SCIENTIFIC INDUSTRIES INC 10-Q

scnd_10q.htm UNITE D STATES SECURITIE S AND EXCHANGE COMMISSION Washington, D.C. 20549 FOR M 10-Q ☒ QUARTERL Y REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 ☐ TRANSITIO N 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 10, 2022 is 7,003,599 shares. SCIENTIFI C INDUSTRIES, INC. Tabl e of Contents PART I - Financial Information Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3 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 12 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 Item 4. CONTROLS AND PROCEDURES 13 PART II - Other Information Item 1. Legal Proceedings 14 Item 1A. Risk Factors 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Mine Safety Disclosures 14 Item 5. Other Information 14 Item 6. Exhibits 14 SIGNATURE 15 2 Table of Contents PART I – FINANCIAL INFORMATION Ite m 1. Financial Statements SCIENTIFI C INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2022 June 30, 2022 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 2,437,700 $ 2,971,100 Investment securities 5,298,600 6,391,600 Trade accounts receivable, less allowance for doubtful accounts of $ 15,600 at September 30, 2022 and June 30, 2022 1,141,300 1,501,400 Inventories 4,956,200 4,696,300 Income tax receivable 161,400 161,100 Prepaid expenses and other current assets 510,400 547,600 Assets of discontinued operations - 200 Total current assets 14,505,600 16,269,300 Property and equipment, net 1,066,200 1,005,600 Goodwill 4,395,400 4,395,400 Other intangible assets, net 1,943,600 2,079,800 Deferred taxes 4,160,800 3,743,600 Operating lease right of use assets 1,442,100 1,475,500 Other assets 62,400 62,400 Total assets $ 27,576,100 $ 29,031,600 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Accounts payable $ 452,800 $ 1,105,900 Accrued expenses 762,500 796,000 Bank overdraft 84,000 - Deferred revenue - 29,000 Lease liabilities, current portion 284,400 299,300 Total current liabilities 1,583,700 2,230,200 Lease liabilities, less current portion 1,218,700 1,239,600 Total liabilities 2,802,400 3,469,800 Shareholders equity: Common stock, $ 0.05 par value; 20,000,000 shares authorized; 7,023,401 shares issued; 7,003,599 shares outstanding at September 30, 2022 and June 30, 2022 351,200 351,200 Additional paid in capital 32,282,200 31,664,100 Accumulated comprehensive loss ( 219,800 ) ( 105,600 ) Accumulated deficit ( 7,587,500 ) ( 6,295,500 ) 24,826,100 25,614,200 Less common stock held in treasury at cost, 19,802 shares 52,400 52,400 Total shareholders equity 24,773,700 25,561,800 Total liabilities and shareholders equity $ 27,576,100 $ 29,031,600 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents SCIENTIFI C INDUSTRIES, INC. AND SUBSIDIARIES CONDENSE D CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) For the Three Months Ended September 30, 2022 2021 Revenues $ 2,670,000 $ 2,854,500 Cost of revenues 1,320,900 1,340,900 Gross profit 1,349,100 1,513,600 Operating expenses: General and administrative 1,607,500 1,465,700 Selling 875,700 935,800 Research and development 560,100 636,500 Total operating expenses 3,043,300 3,038,000 Loss from operations ( 1,694,200 ) ( 1,524,400 ) Other expense, net ( 15,000 ) ( 7,900 ) Loss from continuing operations before income tax benefit ( 1,709,200 ) ( 1,532,300 ) Income tax benefit, deferred ( 417,200 ) ( 322,600 ) Loss from continuing operations ( 1,292,000 ) ( 1,209,700 ) Discontinued operations (Note 10): Gain from discontinued operations, net of tax - 900 Net loss $ ( 1,292,000 ) $ ( 1,208,800 ) Comprehensive loss: Unrealized holding gain on investment securities, net of tax 4,100 2,200 Foreign currency translation (loss) gain adjustment ( 118,300 ) 34,100 Comprehensive (loss) gain ( 114,200 ) 36,300 Total comprehensive loss $ ( 1,406,200 ) $ ( 1,172,500 ) Basic and diluted loss per common share: Continuing operations $ ( 0.18 ) $ ( 0.19 ) Discontinued operations $ - $ - Consolidated operations $ ( 0.18 ) $ ( 0.19 ) See notes to unaudited condensed consolidated financial statements. 4 Table of Contents SCIENTIFI C INDUSTRIES, INC. AND SUBSIDIARIES CONDENSE D CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) Common Stock Additional Paid-in Accumulated Other Comprehensive Income Accumulated Treasury Stock Total Stockholders' Shares Amount Capital (Loss) Deficit Shares Amount Equity Balance June 30, 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 gain on investment securities, net of tax - - - 2,200 - - - 2,200 Stock-based compensation - - 675,400 - - - - 675,400 Balance September 30, 2021 6,477,945 $ 324,000 $ 27,288,900 $ 27,100 $ ( 1,859,900 ) 19,802 $ 52,400 $ 25,727,700 Common Stock Additional Paid-in Accumulated Other Comprehensive Income Accumulated Treasury Stock Total Stockholders' Shares Amount Capital (Loss) Deficit Shares Amount Equity Balance June 30, 2022 7,023,401 $ 351,200 $ 31,664,100 $ ( 105,600 ) $ ( 6,295,500 ) 19,802 $ 52,400 $ 25,561,800 Net loss - - - - ( 1,292,000 ) - - ( 1,292,000 ) Foreign currency translation adjustment - - - ( 118,300 ) - - - ( 118,300 ) Unrealized gain on investment securities, net of tax - - - 4,100 - - - 4,100 - Stock-based compensation - - 618,100 - - - - 618,100 Balance September 30, 2022 7,023,401 $ 351,200 $ 32,282,200 $ ( 219,800 ) $ ( 7,587,500 ) 19,802 $ 52,400 $ 24,773,700 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 Months Ended September 30, 2022 2021 Operating activities: Net loss $ ( 1,292,000 ) $ ( 1,208,800 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 188,900 165,100 Stock-based compensation 618,100 675,400 Loss on sale of investments 56,900 200 Unrealized holding loss on investments 12,100 32,800 Deferred income tax benefit ( 417,200 ) ( 322,600 ) Changes in operating assets and liabilities: Trade accounts receivable 391,200 ( 198,500 ) Inventories ( 334,100 ) ( 117,600 ) Prepaid and other current assets 26,400 ( 151,200 ) Income tax receivable ( 300 ) 267,300 Operating lease right of use assets 29,700 34,000 Accounts payable ( 674,800 ) 167,000 Accrued expenses ( 11,100 ) ( 90,700 ) Deferred revenue ( 27,900 ) - Lease liabilities ( 32,200 ) ( 27,800 ) Other long term liabilities - ( 10,800 ) Net cash used in operating activities ( 1,466,300 ) ( 786,200 ) Investing activities: Redemption of investment securities 1,043,000 708,200 Purchase of investment securities ( 14,800 ) ( 3,982,400 ) Capital expenditures ( 160,100 ) ( 48,900 ) Purchase of other intangible assets ( 1,500 ) - Net cash provided by (used) in investing activities 866,600 ( 3,323,100 ) Financing activities: Bank overdraft 84,000 ( 321,700 ) Net cash provided by (used) in financing activities 84,000 ( 321,700 ) Effect of changes in foreign currency exchange rates on cash and cash equivalents ( 17,700 ) 24,500 Net decrease in cash and cash equivalents ( 533,400 ) ( 4,406,500 ) Cash and cash equivalents, beginning of period 2,971,100 9,675,200 Cash and cash equivalents, end of period $ 2,437,700 $ 5,268,700 SUPPLEMENTAL DISCLOSURES Noncash financing activities Record right of use assets $ 41,100 $ - Record lease liabilities $ 38,800 $ - See notes to unaudited condensed consolidated financial statements. 6 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation Scientific Industries, Inc. and its subsidiaries (the “Company”) design, manufacture, and market a variety of benchtop laboratory equipment and bioprocessing products. The Company is headquartered in Bohemia, New York where it produces benchtop laboratory and pharmacy equipment. Additionally, the Company has two other locations in Pittsburgh, Pennsylvania and Baesweiller, Germany, where it designs and produces a variety of bioprocessing products, and an administrative facility in Orangeburg, New York related to sales and marketing. The products, which are sold to customers worldwide, include mixers, shakers, stirrers, refrigerated incubators, pharmacy balances and scales, force gauges, bioprocessing sensors and analytical tools. The Company also sublicensed certain patents and technology under a license agreement which expired in August 2021 and received royalty fees from the sublicenses. 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 notes 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 consolidated financial statements and notes thereto, included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022. The results for the three months ended September 30, 2022 are not necessarily an indication of the results for the full fiscal year ending June 30, 2023. 2. Significant Accounting Policies Principles of Consolidation The accompanying unaudited 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 wholly-owned subsidiary, which holds 100% of the outstanding stock of Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation, and aquila biolabs GmbH (“Aquila”), a German corporation, since its acquisition on April 29, 2021, (all collectively referred to as the “Company”). All material intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain balances from fiscal 2022 have been reclassified to conform to the current year presentation. Recently Issued Accounting Pronouncements The Company has evaluated all recent accounting pronouncements as issued by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent pronouncements issued to have a material impact on the financial statements of the Company. The Company continually evaluates ASU’s issued, but not yet effective, to determine whether the ASU will have any material impact on the Company and its operations. 3. Fair Value of Financial Instruments The Company follows ASC - Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which has defined the fair value of financial instruments as the amount 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. Fair value measurements do not include transaction costs. The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below: Level 1 Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly Level 3 Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable. 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 was 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 were not observable in the market, therefore, the Company classifies this liability as Level 3 in the following table. 7 Table of Contents The following tables set forth by level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis as of September 30, 2022 and June 30, 2022 according to the valuation techniques the Company used to determine their fair values: Fair Value Measurements as of September 30, 2022 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 2,437,700 $ - $ - $ 2,437,700 Investment securities 4,314,100 984,500 - 5,298,600 Total $ 6,751,800 $ 984,500 $ - $ 7,736,300 Fair Value Measurements as of June 30, 2022 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 2,971,100 $ - $ - $ 2,971,100 Investment securities 5,276,600 1,115,000 - 6,391,600 Total $ 8,247,700 $ 1,115,000 $ - $ 9,362,700 Investments in marketable securities by security type as of September 30, 2022 and June 30, 2022 consisted of the following: As of September 30, 2022: Cost Fair Value Unrealized Holding Gain (Loss) Equity securities $ 118,800 $ 134,700 $ 15,900 Mutual funds 4,389,400 4,179,400 ( 210,000 ) Debt Securities 978,800 984,500 5,700 Total $ 5,487,000 $ 5,298,600 $ ( 188,400 ) As of June 30, 2022: Cost Fair Value Unrealized Holding Gain (Loss) Equity securities $ 118,800 $ 151,000 $ 32,200 Mutual funds 5,299,500 5,125,600 ( 173,900 ) Debt Securities 1,114,100 1,115,000 900 Total $ 6,532,400 $ 6,391,600 $ ( 140,800 ) 4. Inventories As of September 30, 2022 As of June 30, 2022 Raw materials $ 3,244,600 $ 3,298,300 Work-in-process 194,100 55,300 Finished goods 1,517,500 1,342,700 $ 4,956,200 $ 4,696,300 8 Table of Contents 5. Goodwill and Finite Lived Intangible Assets Goodwill amounted to $ 4,395,400 as of September 30, 2022 and June 30, 2022, all of which is expected to be deductible for tax purposes. The components of finite lived intangible assets are as follows: As of September 30, 2022: Useful Lives Cost Accumulated Amortization Net Technology, trademarks 3-10 yrs. $ 1,274,900 $ 693,200 $ 581,700 Trade names 3-6 yrs. 592,300 247,100 345,200 Websites 3-7 yrs. 210,000 210,000 - Customer relationships 4-10 yrs. 372,200 153,500 218,700 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4-5 yrs. 1,060,500 553,100 507,400 Patents 5-7 yrs. 595,800 305,200 290,600 $ 4,399,700 $ 2,456,100 $ 1,943,600 As of June 30, 2022 Useful Lives Cost Accumulated Amortization Net Technology, trademarks 3-10 yrs. $ 1,278,900 $ 653,400 $ 625,500 Trade names 3-6 yrs. 592,300 228,200 364,100 Websites 3-7 yrs. 210,000 210,000 - Customer relationships 4-10 yrs. 372,200 143,300 228,900 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4-5 yrs. 1,060,500 504,200 556,300 Patents 5-7 yrs. 594,300 289,300 305,000 $ 4,402,200 $ 2,322,400 $ 2,079,800 Total amortization expense was $ 134,200 and $ 138,900 for the three months ended September 30, 2022 and 2021, respectively. Estimated future fiscal year amortization expense of intangible assets as of September 30, 2022 is as follows: As of September 30, 2022 Amount Remainder of fiscal year ending 2023 $ 401,400 2024 520,500 2025 484,800 2026 283,700 2027 136,600 Thereafter 116,600 Total $ 1,943,600 6. Commitment and Contingencies Legal Matters During the normal course of business, the Company may be named from time to time as a party to claims and litigations arising in the ordinary course of business. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with ASC 450, Contingencies. Litigation and contingency accruals are based on our assessment, including advice of legal counsel, regarding the expected outcome of litigation or other dispute resolution proceedings. If the Company determines that an unfavorable outcome is probable and can be reasonably assessed, it establishes the necessary accruals. As of September 30, 2022 and June 30, 2022, the Company is not aware of any contingent legal liabilities that should be reflected in the consolidated financial statements. Leases In August and September 2022, the Company entered into two lease agreements to lease motor vehicles for certain employees. The contractual period of each lease is 36 months and the lease was determined to qualify for operating lease treatment upon the lease commencement date. The Company’s approximate future minimum rental payments under all operating leases as of September 30, 2022 are as follows: As of September 30, 2022: Amount Remainder of fiscal year ending 2023 $ 276,200 2024 301,600 2025 278,200 2026 263,900 2027 270,600 Thereafter 339,000 Total future minimum payments $ 1,729,500 Less: Imputed interest ( 226,400 ) Total Present Value of Operating Lease Liabilities $ 1,503,100 9 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 or loss 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. The following table sets forth the weighted average number of common shares outstanding for each period presented. For the three months ended September 30, 2022 2021 Weighted average number of common shares outstanding 7,003,599 6,458,143 Effect of dilutive securities: - - Weighted average number of dilutive common shares outstanding 7,003,599 6,458,143 Basic and diluted loss per common share: Continuing operations $ ( 0.18 ) $ ( 0.19 ) Discontinued operations - - Consolidated operations $ ( 0.18 ) $ ( 0.19 ) Approximately 34,309 and 3,420,510 shares of the Company’s common stock issuable upon the exercise of stock 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, 2022. Approximately 539,357 and 3,246,984 shares of the Company’s common stock issuable upon the exercise of stock 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. 8. Related Parties Consulting Agreements During the three months ended September 30, 2022 and 2021, respectively, the Company paid $ 0 and $ 23,400 , respectively, to Mr. Joseph G. Cremonese, a Director of the Company, and his affiliate which provided consulting services on product development. The Company’s consulting agreement with Mr. Joseph G. Cremonese and his affiliate expired on December 31, 2021. During the three months ended September 30, 2022 and 2021, respectively, the Company paid $ 0 and $ 44,900 , respectively, to Mr. Reinhard Vogt, a former Director of the Company, and his affiliate which provided consulting services. The Company’s consulting agreement with Mr. Reinhard Vogt and his affiliate was terminated on April 1, 2022. 9. Segment Information and Concentration The Company views its operations as two operating 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 manufacture, design, and marketing of bioprocessing systems and products (“Bioprocessing Systems”). The Company also has included a Non-operating Corporate segment. All inter-segment revenues are eliminated. Segment information is reported as follows: Three months ended September 30, 2022 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Revenues $ 2,357,600 $ 312,400 $ - $ 2,670,000 Foreign Sales 749,600 241,100 - 990,700 Income (Loss) From Operations 306,900 ( 1,515,800 ) ( 485,300 ) ( 1,694,200 ) Assets 8,962,000 10,251,200 8,362,900 27,576,100 Long-Lived Asset Expenditures 11,300 150,300 - 161,600 Depreciation and Amortization 25,200 163,700 - 188,900 Three months ended September 30, 2021 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated 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 For the three months ended September 30, 2022 one customer accounted for approximately 10% or more of the Company’s total revenue. For the three months ended September 30, 2021 no individual customer accounted for approximately 10% or more of the Company’s total revenue. 10 Table of Contents A reconciliation of the Company’s consolidated segment loss from operations to consolidated loss from operations before income taxes and net loss for the three months ended September 30, 2022 and 2021, respectively are as follows: For the three months ended September 30, 2022 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 306,900 $ ( 1,515,800 ) $ ( 485,300 ) $ ( 1,694,200 ) Other (expense) income, net 1,600 13,500 ( 30,100 ) ( 15,000 ) Income (Loss) from operations before discontinued operations and income tax benefit $ 308,500 $ ( 1,502,300 ) $ ( 515,400 ) $ ( 1,709,200 ) For the three months ended September 30, 2021 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 561,600 $ ( 1,685,500 ) $ ( 400,500 ) $ ( 1,524,400 ) Other (expense) income, net 2,000 - ( 9,900 ) ( 7,900 ) Income (Loss) from operations before discontinued operations and income tax benefit $ 563,600 $ ( 1,685,500 ) $ ( 410,400 ) $ ( 1,532,300 ) 10. Discontinued Operations The operating results of the discontinued 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. As of September 30, 2022 As of June 30, 2022 Assets: Cash $ - $ 200 Total $ - $ 200 Three Months Ended September 30, 2022 2021 Revenue $ - $ 1,200 Cost of goods sold - - Gross profit - 1,200 Selling, general and administrative expenses - 300 Loss from operations before income tax benefit - 900 Income tax benefit, deferred - - Income attributable to discontinued operations $ - $ 900 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, 2022 and 2021 was $ 0 and $ 900 , respectively. There was no cash provided by or used in investing or financing activities for both periods. 11. Subsequent Event On November 4, 2022, the Board of Directors, approved to change the Company’s fiscal year end from June 30 of each year to December 31 of each year. In accordance with the applicable rules of the Securities Exchange Act of 1934, as amended, the Company will file, on or about March 31, 2023, a transition report on Form 10-K with respect to the six-month transition period beginning July 1, 2022 and ending December 31, 2022. The Company’s 2023 fiscal year will commence on January 1, 2023. 11 Table of Contents Ite m 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ending June 30,2022, filed on September 28, 2022. 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 statements. 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. Throughout this Quarterly Report on Form 10-Q, the terms the “Company,” ”Scientific,” “we,” “our” or “us,” refer to Scientific Industries, Inc. and its subsidiaries on a consolidated basis, unless stated or the context implies otherwise. Overview . Scientific Industries, Inc. and its subsidiaries design, manufacture, and market a variety of benchtop laboratory equipment and bioprocessing products. The Company views its operations as two operating 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 manufacture, design, and marketing of bioprocessing systems and products (“Bioprocessing Systems Operations”). COVID-19 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 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 . The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations. The Company realized a loss from continuing operations before income tax benefit of $1,709,200 for the three months ended September 30, 2022 compared to a $1,532,300 loss before income tax benefit for the three months ended September 30, 2021, primarily due to the decreased revenue of its Benchtop Laboratory Equipment Operations, offset by decreased operating expenses of its Bioprocessing Systems Operations. Revenue Net revenues for the three months ended September 30, 2022 decreased $184,500 (6.5%) to $2,670,000 from $2,854,500 for the three months ended September 30, 2021, driven primarily by lower sales in Genie products in Asia, due to a decline of demand of COVID related equipment partially offset by increased sales of Torbal brand products. Sales of Torbal brand products amounted to approximately $683,100 for the three months ended September 30, 2022 compared to $509,800 in the prior year same quarter. Net revenues from the Bioprocessing Systems Operations decreased $12,200 due primarily to the royalty revenue reduction from the prior year quarter due to the termination of a patent and technology license agreement in August 2021, partially offset by increased sales of bioprocessing products. Gross profit The gross profit percentage for the three months ended September 30, 2022 and 2021, was 50.5% and 53%, respectively. The 2.5% decreased is due primarily to a increase in material, labor and overhead cost incurred in the Benchtop Laboratory Equipment Operations. General and administrative General and administrative expenses for the three months ended September 30, 2022 and 2021, were $1,607,500 and $1,465,700, respectively. The increase of $141,800 (9.7%) is due primarily to increased labor and operating costs incurred by the Bioprocessing Systems Operations and increased Corporate operating expenditures. Selling Selling expenses for the three months ended September 30, 2022 and 2021, were $875,700 and $935,800, respectively. The decrease of $60,100 (6.4%) is due primarily to the reduction of sales and marketing consultants slightly offset by direct hire sales and marketing employees in the Bioprocessing Systems Operations. Research and development Research and development expenses for the three months ended September 30, 2022, and 2021, were $560,100 and $636,500, respectively. The decrease of $76,400 (12.0%) is, due primarily to the completion and reduction of research and development projects in the Bioprocessing Systems Operations. Other expense, net Other expense, net, for the three months ended September 30, 2022 and 2021, were $15,000 and $7,900, respectively. The increase is due primarily to realized losses on investment securities, partially offset by the decrease in unrealized loss on investment securities during the current quarter period. Income tax Income tax benefit for the three months ended September 30, 2022, and 2021, was $417,200 and $322,600, respectively. The increase is due primarily to the increased net loss in operations during the current quarter period. 12 Table of Contents Liquidity and Capital Resources . Our primary sources of liquidity are existing cash and cash equivalents, representing cash generated from operating activities of the Benchtop Laboratory Equipment Operations and proceeds from the private placements of Company equity securities. We assess our liquidity in terms of our ability to generate cash to fund our short and long-term cash requirements. We believe that our operating cash flows derived primarily from the Benchtop Laboratory Equipment Operations and our cash and investments on hand are sufficient to fund our cash requirements for the next 12 months. In the event that the Company’s business plan changes or its cash requirements are greater than anticipated, the Company may seek to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should the Company need it or, if available, that the terms will be satisfactory to the Company and not dilutive to existing shareholders. The following table discloses our cash flows for the periods presented: For the three months ended September 30, 2022 2021 Net cash used in operating activities $ (1,466,300 ) $ (786,200 ) Net cash provided by (used) in investing activities 866,600 (3,323,100 ) Net cash provided by (used) in financing activities 84,000 (321,700 ) Effect of changes in foreign currency exchange rates (17,700 ) 24,500 Decrease in cash and cash equivalents $ (533,400 ) $ (4,406,500 ) Net cash used in operating activities was $1,466,300 for the three months ended September 30, 2022 compared to $786,200 for the three months ended September 30, 2021. The net increase of $680,100 is primarily a result of the increase in the net loss for the three months ended September 30, 2022 by $83,200 over the prior year period and, a net cash outflow related to changes in operating assets and liabilities of $504,800 offset by a net loss non-cash adjustments of $92,100. Net cash provided by investing activities was $866,600 for the three months ended September 30, 2022 compared to $3,323,100 used in the three months ended September 30, 2021. The net increase of $4,189,700 is primarily due to the decrease in purchase of investment securities, partially offset by a increase in redemption of investments in the current quarter period compared to prior quarter period. Net cash provided by financing activities was $84,000 for the three months ended September 30, 2022 compared to $321,700 used in the three months ended September 30, 2021. The net increase of $405,700 is primarily due to the timing and funding of bank overdraft activities. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principals generally accepted in the United States of America (“U.S. GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. “Note 2-Summary of significant accounting policies” to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended June 30, 2022 (“2022 Form 10-K”) describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates are identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Form 10-K. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements, and actual results could differ from our assumptions and estimates, and such differences could be material. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item. ITEM 4 . Controls and Procedures Evaluatio n of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, have evaluated 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). In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Chief Executive Officer and Chief Financial Officer of the Company has concluded that the Company’s disclosure controls and procedures are effective at a reasonable level 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. Changes in Internal Controls Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 13 Table of Contents PAR T II – OTHER INFORMATION ITEM 1. Legal Proceedings None ITEM 1A. Risk Factors Not required for smaller reporting companies. ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds None ITEM 3. Defaults Upon Senior Securities None ITEM 4. Mine Safety Disclosures Not applicable ITEM 5. Other Information None ITEM 6. Exhibits Exhibit Number Description of document 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 14 Table of Contents S IGNATURES Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 14, 2022 SCIENTIFIC INDUSTRIES, INC.(Registrant) /s/ Helena R. Santos Helena R. Santos President, Chief Executive Officer, and Treasurer Date: November 14, 2022 SCIENTIFIC INDUSTRIES, INC. (Registrant) /s/ Reginald Averilla Reginald Averilla Chief Financial Officer 15