SCIENTIFIC INDUSTRIES INC 10-Q

scnd_10q.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 as specified in Its Charter) Delaware 04-2217279 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 80 Orville Drive , Suite 102 , Bohemia , New York 11716 (Address of principal executive offices) (Zip Code) ( 631 ) 567-4700 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging Growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No ☒ The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of November 5, 2021 is 6,458,143 shares. SCIENTIFIC INDUSTRIES, INC. Table of Contents PART I - Financial Information Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) # Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations and Comprehensive Loss 4 Condensed Consolidated Statements of Changes in Shareholders' Equity 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 Item 4. CONTROLS AND PROCEDURES 16 PART II - Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURE 18 2 Table of Contents PART I – FINANCIAL INFORMATION I tem 1. Financial Statements SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2021 June 30, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,268,700 $ 9,675,200 Investment securities 6,985,800 3,744,600 Trade accounts receivable, less allowance for doubtful accounts of $ 15,600 at September 30, 2021 and June 30, 2021 1,493,200 1,294,700 Inventories 3,094,700 2,977,100 Income tax receivable 66,000 333,300 Prepaid expenses and other current assets 502,100 350,900 Assets of discontinued operations 56,200 55,300 Total current assets 17,466,700 18,431,100 Property and equipment, net 435,300 412,600 Goodwill 4,395,400 4,395,400 Other intangible assets, net 2,418,900 2,557,800 Deferred taxes 2,812,500 2,489,900 Operating lease right-of-use assets 631,300 665,300 Other assets 54,200 54,300 Total assets $ 28,214,300 $ 29,006,400 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 620,500 $ 453,500 Accrued expenses 542,700 633,500 Contingent consideration, current portion 136,600 136,600 Bank overdraft - 321,700 Lease liabilities, current portion 234,000 270,500 Payroll Protection Program loan 433,800 433,800 Liabilities of discontinued operations 26,400 37,200 Total current liabilities 1,994,000 2,286,800 Contingent consideration payable, less current portion 23,400 23,400 Lease liabilities, less current portion 469,200 460,500 Other long-term liabilities - 10,900 Total liabilities 2,486,600 2,781,600 Shareholders’ equity: Common stock, $ .05 par value; 15,000,000 shares authorized; 6,477,945 shares issued; 6,458,143 shares outstanding at September 30, 2021 and June 30, 2021 324,000 324,000 Additional paid-in capital 27,288,900 26,613,500 Accumulated comprehensive gain (loss) 27,100 ( 9,200 ) Accumulated deficit ( 1,859,900 ) ( 651,100 ) 25,780,100 26,277,200 Less common stock held in treasury at cost, 19,802 shares 52,400 52,400 Total shareholders’ equity 25,727,700 26,224,800 Total liabilities and shareholders’ equity $ 28,214,300 $ 29,006,400 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) For the Three Month Period Ended September 30, 2021 For the Three Month Period Ended September 30, 2020 Revenues $ 2,854,500 $ 2,019,200 Cost of revenues 1,340,900 962,500 Gross profit 1,513,600 1,056,700 Operating expenses: General and administrative 1,465,700 519,200 Selling 935,800 493,900 Research and development 636,500 244,300 Total operating expenses 3,038,000 1,257,400 Loss from operations ( 1,524,400 ) ( 200,700 ) Other income (expense): Other income (expense), net ( 7,900 ) 11,500 Loss from continuing operations before income tax benefit ( 1,532,300 ) ( 189,200 ) Income tax benefit, deferred ( 322,600 ) ( 35,600 ) Loss from continuing operations ( 1,209,700 ) ( 153,600 ) Discontinued operations (Note 9): Gain (loss) from discontinued operations, net of tax 900 ( 109,700 ) Net loss ( 1,208,800 ) ( 263,300 ) Comprehensive gain: Unrealized holding gain on investment securities, net of tax 2,200 - Foreign currency translation adjustment 34,100 - Comprehensive gain 36,300 - Total comprehensive loss $ ( 1,172,500 ) $ ( 263,300 ) Basic loss per common share: Continuing operations $ ( .19 ) $ ( .05 ) Discontinued operations $ .00 $ ( .04 ) Consolidated operations $ ( .19 ) $ ( .09 ) See notes to unaudited condensed consolidated financial statements. 4 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) Accumulated Common Stock Additional Paid-in other Comprehensive Income Retained Earnings (Accumulated Treasury Stock Total Shareholders’ Fiscal Year 2022 Shares Amount Capital (Loss) Deficit) Shares Amount Equity Balances, July 1, 2021 6,477,945 $ 324,000 $ 26,613,500 $ ( 9,200 ) $ ( 651,100 ) 19,802 $ 52,400 $ 26,224,800 Net loss - - - - ( 1,208,800 ) - - ( 1,208,800 ) Foreign currency translation adjustment - - - 34,100 - - - 34,100 Unrealized holding gain on investment securities, net of tax - - - 2,200 - - - 2,200 Stock-based compensation - - 675,400 - - - - 675,400 Balances, September 30, 2021 6,477,945 $ 324,000 $ 27,288,900 $ 27,100 $ ( 1,859,900 ) 19,802 $ 52,400 $ 25,727,700 Accumulated Common Stock Additional Paid-in other Comprehensive Income Retained Treasury Stock Total Shareholders’ Fiscal Year 2021 Shares Amount Capital (Loss) Earnings Shares Amount Equity Balances, July 1, 2020 2,881,065 $ 144,100 $ 8,608,300 $ - $ 3,021,400 19,802 $ 52,400 $ 11,721,400 Net loss - - - - ( 263,300 ) - - ( 263,300 ) Stock-based compensation - - 61,300 - - - - 61,300 Balances, September 30, 2020 2,881,065 $ 144,100 $ 8,669,600 $ - $ 2,758,100 19,802 $ 52,400 $ 14,594,100 See notes to unaudited condensed consolidated financial statements. 5 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Month Period Ended September 30, 2021 For the Three Month Period Ended September 30, 2020 Operating activities: Net loss $ ( 1,208,800 ) $ ( 263,300 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 165,100 40,600 Deferred income tax benefit ( 322,600 ) ( 61,100 ) Stock-based compensation 675,400 61,300 (Gain) loss on sale of investments 200 ( 16,800 ) Unrealized holding loss of investments 32,800 20,900 Changes in operating assets and liabilities: Trade accounts receivable ( 198,500 ) ( 107,300 ) Income tax receivable 267,300 3,300 Right -of- use assets 34,000 ( 23,300 ) Lease liabilities ( 27,800 ) 36,600 Inventories ( 117,600 ) ( 56,500 ) Prepaid and other current assets ( 151,200 ) ( 24,300 ) Accounts payable 167,000 177,200 Contract liabilities - ( 6,300 ) Bank overdraft ( 321,700 ) 66,300 Other long-term liabilities ( 10,800 ) - Accrued expenses ( 90,700 ) ( 261,700 ) Total adjustments 100,900 ( 151,100 ) Net cash used in operating activities ( 1,107,900 ) ( 414,400 ) Investing activities: Purchase of investment securities ( 3,982,400 ) ( 3,723,500 ) Redemption of investment securities 708,200 33,800 Capital expenditures ( 48,900 ) ( 70,500 ) Purchase of other intangible assets - ( 16,200 ) Net cash used in investing activities ( 3,323,100 ) ( 3,776,400 ) Financing activities: Payments of contingent consideration - ( 13,400 ) Net cash used in financing activities - ( 13,400 ) Effect of changes in foreign currency exchange rates and gain on investment securities 24,500 - Net decrease in cash and cash equivalents ( 4,406,500 ) ( 4,204,200 ) Cash and cash equivalents, beginning of year 9,675,200 7,559,700 Cash and cash equivalents, end of period $ 5,268,700 $ 3,355,500 Supplemental disclosures: Cash paid during the period for: Income taxes $ - $ 500 See notes to unaudited condensed consolidated financial statements. 6 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS General: The accompanying unaudited interim condensed consolidated financial statements are prepared pursuant to the Securities and Exchange Commission’s rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The Company believes all adjustments necessary for a fair presentation of these interim statements have been included and that they are of a normal and recurring nature. These interim statements should be read in conjunction with the Company’s financial statements and notes thereto, included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2021. The results for the three months ended September 30, 2021 are not necessarily an indication of the results for the full fiscal year ending June 30, 2022. 1. Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary, Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary (discontinued operation as of November 30, 2020), and Scientific Bioprocessing Holdings, Inc. (“SBHI”), a Delaware corporation, and its wholly-owned subsidiaries, Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation, and aquila biolabs GmbH (“Aquila”), a German corporation, which was acquired on April 29, 2021, (all collectively referred to as the “Company”). On April 30, 2021 Scientific Industries, Inc. contributed 100% of the stock of SBI to SBHI. All material intercompany balances and transactions have been eliminated in consolidation. COVID-19 Pandemic The challenges posed by the COVID-19 pandemic on the global economy began to take effect and adversely effected the Company’s operations at the end of the third quarter of the fiscal year ended June 30, 2020. At that time, the Company took appropriate action and put plans in place to diminish the adverse effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action pertaining 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. The Bioprocessing Systems Operations’ SBI facility was shut down temporarily due to state mandates, however, the impact on operations was immaterial, and the Company has been able to retain its employees without furloughs or layoffs, in part, due to the Company’ receipt of two loans under the Federal Government’s Small Business Administration Paycheck Protection Program. The Company received $ 563,800 and $ 433,800 in Payroll Protection Program loans in April 2020 and March 2021, respectively. The first loan was forgiven in June 2021 except for $ 32,700 which was repaid by the Company. The Company expects to apply and receive forgiveness for the second loan. The Company elected to account for its PPP Loans in accordance with Accounting Standards Codification (“ASC”), 470 Debt, with interest, if any, accrued in accordance with the interest method under ASC 835-30, Imputation of Interest. Initially, the Company recognized the entire loan amounts as liabilities on its balance sheets, and remain as liabilities until either the Company is legally released from its obligations or pays the lender. Once the loan is forgiven, the amount forgiven is recorded in the Company’s statement of operations as “Other Income.” Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adoption of this standard as of July 1, 2021 did not have a material impact on the Company’s financial statements. 7 Table of Contents 2. Revenue The Company generates revenues from the following sources: (1) Benchtop Laboratory Equipment, and (2) Bioprocessing Systems. Benchtop Laboratory Equipment Bioprocessing Systems Consolidated Three Months Ended September 30, 2021: Revenues $ 2,529,900 $ 324,600 $ 2,854,500 Foreign Sales 1,071,800 91,500 1,163,300 Benchtop Laboratory Equipment Bioprocessing Systems Consolidated Three Months Ended September 30, 2020: Revenues $ 1,930,300 $ 88,900 $ 2,019,200 Foreign Sales 631,900 86,300 718,200 Benchtop Laboratory Equipment sales are comprised primarily of standard benchtop laboratory equipment sold to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment is short ranging from a day to a few weeks. Customers either pay by credit card (online sales) or Net 30-90 days, depending on the customer. Once the item is shipped under the terms specified in the order, which is primarily “FOB Factory”, other than a standard warranty, there are no other obligations to the customer. The standard warranty is typically one or two years, covering parts and labor, and is deemed immaterial. Revenue is recognized at the point in time when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment. Bioprocessing Systems revenues consist of royalty revenues generated through SBI and product revenues generated primarily through Aquila. Royalty revenues are earned by the Company under a licensing agreement from a single licensee and its sublicenses. The license agreement includes two United States patents, one which expired in August 2021 and another which will expire in December 2023. The Company is obligated to pay 50% of all royalties earned to the entity that licenses the intellectual property to the Company . 8 Table of Contents 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, manufacture, and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems”). Segment information is reported as follows: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Three Months Ended September 30, 2021: Revenues $ 2,529,900 $ 324,600 $ - $ 2,854,500 Foreign Sales 1,071,800 91,500 - 1,163,300 Income (Loss) From Operations 561,600 ( 1,685,500 ) ( 400,500 ) ( 1,524,400 ) Assets 9,689,700 8,670,100 9,854,500 28,214,300 Long-Lived Asset Expenditures 33,800 15,100 - 48,900 Depreciation and Amortization 22,800 142,300 - 165,100 Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Three Months Ended September 30, 2020: Revenues $ 1,930,300 $ 88,900 $ - $ 2,019,200 Foreign Sales 631,900 86,300 - 718,200 Income (Loss) From Operations 383,800 ( 532,300 ) ( 52,200 ) ( 200,700 ) Assets 5,871,900 775,700 7,946,500 14,594,100 Long-Lived Asset Expenditures 21,800 64,900 - 86,700 Depreciation and Amortization 26,300 14,000 - 40,300 Approximately 52 % and 47 % of net sales of Benchtop Laboratory Equipment for the three months ended September 30, 2021 and 2020, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories. Approximately 20 % and 27 % of total Benchtop Laboratory Equipment sales were derived from the Torbal Scales Division for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, respectively, three customers accounted for approximately 22 % and 23 % of net sales of the Benchtop Laboratory Equipment Operations ( 19 % and 22 % of the Company’s total revenues), respectively. Sales of products from Aquila of the Bioprocessing Systems Operations, amounted to $168,200 for the three months ended September 30, 2021 and none in the corresponding prior year period. 9 Table of Contents 4. Fair Value of Financial Instruments In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period. The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the following table. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at September 30, 2021 and June 30, 2021 according to the valuation techniques the Company used to determine their fair values: Fair Value at Fair Value Measurements Using Inputs Considered as September 30, 2021 Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 5,268,700 $ 5,268,700 $ - $ - Investment securities 6,985,800 6,878,200 107,600 - Total $ 12,254,500 $ 12,146,900 $ 107,600 $ - Liabilities: Contingent consideration $ 160,000 $ - $ - $ 160,000 Fair Value at Fair Value Measurements Using Inputs Considered as June 30, 2021 Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 9,675,200 $ 9,675,200 $ - $ - Investment securities 3,744,600 2,920,600 824,000 - Total $ 13,419,800 $ 12,595,800 $ 824,000 $ - Liabilities: Contingent consideration $ 160,000 $ - $ - $ 160,000 Investments in marketable securities by security type at September 30, 2021 and June 30, 2021 consisted of the following: Cost Fair Value Unrealized Holding Gain At September 30, 2021: Equity securities $ 112,100 $ 159,200 $ 47,100 Mutual funds 6,714,600 6,719,000 4,400 Debt securities 105,400 107,600 2,200 $ 6,932,100 $ 6,985,800 $ 53,700 Cost Fair Value Unrealized Holding Gain (Loss) At June 30, 2021: Equity securities $ 102,200 $ 154,100 $ 51,900 Mutual funds 2,752,400 2,766,500 14,100 Debt securities 832,700 824,000 ( 8,700 ) $ 3,687,300 $ 3,744,600 $ 57,300 10 Table of Contents 5 . Inventories September 30, 2021 June 30, 2021 Raw materials $ 2,139,200 $ 2,170,400 Work-in-process 91,900 39,600 Finished goods 863,600 767,100 $ 3,094,700 $ 2,977,100 6 . Goodwill and Finite Lived Intangible Assets Goodwill amounted to $ 4,395,400 at September 30, 2021 and June 30, 2021, all of which is expected to be deductible for tax purposes. The components of finite lived intangible assets are as follows: Useful Lives Cost Accumulated Amortization Net At September 30, 2021: Technology, trademarks 5 - 10 yrs. $ 364,700 $ 363,000 $ 1,700 Trade names 3 - 6 yrs. 592,300 171,500 420,800 Websites 3 - 7 yrs. 210,000 210,000 - Customer relationships 4 - 10 yrs. 372,200 112,600 259,600 Sublicense agreements 10 yrs. 294,000 290,300 3,700 Non-compete agreements 4 - 5 yrs. 1,060,500 357,500 703,000 IPR&D 3 - 5 yrs. 852,100 172,000 680,100 Patents 5 - 7 yrs. 591,500 241,500 350,000 $ 4,337,300 $ 1,918,400 $ 2,418,900 Useful Lives Cost Accumulated Amortization Net At June 30, 2021: Technology, trademarks 5 - 10 yrs. $ 364,700 $ 362,200 $ 2,500 Trade names 3-6 yrs. 592,300 152,600 439,700 Websites 3-7 yrs. 210,000 210,000 - Customer relationships 4- 10 yrs. 372,200 102,400 269,800 Sublicense agreements 10 yrs. 294,000 283,000 11,000 Non-compete agreements 4-5 yrs. 1,060,500 308,600 751,900 IPR&D 3 -5 yrs. 852,100 134,800 717,300 Patents 5 -7 yrs. 591,500 225,900 365,600 $ 4,337,300 $ 1,779,500 $ 2,557,800 Total amortization expense was $ 138,900 and $ 15,800 for the three months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, estimated future amortization expense related to intangible assets is $ 386,800 for the remainder of the fiscal year ending June 30, 2022, $ 520,300 for fiscal 2023, $ 508,800 for fiscal 2024, $ 474,100 for fiscal 2025, $ 272,400 for fiscal 2026 and $ 256,500 thereafter. 11 Table of Contents 7. Loss Per Common Share The Company presents the computation of earnings per share (“EPS”) on a basic basis. Basic EPS is computed by dividing net income, if any, by the weighted average number of shares outstanding during the reported period. Diluted EPS is computed similarly to basic EPS, except that the denominator is increased to include the number of additional common 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; accordingly, no dilution is shown for loss periods. The following table sets forth the weighted average number of common shares outstanding for each period presented. September 30, 2021 September 30, 2020 Weighted average number of common shares outstanding 6,458,143 2,861,263 Effect of dilutive securities: - - Weighted average number of dilutive common shares outstanding 6,458,143 2,861,263 Basic loss per common share: Continuing operations $ ( .19 ) $ ( .05 ) Discontinued operations $ ( .00 ) $ ( .04 ) Consolidated operations $ ( .19 ) $ ( .09 ) Approximately 539,357 and 3,246,984 shares of the Company's common stock issuable upon the exercise of options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the three months ended September 30, 2021. Approximately, 126,700 and 1,349,850 shares of the Company’s common stock issuable upon the exercise of outstanding options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the three months ended September 30, 2020. 8. Leases The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) through January 2025 which was amended effective October 2021, to increase the space by approximately 25% and lease term through approximately October 2028 , a facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through May 2023, and a facility for sales and administration in Orangeburg, New York through October 2022. The Company had a lease for its discontinued operations through November 2020. There are no renewal options with any of the leases, no residual values or significant restrictions or covenants other than those customary in such arrangements, and no non-cash activities, and any rent escalations incorporated within the leases are included in the calculation of the future minimum lease payments, as further described below. 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. 12 Table of Contents 8. Leases (continued) As of September 30, 2021, the weighted-average remaining lease term for operating lease liabilities was approximately 2.5 years and the weighted-average discount rate was 5.0 %. Total cash payments under these leases were approximately $ 68,300 , for the three months ended September 30, 2021 of which $ 62,600 was recorded as leases expense. The Company’s approximate future minimum rental payments under all leases existing at September 30, 2021 through January 2025 are as follows: Fiscal year ending June 30, Amount Remainder of 2022 $ 209,000 2023 261,100 2024 195,900 2025 91,600 Total future minimum payments $ 757,600 Less imputed interest ( 54,400 ) Total Present Value of Operating Lease Liabilities $ 703,200 9. Discontinued Operations Effective November 30, 2020, as part of its strategic shift to becoming a life sciences tool provider, the Company sold its operations relating to the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical petrochemical companies sold on direct basis (the “ Catalyst Research Instruments Operations” through the sale by Altamira of substantially all of its assets, and inventory to Beijing JWGB Sci. & Tech. Co. Ltd., a corporation formed under the laws of the People’s Republic of China (“JWGB”) for $ 440,000 which was fully paid in cash by January 2021, resulting in a $ 405,400 pre-tax loss. To preserve business continuity for the buyer, Altamira agreed to purchase certain components on behalf of JWGB for which JWGB agreed to reimburse Altamira. The Company retained all its receivables and payables related to sales made prior to November 30, 2020, certain inventory related to two work-in-process orders that will be shipped by the end of the fiscal year ending June 30, 2022, product warranty and other miscellaneous liabilities related to certain employee benefits, and expenses related to the closure of the Altamira facility, which was completed at the end of December 2020. As a result of the disposal described above, the operating results of the former Catalyst Research Instruments Operations segment have been presented as discontinued operations in the balance sheets, the statements of operations, and the statements of cash flows, as detailed below. Assets: September 30, 2021 June 30, 2021 Cash $ 900 $ - Accounts receivable 52,000 52,000 Inventories 3,300 3,300 Discontinued operations $ 56,200 $ 55,300 Liabilities: September 30, 2021 June 30, 2021 Accrued expenses and taxes $ 9,900 $ 20,700 Contract liabilities 16,500 16,500 $ 26,400 $ 37,200 13 Table of Contents 9. Discontinued Operations (continued) September 30, 2021 September 30, 2020 Revenues $ 1,200 $ 137,100 Cost of goods sold - 184,200 Gross profit 1,200 ( 47,100 ) Selling, general and administrative expenses 300 88,100 Loss from operations before income tax benefit 900 ( 135,200 ) Income tax benefit, deferred - (25,500 ) Net income (loss) attributable to discontinued operations $ 900 $ ( 109,700 ) In our Consolidated Statements of Cash Flows, the cash flows from discontinued operations are not separately classified. Cash provided by operating activities from discontinued operations for three months ended September 30, 2021 and September 30, 2020 was $ 900 and $ 245,700 , respectively. There was no cash provided by or used in investing or financing activities for both periods. 10 . Acquisition of Aquila Biolabs GmbH Effective April 29, 2021, pursuant to a Stock Purchase Agreement ("SPA") the Company acquired all the outstanding capital stock of Aquila, a German start-up company engaged from its facility in Baesweiler, Germany in the design, production, and sale of bioprocessing systems and products which focus on the control and analysis of bioprocesses in bioreactors and incubation shakers for an aggregate purchase price of $ 7,880,100 in cash upon closing. Aquila’s principal customers are universities, pharmaceutical companies, and industrial companies. The products are sold primarily on a direct basis and to a lesser extent, through distributors. The acquisition was accounted for in accordance with ASC 805, Business Combinations (“ASC 805”) in which the Company is treated as the accounting acquirer. Accordingly, the assets acquired and liabilities assumed have been measured at estimated fair value. For purposes of measuring the estimated fair value, where applicable, of the assets acquired and liabilities assumed, as reflected in the unaudited pro forma condensed consolidated financial information, the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) has been applied, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. Management of the Company allocated the purchase price based on its estimated valuation of the assets acquired and liabilities assumed as follows: Amount Useful life Fair value of assets acquired: Current assets: Cash and cash equivalents $ 201,100 Accounts receivable 159,200 Inventory 187,500 Prepaid expenses and other current assets 25,400 Property, plant and equipment 40,200 Deferred tax asset 800,300 Tradename 452,300 6 years Non-compete agreements 784,500 4 years IPR&D 742,100 5 years Customer relationships 252,200 9 years Patents and other intangibles 286,200 7 years Total assets acquired $ 3,931,000 Fair value of liabilities assumed: Accounts payable $ ( 39,300 ) Accrued expenses ( 90,300 ) Other current liabilities ( 59,400 ) Total liabilities assumed $ ( 189,000 ) Total identifiable net assets $ 3,742,000 Fair value of consideration transferred 7,880,100 Goodwill $ 4,138,100 14 Table of Contents Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking statements. Certain statements contained in this report are not based on historical facts, but are forward-looking statements that are based upon various assumptions about future conditions. Actual events in the future could differ materially from those described in the forward-looking information. Numerous unknown factors and future events could cause such differences, including but not limited to, product demand, market acceptance, success of marketing strategy, success of expansion efforts, impact of competition, adverse economic conditions, and other factors affecting the Company’s business that are beyond the Company’s control, which are discussed elsewhere in this report. Consequently, no forward-looking statement can be guaranteed. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report. Overview. The Company’s results reflect the results from the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations, which includes three months of results for Aquila, following its acquisition on April 29, 2021. The Company realized a loss from continuing operations before income tax benefit of $1,532,700 for the three months ended September 30, 2021 compared to a loss from continuing operations before income tax benefit of $189,200 for the three months ended September 30, 2020, primarily due to increased operating expenses of its Bioprocessing Systems Operations, which included significant amounts for product development, sales and marketing, and non-cash compensation expense related to stock options, partially offset by the profits generated by increased sales of the Benchtop Laboratory Equipment Operations. COVID-19 Pandemic . The Company has not experienced and does not expect to experience any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies, and pharmaceutical companies, which have benefitted from the Pandemic due to the nature of the products and have the ability to pay. The Company also has not experienced and does not expect to experience any material impairment to its tangible and intangible assets, system of internal controls, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic, which are uncertain and cannot be predicted at this time. The Company has experienced some delays from its supply chain which has had an immaterial impact on its business with delayed delivery of some products to its customers, however this is deemed temporary and does not affect the Company’s major product – the Vortex-Genie 2. In addition, due to the travel restrictions imposed by the United States and other governments worldwide, Company personnel has been and may be restricted in the future from traveling to conduct its operations including site visits, customer visits and installations, vendor facility visits, and other sales and marketing related travel that can negatively impact the Company. The operations of Aquila were negatively affected in their ability to secure new orders because Aquila had historically relied on face-to-face meetings at trade shows for its sales opportunities. While it has participated in virtual trade shows, management believes that certain sales opportunities were lost as a result. Results of Operations. Net revenues for the three months ended September 30, 2021 increased $835,400 (41.4%) to $2,854,500 from $2,019,100 for the three months ended September 30, 2020, reflecting an increase of $599,500 (31.1%) in net sales of Benchtop Laboratory Equipment primarily due to sales of its Genie brand products, which are used in COVID related research and testing. The Benchtop Laboratory Equipment sales reflected $509,800 of Torbal® brand product sales for the three months ended September 30, 2021, compared to $517,700 for the three months ended September 30, 2020 primarily due to decreased sales of pharmacy scales, partially offset by increased sales of its new automated VIVID pill counter. Revenues derived from the Bioprocessing Systems Operations increased by $235,900 (265.7%) to $324,600 for the three months ended September 30, 2021 compared to $88,900 for the three months ended September 30, 2020 due to product revenues of $168,200 derived from Aquila. The gross profit percentage on a combined basis was 53.0% for the three months ended September 30, 2021 compared to 52.3% for the three months ended September 30, 2020 due primarily to increased margins for the Benchtop Laboratory Equipment Operations due to increased sales of higher profit margin products. General and administrative expenses for the three months ended September 30, 2021 increased by $946,500 (182.3%) to $1,465,700 from $519,200 for the three months ended September 30, 2020 due primarily to stock option compensation-related costs, newly incurred costs by Aquila of the Bioprocessing Systems Operations, and corporate expenses. Selling expenses for the three months ended September 30, 2021 increased $441,900 (89.5%) to $935,800 from $493,900 for the three months ended September 30, 2020 which were incurred primarily by the by the Bioprocessing Systems operations for sales and marketing personnel, sales and marketing activities, and stock option compensation-related costs. Research and development expenses increased by $392,200 (160.5%) to $636,500 for the three months ended September 30, 2021 compared to $244,300 for the three months ended September 30, 2020, mainly due to product development costs incurred by the Bioprocessing Systems Operations’ Aquila operation which was acquired in the fourth quarter of fiscal 2021. 15 Table of Contents Total other income (expense), net was ($7,900) for the three months ended September 30, 2021 compared to $11,500 for the three months ended September 30, 2020 due to holding losses on investment securities. The Company reflected income tax benefit for continuing operations of $322,600 for the three months ended September 30, 2021 compared to income tax benefit of $35,600 for the three months ended September 30, 2020, primarily due to the increased loss. As a result of the foregoing, the Company recorded a loss from continuing operations of $1,209,700 for the three months ended September 30, 2021 compared to a loss from continuing operations of $153,600 for the three months ended September 30, 2020. The Company reflected a gain from discontinued operations of $900 for the three months ended September 30, 2021, compared to a $109,700 loss for the three months ended September 30 2020, due to insignificant activity during the current year period. Liquidity and Capital Resources. Cash and cash equivalents decreased by $4,406,500 to $5,268,700 as of September 30, 2021 from $9,675,200 as of June 30, 2021, due primarily the Company’s purchases of investment securities and the loss during the period. Net cash used in operating activities was $1,107,900 for the three months ended September 30, 2021 compared to $414,400 during the three months ended September 30, 2020, primarily as a result of the increased loss incurred for the current period. Net cash used in investing activities was $3,323,100 for the three months ended September 30, 2021 compared to $3,776,400 used during the three months ended September 30, 2020 principally due to purchases and redemptions of investments, and to a lesser extent new capital equipment. Net cash used in financing activities was $13,400 for the three months ended September 30, 2020 all due to contingent consideration payments made to sellers of the Bioprocessing Systems Operations. There were no financing activities during the three months ended September 30, 2021. The Company's working capital decreased by $671,600 to $15,472,700 as of September 30, 2021 compared to $16,144,300, as of June 30, 2021 due to the loss generated during the period. 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 Securities and Exchange Commission's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 16 Table of Contents P ART II – OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 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/A dated July 12, 2021 reporting under Item 2.01. 17 Table of Contents SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCIENTIFIC INDUSTRIES, INC. (Registrant) Date: November 15, 2021 /s/ Helena R. Santos Helena R. Santos President, Chief Executive Officer, Chief Financial Officer and Treasurer 18