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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-14 · 36 added, 86 removed, 30 unchanged (80% of the section changed)

1 unchanged sentence

Forward-Looking statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-KT for the six month transition period beginning July 1, 2022 and ended December 31, 2022, filed on April 17, 2023.

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.

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The Company’s products are used primarily for research purposes by universities, pharmaceutical companies, pharmacies, national laboratories, medical device manufacturers, and other industries performing laboratory-scale research.

Until November 30, 2020, the Company was also engaged in the design, manufacture and marketing of customized catalyst research instruments through its wholly-owned subsidiary, Altamira Instruments, Inc, a Delaware corporation (“Altamira”).

On November 30, 2020, the Company sold significantly all of Altamira’s assets and Altamira’s operations were discontinued.

The challenges posed by the COVID-19 pandemic on the global economy affected the Company with minor or temporary disruptions to its operations.

The Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self-quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment.

In fiscal years ended June 30, 2020 and fiscal 2021, the Company received loans from the Paycheck Protection Program (the “PPP”) administered by the U.S.

Small Business Administration, all of which were repaid or forgiven through the fiscal year ended June 30, 2022.

The Company has not experienced and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of its customers.

The Company experienced some delays from its supply chain which caused delayed delivery of some products, however this is deemed temporary and does not affect the Company’s major product, the Vortex-Genie 2.

The extent to which the COVID-19 outbreak ultimately impacts the Company’s business, future revenues, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and actions to curtail the virus, and how quickly and to what extent normal economic and operating conditions can resume.

Even after the COVID-19 outbreak has subsided, the Company may experience a significant impact to its business as a result of the global economic impact of COVID-19, including any economic downturn or recession that has occurred or may occur in the future.

As a result of the impact of COVID-19 on capital markets, the availability, amount, and type of financing available to the Company in the near future is uncertain and cannot be assured and is largely dependent upon evolving market conditions and other factors.

The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become available.

Results of Operations .

Three months ended September 30, 2023 and 2022 (as Restated)

The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations.

The Company realized a loss from continuing operations before income tax expense of $2,201,100 for the three months ended September 30, 2023 compared to a $1,709,200 loss from continuing operations before income tax expense for the three months ended September 30, 2022, primarily due to the increased product development expenses for the new VIVID products for the Benchtop Laboratory Equipment Operations and operating expenses of its Bioprocessing Systems Operations, which were partially offset by increased revenue of bioprocessing products, and decreased corporate overhead expenses.

Net revenues for the three months ended September 30, 2023 decreased $84,500 (3.2%) to $2,585,500 from $2,670,000 for the three months ended September 30, 2022, due primarily to a $196,300 decrease in Benchtop Laboratory Equipment Operations’ revenue resulting from a $363,900 decrease in the Genie Division’s revenues attributable to a decline in COVID-related products, offset by increased revenues of $167,600 in the Torbal Division.

Sales of Torbal brand products amounted to approximately $850,700 for the three months ended September 30, 2023 compared to $683,100 in the prior period.

Revenue in the Bioprocessing Systems Operations increased by $111,800 compared to prior period.

The gross profit percentage for the three months ended September 30, 2023 and 2022, were 45.7% and 50.5%, respectively.

The 4.8% decrease is due primarily to increases in material costs due to product mix, and labor and overhead in the Benchtop Laboratory Equipment Operations.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2023 and 2022, were $896,300 and $1,607,500, respectively.

The decrease of $711,200 (44.2%) is due primarily to decreased expenses due to the consolidation and reorganization of operations in the Bioprocessing Systems Operations of the Pittsburgh, Pennsylvania and Baesweiller, Germany facilities and decreased corporate overhead expenses as compared to prior period.

Selling expenses

Selling expenses for the three months ended September 30, 2023 and 2022, were $1,614,200 and $875,700, respectively.

The increase of $738,500 (84.3%) is due primarily to the increased marketing expenses and a noncash stock-based compensation expense in the Bioprocessing Systems Operations as compared to prior period, and increased sales and marketing expenditures in the Benchtop Laboratory Equipment Operations as compared to prior period.

Research and development expenses

Research and development expenses for the three months ended September 30, 2023, and 2022, were $895,900 and $560,100, respectively.

The increase of $335,800 (60.0%) is due primarily to the increased research and development expenditures in the Bioprocessing Systems Operations and increased research and development related to the VIVID automated pill counter in the Benchtop Laboratory Equipment Operations as compared to prior period.

Impairment of goodwill and intangible assets

Impairment of goodwill and intangible assets for the three months ended September 30, 2023 and 2022, were $0 and $0, respectively.

Other income (expense), net

Other income (expense), net, for the three months ended September 30, 2023 and 2022, were $24,300 and ($15,000), respectively.

The increase is due primarily to the increased unrealized gain and interest income on investment securities during the current quarter period compared to prior quarter period.

Income tax expense for the three months ended September 30, 2023, and 2022, was $0 and $0, respectively.

In addition, the Company maintains a full valuation allowance of $8,734,400 against the consolidated net deferred tax asset as the Company determined the net deferred tax assets which includes net operating loss carry-forwards and other tax credits, are more likely not to be realized in the future.

For the three months ended September 30, 2023, the full valuation allowance of $8,734,400 is offset by a income tax benefit of $592,400.

As referenced in the Restatement Background (Financial Statement – Note 1) above, as a result of the restated consolidated unaudited financial statements as of and for the quarter period ended September 30, 2022, the income tax expense for the three months ended September 30, 2022 reflects a full valuation allowance against the deferred tax asset of $5,533,200 offset by a income tax benefit of $417,200.

In the event that in the future the Company changes the determination as to the amount of deferred tax assets that can be realized, the Company will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

Nine months ended September 30, 2023 and 2022

The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations.

The Company realized a loss from continuing operations before income tax benefit of $6,758,100 for the nine months ended September 30, 2023 compared to a $10,137,300 loss from continuing operations before income tax expense for the nine months ended September 30, 2022.

Excluding the prior period goodwill impairment expense of $4,280,100, the Company realized an increase in net revenues and operating expenses in the current period compared to prior period, as discussed below.

Net revenues for the nine months ended September 30, 2023 increased $61,500 (0.7%) to $8,373,400 from $8,311,900 for the nine months ended September 30, 2022, due primarily to an increase of $50,200 in revenues of the Benchtop Laboratory Equipment Operations resulting from increased sales of Torbal products and an increase of $11,300 in revenues of the Bioprocessing Systems Operations as compared to prior period.

Sales of Torbal brand products amounted to approximately $2,659,200 for the nine months ended September 30, 2023 compared to $1,901,800 in the prior period.

The gross profit percentage for the nine months ended September 30, 2023 and 2022, were 46.2% and 50.1%, respectively.

The 3.9% decrease is due primarily to increases in material costs due to product mix, and labor and overhead in the Benchtop Laboratory Equipment Operations.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2023 and 2022, were $3,765,500 and $4,592,200, respectively.

The decrease of $826,700 (18.0%) is due primarily to decreases expenses resulting from the consolidation and reorganization of operations in the Bioprocessing Systems Operations of the Pittsburgh, Pennsylvania and Baesweiller in the current year period.

Selling expenses

Selling expenses for the nine months ended September 30, 2023 and 2022, were $4,650,800 and $3,243,700, respectively.

The increase of $1,407,100 (43.4%) is due primarily to increased marketing expenses of the Bioprocessing Systems Operations as compared to prior period, and to a lesser extent, increased sales and marketing expenditures in the Benchtop Laboratory Equipment Operations as compared to prior period.

Research and development expenses

Research and development expenses for the nine months ended September 30, 2023, and 2022, were $2,371,900 and $1,916,600, respectively.

The increase of $455,300 (23.8%) is due primarily to the increased research and development expenditures in the Bioprocessing Systems Operations and increased research and development related to the VIVID automated pill counter in the Benchtop Laboratory Equipment Operations as compared to prior period.

Impairment of goodwill and intangible assets

Impairment of goodwill and intangible assets for the nine months ended September 30, 2023 and 2022, were $0 and $4,280,100, respectively.

There was no impairment of goodwill and intangible assets for the nine months ended September 2023.

For the nine months ended September 30, 2022, the Company recorded a $4,280,100 impairment of goodwill as a result of a goodwill impairment analysis, of which the Company determined the carrying value of the Bioprocessing Systems reporting unit exceeded its fair value and therefore the associated goodwill was impaired.

Other income (expense), net

Other income (expense), net, for the nine months ended September 30, 2023 and 2022, were $161,100 and ($268,200), respectively.

The increase is due primarily to the increased unrealized gain and interest income on investment securities compared to prior period.

Income tax expense for the nine months ended September 30, 2023, and 2022, was $108,800 and $3,128,100, respectively.

The income tax expense for the nine months ended September 30, 2023, of $108,800 is attributable to the finalization of a income tax receivable filing claim.

The income tax expense of $3,128,100 for the nine months ended September 30, 2022, reflects a full valuation allowance against the consolidated net deferred tax assets recorded in the current period as the Company determined the consolidated net deferred tax assets which includes net operating loss carry-forwards and other tax credits, are more likely not to be realized in the future.

In the event in the future the Company changes the determination as to the amount of deferred tax assets that can be realized, the Company will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations and its corporate operation.

The Company realized a loss from continuing operations of $2,051,600 for the three months ended March 31, 2024 compared to a $2,371,900 loss from continuing operations for the three months ended March 31, 2023, primarily due to increased revenue in the Bioprocessing Systems Operations segment along with a decrease in noncash stock compensation expense, and decreased Corporate expenses compared to the prior year period,

Net revenues for the three months ended March 31, 2024 decreased $321,900 (11.5%) to $2,483,500 from $2,805,400 for the three months ended March 31, 2023, driven primarily by lower revenues of Benchtop Laboratory Equipment Operations of $414,800, due primarily to decreased orders for Torbal products in part due to unavailability of product due to extensive ocean shipping delays, partially offset by an increase of $92,900 (41%) in revenues of the Bioprocessing Systems Operations related to the Company’s Aquila legacy products.

The gross profit percentage for the three months ended March 31, 2024 and 2023, was 41.9% and 47.7%, respectively.

The 5.8% decrease is due primarily to lower gross margin percentage in the Benchtop Laboratory Equipment Operations, resulting from increases in material, labor and overhead costs.

General and administrative

General and administrative expenses for the three months ended March 31, 2024 and 2023, were $1,521,800 and $1,569,300, respectively.

The decrease of $47,500 (3.0%) is due primarily to decreased Corporate expenses related to stock-based compensation costs compared to prior year period, partially offset by employee related costs associated with a reduction in force in the Bioprocessing Systems Operations.

Selling expenses for the three months ended March 31, 2024 and 2023, were $897,800 and $1,444,800 , respectively.

The decrease of $547,000 (37.9%) is due primarily to the reduction of sales and marketing employees and decreased non-cash stock-based compensation expenses in the Bioprocessing Systems Operations, and to a lower extent reductions in marketing activities by the Benchtop Laboratory Equipment Operations compared to prior year period.

Research and development

Research and development expenses for the three months ended March 31, 2024, and 2023, were $710,700 and $791,500, respectively.

The decrease of $80,800 (10.2%) is due primarily to the reduction of research and development expenditures related to the VIVID automated pill counter in the Benchtop Laboratory Equipment Operations as compared to prior year period.

Other income, net

Other income, net, for the three months ended March 31, 2024 and 2023, were $37,900 and $95,700, respectively.

The decrease is due primarily to the decrease in unrealized gain and interest income on investment securities, and a decrease in realized loss on investment securities during the current year period as compared to prior year period.

Income tax for the three months ended March 31, 2024, and 2023, was $0 and $0, respectively.

The Company maintains a full valuation allowance of $10,041,400 against the consolidated net deferred tax asset as the Company determined the net deferred tax assets which includes net operating loss carry-forwards and other tax credits, are not more likely than not to be realized in the future.

Liquidity and Capital Resources .

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We assess our liquidity in terms of our ability to generate cash to fund our short and long-term cash requirements.

We believe that our operating cash flows derived primarily from the Benchtop Laboratory Equipment Operations, our cash and investments on hand, and the availability of our line of credit, are not sufficient to fund our cash requirements for the next 12 months.

The accompanying unaudited condensed financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.

Management is in plans to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking third party equity and/or debt financing.

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

For the three months ended March 31, 2024, the Company generated negative cash flows from operations of $2,051,600 and has an accumulated deficit of $29,536,700 as of March 31, 2024.

In order to address these conditions, the Company has undertaken a number of strategic initiatives that management believes will provide sufficient funding to enable the Company to continue to operate as a going concern.

During the three months ended March 31, 2024, the Company continued to eliminate certain operating expenses in conjunction with its review of the strategic operational and product development plan for the Bioprocessing Systems Operations segment.

The Company identified expenses which the Company does not anticipate replacing or to be recurring in the Company’s operational plans for the foreseeable future, primarily in the form of reduced number of employees and related employment expenses.

An additional $716,776 of equity financing was raised in January 2024 as disclosed in Note 7.

Management is in plans to obtain such resources for the Company by obtaining capital through third party equity.

However, management cannot provide any assurances that the Company will be successful in accomplishing its plans.

As a result of the above actions, the Company believes that it will be able to meet its cash flow needs during the next 12 months from cash and investment securities on-hand, cash derived from its Benchtop Laboratory Equipment Operations, and availability of the Company’s line of credit.

The following table discloses our cash flows for the periods presented:

For the nine months ended September 30,

For the three months ended March 31,

Net cash used in operating activities

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Decrease in cash and cash equivalents

$ (1,411,700 )

$ (1,859,300 )

Net cash used in operating activities was $4,821,600 for the nine months ended September 30, 2023 compared to $4,725,500 for the nine months ended September 30, 2022.

The net increase of $96,100 is primarily due to the increased operational costs from the Bioprocessing Systems operations and corporate overhead operations in the current period compared to prior period.

Net cash provided by investing activities was $3,400,500 for the nine months ended September 30, 2023 compared to $504,100 used in the nine months ended September 30, 2022.

The net increase of $2,896,400 is primarily due to the increase in net redemption of investments, partially offset by the decrease in purchase of investment securities, in the current period compared to prior period.

Net cash provided by financing activities was $13,300 for the nine months ended September 30, 2023 compared to $2,554,100 for the nine months ended September 30, 2022.

The net decrease of $2,540,800 is primarily due to issuance of common stock in the prior period compared to the current period.

Net cash used in operating activities was $1,565,100 for the three months ended March 31, 2024 compared to $1,744,700 for the three months ended March 31, 2023.

The net decrease of $179,600 is primarily due to the decreased operational costs from the Bioprocessing Systems operations in the current period.

Net cash provided by investing activities was $480,600 for the three months ended March 31, 2024 compared to $893,700 provided in the three months ended March 31, 2023.

The net decrease of $413,10 is primarily due to the net decrease in net redemption of purchase of investment securities, in the current year period compared to prior year period.

Net cash provided by financing activities was $645,700 for the three months ended March 31, 2024 compared to $0 for the three months ended March 31, 2023.

The net increase of $645,700, is primarily due to issuance of common stock in the current year period.

Critical Accounting Estimates

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GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes.

“Note 2-Summary of significant accounting policies” to the Consolidated Financial Statements in our Annual Report on Form 10-KT for the six months transition period of July 1, 2022 through December 31, 2022 (“2022 Form 10-KT”) describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Our critical accounting estimates are identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Form 10-KT.

“Note 2-Summary of significant accounting policies” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”) describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Our critical accounting estimates are identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Form 10-K.

Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements, and actual results could differ from our assumptions and estimates, and such differences could be material.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis