Forward-Looking Statements.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements for the fiscal years ended June 30, 2022 (as
restated) and 2021, and the six month transition periods ended December 31, 2022
and 2021 (unaudited), and the related notes thereto, which have been prepared in
accordance with generally accepted accounting principles in the United States
("U.S. GAAP"). 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.
Restatement of Previously Issued Consolidated Financial Statements.
Scientific Industries, Inc, (the "Company") has restated the Company's
consolidated financial statements as of and for the year ended June 30, 2022
contained in this Annual Report on Form 10-KT. Refer to the "Explanatory Note"
preceding Item 1 above, for background on the restatement, the fiscal and
interim periods impacted, control considerations, and other information. In
addition, the Company has restated certain previously reported financial
information at June 30, 2022 and for the fiscal year ended June 30, 2022 in this
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations. See Note 19 ("Restatement of Prior Period") and Note 20
("Quarterly Financial Data (Unaudited)"), in Item 8, Financial Statements and
Supplementary Data, for additional information related to the restatement,
including descriptions of the misstatements and the impacts on our consolidated
financial statements.
Overview.
Scientific Industries, Inc., a Delaware corporation ("SI" and along with its
subsidiaries, the "Company", "we", "our"), is engaged in the design,
manufacture, and marketing of standard benchtop laboratory equipment ("Benchtop
Laboratory Equipment"), and through its wholly-owned subsidiary, Scientific
Bioprocessing Holdings, Inc., a Delaware corporation ("SBHI"), the design,
manufacture, and marketing of bioprocessing systems and products ("Bioprocessing
Systems"). SBHI has two wholly-owned subsidiaries - Scientific Bioprocessing,
Inc., a Delaware corporation ("SBI"), and aquila biolabs GmbH, a German
corporation ("Aquila"). The Company's products are used primarily for research
purposes by universities, pharmaceutical companies, pharmacies, national
laboratories, medical device manufacturers, 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.
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The Company's Board of Directors approved the change in the Company's fiscal
year end to December 31 from June 30, effective November 9, 2022. As a result of
this change, the consolidated financial statements include the Company's
financial results for the six-month transition period of July 1, 2022 through
December 31, 2022. The information for the six months ended December 31, 2021 is
presented for comparative purposes only and is unaudited.
The Company's results are from the Benchtop Laboratory Equipment operations and
the Bioprocessing Systems operations. The Company realized a loss from
continuing operations before income tax benefit of $4,073,100 for the six month
period ended December 31, 2022 compared to $2,853,600 for the six month period
ended December 31, 2021 (unaudited), and $11,281,700 for fiscal year ended June
30, 2022 (as restated) compared to a loss of $4,055,000 for fiscal year ended
June 30, 2021, primarily due to increased operating expenses of its
Bioprocessing Systems operations due to its expansion and integration following
the acquisition of Aquila in April 2021. These expenses include significant
amounts for product development, sales and marketing costs, and non-cash
compensation expense related to stock options and depreciation and amortization,
partially offset by the profits generated by the Benchtop Laboratory Equipment
operations. The results for the fiscal year ended June 30, 2022 (as restated),
reflected a non-cash goodwill impairment charge of $4,280,100 to the goodwill of
the Bioprocessing Systems Operations.
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.
Six Month Transition Period Ended December 31, 2022 compared to the Six Month
Period Ended December 31, 2021 (Unaudited)
Net revenues for the six month period ended December 31, 2022 decreased $520,800
(9.0%) to $5,237,800 from $5,758,600 for six month period ended December 31,
2021 (unaudited) , reflecting a decrease of approximately $422,200 in net sales
in the Benchtop Laboratory Equipment operations. The Benchtop Laboratory
Equipment sales of the Torbal division products increased to $1,478,000 from
$1,245,300 for the six month periods ended December 31, 2022 and 2021
(unaudited), partially offset by decreased sales of the Genie division products
to $1,973,800 from $2,417,000 for the six month periods ended December 31, 2022
and 2021 (unaudited). The increased sales of the Torbal division products
benefitted from increased sales of its VIVID automated pill counter, while the
decreased sales of the Genie division products reflected a post COVID-19
normalization sales from the Vortex-Genie 2 product, which had benefitted from
sales for testing laboratories during the COVID-19 pandemic. The remaining
$98,600 decrease in net revenues for the six month period ended December 31,
2022 is primarily attributable to the Bioprocessing Systems Operations exclusion
of royalty fees from sublicensed patents and technology under a license
agreement which expired in August 2021, offset with new product sales from the
new DOTS platform of bioprocessing products introduced during the current six
month period ended December 31, 2022.
The gross profit percentage for the six-month period ended December 31, 2022
decreased to 44.3% from 50.7% for the six month period ended December 31, 2021
(unaudited), due primarily to increased materials, labor, and fixed overhead for
the Benchtop Laboratory Equipment Operations, and the absence of royalties in
the current year period for the Bioprocessing Systems Operations.
General and administrative expenses for the six-month period ended
December 31, 2022 decreased by $173,100 (6.1%) to $2,658,800 compared to
$2,831,900 for the six-month period ended December 31, 2021 (unaudited) due
primarily to the consolidation of operations in the Bioprocessing Systems
Operations within the Pittsburgh, Pennsylvania and Baesweiller, Germany
facilities.
Selling expenses for the six-month period ended December 31, 2022
increased by $406,200 (20.9%) to $2,349,000 from $1,942,800 for the six-month
period ended December 31, 2021 (unaudited), primarily due to a increase in sales
and marketing expenses incurred by the Bioprocessing Systems Operations and by
the Benchtop Laboratory Equipment operations principally due to increased sales
and marketing expenses for the Torbal Division's VIVID automated pill counter.
Research and development expenses for the six-month period ended
December 31, 2022 decreased $121,000 (8.0%) to $1,395,800 from $1,516,800 for
the six-month period ended December 31, 2021 (unaudited), due to the reduction
in the use of high-cost external consultants and consolidation of operations in
the Bioprocessing Systems Operations within the Pittsburgh, Pennsylvania and
Baesweiller, Germany facilities.
Total other income, net for the six-month periods ended December 31, 2022 and
2021 (unaudited) was $63,900 and $515,600, respectively. The decrease was due
primarily to the $433,700 forgiveness of the second PPP loan received by the
Company within the six-month period ended December 31, 2021 (unaudited).
The Company reflected income tax expense for continuing operations of $0 for the
six month period ended December 31, 2022 compared to income tax benefit of
$737,700 for the six month period ended December 31, 2021 (unaudited). The
income tax expense for the six month period ended December 31, 2022 includes a
$1,302,600 tax benefit, fully offset by a valuation allowance of $1,302,600
against the change of net deferred tax assets due to the uncertainty that the
net deferred tax assets will not be fully realized in the future.
As a result of the foregoing, the Company recorded a loss from continuing
operations of $4,073,100 for the six-month period ended December 31, 2022
compared to a loss from continuing operations of $2,116,300 for the six-month
period ended December 31, 2021 (unaudited).
The Company reflected net loss from discontinued operations of $6,300 for the
six-month period ended December 31, 2022, compared to a net income of $11,000
for the six-month transition period ended December 31, 2021 (unaudited), which
is primarily due to loss on the sale of the majority of Altarmira's assets
during the fiscal year ended June 30, 2021.
As a result of the above, the Company recorded a net loss of $4,079,400 for the
six-month period ended December 31, 2022 compared to a net loss of $2,105,300
for the six-month period ended December 31, 2021 (unaudited).
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Year Ended June 30, 2022 (As Restated) compared to Year Ended June 30, 2021
Net revenues for fiscal year ended June 30, 2022 increased $1,625,300 (16.6%) to
$11,400,500 from $9,775,200 for fiscal year ended June 30, 2021, reflecting an
increase of approximately $937,500 in net sales of Benchtop Laboratory Equipment
operations. The Benchtop Laboratory Equipment sales of Genie brand products
increased year-over-year to $7,517,200 from $6,931,900 for fiscal year ended
June 30 2022 and 2021, respectively. Torbal® brand product sales totaled
$2,463,900 and $2,111,700 for fiscal year ended June 30 2022 and 2021,
respectively, primarily due to increased sales of its automated VIVID pill
counter. Approximately $687,800 of the increase in net revenues for fiscal year
ended June 30 2022 is primarily attributable to inclusion of a full fiscal year
of Aquila sales as compared to two months of Aquila sales contribution in fiscal
2021, which sales were attributable to Aquila's bioprocessing products including
the CGQ for Biomass monitoring in shake flasks, the LIS for automated feeding in
shake flasks, and a line of coaster systems and flow-through cells for pH and DO
monitoring.
The gross profit percentage for fiscal year ended June 30, 2022 of 50.3%
approximated fiscal 2021's gross profit percentage of 50.9%.
General and administrative expenses for fiscal year ended June 30, 2022
increased by approximately $1,788,100 (44.4%) to $5,816,600 compared to
$4,028,500 for fiscal year ended June 30, 2021 due primarily to
compensation-related costs resulting from stock option grants and increased
administrative costs from the Bioprocessing Systems operations.
Selling expenses for fiscal year ended June 30, 2022 increased approximately
$278,900 (6.9%) to $4,310,800 from $4,031,900 for fiscal year ended June 30,
2021, primarily due to increased sales and marketing expenses incurred by the
Bioprocessing Systems operations for sales and marketing personnel, sales and
marketing activities.
Research and development expenses increased $1,249,500 (76.9%) to $2,873,300 for
fiscal year ended June 30, 2022 compared to $1,623,800 for fiscal year ended
June 30, 2021, due to increased product development expenditures by the
Bioprocessing Systems operations.
As referenced in the "Explanatory Note" preceding Item 1 above, during the
preparation of its audited financial statements for the six-month transition
period from July 1, 2022 to December 31, 2022, the Company identified an error
in the use of future projections and weighted average cost of capital used in
the annual goodwill impairment testing of the Company's Bioprocessing Systems
segment. As a result of the annual goodwill impairment analysis, the Company
determined the carrying value of the Bioprocessing Systems reporting unit
exceeded its fair value and therefore the associated goodwill was impaired. Upon
further analysis of the error, the Company determined that a goodwill impairment
charge to the Bioprocessing Systems segment should have been applied in the
fiscal year ended June 30, 2022. As a result of restating the fiscal year ended
June 30, 2022 consolidated financial statements, the Company recorded a goodwill
impairment charge of $4,280,100 to the goodwill of the Bioprocessing Systems
reporting unit as the excess of carrying value over fair value was higher than
the recorded amount of goodwill for the reporting unit. There was no goodwill
impairment charge for fiscal year ended June 30, 2021.
Total other income, net was $262,400 for fiscal year ended June 30, 2022
compared to $653,800 in fiscal year ended June 30, 2021. The decrease was due
primarily to the increase in unrealized loss in investment securities of
$233,700 offset by the $433,700 forgiveness of the second PPP loan received by
the Company, compared to fiscal year ended June 30, 2021 that was due primarily
to the $531,100 forgiveness of the first PPP loan received by the Company and
increased interest income resulting from increased investment securities
balances.
The Company reflected income tax expense for continuing operations of $2,390,800
for fiscal year ended June 30, 2022 compared to income tax benefit of $945,000
for fiscal year ended June 30, 2021. As referenced in Item (Explanatory Note)
above, as a result of the restated consolidated financial statements for the
year ended June 30, 2022, the Company recorded a full valuation allowance of
$5,116,000 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
and their for the Company recorded of full valuation allowance. The full
valuation allowance of $5,116,000 was offset by a income tax benefit
of $2,717,200. 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.
As a result of the foregoing, the Company recorded a loss from continuing
operations of $13,672,500 for fiscal year ended June 30, 2022 compared to a loss
from continuing operations of $3,110,000 for fiscal year ended June 30, 2021.
The Company reflected net income from discontinued operations of $4,400 for
fiscal year ended June 30, 2022, compared to a net loss of $562,500 for fiscal
year ended June 30, 2021, which is primarily due to loss on the sale of the
majority of Altarmira's assets during fiscal year ended June 30, 2021.
As a result of the above, the Company recorded a net loss of $13,668,100 for
fiscal year ended June 30 2022 compared to a net loss of $3,672,500 for fiscal
year ended June 30, 2021.
Liquidity and Capital Resources.
Cash and cash equivalents decreased by $1,044,000 to $1,927,100 as of December
31, 2022 from $2,971,100 as of June 30, 2022, primarily due to the increased
operating costs from the Bioprocessing Systems operations and Corporate overhead
operations. We expect to utilize cash reserves and income from the Benchtop
Laboratory Equipment segment until sales in our Bioprocessing Systems segment
reach a level sufficient to fund ongoing operations. As of December 31, 2022,
the Company expects that it will be able to meet its cash flow needs during the
next 12 months from cash derived from its operations, cash on-hand and through
the issuance of additional shares of common stock and warrants to purchase
common stock. If the Company is unable to raise capital in the future, the
Company may need to curtail expenditures by scaling back certain research and
development or other expenditures.
Net cash used in operating activities was $2,849,000 for the six-month period
ended December 31, 2022 and $1,931,000 for the six month period ended December
31, 2021 (unaudited). The increase is primarily due increased operational costs
from the Bioprocessing Systems operations and Corporate overhead operations in
the current period.
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Net cash provided by (used) in investing activities was $1,803,500 for the
six-month period ended December 31, 2022 compared to ($3,386,800) for the
six-month period ended December 31, 2021 (unaudited). The increase is primarily
due to proceeds from redemption of investment securities and decrease in
purchase of investment securities in the current period.
Net cash used in financing activities was $0 for the six-month period ended
December 31, 2022 compared to $163,400 for the six-month period ended December
31, 2021 (unaudited). The increase is primarily due to the timing and funding of
bank overdraft activities.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). In
connection with the preparation of our financial statements, we are required to
make assumptions and estimates about future events and apply judgments that
affect the reported amounts of assets, liabilities, revenue, expenses and the
related disclosures. We base our assumptions, estimates and judgments on
historical experience, current trends and other factors that management believes
to be relevant at the time our consolidated financial statements are prepared.
On an ongoing basis, management reviews the accounting policies, assumptions,
estimates and judgments to ensure that our financial statements are presented
fairly and in accordance with GAAP. However, because future events and their
effects cannot be determined with certainty, actual results could differ from
our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 - Summary of
Significant Accounting Policies, of the Notes to Consolidated Financial
Statements, included in Item 8, Financial Statements and Supplementary Data, of
this Transition Report on Form 10-KT. Management believes that the following
accounting policies are the most critical to aid in fully understanding and
evaluating our reported financial results, and they require management's most
difficult, subjective or complex judgments, resulting from the need to make
estimates about the effect of matters that are inherently uncertain. Management
has reviewed these critical accounting estimates and related disclosures with
the Audit Committee of our board of directors.
Fair Value Estimates
Goodwill and Finite Lived Intangible Assets and Long-Lived Assets, Net
Goodwill - Goodwill represents the excess of purchase price over the fair value
of identifiable net assets acquired in a business combination. Goodwill and
long-lived intangible assets are tested for impairment at least annually in
accordance with the provisions of Accounting Standards Codification ("ASC") No.
350, "Intangibles- Goodwill and Other" ("ASC No. 350"). ASC No. 350 requires
that goodwill be tested for impairment at the reporting unit level (operating
segment or one level below an operating segment) on an annual basis and between
annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying value.
Application of the goodwill impairment test requires judgment, including the
identification of reporting units, assignment of assets and liabilities to
reporting units, assignment of goodwill to reporting units, and determination of
the fair value of each reporting unit.
As of December 31, 2022, the Company had two reporting units, the Benchtop
Laboratory Equipment Operations and the Bioprocessing Systems. Goodwill is
tested for impairment by reporting unit on an annual basis as of December 31,
the last day of its fiscal year, and in the interim if events and circumstances
indicate that goodwill may be impaired. Prior to the change in the Company's
fiscal year from the last day of June to a calendar fiscal year end, goodwill
was tested for impairment on an annual basis as of June 30, the last day of its
then fiscal year, and in the interim if events and circumstances indicated that
goodwill may be impaired. The voluntary change is preferable under the
circumstances as a better alignment with the Company's strategic planning and
forecasting process given the Company's change in fiscal year end. The events
and circumstances that are considered in the Company's goodwill impairment
testing include business climate and market conditions, legal factors, operating
performance indicators and competition. Impairment of goodwill is first assessed
using a qualitative approach. If the qualitative assessment suggests that
impairment is more likely than not, a quantitative analysis is performed. The
quantitative analysis involves a comparison of the fair value of the reporting
unit with its carrying amount. The fair value is determined using the income
approach, which utilizes the present value of expected future cash flows for
each reporting unit based on estimate future cash flows, the timing of these
cash flows, and a discount rate based on a weighted average cost of capital. The
assumptions used to estimate future cash flows and the development of forecasts
used in the fair value determination were based on assumptions made using the
best information available at the time, subject to inherent risk and judgement.
If the carrying amount of a reporting unit exceeds its fair value, an impairment
loss is recognized in an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit. To the extent additional
information arises, market conditions change, or our strategies change, it is
possible that the conclusion regarding whether our remaining goodwill is
impaired could change and result in future goodwill impairment charges that will
have a material effect on our consolidated financial position or results of
operations.
During the six months ended December 31, 2022, the Company performed the annual
goodwill impairment analysis. The Company elected to perform the qualitative
analysis for the Benchtop Laboratory Equipment Operation reporting unit. These
qualitative analyses evaluated factors, including, but not limited to, economic,
market and industry conditions, cost factors and the overall financial
performance of the reporting unit. In completing these assessments, the Company
noted no changes in events or circumstances that indicated that it was more
likely than not that the fair value of the reporting unit was less than its
carrying amount.
As referenced in the "Explanatory Note" preceding Item 1 above, during the
preparation of its audited financial statements for the six-month transition
period July 1, 2022 to December 31, 2022, the Company identified an error in the
use of future projections and weighted average cost of capital used in the
annual goodwill impairment testing of the Company's Bioprocessing Systems
segment. As a result of the annual goodwill impairment analysis, the Company
determined the carrying value of the Bioprocessing Systems reporting unit
exceeded its fair value and therefore the associated goodwill was impaired. Upon
further analysis of the error, the Company determined that a goodwill impairment
charge to the Bioprocessing Systems segment should have been applied in the
fiscal year ended June 30, 2022. As a result of restating the fiscal year ended
June 30, 2022 consolidated financial statements, the Company recorded a goodwill
impairment charge of $4,280,100 to the goodwill of the Bioprocessing Systems
reporting unit as the excess of carrying value over fair value was higher than
the recorded amount of goodwill for the reporting unit. As of December 31, 2022
there was no remaining goodwill to the Bioprocessing System reporting unit.
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Intangible assets consist primarily of acquired technology, customer
relationships, non-compete agreements, patents, licenses, websites, intellectual
property in-process research and development ("IPR&D"), trademarks and trade
names. All intangible assets are amortized on a straight-line basis over the
estimated useful lives of the respective assets, generally 3 to 10 years. The
Company continually evaluates the remaining estimated useful lives of intangible
assets that are being amortized to determine whether events or circumstances
warrant a revision to the remaining period of amortization. The Company reviews
the recoverability of our finite-lived intangible assets and long-lived assets,
when events or conditions occur that indicate a possible impairment exists.
Determining whether impairment has occurred typically requires various estimates
and assumptions, including determining which cash flows are directly related to
the potentially impaired asset, the useful life over which cash flows will
occur, their amount and the asset's residual value, if any. The assessment for
recoverability is based primarily on our ability to recover the carrying value
of its long-lived and finite-lived intangible assets from expected future
undiscounted net cash flows. If the total of expected future undiscounted net
cash flows is less than the total carrying value of the assets the asset is
deemed not to be recoverable and possibly impaired. We then estimate the fair
value of the asset to determine whether an impairment loss should be recognized.
An impairment loss will be recognized if the asset's fair value is determined to
be less than its carrying value. Fair value is determined by computing the
expected future discounted cash flows.
During the six months ended December 31, 2022, the Company determined a
technology intangible asset in the Bioprocessing segment was impaired and wrote
it down by $51,500, net of accumulated amortization, to its estimated fair value
of $0. There was no impairment of intangible assets for the six months ended
December 31, 2021 (unaudited) or for the years ending June 30, 2022 and 2021,
respectively.
Income tax
The Company and its subsidiaries file a consolidated U.S. federal income tax
return, and a tax return in Germany for Aquila. Income taxes are accounted for
under the asset and liability method. The Company provides for federal, and
state income taxes currently payable, as well as for those deferred due to
timing differences between reporting income and expenses for financial statement
purposes versus tax purposes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributed to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted income tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect of a change in income tax rates is recognized as income or expense in
the period that includes the enactment date.
In accordance with ASC 740 "Accounting for Income Taxes" ("ASC 740"), the
Company evaluated the deferred tax assets to determine if valuation allowances
are required or should be adjusted. ASC 740 requires that companies assess
whether valuation allowances should be established against their deferred tax
assets based on consideration of all available evidence, both positive and
negative, using a "more likely than not" standard of whether the deferred tax
assets will be realized. As referenced in Item IA (Explanatory Note) above, as a
result of the restated consolidated financial statements as of and for the year
ended June 30, 2022, the Company recorded a full valuation allowance of
$5,116,000 against the consolidated net deferred tax assets 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 and
therefore the Company recorded a full valuation allowance. During the six months
ended December 31, 2022, the Company recorded a full valuation allowance of
$1,302,600 to the period change in the net deferred tax assets 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 and
therefore the Company recorded a full valuation allowance. In the event that in
the future the Company changes its 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.
ASC No. 740 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. ASC
No. 740 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. As of
December 31, 2022 and June 30, 2022 and 2021, the Company did not have any
unrecognized tax benefits related to various federal and state income tax
matters.
The Company recognizes interest and penalties on any unrecognized tax benefits
as a component of income tax expense. The Company does not have any accrued
interest or penalties associated with any unrecognized tax benefits. The Company
is subject to U.S. federal income tax, as well as various state jurisdictions.
The Company is currently open to audit under the statute of limitations by the
federal and state jurisdictions for the fiscal years ended June 30, 2018 and
after. The Company is currently open to audit under the statute of limitations
by German tax authorities for the years ended December 31, 2018. The Company
does not anticipate any material amount of unrecognized tax benefits within the
next 12 months.
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