UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
☐ 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 as specified 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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging Growth company | ☐ |
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of November 6, 20205, 2021 is 2,861,2636,458,143 shares.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
Table of Contents |
PART I – FINANCIAL INFORMATION
I
tem 1. Financial StatementsSCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2020 | June 30, 2020 | |
Current assets: | (Unaudited) | |
Cash and cash equivalents | $3,355,500 | $7,559,700 |
Investment securities | 4,017,700 | 331,800 |
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at September 30, 2020 and June 30, 2020 | 1,171,300 | 1,064,000 |
Inventories | 2,941,200 | 2,884,700 |
Income tax receivable | 331,500 | 334,800 |
Prepaid expenses and other current assets | 134,700 | 112,300 |
Total current assets | 11,951,900 | 12,287,300 |
Property and equipment, net | 325,200 | 279,700 |
Intangible assets, net | 129,000 | 128,700 |
Goodwill | 705,300 | 705,300 |
Other assets | 57,900 | 56,000 |
Deferred taxes | 598,200 | 537,100 |
Operating lease right-of-use assets | 826,600 | 803,300 |
Total assets | $14,594,100 | $14,797,400 |
Current liabilities: | ||
Accounts payable | $531,900 | $354,700 |
Accrued expenses | 538,000 | 799,700 |
Contract liabilities | 82,700 | 89,000 |
Contingent consideration, current portion | 97,600 | 111,000 |
Bank overdraft | 109,400 | 43,100 |
Current portion of operating lease liabilities | 161,300 | 226,900 |
Payroll Protection Program loan | 563,800 | 563,800 |
Total current liabilities | 2,084,700 | 2,188,200 |
Contingent consideration payable, less current portion | 247,000 | 247,000 |
Operating lease liabilities, less current portion | 743,000 | 640,800 |
Total liabilities | 3,074,700 | 3,076,000 |
Shareholders’ equity: | ||
Common stock, $.05 par value; 7,000,000 shares authorized; 2,881,065 shares issued; 2,861,263 shares outstanding at September 30, 2020 and June 30, 2020 | 144,100 | 144,100 |
Additional paid-in capital | 8,669,600 | 8,608,300 |
Retained earnings | 2,758,100 | 3,021,400 |
11,571,800 | 11,773,800 | |
Less common stock held in treasury at cost, 19,802 shares | 52,400 | 52,400 |
Total shareholders’ equity | 11,519,400 | 11,721,400 |
Total liabilities and shareholders’ equity | $14,594,100 | $14,797,400 |
|
| September 30, 2021 |
|
| June 30, 2021 |
| ||
|
| (Unaudited) |
|
|
|
| ||
| ||||||||
ASSETS | ||||||||
| ||||||||
Current assets: |
|
|
|
| ||||
Cash and cash equivalents |
| $ | 5,268,700 |
|
| $ | 9,675,200 |
|
Investment securities |
|
| 6,985,800 |
|
|
| 3,744,600 |
|
Trade accounts receivable, less allowance for doubtful accounts of $15,600 at September 30, 2021 and June 30, 2021 |
|
| 1,493,200 |
|
|
| 1,294,700 |
|
Inventories |
|
| 3,094,700 |
|
|
| 2,977,100 |
|
Income tax receivable |
|
| 66,000 |
|
|
| 333,300 |
|
Prepaid expenses and other current assets |
|
| 502,100 |
|
|
| 350,900 |
|
Assets of discontinued operations |
|
| 56,200 |
|
|
| 55,300 |
|
Total current assets |
|
| 17,466,700 |
|
|
| 18,431,100 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 435,300 |
|
|
| 412,600 |
|
Goodwill |
|
| 4,395,400 |
|
|
| 4,395,400 |
|
Other intangible assets, net |
|
| 2,418,900 |
|
|
| 2,557,800 |
|
Deferred taxes |
|
| 2,812,500 |
|
|
| 2,489,900 |
|
Operating lease right-of-use assets |
|
| 631,300 |
|
|
| 665,300 |
|
Other assets |
|
| 54,200 |
|
|
| 54,300 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 28,214,300 |
|
| $ | 29,006,400 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 620,500 |
|
| $ | 453,500 |
|
Accrued expenses |
|
| 542,700 |
|
|
| 633,500 |
|
Contingent consideration, current portion |
|
| 136,600 |
|
|
| 136,600 |
|
Bank overdraft |
|
| 0 |
|
|
| 321,700 |
|
Lease liabilities, current portion |
|
| 234,000 |
|
|
| 270,500 |
|
Payroll Protection Program loan |
|
| 433,800 |
|
|
| 433,800 |
|
Liabilities of discontinued operations |
|
| 26,400 |
|
|
| 37,200 |
|
Total current liabilities |
|
| 1,994,000 |
|
|
| 2,286,800 |
|
|
|
|
|
|
|
|
|
|
Contingent consideration payable, less current portion |
|
| 23,400 |
|
|
| 23,400 |
|
Lease liabilities, less current portion |
|
| 469,200 |
|
|
| 460,500 |
|
Other long-term liabilities |
|
| 0 |
|
|
| 10,900 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 2,486,600 |
|
|
| 2,781,600 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $.05 par value; 15,000,000 shares authorized; 6,477,945 shares issued; 6,458,143 shares outstanding at September 30, 2021 and June 30, 2021 |
|
| 324,000 |
|
|
| 324,000 |
|
Additional paid-in capital |
|
| 27,288,900 |
|
|
| 26,613,500 |
|
Accumulated comprehensive gain (loss) |
|
| 27,100 |
|
|
| (9,200 | ) |
Accumulated deficit |
|
| (1,859,900 | ) |
|
| (651,100 | ) |
|
|
| 25,780,100 |
|
|
| 26,277,200 |
|
Less common stock held in treasury at cost, 19,802 shares |
|
| 52,400 |
|
|
| 52,400 |
|
Total shareholders’ equity |
|
| 25,727,700 |
|
|
| 26,224,800 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
| $ | 28,214,300 |
|
| $ | 29,006,400 |
|
See notes to unaudited condensed consolidated financial statements.
3 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
For the Three Month Period Ended September 30, 2020 | For the Three Month Period Ended September 30, 2019 | |
Revenues | $2,156,300 | $2,004,200 |
Cost of revenues | 1,146,600 | 1,023,800 |
Gross profit | 1,009,700 | 980,400 |
Operating expenses: | ||
General and administrative | 579,600 | 510,200 |
Selling | 521,700 | 309,100 |
Research and development | 244,300 | 236,600 |
Total operating expenses | 1,345,600 | 1,055,900 |
Loss from operations | (335,900) | (75,500) |
Other income (expense): | ||
Other income (expense), net | 11,500 | (200) |
Loss before income tax benefit | (324,400) | (75,700) |
Income tax benefit: | ||
Current | - | - |
Deferred | (61,100) | (19,500) |
Total income tax benefit | (61,100) | (19,500) |
Net loss | $(263,300) | $(56,200) |
Basic loss per common share | $(.09) | $(.04) |
Diluted loss per common share | $(.09) | $(.04) |
|
| For the Three Month Period Ended September 30, 2021 |
|
| For the Three Month Period Ended September 30, 2020 |
| ||
|
|
|
|
|
|
| ||
Revenues |
| $ | 2,854,500 |
|
| $ | 2,019,200 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
| 1,340,900 |
|
|
| 962,500 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 1,513,600 |
|
|
| 1,056,700 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
| 1,465,700 |
|
|
| 519,200 |
|
Selling |
|
| 935,800 |
|
|
| 493,900 |
|
Research and development |
|
| 636,500 |
|
|
| 244,300 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 3,038,000 |
|
|
| 1,257,400 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,524,400 | ) |
|
| (200,700 | ) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Other income (expense), net |
|
| (7,900 | ) |
|
| 11,500 |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax benefit |
|
| (1,532,300 | ) |
|
| (189,200 | ) |
|
|
|
|
|
|
|
|
|
Income tax benefit, deferred |
|
| (322,600 | ) |
|
| (35,600 | ) |
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
| (1,209,700 | ) |
|
| (153,600 | ) |
|
|
|
|
|
|
|
|
|
Discontinued operations (Note 9): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations, net of tax |
|
| 900 |
|
|
| (109,700 | ) |
|
|
|
|
|
|
|
|
|
Net loss |
|
| (1,208,800 | ) |
|
| (263,300 | ) |
|
|
|
|
|
|
|
|
|
Comprehensive gain: |
|
|
|
|
|
|
|
|
Unrealized holding gain on investment securities, net of tax |
|
| 2,200 |
|
|
| 0 |
|
Foreign currency translation adjustment |
|
| 34,100 |
|
|
| 0 |
|
Comprehensive gain |
|
| 36,300 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
| $ | (1,172,500 | ) |
| $ | (263,300 | ) |
|
|
|
|
|
|
|
|
|
Basic loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (.19 | ) |
| $ | (.05 | ) |
Discontinued operations |
| $ | .00 |
|
| $ | (.04 | ) |
Consolidated operations |
| $ | (.19 | ) |
| $ | (.09 | ) |
See notes to unaudited condensed consolidated financial statements.
4 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Additional | Total | ||||||
Common Stock | Paid-in | Retained | Treasury Stock | Shareholders’ | |||
Fiscal Year 2021 | Shares | Amount | Capital | Earnings | Shares | Amount | Equity |
Balance, July 1, 2020 | 2,881,065 | $144,100 | $8,608,300 | $3,021,400 | 19,802 | $52,400 | $11,721,400 |
Net loss | - | - | - | (263,300) | - | - | (263,300) |
Stock-based compensation | - | - | 61,300 | - | - | - | 61,300 |
Balance, September 30, 2020 | 2,881,065 | $144,100 | $8,669,600 | $2,758,100 | 19,802 | $52,400 | $14,594,100 |
Additional | Total | ||||||
Common Stock | Paid-in | Retained | Treasury Stock | Shareholders’ | |||
Fiscal Year 2019 | Shares | Amount | Capital | Earnings | Shares | Amount | Equity |
Balance, July 1, 2019 | 1,513,914 | $75,700 | $2,592,700 | $3,724,700 | 19,802 | $52,400 | $6,340,700 |
Net loss | - | - | - | (56,200) | - | - | (56,200) |
Stock options exercised | 2,000 | 100 | 6,900 | 7,000 | |||
Stock-based compensation | - | - | 17,700 | - | - | - | 17,700 |
Balance, September 30, 2019 | 1,515,914 | $75,800 | $2,617,300 | $3,668,500 | 19,802 | $52,400 | $6,309,200 |
For the Three Month Period Ended September 30, 2020 | For the Three Month Period Ended September 30, 2019 | |
Operating activities: | ||
Net loss | $(263,300) | $(56,200) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 40,600 | 41,000 |
Deferred income taxes | (61,100) | (19,500) |
Stock-based compensation | 61,300 | 17,700 |
(Gain) loss on sale of investments | (16,800) | 800 |
Unrealized holding (gain) loss of investments | 20,900 | (2,300) |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (107,300) | 106,400 |
Income tax receivable | 3,300 | - |
Right -of- use assets | (23,300) | (902,500) |
Lease liability | 36,600 | 969,100 |
Inventories | (56,500) | (120,800) |
Prepaid and other assets | (24,300) | (6,800) |
Accounts payable | 177,200 | (111,800) |
Contract liabilities | (6,300) | 62,000 |
Bank overdraft | 66,300 | - |
Accrued expenses | (261,700) | (301,200) |
Total adjustments | (151,100) | (267,900) |
Net cash used in operating activities | (414,400) | (324,100) |
Investing activities: | ||
Purchase of investment securities | (3,723,500) | (25,000) |
Redemption of investment securities | 33,800 | 23,800 |
Capital expenditures | (70,500) | (17,000) |
Purchase of other intangible assets | (16,200) | (7,500) |
Net cash used in investing activities | (3,776,400) | (25,700) |
Financing activities: | ||
Proceeds from stock options exercised | - | 7,000 |
Payments of contingent consideration | (13,400) | - |
Net cash provided by (used in) financing activities | (13,400) | 7,000 |
Net decrease in cash and cash equivalents | (4,204,200) | (342,800) |
Cash and cash equivalents, beginning of year | 7,559,700 | 1,602,500 |
Cash and cash equivalents, end of period | $3,355,500 | $1,259,700 |
Supplemental disclosures: | ||
Cash paid during the period for: | ||
Income taxes | $500 | $40,900 |
Interest | - | - |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||||||||||||
|
| Common Stock |
|
| Additional Paid-in |
|
| other Comprehensive Income |
|
| Retained Earnings (Accumulated |
|
| Treasury Stock |
|
| Total Shareholders’ |
| ||||||||||||||
Fiscal Year 2022 |
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| Deficit) |
|
| Shares |
|
| Amount |
|
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances, July 1, 2021 |
|
| 6,477,945 |
|
| $ | 324,000 |
|
| $ | 26,613,500 |
|
| $ | (9,200 | ) |
| $ | (651,100 | ) |
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 26,224,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,208,800 | ) |
|
| - |
|
|
| 0 |
|
|
| (1,208,800 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 34,100 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 34,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on investment securities, net of tax |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,200 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 2,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 675,400 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 675,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2021 |
|
| 6,477,945 |
|
| $ | 324,000 |
|
| $ | 27,288,900 |
|
| $ | 27,100 |
|
| $ | (1,859,900 | ) |
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 25,727,700 |
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| ||||||||||||||||||
|
| Common Stock |
|
| Additional Paid-in |
|
| other Comprehensive Income |
|
| Retained |
|
| Treasury Stock |
|
| Total Shareholders’ |
| ||||||||||||||
Fiscal Year 2021 |
| Shares |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| Earnings |
|
| Shares |
|
| Amount |
|
| Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balances, July 1, 2020 |
|
| 2,881,065 |
|
| $ | 144,100 |
|
| $ | 8,608,300 |
|
| $ | 0 |
|
| $ | 3,021,400 |
|
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 11,721,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (263,300 | ) |
|
| - |
|
|
| 0 |
|
|
| (263,300 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| 0 |
|
|
| 61,300 |
|
|
| 0 |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 61,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2020 |
|
| 2,881,065 |
|
| $ | 144,100 |
|
| $ | 8,669,600 |
|
| $ | 0 |
|
| $ | 2,758,100 |
|
|
| 19,802 |
|
| $ | 52,400 |
|
| $ | 14,594,100 |
|
See notes to unaudited condensed consolidated financial statements.
5 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| For the Three Month Period Ended September 30, 2021 |
|
| For the Three Month Period Ended September 30, 2020 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (1,208,800 | ) |
| $ | (263,300 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 165,100 |
|
|
| 40,600 |
|
Deferred income tax benefit |
|
| (322,600 | ) |
|
| (61,100 | ) |
Stock-based compensation |
|
| 675,400 |
|
|
| 61,300 |
|
(Gain) loss on sale of investments |
|
| 200 |
|
|
| (16,800 | ) |
Unrealized holding loss of investments |
|
| 32,800 |
|
|
| 20,900 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| (198,500 | ) |
|
| (107,300 | ) |
Income tax receivable |
|
| 267,300 |
|
|
| 3,300 |
|
Right -of- use assets |
|
| 34,000 |
|
|
| (23,300 | ) |
Lease liabilities |
|
| (27,800 | ) |
|
| 36,600 |
|
Inventories |
|
| (117,600 | ) |
|
| (56,500 | ) |
Prepaid and other current assets |
|
| (151,200 | ) |
|
| (24,300 | ) |
Accounts payable |
|
| 167,000 |
|
|
| 177,200 |
|
Contract liabilities |
|
| 0 |
|
|
| (6,300 | ) |
Bank overdraft |
|
| (321,700 | ) |
|
| 66,300 |
|
Other long-term liabilities |
|
| (10,800 | ) |
|
| 0 |
|
Accrued expenses |
|
| (90,700 | ) |
|
| (261,700 | ) |
|
|
|
|
|
|
|
|
|
Total adjustments |
|
| 100,900 |
|
|
| (151,100 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (1,107,900 | ) |
|
| (414,400 | ) |
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of investment securities |
|
| (3,982,400 | ) |
|
| (3,723,500 | ) |
Redemption of investment securities |
|
| 708,200 |
|
|
| 33,800 |
|
Capital expenditures |
|
| (48,900 | ) |
|
| (70,500 | ) |
Purchase of other intangible assets |
|
| 0 |
|
|
| (16,200 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| (3,323,100 | ) |
|
| (3,776,400 | ) |
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Payments of contingent consideration |
|
| 0 |
|
|
| (13,400 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
| 0 |
|
|
| (13,400 | ) |
|
|
|
|
|
|
|
|
|
Effect of changes in foreign currency exchange rates and gain on investment securities |
|
| 24,500 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
| (4,406,500 | ) |
|
| (4,204,200 | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
| 9,675,200 |
|
|
| 7,559,700 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
| $ | 5,268,700 |
|
| $ | 3,355,500 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | 0 |
|
| $ | 500 |
|
See notes to unaudited condensed consolidated financial statements.
6 |
Table of Contents |
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General: | The accompanying unaudited interim condensed consolidated financial statements are prepared pursuant to the Securities and Exchange Commission’s rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The Company believes all adjustments necessary for a fair presentation of these interim statements have been included and that they are of a normal and recurring nature. These interim statements should be read in conjunction with the Company’s financial statements and notes thereto, included in its Annual Report on Form 10-K for the fiscal year ended June 30, |
1. Summary of Significant Accounting Policies
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 its wholly-owned subsidiaries, Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation, and wholly-owned subsidiary, and Scientific Packaging Industries, Inc.aquila biolabs GmbH (“Aquila”), an inactive wholly-owned subsidiarya German corporation, which was acquired on April 29, 2021, (all collectively referred to as the “Company”). On April 30, 2021 Scientific Industries, Inc. contributed 100% of the stock of SBI to SBHI. All material intercompany balances and transactions have been eliminated.
COVID-19 Pandemic
The challenges posed by the COVID-19 pandemic on the global economy began to impacttake effect and adversely effected the Company’s operations at the end of the third quarter of the fiscal year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the adverse effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertainspertaining to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self -quarantineself-quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. However, if an employee becomes infected in the future, and the Company is forced toThe Bioprocessing Systems Operations’ SBI facility was shut down for a period of time, it could have a short-term negative impact on operations. At the beginning of the pandemic, the Catalyst Research Instruments and Bioprocessing Systems Operations were shut downtemporarily due to state mandates, however, the impact on operations was immaterial, and the Company has been able to retain its employees without furloughs or layoffs, in part, due to the Company’sCompany’ receipt of a $563,800 loantwo loans under the Federal Government’s Small Business Administration Paycheck Protection Program. The Company has not experiencedreceived $563,800 and does not anticipate$433,800 in Payroll Protection Program loans in April 2020 and March 2021, respectively. The first loan was forgiven in June 2021 except for $32,700 which was repaid by the Company. The Company expects to apply and receive forgiveness for the second loan. The Company elected to account for its PPP Loans in accordance with Accounting Standards Codification (“ASC”), 470 Debt, with interest, if any, material impactaccrued in accordance with the interest method under ASC 835-30, Imputation of Interest. Initially, the Company recognized the entire loan amounts as liabilities on its ability to collectbalance sheets, and remain as liabilities until either the Company is legally released from its accounts receivable due toobligations or pays the nature of its customers, which are primarily distributors of laboratory equipment and supplies that havelender. Once the ability to pay. However, there were some delaysloan is forgiven, the amount forgiven is recorded in receiving some accounts receivable due for catalyst research instruments due to customer shutdowns, and there was a material negative impact on the revenues of the Catalyst Research Instruments operations. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, supply chain, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, resultsstatement of operations financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Adopted Accounting Pronouncements
In August 2018,December 2019, the The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU"(“ASU”) 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard was effective for fiscal years beginning after December 15, 2019. Early adoption was permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The adoption of this standard on July 1, 2020 did not have a material impact on the Company’s financial statements.
7 |
Table of Contents |
2. Revenue
The Company records revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, as amended” (“ASC Topic 606”). 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.
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Corporate And Other | Consolidated | |
Three Months Ended September 30, 2020: | |||||
Revenues | $1,930,300 | $137,100 | $88,900 | $- | $2,156,300 |
Foreign Sales | 631,900 | 57,200 | 86,300 | - | 775,400 |
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Corporate And Other | Consolidated | |
Three Months Ended September 30, 2019: | |||||
Revenues | $1,576,200 | $138,700 | $289,300 | $- | $2,004,200 |
Foreign Sales | 397,600 | 71,700 | - | - | 469,300 |
|
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Consolidated |
| |||
Three Months Ended September 30, 2021: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 2,529,900 |
|
| $ | 324,600 |
|
| $ | 2,854,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Sales |
|
| 1,071,800 |
|
|
| 91,500 |
|
|
| 1,163,300 |
|
|
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Consolidated |
| |||
Three Months Ended September 30, 2020: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ | 1,930,300 |
|
| $ | 88,900 |
|
| $ | 2,019,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Sales |
|
| 631,900 |
|
|
| 86,300 |
|
|
| 718,200 |
|
Benchtop Laboratory Equipment sales are comprised primarily of standard benchtop laboratory equipment from its stocksold 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 varyingranging from a day to a few weeks. Customers either pay by credit card (online sales) or netNet 30-90 days, 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. The standard warranty is typically for a period of, one toor two years, forcovering parts and labor, and is deemed immaterial.
Bioprocessing Systems revenues consist of royalty revenues generated through SBI and not a material part of the contract. Due to the size and nature of the instruments, the Company subjects the instruments to an extensive factory acceptance testing process prior to shipment to ensure that they are fully operational once they reach the customer’s site. Normally, the Company warrantees its instruments for a period of twelve months for parts and labor the fulfillment of which normally consists of replacement of small components or software support.
3. Segment Information and Concentrations
The Company views its operations as threetwo segments: the manufacture and marketing of standard benchtop laboratory equipment for research in university, hospital and industrial laboratories sold primarily through laboratory equipment distributors and laboratory and pharmacy balances and scales (“Benchtop Laboratory Equipment Operations”), the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical and petrochemical companies sold on a direct basis (“Catalyst Research Instruments Operations”); and the design, manufacture, 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 | |
Three Months Ended September 30, 2020: | |||||
Revenues | $1,930,300 | $137,100 | $88,900 | $- | $2,156,300 |
Foreign Sales | 631,900 | 57,200 | 86,300 | - | 775,400 |
Income (Loss) From Operations | 383,800 | (135,200) | (532,300) | (52,200) | (335,900) |
Assets | 5,871,900 | 996,000 | 775,700 | 6,950,500 | 14,594,100 |
Long-Lived Asset Expenditures | 21,800 | - | 64,900 | - | 86,700 |
Depreciation and Amortization | 26,300 | 300 | 14,000 | - | 40,600 |
Benchtop Laboratory Equipment | Catalyst Research Instruments | Bioprocessing Systems | Corporate And Other | Consolidated | |
Three Months Ended September 30, 2019: | |||||
Revenues | $1,576,200 | $138,700 | $289,300 | $- | $2,004,200 |
Foreign Sales | 397,600 | 71,700 | - | - | 469,300 |
Income (Loss) From Operations | 12,900 | (90,200) | 1,800 | - | (75,500) |
Assets | 5,589,400 | 1,400,900 | 1,088,100 | 784,200 | 8,862,600 |
Long-Lived Asset Expenditures | 7,800 | - | 16,700 | - | 24,500 |
Depreciation and Amortization | 30,500 | 400 | 10,100 | - | 41,000 |
|
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Corporate And Other |
|
| Consolidated |
| ||||
Three Months Ended September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 2,529,900 |
|
| $ | 324,600 |
|
| $ | - |
|
| $ | 2,854,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Sales |
|
| 1,071,800 |
|
|
| 91,500 |
|
|
| - |
|
|
| 1,163,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations |
|
| 561,600 |
|
|
| (1,685,500 | ) |
|
| (400,500 | ) |
|
| (1,524,400 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
| 9,689,700 |
|
|
| 8,670,100 |
|
|
| 9,854,500 |
|
|
| 28,214,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Asset Expenditures |
|
| 33,800 |
|
|
| 15,100 |
|
|
| 0 |
|
|
| 48,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 22,800 |
|
|
| 142,300 |
|
|
| 0 |
|
|
| 165,100 |
|
|
| Benchtop Laboratory Equipment |
|
| Bioprocessing Systems |
|
| Corporate And Other |
|
| Consolidated |
| ||||
Three Months Ended September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 1,930,300 |
|
| $ | 88,900 |
|
| $ | - |
|
| $ | 2,019,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Sales |
|
| 631,900 |
|
|
| 86,300 |
|
|
| - |
|
|
| 718,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) From Operations |
|
| 383,800 |
|
|
| (532,300 | ) |
|
| (52,200 | ) |
|
| (200,700 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
| 5,871,900 |
|
|
| 775,700 |
|
|
| 7,946,500 |
|
|
| 14,594,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Asset Expenditures |
|
| 21,800 |
|
|
| 64,900 |
|
|
| 0 |
|
|
| 86,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 26,300 |
|
|
| 14,000 |
|
|
| 0 |
|
|
| 40,300 |
|
Approximately 47%52% and 36%47% of net sales of Benchtop Laboratory Equipment for the three month periodsmonths ended September 30, 20202021 and 2019,2020, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.
Approximately 27%20% and 33%27% of total Benchtop Laboratory Equipment sales were derived from the Torbal Scales Division for the three months ended September 30, 2021 and 2020, and 2019, respectively.
Sales of Catalyst Research Instruments are generally comprisedproducts from Aquila of a few very large orders averaging approximately $50,000 per orderthe Bioprocessing Systems Operations, amounted to a limited number of customers, who differ from order to order. Sales to two customers during$168,200 for the three months ended September 30, 2020 accounted for approximately 88% of2021 and none in the Catalyst Research Instruments Operations revenues and 6% of the Company’s total revenues. Sales to two other customers during the three months ended September 30, 2019 accounted for approximately 90% of the Catalyst Research Instrument Operations’ revenues and 6% of the Company’s total revenues
9 |
Table of Contents |
4. Fair Value of Financial Instruments
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the following tables.
The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at September 30, 20202021 and June 30, 20202021 according to the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs Considered as | ||||
Fair Value at September 30, 2020 | Level 1 | Level 2 | Level 3 | |
Assets: | ||||
Cash and cash equivalents | $3,355,500 | $3,355,500 | $- | $- |
Investment securities | 4,017,700 | 4,017,700 | - | - |
Total | $7,373,200 | $7,373,200 | $- | $- |
Liabilities: | ||||
Contingent consideration | $344,600 | $- | $- | $344,600 |
Fair Value Measurements Using Inputs Considered as | ||||
Fair Value at June 30, 2020 | Level 1 | Level 2 | Level 3 | |
Assets: | ||||
Cash and cash equivalents | $7,559,700 | $7,559,700 | $- | $- |
Investment securities | 331,800 | 331,800 | - | - |
Total | $7,891,500 | $7,891,500 | $- | $- |
Liabilities: | ||||
Contingent consideration | $358,000 | $- | $- | $358,000 |
|
| Fair Value at |
|
| Fair Value Measurements Using Inputs Considered as |
| ||||||||||
|
| September 30, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 5,268,700 |
|
| $ | 5,268,700 |
|
| $ | 0 |
|
| $ | 0 |
|
Investment securities |
|
| 6,985,800 |
|
|
| 6,878,200 |
|
|
| 107,600 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 12,254,500 |
|
| $ | 12,146,900 |
|
| $ | 107,600 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| $ | 160,000 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 160,000 |
|
|
| Fair Value at |
|
| Fair Value Measurements Using Inputs Considered as |
| ||||||||||
|
| June 30, 2021 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 9,675,200 |
|
| $ | 9,675,200 |
|
| $ | 0 |
|
| $ | 0 |
|
Investment securities |
|
| 3,744,600 |
|
|
| 2,920,600 |
|
|
| 824,000 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 13,419,800 |
|
| $ | 12,595,800 |
|
| $ | 824,000 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
| $ | 160,000 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 160,000 |
|
Investments in marketable securities classified as available-for-sale by security type at September 30, 20202021 and June 30, 20202021 consisted of the following:
Cost | Fair Value | Unrealized Holding Gain (Loss) | |
At September 30, 2020: | |||
Equity securities | $110,800 | $118,400 | $7,600 |
Mutual and bond funds | 3,876,200 | 3,899,300 | 23,100 |
$3,987,000 | $4,017,700 | $30,700 |
Cost | Fair Value | Unrealized Holding Gain (Loss) | |
At June 30, 2020: | |||
Equity securities | $77,600 | $101,900 | $24,300 |
Mutual funds | 250,300 | 229,900 | (20,400) |
$327,900 | $331,800 | $3,900 |
|
| Cost |
|
| Fair Value |
|
| Unrealized Holding Gain |
| |||
At September 30, 2021: |
|
|
|
|
|
|
|
|
| |||
Equity securities |
| $ | 112,100 |
|
| $ | 159,200 |
|
| $ | 47,100 |
|
Mutual funds |
|
| 6,714,600 |
|
|
| 6,719,000 |
|
|
| 4,400 |
|
Debt securities |
|
| 105,400 |
|
|
| 107,600 |
|
|
| 2,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 6,932,100 |
|
| $ | 6,985,800 |
|
| $ | 53,700 |
|
|
| Cost |
|
| Fair Value |
|
| Unrealized Holding Gain (Loss) |
| |||
At June 30, 2021: |
|
|
|
|
|
|
|
|
| |||
Equity securities |
| $ | 102,200 |
|
| $ | 154,100 |
|
| $ | 51,900 |
|
Mutual funds |
|
| 2,752,400 |
|
|
| 2,766,500 |
|
|
| 14,100 |
|
Debt securities |
|
| 832,700 |
|
|
| 824,000 |
|
|
| (8,700 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,687,300 |
|
| $ | 3,744,600 |
|
| $ | 57,300 |
|
10 |
Table of Contents |
5
. InventoriesSeptember 30,2020 | June 30,2020 | |
Raw materials | $1,883,500 | $1,838,500 |
Work-in-process | 323,500 | 228,600 |
Finished goods | 734,200 | 817,600 |
$2,941,200 | $2,884,700 |
|
| September 30, 2021 |
|
| June 30, 2021 |
| ||
Raw materials |
| $ | 2,139,200 |
|
| $ | 2,170,400 |
|
Work-in-process |
|
| 91,900 |
|
|
| 39,600 |
|
Finished goods |
|
| 863,600 |
|
|
| 767,100 |
|
|
| $ | 3,094,700 |
|
| $ | 2,977,100 |
|
6
. Goodwill andGoodwill amounted to $705,300$4,395,400 at September 30, 20202021 and June 30, 2020,2021, all of which is expected to be deductible for tax purposes.
The components of otherfinite lived intangible assets are as follows:
Useful Lives | Cost | Accumulated Amortization | Net | |
At September 30, 2020: | ||||
Technology, trademarks | 5/10 yrs. | $664,700 | $662,000 | $2,700 |
Trade names | 6 yrs. | 140,000 | 140,000 | - |
Websites | 5 yrs. | 210,000 | 210,000 | - |
Customer relationships | 9/10 yrs. | 357,000 | 324,800 | 32,200 |
Sublicense agreements | 10 yrs. | 294,000 | 260,900 | 33,100 |
Non-compete agreements | 5 yrs. | 384,000 | 384,000 | - |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 262,700 | 201,700 | 61,000 |
$2,422,400 | $2,293,400 | $129,000 |
Useful Lives | Cost | Accumulated Amortization | Net | |
At June 30, 2020: | ||||
Technology, trademarks | 5/10 yrs. | $664,700 | $662,000 | $2,700 |
Trade names | 6 yrs. | 140,000 | 140,000 | - |
Websites | 5 yrs. | 210,000 | 210,000 | - |
Customer relationships | 9/10 yrs. | 357,000 | 321,400 | 35,600 |
Sublicense agreements | 10 yrs. | 294,000 | 253,600 | 40,400 |
Non-compete agreements | 5 yrs. | 384,000 | 384,000 | - |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 246,600 | 196,600 | 50,000 |
$2,406,300 | $2,277,600 | $128,700 |
|
| Useful Lives |
| Cost |
|
| Accumulated Amortization |
|
| Net |
| |||
At September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
| |||
Technology, trademarks |
| 5-10 yrs. |
| $ | 364,700 |
|
| $ | 363,000 |
|
| $ | 1,700 |
|
Trade names |
| 3-6 yrs. |
|
| 592,300 |
|
|
| 171,500 |
|
|
| 420,800 |
|
Websites |
| 3-7 yrs. |
|
| 210,000 |
|
|
| 210,000 |
|
|
| 0 |
|
Customer relationships |
| 4-10 yrs. |
|
| 372,200 |
|
|
| 112,600 |
|
|
| 259,600 |
|
Sublicense agreements |
| 10 yrs. |
|
| 294,000 |
|
|
| 290,300 |
|
|
| 3,700 |
|
Non-compete agreements |
| 4-5 yrs. |
|
| 1,060,500 |
|
|
| 357,500 |
|
|
| 703,000 |
|
IPR&D |
| 3-5 yrs. |
|
| 852,100 |
|
|
| 172,000 |
|
|
| 680,100 |
|
Patents |
| 5-7 yrs. |
|
| 591,500 |
|
|
| 241,500 |
|
|
| 350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,337,300 |
|
| $ | 1,918,400 |
|
| $ | 2,418,900 |
|
|
| Useful Lives |
| Cost |
|
| Accumulated Amortization |
|
| Net |
| |||
At June 30, 2021: |
|
|
|
|
|
|
|
|
|
|
| |||
Technology, trademarks |
| 5-10 yrs. |
| $ | 364,700 |
|
| $ | 362,200 |
|
| $ | 2,500 |
|
Trade names |
| 3-6 yrs. |
|
| 592,300 |
|
|
| 152,600 |
|
|
| 439,700 |
|
Websites |
| 3-7 yrs. |
|
| 210,000 |
|
|
| 210,000 |
|
|
| 0 |
|
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 |
|
IPR&D |
| 3-5 yrs. |
|
| 852,100 |
|
|
| 134,800 |
|
|
| 717,300 |
|
Patents |
| 5-7 yrs. |
|
| 591,500 |
|
|
| 225,900 |
|
|
| 365,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 4,337,300 |
|
| $ | 1,779,500 |
|
| $ | 2,557,800 |
|
Total amortization expense was $15,800$138,900 and $19,500$15,800 for the three months ended September 30, 20202021 and 2019,2020, respectively. As of September 30, 2020,2021, estimated future amortization expense related to intangible assets is $44,000$386,800 for the remainder of the fiscal year ending June 30, 2021, $36,800 for fiscal 2022, $20,200$520,300 for fiscal 2023, $16,400$508,800 for fiscal 2024, and $11,600$474,100 for fiscal 2025.
The Company presents the computation of earnings per share (“EPS”) on a basic basis. Basic EPS is computed by dividing net income, if any, 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 share data was computed as follows:
For the Three Months Ended September 30, 2020 | For the Three Months Ended September 30, 2019 | |
Loss | $(263,300) | $(56,200) |
Weighted average common shares outstanding | 2,861,263 | 1,494,212 |
Basic loss per common share | (.09) | (.04) |
Diluted loss per common share | (.09) | (.04) |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||
|
|
|
|
|
|
| ||
Weighted average number of common shares outstanding |
|
| 6,458,143 |
|
|
| 2,861,263 |
|
Effect of dilutive securities: |
|
| - |
|
|
| - |
|
Weighted average number of dilutive common shares outstanding |
|
| 6,458,143 |
|
|
| 2,861,263 |
|
|
|
|
|
|
|
|
|
|
Basic loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
| $ | (.19 | ) |
| $ | (.05 | ) |
Discontinued operations |
| $ | (.00 | ) |
| $ | (.04 | ) |
Consolidated operations |
| $ | (.19 | ) |
| $ | (.09 | ) |
Approximately 126,700539,357 and 1,349,8503,246,984 shares of the Company's common stock issuable upon the exercise of options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the three months ended September 30, 2020.2021. Approximately, 44,200126,700 and 1,349,850 shares of the Company’s common stock issuable upon the exercise of outstanding options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the three months ended September 30, 2019 because they were anti-dilutive.
8. Leases
The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) through January 2025 a facility in Pittsburgh, Pennsylvania for its Catalyst Research Instrument Operationswhich was amended effective October 2021, toincrease the space by approximately 25% and lease term through November 2020 and onapproximately October 2028, a month to month basis thereafter, and another facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through May 2023, and a facility for sales and administration office in Orangeburg, New York for its Torbal Division of the Benchtop Laboratory Equipment Operations through October 2022. The Company had a lease for its discontinued operations through November 2020. There are no renewal options with any of the leases, no residual values or significant restrictions or covenants other than those customary in such arrangements, and no non-cash activities, and any rent escalations incorporated within the leases are included in the calculation of the future minimum lease payments, as further described below. All of the Company’s leases are deemed operating leases.
The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the Right-Of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate of 5.0% as the discount rate to calculate the present value of future lease payments, which was the interest rate that its bank would charge for a similar loan.
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 whereinwhereby the Company is not required to reassess whether such contracts contain leases, the lease classification or the initial direct costs. The Company is not utilizing the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets. The Company utilized the transition method allowing entities to only apply the new lease standard in the year of adoption.
12 |
Table of Contents |
8. Leases (continued)
As of September 30, 2020,2021, the weighted-average remaining lease term for operating lease liabilities was approximately 3.52.5 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $78,600,approximately $68,300, for the three months ended September 30, 2021 of which $78,800$62,600 was recorded as leases expense.
The Company’s approximate future minimum rental payments under all leases existing at September 30, 20202021 through FebruaryJanuary 2025 are as follows:
Fiscal year ending June 30, | Amount |
Remainder of 2021 | $204,200 |
2022 | 260,300 |
2023 | 245,300 |
2024 | 195,900 |
2025 | 91,600 |
Total future minimum payments | 997,300 |
Less: Imputed interest | 93,000 |
Total Present Value of Operating Lease Liabilities | 904,300 |
Fiscal year ending June 30, |
| Amount |
| |
Remainder of 2022 |
| $ | 209,000 |
|
2023 |
|
| 261,100 |
|
2024 |
|
| 195,900 |
|
2025 |
|
| 91,600 |
|
|
|
|
|
|
Total future minimum payments |
| $ | 757,600 |
|
Less imputed interest |
|
| (54,400 | ) |
|
|
|
|
|
Total Present Value of Operating Lease Liabilities |
| $ | 703,200 |
|
9.Discontinued Operations
Effective November 30, 2020, as part of its strategic shift to becoming a life sciences tool provider, the Company sold its operations relating to the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical petrochemical companies sold on direct basis (the “ Catalyst Research Instruments Operations” through the sale by Altamira of substantially all of its assets, and inventory to Beijing JWGB Sci. & Tech. Co. Ltd., a corporation formed under the laws of the People’s Republic of China (“JWGB”) for $440,000 which was fully paid in cash by January 2021, resulting in a $405,400 pre-tax loss. To preserve business continuity for the buyer, Altamira agreed to purchase certain components on behalf of JWGB for which JWGB agreed to reimburse Altamira. The Company retained all its receivables and payables related to sales made prior to November 30, 2020, certain inventory related to two work-in-process orders that will be shipped by the end of the fiscal year ending June 30, 2022, product warranty and other miscellaneous liabilities related to certain employee benefits, and expenses related to the closure of the Altamira facility, which was completed at the end of December 2020.
As a result of the disposal described above, the operating results of the former Catalyst Research Instruments Operations segment have been presented as discontinued operations in the balance sheets, the statements of operations, and the statements of cash flows, as detailed below.
Assets: |
| September 30, 2021 |
|
| June 30, 2021 |
| ||
Cash |
| $ | 900 |
|
| $ | 0 |
|
Accounts receivable |
|
| 52,000 |
|
| 52,000 |
| |
Inventories |
|
| 3,300 |
|
|
| 3,300 |
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
| $ | 56,200 |
|
| $ | 55,300 |
|
Liabilities: |
| September 30, 2021 |
|
| June 30, 2021 |
| ||
Accrued expenses and taxes |
| $ | 9,900 |
|
| $ | 20,700 |
|
Contract liabilities |
|
| 16,500 |
|
|
| 16,500 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 26,400 |
|
| $ | 37,200 |
|
13 |
Table of Contents |
9.Discontinued Operations (continued)
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||
Revenues |
| $ | 1,200 |
|
| $ | 137,100 |
|
Cost of goods sold |
|
| 0 |
|
|
| 184,200 |
|
Gross profit |
|
| 1,200 |
|
|
| (47,100 | ) |
Selling, general and administrative expenses |
|
| 300 |
|
|
| 88,100 |
|
Loss from operations before income tax benefit |
|
| 900 |
|
|
| (135,200 | ) |
Income tax benefit, deferred |
|
| - |
|
|
| (25,500 | ) |
Net income (loss) attributable to discontinued operations |
| $ | 900 |
|
| $ | (109,700 | ) |
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash provided by operating activities from discontinued operations for three months ended September 30, 2021 and September 30, 2020 was $900 and $245,700, respectively. There was no cash provided by or used in investing or financing activities for both periods.
10. Acquisition of Aquila Biolabs GmbH
Effective April 29, 2021, pursuant to a Stock Purchase Agreement ("SPA") the Company acquired all the outstanding capital stock of Aquila, a German start-up company engaged from its facility in Baesweiler, Germany in the design, production, and sale of bioprocessing systems and products which focus on the control and analysis of bioprocesses in bioreactors and incubation shakers for an aggregate purchase price of $7,880,100 in cash upon closing. Aquila’s principal customers are universities, pharmaceutical companies, and industrial companies. The products are sold primarily on a direct basis and to a lesser extent, through distributors.
The acquisition was accounted for in accordance with ASC 805, Business Combinations (“ASC 805”) in which the Company is treated as the accounting acquirer. Accordingly, the assets acquired and liabilities assumed have been measured at estimated fair value.
For purposes of measuring the estimated fair value, where applicable, of the assets acquired and liabilities assumed, as reflected in the unaudited pro forma condensed consolidated financial information, the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) has been applied, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
Management of the Company allocated the purchase price based on its estimated valuation of the assets acquired and liabilities assumed as follows:
|
| Amount |
|
| Useful life | ||
Fair value of assets acquired: |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 201,100 |
|
|
| |
Accounts receivable |
|
| 159,200 |
|
|
| |
Inventory |
|
| 187,500 |
|
|
| |
Prepaid expenses and other current assets |
|
| 25,400 |
|
|
| |
Property, plant and equipment |
|
| 40,200 |
|
|
| |
Deferred tax asset |
|
| 800,300 |
|
|
| |
Tradename |
|
| 452,300 |
|
| 6 years | |
Non-compete agreements |
|
| 784,500 |
|
| 4 years | |
IPR&D |
|
| 742,100 |
|
| 5 years | |
Customer relationships |
|
| 252,200 |
|
| 9 years | |
Patents and other intangibles |
|
| 286,200 |
|
| 7 years | |
Total assets acquired |
| $ | 3,931,000 |
|
|
| |
|
|
|
|
|
|
| |
Fair value of liabilities assumed: |
|
|
|
|
|
| |
Accounts payable |
| $ | (39,300 | ) |
|
| |
Accrued expenses |
|
| (90,300 | ) |
|
| |
Other current liabilities |
|
| (59,400 | ) |
|
| |
Total liabilities assumed |
| $ | (189,000 | ) |
|
| |
|
|
|
|
|
|
| |
Total identifiable net assets |
| $ | 3,742,000 |
|
|
| |
Fair value of consideration transferred |
|
| 7,880,100 |
|
|
| |
Goodwill |
| $ | 4,138,100 |
|
|
|
14 |
Table of Contents |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking statements.
Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company’s business that are beyond the Company’s control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.Overview.
The Company’s results reflect the results from the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations, which includes three months of results for Aquila, following its acquisition on April 29, 2021. The CompanyCOVID-19 Pandemic. The Company has not experienced and does not expect to experience any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies, and pharmaceutical companies, which have benefitted from increasedthe Pandemic due to the nature of the products and have the ability to pay. The Company also has not experienced and does not expect to experience any material impairment to its tangible and intangible assets, system of internal controls, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic, which are uncertain and cannot be predicted at this time. The Company has experienced some delays from its supply chain which has had an immaterial impact on its business with delayed delivery of some products to its customers, however this is deemed temporary and does not affect the Company’s major product – the Vortex-Genie 2. In addition, due to the travel restrictions imposed by the United States and other governments worldwide, Company personnel has been and may be restricted in the future from traveling to conduct its operations including site visits, customer visits and installations, vendor facility visits, and other sales and marketing related travel that can negatively impact the Company. The operations of Aquila were negatively affected in their ability to secure new orders because Aquila had historically relied on face-to-face meetings at trade shows for its Genie™ brand products. The Bioprocessing Systems Operations continues to expand its operations with additional personnel and infrastructure and investingsales opportunities. While it has participated in virtual trade shows, management believes that certain sales and marketing.
Results of Operations.
Net revenues for the three months ended September 30,The gross profit percentage on a combined basis was 46.8%53.0% for the three months ended September 30, 2021 compared to 52.3% for the three months ended September 30, 2020 compared to 48.9% for the three months ended September 30, 2019 due primarily to lower margins on the Catalyst Research Instruments. However, grossincreased margins for the Benchtop Laboratory Equipment Operations were higher due to increased sales particularly of higher profit margin products.
General and administrative expenses for the three months ended September 30, 20202021 increased by $69,400 (13.6%$946,500 (182.3%) to $579,600 compared to $510,200$1,465,700 from $519,200 for the three months ended September 30, 2019 mainly2020 due primarily to the expansionstock option compensation-related costs, newly incurred costs by Aquila of the Scientific Bioprocessing Systems Operations, with increased personnel and related expenses, and corporate expenses
Selling expenses for the three months ended September 30, 20202021 increased $212,600 (68.8%$441,900 (89.5%) to $521,700$935,800 from $309,100$493,900 for the three months ended September 30, 20192020 which were incurred primarily due to increased sales and marketing costs related to new personnel, websites, market research, and advertising expendituresby the by the Bioprocessing Systems Operations.
Research and development expenses increased by $7,700 (3.3%$392,200 (160.5%) to $636,500 for the three months ended September 30, 2021 compared to $244,300 for the three months ended September 30, 2020, comparedmainly due to $236,600product development costs incurred by the Bioprocessing Systems Operations’ Aquila operation which was acquired in the fourth quarter of fiscal 2021.
15 |
Table of Contents |
Total other income (expense), net was ($7,900) for the three months ended September 30, 2019, mainly due2021 compared to product development activities by the Bioprocessing Systems Operations.
The Company reflected income tax benefit for continuing operations of $322,600 for the three months ended September 30, 2019,2021 compared to income tax benefit of $35,600 for the three months ended September 30, 2020, primarily due to the increased loss generated during the current period.
As a result of the foregoing, the Company recorded a net loss from continuing operations of $263,300$1,209,700 for the three months ended September 30, 2021 compared to a loss from continuing operations of $153,600 for the three months ended September 30, 2020.
The Company reflected a gain from discontinued operations of $900 for the three months ended September 30, 2021, compared to a $109,700 loss for the three months ended September 30 2020, compareddue to a netinsignificant activity during the current year period.
Liquidity and Capital Resources. Cash and cash equivalents decreased by $4,406,500 to $5,268,700 as of September 30, 2021 from $9,675,200 as of June 30, 2021, due primarily the Company’s purchases of investment securities and the loss of $56,200during the period.
Net cash used in operating activities was $1,107,900 for the three months ended September 30, 2019.
The Company's working capital decreased by $231,900$671,600 to $9,867,200$15,472,700 as of September 30, 20202021 compared to $10,099,100,$16,144,300, as of June 30, 20202021 due to the loss generated during the period.
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC'sSecurities and Exchange Commission's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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PART II – OTHER INFORMATION
Exhibit Number | Description | |
Reports on Form 8-K:
Current Report filed on Form 8-K8-K/A dated July 22, 2020 reporting under Items 1.01 and 5.2.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SCIENTIFIC INDUSTRIES, INC. (Registrant) | |||
Date: November 15, 2021 | /s/ Helena R. Santos | ||
Helena R. Santos President, Chief Executive Officer, Chief Financial Officer and Treasurer |
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