SCIENTIFIC INDUSTRIES INC 10-Q

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 the results for Aquila following its acquisition on April 29, 2021. The Company realized a loss from continuing operations before income tax benefit of $1,321,300 and $2,853,600 for the three and six months ended December 31, 2021 compared to a loss from continuing operations before income tax benefit of $185,900 and $375,000 for the three and six months ended December 31, 2020, respectively, primarily due to increased operating expenses of its Bioprocessing Systems Operations, which included significant expenditures for product development, sales and marketing, and non-cash compensation expense related to stock options, partially offset by the profits generated by 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 supply chain disruptions which has had an impact on its operations causing delayed delivery of some products to its customers, and production inefficiencies. As of December 31, 2021, the Company had a total backlog of approximately $853,000 in benchtop laboratory equipment orders, compared to $860,000 as of December 31, 2020. 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 trade shows, 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. The Three Months Ended December 31, 2021 Compared With The Three Months Ended December 31, 2020 Net revenues for the three months ended December 31, 2021 increased $186,800 (6.9%) to $2,904,200 from $2,717,400 for the three months ended December 31, 2020, reflecting an increase of $192,900 (49.0%) in net revenues due to product revenues derived from Aquila, partially offset by a decrease of $6,100 in sales of the Benchtop Laboratory Equipment due to decreased sales of its Genie brand products, partially offset by increased sales of its Torbal® brand products. The Benchtop Laboratory Equipment sales reflected $735,400 of Torbal brand product sales for the three months ended December 31, 2021, compared to $576,800 for the three months ended December 31, 2020 primarily due to increased sales of its automated VIVID pill counter. The gross profit percentage on a combined basis was 48.5% for the three months ended December 31, 2021 compared to 51.7% for the three months ended December 31, 2020, due primarily to decreased margins for the Benchtop Laboratory Equipment Operations resulting from increased labor costs and materials. General and administrative expenses for the three months ended December 31, 2021 increased by $829,300 (154.5%) to $1,366,200 from $536,900 for the three months ended December 31, 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 December 31, 2021 increased $228,200 (29.3%) to $1,007,100 from $778,900 for the three months ended December 31, 2020, and 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. 19 Table of Contents Research and development expenses increased by $550,600 (167.0%) to $880,300 for the three months ended December 31, 2021 compared to $329,700 for the three months ended December 31, 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, and to a lesser extent to increased product development costs related to the Benchtop Laboratory Equipment Operations. Total other income, net for the three months ended December 31, 2021 was $523,500 reflecting $433,800 of loan forgiveness for the Company’s second PPP Loan, compared to $53,500 for the three months ended December 31, 2020. The Company reflected income tax benefit for continuing operations of $414,700 for the three months ended December 31, 2021 compared to income tax benefit of $47,600 for the three months ended December 31, 2020, primarily due to the increased loss. As a result of the foregoing, the Company recorded a loss from continuing operations of $906,600 for the three months ended December 31, 2021 compared to a loss from continuing operations of $138,300 for the three months ended December 31, 2020. The Company reflected a gain from discontinued operations of $10,100 for the three months ended December 31, 2021, compared to a loss of $474,200 for the three months ended December 31, 2020, due to miscellaneous income derived during the current year period. The Six Months Ended December 31, 2021 Compared With The Six Months Ended December 31, 2020 Net revenues for the six months ended December 30, 2021 increased $1,022,100 (21.6%) to $5,758,600 from $4,736,500 for the six months ended December 31, 2020, reflecting an increase of $593,500 in sales of the Benchtop Laboratory Equipment due to increased sales of its Genie brand and Torbal brand products. The Benchtop Laboratory Equipment sales reflected $1,245,300 of Torbal brand product sales for the six months ended December 31, 2021, compared to $1,094,500 for the six months ended December 31, 2020 primarily due to increased sales of its automated VIVID pill counter. Revenues from the Bioprocessing Systems Operations increased $428,600 due primarily to sales by Aquila. The gross profit percentage on a combined basis was 50.7% for the six months ended December 31, 2021 compared to 52.0% for the six months ended December 31, 2020 due primarily to decreased margins for the Benchtop Laboratory Equipment Operations resulting from increased costs for labor and materials. General and administrative expenses for the six months ended December 31, 2021 increased by $1,775,800 (168.1%) to $2,831,900 from $1,056,100 for the six months ended December 31, 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 six months ended December 31, 2021 increased $670,000 (52.6%) to $1,942,800 from $1,272,800 for the six months ended December 31, 2020 which were incurred primarily 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 $942,800 (164.3%) to $1,516,800 for the six months ended December 31, 2021 compared to $574,000 for the six months ended December 31, 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, and to a lesser extent to increased product development costs related to the Benchtop Laboratory Equipment Operations. Total other income, net for the six months ended December 31, 2021 was $515,600 reflecting $433,800 loan forgiveness for the Company’s second PPP Loan, compared to $65,100 for the six months ended December 31, 2020. The Company reflected income tax benefit for continuing operations of $737,300 for the six months ended December 31, 2021 compared to income tax benefit of $94,100 for the six months ended December 31, 2020, primarily due to the increased loss. As a result of the foregoing, the Company recorded a loss from continuing operations of $2,116,300 for the six months ended December 31, 2021, compared to a loss from continuing operations of $280,900 for the six months ended December 31, 2020. The Company reflected a gain from discontinued operations of $11,000 for the six months ended December 31, 2021, compared to a loss of $594,900 loss for the six months ended December 31 2020, due to miscellaneous income earned during the current year period. Liquidity and Capital Resources. Cash and cash equivalents decreased by $5,378,200 to $4,297,000 as of December 31, 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. 20 Table of Contents Net cash used in operating activities was $2,094,400 for the six months ended December 31, 2021 compared to $1,217,800 during the six months ended December 31, 2020, primarily as a result of the increased loss incurred for the current period. Net cash used in investing activities was $3,386,800 for the six months ended December 31, 2021 compared to $5,217,200 used during the six months ended December 31, 2020 principally due to a decrease of purchases and redemptions of investments, and to a lesser extent the Company’s purchase of new capital equipment. Net cash used in financing activities was zero for the six months ended December 31, 2021, compared to $13,400 used during the six months ended December 31, 2020, all due to contingent consideration. The Company’s working capital decreased by $1,320,500 to $14,823,800 as of December 31, 2021 compared to $16,144,300, as of June 30, 2021 reflecting the loss generated during the period.