SCIENTIFIC INDUSTRIES INC 10-Q

Item 1. Financial Statements SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2024 December 31, 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 351,700 $ 796,100 Investment securities 4,404,800 4,928,700 Trade accounts receivable, less allowance for doubtful accounts of $ 33,600 at March 31, 2024 and December 31, 2023 1,144,900 1,157,100 Inventories 4,868,200 4,883,900 Income tax receivable 161,400 161,400 Prepaid expenses and other current assets 468,800 413,500 Total current assets 11,399,800 12,340,700 Property and equipment, net 1,050,100 1,082,300 Goodwill 115,300 115,300 Other intangible assets, net 1,124,000 1,249,900 Inventories 607,000 609,000 Operating lease right-of-use assets 1,190,900 1,273,900 Other assets 59,400 59,400 Total assets $ 15,546,500 $ 16,730,500 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 767,400 $ 711,700 Accrued expenses 887,400 777,900 Contract liabilities 24,500 23,600 Lease liabilities, current portion 371,100 324,100 Total current liabilities 2,050,400 1,837,300 Lease liabilities, less current portion 877,000 1,007,800 Total liabilities 2,927,400 2,845,100 Shareholders’ equity: Common stock, $ 0.05 par value; 30,000,000 shares authorized; 10,503,599 and 10,145,211 , shares issued and 10,503,599 and 10,145,211 , shares outstanding at March 31, 2024 and December 31, 2023 525,200 507,300 Additional paid-in capital 41,672,300 40,844,600 Accumulated other comprehensive gain (loss) ( 41,700 ) 18,600 Accumulated deficit ( 29,536,700 ) ( 27,485,100 ) Total shareholders’ equity 12,619,100 13,885,400 Total liabilities and shareholders’ equity $ 15,546,500 $ 16,730,500 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) For the Three Months Ended March 31, 2024 2023 Revenues $ 2,483,500 $ 2,805,400 Cost of revenues 1,442,700 1,467,400 Gross profit 1,040,800 1,338,000 Operating expenses: General and administrative 1,521,800 1,569,300 Selling 897,800 1,444,800 Research and development 710,700 791,500 Total operating expenses 3,130,300 3,805,600 Loss from operations ( 2,089,500 ) ( 2,467,600 ) Other income: Other income (expense), net ( 4,300 ) 86,300 Interest income 42,200 9,400 Total other income, net 37,900 95,700 Loss from continuing operations before income tax benefit ( 2,051,600 ) ( 2,371,900 ) Income tax expense - - Loss from continuing operations ( 2,051,600 ) ( 2,371,900 ) Discontinued operations: Gain from discontinued operations, net of tax - 1,400 Net loss $ ( 2,051,600 ) $ ( 2,370,500 ) Comprehensive gain (loss): Unrealized holding gain on investment securities, net of tax - 3,700 Foreign currency translation (loss) gain ( 60,300 ) 40,200 Comprehensive (loss) gain ( 60,300 ) 43,900 Total comprehensive loss $ ( 2,111,900 ) $ ( 2,326,600 ) , Basic and Diluted loss per common share Continuing operations $ ( 0.20 ) $ ( 0.34 ) Discontinued operations $ - $ - Consolidated operations $ ( 0.20 ) $ ( 0.34 ) See notes to unaudited condensed consolidated financial statements. 4 Table of Contents SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Treasury Stock Stockholders’ Shares Amount Capital Income (Loss) Deficit Shares Amount Equity Balance December 31, 2023 10,145,211 $ 507,300 $ 40,844,600 $ 18,600 $ ( 27,485,100 ) $ $ 13,885,400 Net loss - - - - ( 2,051,600 ) - - ( 2,051,600 ) Issuance of Common Stock and Warrants, net of issuance costs (Note 7) 358,388 17,900 204,000 - - - - 221,900 Fair value modification of warrants recorded as stock issuance costs - - 423,800 - - - - 423,800 Foreign currency translation adjustment - - - ( 60,300 ) - - - ( 60,300 ) Stock-based compensation - - 199,900 - - - - 199,900 Balance March 31, 2024 10,503,599 $ 525,200 $ 41,672,300 ( 41,700 ) $ ( 29,536,700 ) - $ - $ 12,619,100 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 holding 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 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 March 31, 2024 2023 Operating activities: Net loss $ ( 2,051,600 ) $ ( 2,370,500 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 188,100 187,900 Stock-based compensation 199,900 602,600 Provision for bad debt 2,000 - Loss on sale of investment securities 1,400 69,200 Unrealized holding (gain) on investment securities ( 5,600 ) ( 112,800 ) Carrying value of right of use assets 82,500 75,500 Changes in operating assets and liabilities: Trade accounts receivable 9,600 143,200 Inventories ( 19,500 ) ( 338,600 ) Prepaid and other current assets ( 55,800 ) ( 27,100 ) Accrued expenses 110,200 151,900 Contract liabilities 900 ( 119,500 ) Lease liabilities ( 83,000 ) ( 77,500 ) Net cash used in operating activities ( 1,565,100 ) ( 1,744,700 ) Investing activities: Purchase of investment securities ( 247,300 ) ( 791,800 ) Redemption of investment securities 775,400 1,731,300 Capital expenditures ( 47,500 ) ( 45,800 ) Net cash provided by investing activities 480,600 893,700 Financing activities: Proceeds from issuance of common stock 716,800 - Issuance costs of common stock and warrants ( 71,100 ) - Net cash provided by financing activities 645,700 - Effect of changes in foreign currency exchange rates on cash and cash equivalents ( 5,600 ) 3,300 Net decrease in cash and cash equivalents ( 444,400 ) ( 847,700 ) Cash and cash equivalents, beginning of period 796,100 1,927,100 Cash and cash equivalents, end of period $ 351,700 $ 1,079,400 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 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) unaudited condensed balance sheet as of December 31, 2023, which have 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-K for the fiscal year ended December 31, 2023. The results for the three months ended March 31, 2024 are not necessarily an indication of the results for the full fiscal year ending December 31, 2024. 2. Significant Accounting Policies Principles of Consolidation The accompanying unaudited interim condensed consolidated financial statements include the accounts of Scientific Industries, Inc., 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, Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary and Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary (discontinued operation as of November 30, 2020) (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”) which contemplate continuation of the Company as a going concern. For the three months ended March 31, 2024, the Company generated negative cash flows from operations of $ 1,561,100 and has an accumulated deficit of $ 29,536,700 as of March 31, 2024. In order to address these conditions, the Company has undertaken a number of strategic initiatives that management believes will provide sufficient funding to enable the Company to continue to operate as a going concern. During the three months ended March 31, 2024, the Company continued to eliminate certain operating expenses in conjunction with its review of the strategic operational and product development plan for the Bioprocessing Systems Operations segment. The Company identified expenses which the Company does not anticipate replacing or to be recurring in the Company’s operational plans for the foreseeable future, primarily in the form of reduced number of employees and related employment expenses. An additional $ 716,776 of equity financing was raised in January 2024 as disclosed in Note 7. Management is in plans to obtain such resources for the Company by obtaining capital through third party equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing its plans. 7 Table of Contents As a result of the above actions, as of May 15, 2024, the Company believes that it will be able to meet its cash flow needs during the next 12 months from cash and investment securities on-hand, cash derived from its Benchtop Laboratory Equipment Operations, and availability of the Company’s line of credit. 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. Reclassifications Certain balances from fiscal 2023 have been reclassified to conform to the current year presentation. 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. 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 March 31, 2024 and December 31, 2023 according to the valuation techniques the Company used to determine their fair values: Fair Value Measurements as of March 31, 2024 Level 1 Level 2 Level 3 Total Investment securities $ 4,404,800 $ - $ - $ 4,408,800 Total $ 4,404,800 $ - $ - $ 4,408,800 Fair Value Measurements as of December 31, 2023 Level 1 Level 2 Level 3 Total Investment securities $ 4,928,700 $ - $ - $ 4,928,700 Total $ 4,928,700 $ - $ - $ 4,928,700 8 Table of Contents Investments in marketable securities by security type as of March 31, 2024 and December 31, 2023 consisted of the following: As of March 31, 2024: Cost Fair Value Unrealized Holding Gain Mutual funds $ 4,401,300 $ 4,404,800 $ 3,500 Total $ 4,401,300 4,404,800 $ 3,500 As of December 31, 2023: Cost Fair Value Unrealized Holding Gain (Loss) Mutual funds $ 4,929,300 $ 4,928,700 $ ( 600 ) Total $ 4,929,300 $ 4,928,700 $ ( 600 ) 4. Inventories As of March 31, As of December 31, 2024 2023 Raw materials $ 3,530,800 $ 3,436,300 Work-in-process 108,000 23,200 Finished goods 1,836,400 2,033,400 Total Inventories $ 5,475,200 $ 5,492,900 Inventories - Current Asset $ 4,868,200 $ 4,883,900 Inventories - Noncurrent Asset 607,000 609,000 5. Goodwill and Finite Lived Intangible Assets Goodwill amounted to $ 115,300 as of March 31, 2024 and December 31, 2023. 9 Table of Contents Finite lived intangible assets consist of the following: As of March 31, 2024: Useful Lives Cost Accumulated Amortization Net Technology, trademarks 3 - 10 yrs. $ 1,216,800 $ 908,200 $ 308,600 Trade names 3 - 6 yrs. 592,300 360,500 231,800 Websites 3 - 7 yrs. 210,000 210,000 - Customer relationships 4 - 10 yrs. 372,200 200,500 171,700 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4 - 5 yrs. 1,060,500 846,500 21,400 Patents 5 - 7 yrs. 596,900 399,000 197,900 $ 4,342,700 $ 3,218,700 $ 1,124,000 As of December 31, 2023 Useful Lives Cost Accumulated Amortization Net Technology, trademarks 3 - 10 yrs. $ 1,216,800 $ 870,900 $ 345,900 Trade names 3 - 6 yrs. 592,300 341,600 250,700 Websites 3 - 7 yrs. 210,000 210,000 - Customer relationships 4 - 10 yrs. 372,200 193,600 178,600 Sublicense agreements 10 yrs. 294,000 294,000 - Non-compete agreements 4 - 5 yrs. 1,060,500 797,600 262,900 Patents 5 - 7 yrs. 595,800 384,000 211,800 $ 4,341,600 $ 3,091,700 $ 1,249,900 Total amortization expense was $ 127,000 and $ 130,000 for the three months ended March 31, 2024 and 2023, respectively. Estimated future fiscal year amortization expense of intangible assets as of March 31, 2024 is as follows: As of March 31, 2024 Amount Remainder of fiscal year ending 2024 $ 382,800 2025 371,700 2026 194,100 2027 92,800 2028 42,000 Thereafter 40,600 Total $ 1,124,000 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 March 31, 2024 and December 31, 2023, the Company is not aware of any contingent legal liabilities that should be reflected in the consolidated financial statements. 10 Table of Contents Leases The Company’s approximate future minimum rental payments under all operating leases as of March 31, 2024 were as follows: As of March 31, 2024: Amount Remainder of fiscal year ending 2024 $ 288,300 2025 358,300 2026 266,600 2027 274,600 2028 201,000 Total future minimum payments $ 1,388,800 Less: Imputed interest ( 140,700 ) Total Present Value of Operating Lease Liabilities $ 1,248,100 7. Stockholders’ Equity Issuance of Common Stock and Warrants On January 17, 2024, the Company completed the last closing of its sale of securities pursuant to the Securities Purchase Agreement (the “Purchase Agreement”) entered on December 13, 2023, as filed in the Company’s Form 8-K on December 15, 2023. At this closing, the Company sold an aggregate of 358,388 Units, comprising 358,388 shares of the Company’s common stock, par value $.05 per share (“Common Stock”) and warrants (“Warrants”) to purchase 358,388 shares of Common Stock for a total consideration of $716,776. The Company recognized $98,700 of issuance cost, which includes $71,100 attributable to legal and placement agent fees and $27,600 attributable to the fair value of warrants, issued to the placement agent, to purchase up to 17,919 shares of Common Stock at an exercise price of $2.00 per share on substantially the same terms as the Warrants issued to the Investors . As an incentive to certain Investors of the Company who participated in previous private placements (“Existing Investors”) and received as part of those financings, warrants (“Outstanding Warrants”) to purchase shares of Common Stock, the Company agreed that, if any Existing Investor were to purchase Units at a certain level in the offering thereof under the Purchase Agreement (the “Offering”), the Company would reduce the exercise price of the Outstanding Warrants held by such Existing Investor to $2.50 per share and extend the period in which such Outstanding Warrants could be exercised to the fifth anniversary of the date on which the Existing Investor purchased Units under the Purchase Agreement. Each Existing Investor purchasing Units at the requisite level will receive a new warrant (the “Replacement Warrants”) to replace such Existing Investor’s Outstanding Warrants. On January 17, 2024, as a result of their purchase of Units, Existing Investors became entitled to receive Replacement Warrants to replace 333,884 Outstanding Warrants, and therefore reducing the exercise price of such Outstanding Warrants to $ 2.50 per share and extending the period in which such Outstanding Warrants could be exercised to the fifth anniversary of the relevant closing under the Purchase Agreement. 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 March 31, 2024 2023 Weighted average number of common shares outstanding 10,436,647 7,003,599 Effect of dilutive securities: - - Weighted average number of dilutive common shares outstanding 10,436,647 7,003,599 Basic and diluted loss per common share: Continuing operations $ ( 0.20 ) $ ( 0.34 ) Discontinued operations - - Consolidated operations $ ( 0.20 ) $ ( 0.34 ) 11 Table of Contents Approximately 1,113,837 and 7,856,203 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 March 31, 2024. Approximately 22,368 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 March 31, 2023. 9. Related Parties Consulting Agreements During the three months ended March 31, 2024 and 2023, respectively, the Company paid $ 16,000 and $ 0 , respectively, to Mr. John Nicols, a Director of the Company, who provided consulting services to the Bioprocessing Systems segment. 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. Segment information is reported as follows. Three Months Ended March 31, 2024: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Revenues $ 2,167,400 $ 316,100 $ - $ 2,483,500 Foreign Sales 655,100 200,500 855,600 Income (Loss) From Operations 72,800 ( 1,601,800 ) ( 560,500 ) ( 2,089,500 ) Assets 6,283,100 4,858,600 4,404,800 15,546,500 Long-Lived Asset Expenditures 45,800 1,700 - 47,500 Depreciation and Amortization 21,400 166,700 - 188,100 12 Table of Contents Three Months Ended March 31, 2023: Benchtop Laboratory Equipment Bioprocessing Systems Corporate And Other Consolidated Revenues $ 2,582,200 $ 223,200 $ - $ 2,805,400 Foreign Sales 856,600 95,900 952,500 Income (Loss) From Operations 266,200 ( 2,072,500 ) ( 661,300 ) ( 2,467,600 ) Assets 7,810,900 5,174,100 3,379,000 16,364,000 Long-Lived Asset Expenditures 8,200 37,600 - 45,800 Depreciation and Amortization 23,300 164,600 - 187,900 For the three months ended March 31, 2024 no customers accounted for approximately 10 % or more of the Company’s total revenue. For the three months ended March 31, 2023 one customer accounted for approximately 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 months ended March 31, 2024 and 2023, respectively are as follows: For the three months ended March 31, 2024 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 72,800 $ ( 1,601,800 ) $ ( 560,500 ) $ ( 2,089,500 ) Other income(expense), net ( 9,800 ) 5,500 - ( 4,300 ) Interest income 42,000 - - 42,200 Total other income, net 32,400 5,500 - 37,900 Income (Loss) from operations before discontinued operations and income taxes $ 105,200 $ ( 1,596,300 ) $ ( 560,500 ) $ ( 2,051,600 ) For the three months ended March 31, 2023 Benchtop Laboratory Equipment Bioprocessing Systems Corporate Consolidated Income (Loss) from Operations $ 266,200 $ ( 2,072,500 ) $ ( 661,300 ) $ ( 2,467,600 ) Other income (expense), net ( 1,800 ) 11,000 77,100 86,300 Interest income - - 9,400 9,400 Total other (expense) income, net ( 1,800 ) 11,000 86,500 95,700 Income (Loss) from operations before discontinued operations and income taxes $ 264,400 $ ( 2,061,500 ) $ ( 574,800 ) $ ( 2,371,900 ) 13 Table of Contents