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 ending
June 30,2022, filed on September 28, 2022. 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. and its subsidiaries design, manufacture, and market
a variety of benchtop laboratory equipment and bioprocessing products. 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 Operations").
COVID-19
The challenges posed by the COVID-19 pandemic on the global economy affected the
Company with minor or temporary disruptions to its operations. The Company has
not experienced and does not anticipate any material impact on its ability to
collect its accounts receivable due to the nature of its customers. The Company
experienced some delays from its supply chain which caused delayed delivery of
some products, however this is deemed temporary and does not affect the
Company's major product, the Vortex-Genie 2. The extent to which the COVID-19
outbreak ultimately impacts the Company's business, future revenues, results of
operations and financial condition will depend on future developments, which are
highly uncertain and cannot be predicted, including, but not limited to, the
duration and actions to curtail the virus, and how quickly and to what extent
normal economic and operating conditions can resume. Even after the COVID-19
outbreak has subsided, the Company may experience a significant impact to its
business as a result of the global economic impact of COVID-19, including any
economic downturn or recession that has occurred or may occur in the future. As
a result of the impact of COVID-19 on capital markets, the availability, amount,
and type of financing available to the Company in the near future is uncertain
and cannot be assured and is largely dependent upon evolving market conditions
and other factors. The Company intends to continue to monitor the situation and
may adjust its current business plans as more information and guidance become
available.
Results of Operations.
The Company's results reflect those of the Benchtop Laboratory Equipment
Operations and the Bioprocessing Systems Operations. The Company realized a loss
from continuing operations before income tax benefit of $1,709,200 for the three
months ended September 30, 2022 compared to a $1,532,300 loss before income tax
benefit for the three months ended September 30, 2021, primarily due to the
decreased revenue of its Benchtop Laboratory Equipment Operations, offset by
decreased operating expenses of its Bioprocessing Systems Operations.
Revenue
Net revenues for the three months ended September 30, 2022 decreased $184,500
(6.5%) to $2,670,000 from $2,854,500 for the three months ended September 30,
2021, driven primarily by lower sales in Genie products in Asia, due to a
decline of demand of COVID related equipment partially offset by increased sales
of Torbal brand products. Sales of Torbal brand products amounted to
approximately $683,100 for the three months ended September 30, 2022 compared to
$509,800 in the prior year same quarter. Net revenues from the Bioprocessing
Systems Operations decreased $12,200 due primarily to the royalty revenue
reduction from the prior year quarter due to the termination of a patent and
technology license agreement in August 2021, partially offset by increased sales
of bioprocessing products.
Gross profit
The gross profit percentage for the three months ended September 30, 2022 and
2021, was 50.5% and 53%, respectively. The 2.5% decreased is due primarily to a
increase in material, labor and overhead cost incurred in the Benchtop
Laboratory Equipment Operations.
General and administrative
General and administrative expenses for the three months ended September 30,
2022 and 2021, were $1,607,500 and $1,465,700, respectively. The increase of
$141,800 (9.7%) is due primarily to increased labor and operating costs incurred
by the Bioprocessing Systems Operations and increased Corporate operating
expenditures.
Selling
Selling expenses for the three months ended September 30, 2022 and 2021, were
$875,700 and $935,800, respectively. The decrease of $60,100 (6.4%) is due
primarily to the reduction of sales and marketing consultants slightly offset by
direct hire sales and marketing employees in the Bioprocessing Systems
Operations.
Research and development
Research and development expenses for the three months ended September 30, 2022,
and 2021, were $560,100 and $636,500, respectively. The decrease of $76,400
(12.0%) is, due primarily to the completion and reduction of research and
development projects in the Bioprocessing Systems Operations.
Other expense, net
Other expense, net, for the three months ended September 30, 2022 and 2021, were
$15,000 and $7,900, respectively. The increase is due primarily to realized
losses on investment securities, partially offset by the decrease in unrealized
loss on investment securities during the current quarter period.
Income tax
Income tax benefit for the three months ended September 30, 2022, and 2021, was
$417,200 and $322,600, respectively. The increase is due primarily to the
increased net loss in operations during the current quarter period.
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Liquidity and Capital Resources.
Our primary sources of liquidity are existing cash and cash equivalents,
representing cash generated from operating activities of the Benchtop Laboratory
Equipment Operations and proceeds from the private placements of Company equity
securities. We assess our liquidity in terms of our ability to generate cash to
fund our short and long-term cash requirements. We believe that our operating
cash flows derived primarily from the Benchtop Laboratory Equipment Operations
and our cash and investments on hand are sufficient to fund our cash
requirements for the next 12 months. In the event that the Company's business
plan changes or its cash requirements are greater than anticipated, the Company
may seek to access the capital markets to finance future cash requirements.
However, there can be no assurance that such financing will be available to us
should the Company need it or, if available, that the terms will be satisfactory
to the Company and not dilutive to existing shareholders.
The following table discloses our cash flows for the periods presented:
For the three months ended
September 30,
2022 2021
Net cash used in operating activities $ (1,466,300 ) $ (786,200 )
Net cash provided by (used) in investing
activities 866,600 (3,323,100 )
Net cash provided by (used) in financing
activities 84,000 (321,700 )
Effect of changes in foreign currency exchange
rates (17,700 ) 24,500
Decrease in cash and cash equivalents $ (533,400 ) $ (4,406,500 )
Net cash used in operating activities was $1,466,300 for the three months ended
September 30, 2022 compared to $786,200 for the three months ended September 30,
2021. The net increase of $680,100 is primarily a result of the increase in the
net loss for the three months ended September 30, 2022 by $83,200 over the prior
year period and, a net cash outflow related to changes in operating assets and
liabilities of $504,800 offset by a net loss non-cash adjustments of $92,100.
Net cash provided by investing activities was $866,600 for the three months
ended September 30, 2022 compared to $3,323,100 used in the three months ended
September 30, 2021. The net increase of $4,189,700 is primarily due to the
decrease in purchase of investment securities, partially offset by a increase in
redemption of investments in the current quarter period compared to
prior quarter period.
Net cash provided by financing activities was $84,000 for the three months ended
September 30, 2022 compared to $321,700 used in the three months ended September
30, 2021. The net increase of $405,700 is primarily due to the timing and
funding of bank overdraft activities.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principals 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 June 30, 2022 ("2022 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 2022 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.
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