SCIENTIFIC INDUSTRIES INC 10-Q

Item 1. Financial Statements SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 515,400 $ 1,927,100 Investment securities 809,600 4,272,100 Trade accounts receivable, less allowance for doubtful accounts of $ 33,600 at September 30, 2023 and December 31, 2022 1,292,600 1,312,900 Inventories 5,282,300 4,859,600 Income tax receivable 52,700 161,400 Prepaid expenses and other current assets 619,600 456,800 Total current assets 8,572,200 12,989,900 Property and equipment, net 1,093,900 1,163,200 Goodwill 115,300 115,300 Other intangible assets, net 1,377,400 1,763,000 Inventories 658,700 606,000 Operating lease right-of-use assets 1,172,400 1,373,600 Other assets 58,200 58,200 Total assets $ 13,048,100 $ 18,069,200 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,095,200 $ 887,300 Accrued expenses 810,800 821,800 Contract liabilities 20,400 134,400 Lease liabilities, current portion 243,100 276,900 Bank overdraft 13,300 - Total current liabilities 2,182,800 2,120,400 Lease liabilities, less current portion 987,300 1,156,200 Total liabilities 3,170,100 3,276,600 Shareholders’ equity: Common stock, $ 0.05 par value; 20,000,000 shares authorized; 7,003,599 shares issued and outstanding at September 30, 2023 and 7,023,401 shares issued and 7,003,599 shares outstanding at December 31, 2022 350,200 351,200 Additional paid-in capital 34,882,400 32,900,800 Accumulated comprehensive loss ( 92,400 ) ( 8,400 ) Accumulated deficit ( 25,262,200 ) ( 18,398,600 ) 9,878,000 14,845,000 Less common stock held in treasury at cost, 0 shares at September 30, 2023 and 19,802 shares at December 31, 2022 - 52,400 Total shareholders’ equity 9,878,000 14,792,600 Total liabilities and shareholders’ equity $ 13,048,100 $ 18,069,200 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) Three Months Ended, September 30 Nine Months Ended, September 30 2023 2022 (as Restated) 2023 2022 Revenues $ 2,585,500 $ 2,670,000 $ 8,373,400 $ 8,311,900 Cost of revenues 1,404,500 1,320,900 4,504,400 4,148,400 Gross profit 1,181,000 1,349,100 3,869,000 4,163,500 Operating expenses: General and administrative 896,300 1,607,500 3,765,500 4,592,200 Selling 1,614,200 875,700 4,650,800 3,243,700 Research and development 895,900 560,100 2,371,900 1,916,600 Impairment of goodwill and intangible asset - - - 4,280,100 Total operating expenses 3,406,400 3,043,300 10,788,200 14,032,600 Loss from operations ( 2,225,400 ) ( 1,694,200 ) ( 6,919,200 ) ( 9,869,100 ) Other income (expense), net 5,300 ( 15,000 ) 95,700 ( 296,100 ) Interest income 19,000 - 65,400 27,900 Total other income (expense), net 24,300 ( 15,000 ) 161,100 ( 268,200 ) Loss from continuing operations before income tax expense ( 2,201,100 ) ( 1,709,200 ) ( 6,758,100 ) ( 10,137,300 ) Income tax expense(benefit), current - - 108,800 ( 99,200 ) Income tax expense, deferred - - - 3,227,300 Total Income tax expense - - 108,800 3,128,100 Loss from continuing operations ( 2,201,100 ) ( 1,709,200 ) ( 6,866,900 ) ( 13,265,400 ) Discontinued operations: Gain (loss) from discontinued operations, net of tax - - 3,300 ( 6,600 ) Net loss ( 2,201,100 ) ( 1,709,200 ) ( 6,863,600 ) ( 13,272,000 ) Comprehensive loss: Unrealized holding gain (loss) on investment securities, net of tax - 4,100 1,600 ( 5,700 ) Foreign currency translation adjustment ( 95,700 ) ( 118,300 ) ( 85,600 ) ( 308,500 ) Comprehensive loss ( 95,700 ) ( 114,200 ) ( 84,000 ) ( 314,200 ) Total comprehensive loss ( 2,296,800 ) ( 1,823,400 ) ( 6,947,600 ) ( 13,586,200 ) Basic and diluted loss per common share: Continuing operations $ ( 0.31 ) $ ( 0.24 ) $ ( 0.98 ) $ ( 1.93 ) Discontinued operations - - - - Consolidated operations $ ( 0.31 ) $ ( 0.24 ) $ ( 0.98 ) $ ( 1.93 ) 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) Additional Accumulated Other Total Common Stock Paid-in Comprehensive Accumulated Treasury Stock Stockholders’ Shares Amount Capital Income (Loss) Deficit Shares Amount Equity Balance December 31, 2022 7,023,401 $ 351,200 $ 32,900,800 $ ( 8,400 ) $ ( 18,398,600 ) 19,802 $ 52,400 $ 14,792,600 Net loss - - - - ( 2,370,500 ) - - ( 2,370,500 ) Foreign currency translation adjustment - - - 40,200 - - 40,200 Unrealized gain on investment securities, net of tax 3,700 3,700 Stock-based compensation - - 602,600 - - - - 602,600 Balance March 31, 2023 7,023,401 $ 351,200 $ 33,503,400 $ 35,500 $ ( 20,769,100 ) 19,802 $ 52,400 $ 13,068,600 Net loss - - - - ( 2,292,000 ) - - ( 2,292,000 ) Foreign currency translation adjustment - - - ( 30,100 ) - - ( 30,100 ) Unrealized loss on investment securities, net of tax ( 2,100 ) ( 2,100 ) Retirement of treasury stock ( 19,802 ) ( 1,000 ) ( 51,400 ) ( 19,802 ) ( 52,400 ) - Stock-based compensation - - 584,700 - - - - 584,700 Balance June 30, 2023 7,003,599 $ 350,200 $ 34,036,700 $ 3,300 $ ( 23,061,100 ) 0 $ 0 $ 11,329,100 Net loss - - - - ( 2,201,100 ) - - ( 2,201,100 ) Foreign currency translation adjustment - - - ( 95,700 ) - - ( 95,700 ) Stock-based compensation - - 845,700 - - - - 845,700 Balance September 30, 2023 7,003,599 $ 350,200 $ 34,882,400 $ ( 92,400 ) $ ( 25,262,200 ) 0 $ 0 $ 9,878,000 Additional Accumulated Other Total Common Stock Paid-in Comprehensive Accumulated Treasury Stock Stockholders’ Shares Amount Capital Income (Loss) Deficit Shares Amount Equity Balance December 31, 2021 6,477,945 $ 324,000 $ 27,879,900 $ 94,400 $ ($ 2,756,400 ) 19,802 $ 52,400 $ 25,489,500 Net loss - - - - ( 1,535,000 ) - - ( 1,535,000 ) Issuance of Common Stock and Warrants, net of issuance costs 545,456 27,200 2,700,000 2,727,200 Foreign currency translation adjustment - - - ( 194,500 ) - - ( 194,500 ) Unrealized loss on investment securities, net of tax ( 4,700 ) ( 4,700 ) Stock-based compensation - - 653,700 - - - - 653,700 Balance, March 31, 2022 7,023,401 $ 351,200 $ 31,233,600 $ ( 104,800 ) $ ( 4,291,400 ) 19,802 $ 52,400 $ 27,136,200 Net loss - - - - ( 10,027,800 ) - - ( 10,027,800 ) Foreign currency translation adjustment - - - 4,300 - - 4,300 Unrealized loss on investment securities, net of tax ( 5,100 ) ( 5,100 ) Stock-based compensation - - 430,500 - - - - 430,500 Balance, June 30, 2022 (as restated) 7,023,401 $ 351,200 $ 31,664,100 $ ( 105,600 ) $ ( 14,319,200 ) 19,802 $ 52,400 $ 17,538,100 Net loss - - - - ( 1,709,200 ) - - ( 1,709,200 ) 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 (as restated) 7,023,401 $ 351,200 $ 32,282,200 $ ( 219,800 ) $ ( 16,028,400 ) 19,802 $ 52,400 $ 16,332,800 See notes to consolidated financial statements 5 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, 2023 2022 Operating activities: Net loss $ ( 6,863,600 ) $ ( 13,272,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 566,700 549,800 Stock-based compensation 2,033,000 1,702,300 Change in fair value of contingent consideration - 17,500 Loss on sale of investments 96,500 93,600 Unrealized holding (gain) loss on investments ( 147,900 ) 213,200 Deferred income taxes - 3,223,300 Impairment of goodwill and intangible asset - 4,280,100 Changes in operating assets and liabilities: Trade accounts receivable ( 20,100 ) 234,600 Inventories ( 532,400 ) ( 1,415,400 ) Prepaid and other current assets ( 162,100 ) 48,300 Income tax receivable 108,800 ( 95,400 ) Other assets - 100 Carrying value of right of use assets 201,400 ( 778,900 ) Accounts payable 175,400 ( 504,500 ) Accrued expenses 39,700 201,100 Contract liabilities ( 114,000 ) 1,100 Lease liabilities ( 203,000 ) 775,700 Total adjustments ( 506,300 ) ( 1,533,300 ) Net cash used in operating activities ( 4,821,600 ) ( 4,725,500 ) Investing activities: Purchase of investment securities ( 987,000 ) ( 1,648,100 ) Redemption of investment securities 4,505,400 2,908,500 Capital expenditures ( 117,900 ) ( 754,300 ) Purchase of other intangible assets - ( 2,000 ) Net cash provided by investing activities 3,400,500 504,100 Financing activities: Proceeds from issuance of common stock - 3,000,000 Issuance costs of common stock and warrants - ( 272,800 ) Payments of contingent consideration - ( 98,800 ) Bank overdraft 13,300 ( 74,300 ) Net cash provided by financing activities 13,300 2,554,100 Effect of changes in foreign currency exchange rates ( 3,900 ) ( 192,000 ) Net decrease in cash and cash equivalents ( 1,411,700 ) ( 1,859,300 ) Cash and cash equivalents, beginning of period 1,927,100 4,297,000 Cash and cash equivalents, end of period $ 515,400 $ 2,437,700 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Income taxes $ - $ - Noncash financing activities: Record right-of-use assets $ - $ 110,700 Record lease liabilities $ - $ 107,900 See notes to 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 a location in Baesweiller, Germany, where it designs and produces a variety of bioprocessing products, and administrative facilities in Orangeburg, New York and Pittsburgh, Pennsylvania 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 accompanying (a) condensed balance sheet as of December 31, 2022, which has been derived from audited financial statements, and (b) 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-KT for the six months transition period of July 1, 2022 through December 31, 2022. The results for the three and nine months ended September 30, 2023 are not necessarily an indication of the results for the full fiscal year ending December 31, 2023. 2. Significant Accounting Policies Principles of Consolidation The accompanying unaudited interim condensed 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. Liquidity and Going Concern Considerations The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. However, for the reasons described below, Company management does not believe that cash on hand and cash flows generated internally by the Company will be adequate to fund its overhead and other cash requirements over the next twelve months. These reasons raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are to be filed. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management is in plans to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its operating expenses and seeking third party equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 7 Table of Contents Restatement Background On April 12, 2023, the management of Scientific Industries, Inc. (the "Company"), together with the Company's Board of Directors, acting collective as the Audit Committee (the "Audit Committee") reached a determination that the Company’s consolidated audited financial statements as of and for the fiscal year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) and the Company’s consolidated unaudited financial statements as of and for the quarter period ended September 30, 2022 included in the Company’s Quarterly Reports on Form 10-Q filed with the SEC, collectively the “Non-Reliance Periods”, should no longer be relied upon because of material misstatements contained in those consolidated financial statements. The Company’s management and the Audit Committee discussed the matters with Macias Gini & O'Connell LLP (“MGO”), the Company’s independent registered public accounting firm, and determined to restate its consolidated audited financial statements for the Non-Reliance Periods. During the preparation of its audited financial statements for the six-month transition period from July 1, 2022 to December 31, 2022, the Company identified an error in the assessment of a full valuation allowance against the consolidated net deferred tax asset and in addition, the Company identified an error in the use of future projections and weighted average cost of capital used in the annual goodwill impairment testing of the Company’s Bioprocessing Systems segment. Upon further analysis of the errors, the Company determined that it should have allocated a full valuation allowance to the consolidated net deferred tax asset and applied a goodwill impairment charge to the Bioprocessing Systems reporting unit in the fiscal year ended June 30, 2022, as restated in the Company’s Transition Report for the six-month transition period from July 1, 2022 to December 31, 2022, filed on Form 10-KT with the SEC. The Company has restated certain information within this Quarterly Report on Form 10-Q, relevant to the unaudited interim financial information as of September 30, 2022. Derivative Instruments The Company may enter into derivative transactions to hedge its exposures to foreign exchange risk associated with Euro foreign currency denominated assets and liabilities and other Euro foreign currency transactions. On January 9, 2023, the Company entered into a 90-day foreign currency forward contract with a settled date on April 11, 2023, for a notional amount of $ 1,082,500 . On April 4, 2023, the Company entered into a 90 day foreign currency forward contract with a settled date on July 11, 2023, for a notional amount of $ 1,097,300 . The foreign currency forward contracts are used to manage the foreign exchange risk associated with a portion of the Company’s Euro foreign currency denominated assets and liabilities and other Euro foreign currency transactions. The Company is required to record these derivatives in the balance sheet at fair value. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in the statement of operations. Recently Adopted Accounting Pronouncements On January 1, 2023, the Company adopted Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, which replaces the “incurred loss” model for recognizing credit losses with a forward-looking “expected loss” model that generally will result in the earlier recognition of credit losses. The measurement of current expected credit losses, or “CECL”, is based upon historical experience, current conditions, and reasonable and supportable forecasts incorporating forward-looking information that affect the collectability of the reported amount. ASU No. 2016-13 is applicable to financial assets measured at amortized cost and off-balance sheet credit exposures. 8 Table of Contents Allowance for Credit Losses – Accounts Receivable The allowance for credit losses required under ASC 326 is a valuation account that is deducted from the accounts receivables’ amortized cost basis on the Company’s condensed consolidated balance sheets. Our accounts receivables are generated from the sales revenue derived from the Company’s Benchtop Laboratory Equipment and Bioprocessing Systems segments. The Company elected to estimate expected losses using an analytical model based on methods that utilize the accounts receivable aging schedule. This analytical model incorporates historical loss activity, geographic location, customer-specific information, collection terms and customer amounts. The Company evaluates the estimated allowance on an aggregate basis as each individual account receivable shares similar risk characteristics. Upon adoption of ASC 326 using the modified retrospective transition method and as of September 30, 2023, the Company determined that the allowance for credit losses, if any, is immaterial as of adoption date and the Company will continue to evaluate the accounts receivable portfolio on an on-going basis. Allowance for Credit Losses – Available-for-Sale Debt Securities The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for held to maturity debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASC 326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value. For AFS debt securities where neither of the criteria is met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Upon adoption of ASC 326, an entity may no longer consider the length of time fair value has been less than amortized cost. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the collectability of an AFS security is considered below the amortized cost basis of the security. As of September 30, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. 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. 9 Table of Contents 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. 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, 2023 and December 31, 2022 according to the valuation techniques the Company used to determine their fair values: Fair Value Measurements as of September 30, 2023 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 515,400 $ - $ - $ 515,400 Investment securities 809,600 - - 809,600 Total $ 1,325,000 $ - $ - $ 1,325,000 Fair Value Measurements as of December 31, 2022 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 1,927,100 $ - $ - $ 1,927,100 Investment securities 4,035,500 236,600 - 4,272,100 Total $ 5,962,600 $ 236,600 $ - $ 6,199,200 The Company reviews the available-for-sale debt securities (“AFS”) for declines in fair value below the amortized cost basis under the credit loss model of ASC 326. Any decline in fair value related to a credit loss is recognized in the condensed consolidated statements of operations, with the amount of the loss limited to the difference between fair value and amortized cost. As of September 30, 2023 and December 31, 2022, the allowance for credit losses related to available-for sale debt securities was zero. Investments in marketable securities by security type as of September 30, 2023 and December 31, 2022 consisted of the following: As of September 30, 2023: Cost Fair Value Unrealized Holding Gain (Loss) Equity securities $ 95,700 $ 124,200 $ 28,500 Mutual funds 626,500 685,400 58,900 Total $ 722,200 $ 809,600 $ 87,400 As of December 31, 2022: Cost Fair Value Unrealized Holding Gain (Loss) Equity securities $ 118,900 $ 154,600 $ 35,700 Mutual funds 4,063,100 3,880,900 ( 182,200 ) Debt securities 235,400 236,600 1,200 Total $ 4,417,400 $ 4,272,100 $ ( 145,300 ) Foreign currency forward contract On January 9, 2023, the Company entered into a 90 day foreign currency forward contract for a notional amount of $ 1,082,500 , which settled on April 11, 2023. On April 4, 2023, the Company entered into a 90 day foreign currency forward contract for a notional amount of $ 1,097,300 which settled on July 11, 2023. The foreign currency forward contract are used to manage the foreign exchange risk associated with a portion of its Euro foreign currency denominated assets and liabilities and other Euro foreign currency transactions. Although the Company believes the hedge position accomplish an economic hedge against the Company’s future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific expense being hedged. The Company is using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our statement of operations. The immediate recognition of hedging gains and losses can cause net income/loss to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments. 10 Table of Contents 4. Inventories As of September 30, As of December 31, 2023 2022 Raw materials $ 3,628,900 $ 3,703,900 Work-in-process 92,100 66,700 Finished goods 2,220,000 1,695,000 Total Inventories $ 5,941,000 $ 5,465,600 Inventories - Current Asset $ 5,282,300 $ 4,859,600 Inventories - Noncurrent Asset 658,700 606,000 5. Goodwill and Finite Lived Intangible Assets Goodwill amounted to $ 115,300 as of September 30, 2023 and December 31, 2022, all of which is expected to be deductible for tax purposes. Finite lived intangible assets consist of the following: As of September 30, 2023: Useful Lives Cost Accumulated Amortization Net Technology, trademarks 3 - 10 yrs. $ 1,216,800 $ 833,600 $ 383,200 Trade names 3 - 6 yrs. 592,300 322,700 269,600 Websites 3 - 7 yrs. 210,000 210,000 - Customer relationships 4 - 10 yrs. 372,200 186,700 185,500 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4 - 5 yrs. 1,060,500 748,700 311,800 Patents 5 - 7 yrs. 595,800 368,500 227,300 $ 4,341,600 $ 2,964,200 $ 1,377,400 Accumulated As of December 31, 2022 Useful Lives Cost Amortization Net Technology, trademarks 3 - 10 yrs. $ 1,216,800 $ 721,700 $ 495,100 Trade names 3 - 6 yrs. 592,300 266,000 326,300 Websites 3 - 7 yrs. 210,000 210,000 - Customer relationships 4 - 10 yrs. 372,200 163,800 208,400 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4 - 5 yrs. 1,060,500 602,000 458,500 Patents 5 - 7 yrs. 595,800 321,100 274,700 $ 4,341,600 $ 2,578,600 $ 1,763,000 Total amortization expense was $ 127,800 and $ 134,200 for the three months ended September 30, 2023 and 2022, respectively. Total amortization expense was $ 385,600 and $ 403,200 for the nine months ended September 30, 2023 and 2022, respectively. Estimated future fiscal year amortization expense of intangible assets as of September 30, 2023 is as follows: As of September 30, 2023 Amount Remainder of fiscal year ending 2023 $ 131,000 2024 506,100 2025 371,500 2026 193,800 2027 92,600 Thereafter 82,400 Total $ 1,377,400 6. Commitment and Contingencies Legal Matters 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, 2023 and December 31, 2022, the Company is not aware of any contingent legal liabilities that should be reflected in the consolidated financial statements. 11 Table of Contents Leases The Company’s approximate future minimum rental payments under all operating leases as of September 30, 2023 were as follows: As of September 30, 2023: Amount Remainder of fiscal year ending 2023 $ 81,100 2024 296,400 2025 269,300 2026 266,600 2027 274,600 Thereafter 201,000 Total future minimum payments $ 1,389,000 Less: Imputed interest ( 156,600 ) Total Present Value of Operating Lease Liabilities $ 1,230,400 Employment Agreement The Company entered into an employment agreement, effective as of July 1, 2023, with Reginald Averilla, its Chief Financial Officer. The agreement provides continued employment through June 30, 2025 for a base annual salary of $ 195,000 , a 10 % bonus at the discretion of the Board of Directors of the Company and a 12-month post termination noncompete covenant. 7. Stockholders’ Equity Stock-based compensation expense On July 21, 2023, the Company’s Bioprocessing System segment entered into a separation agreement with their VP of Sales (“former employee”). In connection with the separation agreement, the Company extended the exercisability of the former employee’s vested stock options up through the original expiration date of July, 13, 2030 , which the Company recorded a additional $ 684,900 of noncash stock base compensation expense related to the modification of the exercisability of the vested stock options 8. 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, For the nine months ended September 30, 2023 2022 (as restated) 2023 2022 Weighted average number of common shares outstanding 7,003,599 7,003,599 7,003,599 6,881,720 Effect of dilutive securities: - - - - Weighted average number of dilutive common shares outstanding 7,003,599 7,003,599 7,003,599 6,881,720 Basic and diluted loss per common share: Continuing operations $ ( 0.31 ) $ ( 0.24 ) $ ( 0.98 ) $ ( 1.93 ) Discontinued operations - - - - Consolidated operations $ ( 0.31 ) $ ( 0.24 ) $ ( 0.98 ) $ ( 1.93 ) Approximately 20,965 and 0 shares of the Company’s common stock issuable upon the exercise of stock options and warrants, and 36,423 and 0 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, 2023 and 2022, respectively. Approximately 24,417 and 0 shares of the Company’s common stock issuable upon the exercise of stock options and warrants, and 32,508 and 0 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 nine months ended September 30, 2023 and 2022, respectively. 9. Related Parties Consulting Agreements During the nine months ended September 30, 2023 and 2022, respectively, the Company paid $ 0 and $ 120,700 , 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. There were no payments to Mr. Reinhard Vogt during the three months ended September 30, 2023 and 2022, respectively. 10. 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. 12 Table of Contents Segment information is reported as follows. Three Months Ended September 30, 2023: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Revenues $ 2,161,300 $ 424,200 $ - $ 2,585,500 Foreign Sales 625,000 242,900 - 867,900 Income (Loss) From Operations 73,600 ( 2,105,500 ) ( 193,500 ) ( 2,225,400 ) Assets 7,137,200 5,101,300 809,600 13,048,100 Long-Lived Asset Expenditures - 11,700 - 11,700 Depreciation and Amortization 20,700 167,500 - 188,200 Three Months Ended September 30, 2022 (as Restated): Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other 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 4,874,600 5,298,600 19,135,200 Long-Lived Asset Expenditures 11,300 150,300 - 161,600 Depreciation and Amortization 25,200 163,700 - 188,900 13 Table of Contents Nine Months Ended September 30, 2023: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Revenues $ 7,357,800 $ 1,015,600 $ - $ 8,373,400 Foreign Sales 2,204,800 478,700 - 2,683,500 Income (Loss) From Operations 555,200 ( 5,972,600 ) ( 1,501,800 ) ( 6,919,200 ) Assets 7,137,200 5,101,300 809,600 13,048,100 Long-Lived Asset Expenditures 25,200 92,700 - 117,900 Depreciation and Amortization 64,400 502,300 - 566,700 Nine Months Ended September 30, 2022: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Revenues $ 7,307,600 $ 1,004,300 $ - $ 8,311,900 Foreign Sales 2,420,900 821,000 - 3,241,900 Income (Loss) From Operations 923,000 ( 9,445,700 ) ( 1,346,400 ) ( 9,869,100 ) Assets 8,962,000 4,874,600 5,298,600 19,135,200 Long-Lived Asset Expenditures 37,200 719,100 - 756,300 Depreciation and Amortization 74,900 474,900 - 549,800 14 Table of Contents For the three months ended September 30, 2023 and 2022, respectively, one customer accounted for approximately 10% or more of the Company’s total revenue. For the nine months ended September 30, 2023 one customer accounted for approximately 10% or more of the Company’s total revenue. For the nine months ended September 30, 2022 no individual customer accounted for 10% or more of the Company’s total revenue. A reconciliation of the Company’s consolidated segment income (loss) from operations to consolidated loss from operations before income taxes and net loss for the three and nine months ended September 30, 2023 and 2022, respectively are as follows: Three months ended September 30, 2023 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 73,600 $ ( 2,105,500 ) $ ( 193,500 ) $ ( 2,225,400 ) Other income (expense), net 5,300 ( 1,800 ) 1,800 5,300 Interest income - - 19,000 19,000 Total other (expense) income, net 5,300 ( 1,800 ) 20,800 24,300 Income (Loss) from operations before discontinued operations and income taxes $ 78,900 $ ( 2,107,300 ) $ ( 172,700 ) $ ( 2,201,100 ) 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 ) Interest income - - - - Total other (expense) income, net - 13,500 ( 30,100 ) ( 15,000 ) Income (Loss) from operations before discontinued operations and income taxes $ 308,500 $ ( 1,502,300 ) $ ( 515,400 ) $ ( 1,709,200 ) 15 Table of Contents Nine months ended September 30, 2023 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 555,200 $ ( 5,972,600 ) $ ( 1,501,800 ) $ ( 6,919,200 ) Other income (expense), net 7,700 9,300 78,700 95,700 Interest income - - 65,400 65,400 Total other (expense) income, net 7,700 9,300 144,100 161,100 Income (Loss) from operations before discontinued operations and income taxes $ 562,900 $ ( 5,963,300 ) $ ( 1,357,700 ) $ ( 6,758,100 ) Nine months ended September 30, 2022 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 923,000 $ ( 9,445,700 ) $ ( 1,346,400 ) $ ( 9,869,100 ) Other (expense) income, net 2,900 ( 42,100 ) ( 256,900 ) ( 296,100 ) Interest income - - 27,900 27,900 Total other (expense) income, net 2,900 ( 42,100 ) ( 229,000 ) ( 268,200 ) Income (Loss) from operations before discontinued operations and income taxes $ 925,900 $ ( 9,487,800 ) $ ( 1,575,400 ) $ ( 10,137,300 ) 16 Table of Contents