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. The Company’s results reflect those of the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations and its corporate operation. Results of Operations . Three months ended June 30, 2024 and 2023 The Company was able to reduce the loss from continuing operations to $1,283,600 for the three months ended June 30, 2024 as compared to $2,185,100 loss from continuing operations for the three months ended June 30, 2023, primarily due to decreased expenses resulting from operating cost reductions mostly in the Bioprocessing Systems Operations segment and decreased Corporate expenses compared to the prior year periods. Revenue Net revenues for the three months ended June 30, 2024 decreased $335,200 (11.2%) to $2,647,300 from $2,982,500 for the three months ended June 30, 2023, driven primarily by lower revenues of Benchtop Laboratory Equipment Operations. Sales of Genie brand products reflected a decrease due to post-COVID destocking and overall market softness for laboratory equipment, particularly in Asia. Sales of Torbal and VIVD brand products amounted to $789,100 for the current year period compared to $943,000 in the prior year, due to reduced VIVID pill counter sales resulting primarily from the new regulations related to pharmacy direct and indirect renumeration fees “DIR fees” charged by pharmacy benefit managers, which caused financial hardships and cash flow challenges for the independent pharmacy market in the beginning of 2024. 16 Table of Contents Gross profit The gross profit percentage for the three months ended June 30, 2024 and 2023, was 48.8% and 45.3%, respectively. The increase is due primarily to higher gross margin percentage in the Bioprocessing Systems Operations. General and administrative General and administrative expenses for the three months ended June 30, 2024 decreased $237,900 (18.3%) to $1,062,000 from $1,299,900 for the three months ended June 30, 2023, primarily due to decreased Corporate expenses related to external professional services and non-cash stock-based compensation expense 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 June 30, 2024 decreased $691,200 (43.4%) to $900,600 from $1,591,800 for the three months ended June 30, 2023 due primarily to the reduction of sales and marketing employees in conjunction to the strategic operational and product development plan for the Bioprocessing Systems Operations. Research and development Research and development expenses for the three months ended June 30, 2024 and 2023, were $666,000 and $684,500, respectively. The decrease of $18,500 (2.7%) is due primarily to the reduction of research and development expenditures related to the VIVID automated pill counter in the Benchtop Laboratory Equipment Operations due to the completion of a new product development in the current year as compared to prior year period. Other income, net Other income, net, for the three months ended June 30, 2024 and 2023, were $52,600 and $41,100, respectively. The increase is due primarily to the increase in interest income on investment securities, and a decrease in realized loss on investment securities attributable to more investment securities held in mutual funds as compared to investment securities held in equity securities during the current year period as compared to prior year period. Income tax Income tax for the three months ended June 30, 2024 and 2023, was $0 and $108,800, respectively. The Company maintains a full valuation allowance of $10,542,700 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. Six months ended June 30, 2024 and 2023 The Company realized a loss from continuing operations of $3,335,200 for the six months ended June 30, 2024 compared to a $4,557,000 loss from continuing operations for the six months ended June 30, 2023, primarily due to decreased expenses resulting from operating cost reductions mostly in the Bioprocessing Systems Operations segment and decreased Corporate expenses compared to the prior year periods 17 Table of Contents Revenue Net revenues for the six months ended June 30, 2024 decreased $657,100 (12.8%) to $5,130,800 from $5,787,900 for the six months ended June 30, 2023, driven primarily by lower revenues of Benchtop Laboratory Equipment Operations of $747,200, resulting primarily from decreased Genie brand sales due to post-COVID destocking and overall market softness for laboratory equipment, particularly in Asia. Sales of Torbal and VIVD brand products amounted to $1,541,100 in the current year period, compared to $1,808,500 in the prior year period, due to reduced VIVID pill counter sales resulting primarily from the new regulations related to pharmacy direct and indirect renumeration fees “DIR fees” charged by pharmacy benefit managers, which caused financial hardships and cash flow challenges for the independent pharmacy market in the beginning of 2024. Bioprocessing Systems Operations revenues increased $90,100 to $681,500 for the current year period compared to $591,400 in the prior year period, despite a record one-time order in the prior year period reflecting a trend in growth of steady orders for bioprocessing products. Gross profit The gross profit percentage for the six months ended June 30, 2024 and 2023, was 45.5% and 46.4%, respectively. The 0.9% 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 six months ended June 30, 2024 decreased $285,400 (11.0%) to $2,583,800 compared to$2,869,200 for the six months ended June 30, 2023 due primarily to decreased Corporate expenses related to external professional services 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 six months ended June 30, 2024 and 2023 decreased by $1,238,200 (68.9%) to $1,798,400, compared to $3,036,600 for the six months ended June 30, 2023 due primarily to the decreased non-cash stock-based compensation expenses and reduction of sales and marketing employees in conjunction to the strategic operational and product development plan for the Bioprocessing Systems Operations. Research and development Research and development expenses for the six months ended June 30, 2024 and 2023, were $1,376,700 and $1,476,000, respectively. The decrease of $99,300 (7.2%) 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 six months ended June 30, 2024 and 2023, were $90,500 and $136,800, respectively. The decrease is due primarily to the decrease in unrealized gain and on investment securities offset with a decrease in realized loss on investment securities attributable to more investment securities held in mutual funds as compared to investment securities held in equity securities during the current year period as compared to prior year period. Income tax Income tax for the six months ended June 30, 2024, and 2023, was $0 and $108,800, respectively. The Company maintains a full valuation allowance of $10,542,700 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 investment securities, 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 six months ended June 30, 2024, the Company reflected negative cash flows from operations of $2,436,800 and has an accumulated deficit of $30,820,300 as of June 30, 2024. We believe that our operating cash flows derived primarily from the Benchtop Laboratory Equipment Operations, our cash and investment securities on hand, and the availability of our line of credit, are not sufficient to fund our cash requirements for the next 12 months. The accompanying unaudited condensed financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 18 Table of Contents In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management is making plans to obtain such resources for the Company which may include 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. The following table discloses our cash flows for the periods presented: For the six months ended June 30, 2024 2023 Net cash used in operating activities $ (2,436,800 ) $ (3,659,700 ) Net cash provided by investing activities 1,570,700 2,372,600 Net cash provided by financing activities 645,700 - Effect of changes in foreign currency exchange rates (15,200 ) 4,500 Decrease in cash and cash equivalents $ (235,600 ) $ (1,282,600 ) Net cash used in operating activities was $2,436,800 for the six months ended June 30, 2024 compared to $3,659,700 for the six months ended June 30, 2023. The net decrease of $1,222,900 is primarily due to the decreased operating expenses associated with a reduction in force in the Bioprocessing Systems operations and decreased corporate expenses in the current period compared to prior year period. Net cash provided by investing activities was $1,570,700 for the six months ended June 30, 2024 compared to $2,372,600 provided in the six months ended June 30, 2023. The net decrease of $801,900 is primarily due to the net decrease in net redemption of investment securities, in the current year period compared to prior year period. Net cash provided by financing activities was $645,700 for the six months ended June 30, 2024 compared to $0 for the six months ended June 30, 2023. The net increase of $645,700, is primarily due to issuance of the Units pursuant to the Purchase Agreement 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.