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spk03: Good afternoon, and welcome to the Scientific Industries third quarter fiscal year 2022 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Joe Dorme with Lithum Partners. Please go ahead.
spk04: Thanks, Gary. Good afternoon, and thank you for joining us today to review the financial results of Scientific Industries, Inc. for the third quarter of fiscal year 2022, ended March 31st, 2022. With us today on the call are John Moore, Chairman, and Helena Santos, Chief Executive Officer. After the conclusion of today's prepared remarks, we'll open the call for questions. If anyone participating on today's call does not have a full copy of the press release, you can retrieve it from the company's website at scientificindustries.com or numerous other financial websites. Before we begin with prepared remarks, I'd like to remind everyone certain statements made by the management team of Scientific Industries during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended June 30, 2021. Forward-looking statements speak only as of the date the statements were made. The company can get no assurance that such forward-looking statements will prove to be correct. Scientific industry does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Now I'd like to turn the call over to Helena Santos, CEO of Scientific Industries. Helena?
spk01: Thank you, Jerome. Good afternoon and thank you for attending our company's fiscal 2022 third quarter earnings call. As John Moore will discuss in detail after me and as all of you who have been following our company for the past year know, we are aggressively investing to develop and sell new products. We are all well aware that this will require some patience, but as you can see from the financial results, We're already starting to generate revenues from the bioprocessing business, and our plan is to aggressively ramp up that while we continue to focus on the development of our future innovative product roadmap. But in order for us to accomplish all these goals, we need to have the systems to win. With the rapid expansion of our bioprocessing business, and therefore our company as a whole, one of the key factors for ensuring success is that we have the right tools in place. We must invest not only in R&D and sales and marketing, but all the tools necessary to support these functions. So for the remainder of this calendar year, we will also focus heavily on making sure we have those tools necessary to achieve the goals. This means having the right people and the right positions, the right systems, and a strong system of policies, procedures, and internal control processes in place to ensure accurate and timely financial reporting, especially as the bioprocessing business becomes more material. First, we've begun to do this by promoting Daniel Grunitz to CEO and President of FBI and Akilah. Mr. Grunitz already served as Akilah's CEO until the acquisition and led both R&D and operations at SBI ever since. During these last 12 months, he has demonstrated to me, to John Moore, and the entire board of directors that he possesses the discipline, the assertiveness, and the skill set that we need to lead the business into the next phase. Second, we hired a new CFO for our company. with the experience that is necessary to support our company, particularly in the area of international operations and implementing new systems of financial control across all the SI business areas. And third, we hired a new senior accountant for our German subsidiary, Akila, to be responsible for the day-to-day accounting of the German operation. Prior to his hiring, everything Pharmakila was outsourced to an outside accounting firm, which is customary and similar to other small businesses. And so with the right people in place, with the right skills, we can now embark on our mission to implementing these systems to end, as I mentioned, meaning a new ERP system, CRM system, and a comprehensive system of internal controls throughout the entire company with heavy emphasis on our international operation and the bioprocessing systems operations as a whole. Thank you, and with that, I turn it over to John Moore. John?
spk04: Thank you, Helena. In the 1950s, the scientific community had a reproducibility crisis in small molecule and pharmaceutical and chemical science. So to do mixing prior to an experiment, scientists put a cap on a test tube and flicked it with their fingers. Hand mixing was inconsistent, and so were the experimental results. Scientific industries identified the problem and made a small, affordable analog mixer with a speed dial to enable reproducible mixing. To date, millions of scientists have benefited from the Vortex Genie, making their work lives simpler and their research more reproducible. When we acquired Aquila Biolabs one year ago, we made the investment because we shared a vision for a need to solve a similar reproducibility and replication crisis in biologic experiments. Sartorius identified and validated the solution and the market for automated high throughput mini bioreactor sensing platforms with their $650,000 to $1 million cost AMBER system. Our market research showed that they just barely scratched the surface the billion-dollar annual market opportunity for reproducible biological experiments. We saw evidence of the success as the royalties rolled in from the licensing fees for the AMBER and the Cultivag systems. Unfortunately for scientists, or fortunately for us, the AMBER price point puts it out of reach for the vast majority of scientists. This is the market we're targeting for our DOTS sensing platform. The biggest drudgery and reproducibility problem in synthetic biology is manual measurement of biomass. It means interrupting experiments, risking contamination, sample extraction, and late nights and weekend work for fermentation scientists and technicians. Our plan is to build on what the Aquila founders learned from their first optical biomass sensor. With the Aquila, now SBI optical sensors, synthetic biologists can collect thousands of data points effortlessly and remotely review the results. We acquired Aquila a year ago because they spent the last six years perfecting from one biomass test and building a base of hundreds of customers. Now, after a year of investment, we're about to make a series of large leaps in value proposition delivery for life science researchers by adding new sensors and improving the scalability and ease of use. It's exciting that we're on the verge in the next 12 months of launching the world's first mini multi-parameter sensor platform, which will affordably put the power of real-time biologic monitoring in the hands every synthetic biology and biologic pharmaceutical researcher. The goal is to release the sensor platform at a price point substantially below the price of an AMBER and other similar systems where it could ultimately become as ubiquitous as our Vortex Genie Mixer. Our goal is to make the DOTS platform much more impactful than even the Vortex Genie Mixer in that it fundamentally transforms lab work from manual, time-based monitoring to hands-free real-time condition-based monitoring. That's a big deal for two reasons. First, our sensors will reveal valuable commercial and scientific insights at a small fraction of the cost of the larger experiments in bioreactors. And secondly, because the biggest problem in life sciences is a lack of available trained workforce. Our sensors are a force multiplier in that they free up workers to do other more rewarding tasks by enabling process monitoring during previously unproductive times. such as nights, weekends, or late home office hours. The DOTS system, whose previously working title was COCO, has three components, the DOTS software, the DOTS reader, and special high-value single-use sensor-enabled single-use vessels. Our product management group still has a lot of work to do to gauge the specification of this third component. To be clear, we're launching the DOTS software first as an enabling technology for our new dissolved oxygen and pH flow-through cells, and the existing CGQ biomass and LIS feeding systems. The other DOT systems have more work to be done and will be launched in the next 12 to 18 months. Early in January, we came to the conclusion that scientific bioprocessing was facing some important headwinds due to COVID. We can either be passive and accept the many setbacks and delays to our growth plans, or we can be proactive. After a discussion with our board and some of our larger shareholders, we decided to engage Brookline to raise an initial $3 million of capital. We closed on the financing on March 2nd, and are we ever glad we did. Not only did the successful capital raise allow us to make some important investments that have enabled us to set the table for some critical value inflection points for the rest of the calendar year, but it also helps us close the gap for eventual qualifying for uplisting to a larger exchange. I want to emphasize that getting our new products launched and customer acceptance is our top priority. I'm going to share some examples of some of the challenges and what we're doing to meet them. COVID has wreaked havoc on everyone's supply chains. We were able to increase our inventory of bioprocessing products and components to approximately $1 million at the end of the quarter, thereby providing a growing customer base assurance of supply. We also ordered enough inventory of our new DOTS reader technology that will be launched at the end of 2022. Our total benchtop and SBI inventory increased by $1.4 million from our fiscal year end June 30, 2021. In-person trade shows were historically the greatest source of sales leads for Akila. COVID put a temporary halt to in-person shows. We devoted substantial resources to updating our website and creating content and digital advertising to attract sales leads. We see early results by ranking first in Google for relevant keywords like biomass monitoring and by growing monthly webpage visitors by a factor of three. We will continue to invest in expanding our online presence, but in the meantime, for our fiscal fourth quarter, the good news is that trade shows have resumed, beginning with our very first successful attendance at the SEED Conference in early May, whereby we anticipate a boost for our sales pipeline towards the rest of calendar 2022 and beyond. Even as we invest heavily to create new products and market launches of these products, we're carefully watching our expenses. One major area of productivity increase was to switch away from expensive outside consultants and senior management to more full-time employees. By eliminating experienced but expensive outside consultants, we're able to keep expenses flat as we grew SBI from 15 full-time employees to 45, and they are solely focused on the advancement of our business. The reason you've invested in the scientific industry is not only the resilience of our benchtop business, but also the gross prospects of the new products from the Aquila acquisition. I'm delighted to share that we're on time and on budget with the launch of our first new product since the integration of SBI and Aquila. We're currently in field tests with 10 customers in the EU and the US, representing academic and industrial partners who are evaluating our new dissolved oxygen and pH flow cell products, as well as the DOT software. This is important because the product marks our entrance into the mammalian cell culture market. This is a market which is both large and extremely lucrative. We made a big bet to accelerate the release of our DOTS software product in support of the new mammalian products. The new functionality of DOTS also enhances the performance of our existing microbial products, which now has the added functionality of monitoring and control of experiments. We've always had customer requests for our liquid injection system and our cell growth quantifier products to work together, and now we're cautiously optimistic that this new feature set will expand the appeal and the value proposition of our products for our customers. We're optimistic, assuming success in our field tests and no need for product redesign, that we'll start the commercial launch of our DOTS-enabled CGQ and LIS, as well as DO and pH flow cells in July. This is important because if successful, a major risk for our new DOTS readers platform will be removed, while it will allow us to capture additional market insights towards the final development stages of our DOTS multi-parameter readers. All in all, the DOTS platform is how we start to deliver on the promise of digitally simplified bioprocessing. Another component of our competitive advantage is our chemosensors. We've invested over $500,000 in a state-of-the-art optical chemosensor lab and hired three world-class scientists so we can add new sensing modalities beyond dissolved oxygen and pH in the future. Thank you for taking the time today to learn more about your investment in scientific industries and our plans to create shareholder value. We believe we have realistic timelines. We've been making important investments in not only the systems to win, as Alina has described, and product development, as I've laid out, but also in the sales and service people to support the rollout of the new products. Alina has learned that the nature of the laboratory equipment business is that it can take two to three years for a product to take off, but the payoff is Once adopted, product lifestyles can be extremely long, as evidenced by the 70-year and still growing Vortex Genie product market. We're excited about the next 12 months and the commercial opportunities before us. We're now ready to answer any questions you may have.
spk03: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Paul Knight with KeyBank. Please go ahead.
spk04: Hi, Helena. Could you go over the employee headcount for me again? I know John had mentioned it, and then how many of those are for the Kiva product line?
spk01: Okay. So currently we have approximately 48 employees that represent the bioprocessing business. So Paul, that's between Pittsburgh and Germany. And then for the benchtop lab equipment, we have approximately 27 employees. And if you remember, when we acquired Aquila a year ago, Aquila had about 15 or so. And we had roughly around the same number at the Pittsburgh location.
spk04: Okay, so it was 15 bioprocessing a year ago. Is that the right kind of math?
spk01: Yeah, 15 on the bioprocessing that existed. And then, remember, we acquired Tequila, and that was another 15 that came on board, so you basically have 30. Currently, we have about 48 or so in order for you to, you know, compare apples to apples, in a sense.
spk04: Okay. And then, John, could you run over the timeline, the products and timeline software sensors that you, on the dock system? Paul, thank you. Welcome. Since we've got the benefit of Daniel Grunes on the phone, maybe I'll direct that one to Daniel.
spk02: Okay. Hi, Paul. This is Daniel. So, in general, I don't want to talk too much about the long-term timeline, but maybe more of what is in focus right now and coming from what John said. As regards to the first products that we're going to bring to the market or the first, let's say, initial soft launch of the DOTS platform, which would basically be phase one, as we call it, streamlining the existing sensors, data transfer, and software portfolios of SBI and Aquila onto one platform and adding pH and DO flow cells There we're looking at a July launch. If we are seeing the results from the current pilot customer study, so we are currently engaging with 10 pilot testers, both in the EU and the US, both in academia and industry. And of course, as an entrepreneur, you always have to be sensitive of what kind of feedback you get. Could be positive feedback, but where customers push you to maybe add a few more items. But if everything goes well there, then we're looking at July. And while we are working towards and prepping for launch for a few months now and towards that July launch, we have already transitioned R&D focus onto phase two And phase two would then be enlarging the platform significantly by adding IOT capabilities and, you know, first looking into the first miniaturized multi-parameter, more ubiquitous sensor for bioprocessing. So formally, you probably recall that formally the COCO sensors where we're looking at an early 23 launch. But I want to highlight also that at this point in time, we said that, you know, we have learned a bit from the market and also from from 12 months of working together and from everything that the competition is doing, whereby we will have, as of tomorrow, strategy workshops with regards to portfolio and product vision and roadmap. And I want to be sensitive of all the insights that we want to capture there and whether or not we want to adjust that phase one, phase two modeling a bit, but essentially July is the one time point that we're aiming towards and then beginning next year for phase two.
spk04: Would it not be fair to say that 90% of the work around monoclonals is mammalian oriented and maybe 10% of that is around microbial? Is that kind of a fair assessment of what the makeup is behind monoclonal development?
spk02: Yeah, I wouldn't disagree there. Nevertheless, I don't want to just, I mean, monoclonal is just one part of the story. I mean, two things here. On the one hand, I think we have a strong customer base where we're coming from and we need to capture synergies from growing that current customer base and servicing them with you know, add-on products because that's an easy way in also to capture revenue synergies from bringing both business together and growing it from there. And then secondly, of course, we have also engaged with various partners such as other big industry players and larger customers. We've been engaged with Biontech, for example, where we got very interesting insights And, you know, we want to start in the bioprocessing, the bioprocess development, and then further transition into more of the manufacturing. And then, of course, that would be even more relevant. But to turn back to what Helena said, for that to happen, we will need to put the systems of success in place, I would say, such as certification of the products, for example, along the lines of product development so that we are actually servicing that. But usually the start is in the bioprocess development. And this is where we are seeing the first step to grow that organically.
spk04: But I think, Paul, your question is a good one in the sense that, you know, sort of is one example of just how much larger the mammalian cell culture is than the microbial space. Got it. Okay.
spk03: Thank you.
spk02: Again, if you have a question. Just to chime in here, that's completely true, of course. But again, if we're looking at microbial and if we're looking at how many large organizations are starting in the microbial segment, such as, for example, BioNTech in the development of their vaccines, then again, there's so much market potential to capture that I don't want to ignore that because that's also where, you know, the products currently, the legacy products, so to say, operate in. And I want to capture that potential as well and don't want to neglect it, so to say, while, of course, sale culture is where we're heading towards.
spk03: Again, if you have a question, please press star then one. The next question is from Brett Rice with Jenny Montgomery Scott. Please go ahead.
spk05: Hi, John. Hi, Helena.
spk04: Hi, Brett. Welcome, Brett.
spk05: Yes. With what's going on with Ukraine and Russia, you know, let's just rattle off, you know, headwinds. The legacy businesses, were we doing any business in Ukraine, Russia? You know, is that an issue? Energy input costs going up in Germany, you know, does that impact us? And then, you know, what about, you know, currency headwinds?
spk01: Okay, I'll answer some of those and then I'll ask Daniel to talk about any impact in Germany. But the good thing is that we do not have any business in the Ukraine or Russia. Anything that we've had in the past has been insignificant totally insignificant so we do not have any risks either from the revenue side or the sourcing side so nothing to worry about in terms of having an impact on the benchtop lab equipment business okay great and
spk05: The $3 million equity infusion, what were the terms on that?
spk00: As we stated in the financials, it's in the footnotes, but that was at 550 a share. Okay.
spk05: And also there was a 50% warrant coverage at 550 as well.
spk04: Okay.
spk05: John, um, you know, I have, uh, something personal I want to relay to you on, on Sam Robotsky. So maybe I'll call you, uh, after the call.
spk04: Well, I think it's, it's actually a, you know, Brett, I mean, this is actually a good time to mention it, but Sam Robotsky was such a good friend of this company. He, he was both a loyal shareholder. He introduced us to, uh, to license and Joe Dorme. He introduced us to you, Brett. And he also, uh, introduced Helena to Torval, which was a terrific acquisition that she made. Thank you so much for mentioning Sam. Yes, we do. We feel like we've got his assistance from the sidelines, so we mourn his passing, but we feel grateful to have known him.
spk05: Okay. Good work. Thanks for the questions.
spk04: Thank you so much. Thank you.
spk03: This concludes our question and answer session. This concludes our question and answer session. I would like to turn the conference back over to John Moore for any closing remarks.
spk04: Well, we're really excited by the progress that we've made. We're excited about the future, and thank you all for taking the time to learn more about your investment in scientific industry. Thank you, and have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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