SCIENTIFIC INDUSTRIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking statements. 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 ended December 31, 2023. 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., a Delaware corporation (“SI” and along with its subsidiaries, the “Company”, “we”, “our”), is engaged in the design, manufacture, and marketing of standard benchtop laboratory equipment (“Benchtop Laboratory Equipment”), and through its wholly-owned subsidiary, Scientific Bioprocessing Holdings, Inc., a Delaware corporation (“SBHI”), the design, manufacture, and marketing of bioprocessing systems and products (“Bioprocessing Systems”). SBHI has two wholly-owned subsidiaries – Scientific Bioprocessing, Inc., a Delaware corporation (“SBI”), and aquila biolabs GmbH, a German corporation (“Aquila”). The Company’s products are used primarily for research purposes by universities, pharmaceutical companies, pharmacies, national laboratories, medical device manufacturers, and other industries performing laboratory-scale research. Results of Operations . The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations and its corporate operation. The Company realized a loss from continuing operations of $2,051,600 for the three months ended March 31, 2024 compared to a $2,371,900 loss from continuing operations for the three months ended March 31, 2023, primarily due to increased revenue in the Bioprocessing Systems Operations segment along with a decrease in noncash stock compensation expense, and decreased Corporate expenses compared to the prior year period, Revenue Net revenues for the three months ended March 31, 2024 decreased $321,900 (11.5%) to $2,483,500 from $2,805,400 for the three months ended March 31, 2023, driven primarily by lower revenues of Benchtop Laboratory Equipment Operations of $414,800, due primarily to decreased orders for Torbal products in part due to unavailability of product due to extensive ocean shipping delays, partially offset by an increase of $92,900 (41%) in revenues of the Bioprocessing Systems Operations related to the Company’s Aquila legacy products. Gross profit The gross profit percentage for the three months ended March 31, 2024 and 2023, was 41.9% and 47.7%, respectively. The 5.8% decrease is due primarily to lower gross margin percentage in the Benchtop Laboratory Equipment Operations, resulting from increases in material, labor and overhead costs. General and administrative General and administrative expenses for the three months ended March 31, 2024 and 2023, were $1,521,800 and $1,569,300, respectively. The decrease of $47,500 (3.0%) is due primarily to decreased Corporate expenses related to stock-based compensation costs compared to prior year period, partially offset by employee related costs associated with a reduction in force in the Bioprocessing Systems Operations. Selling Selling expenses for the three months ended March 31, 2024 and 2023, were $897,800 and $1,444,800 , respectively. The decrease of $547,000 (37.9%) is due primarily to the reduction of sales and marketing employees and decreased non-cash stock-based compensation expenses in the Bioprocessing Systems Operations, and to a lower extent reductions in marketing activities by the Benchtop Laboratory Equipment Operations compared to prior year period. 14 Table of Contents Research and development Research and development expenses for the three months ended March 31, 2024, and 2023, were $710,700 and $791,500, respectively. The decrease of $80,800 (10.2%) is due primarily to the reduction of research and development expenditures related to the VIVID automated pill counter in the Benchtop Laboratory Equipment Operations as compared to prior year period. Other income, net Other income, net, for the three months ended March 31, 2024 and 2023, were $37,900 and $95,700, respectively. The decrease is due primarily to the decrease in unrealized gain and interest income on investment securities, and a decrease in realized loss on investment securities during the current year period as compared to prior year period. Income tax Income tax for the three months ended March 31, 2024, and 2023, was $0 and $0, respectively. The Company maintains a full valuation allowance of $10,041,400 against the consolidated net deferred tax asset as the Company determined the net deferred tax assets which includes net operating loss carry-forwards and other tax credits, are not more likely than not to be realized in the future. Liquidity and Capital Resources . Our primary sources of liquidity are existing cash and cash equivalents, and cash generated from operating activities of the Benchtop Laboratory Equipment Operations. We assess our liquidity in terms of our ability to generate cash to fund our short and long-term cash requirements. For the three months ended March 31, 2024, the Company generated negative cash flows from operations of $2,051,600 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. However, management cannot provide any assurances that the Company will be successful in accomplishing its plans. As a result of the above actions, 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. The following table discloses our cash flows for the periods presented: For the three months ended March 31, 2024 2023 Net cash used in operating activities $ (1,565,100 ) $ (1,744,700 ) Net cash provided by investing activities 480,600 893,700 Net cash provided by financing activities 645,700 - Effect of changes in foreign currency exchange rates (5,600 ) 3,300 Decrease in cash and cash equivalents $ (444,400 ) $ (847,700 ) 15 Table of Contents Net cash used in operating activities was $1,565,100 for the three months ended March 31, 2024 compared to $1,744,700 for the three months ended March 31, 2023. The net decrease of $179,600 is primarily due to the decreased operational costs from the Bioprocessing Systems operations in the current period. Net cash provided by investing activities was $480,600 for the three months ended March 31, 2024 compared to $893,700 provided in the three months ended March 31, 2023. The net decrease of $413,10 is primarily due to the net decrease in net redemption of purchase of investment securities, in the current year period compared to prior year period. Net cash provided by financing activities was $645,700 for the three months ended March 31, 2024 compared to $0 for the three months ended March 31, 2023. The net increase of $645,700, is primarily due to issuance of common stock in the current year period. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with accounting principles 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 December 31, 2023 (“2023 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 2023 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.