SCIENTIFIC INDUSTRIES INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements. The following discussion and analysis should be read in conjunction with our consolidated financial statements for the year ended December 31, 2024 and 2023, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). 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 information. 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. 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. On November 4, 2022, the Board of Directors approved the change of the Company’s fiscal year end from June 30 to December 31 of each year. In connection with this change, we previously filed a Transition Report on Form 10-KT to report the results of the six-month transition period from July, 1, 2022 to December 31, 2022. Results of Operations . The Company’s results are from the Benchtop Laboratory Equipment operations and the Bioprocessing Systems operations. The Company realized a loss from continuing operations of $6,445,400 for the year ended December 31, 2024 compared to $9,089,800 for the year ended December 31, 2023. The decrease in the loss from continuing operations for the year ended December 31, 2024 compared to year ended December 31, 2023 is primarily due to decreased expenses resulting from operating cost reductions mostly in the Bioprocessing Systems Operations segment compared to the prior year period. 16 Table of Contents Year Ended December 31, 2024 compared to Year Ended December 31, 2023 Net revenues for the year ended December 31, 2024 decreased $398,900 (3.6%) to $10,712,600 from $11,111,500 for year ended December 31, 2023, reflecting an increase of approximately $323,700 in net revenues from the Bioprocessing Systems products derived principally from the new DOTS MPS product introduced during the year ended December 31, 2024, and a decrease of $722,600 from the Benchtop Laboratory Equipment operations. The reduced net revenue from the Benchtop Laboratory Equipment Operations resulted primarily from decreased sales of the Torbal division, with net revenue of Torbal and VIVID brand products decreasing to $3,107,300 in the year ended December 31, 2024, compared to $3,568,700 in the prior year, due principally 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. The Genie division sales decreased by approximately 4% due to overall market softness in demand for laboratory equipment. The gross profit percentage for the year ended December 31, 2024 decreased to 44.2% from 45.9% for the year ended December 31, 2023, due primarily to increased cost of materials, labor, and fixed overhead for the Benchtop Laboratory Equipment Operations. General and administrative expenses for the year ended December 31, 2024 decreased by $595,200 (11.0%) to $4,822,700 compared to $5,417,900 for the year ended December 31, 2023 due to decreased non-cash stock-based compensation expenses in conjunction with the strategic operational plan for the Bioprocessing Systems Operations implemented in the first and second quarter of the year ended December 31, 2024. Selling expenses for the year ended December 31, 2024 decreased by $1,734,800 (32.3%) to $3,643,000 from $5,377,800 for the year ended December 31, 2023, primarily due to the decreased non-cash stock-based compensation expenses and reduction of sales and marketing employees in conjunction with the strategic operational plan for the Bioprocessing Systems Operations implemented in the first and second quarters of the year ended December 31, 2024. Research and development expenses for the year ended December 31, 2024 decreased by $660,100 (18.5%) to $2,906,100 from $3,566,200 for the year ended December 31, 2023, due to cost reductions by the Bioprocessing Systems Operations in conjunction with cost savings initiatives, and 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 the prior year period. Total other income (expense), net for the year ended December 31, 2024 and 2023 was $192,800 and $170,100, respectively. The increase was due primarily to increased interest income earned from investment securities. The Company reflected income tax expense for continuing operations of $0 for the year ended December 31, 2024 and 2023, respectively. The Company maintains a full valuation allowance of $9,839,400 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 more likely not to be realized in the future. In the event in the future the Company changes the determination as to the amount of deferred tax assets that can be realized, the Company will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. As a result of the foregoing, the Company recorded a reduced loss from continuing operations of $6,445,400 for the year ended December 31, 2024 compared to a loss from continuing operations of $9,089,800 for the year ended December 31, 2023. The Company reflected net gain from discontinued operations of $0 and $3,300 for the year ended December 31, 2024 and 2023, respectively. As a result of the above, the Company recorded a net loss of $6,445,400 for the year ended December 31, 2024 compared to a net loss of $9,086,500 for the year ended December 31, 2023. Liquidity and Capital Resources. Cash and cash equivalents decreased by $208,200 to $587,900 as of December 31, 2024 from $796,100 as of December 31, 2023, primarily due to continued operating costs of the Bioprocessing Systems operations and increased corporate overhead. For the year ended December 31, 2024, the Company generated negative cash flows from operations of $3,683,500 and has an accumulated deficit of $33,930,500 as of December 31, 2024. 17 Table of Contents The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Consolidated Financial Statements are issued. Based on its recurring losses from operations and continued cash outflows from operating activities (all as described below), the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these Consolidated Financial Statements are issued. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management has developed a strategic plan to secure such resources for the Company which may include capital from management and significant shareholders sufficient to meet its operating expenses and third-party equity and/or debt financing and exploring the sale of certain assets. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the Consolidated Financial Statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Net cash used in operating activities was $3,683,500 for the year ended December 31, 2024 and $6,155,000 for the year ended December 31, 2023. The decrease is primarily due to decreased operational costs from the Bioprocessing Systems operations and Corporate overhead in the current year period. Net cash provided or (used) by investing activities was $2,866,000 for the year ended December 31, 2024 compared to $(735,100) for the year ended December 31, 2023. The increase is primarily due to a increase in redemption of investment securities for use in general operations in the current year period. Net cash provided by financing activities was $645,700 for the year ended December 31, 2024 compared to $5,751,200 for the year ended December 31, 2023. The decrease is primarily due to the prior period $5,751,200 net proceeds from the issuance of common stock and warrants compared to the current period $645,700 net proceeds from the issuance of common stock and warrants. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On an ongoing basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 2 – Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors. 18 Table of Contents Fair Value Estimates Goodwill and Finite Lived Intangible Assets and Long-Lived Assets, Net Goodwill – Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of Accounting Standards Codification (“ASC”) No. 350, “Intangibles- Goodwill and Other” (“ASC No. 350”). ASC No. 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. As of December 31, 2024, the Company had two reporting units, the Benchtop Laboratory Equipment Operations and the Bioprocessing Systems Operations. Goodwill is tested for impairment by reporting unit on an annual basis as of December 31, the last day of its fiscal year, and in the interim if events and circumstances indicate that goodwill may be impaired. The events and circumstances that are considered in the Company’s goodwill impairment testing include business climate and market conditions, legal factors, operating performance indicators and competition. Impairment of goodwill is first assessed using a qualitative approach. If the qualitative assessment suggests that impairment is more likely than not, a quantitative analysis is performed. The quantitative analysis involves a comparison of the fair value of the reporting unit with its carrying amount. The fair value is determined using the income approach, which utilizes the present value of expected future cash flows for each reporting unit based on estimate future cash flows, the timing of these cash flows, and a discount rate based on a weighted average cost of capital. The assumptions used to estimate future cash flows and the development of forecasts used in the fair value determination were based on assumptions made using the best information available at the time, subject to inherent risk and judgement. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. To the extent additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material effect on our consolidated financial position or results of operations. During the year ended December 31, 2024, the Company performed the annual goodwill impairment analysis. The Company elected to perform the qualitative analysis for the Benchtop Laboratory Equipment Operations reporting unit. These qualitative analyses evaluated factors, including, but not limited to, economic, market and industry conditions, cost factors and the overall financial performance of the reporting unit. In completing these assessments, the Company noted no changes in events or circumstances that indicated that it was more likely than not that the fair value of the reporting unit was less than its carrying amount. As of December 31, 2024 and 2023 there was no remaining goodwill to the Bioprocessing System reporting unit. Intangible assets – Intangible assets consist primarily of acquired technology, customer relationships, non-compete agreements, patents, licenses, websites, intellectual property in-process research and development (“IPR&D”), trademarks and trade names. All intangible assets are amortized on a straight-line basis over the estimated useful lives of the respective assets, generally 3 to 10 years. The Company continually evaluates the remaining estimated useful lives of intangible assets that are being amortized to determine whether events or circumstances warrant a revision to the remaining period of amortization. The Company reviews the recoverability of our finite-lived intangible assets and long-lived assets, when events or conditions occur that indicate a possible impairment exists. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. The assessment for recoverability is based primarily on our ability to recover the carrying value of its long-lived and finite-lived intangible assets from expected future undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value of the assets the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset to determine whether an impairment loss should be recognized. An impairment loss will be recognized if an asset’s fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted cash flows. There was no impairment of intangible assets as of December 31, 2024 and 2023, respectively. 19 Table of Contents Income tax The Company and its subsidiaries file a consolidated U.S. federal income tax return, and a tax return in Germany for Aquila. Income taxes are accounted for under the asset and liability method. The Company provides for federal, and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date. In accordance with ASC 740 “Accounting for Income Taxes” (“ASC 740”), the Company evaluated the deferred tax assets to determine if valuation allowances are required or should be adjusted. ASC 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard of whether the deferred tax assets will be realized. As of and for the year ended December 31, 2024 and 2023, the Company maintained a full valuation allowance of $9,839,400 and $9,302,300, respectively, against the consolidated net deferred tax assets as the Company determined the net deferred tax assets which includes net operating loss carry-forwards and other tax credits, are more likely not to be realized and therefore the Company recorded a full valuation allowance. If in the future the Company changes the determination as to the amount of deferred tax assets that can be realized, the Company will adjust the valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. ASC No. 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC No. 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of December 31, 2024 and 2023, respectively, the Company did not have any unrecognized tax benefits related to various federal and state income tax matters. The Company recognizes interest and penalties on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits. The Company is subject to U.S. federal income tax, as well as various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the fiscal years ended June 30, 2021 and after. The Company is currently open to audit under the statute of limitations by German tax authorities for the years ended December 31, 2019 and after. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Not required for smaller reporting companies. Item 8. Financial Statements and Supplementary Data. The consolidated Financial Statements required by this item are attached hereto on pages F1-F33. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable.