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 September 30, 2024 and 2023 The Company reported a decrease of $1,021,000 (46.4%) in its loss from continuing operations to $1,180,100 for the three months ended September 30, 2024 as compared to a $2,201,100 loss from continuing operations for the three months ended September 30, 2023, primarily due to decreased expenses resulting from operating cost reductions mostly in the Bioprocessing Systems Operations segment and increased net revenue in both of the Company’s operating segments compared to the prior year period. Revenue Net revenues for the three months ended September 30, 2024 increased $183,600 (7.1%) to $2,769,100 from $2,585,500 for the three months ended September 30, 2023, driven by increased revenues of $155,300 from the Benchtop Laboratory Equipment Operations and $28,300 from the Bioprocessing Systems Operations. The increase in revenue from the Benchtop Laboratory Equipment Operations was driven by increased sales of Genie brand products in the U.S., and to a lesser extent increased sales of the Torbal division’s VIVID pill counter. Sales of Torbal and VIVID brand products amounted to $881,900 for the current year period compared to $850,700 in the prior year. The pharmacy industry is recovering from cash flow constraints caused by 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 September 30, 2024 and 2023, were 49.2% and 45.7%, respectively. The increase is due primarily to higher gross margin percentage in the Bioprocessing Systems Operations, in part attributable to increased sales of the recently launched Multiparameter Sensor. General and administrative General and administrative expenses for the three months ended September 30, 2024 increased $122,700 (13.7%) to $1,019,000 from $896,300 for the three months ended September 30, 2023, primarily due to increases in Corporate expenses related to external professional services and non-cash stock-based compensation expense compared to prior year period. Selling Selling expenses for the three months ended September 30, 2024 decreased $694,600 (43.0%) to $919,600 from $1,614,200 for the three months ended September 30, 2023, primarily due to the reduction of sales and marketing employees in conjunction to the strategic operational plan for the Bioprocessing Systems Operations, implemented in the first and second quarters of the current year. Research and development Research and development expenses for the three months ended September 30, 2024 decreased $212,700 (23.7%) to $683,200 from $895,900 for the three months ended September 30, 2023, primarily due to the completion of new product developments in the current year and reduction of research and development expenditures in both operating segments as compared to prior year period. Other income, net Other income, net, for the three months ended September 30, 2024 and 2023, were $78,500 and $24,300, respectively. The increase is due primarily to increased interest income on investment securities and increased unrealized gain in investment securities during the current year period as compared to prior year period. Income tax Income tax for the three months ended September 30, 2024 and 2023, were $0 and $0, respectively. The Company maintains a full valuation allowance of $11,032,000 against its 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. Nine months ended September 30, 2024 and 2023 The Company reported a loss from continuing operations of $4,515,300 for the nine months ended September 30, 2024 compared to a $6,758,100 loss from continuing operations for the nine months ended September 30, 2023, primarily due to an increase in productivity from the Bioprocessing Systems Operations that saw a slight year-over-year pick up in revenue at significantly decreased expenses resulting from operating cost reductions as well as decreased Corporate expenses related to external professional services and non-cash stock-based compensation expense compared to the prior year periods. 17 Table of Contents Revenue Net revenues for the nine months ended September 30, 2024 decreased $473,500 (5.7%) to $7,899,900 from $8,373,400 for the nine months ended September 30, 2023, primarily due to a decrease of $591,900 in net revenues from the Benchtop Laboratory Equipment Operations, offset by an increase of $118,400 in net revenues from the Bioprocessing Systems Operations. The reduced net revenue from the Benchtop Laboratory Equipment Operations resulted primarily from decreased Genie brand sales due to overall market softness in demand for laboratory equipment in China. In addition, net revenue of Torbal and VIVID brand products decreased to $2,380,600 in the current year period, compared to $2,597,400 in the prior year period, due to principally 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 $118,400 to $1,134,000 for the current year period compared to $1,015,600 in the prior year period primarily due to increased market penetration of its new DOTS Multiparameter sensor products. Gross profit The gross profit percentage for the nine months ended September 30, 2024 and 2023, were 46.8% and 46.2%, respectively, due primarily to increased sales of the recently launched Multiparameter Sensor with higher gross margin percentage in the Bioprocessing Systems Operations offset by lower gross margin percentage in the Benchtop Laboratory Equipment Operations, resulting from increases in production overhead costs. General and administrative Selling expenses for the nine months ended September 30, 2024 decreased $1,932,800 (41.6%) to $2,718,000, compared to $4,650,800 for the nine months ended September 30, 2023 primarily due to the decreased non-cash stock-based compensation expenses and reduction of sales and marketing employees in conjunction to the strategic operational plan for the Bioprocessing Systems Operations implemented in the first and second quarter of the current year period. Selling Selling expenses for the nine months ended September 30, 2024 and 2023 decreased $1,932,800 (41.6%) to $2,718,000, compared to $4,650,800 for the nine months ended September 30, 2023 primarily due to the decreased non-cash stock-based compensation expenses and reduction of sales and marketing employees in conjunction to the strategic operational plan for the Bioprocessing Systems Operations implemented in the first and second quarter of the current year period. Research and development Research and development expenses for the nine months ended September 30, 2024 decreased $312,000 (13.2%) to $2,059,900 compared to $2,371,900 for the nine months ended September 30, 2023 primarily due to the reduction of research and development expenditures related to the completion of a new VIVID automated pill counter in the Benchtop Laboratory Equipment Operations as compared to prior year period. Other income, net Other income, net, for the nine months ended September 30, 2024 and 2023, were $169,000 and $161,000, respectively. The increase is due primarily to increased interest income on investment securities and increased unrealized gain in investment securities during the current year period as compared to prior year period. Income tax Income tax for the nine months ended September 30, 2024, and 2023, were $0 and $108,800, respectively. The Company maintains a full valuation allowance of $11,032,000 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 nine months ended September 30, 2024, the Company reflected negative cash flows from operations of $3,304,600 and had an accumulated deficit of $32,000,400 as of September 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 nine months ended September 30, 2024 2023 Net cash used in operating activities $ (3,304,600 ) $ (4,821,600 ) Net cash provided by investing activities 2,429,900 3,400,500 Net cash provided by financing activities 645,700 13,300 Effect of changes in foreign currency exchange rates (3,600 ) (3,900 ) Decrease in cash and cash equivalents $ (232,600 ) $ (1,411,700 ) Net cash used in operating activities was $3,304,600 for the nine months ended September 30, 2024 compared to $4,821,600 for the nine months ended September 30, 2023. The net decrease of $1,517,000 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 $2,429,900 for the nine months ended September 30, 2024 compared to $3,400,500 provided in the nine months ended September 30, 2023. The net decrease of $970,600 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 nine months ended September 30, 2024 compared to $13,300 for the nine months ended September 30, 2023. The net increase of $632,400, 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.