marcus Frampton | 2,800 | 0 | 0 | 0 | 0 | 0 | 0 | 2,800 |
John A. Moore | 9,800 | 0 | 12,000 | 0 | 0 | 0 | 40,000 | 61,800 |
Grace S.Morin | 20,800 | 0 | 0 | 0 | 0 | 0 | 18,200(2) | 39,000 |
James S.Segasture | 16,800 | 0 | 0 | 0 | 0 | 0 | 0 | 16,800 |
John F.F. Watkins | 20,800 | 0 | 0 | 0 | 0 | 0 | 0 | 20,800 |
OUTSTANDING EQUITY (OPTIONS) AWARDS For the Year Ended June 30, 2022 |
Name |
| Number Of Securities Underlying Unexercised Options (#) Exercisable |
|
| Number Of Securities Underlying Unexercised Options(#) Unexercisable |
|
| Equity Incentive Plan Awards Number of Securities Underlying Unexercised Unearned Options (#) |
|
| Option Exercise Price ($) |
|
| Option Expiration Date | |||||
(a) |
| (b) |
|
| (c) |
|
| (d) |
|
| (e) |
|
| (f) | |||||
Helena Santos |
|
| 160,578 |
|
|
| 71,788 |
|
|
| - |
|
| 3.08-9.00 |
|
| 07/2027-06/2030 | ||
John A. Moore |
|
| 154,202 |
|
|
| 73,750 |
|
|
| - |
|
| 4.50-11.30 |
|
| 03/2029-06/2030 | ||
Reginald Averilla |
|
| - |
|
|
| 20,000 |
|
|
| - |
|
|
| 5.50 |
|
| 6/21/2032 | |
Daniel Greunes |
|
| 18,667 |
|
|
| 47,333 |
|
|
| - |
|
| 5.80-10.00 |
|
| 04/2031-02/2032 | ||
Robert Nichols |
|
| 7,500 |
|
|
| 10,000 |
|
|
| - |
|
| 3.08-5.85 |
|
| 07/2027-12/2031 | ||
Karl Nowosielski |
|
| 24,500 |
|
|
| 10,000 |
|
|
| - |
|
| 2.91-5.85 |
|
| 02/2024-12/2031 |
DIRECTORS’ COMPENSATION For the Year Ended June 30, 2022 |
Name |
| Fees Earned or Paid in Cash ($) |
|
| Stock Awards ($) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) |
|
| Non-qualified Deferred Compensation Earnings ($) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||
(a) |
| (b) |
|
| (c) |
|
| (d) |
|
| (e) |
|
| (f) |
|
| (h) |
|
| (i) |
| |||||||
Christopher Cox |
|
| 13,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,600 |
|
Joseph G. Cremonese |
|
| 19,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 55,200 | (1) |
|
| 74,800 |
|
Marcus Frampton |
|
| 39,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 39,600 |
|
Jurgen Schumacher |
|
| 9,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,600 |
|
Reinhard Vogt (3) |
|
| 24,200 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 215,700 | (2) |
|
| 239,900 |
|
____________
(1) Represents amount paid to him and his affiliate pursuant to a marketing consulting agreement (see Items 12 and 13).
(2) Represents compensation received foramount paid to him and his administrative services as consultant for SBI (see items 12 and 13).
(3) Mr. Vogt resigned from the Board effective April 1, 2022.
The Company paid each Director who is not an employee of the Company or a subsidiary a quarterly retainer fee of $2,200 and a meeting fee of $2,000$3,000 for each meeting attended for fiscal 2019 and fiscal 2018, respectively.meeting. Effective April 1, 2022, the quarterly retainer fee was increased to $3,300. In addition, the Company reimburses each Director for out-of-pocket expenses incurred in connection with attendance at board meetings. Mr. Cremonese, as Chairman of the Board receives an additional fee of $1,700 per month. During fiscal 2019,2022, total director compensation to non-employee Directors aggregated $213,600,$377,500, including the consulting fees paid to Mr. Cremonese’sCremonese and his affiliate and to Mr. Moore,Vogt and Ms. Morin.
15 |
Table of Contents |
Item 12
.Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters.The following table sets forth, as of June 30, 2019,2022, the number of shares of Common Stock beneficially owned by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each named executive officer of the Company, and (iv) all directors and executive officers as a group. Shares not outstanding but deemed beneficially owned by virtue of the right of any individual to acquire shares within 60 days are treated as outstanding only when determining the amount of and percentage of outstanding shares of Common Stock owned by such individual. Each person has sole voting and investment power with respect to the shares shown, except as noted. Except as indicated in the table, the address for each of the following is c/o Scientific Industries, Inc., 80 Orville Drive, Bohemia, New York 11716.
Name | Amount and Nature of Beneficial Ownership | % of Class |
Falcon Juneau, LLC 800 F Street Unit #P2 Juneau, AK 99801 | 77,085(1) | 5.2% |
Fulcrum, Inc. 100 Delawanna Avenue Clifton, NJ 07014 | 117,370(2) | 7.9% |
Joseph G. Cremonese | 138,262(3) | 9.2% |
Marcus Frampton | 2,250(4) | 0.2% |
John A. Moore | 6,705(5) | 0.0% |
Grace S. Morin | 97,450(6) | 6.5% |
Helena R. Santos | 40,779(7) | 2.7% |
James S. Segasture | 162,500(8) | 10.9% |
John F. F. Watkins | 0 | 0.0% |
Karl D. Nowosielski | 34,183(9) | 2.3% |
Brookman P. March | 97,450(10) | 6.5% |
Anthony J. Mitri | 10,000(11) | 0.0% |
Robert P. Nichols | 27,897(12) | 1.9% |
All directors and executive officers as a group (11 persons) | 510,026(13) | 32.1% |
Name |
| Amount and Nature of Beneficial Ownership |
|
| % of Class |
| ||
|
|
|
|
|
|
| ||
Roy T. Eddleman, Trustee, Roy T. Eddleman Trust UAD 8-7-2000 |
|
| 2,127,264 | (1) |
|
| 26.93 | % |
Veradace Capital Management LLC |
|
| 953,717 | (2) |
|
| 13.03 | % |
Bleichroeder LP |
|
| 905,026 | (3) |
|
| 12.39 | % |
Brian Pessin |
|
| 778,706 | (4) |
|
| 10.72 | % |
Thomas A. Satterfield |
|
| 575,955 | (5) |
|
| 8.00 | % |
Christopher Cox |
|
| 444,000 | (6) |
|
| 6.14 | % |
Lyon Polk |
|
| 444,000 | (7) |
|
| 6.14 | % |
Laurence W. Lytton |
|
| 408,229 | (8) |
|
| 5.72 | % |
Joseph G. Cremonese |
|
| 116,062 | (9) |
|
| 1.30 | % |
Marcus Frampton |
|
| 80,623 | (10) |
|
| 1.10 | % |
Jurgen Schumacher |
|
| 37,893 | (11) |
| (*) |
| |
John A. Moore |
|
| 301,230 | (12) |
|
| 4.16 | % |
Helena R. Santos |
|
| 255,766 | (13) |
|
| 3.53 | % |
Reginald Averilla |
|
| 20,000 | (14) |
| (*) |
| |
Daniel Gruenes |
|
| 72,039 | (15) |
|
| 1.02 | % |
Karl D. Nowosielski |
|
| 50,498 | (16) |
| (*) |
| |
Robert P. Nichols |
|
| 40,241 | (17) |
| (*) |
| |
All directors and executive officers as a group (10 persons) |
|
| 1,418,352 | (18) |
|
| 17.98 | % |
____________
(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/A filed with the SEC on February 15,2022. Includes 315,789 shares issuable upon exercise of warrants. | |
(3) Based upon form 4 filed with the SEC on March 3, 2022. Includes 301,675 shares issuable upon exercise of warrants. | |
(4) Based upon form Schedule 13D filed with the SEC on July 13, 2021. Includes 259,568 shares issuable upon exercise of warrants. | |
(5) Based upon form Schedule 13G filed with the | |
(6) Based upon form Schedule 13D filed with the SEC on June 29, 2020. Includes | |
(7) Based upon form Schedule 13G filed with the SEC on July 9, 2020. Includes 222,000 shares issuable upon exercise of warrants. | |
(8) Based upon form Schedule 13G filed with the SEC on March 30, 2022. Includes 131,893 shares issuable upon exercise of warrants. | |
(9) Based upon form 4 filed with the SEC on June 9, 2022. Includes 25,000 shares issuable upon exercise of |
Table of Contents |
(10) Based upon form 4 filed with the |
(11) Includes 12,631 shares issuable upon exercise of |
(12) Includes 244,978 shares issuable upon exercise of |
(13) Includes |
(14) Includes |
(15) Includes 68,013 shares issuable upon exercise of options and warrants |
(16) Includes 36,605 shares issuable upon exercise of options and warrants. (17) Includes 18,552 shares issuable upon exercise of options and warrants. (18) Includes 884,361 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, 2019.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($) (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) |
Equity Compensation plans approved by security holders | 97,200 | 3.24 | 20,800 |
Equity Compensation plans not approved by security holders | N/A | N/A | N/A |
Total | 97,200 | 3.24 | 20,800 |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted-Average Exercise Price Of Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) |
| ||||
Plan Category |
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity Compensation plans approved by security holders |
|
| 1,158,644 |
|
| $ | 8.40 |
|
|
| 1,832,113 |
|
Equity Compensation plans not approved by security holders |
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
Total |
|
| 1,158,644 |
|
| $ | 8.40 |
|
|
| 1,832,113 |
|
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 marketingprovided consulting services to the Company since January 1, 2003 pursuant tounder a consulting agreement, expiringat a monthly retainer of $9,000, which expired on December 31, 2019. The agreement currently provides that Mr. Cremonese and his affiliate shall render, at the request of the Company, marketing consulting services for a monthly payment of $3,600.2021. The agreement contains confidentiality and non-competition covenants. The Company paid fees of $43,200 pursuant to the agreement$55,200 and $108,000 for each of fiscal 20192022 and 2018.
Mr. Reinhard Vogt, served as a Director in December 2007 following the sale of her 90.36% ownership interest in Altamira to the Company in November 2006. Up until March 31, 2009, Ms. Morin had been employed by Altamira as an administrative employee. Sincefrom July 2020 through April 1, 2009, she has2002, and through his affiliate, Societät Reinhard and Noah Vogt AG GmbH, provided consulting services on a part-time basis pursuant to an agreement expiring December 31, 2019 at the rate of $85 per hour, resulting in payments of $18,200 and $7,000 for fiscal 2019 and fiscal 2018, respectively. The agreement contains confidentiality and non-competition covenants.
Item 14. Principal Accountant Fees and Services.
The following is a description of the fees incurred by the Company for services by the firm of Nussbaum Berg Klein & Wolpow, CPAs LLP (the “Firm”) during fiscal 20192022 and fiscal 2018.
The Company incurred for the services of the Firm fees of approximately $73,000$117,200 and $70,000$110,300 for fiscal 20192022 and fiscal 2018,2021, 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, $22,500 and $7,500 and $6,000$12,850 for the preparation of the Company’s corporate tax returns for fiscal 20192022 and fiscal 2018, respectively.
In approving the engagement of the independent registered public accounting firm to perform the audit and non-audit services, the Board of Directors as the Company’s audit committee evaluates the scope and cost of each of the services to be performed including a determination that the performance of the non-audit services will not affect the independence of the firm in the performance of the audit services.
17 |
Table of Contents |
PART IV
Financial Statements
. The required financial statements of the Company are attached hereto on pagesExhibits. The following Exhibits are filed as part of this report on Form 10-K: | |||
Exhibit Number | Exhibit | ||
3 | 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.) | ||
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.) | ||
4 | Instruments defining the rights of security holders: | ||
10 | Material Contracts: | |
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). | ||
22 |
Table of Contents |
23 | |
Table of Contents |
Registration Rights |
Commercial Security Agreement dated July 5, 2016 by and among the Company, and First National Bank of Pennsylvania. | ||
Table of Contents |
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | SCIENTIFIC INDUSTRIES, INC. (Registrant) /s/Helena R. Santos | |
Helena R. Santos President, Chief Executive Officer, and Treasurer |
Date: September 28, 2022 | SCIENTIFIC INDUSTRIES, INC. (Registrant) /s/Reginald Averilla | |
Reginald Averilla Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name | Title | Date | ||
Helena R. Santos | President, Chief Executive Officer, and Treasurer | September 28, 2022 | ||
Reginald Averilla | Chief Financial Officer | September 28, 2022 | ||
John A. Moore | Chairman of the Board | September 28, 2022 | ||
Christopher Cox | Director | September 28, 2022 | ||
Joseph G. Cremonese | Director | September 28, 2022 | ||
Marcus Frampton | Director | September 28, 2022 | ||
Jurgen Schumacher | Director | September 28, 2022 |
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE YEARS ENDED
JUNE 30, 20192022 AND 2018
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
CONTENTS
Page | |||
Report of independent registered public accounting firm ( Audit firm ID 103 ) | F-2 | ||
Consolidated financial statements: | |||
F-3 | |||
F-4 | |||
Statements of | F-5 | ||
F-6 | |||
F-7 – |
F-1 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AS OF AND FOR THE YEARS ENDED
JUNE 30, 2022 AND 2021
Report of Independent Registered Public Accounting Firm
Board of Directors of and Stockholders’
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, 20192022 and 2018,2021, the related consolidated statements of operations and comprehensive income (loss),loss, changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 20192022 and 2018,2021, 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.
Impairment Assessment of Goodwill and Long-Lived Intangible Assets
As described in Note 8 to the financial statements, the Company completed its acquisition of Aquila biolabs GmbH (“Aquila”) during fiscal 2021 on April 29, 2021. The Company’s goodwill and intangible assets associated with this acquisition amounted to $4,138,100 and $1,947,500, respectively, as of June 30, 2022. Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of ASC No. 350, “Intangibles Goodwill and Other” (“ASC No. 350”).
We identified the impairment assessment of the Company’s goodwill and long-lived assets acquired in the acquisition as a critical audit matter as of June 30, 2022. Auditing the Company’s impairment test was complex and highly judgmental because (i) there was significant judgment used by management to develop the fair value measurement, which led to a high degree of audit judgment and subjectivity in performing procedures relating to fair value measurement; (ii) there was significant effort in performing procedures to evaluate the reasonableness of the fair value measurement and significant assumptions and projections used by management, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. To test the potential impairment of the Company’s goodwill and long-lived intangible assets, our audit procedures included, among others, testing management’s application of the relevant accounting guidance, 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 the reporting unit, including projected revenue growth and operating margins. We also assessed the historical accuracy of management’s estimates, as well as requested the performance of a sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We compared the significant assumptions to current and past industry, market and economic trends. Additionally, we tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates and ensured that the assumptions were consistent with other evidence obtained in other areas of our audit.
Nussbaum Berg Klein & Wolpow, CPAs LLP
We have served as the Company’s auditor since 1991.
Melville, New York
BALANCE SHEETS
AS OF JUNE 30, 20192022 AND 2018
2019 | 2018 | |
Current assets: | ||
Cash and cash equivalents | $1,602,500 | $1,053,100 |
Investment securities | 330,900 | 314,700 |
Trade accounts receivable, less allowance for doubtful accounts of $15,000 and $11,600, respectively | 1,974,200 | 1,722,300 |
Inventories | 2,592,300 | 2,267,900 |
Prepaid expenses and other current assets | 91,200 | 33,500 |
Total current assets | 6,591,100 | 5,391,500 |
Property and equipment, net | 318,800 | 199,500 |
Intangible assets, net | 175,000 | 338,700 |
Goodwill | 705,300 | 705,300 |
Trade accounts receivable, less current portion | - | 245,400 |
Other assets | 54,700 | 52,500 |
Deferred taxes | 431,100 | 392,600 |
Total assets | $8,276,000 | $7,325,500 |
Current liabilities: | ||
Accounts payable | $569,000 | $428,000 |
Accrued expenses and taxes, current portion | 608,300 | 657,700 |
Contract liabilities | - | 63,800 |
Bank overdraft | 140,000 | - |
Contingent consideration, current portion | 268,000 | 118,000 |
Notes payable | - | 5,800 |
Total current liabilities | 1,585,300 | 1,273,300 |
Accrued expenses, less current portion | - | 60,000 |
Contingent consideration payable, less current portion | 350,000 | 290,000 |
Total liabilities | 1,935,300 | 1,623,300 |
Stockholders’ equity: | ||
Common stock, $.05 par value; 7,000,000 shares authorized; 1,513,914 shares issued; 1,494,112 shares outstanding, respectively | 75,700 | 75,700 |
Additional paid-in capital | 2,592,700 | 2,545,900 |
Accumulated other comprehensive income | - | 1,200 |
Retained earnings | 3,724,700 | 3,131,800 |
6,393,100 | 5,754,600 | |
Less common stock held in treasury at cost, 19,802 shares | 52,400 | 52,400 |
Total stockholders’ equity | 6,340,700 | 5,702,200 |
Total liabilities and stockholders’ equity | $8,276,000 | $7,325,500 |
|
| 2022 |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,971,100 |
|
| $ | 9,675,200 |
|
Investment securities |
|
| 6,391,600 |
|
|
| 3,744,600 |
|
Trade accounts receivable, less allowance for doubtful accounts of $15,600 at June 30, 2022 and June 30, 2021 |
|
| 1,501,400 |
|
|
| 1,294,700 |
|
Inventories |
|
| 4,696,300 |
|
|
| 2,977,100 |
|
Income tax receivable |
|
| 161,100 |
|
|
| 333,300 |
|
Prepaid expenses and other current assets |
|
| 547,600 |
|
|
| 350,900 |
|
Assets of discontinued operations |
|
| 200 |
|
|
| 55,300 |
|
Total current assets |
|
| 16,269,300 |
|
|
| 18,431,100 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 1,005,600 |
|
|
| 412,600 |
|
Goodwill |
|
| 4,395,400 |
|
|
| 4,395,400 |
|
Other intangible assets, net |
|
| 2,079,800 |
|
|
| 2,557,800 |
|
Deferred taxes |
|
| 3,743,600 |
|
|
| 2,489,900 |
|
Operating lease right-of-use assets |
|
| 1,475,500 |
|
|
| 665,300 |
|
Other assets |
|
| 62,400 |
|
|
| 54,300 |
|
Total assets |
| $ | 29,031,600 |
|
| $ | 29,006,400 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,105,900 |
|
| $ | 453,500 |
|
Accrued expenses |
|
| 796,000 |
|
|
| 633,500 |
|
Contract liabilities |
|
| 29,000 |
|
|
| - |
|
Contingent consideration, current portion |
|
| - |
|
|
| 136,600 |
|
Bank overdraft |
|
| - |
|
|
| 321,700 |
|
Lease liabilities, current portion |
|
| 299,300 |
|
|
| 270,500 |
|
Paycheck Protection Program loan |
|
| - |
|
|
| 433,800 |
|
Liabilities of discontinued operations |
|
| - |
|
|
| 37,200 |
|
Total current liabilities |
|
| 2,230,200 |
|
|
| 2,286,800 |
|
|
|
|
|
|
|
|
|
|
Contingent consideration payable, less current portion |
|
| - |
|
|
| 23,400 |
|
Lease liabilities, less current portion |
|
| 1,239,600 |
|
|
| 460,500 |
|
Other long-term liabilities |
|
| - |
|
|
| 10,900 |
|
Total liabilities |
|
| 3,469,800 |
|
|
| 2,781,600 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $0.05 par value; 20,000,000 and 15,000,000 shares authorized; 7,023,401 and 6,477,945 shares issued; 7,003,599 and 6,458,143 shares outstanding at June 30, 2022 and June 30, 2021 |
|
| 351,200 |
|
|
| 324,000 |
|
Additional paid-in capital |
|
| 31,664,100 |
|
|
| 26,613,500 |
|
Accumulated comprehensive loss |
|
| (105,600 | ) |
|
| (9,200 | ) |
Accumulated deficit |
|
| (6,295,500 | ) |
|
| (651,100 | ) |
|
|
| 25,614,200 |
|
|
| 26,277,200 |
|
Less common stock held in treasury at cost, 19,802 shares |
|
| 52,400 |
|
|
| 52,400 |
|
Total shareholders’ equity |
|
| 25,561,800 |
|
|
| 26,224,800 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
| $ | 29,031,600 |
|
| $ | 29,006,400 |
|
| ||||||||
See notes to consolidated financial statements |
F-3 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
2019 | 2018 | |
Revenues | $10,199,800 | $8,481,400 |
Cost of revenues | 5,832,700 | 5,259,700 |
Gross profit | 4,367,100 | 3,221,700 |
Operating expenses: | ||
General and administrative | 1,924,400 | 1,748,800 |
Selling | 1,136,100 | 957,500 |
Research and development | 530,500 | 520,900 |
Total operating expenses | 3,591,000 | 3,227,200 |
Income (loss) from operations | 776,100 | (5,500) |
Other income (expense): | ||
Interest income | 3,400 | 6,100 |
Other income (loss), net | (7,800) | 2,500 |
Interest expense | (1,500) | (1,700) |
Total other income (expense) | (5,900) | 6,900 |
Income before income tax expense | 770,200 | 1,400 |
Income tax expense: | ||
Current | 166,600 | 50,400 |
Deferred | (42,000) | 111,500 |
�� | ||
Total income tax expense | 124,600 | 161,900 |
Net income (loss) | $645,600 | $(160,500) |
Basic earnings (loss) per common share | $.43 | $(.11) |
Diluted earnings (loss) per common share | $.43 | $(.11) |
Weighted average common shares, basic | 1,494,112 | 1,494,112 |
Weighted average common shares outstanding, assuming dilution (in 2019) | 1,512,178 | 1,494,112 |
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 11,400,500 |
|
| $ | 9,775,200 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 5,663,800 |
|
|
| 4,799,800 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 5,736,700 |
|
|
| 4,975,400 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 5,816,600 |
|
|
| 4,028,500 |
|
Selling |
|
| 4,310,800 |
|
|
| 4,031,900 |
|
Research and development |
|
| 2,873,300 |
|
|
| 1,623,800 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 13,000,700 |
|
|
| 9,684,200 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (7,264,000 | ) |
|
| (4,708,800 | ) |
|
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
|
Other income, net |
|
| 185,100 |
|
|
| 571,600 |
|
Interest income |
|
| 77,300 |
|
|
| 82,200 |
|
Total other income, net |
|
| 262,400 |
|
|
| 653,800 |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax benefit |
|
| (7,001,600 | ) |
|
| (4,055,000 | ) |
|
|
|
|
|
|
|
|
|
Income tax benefit, current |
|
| (99,200 | ) |
|
| - |
|
Income tax benefit, deferred |
|
| (1,253,600 | ) |
|
| (945,000 | ) |
Total income tax benefit |
|
| (1,352,800 | ) |
|
| (945,000 | ) |
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
| (5,648,800 | ) |
|
| (3,110,000 | ) |
|
|
|
|
|
|
|
|
|
Discontinued operations (Note 18): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations, net of tax |
|
| 4,400 |
|
|
| (562,500 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
|
| (5,644,400 | ) |
|
| (3,672,500 | ) |
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
Unrealized holding loss on investment securities, net of tax |
|
| (10,200 | ) |
|
| - |
|
Foreign currency translation adjustment |
|
| (86,200 | ) |
|
| (9,200 | ) |
Comprehensive loss |
|
| (96,400 | ) |
|
| (9,200 | ) |
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
| $ | (5,740,800 | ) |
| $ | (3,681,700 | ) |
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (0.85 | ) |
| $ | (0.97 | ) |
Discontinued operations |
| $ | 0.00 |
|
| $ | (0.18 | ) |
Consolidated operations |
| $ | (0.85 | ) |
| $ | (1.15 | ) |
| ||||||||
See notes to consolidated financial statements |
F-4 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
2019 | 2018 | |
Net income (loss) | $645,600 | $(160,500) |
Other comprehensive income: | ||
Unrealized holding gain | ||
arising during period, | ||
net of tax | - | 4,700 |
Comprehensive income (loss) | $645,600 | $(155,800) |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive Income |
|
| Retained Earnings (Accumulated |
|
| Treasury Stock |
|
| Total Stockholders' |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| Deficit) |
|
| Shares |
|
| Amount |
|
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, June 30, 2020 |
|
| 2,881,065 |
|
| $ | 144,100 |
|
| $ | 8,608,300 |
|
| $ | - |
|
| $ | 3,021,400 |
|
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 11,721,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,672,500 | ) |
|
| - |
|
|
| - |
|
|
| (3,672,500 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock and Warrants, net of issuance cost (Note 14) |
|
| 3,595,880 |
|
|
| 179,800 |
|
|
| 15,894,200 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16,074,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (9,200 | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
| (9,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options for Common Stock |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,644,400 | ) |
|
| - |
|
|
| - |
|
|
| (5,644,400 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock and Warrants, net of issuance cost (Note 14) |
|
| 545,456 |
|
|
| 27,200 |
|
|
| 2,700,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,727,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| - |
|
|
| - |
|
|
|
|
|
|
| (86,200 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (86,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding loss on investment securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,200 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 2,350,600 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,350,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
| 7,023,401 |
|
| $ | 351,200 |
|
| $ | 31,664,100 |
|
| $ | (105,600 | ) |
| $ | (6,295,500 | ) |
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 25,561,800 |
|
| ||||||||||||||||||||||||||||||||
See notes to consolidated financial statements |
F-5 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
Additional | Accumulated Other | Total | ||||||
Common Stock | Paid-in | Comprehensive | Retained | Treasury Stock | Stockholders’ | |||
Shares | Amount | Capital | Income (Loss) | Earnings | Shares | Amount | Equity | |
Balance, July 1, 2017 | 1,513,914 | $75,700 | $2,515,900 | $(3,500) | $3,292,300 | 19,802 | $52,400 | $5,828,000 |
Net loss | - | - | - | - | (160,500) | - | - | (160,500) |
Unrealized holding gain on investment securities, net of tax | - | - | - | 4,700 | - | - | - | 4,700 |
Stock-based compensation | - | - | 30,000 | - | - | - | - | 30,000 |
Balance, June 30, 2018 | 1,513,914 | 75,700 | 2,545,900 | 1,200 | 3,131,800 | 19,802 | 52,400 | 5,702,200 |
Cumulative effect of the adoption of | - | - | - | (22,000) | 22,000 | - | - | - |
ASU 2016-01 – Financial Instruments | ||||||||
Net income | - | - | - | - | 645,600 | - | - | 645,600 |
Cash dividend declared and paid, $.05 | - | - | - | - | (74,700) | - | - | (74,700) |
Holding loss on investment securities, net of tax | - | - | - | 20,800 | - | - | - | 20,800 |
Stock-based compensation | - | - | 46,800 | - | - | - | - | 46,800 |
Balance, June 30, 2019 | 1,513,914 | $75,700 | $2,592,700 | $- | $3,724,700 | 19,802 | $52,400 | $6,340,700 |
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (5,644,400 | ) |
| $ | (3,672,500 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Loss/(Gain) on sale of investments securities |
|
| 32,700 |
|
|
| (35,600 | ) |
Unrealized holding loss on investments securities |
|
| 233,700 |
|
|
| 10,400 |
|
Provision for bad debt |
|
| - |
|
|
| 4,000 |
|
Extinguishment of debt |
|
| (433,800 | ) |
|
| (531,100 | ) |
Depreciation and amortization |
|
| 688,200 |
|
|
| 251,500 |
|
Deferred income taxes |
|
| (1,253,600 | ) |
|
| (1,152,500 | ) |
Loss on disposal of subsidiary |
|
| - |
|
|
| 405,400 |
|
Stock-based compensation |
|
| 2,350,600 |
|
|
| 2,108,000 |
|
Change in fair value of contingent consideration |
|
| (42,500 | ) |
|
| (30,000 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| (206,700 | ) |
|
| (75,500 | ) |
Inventories |
|
| (1,719,200 | ) |
|
| (560,000 | ) |
Carrying value of right of use assets |
|
| (810,200 | ) |
|
| 138,000 |
|
Income tax receivable |
|
| 172,200 |
|
|
| 1,500 |
|
Prepaid and other current assets |
|
| (207,800 | ) |
|
| (211,400 | ) |
Accounts payable |
|
| 652,400 |
|
|
| 79,600 |
|
Contract liabilities |
|
| 29,000 |
|
|
| (20,000 | ) |
Lease Liabilities |
|
| 807,900 |
|
|
| (105,600 | ) |
Bank overdraft |
|
| (321,700 | ) |
|
| 278,600 |
|
Other assets |
|
| (8,100 | ) |
|
| - |
|
Other long term liabilities |
|
| (10,900 | ) |
|
| 10,900 |
|
Accrued expenses and taxes |
|
| 180,300 |
|
|
| (195,200 | ) |
Total adjustments |
|
| 132,500 |
|
|
| 371,000 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (5,511,900 | ) |
|
| (3,301,500 | ) |
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Redemption of investment securities |
|
| 2,709,800 |
|
|
| 6,181,400 |
|
Purchase of investment securities |
|
| (5,634,500 | ) |
|
| (9,569,000 | ) |
Proceeds from sale of Altamira |
|
| - |
|
|
| 440,000 |
|
Purchase of Aquila, net of cash acquired |
|
| - |
|
|
| (7,679,000 | ) |
Capital expenditures |
|
| (757,600 | ) |
|
| (198,700 | ) |
Purchase of other intangible assets |
|
| (67,000 | ) |
|
| (58,700 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| (3,749,300 | ) |
|
| (10,884,000 | ) |
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants |
|
| 3,000,000 |
|
|
| 17,080,400 |
|
Issuance of common stock and warrants |
|
| (272,800 | ) |
|
| (1,006,400 | ) |
Payments of contingent consideration |
|
| (98,800 | ) |
|
| (168,000 | ) |
Proceeds from Payroll Protection Program, net of repayment |
|
| - |
|
|
| 401,100 |
|
Proceeds from stock options exercised |
|
| - |
|
|
| 3,100 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 2,628,400 |
|
|
| 16,310,200 |
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign currency exchange rates on cash and cash equivalents |
|
| (71,300 | ) |
|
| (9,200 | ) |
|
|
|
|
|
|
|
|
|
Net increase/ (decrease) in cash and cash equivalents |
|
| (6,704,100 | ) |
|
| 2,115,500 |
|
Cash and cash equivalents, beginning of year |
|
| 9,675,200 |
|
|
| 7,559,700 |
|
Cash and cash equivalents, end of year |
| $ | 2,971,100 |
| $ | 9,675,200 |
| |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | - |
|
| $ | 2,500 |
|
Noncash financing activities: |
|
|
|
|
|
|
|
|
Record right-of-use assets |
| $ | 1,010,900 |
|
| $ | - |
|
Record lease liabilities |
| $ | 1,010,400 |
|
| $ | - |
|
| ||||||||
See notes to consolidated financial statements |
F-6 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
2019 | 2018 | |
Operating activities: | ||
Net income (loss) | $645,600 | $(160,500) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Loss on sale of investment securities | 13,200 | - |
Depreciation and amortization | 257,300 | 305,100 |
Deferred income tax (benefit) expense | (38,500) | 112,500 |
Unrealized holding gain on investment securities | (3,000) | - |
Stock-based compensation | 46,800 | 30,000 |
Change in fair value of contingent consideration | 521,200 | 253,700 |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (6,500) | (543,300) |
Inventories | (324,400) | (306,700) |
Prepaid expenses and other assets | (60,100) | 46,800 |
Accounts payable | 141,000 | 288,800 |
Contract liabilities | (63,800) | 63,800 |
Accrued expenses and taxes | (109,300) | 166,700 |
Bank overdraft | 140,000 | - |
Total adjustments | 513,900 | 417,400 |
Net cash provided by operating activities | 1,159,500 | 256,900 |
Investing activities: | ||
Purchase of investment securities | (157,900) | (14,500) |
Redemption of investment securities | 151,900 | - |
Capital expenditures | (187,800) | (61,400) |
Purchase of intangible assets | (24,600) | (3,600) |
Net cash used in investing activities | (218,400) | (79,500) |
Financing activities: | ||
Principal payments on notes payable | (5,800) | (6,700) |
Cash dividend declared and paid | (74,700) | - |
Line of credit proceeds | 50,000 | 40,000 |
Line of credit repayments | (50,000) | (40,000) |
Payments for contingent consideration | (311,200) | (142,700) |
Net cash used in financing activities | (391,700) | (149,400) |
Net increase in cash and cash equivalents | 549,400 | 28,000 |
Cash and cash equivalents, beginning of year | 1,053,100 | 1,025,100 |
Cash and cash equivalents, end of year | $1,602,500 | $1,053,100 |
Supplemental disclosures: | ||
Cash paid during the period for: | ||
Income taxes | $56,700 | $16,000 |
Interest | $1,500 | $1,700 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
1. Summary of Significant Accounting Policies
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 and pharmacy equipment. Additionally, the Company has two 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 products, which are sold by the Company includesto customers worldwide, include mixers, shakers, stirrers, refrigerated incubators, pharmacy balances and scales, force gauges, catalyst characterization instruments, reactor systemsbioprocessing sensors and high throughput systems.analytical tools. The Company also sublicensessublicensed certain patents and technology under a license with the University of Maryland, Baltimore County,agreement which expired in August 2021 and receivesreceived royalty fees from the sublicenses.
COVID-19 Update
The challenges posed by the COVID-19 pandemic on the global economy affected the Company with minor or temporary disruptions to its operations. The Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, 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. In fiscal years ended June 30, 2020 and 2021 the Company received loans from the Paycheck Protection Program administered by the U.S. Small Business Administration of which all of the loans were repaid or forgiven through the fiscal year ended June 30, 2022. The forgiven loans were recorded in the Company’s statement of operations as “Other Income. 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, 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. The extent to which the COVID-19 outbreak ultimately impacts the Company’s business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity and longevity, the actions to curtail the virus and treat its impact (including an effective vaccine), and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may be at risk of experiencing a significant impact to its business as a result of the global economic impact, including any economic downturn or recession that has occurred or may occur in the future.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 Delaware corporation and wholly-owned subsidiary, which holds 100% of the outstanding stock of Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation, and wholly-owned subsidiary,aquila biolabs GmbH (“Aquila”), a German corporation, since its acquisition on April 29, 2021, (all collectively referred to as the “Company”). All material intercompany balances and transactions have been eliminated.
2. Summary of Significant Accounting Policies
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, the fair values of intangibles and goodwill, and provision or benefit for income taxes. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
F-7 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Revenue Recognition
The Company adoptedrecognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, as amended” (“ASC Topic 606”), using the modified retrospective method applied to those contracts which were not completed as of the adoption date.Customers. The adoption of the standard did not have a material impact on how the Company recognizes its revenues. In accordance with Topic 606, the Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
The Company determines revenue recognition through the following steps:
● | Identification of the contract, or contracts, with a customer |
● | Identification of the performance obligations in the contract |
● | Determination of the transaction price |
● | Allocation of the transaction price to the performance obligations in the contract |
● | Recognition of revenue when, or as, a performance obligation is satisfied |
The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the Financial Accounting Standards Board (“FASB”), in applying ASC Topic 606: 1) All revenues are recorded net of returns, allowances, customer discounts, and incentives; 2) Although sales and other taxes are immaterial, the Company accounts for amounts collected from customers for sales and other taxes, if any, net of related amounts remitted to tax authorities; 3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; 4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling expenses; 5) the Company is always considered the principal and never an agent, because it has full control and responsibility until title is transferred to the customer; 6) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.
Nature of Products and Services
The Company generates revenues from the following sources: (1) Benchtop Laboratory Equipment and (2) Catalyst Research Instruments, and (3) Royalties.
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Consolidated | |
June 30, 2019: | ||||
Revenues | $7,078,800 | $1,814,900 | $1,306,100 | $10,199,800 |
Foreign Sales | 2,680,300 | 1,102,300 | 1,301,200 | 5,083,800 |
June 30, 2018: | ||||
Revenues | $6,403,400 | $1,408,900 | $669,100 | $8,481,400 |
Foreign Sales | 2,669,000 | 707,200 | 669,100 | 4,045,300 |
Benchtop laboratory equipment sales comprise primarily of standard benchtop laboratory equipment from its stock to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment is very short varying from a day to a few weeks. Customers either pay by credit card (online sales) or Net 30-90, depending on the customer. Once the item is shipped under the FOB terms specified in the order, which is primarily “FOB Factory”, other than a standard warranty, there are no other obligations to the customer. Warranty usually comprises of one to two year parts and labor and is deemed immaterial.
Bioprocessing Systems sales comprise primarily of large instruments which begin with a standard modelbioprocessing products, principally products incorporating smart sensors and then are customized to a customer’s specifications. The sales cycle can be quite long, typically ranging from one to three months, from the time an order is received to the time the instrument is shipped to the customer. Payment terms vary from customer to customer and can include advance payments which are recorded as contract liabilities. Some contracts call for training and installation, which is considered ancillary and not a material partstate of the contract. Dueart 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 and flow-through cells for pH and DO monitoring. The Company, through SBI, sublicensed certain patents and technology it held relating to the size and nature of the instruments, the Company subjects the instruments to an extensive factory acceptance testing process prior to shipment to ensure that they are fully operational once they reach the customer’s site. Normally, the Company warrantees its instruments for a period of twelve months for parts and labor which normally consists of replacement of small components or software support. Catalyst research instruments are never returned for repairs.
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, 2019,2022, and 2018, $1,328,6002021, $1,984,300 and $593,700,$8,922,800 respectively of cash balances were in excess of such limit.
F-8 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Accounts Receivable
In order to record the Company’s accounts receivable at their net realizable value, the Company must assess their collectability. A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company’s receivables, and the current creditworthiness of the Company’s customers. The Company has recorded allowances for receivables which it considered uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices, customer satisfaction claims and pricing discrepancies. However, depending on how such potential issues are resolved, or if the financial condition of any of the Company’s customers was to deteriorate and its ability to make required payments became impaired, increases in these allowances may be required. The Company actively manages its accounts receivable to minimize credit risk. The Company does not obtain collateral for its accounts receivable.
Investment Securities
The Company's investment securities are classified as equity securities, mutual funds, and bonds, and are held as available-for-sale and recorded at fair value. Changes in advance of revenue recognition and is recognized as the revenue recognition criteria are met. Amounts that have been invoiced are initially recorded in accounts receivable and contract liabilities. The Company invoices its customers in accordance with the terms of the underlying contract. Accordingly, the contract liabilities balance does not represent the total contractfair value of outstanding arrangements. Contract liabilities that are expected to be recognized during the subsequent 12-month period are recorded as current and the remaining portion as noncurrent. Customer advances of $63,800 for the year ended June 30, 2018 were reclassified to contract liabilities on the balance sheet, which was all recognized as revenue during the year ended June 30, 2019.
The Company determines the cost of the investment sold based on an average cost basis at the individual security level and record the interest income and realized gains or losses on the sale of these investments in other income, (loss), net. Prior tonet on the year ended June 30, 2019, the Company’s investment securities were classified as available-for-sale securitiesstatement of operations and measured andcomprehensive loss.
Inventories
Inventories recordedProperty 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.
Finite Lived Intangible Assets
Intangible assets consist primarily of acquired technology, customer relationships, non-compete agreements, patents, licenses, websites, intellectual property andin-process research and development (“IPR&D”), trademarks and trade names. All intangible assets are amortized on a straight-line basis over the estimated useful lives of the respective assets, generally 3 to 10 years. The Company continually evaluates the remaining estimated useful lives of intangible assets that are being amortized to determine whether events or circumstances warrant a revision to the remaining period of amortization.
Goodwill and Long-Lived 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-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, 20192022 and 2018,2021, there was no impairment of goodwill.
F-9 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Impairment of Long-Lived Assets
The Company follows the provisions of ASC No. 360-10, “Property, Plant and Equipment - Impairment or Disposal of Long-Lived Assets (“ASC No. 360-10”). ASC No. 360-10 which requires evaluation of the need for an impairment charge relating to long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation for impairment is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write down to a new depreciable basis is required. If required, an impairment charge is recorded based on an estimate of future discounted cash flows. The Company concluded as of June 30, 20192022 and 2018,2021, there was no impairment of long-lived assets.
Leases
The Company accounts for its leases under ASC 842, 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.
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.
Advertising
Advertising costs are expensed as incurred. Advertising expense amounted to $628,700 and $399,700 for the years ended June 30, 2022 and 2021, 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
Stock-based compensation is accounted for in accordance with ASC No. 718 “Compensation-Stock Compensation” (“ASC No. 718”) which requires compensation costs related to stock-based payment transactions to be recognized. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are measured at each reporting period. Compensation costs are recognized over the period that an employee provides service in exchange for the award.
The Company estimates the fair value of each stock-based grant using the Black-Scholes option pricing model. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. The expected volatility is based on the historical volatility of the Company's stock price over the most recent period commensurate with the expected term of the stock option award. The estimate expected term is based on management’s analysis of historical exercise activity. The risk-free interest rate is based on published U.S. Treasury rates for a term commensurate with the expected term. The dividend yield is estimated as zero as the Company has not paid dividends in the past and does not have any plans to pay any dividends in the foreseeable future. The Company has elected to account for forfeitures only when they occur.
F-10 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Foreign Currency Translation and Transactions
The Company has determined that the functional currency and reporting currency for its Aquila operations in Germany is the Euro and the U.S. Dollar, respectively. All assets and liabilities of Aquila are translated at the current exchange rate as of the end of the reporting period, and revenue and expenses are translated at average exchange rates in effect during the period with the resulting gain or loss reflected as a foreign currency cumulative translation adjustment and reported as a component of accumulated other comprehensive income (loss). Gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in other income.
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.
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, 2022 and 2021, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters.
The Company recognizes interest and penalties on any unrecognized tax benefits as incurred. Advertising expense amounteda 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 $207,500U.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 $174,700state jurisdictions for the years ended June 30, 2019 and 2018, respectively.
Earnings (Loss) Per Common Share
Basic earnings or loss per common share is computed by dividing net income (loss) by the weighted-average number of shares outstanding. Diluted earnings or loss per common share includes the dilutive effect of stock options and warrants, if any.
Reclassifications
Certain balances from fiscal 2021 have been reclassified to current accounting guidance with operating leases resulting in a straight-line expense and financing leases resulting in a front-loaded expense similarconform to the current year presentation.
Recent Accounting Pronouncements
The Company has evaluated all recent accounting for capital leases. This guidance becomes effective forpronouncements as issued by the Company’s fiscal 2020 first quarter, with early adoption permitted. This guidance must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative periodFASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and provides for certain practical expedients. We anticipate the adoption of this standard will result in an increase in our right of use assets and lease liabilities recorded on our consolidated balance sheets on July 1, 2019. The Company does not believe the adoption of this guidance willfound no recent pronouncements issued to have a material impact on its consolidated results of operations or cash flows.
F-11 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
3. Segment Information
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”), and the manufacture, and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical and petrochemical companies sold on a direct basis (“Catalyst Research Instruments Operations”) and the design, and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems”).
Segment information is reported as follows:
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Corporate and Other | Consolidated | |
June 30, 2019: | |||||
Revenues | $7,078,800 | $1,814,900 | $1,306,100 | $- | $10,199,800 |
Foreign Sales | 2,680,300 | 1,102,300 | 1,301,200 | - | 5,083,800 |
Income (Loss) From Operations | 541,700 | (130,600) | 365,000 | - | 776,100 |
Assets | 5,280,700 | 1,443,200 | 790,100 | 762,000 | 8,276,000 |
Long-Lived Asset Expenditures | 194,500 | 2,200 | 15,700 | - | 212,400 |
Depreciation and Amortization | 217,800 | 1,000 | 38,500 | - | 257,300 |
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Corporate and Other | Consolidated | |
June 30, 2018: | |||||
Revenues | $6,403,400 | $1,408,900 | $669,100 | $- | $8,481,400 |
Foreign Sales | 2,669,000 | 707,200 | 669,100 | - | 4,045,300 |
Income (Loss) From Operations | 297,000 | (248,000) | (54,500) | - | (5,500) |
Assets | 4,141,200 | 1,482,200 | 1,002,800 | 699,300 | 7,325,500 |
Long-Lived Asset Expenditures | 60,500 | 1,900 | 2,600 | - | 65,000 |
Depreciation and Amortization | 265,100 | 2,800 | 37,200 | - | 305,100 |
Year Ended June 30, 2022 |
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Corporate |
|
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 9,981,100 |
|
| $ | 1,419,400 |
|
| $ | - |
|
| $ | 11,400,500 |
|
Foreign Sales |
|
| 3,702,400 |
|
|
| 1,101,400 |
|
|
| - |
|
|
| 4,803,800 |
|
Income (Loss) From Operations |
|
| 1,475,800 |
|
|
| (7,089,400 | ) |
|
| (1,650,400 | ) |
|
| (7,264,000 | ) |
Assets |
|
| 9,538,600 |
|
|
| 10,402,800 |
|
|
| 9,090,200 |
|
|
| 29,031,600 |
|
Long-Lived Asset Expenditures |
|
| 92,500 |
|
|
| 732,100 |
|
|
| - |
|
|
| 824,600 |
|
Depreciation and Amortization |
|
| 96,300 |
|
|
| 591,900 |
|
|
| - |
|
|
| 688,200 |
|
Year Ended June 30, 2021 |
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Corporate |
|
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 9,043,600 |
|
| $ | 731,600 |
|
| $ | - |
|
| $ | 9,775,200 |
|
Foreign Sales |
|
| 3,483,700 |
|
|
| 684,600 |
|
|
| - |
|
|
| 4,168,300 |
|
Income (Loss) From Operations |
|
| 1,461,300 |
|
|
| (4,828,600 | ) |
|
| (1,341,400 | ) |
|
| (4,708,700 | ) |
Assets |
|
| 14,783,000 |
|
|
| 8,735,100 |
|
|
| 5,488,300 |
|
|
| 29,006,400 |
|
Long-Lived Asset Expenditures |
|
| 60,500 |
|
|
| 196,900 |
|
|
| - |
|
|
| 257,400 |
|
Depreciation and Amortization |
|
| 103,100 |
|
|
| 148,400 |
|
|
| - |
|
|
| 251,500 |
|
4. Fair Value of Financial Instruments
The Company follows ASC 820, Fair Value Measurement, which has defined 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
Level 2
Level 3
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.
F-12 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
The fair value of the contingent consideration obligationsThe 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 atas of June 30, 20192022 and 20182021 according to the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs Considered as | ||||
Fair Value at June 30, 2019 | Level 1 | Level 2 | Level 3 | |
Assets: | ||||
Cash and cash equivalents | $1,602,500 | $1,602,500 | $- | $- |
Investment securities | 330,900 | 330,900 | - | - |
Total | $1,933,400 | $1,933,400 | $- | $- |
Liabilities: | ||||
Contingent consideration | $618,000 | $- | $- | $618,000 |
|
| Fair Value Measurements as of June 30, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 2,971,100 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,971,100 |
|
Investment securities |
|
| 5,276,600 |
|
|
| 1,115,000 |
|
|
| - |
|
|
| 6,391,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 8,247,700 |
|
| $ | 1,115,000 |
|
| $ | - |
|
| $ | 9,362,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
| Fair Value Measurements as of June 30, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 9,675,200 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,675,200 |
|
Investment securities |
|
| 2,920,600 |
|
|
| 824,000 |
|
|
| - |
|
|
| 3,744,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 12,595,800 |
|
| $ | 824,000 |
|
| $ | - |
|
| $ | 13,419,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| $ | - |
|
| $ | - |
|
| $ | 160,000 |
|
| $ | 160,000 |
|
F-13 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
Investments in marketable securities by security type as of Financial Instruments (Continued)
Fair Value Measurements Using Inputs Considered as | ||||
Fair Value at June 30, 2018 | Level 1 | Level 2 | Level 3 | |
Assets: | ||||
Cash and cash equivalents | $1,053,100 | $1,053,100 | $- | $- |
Investment securities | 314,700 | 314,700 | - | - |
Total | $1,367,800 | $1,367,800 | $- | $- |
Liabilities: | ||||
Contingent consideration | $408,000 | $- | $- | $408,000 |
As of June 30, 2022: | Cost |
|
| Fair Value |
|
| Unrealized Holding Gain (Loss) | |||||
Equity securities | $ | 118,800 | $ | 151,000 | $ | 32,200 | ||||||
Mutual funds | 5,299,500 | 5,125,600 | (173,900 | ) | ||||||||
Debt Securities | 1,114,100 | 1,115,000 | 900 | |||||||||
Total | $ | 6,532,400 | $ | 6,391,600 | $ | (140,800 | ) |
As of June 30, 2021: |
| Cost |
|
| Fair Value |
|
| Unrealized Holding Gain (Loss) |
| |||
|
|
|
|
|
|
|
|
|
| |||
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 | ) |
Total |
| $ | 3,687,300 |
|
|
| 3,744,600 |
|
| $ | 57,300 |
|
The following table sets forth an analysis of changes during the years ended June 30, 20192022 and 20182021, respectively, in Level 3 financial liabilities of the Company:
2019 | 2018 | |
Beginning balance | $408,000 | $297,000 |
Increase in contingent consideration liability | 521,200 | 408,900 |
Payments and accruals | (311,200) | (297,900) |
Ending balance | $618,000 | $408,000 |
Cost | Fair Value | Unreealized Holding Gain (Loss) | |
At June 30, 2019: | |||
Equity securities | $47,100 | $72,000 | $24,900 |
Mutual funds | 292,300 | 258,900 | (33,400) |
$339,400 | $330,900 | $(8,500) |
Cost | Fair Value | Unrealized Holding Gain (Loss) | |
At June 30, 2018: | |||
Equity securities | $45,700 | $67,800 | $22,100 |
Mutual funds | 267,800 | 246,900 | (20,900) |
$313,500 | $314,700 | $1,200 |
|
| As of June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Beginning balance |
| $ | 160,000 |
|
| $ | 358,000 |
|
Decrease in fair value of contingent consideration liability |
|
| (42,500 | ) |
|
| (30,000 | ) |
Payments |
|
| (117,500 | ) |
|
| (168,000 | ) |
|
|
|
|
|
|
|
|
|
Ending balance |
| $ | - |
|
| $ | 160,000 |
|
5. Inventories
|
| 2022 |
|
| 2021 |
| ||
Raw materials |
| $ | 3,298,300 |
|
| $ | 2,170,400 |
|
Work-in-process |
|
| 55,300 |
|
|
| 39,600 |
|
Finished goods |
|
| 1,342,700 |
|
|
| 767,100 |
|
|
| $ | 4,696,300 |
|
| $ | 2,977,100 |
|
F-14 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
As Reported | Adjustments | Balance with ASU 2016-01 Adoption | |
Unrealized gain on marketable securities | $- | $1,200 | $1,200 |
Income before income tax expense | 1,400 | 1,200 | 2,600 |
Income tax expense | 161,900 | - | 161,900 |
Net loss | (160,500) | 1,200 | (159,300) |
Earnings per common share (basic and diluted) | $(.11) | $- | $(.11) |
2019 | 2018 | |
Raw materials | $1,738,300 | $1,488,000 |
Work-in-process | 106,400 | 352,700 |
Finished goods | 747,600 | 427,200 |
$2,592,300 | $2,267,900 |
6. Property and Equipment
Useful Lives | |||
(years) | 2019 | 2018 | |
Automobiles | 5 | $22,000 | $22,000 |
Computer equipment | 3-5 | 233,900 | 173,400 |
Machinery and equipment | 3-7 | 986,500 | 870,400 |
Furniture and fixtures | 4-10 | 205,900 | 205,900 |
Leasehold improvements | 3-10 | 45,300 | 34,200 |
1,493,600 | 1,305,900 | ||
Less accumulated depreciation and amortization | 1,174,800 | 1,106,400 | |
$318,800 | $199,500 |
|
|
|
|
| As of June 30, |
| ||||||
|
| Useful Lives (Years) |
|
| 2022 |
|
| 2021 |
| |||
Automobiles |
|
| 5 |
|
| $ | 22,000 |
|
| $ | 22,000 |
|
Computer equipment |
| 3-5 |
|
|
| 327,700 |
|
|
| 233,500 |
| |
Machinery and equipment |
| 3-7 |
|
|
| 1,364,900 |
|
|
| 1,047,600 |
| |
Furniture and fixtures |
| 4-10 |
|
|
| 105,200 |
|
|
| 148,800 |
| |
Leasehold improvements |
| 3-10 |
|
|
| 268,900 |
|
|
| 64,400 |
| |
|
|
|
|
|
|
| 2,088,700 |
|
|
| 1,516,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
|
|
| $ | 1,083,100 |
|
| $ | 1,103,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, Net |
|
|
|
|
| $ | 1,005,600 |
|
| $ | 412,600 |
|
Depreciation expense was $67,300$145,300 and $61,200$104,600 for the years ended June 30, 20192022 and 2018,2021, respectively.
During the years ending June 30, 2022 and 2021, the Company wrote off fully depreciated property and equipment assets for the cost amount of $164,600 and $0, respectively, and for the accumulated depreciated amount of $164,600 and $0, respectively.
7. Goodwill and OtherFinite 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 at$4,395,400 as of June 30, 20192022 and 2018,2021, respectively, all of which is expected to be deductible for tax purposes.
Useful Lives | Cost | Accumulated Amortization | Net | |
(Years) | ||||
At June 30, 2019: | ||||
Technology, trademarks | 5/10 yrs. | $663,800 | $661,700 | $2,100 |
Trade names | 6 yrs. | 140,000 | 124,400 | 15,600 |
Websites | 5 yrs. | 210,000 | 210,000 | - |
Customer relationships | 9/10 yrs. | 357,000 | 308,100 | 48,900 |
Sublicense agreements | 10 yrs. | 294,000 | 224,100 | 69,900 |
Non-compete agreements | 5 yrs. | 384,000 | 384,000 | - |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 221,700 | 183,200 | 38,500 |
$2,380,500 | $2,205,500 | $175,000 |
F-15 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
Useful Lives | Cost | Accumulated Amortization | Net | |
At June 30, 2018: | ||||
Technology, trademarks | 5/10 yrs. | $662,800 | $613,400 | $49,400 |
Trade names | 6 yrs. | 140,000 | 101,100 | 38,900 |
Websites | 5 yrs. | 210,000 | 182,000 | 28,000 |
Customer relationships | 9/10 yrs. | 357,000 | 294,800 | 62,200 |
Sublicense agreements | 10 yrs. | 294,000 | 194,800 | 99,200 |
Non-compete agreements | 5 yrs. | 384,000 | 348,000 | 36,000 |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 198,100 | 173,100 | 25,000 |
$2,355,900 | $2,017,200 | $338,700 |
The components of finite lived intangible assets are as follows:
|
| Useful Lives |
| Cost |
|
| Accumulated Amortization |
|
| Net |
| |||
As of June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
| |||
Technology, trademarks |
| 3-10 yrs. |
| $ | 1,278,900 |
|
| $ | 653,400 |
|
| $ | 625,500 |
|
Trade names |
| 3-6 yrs. |
|
| 592,300 |
|
|
| 228,200 |
|
|
| 364,100 |
|
Websites |
| 3-7 yrs. |
|
| 210,000 |
|
|
| 210,000 |
|
|
| - |
|
Customer relationships |
| 4-10 yrs. |
|
| 372,200 |
|
|
| 143,300 |
|
|
| 228,900 |
|
Sublicense agreements |
| 10 yrs. |
|
| 294,000 |
|
|
| 294,000 |
|
|
| - |
|
Non-compete agreements |
| 4-5 yrs. |
|
| 1,060,500 |
|
|
| 504,200 |
|
|
| 556,300 |
|
Patents |
| 5-7 yrs. |
|
| 594,300 |
|
|
| 289,300 |
|
|
| 305,000 |
|
|
|
|
| $ | 4,402,200 |
|
| $ | 2,322,400 |
|
| $ | 2,079,800 |
|
As of June 30, 2021 |
| Useful Lives |
| Cost |
|
| Accumulated Amortization |
|
| Net |
| |||
Technology, trademarks |
| 3-10 yrs. |
| $ | 1,216,800 |
|
| $ | 497,000 |
|
| $ | 719,800 |
|
Trade names |
| 3-6 yrs. |
|
| 592,300 |
|
|
| 152,600 |
|
|
| 439,700 |
|
Websites |
| 3-7 yrs. |
|
| 210,000 |
|
|
| 210,000 |
|
|
| - |
|
Customer relationships |
| 4-10 yrs. |
|
| 372,200 |
|
|
| 102,400 |
|
|
| 269,800 |
|
Sublicense agreements |
| 10 yrs. |
|
| 294,000 |
|
|
| 283,000 |
|
|
| 11,000 |
|
Non-compete agreements |
| 4-5 yrs. |
|
| 1,060,500 |
|
|
| 308,600 |
|
|
| 751,900 |
|
Patents |
| 5-7 yrs. |
|
| 591,500 |
|
|
| 225,900 |
|
|
| 365,600 |
|
|
|
|
| $ | 4,337,300 |
|
| $ | 1,779,500 |
|
| $ | 2,557,800 |
|
Total amortization expense was $190,000$542,900 and $243,900 in 2019$146,900 for the years ending June 30, 2022 and 2018,2021, respectively.
Estimated future amortization expense of intangible assets as of June 30, 20192022 is as follows:
Year Ended June 30, | |
2020 | $70,500 |
2021 | 54,300 |
2022 | 31,700 |
2023 | 15,000 |
2024 | 3,500 |
Total | $175,000 |
Year Ended June 30, |
|
|
| |
2023 |
| $ | 535,900 |
|
2024 |
|
| 520,800 |
|
2025 |
|
| 485,300 |
|
2026 |
|
| 284,400 |
|
2027 |
|
| 136,800 |
|
Thereafter |
|
| 116,600 |
|
Total |
| $ | 2,079,800 |
|
F-16 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
8. Acquisition of Aquila Biolabs GmbH
On April 29, 2021 the Company acquired all the outstanding capital stock of Aquila biolabs GmbH, a German start-up company in Baesweiler, Germany, engaged 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. The acquisition was pursuant to a Stock Purchase Agreement (“SPA”) dated April 28, 2021 with official closing occurring on April 29, 2021 whereby the Company paid an aggregate of $7,880,100 in cash upon closing to the sellers. 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 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, 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:
Fair value of assets acquired |
| Amount |
|
| Useful life | ||
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 |
|
|
|
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, 2020 and the six months ended June 30, 2021. In addition, certain historical Aquila balances have been reclassified to conform to the unaudited 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.
The following unaudited consolidated pro forma information is as if the acquisition had occurred on July 1, 2020.
Unaudited Consolidated Pro forma information is as follows: |
| Year Ended June 30, 2021 |
| |
|
|
|
| |
Revenues |
| $ | 10,023,200 |
|
Net loss |
|
| (4,476,500 | ) |
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic |
| $ | (1.00 | ) |
Diluted |
|
| (1.00 | ) |
F-17 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
9. Line of Credit
The Company has a Demand Line of Credit through December 20192022 with First National Bank of Pennsylvania which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 5.25%5.50%. The agreement contains adoes not contain any 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 receivable, chattel paper, equipment and general intangibles of the Company. As of June 30, 20192022 and 2018,2021, there were no borrowings outstanding under the line.
10. Payroll Protection Program Loan Credit
The Company had a $20,000 36-month autoreceived $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 April 2019,its bank. The first loan was forgiven in June 2021, and reflected as other income, except for $32,700 which was repaid. The second loan was forgiven in December 2021 and is reflected as other income (extinguishment of debt) in the accompanying statements of operations and comprehensive loss.
11. Commitments and Contingencies
Employment Agreements
The Company has an employment agreement with its bank, with monthlyChief Executive Officer and President, which expires on June 30, 2025. The agreement 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 the employment for "good reason", the President will have the right to receive a lump sum payment equal to three times the average of their total annual compensation paid for the last five years preceding such termination. The employment agreement also contains a 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 $600 bearing interestthe compensation at 4%the time of termination, and continue to pay the regular benefits provided by the Company for a vehicle usedperiod of one year from termination.
The Company has an employment agreement with its Chairman, which expires on June 30, 2023. 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 the 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. 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.
The Company has employment agreements with the Chief Executive Officer of Aquila and three managing directors of Aquila for an indefinite term, which can be terminated by either party upon a twelve month written notice for the Chief Executive Officer and a six month written notice for the three managing directors, in accordance with German law. The agreements include a retention bonus of 25,000 euros if the employees do not terminate their employment with the Company within two years after the agreement date or the Company does not terminate their employment for good cause.
Consulting Agreement
The Company’s sales manager.consulting agreement with a Director of the Company and his affiliate which provided consulting services on product development, expired on December 31, 2021. The note had an outstanding balanceagreement provided that the consultant be paid a monthly retainer fee of $5,800 as$9,000, plus a grant of 20,000 options which were awarded during the year ended June 30, 2018 which was paid in full as of2020. Consulting expense related to this agreement amounted to $55,200 and $108,000 for the years ended June 30, 2019.
The Company’s consulting agreement with a former Director of the Company and his affiliate which provided consulting services was terminated on April 1, 2022. The agreement provided that the consultant be paid a monthly retainer fee of 12,500 euros. The Company paid fees of $215,700 and $966,600 for the years ended June 30, 2022 and 2021, respectively. For the year ended June 30, 2021, fees included consulting fees of $207,900 and 125,000 stock options valued at $758,700 on the grant date using the Black--Scholes-Merton option pricing model.
F-18 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
12. Leases
The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) which was amended in September 2021 to increase the space by approximately 25% and extend the lease term through October 2028.The Company also has a facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through May 2023, and a facility for sales and administration in Orangeburg, New York which was amended in June 2022 to extend the lease term to November 2024. 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.
As of June 30, 2022, the weighted-average remaining lease term for operating lease liabilities was approximately 5.92 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $344,500 for the year ended June 30, 2022, of which $333,900 was recorded as leases expense.
The Company’s approximate future minimum rental payments under all operating leases as of June 30, 2022 are as follows:
Year ended June 30, |
| Amount |
| |
2023 |
| $ | 356,400 |
|
2024 |
|
| 288,700 |
|
2025 |
|
| 264,300 |
|
2026 |
|
| 262,700 |
|
2027 |
|
| 270,600 |
|
Thereafter |
|
| 338,900 |
|
Total future minimum payments |
| $ | 1,781,600 |
|
Less: Imputed interest |
|
| (242,700 | ) |
Total Present Value of Operating Lease Liabilities |
| $ | 1,538,900 |
|
F-19 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
13. 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.
|
| For the year ended, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Weighted average number of common shares outstanding |
|
| 6,637,471 |
|
|
| 3,189,602 |
|
Effect of dilutive securities: |
|
| - |
|
|
| - |
|
Weighted average number of dilutive common shares outstanding |
|
| 6,637,471 |
|
|
| 3,189,602 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share: |
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (0.85 | ) |
| $ | (0.97 | ) |
Discontinued operations |
| $ | 0.00 |
|
| $ | (0.18 | ) |
Consolidated operations |
| $ | (0.85 | ) |
| $ | (1.15 | ) |
Approximately 39,086 and 3,372,689 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, 2022. Approximately 88,691 and 2,481,783 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, 2021.
14. Equity
Authorized Shares
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 3,000,000 shares from 7,000,000 to 10,000,000 shares, with a further amendment approved by a majority of the Company’s shareholders on June 17, 2021 increasing the authorized shares to 15,000,000. On February 25, 2022, at the Company’s Annual Stockholders Meeting, the stockholders of the Company approved an amendment to its Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock by 5,000,000 shares from 15,000,000 to 20,000,000 shares.
The stockholders also approved an amendment to the Company’s 2012 Stock Option Plan (the “2012 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 2012 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. In addition, the stockholders also approved the adoption of the Company’s 2022 Equity Incentive Plan (the “2022 Plan”) providing for the issuance of up to 1,750,000 shares plus outstanding options granted under the Company’s 2012 Stock Option Plan that expire or are forfeited. The 2022 Plan provides various stock awards including incentive and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards, which can be awarded to employees and directors of the Company and its subsidiaries.
F-20 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
Issuance and Sale of Common Stock
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, and 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 shares. 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 $1.3 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 earmarked for the Bioprocessing Systems Operations.
On March 2, 2022, the Company entered into a Securities Purchase Agreement with certain private investors pursuant to which the Company issued and sold an aggregate of 545,456 shares of common stock and warrants to purchase up to an additional 274,727 shares of common stock, at an offering price of $5.50 per share, for a gross consideration of $3,000,000. The issuance cost related to this private placement stock issuance amounted to approximately $272,800. Under the terms of Securities Purchase Agreement between the Company and the investors, the Company must use commercially reasonable efforts to file a registration statement with the SEC within 90 days of the closing date to register for resale the shares of common stock sold in the private offering, including the shares of common stock issuable upon the exercise of the warrant. The Company filed a S-1 Registration Statement with the Securities and Exchange Commission, which became effective on June 13, 2022.
15. Stock Options
2012 Plan
The Company’s 2012 Plan expired in February 2022, which provided for the grant of options to purchase up to 1,193,000 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 provided for the granting of incentive or non-incentive stock options. Incentive stock options may be granted to employees at an exercise price equal to 100% (or 110% if the optionee owns directly or indirectly more than 10% of the outstanding voting stock) of the fair market value of the shares of Common Stock on the date of the grant. Non-incentive stock options shall be granted at the fair market value of the shares of Common Stock on the date of grant.
2022 Plan
The Company’s 2022 Plan provides for the issuance of up to 1,750,000 shares of the Company’s Common Stock, par value $.05 per share, plus outstanding options granted under the Company’s 2012 Stock Option Plan that expire or are forfeited. 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. Nonstatutory stock options shall be granted at the fair market value of the shares of Common Stock on the date of grant. As of June 30, 2022, 1,832,113 shares of Common Stock were available for grant of options under the 2022 Plan, of which 142,113 shares of Common Stock are from either terminated or expired options from the 2012 Plan.
During the years ended June 30, 2022 and 2021, the Company granted 60,000 and 1,094,171 options under the 2012 Plan, respectively, to employees that had a fair value of $268,848 and $7,929,600, respectively. During the year ended June 30, 2022 the Company granted 60,000 options under the 2022 Plan, to employees that had a fair value of $262,372.
F-21 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
The following table summarizes the weighted-average assumptions used for the Black-Scholes option pricing model to determine the fair value of our stock options for the years ended June 30, 2022 and 2021, respectively:
|
| Year Ended |
|
| Year Ended |
| ||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Expected term (in years) |
|
| 10 |
|
|
| 10 |
|
Risk-free interest rate |
|
| 1.91 | % |
|
| 1.40 | % |
Expected volatility |
|
| 72 | % |
|
| 66 | % |
Dividend rate |
|
| 0 |
|
|
| 0 |
|
Total stock-based compensation costs were $2,350,600 and $2,108,000 for the years ended June 30, 2022 and 2021, respectively. Stock-based compensation costs related to nonvested awards expected to be recognized in the future are $3,187,300 and $5,935,000 as of June 30, 2022 and 2021, respectively. The weighted-average period over which the nonvested awards is expected to be recognized are 1.51 years and 2.27 years as of June 30, 2022 and 2021, respectively.
The following table summarizes option activity under all plans during the years ended June 30, 2022 and 2021:
|
| Year Ending |
| |||||||||||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shares under option: |
| Shares |
|
| Weighted-Average Exercise Price |
|
| Shares |
|
| Weighted-Average Exercise Price |
| ||||
Outstanding, beginning of year |
|
| 1,180,757 |
|
| $ | 8.73 |
|
|
| 96,586 |
|
| $ | 4.35 |
|
Granted |
|
| 120,000 |
|
|
| 5.78 |
|
|
| 1,094,171 |
|
|
| 9.07 |
|
Exercised |
|
| - |
|
|
| - |
|
|
| (1,000 | ) |
|
| 3.05 |
|
Forfeited |
|
| (142,113 | ) |
|
| 8.98 |
|
|
| (9,000 | ) |
|
| 3.11 |
|
Outstanding, end of year |
|
| 1,158,644 |
|
| $ | 8.40 |
|
|
| 1,180,757 |
|
| $ | 8.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year-end |
|
| 567,594 |
|
| $ | 8.13 |
|
|
| 296,821 |
|
| $ | 7.69 |
|
Weighted average fair value per share of options granted during the fiscal year |
|
|
|
|
| $ | 4.43 |
|
|
|
|
|
| $ | 7.25 |
|
|
| As of June 30, 2022 Options Outstanding |
|
| As of June 30, 2022 Exercisable |
| ||||||||||||||
Range Exercise Price |
| Number Outstanding |
|
| Remaining Contractual Life (Years) |
|
| Average Exercise Price |
|
| Number Outstanding |
|
| Average Exercise Price |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
$5.35 - $ 11.30 |
|
| 1,097,939 |
|
|
| 8.34 |
|
| $ | 8.68 |
|
|
| 506,889 |
|
| $ | 8.70 |
|
$2.91 - $ 4.65 |
|
| 60,705 |
|
|
| 4.51 |
|
| $ | 3.37 |
|
|
| 60,705 |
|
| $ | 3.37 |
|
|
|
| 1,158,644 |
|
|
|
|
|
|
|
|
|
|
| 567,594 |
|
|
|
|
|
|
| As of June 30, 2021 Options Outstanding |
|
| As of June 30, 2021 Exercisable |
| ||||||||||||||
Range Exercise Price |
| Number Outstanding |
|
| Remaining Contractual Life (Years) |
|
| Average Exercise Price |
|
| Number Outstanding |
|
| Average Exercise Price |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
$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 |
|
|
|
|
|
F-22 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2022 AND 2021
16. Employee Benefit Plans
The Company has a 401(k) profit sharing plan covering all its employees, which provides for voluntary employee salary contributions not to exceed the statutory limitations provided by the Internal Revenue Code. The plan provides for Company matching contribution equal to 100% of employee’s deferral up to 3% of pay, plus 50% of employee’s deferral over 3% of pay up to 5%. Total matching contributions amounted to $69,600$112,400 and $74,500$90,700 for the years ended June 30, 20192022 and 2018,2021, respectively.
Year Ended June 30, | |
2020 | $284,100 |
2021 | 222,500 |
2022 | 184,600 |
2023 | 190,200 |
2024 | 195,900 |
Thereafter | 91,600 |
$1,168,900 |
Year ended June 30, | Amount |
2020 | $268,000 |
2021 | 228,000 |
2022 | 54,000 |
2023 | 46,000 |
2024 | 22,000 |
$618,000 |
17. Income Taxes
The reconciliation of the provision for income taxes at the federal statutory rate of 21% to the actual tax expense or benefit for the applicable fiscal year was as follows:
2019 | 2018 | |
Computed “expected” income tax (benefit) | $161,700 | $300 |
Research and development credits | (24,300) | (32,700) |
Change in tax rate | - | 224,300 |
Other, net | (12,800) | (30,000) |
Income tax expense | $124,600 | $161,900 |
|
| As of June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Computed “expected” income tax benefit |
| $ | (1,470,400 | ) |
| $ | (1,014,300 | ) |
Research and development credits |
|
| (99,200 | ) |
|
| (93,900 | ) |
Incentive Stock Option Expense |
|
| 64,300 |
|
|
| 59,500 |
|
PPP Loan Foregivness |
|
| (91,100 | ) |
|
| (111,700 | ) |
Other, net |
|
| 247,500 |
|
|
| (7,900 | ) |
Income tax benefit |
| $ | (1,348,900 | ) |
| $ | (1,152,500 | ) |
Deferred tax assets and liabilities consist of the following:
|
| As of June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Amortization of intangible assets, including goodwill |
| $ | 326,600 |
|
| $ | 374,000 |
|
Research and development credits |
|
| 367,400 |
|
|
| 164,600 |
|
Various accruals |
|
| 50,400 |
|
|
| 64,600 |
|
Stock options expense |
|
| 763,600 |
|
|
| 383,200 |
|
Net operating loss |
|
| 1,197,400 |
|
|
| 715,500 |
|
Deferred tax asset acquired |
|
| 800,300 |
|
|
| 800,300 |
|
Other |
|
| 297,900 |
|
|
| 24,900 |
|
|
|
| 3,803,600 |
|
|
| 2,527,100 |
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Depreciation of property and amortization of goodwill |
|
| (60,000 | ) |
|
| (37,200 | ) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
| $ | 3,743,600 |
|
| $ | 2,489,900 |
|
The Company has federal net operating loss (“NOL”) carryforwards of $5,702,000 and $3,407,000 as of June 30, 2022 and 2021, respectively, which are available to reduce future taxable income. Under the 2017 Tax Cuts and Jobs Act (the "Tax Act"), federal carryforwards may be carried forward indefinitely.
F-23 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF AND FOR THE YEARS ENDED JUNE 30, 20192022 AND 2018
18. 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 liabilities consistinventory to Beijing JWGB Sci. & Tech. Co. Ltd., a corporation formed under the laws of the following:
2019 | 2018 | |
Deferred tax assets: | ||
Amortization of intangible assets | $303,900 | $326,500 |
Various accruals | 173,600 | 54,700 |
Other | 13,300 | 48,200 |
490,800 | 429,400 | |
Deferred tax liability: | ||
Depreciation of property and equipment | (59,700) | (36,800) |
Net deferred tax assets | $431,100 | $392,600 |
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 penalties on any unrecognized tax benefitsthe statements of cash flows, as a componentdetailed below.
|
| As of |
| |||||
Assets: |
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Cash |
| $ | 200 |
|
| $ | - |
|
Accounts receivable |
|
| - |
|
|
| 52,000 |
|
Inventories |
|
| - |
|
|
| 3,300 |
|
|
| $ | 200 |
|
| $ | 55,300 |
|
|
| As of |
| |||||
Liabilities: |
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Accrued expenses and taxes |
|
| - |
|
|
| 20,700 |
|
Contract liabilities |
|
| - |
|
|
| 16,500 |
|
|
| $ | - |
|
| $ | 37,200 |
|
|
| For the year ended |
| |||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Revenues |
| $ | 28,500 |
|
| $ | 387,700 |
|
Cost of goods sold |
|
| 16,600 |
|
|
| 471,800 |
|
Gross profit |
|
| 11,900 |
|
|
| (84,100 | ) |
Selling, general and administrative expenses |
|
| 3,500 |
|
|
| 280,400 |
|
Gain (loss) from operations |
|
| 8,400 |
|
|
| (364,500 | ) |
Loss on disposal |
|
| - |
|
|
| (405,400 | ) |
Gain (loss) before income tax benefit |
|
| 8,400 |
|
| (769,900 | ) | |
Income tax expense (benefit), all deferred |
|
| 4,000 |
|
|
| (207,400 | ) |
Net gain (loss) attributable to discontinued operations |
| $ | 4,400 |
| $ | (562,500 | ) |
In our Consolidated Statements of income tax expense. The Company doesCash Flows, the cash flows from discontinued operations are 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 limitationsseparately classified. Cash provided and (used) by the federal and state jurisdictionsoperating activities from discontinued operations for the years ended June 30, 20162022 and after. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
June 30, 2019 | June 30, 2018 | |||
Weighted- | Weighted- | |||
Average | Average | |||
Exercise | Exercise | |||
Shares | Price | Shares | Price | |
Shares under option: | ||||
Outstanding, beginning of year | 92,000 | $3.15 | 34,500 | $3.25 |
Granted | 6,705 | 4.54 | 57,500 | 3.08 |
Exercised | - | - | - | - |
Forfeited | 1,500 | 3.27 | - | - |
Outstanding, end of year | 97,205 | 3.24 | 92,000 | 3.15 |
Options exercisable at year-end | 50,167 | $3.29 | 28,834 | $3.46 |
Weighted average fair value per share of options granted during the fiscal year | - | $1.79 | - | $1.64 |
As of June 30, 2019 Options Outstanding | As of June 30, 2019 Exercisable | ||||
Weighted- | |||||
Average | Weighted- | Weighted- | |||
Range | Remaining | Average | Average | ||
Exercise | Number | Contractual | Exercise | Number | Exercise |
Prices | Outstanding | Life (Years) | Price | Outstanding | Price |
$2.91 - $3.08 | 70,500 | 7.81 | $3.07 | 30,167 | $2.80 |
$3.65 - $4.65 | 26,705 | 5.57 | $4.02 | 20,000 | $3.84 |
97,205 | 50,167 |
As of June 30, 2018 Options Outstanding | As of June 30, 2018 Exercisable | ||||
Weighted- | |||||
Average | Weighted- | Weighted- | |||
Range | Remaining | Average | Average | ||
Exercise | Number | Contractual | Exercise | Number | Exercise |
Prices | Outstanding | Life (Years) | Price | Outstanding | Price |
$3.50 - $4.05 | 20,000 | 5.13 | $3.84 | 20,000 | $3.84 |
$2.91 - $3.27 | 72,000 | 8.63 | $3.07 | 8,834 | $3.06 |
92,000 | 28,834 |
2019 | 2018 | |
Net income (loss) | $645,600 | $(160,500) |
Weighted average common shares outstanding | 1,494,112 | 1,494,112 |
Effect of dilutive securities | 18,066 | - |
Weighted average dilutive common shares outstanding | 1,512,178 | 1,494,112 |
Basic and diluted earnings (loss) per common share | $.43 | $(.11) |
F-24 |