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 March 31, 2021
☐ | 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)
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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒Yes ☐No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐(Do not check if a smaller reporting company) | Smaller reporting company ☒ |
Emerging Growth ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) | Yes☐ No ☒ |
The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of May 7, 2021 is 4,458,143 shares.
SCIENTIFIC INDUSTRIES, INC.
Table of Contents
PART I - Financial Information | ||
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | ||
Condensed Consolidated Balance Sheets | 2 | |
Condensed Consolidated Statements of Operations | 3 | |
Condensed Consolidated Statements of Changes in Shareholders’ Equity | 4 | |
Condensed Consolidated Statements of Cash Flows | 5 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 16 | |
CONTROLS AND PROCEDURES | 17 | |
PART II - Other Information | ||
EXHIBITS AND REPORTS ON FORM 8-K | 18 | |
19 |
PART I – FINANCIAL INFORMATION
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2021 | June 30, 2020 | |
Current assets: | (Unaudited) | |
Cash and cash equivalents | $627,500 | $7,559,700 |
Investment securities | 5,325,700 | 331,800 |
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at March 31, 2021 and June 30, 2020 | 1,822,500 | 1,064,000 |
Inventories | 2,885,200 | 2,541,000 |
Income tax receivable | 336,300 | 334,800 |
Prepaid expenses and other current assets | 62,600 | 112,400 |
Assets of discontinued operations | 124,600 | 793,000 |
Total current assets | 11,184,400 | 12,736,700 |
Property and equipment, net | 383,700 | 278,300 |
Intangible assets, net | 121,500 | 128,700 |
Goodwill | 257,300 | 257,300 |
Other assets | 48,400 | 56,000 |
Deferred taxes | 1,189,400 | 537,100 |
Operating lease right-of-use assets | 715,600 | 803,300 |
Total assets | $13,900,300 | $14,797,400 |
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities: | ||
Accounts payable | $477,200 | $334,600 |
Accrued expenses | 456,400 | 679,000 |
Contract liabilities | - | 20,000 |
Contingent consideration, current portion | 195,800 | 111,000 |
Bank overdraft | 50,600 | 43,100 |
Liabilities of discontinued operations | 64,400 | 240,900 |
Operating lease liabilities, current portion | 50,300 | 195,800 |
Payroll Protection Program loan, current portion | 563,800 | 563,800 |
Total current liabilities | 1,858,500 | 2,188,200 |
Payroll Protection Program loan, less current portion | 433,800 | - |
Contingent consideration payable, less current portion | 30,300 | 247,000 |
Operating lease liabilities, less current portion | 735,300 | 640,800 |
Total liabilities | 3,057,900 | 3,076,000 |
Shareholders’ equity: Common stock, $.05 par value; 10,000,000 and 7,000,000 shares authorized; 2,882,065 and 2,881,065 shares issued; 2,862,263 and 2,861,263 shares outstanding at March 31, 2021 and June 30, 2020 | ||
144,200 | 144,100 | |
Additional paid-in capital | 10,040,600 | 8,608,300 |
Retained earnings | 710,000 | 3,021,400 |
10,894,800 | 11,773,800 | |
Less common stock held in treasury at cost, 19,802 shares | 52,400 | 52,400 |
Total shareholders’ equity | 10,842,400 | 11,721,400 |
Total liabilities and shareholders’ equity | $13,900,300 | $14,797,400 |
2
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Month Period Ended March 31, | For the Three Month Period Ended March 31, | For the Nine Month Period Ended March 31, | For the Nine Month Period Ended March 31, | |
2021 | 2020 | 2021 | 2020 | |
Revenues | $2,508,600 | $2,136,200 | $7,245,100 | $6,234,500 |
Cost of revenues | 1,145,700 | 1,037,000 | 3,419,400 | 2,978,900 |
Gross profit | 1,362,900 | 1,099,200 | 3,825,700 | 3,255,600 |
Operating expenses: | ||||
General and administrative | 1,385,600 | 509,700 | 2,441,700 | 1,458,100 |
Selling | 1,386,100 | 344,900 | 2,658,900 | 880,300 |
Research and development | 450,000 | 298,900 | 1,024,000 | 795,300 |
Termination costs | - | 180,700 | - | 180,700 |
Total operating expenses | 3,221,700 | 1,334,200 | 6,124,600 | 3,314,400 |
Loss from operations | (1,858,800) | (235,000) | (2,298,900) | (58,800) |
Other income (expense): | ||||
Other income (expense), net | 6,100 | (42,200) | 22,300 | (40,100) |
Interest income | 22,500 | 300 | 71,400 | 10,000 |
Total other income (expense), net | 28,600 | (41,900) | 93,700 | (30,100) |
Loss before income tax (benefit) | (1,830,200) | (276,900) | (2,205,200) | (88,900) |
Income tax (benefit), deferred: | (378,200) | (45,500) | (472,300) | (15,000) |
Net loss from continuing operations | (1,452,000) | (231,400) | (1,732,900) | (73,900) |
Discontinued operations (Note 9): | ||||
Income (loss) from discontinued operations (including loss on disposal of $405,400), in 2021 period | 16,400 | (99,600) | (758,400) | (360,300) |
Income tax (benefit), deferred | - | (16,400) | (179,900) | (67,000) |
Net income (loss) from discontinued operations | 16,400 | (83,200) | (578,500) | (293,300) |
Net loss | $(1,435,600) | $(314,600) | $(2,311,400) | $(367,200) |
Basic and diluted income (loss) per common share | ||||
Continuing operations | $(.51) | $(.15) | $(.61) | $(.05) |
Discontinued operations | $.01 | $(.06) | $(.20) | $(.20) |
�� | ||||
Consolidated operations | $(.50) | $(.21) | $(.81) | $(.25) |
See notes to unaudited condensed consolidated financial statements.
3
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 | 11,519,400 |
Net loss | - | - | - | (612,500) | - | - | (612,500) |
Stock-based compensation | - | - | 76,100 | - | - | - | 76,100 |
Balance, December 31, 2020 | 2,881,065 | $144,100 | $8,745,700 | $2,145,600 | 19,802 | $52,400 | $10,983,000 |
Net loss | - | - | - | (1,435,600) | - | - | (1.435,600) |
Stock-based compensation | - | - | 1,292,000 | - | - | - | 1,292,000 |
Stock options exercised | 1,000 | 100 | 2,900 | - | - | - | 3,000 |
Balance, March 31, 2021 | 2,882,065 | $144,200 | $10,040,600 | $710,000 | 19,802 | $52,400 | $10,842,400 |
Additional | Total | ||||||
Common Stock | Paid-in | Retained | Treasury Stock | Shareholders’ | |||
Fiscal Year 2020: | 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 |
Net income | - | - | - | 3,600 | - | - | 3,600 |
Stock options exercised | 6,661 | 300 | (300) | - | - | - | - |
Stock-based compensation | - | - | 17,700 | - | - | - | 17,700 |
Balance, December 31, 2019 | 1,522,575 | $76,100 | $2,634,700 | $3,672,100 | 19,802 | $52,400 | $6,330,500 |
Net loss | - | - | - | (314,600) | - | - | (314,600) |
Stock-based compensation | - | 14,600 | - | - | - | 14,600 | |
Balance, March 31, 2020 | 1,522,575 | $76,100 | $2,649,300 | $3,357,500 | 19,802 | $52,400 | $6,030,500 |
4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Month Period March 31, | For the Nine Month Period March 31, | |
2021 | 2020 | |
Operating activities: | ||
Net loss | $(2,311,400) | $(367,200) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Gain on sale of investments | (34,600) | (4,000) |
Unrealized holding loss on investments | 18,900 | 42,700 |
Depreciation and amortization | 126,700 | 123,300 |
Deferred income taxes | (652,300) | (82,100) |
Loss on disposal of subsidiary | 405,400 | - |
Stock-based compensation | 1,429,400 | 50,000 |
Gain on sale of fixed assets | - | (300) |
Change in fair value of contingent consideration | (118,500) | 60,000 |
Changes in operating assets and liabilities: | ||
Trade accounts receivable | (758,500) | (210,000) |
Inventories | (697,700) | (452,500) |
Right - of- use assets | 87,700 | (867,400) |
Income tax receivable | (1,500) | - |
Prepaid and other current assets | 57,400 | 9,500 |
Lease liabilities | (51,000) | 933,300 |
Accounts payable | 142,600 | (117,100) |
Contract liabilities | (20,000) | 116,100 |
Bank overdraft | 7,500 | - |
Accrued expenses | (222,600) | (38,100) |
Total adjustments | (281,100) | (436,600) |
Net cash used in operating activities | (2,592,500) | (803,800) |
Investing activities: | ||
Redemption of investment securities | 1,631,000 | 53,600 |
Purchase of investment securities | (6,609,200) | (62,800) |
Proceeds from sale of discontinued operations | 440,000 | - |
Proceeds from sale of fixed assets | - | 1,000 |
Capital expenditures | (183,700) | (38,100) |
Purchase of other intangible assets | (41,200) | (20,000) |
Net cash used in investing activities | (4,763,100) | (66,300) |
Financing activities: | ||
Payments of contingent consideration | (13,400) | - |
Proceeds from Payroll Protection Program | 433.800 | - |
Proceeds from stock options exercised | 3,000 | 7,000 |
Net cash provided by financing activities | 423,400 | 7,000 |
Net decrease in cash and cash equivalents | (6,932,200) | (863,100) |
Cash and cash equivalents, beginning of year | 7,559,700 | 1,602,500 |
Cash and cash equivalents, end of period | $627,500 | $739,400 |
Supplemental disclosures: | ||
Cash paid during the period for: | ||
Income taxes | $2,500 | $40,900 |
See notes to unaudited condensed consolidated financial statements.
5
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, 2020. The results for the three and nine months ended March 31, 2021 are not necessarily an indication of the results for the full fiscal year ending June 30, 2021. |
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Bioprocessing, Inc. (“SBI”) a Delaware corporation and wholly-owned subsidiary, and Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary (discontinued as of November 2020), and Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary (all collectively referred to as the “Company”). 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 impact the Company’s operations at the end of the third quarter of the year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self -quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. However, if an employee becomes infected in the future, and the Company is forced to 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 (“discontinued operation”) and Bioprocessing Systems Operations were shut down due to state mandates, however, the impact on operations was immaterial, and the Company was able to retain its employees without furloughs or layoffs, in part, due to the Company’s receipt of certain loan amounts under the Federal Government’s Paycheck Protection Program. The Company did not experience and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies that have the ability to pay. However, there were some delays in receiving some accounts receivable due for the discontinued operation due to customer shutdowns, and there was a material negative impact on the revenues of the discontinued operation. 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, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Adopted Accounting Pronouncements
In August 2018, the Financial Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement." The new standard 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.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently evaluating the impact of adopting this guidance.
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 ASC 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
6
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Nature of Products and Services
We generate revenues from the following sources: (1) Benchtop Laboratory Equipment, and (2) Bioprocessing Systems.
The following table summarizes the Company’s disaggregation of revenues for the three and nine months ended March 31, 2021 and 2020.
Benchtop Laboratory Equipment | Bioprocessing Systems | Consolidated | |
Three Months Ended March 31, 2021: | |||
Revenues | $2,365,700 | $142,900 | $2,508,600 |
Foreign Sales | 942,200 | 102,600 | 1,044,800 |
Benchtop Laboratory Equipment | Bioprocessing Systems | Consolidated | |
Three Months Ended March 31, 2020: | |||
Revenues | $1,800,700 | $335,500 | $2,136,200 |
Foreign Sales | 743,000 | 335,000 | 1,078,000 |
Benchtop Laboratory Equipment | Bioprocessing Systems | Consolidated | |
Nine Months Ended March 31, 2021: | |||
Revenues | $6,803,300 | $441,800 | $7,245,100 |
Foreign Sales | 2,724,800 | 395,000 | 3,119,800 |
Benchtop Laboratory Equipment | Bioprocessing Systems | Consolidated | |
Nine Months Ended March 31, 2020: | |||
Revenues | $5,320,300 | $914,200 | $6,234,500 |
Foreign Sales | 1,996,400 | 913,700 | 2,910,100 |
Benchtop Laboratory Equipment sales are comprised primarily of standard benchtop laboratory equipment from its stock sold to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment varies from one day to up to a few weeks. Customers pay either by credit card (online sales) or net 30-90, depending on the customer. Once the item is shipped under the terms specified in the order, which is typically “FOB Factory”, other than a standard warranty, there are no obligations to the customer. The Company’s standard warranty is typically comprised of one to two years of parts and labor and is deemed immaterial.
Bioprocessing Systems’ revenues are primarily comprised of royalties earned by the Company, which are paid on a calendar year basis, under a licensing agreement from a single licensee and its sublicensees. The Company is obligated to pay 50% of all royalties it receives to the entity that licenses the intellectual property to the Company. During the year, the Company’s management uses its best judgement to estimate the royalty revenues earned during each fiscal period.
7
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 FASB, in applying ASC Topic 606: 1) all revenues are recorded net of returns, allowances, customer discounts, and incentives; 2) although sales and other taxes are immaterial, the Company accounts for amounts collected from customers for sales and other taxes, if any, net of related amounts remitted to tax authorities; 3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less; 4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling expenses; 5) the Company is always considered the principal and never an agent, because it has full control and responsibility until title is transferred to the customer; 6) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer such as is the case with catalyst instruments.
3. Segment Information and Concentrations
The Company views its operations as two 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 design and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems Operations”).
Segment information is reported as follows:
Benchtop Laboratory Equipment | Bioprocessing Systems | Corporate And Other | Consolidated | |
Three Months Ended March 31, 2021: | ||||
Revenues | $2,365,700 | $142,900 | $- | $2,508,600 |
Foreign Sales | 942,200 | 102,600 | - | 1,044,800 |
Income (Loss) From Operations | 774,600 | (1,722,200) | (911,200) | (1,858,800) |
Assets | 5,979,400 | 1,281,200 | 6,639,700 | 13,900,300 |
Long-Lived Asset Expenditures | 18,600 | 92,100 | - | 110,700 |
Depreciation and Amortization | 30,000 | 16,700 | - | 43,700 |
Approximately $124,600 included in Assets relates to discontinued operations.
Benchtop Laboratory Equipment | Bioprocessing Systems | Corporate And Other | Consolidated | |
Three Months Ended March 31, 2020: | ||||
Revenues | $1,800,700 | $335,500 | $- | $2,136,200 |
Foreign Sales | 743,000 | 335,000 | - | 1,078,000 |
Income (Loss) From Operations | 138,800 | (193,100) | (180,700) | (235,000) |
Assets | 5,229,700 | 1,647,800 | 2,042,400 | 8,919,900 |
Long-Lived Asset Expenditures | 4,900 | 11,700 | - | 16,600 |
Depreciation and Amortization | 29,600 | 11,000 | 300 | 40,900 |
8
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Approximately $1,227,900 included in Assets relates to discontinued operations, and $300 in depreciation and amortization relates to discontinued operations.
Approximately 55% and 49% of total benchtop laboratory equipment sales (52% and 37% of total revenues) for the three months ended March 31, 2021 and 2020, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.
Approximately 20% and 24% of total benchtop laboratory equipment sales (19% and 18% of total revenues) were derived from the Torbal Scales Division for the three months ended March 31, 2021 and 2020, respectively.
For the three months ended March 31, 2021 and 2020, respectively, three customers accounted for approximately 26% and 16% of net sales of the Benchtop Laboratory Equipment Operations (25% and 12% of the Company’s total revenues).
Benchtop Laboratory Equipment | Bioprocessing Systems | Corporate And Other | Consolidated | |
Nine Months Ended March 31, 2021: | ||||
Revenues | $6,803,300 | $441,800 | $- | $7,245,100 |
Foreign Sales | 2,724,800 | 395,000 | - | 3,119,800 |
Income (Loss) From Operations | 1,727,000 | (2,996,300) | (1,029,600) | (2,298,900) |
Assets | 5,979,400 | 1,281,200 | 6,639,700 | 13,900,300 |
Long-Lived Asset Expenditures | 54,100 | 170,800 | - | 224,900 |
Depreciation and Amortization | 79,700 | 46,500 | 500 | 126,700 |
Approximately $124,600 included in Assets relates to discontinued operations, and $500 in depreciation and amortization relates to discontinued operations.
Benchtop Laboratory Equipment | Bioprocessing Systems | Corporate And Other | Consolidated | |
Nine Months Ended March 31, 2020: | ||||
Revenues | $5,320,300 | $914,200 | $- | $6,234,500 |
Foreign Sales | 1,996,400 | 913,700 | - | 2,910,100 |
Income (Loss) From Operations | 331,300 | (209,400) | (180,700) | (58,800) |
Assets | 5,229,700 | 1,647,800 | 2,042,400 | 8,919,900 |
Long-Lived Asset Expenditures | 26,800 | 31,300 | - | 58,100 |
Depreciation and Amortization | 90,900 | 31,500 | 900 | 123,300 |
Approximately $1,227,900 included in Assets relates to discontinued operations, and $900 in depreciation and amortization relates to discontinued operations.
Approximately 51% and 45% of total benchtop laboratory equipment sales (47% and 36% of total revenues) for the nine months ended March 31, 2021 and 2020, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.
Approximately 23% and 27% of total benchtop laboratory equipment sales (21% and 21% of total revenues) were derived from the Torbal Scales Division for the nine months ended March 31, 2021 and 2020, respectively.
For the nine months ended March 31, 2021 and 2020, three customers accounted for approximately 23% and 17% of net sales of the Benchtop Laboratory Equipment Operations (21% and 13% of the Company’s total revenues), respectively.
9
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Fair Value of Financial Instruments
The FASB defines the fair value of financial instruments as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements do not include transaction costs.
The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
Level 1 - Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 - Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3 - Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The fair values 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 that were accounted for at fair value on a recurring basis at March 31, 2021 and June 30, 2020 according to the valuation techniques the Company used to determine their fair values:
Fair Value Measurements Using Inputs Considered as | ||||
Fair Value at March 31, 2021 | Level 1 | Level 2 | Level 3 | |
Assets: | ||||
Cash and cash equivalents | $627,500 | $627,500 | $- | $- |
Investment securities | 5,325,700 | 5,325,700 | - | - |
Total | $5,953,200 | $5,953,200 | - | $- |
Liabilities: | ||||
Contingent consideration | $226,100 | $- | $- | $226,100 |
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 |
10
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Investments in marketable securities at March 31, 2021 and June 30, 2020 consisted of the following:
Cost | Fair Value | Unrealized Holding Gain (Loss) | |
At March 31, 2021: | |||
Equity securities | $102,200 | $148,100 | $45,900 |
Mutual and bond funds | 5,169,700 | 5,177,600 | 7,900 |
$5,271,900 | $5,325,700 | $53,800 |
Cost | Fair Value | Unrealized Holding Gain (Loss) | |
At June 30, 2020: | |||
Equity securities | $77,600 | $101,900 | $24,300 |
Mutual and bond funds | 250,300 | 229,900 | (20,400) |
$327,900 | $331,800 | $3,900 |
5. Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value, and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on managements review of inventories on hand compared to estimated future usage and sales. Cost of work-in-process and finished goods inventories include material, labor, and manufacturing overhead.
March 31, 2021 | June 30, 2020 | |
Raw materials | $2,191,200 | $1,726,400 |
Work-in-process | 74,100 | 35,700 |
Finished goods | 619,900 | 778,900 |
$2,885,200 | $2,541,000 |
6. Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the Company’s acquisitions. Goodwill amounted to $257,300 at March 31, 2021 and June 30, 2020, all of which is expected to be deductible for tax purposes.
The components of other intangible assets are as follows:
Useful Lives | Cost | Accumulated Amortization | Net | |
At March 31, 2021: | ||||
Technology, trademarks | 5/10 yrs. | $364,700 | $362,200 | $2,500 |
Trade names | 6 yrs. | 140,000 | 140,000 | - |
Websites | 5 yrs. | 210,000 | 210,000 | - |
Customer relationships | 9/10 yrs. | 120,000 | 94,400 | 25,600 |
Sublicense agreements | 10 yrs. | 294,000 | 275,600 | 18,400 |
Non-compete agreements | 5 yrs. | 282,000 | 282,000 | - |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 287,800 | 212,800 | 75,000 |
$1,808,500 | $1,687,000 | $121,500 |
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Useful Lives | Cost | Accumulated Amortization | Net | |
At June 30, 2020: | ||||
Technology, trademarks | 5/10 yrs. | $364,700 | $362,000 | $2,700 |
Trade names | 6 yrs. | 140,000 | 140,000 | - |
Websites | 5 yrs. | 210,000 | 210,000 | - |
Customer relationships | 9/10 yrs. | 120,000 | 84,400 | 35,600 |
Sublicense agreements | 10 yrs. | 294,000 | 253,600 | 40,400 |
Non-compete agreements | 5 yrs. | 282,000 | 282,000 | - |
IPR&D | 3 yrs. | 110,000 | 110,000 | - |
Other intangible assets | 5 yrs. | 246,600 | 196,600 | 50,000 |
$1,767,300 | $1,638,600 | $128,700 |
Total amortization expense was $16,000 and $18,300 for the three months ended March 31, 2021 and 2020, respectively, and $48,500 and $57,600 for the nine months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, estimated future amortization expense related to intangible assets is $42,800 for the remainder of the fiscal year ending June 30, 2021, $32,100 for fiscal 2022, $20,400 for fiscal 2023, $18,000 for fiscal 2024 and $8,200 thereafter.
7. Earnings (Loss) Per Common Share
The Company presents the computation of earnings per share (“EPS”) on a basic and diluted 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 Three Month Period Ended March 31, 2021 | For the Three Month Period Ended March 31, 2020 | For the Nine Month Period Ended March 31, 2021 | For the Nine Month Period Ended March 31, 2020 | |
Weighted average number of common shares outstanding | 2,861,607 | 1,502,773 | 2,861,376 | 1,497,567 |
Effect of dilutive securities | - | - | - | - |
Weighted average number of dilutive common shares outstanding | 2,861,607 | 1,502,773 | 2,861,376 | 1,497,567 |
Basic and diluted earnings (loss) per common share | ||||
Continuing operations | $(.51) | $(.15) | $(.61) | $(.05) |
Discontinued operations | $.01 | $(.06) | $(.20) | $(.20) |
Consolidated operations | $(.50) | $(.21) | $(.81) | $(.25) |
Approximately 259,357 shares and 1,349,850 of the Company’s common stock issuable upon the exercise of options and warrants, respectively, were excluded from the calculation for the three and nine months ended March 31, 2021, because the effect would be anti-dilutive due to the loss for the periods. Approximately, 51,629 shares of the Company’s common stock issuable upon the exercise of the outstanding options were excluded from the calculation for three and nine months ended March 31, 2020 because they were anti-dilutive.
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Leases
The Company recognizes all long-term leases on its balance sheet as a liability for its lease obligation, measured at the present value of lease payments not yet paid, and a corresponding asset representing its right to use the underlying asset over the lease term.
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 Bioprocessing Systems Operations through May 2023, and a sales and administration office in Orangeburg, New York for the Torbal Division of its Benchtop Laboratory Equipment Operations through October 2022. The Company had a lease for its Catalyst Research Instruments Operations which terminated in November 2020 and the facility was shut down at the end of December 2020 following the sale of that business segment on November 30, 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. 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 whereby the Company is not required to reassess whether such contracts contain leases, the lease classification or the initial direct costs. The Company is not utilizing the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets. The Company utilized the transition method allowing entities to only apply the new lease standard in the year of adoption.
As of March 31, 2021, the weighted-average remaining lease term for operating lease liabilities was approximately 2.7 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $64,000 and $218,700 for the three- and nine- month periods ended March 31, 2021 of which $59,900 and $211,100, respectively, were recorded as lease expense.
The Company’s approximate future minimum rental payments under all leases existing at March 31, 2021 through February 2025 are as follows:
Fiscal year ending June 30, | Amount |
Remainder of 2021 | $64,000 |
2022 | 260,300 |
2023 | 245,300 |
2024 | 195,900 |
2025 | 91,600 |
Total future minimum payments | $857,100 |
Less: Imputed interest | 71,500 |
Total Present Value of Operating Lease Liabilities | $785,600 |
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Discontinued Operations
Effective November 30, 2020, the Company, as part of its strategic shift to becoming a life sciences tool provider, sold its Catalyst Research Instruments Operations reporting segment through the sale by Altamira of substantially all of its assets, which comprised of fixed assets, and inventory to Beijing JWGB Sci. & Tech. Co. Ltd., a corporation formed under the laws of the People’s Republic of China (“JWGB”) for $440,000 payable in cash through January 2021, resulting in a $405,400 pre-tax loss. In order to preserve business continuity for the buyer, Altamira agreed to purchase certain components on behalf of JWGB for which JWGB agreed to reimburse Altamira. At March 31, 2021, JWGB paid the full $440,000 purchase price and $28,500 for component purchases made on its behalf. The Company retained all its receivables and payables related to sales made prior to November 30, 2020, certain inventory related to two work-in-process orders which will be shipped by the end of the fiscal year ending June 30, 2021, product warranty and other miscellaneous liabilities related to certain employee benefits, and expenses related to the closure of the Altamira facility, which was substantially completed at the end of December 2020.
As a result of the disposal described above, the operating results of the former Catalyst Research Instruments Operations segment have been presented as discontinued operations in the balance sheets, the statements of operations, and the statements of cash flows, as detailed below.
Assets: | March 31, 2021 | June 30, 2020 |
Cash | $12,100 | - |
Accounts receivable | 109,300 | - |
Inventories | 3,200 | $343,700 |
Property and equipment, net | - | 1,400 |
Goodwill | - | 447,900 |
Discontinued operations | $124,600 | $793,000 |
Liabilities: | March 31, 2021 | June 30, 2020 |
Accounts payable | $2,900 | $20,100 |
Accrued expenses and taxes | 45,000 | 120,700 |
Contract liabilities | 16,500 | 69,000 |
Operating lease liabilities, current portion | - | 31,100 |
$64,400 | $240,900 |
Three Months Ended | Nine Months Ended | |||
March 31, 2021 | March 31, 2020 | March 31, 2021 | March 31, 2020 | |
Revenues | $107,800 | $241,800 | $387,700 | $420,000 |
Cost of goods sold | 78,800 | 237,700 | 458,500 | 500,300 |
Gross profit | 29,900 | 4,100 | (70,800) | (80,300) |
Selling, general and administrative expenses | 12,600 | 103,700 | 282,200 | 280,000 |
Income (loss from operations) | 16,400 | (99,600) | (353,000) | (360,300) |
Loss on disposal | - | - | (405,400) | - |
Income (loss) before income tax benefit | 16,400 | (99,600) | (758,400) | (360,300) |
Income tax benefit, all deferred | - | (16,400) | (179,900) | (67,000) |
Net income (loss) attributable to discontinued operations | $16,400 | $(83,200) | $(578,500) | $(293,300) |
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SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash (used) and provided by operating activities from discontinued operations for the nine months ended March 31, 2021 and March 31, 2020 was ($502,900) and $17,900, respectively. Cash provided by investing activities from discontinued operations for the nine months ended March 31, 2021 was $440,000 and none for the nine months ended March 31, 2020. There was no cash provided or used by the discontinued operations for financing activities for both the current and prior year periods.
10. Payroll Protection Program Loans
The Company has two Payroll Protection Program (“PPP”) loans outstanding which are comprised of $563,800 received in April 2020 and $433,800 received in March 2021 through its bank. The loans each bear interest at 1% per annum and mature in April 2022 and March 2026, respectively, and contain no collateral or guarantee requirements. The Company expects to apply and receive forgiveness for both loans.
11. Equity
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, which is reflected as of March 31, 2021.
In addition, the stockholders also approved an amendment to the Company’s 2012 Stock Option Plan (“Plan”) to increase the number of shares under the Plan by 943,000 shares, from 307,000 to 1,250,000 shares, which, together with 150,000 shares that were added to the Plan in 2020, the Company registered on a Form S-8 Registration Statement with the Securities and Exchange Commission on March 15, 2021. The Company’s Board of Directors authorized and approved the grant of Stock Options in June 2020 and July 2020 to three key officers, subject to availability of option shares. In February 2021, upon availability, the Company issued these stock options to the Company’s Chairman of the Board, its Chief Executive Officer and President, and the Chief Commercial Officer of the Company’s Bioprocessing Systems Operations, which resulted in total stock-based compensation of $1,292,000 and $1,429,400 for the three and nine months ended March 31, 2021, which also included expense for other optionees.
12. Subsequent Events
On April 29 2021, the Company received proceeds of approximately $7,580,500 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 at $9.50 per share.
These warrants are exercisable immediately and expire five years from date of issuance.
Using the proceeds received, the Company, through its newly organized wholly owned subsidiary Scientific Bioprocessing Holdings, Inc., purchased 100% of the capital stock in aquila biolabs, GmbH (“Aquila”), a German bioprocessing company, for approximately $7,880,000. This acquisition was completed so both Aquila and SBI can create synergies in product development and sales opportunities for all products in the United States, Europe and other parts of the world. Concurrent with the acquisition, the Company entered into employment agreements with the four managing directors of Aquila. The Company has not completed any other items required to be disclosed as more time is needed in order to complete all of the necessary calculations. In addition, certain disclosures of revenues and earnings of Aquila since the acquisition are impracticable as they are minimal to the Company as a whole.
15
Forward-Looking statements. Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company’s business that are beyond the Company’s control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.
Overview.
The Company reflected a loss from continuing operations before income tax benefit of $1,830,200 and $2,205,200 for the three and nine months ended March 31, 2021 compared to a loss of $276,900 and $88,900 for the three and nine months ended March 31, 2020, primarily due to increased operating expenses incurred by the Company’s Bioprocessing Systems Operations, stock options expense amounting to $1,292,000 and $1,429,400 for the three and nine months ended March 31, 2021 compared to $14,600 and $50,000 for the three and nine months ended March 31 2020, and expenses related to mergers and acquisitions (“M&A”) activities. The results reflected the Company’s continued expansion of its Bioprocessing Systems Operations with increased personnel and expenditures for product development, sales, and marketing activities, and M&A activity, partially offset by the profits generated by increased sales of the Benchtop Laboratory Equipment Operations.
The Company’s results for the nine months ended March 31, 2021, reflect discontinued operations of the Catalyst Research Instruments Operations due to the sale of substantially all its assets at an approximate $405,400 loss at the end of the second quarter, which is reflected in Income (loss) from discontinued operations of $758,400, compared to an operating loss from discontinued operations of $360,300 for the nine months ended March 31, 2020. Income from discontinued operations for the three months ended March 31, 2021 was $16,400 compared to a loss of $99,600 for the three months ended March 31, 2020, primarily due to a product sale that was delivered to a customer in March 2021 after the sale.
Results of Operations
The Three Months Ended March 31, 2021 Compared With The Three Months Ended March 31, 2020
Net revenues for the three months ended March 31, 2021 increased $372,400 (17.4%) to $2,508,600 from $2,136,200 for the three months ended March 31, 2020, reflecting an increase of $565,000 in sales of benchtop laboratory equipment, partially offset by decreased earned royalties of $193,600 by the Bioprocessing Systems Operations. The Company’s benchtop laboratory equipment sales reflected $466,200 and $430,400 of Torbal brand product gross sales for the three months ended March 31, 2021 and 2020, respectively.
The overall gross profit percentage for the three months ended March 31, 2021 was 54.3% compared to 51.5% for the three months ended March 31, 2020, reflecting increased margins for the Benchtop Laboratory Equipment Operations due to increased sales. The gross profit for the Bioprocessing Systems Operations was positively impacted by the recording of an amount related to expected lower future contingent consideration payments resulting from expected lower future royalties.
General and administrative expenses for the three months ended March 31, 2021 increased by $875,900 (171.8%) to $1,385,600 compared to $509,700 for the three months ended March 31, 2020, due to the expansion of the Scientific Bioprocessing Systems Operations, stock options expense, and expenses related to M&A activities.
Selling expenses for the three months ended March 31, 2021 increased $1,041,200 (301.9%) to $1,386,100 from $344,900 for the three months ended March 31, 2020, due to increased sales and marketing costs related to personnel (including stock options expense), websites, market research, and advertising expenses incurred by the Bioprocessing Systems Operations, and to a lesser extent increased online marketing for the Benchtop Laboratory Equipment Operations’ Torbal pill counter product line.
Research and development expenses increased by $151,100 (50.6%) to $450,000 for the three months ended March 31, 2021 compared to $298,900 for the three months ended March 31, 2020, primarily due to the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing, facilities, and materials and to new product development costs related to the Benchtop Laboratory Equipment Operations.
In the three months ended March 31, 2020, the Company reflected a non-recurring charge of termination costs for the severance pay and related payroll costs, pertaining to the early termination in February 2020 of the Company's Vice President of Corporate Strategy and Vice President of Sales for the Company's wholly-owned subsidiary, Altamira Instruments, Inc. which was sold at the end of the second quarter.
Total other income (expense), net was $28,600 for the three months ended March 31, 2021 compared to ($41,900) for the three months ended March 31, 2020, primarily due to increased interest and dividend income generated from investment securities, and holding losses on investments in the prior year period.
The Company reflected an income tax benefit related to continuing operations of $378,200 for the three months ended March 31, 2021 compared to $45,500 for the three months ended March 31, 2020 due to the increased loss for the period.
The Company reflected income from discontinued operations of $16,400 for the three months ended March 31, 2021, compared to a $99,600 loss for the three months ended March 31, 2020, primarily due to revenue generated post-sale of substantially all the assets of Altamira Instruments, Inc.
The Company reflected no income tax expense or benefit for the three months ended March 31, 2021 and an income tax benefit related to discontinued operations of $16,400 for the three months ended March 31, 2020 due to the loss during the prior year period.
The net income from discontinued operations was $16,400 for the three months ended March 31, 2021 compared to net loss of $83,200 for the three months ended March 31, 2020, primarily due to revenue generated post-sale of substantially all the assets of Altamira Instruments, Inc.
As a result of the foregoing, the Company recorded a net loss of $1,435,600 for the three months ended March 31, 2021 compared to a net loss of $314,600 for the three months ended March 31, 2020.
The Nine Months Ended March 31, 2021 Compared With The Nine Months Ended March 31, 2020
Net revenues for the nine months ended March 31, 2021 increased $1,010,600 (16.2%) to $7,245,100 from $6,234,500 for the nine months ended March 31, 2020, reflecting a $1,483,000 increase in net sales of benchtop laboratory equipment, and a decrease of $632,800 in earned royalties by the Bioprocessing Systems Operations due to terminated patents. The Benchtop Laboratory Equipment sales reflected $1,560,700 of Torbal brand gross product sales for the nine months ended March 31, 2021, compared to $1,428,900 in the nine months ended March 31, 2020.
The overall gross profit percentage for the nine months ended March 31, 2021 was 52.8% and 52.2% for the nine months ended March 31, 2020, which reflected a higher gross profit margin percentage for the Benchtop Laboratory Equipment Operations due to fixed overhead on increased sales.
General and administrative expenses for the nine months ended March 31, 2021 increased $983,600 (67.5%) to $2,441,700 from $1,458,100 for the nine months ended March 31, 2020, due to the expansion of the Scientific Bioprocessing Systems Operations, stock options expense, and expenses related to M&A activities.
Selling expenses for the nine months ended March 31, 2021 increased $1,778,600 (202.0%) to $2,658,900 from $880,300 for the nine months ended March 31, 2020, due to increased sales and marketing costs related to personnel (including stock options expense), websites, market research, and advertising expenses incurred by the Bioprocessing Systems Operations, and to a lesser extent increased online marketing for the Benchtop Laboratory Equipment Operations’ Torbal pill counter product line.
Research and development expenses increased by $228,700 (28.8%) to $1,024,000 for the nine months ended March 31, 2021 compared to $795,300 for the nine months ended March 31, 2020, primarily due to the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing, facilities, and materials and to new product development costs related to the Benchtop Laboratory Equipment Operations.
In the nine months ended March 31, 2020, the Company reflected a non-recurring charge of termination costs for the severance pay and related payroll costs, pertaining to the early termination in February 2020 of the Company's Vice President of Corporate Strategy and Vice President of Sales for the Company's wholly-owned subsidiary, Altamira Instruments, Inc. which was sold at the end of the second quarter.
Total other income (expense), net was $93,700 for the nine months ended March 31, 2021 compared to ($30,100) for the nine months ended March 31, 2020, primarily due to increased interest and dividend income generated from investment securities, and holding losses on investments in the prior year period.
The Company reflected an income tax benefit related to continuing operations of $472,300 for the nine months ended March 31, 2021 compared to $15,000 for the nine months ended March 31, 2020 due to the increased loss for the current year period.
The Company reflected a loss from discontinued operations of $758,400 for the nine months ended March 31, 2021, compared to $360,300 for the nine months ended March 31, 2020, due to the loss on disposal in the current year period.
The Company reflected an income tax benefit related to discontinued operations of $179,900 for the nine months ended March 31, 2021 compared to $67,000 for the nine months ended March 31, 2020 due to the increased loss during the current year period.
The net loss from discontinued operations was $578,500 for the nine months ended March 31, 2021 compared to $293,300 for the nine months ended March 31, 2020, primarily due to the loss on disposal during the current year period.
As a result of the foregoing, the Company recorded a net loss of $2,311,400 for the nine months ended March 31, 2021 compared to a net loss of $367,200 for the nine months ended March 31, 2020.
Liquidity and Capital Resources. Cash and cash equivalents decreased by $6,932,200 to $627,500 as of March 31, 2021 from $7,559,700 as of June 30, 2020, primarily due to converting cash on-hand to short term liquid investment securities and the loss for the period.
Net cash used in operating activities was $2,592,500 for the nine months ended March 31, 2021 compared to net cash used of $803,800 during the nine months ended March 31, 2020, primarily due to the increased loss for the period. Net cash used in investing activities was $4,763,100 for the nine months ended March 31, 2021 compared to $66,300 used during the nine months ended March 31, 2020, principally due to net purchases of investments, and to a lesser extent new capital equipment purchases by the Bioprocessing Systems Operations during the current period, partially offset by the cash received from the sale of the subsidiary. Net cash provided by financing activities was $423,400 for the nine months ended March 31, 2021, due to a Payroll Protection Program loan received by the Federal Government, compared to $7,000 provided during the nine months ended March 31, 2020 from cash proceeds related to the exercises of stock options.
The Company's working capital decreased by $1,222,600 to $9,325,900 as of March 31, 2021 compared to $10,548,500, as of June 30, 2020 mainly due to the loss during the period.
The Company has a Demand Line of Credit through December 2021 with First National Bank of Pennsylvania which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, 3.25% currently. Advances on the line, are secured by a pledge of the Company’s assets including inventory, accounts, chattel paper, equipment and general intangibles of the Company. As of March 31, 2021, no borrowings were outstanding under such line.
Management believes that the Company will be able to meet its cash flow needs during the 12 months ending March 31, 2022 from its available financial resources including, its cash and investment securities, operations and the line of credit.
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item 4. Controls and Procedures
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'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 | |
31. | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32. | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Reports on Form 8-K:
Current Report filed on Form 8-K dated July 22, 2020 reporting under Items 1.01 and 5.2.
Current Report filed on Form 8-K dated August 13, 2020 reporting under Item 5.03.
Current Report filed on Form 8-K dated December 1, 2020 reporting under Items 1.01 and 2.01.
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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.
Date: May 17, 2021 | SCIENTIFIC INDUSTRIES, INC. (Registrant) /s/ Helena R. Santos | |
Helena R. Santos President, Chief Executive Officer, Treasurer Chief Financial and Principal Accounting Officer |
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