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
two 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 $4,055,000 for fiscal 2021 compared to a loss of $667,400 for fiscal 2020,
primarily due to increased operating expenses of its Bioprocessing Systems
Operations, which included significant amounts for product development, sales
and marketing, costs related to the acquisition of Aquila, and non-cash
compensation expense related to stock options, partially offset by the profits
generated by increased sales of the Benchtop Laboratory Equipment Operations.
The results also reflected a loss before income tax benefit for discontinued
operations of $769,900 compared to $472,500 in fiscal 2020. On November 30,
2020, the Company sold substantially all of the assets of its Catalyst Research
Instruments Operations which was operated through its wholly-owned subsidiary,
Altamira Instruments, Inc.
The challenges posed by the COVID-19 pandemic on the global economy began to
take effect and impact the Company's operations at the end of the third quarter
of the year ended June 30, 2020. At that time, the Company took appropriate
action and put plans in place to diminish the 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 as it pertains
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 Paycheck Protection Program ("PPP"). The Company
received $563,800 and $433,800 in April 2020 and March 2021, respectively, under
this program administered by the U.S. Small Business Administration through its
bank. The first loan was forgiven in June 2021 except for $32,700 which was
repaid. The remaining loan bears interest at 1% per annum and matures in March
2026 and contains no collateral or guarantee requirements. The Company expects
to apply for and receive forgiveness for the majority of the second loan. The
Bioprocessing Systems Operations' German operation, which was acquired on April
29, 2021 ,was negatively impacted in its 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 are lost as a result. 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,
which are primarily distributors of laboratory equipment and supplies which have
benefitted from the Pandemic due to the nature of the products and have the
ability to pay. However, there is a delay in the receipt of a receivable from a
customer related to the Company's discontinued operations due to a delay in the
Company's ability to complete the installation of equipment purchased by the
customer, as a result of the Pandemic. The Company has not experienced and does
not anticipate 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 and
the related length of its impact on the global economy, which are uncertain and
cannot be predicted at this time. The Company is currently experiencing some
delays from its supply chain which is having an impact on delayed delivery of
some products, 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 may be restricted 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.
Results of Operations. Net revenues for fiscal 2021 increased $1,990,800 (25.6%)
to $9,775,200 from $7,784,400 for fiscal 2020, reflecting an increase of
$2,260,000 in net sales of Benchtop Laboratory Equipment Operations, in part
related to its products being used in COVID-19 related research and testing, and
a decrease of $269,200 in net revenues of the Bioprocessing Systems Operations,
primarily due to decreased royalties earned during the current year period due
to expiring patents.
The gross profit percentage for fiscal 2021 of 50.9% approximated fiscal
2020's gross profit percentage of 50.6%.
12
General and administrative expenses for fiscal 2021 increased by approximately
$1,753,100 (77.0%) to $4,028,500 compared to $2,275,400 for fiscal 2020 due
primarily to compensation-related costs resulting from stock option grants and
increased costs from the Bioprocessing Systems Operations in part due to the
acquisition of Aquila in the fourth quarter of fiscal 2021.
Selling expenses for fiscal 2021 increased approximately $2,846,100 (240.0%) to
$4,031,900 from $1,185,800 for fiscal 2020, primarily due to increased sales and
marketing expenses incurred by the Bioprocessing Systems operations for sales
and marketing personnel, sales and marketing activities, and
compensation-related costs resulting from stock option grants.
Research and development expenses increased $484,100 (42.5%) to $1,623,800 for
fiscal 2021 compared to $1,139,700 for fiscal 2020, due to increased product
development expenditures by the Bioprocessing Systems operations, including such
expenditures incurred by Aquila since its acquisition in the fourth quarter of
fiscal 2021, partially offset by decreased product development expenditures
incurred by the Benchtop Laboratory Equipment Operations.
Total other income (loss), net was $653,800 for fiscal 2021 compared to $(3,900)
in fiscal 2020. This increase 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 benefit for continuing operations of $945,000
for fiscal 2021 compared to income tax benefit of $214,000 for fiscal 2020,
primarily due to the loss incurred.
As a result of the foregoing, the Company recorded a net loss from continuing
operations of $3,110,000 for fiscal 2021 compared to a net loss from continuing
operations of $453,400 for fiscal 2020.
The Company reflected a net loss from discontinued operations of $562,500 for
fiscal 2021, compared to a $249,900 loss for fiscal 2020, primarily due to loss
on the sale of the majority of the operation's assets during the current fiscal
year.
As a result of the above, the Company recorded a net loss of $3,672,500 for
fiscal 2021 compared to a net loss of $703,300 for fiscal 2020.
Liquidity and Capital Resources. Cash and cash equivalents increased by
$2,115,500 to $9,675,200 as of June 30, 2021 from $7,559,700 as of June 30,
2020. The Company received $563,800 and $433,800 in April 2020 and March 2021,
respectively, under the Payroll Protection Program administered by the U.S.
Small Business Administration through its bank. The first loan was forgiven in
June 2021 except for $32,700 which was repaid. The remaining loan bears interest
at 1% per annum and matures in March 2026 and contains no collateral or
guarantee requirements. The Company expects to apply for and receive forgiveness
for the majority of the second loan. In April and June of 2021, the Company
received a total of $16,074,000, net of issuance costs, from the sale of its
Common Stock as further described in Note 15 of the financial statements in Item
8. 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 and cash on-hand.
Net cash used in operating activities was $3,301,500 for fiscal 2021 compared to
net cash used in operating activities of $168,100 for fiscal 2020, primarily due
to the net loss for the current year. Net cash used in investing activities was
$10,884,000 for fiscal 2021 compared to $84,100 for fiscal 2020 due mainly to
acquisition of Aquila in the current year and purchase of investment securities.
Net cash provided by financing activities was $16,310,200 for fiscal 2021
compared to $6,209,400 during fiscal 2020 due mainly to proceeds from issuance
of stock and the proceeds from the Payroll Protection Program loan.
The Company's working capital increased by $5,595,800 to $16,144,300 as of June
30, 2021 compared to $10,548,500, as of June 30, 2020, primarily due to the cash
received from the equity financings.
13© Edgar Online, source Glimpses
SCIENTIFIC INDUSTRIES, INC. 
