UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☒     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 20182019
 
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ________to________
 
 
Commission file number 0-6658
 
SCIENTIFIC INDUSTRIES, INC.
(Exact Name of Registrant as specified in Its Charter)
 
 
Delaware04-2217279
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
80 Orville Drive, Suite 102, Bohemia, New York11716
(Address of principal executive offices)(Zip Code)
 
(631) 567-4700
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
 
Emerging Growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)       Yes☐ No ☒
 

The number of shares outstanding of the registrant’s common stock, par value $.05 per share (“Common Stock”) as of October 31, 20182019 is 1,494,1121,496,112 shares.
 

 
 
 
SCIENTIFIC INDUSTRIES, INC.
 
Table of Contents
 
PART I - Financial Information 
   
Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
   
 Condensed Consolidated Balance Sheets32
   
 Condensed Consolidated Statements of Operations43
   
 Condensed Consolidated Statements of Comprehensive Income (Loss)4
Condensed Consolidated Statements of Changes in Shareholders' Equity5
   
 Condensed Consolidated Statements of Cash Flows6
   
 Notes to Unaudited Condensed Consolidated Financial Statements7
   
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS13
   
Item 4.
CONTROLS AND PROCEDURES14
15
   
PART II - Other Information
   
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K14
15
   
SIGNATURE
 1516
 
 2
 
 

PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
September 30, 2018
 
 
June 30, 2018
 
 
  September 30, 2019
 
 
  June 30, 2019
 
Current assets:
 
(Unaudited)
 
 
 
 
 
  (Unaudited)  
 
 
   
 
Cash and cash equivalents
 $1,507,300 
 $1,053,100 
 $1,259,700 
 $1,602,500 
Investment securities
  322,700 
  314,700 
  333,600 
  330,900 
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at September 30, 2018 and June 30, 2018
  1,190,000 
  1,444,100 
Contract assets, current
  67,100 
  278,200 
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at September 30, and $15,000 at June 30, 2019
  1,867,800 
  1,974,200 
Inventories
  2,301,000 
  2,267,900 
  2,713,100 
  2,592,300 
Prepaid expenses and other current assets
  67,000 
  33,500 
  93,500 
  91,200 
Total current assets
  5,455,100 
  5,391,500 
  6,267,700 
  6,591,100 
    
    
Property and equipment, net
  185,600 
  199,500 
  314,400 
  318,800 
    
    
Intangible assets, net
  278,900 
  338,700 
  162,900 
  175,000 
    
    
Goodwill
  705,300 
  705,300 
    
    
Contract assets, less current portion
  245,400 
    
Other assets
  52,500 
  59,200 
  54,700 
    
    
Deferred taxes
  386,600 
  392,600 
  450,600 
  431,100 
    
    
Operating lease right-of-use assets
  902,500 
  - 
    
Total assets
 $7,309,400 
 $7,325,500 
 $8,862,600 
 $8,276,000 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
   
 
Accounts payable
 $362,600 
 $428,000 
 $457,200 
 $569,000 
Accrued expenses and taxes, current portion
  541,900 
  657,700 
Accrued expenses and taxes
  437,700 
  608,300 
Contract liabilities
  75,900 
  63,800 
  62,000 
  - 
Contingent consideration, current portion
  118,000 
  268,000 
Dividends payable
  74,700 
  - 
Notes payable
  4,200 
  5,800 
Bank overdraft
  9,400 
  140,000 
Current portion of operating lease liabilities
  231,100 
  - 
Total current liabilities
  1,177,300 
  1,273,300 
  1,465,400 
  1,585,300 
    
Accrued expenses, less current portion
  60,000 
Contingent consideration payable, less current portion
  290,000 
  350,000 
Operating lease liabilities, less current portion
  738,000 
  - 
    
    
Total liabilities
  1,527,300 
  1,623,300 
  2,553,400 
  1,935,300 
Shareholders’ equity:
    
    
Common stock, $.05 par value; authorized 7,000,000 shares; issued 1,513,914 shares, outstanding 1,494,112 shares at September 30, 2018 and June 30, 2018
  75,700 
Common stock, $.05 par value; authorized 7,000,000 shares; issued 1,515,914 shares and 1,513,914, outstanding 1,496,112 and 1,494,112 shares at September 30 and June 30, 2019
  75,800 
  75,700 
Additional paid-in capital
  2,554,600 
  2,545,900 
  2,617,300 
  2,592,700 
Accumulated other comprehensive gain (loss)
  (16,900)
  1,200 
Retained earnings
  3,221,100 
  3,131,800 
  3,668,500 
  3,724,700 
  5,834,500 
  5,754,600 
  6,361,600 
  6,393,100 
Less common stock held in treasury at cost, 19,802 shares
  52,400 
  52,400 
    
    
    
Total shareholders’ equity
  5,782,100 
  5,702,200 
  6,309,200 
  6,340,700 
    
    
Total liabilities and shareholders’ equity
 $7,309,400 
 $7,325,500 
 $8,862,600 
 $8,276,000 
 
See notes to unaudited condensed consolidated financial statements.
 
  3
 2
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
For the Three Month Period Ended September 30, 2018
 
 
For the Three Month Period Ended September 30, 2017
 
 
  For the Three Month Period Ended
September 30, 2019 
 
 
  For the Three Month Period Ended
September 30, 2018 
 
 
 
 
 
   
 
Revenues
 $2,038,600 
 $1,280,800 
 $2,004,200 
 $2,038,600 
    
    
Cost of revenues
  1,092,900 
  829,100 
  1,023,800 
  1,092,900 
    
    
Gross profit
  945,700 
  451,700 
  980,400 
  945,700 
    
    
Operating expenses:
    
    
General and administrative
  416,500 
  428,400 
  510,200 
  416,500 
Selling
  236,100 
  201,000 
  309,100 
  236,100 
Research and development
  117,400 
  129,100 
  236,600 
  117,400 
    
    
Total operating expenses
  770,000 
  758,500 
  1,055,900 
  770,000 
    
    
Income (loss) from operations
  175,700 
  (306,800)
  (75,500)
  175,700 
    
    
Other income (expense):
    
    
Other income, net
  2,200 
  400 
Other income (expense), net
  (200)
  2,200 
Interest expense
  (400)
  (100)
  - 
  (400)
    
    
Total other income, net
  1,800 
  300 
Total other income (expense), net
  (200)
  1,800 
    
    
Income (loss) before income tax expense (benefit)
  177,500 
  (306,500)
  (75,700)
  177,500 
    
    
Income tax expense (benefit):
    
    
Current
  29,500 
  (63,700)
  - 
  29,500 
Deferred
  6,000 
  (10,200)
  (19,500)
  6,000 
    
    
Total income tax expense (benefit)
  35,500 
  (73,900)
  (19,500)
  35,500 
    
    
Net income (loss)
 $142,000 
 $(232,600)
 $(56,200)
 $142,000 
    
    
Basic earnings (loss) per common share
 $.10 
 $(.16)
 $(.04)
 $.10 
    
    
Diluted earnings (loss) per common share
 $.09 
 $(.16)
 $(.04)
 $.09 
 
See notes to unaudited condensed consolidated financial statements.
 
  43
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 
For the Three Month Period Ended September 30, 2018
 
 
For the Three Month Period Ended September 30, 2017
 
 
  For the Three Month Period Ended
September 30, 2019 
 
 
  For the Three Month Period Ended
 September 30, 2018 
 
 
 
 
 
   
 
Net income (loss)
 $142,000 
 $(232,600)
 $(56,200)
 $142,000 
    
    
Other comprehensive income (loss):
    
Unrealized holding gain (loss)
    
Other comprehensive loss:
    
Unrealized holding loss
    
arising during period,
    
    
net of tax
  (18,100)
  2,600 
  - 
  (18,100)
    
    
Comprehensive income (loss)
 $123,900 
 $(230,000)
 $(56,200)
 $123,900 
 
See notes to unaudited condensed consolidated financial statements.
 
  5
  4
 
 

  CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
 
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2020
 
 Shares 
 
 
 Amount 
 
 
Capital
 
 
Gain (Loss)
 
 
Earnings
 
 
Shares
 
 
Amount
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2019
  1,513,914 
 $75,700 
 $2,592,700 
 $- 
$3,724,700 
  19,802 
 $52,400 
 $6,340,700 
 
    
    
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
(56,200)
  - 
  - 
  (56,200)
 
    
    
    
    
    
    
    
    
Stock options exercised
  2,000 
  100 
  6,900 
  - 
 - 
 - 
 - 
7,000
 
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  17,700 
  - 
  - 
  - 
  - 
  17,700 

Balance, September 30, 2019
  1,515,914 
 $75,800 
 $2,617,300 
 $- 
 $3,668,500 
 19,802 
 $52,400 
 $6,309,200
 
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2019
 
 Shares 
 
 
 Amount 
 
 
Capital
 
 
Gain (Loss)
 
 
Earnings
 
 
Shares
 
 
Amount
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2018
  1,513,914 
 $75,700 
 $2,545,900 
 $1,200 
 $3,131,800 
  19,802 
 $52,400 
 $5,702,200 
 
    
    
    
    
    
    
    
    
Cumulative effect of the adoption of
  - 
  - 
  - 
 - 
  22,000 
 - 
 - 
  22,000 
ASU 2016-01 – Financial Instruments
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  142,000 
  - 
  - 
  142,000 
 
    
    
    
    
    
    
    
    
Cash dividend declared, $.05
  - 
  - 
  - 
  - 
  (74,700)
  - 
  - 
  (74,700)
 
    
    
    
    
    
    
    
    
Unrealized holding loss on investment securities, net of tax
  - 
  - 
  - 
  (18,100)
  - 
  - 
  - 
  (18,100)
 
    
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  8,700 
  - 
  - 
  - 
  - 
 8,700
Balance, September 30, 2018
  1,513,914 
  $75,700 
 $2,554,600 
 $(16,900)
 $3,221,100 
 19,802 
 $52,400 
 $5,782,100 
  5

SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 For the Three Month Period Ended September 30,  2018
 For the Three Month Period Ended September 30,  2017
 
 For the Three Month Period Ended
September 30,  2019
 
 
 For the Three Month Period Ended
September 30,  2018
 
Operating activities:
   
 
 
 
 
 
 
Net income (loss)
 $142,000 
 $(232,600)
 $(56,200)
 $142,000 
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
    
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
    
Depreciation and amortization
  75,900 
  77,100 
  41,000 
  75,900 
Deferred income taxes
  6,000 
  (10,200)
  (19,500)
  6,000 
Stock-based compensation
  8,700 
  6,200 
  17,700 
  8,700 
Loss on sale of investments
  5,000 
  - 
  800 
  5,000 
Unrealized holding gain of investments
  (6,400)
  - 
  (2,300)
  (6,400)
Changes in operating assets and liabilities:
    
    
Trade accounts receivable
  254,100 
     276,800
  106,400 
  254,100 
Contract assets, current
  211,100 
     175,500
  - 
  211,100 
Right -of- use assets
  (902,500)
  - 
Lease liability
  969,100 
  - 
Inventories
  (33,100)
  (366,000)
  (120,800)
  (33,100)
Prepaid and other current assets
  (33,500)
  (90,500)
Prepaid and other assets
  (6,800)
  (33,500)
Accounts payable
  (65,400)
  237,700 
  (111,800)
  (65,400)
Contract liabilities
  12,100 
  17,000 
  62,000 
  12,100 
Accrued expenses and taxes
  (115,800)
  12,600 
  (301,200)
  (115,800)
    
    
Total adjustments
  318,700 
  336,200 
 (267,900)
  318,700 
    
    
Net cash provided by operating activities
  460,700 
  103,600 
Net cash provided by (used in) operating activities
  (324,100)
  460,700 
    
    
Investing activities:
    
    
Purchase of investment securities, available for sale
  (75,200)
  (9,300)
Redemption of investment securities, available for sale
  72,500 
  - 
Purchase of investment securities
  (25,000)
  (75,200)
Redemption of investment securities
  23,800 
  72,500 
Capital expenditures
  (900)
  (31,500)
  (17,000)
  (900)
Purchase of other intangible assets
  (1,300)
  (700)
  (7,500)
  (1,300)
    
    
Net cash used in investing activities
  (4,900)
  (41,500)
  (25,700)
  (4,900)
    
    
Financing activities:
    
    
Payments for contingent consideration
  - 
  (142,700)
Proceeds from stock options exercised
  7,000 
  - 
Principal payments on notes payable
  (1,600)
  - 
  (1,600)
    
    
Net cash used in financing activities
  (1,600)
  (144,300)
Net cash provided by (used in) financing activities
  7,000 
  (1,600)
    
    
Net increase (decrease) in cash and cash equivalents
  454,200 
  (82,200)
  (342,800)
  454,200 
    
    
Cash and cash equivalents, beginning of year
  1,053,100 
  1,025,100 
  1,602,500 
  1,053,100 
    
    
Cash and cash equivalents, end of period
 $1,507,300 
 $942,900 
 $1,259,700 
 $1,507,300 
    
    
    
Supplemental disclosures:
    
    
    
    
Cash paid during the period for:
    
    
Income taxes
 $500 
 $15,000 
 $40,900 
 $500 
Interest
  400 
  100 
  - 
  400 
 
See notes to unaudited condensed consolidated financial statements.
 
 6
 
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
General:
The accompanying unaudited interim condensed consolidated financial statements are prepared pursuant to the Securities and Exchange Commission’s rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The Company believes all adjustments necessary for a fair presentation of these interim statements have been included and that they are of a normal and recurring nature. These interim statements should be read in conjunction with the Company’s financial statements and notes thereto, included in its Annual Report on Form 10-K, for the fiscal year ended June 30, 2018.2019. The results for the three months ended September 30, 2018,2019, are not necessarily an indication of the results for the full fiscal year ending June 30, 2019.2020.
1. Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Scientific Industries, Inc., Altamira Instruments, Inc. (“Altamira”), a Delaware corporation and wholly-owned subsidiary, and Scientific Bioprocessing, Inc. (“SBI”), a Delaware corporation and wholly-owned subsidiary, and Scientific Packaging Industries, Inc., an inactive wholly-owned subsidiary (all collectively referred to as the “Company”). All material intercompany balances and transactions have been eliminated.
 
RecentAdopted Accounting Pronouncements
 
In February 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") No. 2016-02, “Leases” (Topic 842). The FASB issued this updateLeases, which replaces previous lease guidance in its entirety with ASC 842 and requires lessees to increase transparency and comparability among organizations by recognizingrecognize lease assets and lease liabilities onfor those arrangements classified as operating leases under previous guidance, with the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoptionexception of the update is permitted.leases with a term of twelve months or less. The Company is currently evaluatingadopted ASU No. 2016-02 on July 1, 2019 using the impact of the new standard.additional transition method, which allows prior periods to be presented under previous lease accounting guidance. Refer to Note 8, "Leases", for related disclosures.
 
 R Recent Accounting Pronouncements
In July 2017,August 2018, the FASB issued ASU 2017-11, “Earnings Per Share2018-13, "Fair Value Measurement (Topic 260)820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacementwhich is part of the Indefinite Deferral for Mandatorily Redeemable Financial InstrumentsFASB disclosure framework project to improve the effectiveness of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that resultdisclosures in the strike price being reduced onnotes to the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.statements. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years,the new guidance remove, modify, and interim periods within those years, beginning after December 15, 2018. The Company is evaluating the effect that ASU 2017-11 will have on its financial statements andadd certain disclosure requirements related disclosures.
Adopted Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”to fair value measurements covered in Topic 820, "Fair Value Measurement". The update addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted only for certain portions of the ASU related to financial liabilities. The Company adopted this pronouncement during the interim period September 30, 2018, which resulted in a $22,000 cumulative effect adjustment to retained earnings in the condensed consolidated balance sheet as of the beginning of the fiscal year of adoption.
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (Topic 606)”. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross verses Net) (Topic 606)”. These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The Company adopted the provisions of these pronouncements on July 1, 2018, using the modified retrospective approach. Revenue from the Company’s sales continue to generally be recognized when products are shipped (i.e. point in time). As such, the adoption of ASU 2016-10 had no material impact to the Company’s financial position or results of operations; however, the Company has now presented the disclosures required by this new standard refer to Note 2.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”. This update provides guidance on how to record eight specific cash flow issues. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.2019. Early adoption is permitted for either the entire standard or only the requirements that modify or eliminate the disclosure requirements, with certain requirements applied prospectively, and a retrospective transition methodall other requirements applied retrospectively to each period should beall periods presented. The adoptionWe are currently evaluating the impact of adopting this ASU had no impact on the Company’s consolidated financial statements.guidance.
2. Revenue
 
The Company records revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers, as amended” (“ASC Topic 606”). In November 2016,accordance with Topic 606, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiringCompany accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires applicationCompany will collect substantially all of the guidance for all periods presented. consideration to which it is entitled. Revenue is recognized when, or as, performance obligations are satisfied by transferring control of a promised product or service to a customer.
Nature of Products and Services
We generate revenues from the following sources: (1) Benchtop Laboratory Equipment, (2) Catalyst Research Instruments, and (3) Royalties.
The adoption of this ASU had no impact onfollowing table summarizes the Company’s consolidated financial statements.disaggregation of revenues for the three months ended September 30, 2019 and 2018.

 
  Benchtop  Laboratory  Equipment 
 
 
  Catalyst  Research
 Instruments 
 
 
  Bioprocessing  
Systems 
 
 
  Consolidated 
 
September 30, 2019:
 
   
 
 
   
 
 
   
 
 
   
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $2,004,200 
Foreign Sales
  397,600 
  71,700 
  - 
  469,300 
 
    
    
    
    
September 30, 2018:
    
    
    
    
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $2,038,600 
Foreign Sales
  635,700 
  142,300 
  - 
  778,000 
 
 7
 
ReclassificationBenchtop Laboratory Equipment sales are comprised primarily of standard benchtop laboratory equipment from its stock to laboratory equipment distributors, or to end users primarily via e-commerce. The sales cycle from time of receipt of order to shipment is very short varying from a day to a few weeks. Customers either pay by credit card (online sales) or net 30-90, depending on the customer. Once the item is shipped under the FOB terms specified in the order, which is primarily “FOB Factory”, other than a standard warranty, there are no other obligations to the customer. The standard warranty is typically comprised of one to two years of parts and labor and is deemed immaterial.
 
Trade accounts receivable, currentCatalyst Research Instrument sales are comprised primarily of $67,100large instruments which begin with a standard model and $278,200,then are customized to a customer’s specifications. The sales cycle can be quite long, typically ranging from one to three months, from the time an order is received to the time the instrument is shipped to the customer. Payment terms vary from customer to customer and trade accounts receivable, long termcan include advance payments which are recorded as contract liabilities. Some contracts call for training and installation, which is considered ancillary and not a material part of $245,400the contract. Due to the size and nature of the instruments, the Company subjects the instruments to an extensive factory acceptance testing process prior to shipment to ensure that they are fully operational once they reach the customer’s site. Normally, the Company warrantees its instruments for both periods were reclassified to contract assets, current;a period of twelve months for parts and contract assets, less current portion, respectively, on the balance sheet aslabor which normally consists of September 30, and June 30, 2018. Customer advances were reclassified to contract liabilities asreplacement of September 30, and June 30, 2018.small components or software support. Catalyst research instruments are never returned for repairs.
 
2. RevenueRoyalty revenues pertain to royalties earned by the Company, which are paid on a calendar year basis, under a licensing agreement from a single licensee and its sublicenses. The Company is then obligated to pay 50% of all royalties received to the entity that licenses the intellectual property to the Company. During the year, the Company’s management uses its best judgement to estimate the royalty revenues earned during the period.
 
The Company’s revenues are comprised of product sales (Benchtop Laboratory Equipment Operations) as well as products and related services such as installation and training as is customary for its customers ofCompany determines revenue recognition through the Catalyst Research Instruments Operations. In addition the Company’s Bioprocessing Systems Operations’ revenues are comprised of royalty revenues. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of standalone selling price for each distinct product or service in the contract, which is generally based on an observable price.following steps:
 
Revenue is measured
● Identification of the contract, or contracts, with a customer
● Identification of the performance obligations in the contract
● Determination of the transaction price
● Allocation of the transaction price to the performance obligations in the contract
● Recognition of revenue when, or as, a performance obligation is satisfied
The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the amount of consideration the Company expects to receiveFASB, in exchange for transferring products or providing services. As such, revenue isapplying ASC Topic 606: 1) all revenues are recorded net of returns, allowances, customer discounts, and incentives. Revenueincentives; 2) although sales and other taxes are immaterial, the Company accounts for amounts collected from customers for sales and other taxes, if any, net of related amounts remitted to tax authorities; 3) the Bioprocessing Systems OperationsCompany expenses costs to obtain a contract as they are recognized over time based on Management’s judgmentincurred if the expected period of benefit, and estimates.therefore the amortization period, is one year or less; 4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within selling expenses; 5) the Company is always considered the principal and never an agent, because it has full control and responsibility until title is transferred to the customer; 6) the Company does not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer such as is the case with catalyst instruments.
 
 
3. Segment Information and Concentrations
 
The Company views its operations as three 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”), the manufacture and marketing of custom-made catalyst research instruments for universities, government laboratories, and chemical and petrochemical companies sold on a direct basis (“Catalyst Research Instruments Operations”) and the design and marketing of bioprocessing systems and products and related royalty income (“Bioprocessing Systems”).
 
Segment information is reported as follows:
 
 Benchtop Laboratory Equipment 
 Catalyst Research Instruments 
 Bioprocessing
Systems 
 Corporate
And Other 
 Consolidated 
 
 Benchtop Laboratory Equipment 
 
 
 Catalyst Research Instruments 
 
 
 Bioprocessing
Systems 
 
 
 Corporate
And Other 
 
 
 Consolidated 
 
   
Three Months Ended September 30, 2018:
   
Three Months Ended September 30, 2019:
 
 
 
   
 
 
 
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $- 
 $2,038,600 
 $1,576,200 
 $138,700 
 $289,300 
 $- 
 $2,004,200 
    
    
Foreign Sales
  635,700 
  142,300 
  - 
  778,000 
  397,600 
  71,700 
  - 
  469,300 
    
    
Income (Loss) From Operations
  175,400 
  (62,900)
  63,200 
  - 
  175,700 
  12,900 
  (90,200)
  1,800 
  - 
  (75,500)
    
    
Assets
  4,633,500 
  1,343,100 
  623,500 
  709,300 
  7,309,400 
  5,589,400 
  1,400,900 
  1,088,100 
  784,200 
  8,862,600 
    
    
Long-Lived Asset Expenditures
  2,200 
  - 
  2,200 
  7,800 
  - 
  16,700 
  - 
  24,500 
    
    
Depreciation and Amortization
  66,300 
  200 
  9,400 
  - 
  75,900 
  30,500 
 400 
  10,100 
  - 
  41,000 
 
8
 
 
 
 
 Benchtop Laboratory Equipment 
 
 
 Catalyst Research Instruments 
 
 
 Bioprocessing
Systems 
 
 
 Corporate
And Other 
 
 
 Consolidated 
 
Three Months Ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $- 
 $2,038,600 
 
    
    
    
    
    
Foreign Sales
  635,700 
  142,300 
  - 
  - 
  778,000 
 
    
    
    
    
    
    Income (Loss) From Operations
  175,400 
  (62,900)
  63,200 
  - 
  175,700 
 
    
    
    
    
    
Assets
  4,633,500 
  1,343,100 
  623,500 
  709,300 
  7,309,400 
 
    
    
    
    
    
    Long-Lived Asset Expenditures
  2,200 
  - 
  - 
  - 
  2,200 
 
    
    
    
    
    
    Depreciation and Amortization
  66,300 
  200 
  9,400 
  - 
  75,900 
 
 
 Benchtop Laboratory
Equipment 
 Catalyst Research Instruments 
 Bioprocessing
Systems 
 Corporate
And Other 
 Consolidated 
 
   
   
   
   
   
Three Months Ended September 30, 2017:
   
   
   
   
   
 
   
   
   
   
   
Revenues
 $1,199,400 
 $28,700 
 $52,700 
 $- 
 $1,280,800 
 
    
    
    
    
    
Foreign Sales
  502,300 
  6,400 
  - 
  - 
  508,700 
 
    
    
    
    
    
    Loss From Operations
  (93,900)
  (184,100)
  (28,800)
  - 
  (306,800)
 
    
    
    
    
    
Assets
  4,041,800 
  1,425,400 
  437,000 
  822,700 
  6,726,900 
 
    
    
    
    
    
    Long-Lived Asset Expenditures
  32,200 
  - 
  - 
  - 
  32,200 
 
    
    
    
    
    
    Depreciation and Amortization
  64,900 
  2,800 
  9,400 
  - 
  77,100 
Approximately 49%36% and 46%49% of net sales of benchtop laboratory equipmentBenchtop Laboratory Equipment for the three month periods ended September 30, 20182019 and 2017,2018, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.

Approximately 33% and 25% of total Benchtop Laboratory Equipment sales were derived from the Torbal Scales Division for the three months ended September 30, 2019 and 2018, respectively.
 
For the three months ended September 30, 20182019 and 2017,2018, respectively, three customers accounted in the aggregate for approximately 23% and 22%(both periods) of net sales of the Benchtop Laboratory Equipment Operations (19%(18% and 21%19% of the Company’s total revenues). Sales of catalyst research instrumentsCatalyst Research Instruments generally comprise a few very large orders averaging approximately $50,000 per order to a limited number of customers, who differ from order to order. Sales to two customers during the three months ended September 30, 2019 accounted for approximately 90% of the Catalyst Research Instruments Operations revenues and 6% of the Company’s total revenues. Sales to three customers during the three months ended September 30, 2018 accounted for approximately 83% of the Catalyst Research Instrument Operations’ revenues and 9% of the Company’s total revenues. There was no significant customer sale during the three months ended September 30, 2017.revenues.
 
4. Fair Value of Financial Instruments
 
The FASB defines the fair value of financial instruments as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements do not include transaction costs.
 
The accounting guidance also expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are described below:
 
Level 1 - Inputs that are based upon unadjusted quoted prices for identical instruments traded in active markets.
 
Level 2 - Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
 
Level 3 - Prices or valuation that require inputs that are both significant to the fair value measurement and unobservable.
 
In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company calculated the fair value of its Level 1 and 2 instruments based on the exchange traded price of similar or identical instruments where available or based on other observable instruments. These calculations take into consideration the credit risk of both the Company and its counterparties. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
 
9
The fair value of the contingent consideration obligations are based on a probability weighted approach derived from the estimates of earn-out criteria and the probability assessment with respect to the likelihood of achieving those criteria. The measurement is based on significant inputs that are not observable in the market, therefore, the Company classifies this liability as Level 3 in the following tables.
 
 9
The following tables set forth by level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at September 30, 20182019 and June 30, 20182019 according to the valuation techniques the Company used to determine their fair values:

 
 
 
 
Fair Value Measurements Using Inputs Considered as   
 
 
 Fair Value at September 30, 2019
 
 
 Level 1 
 
 
 Level 2 
 
 
 Level 3 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $1,259,700 
 $1,259,700 
 $- 
 $- 
Investment securities
  333,600 
  333,600 
  - 
  - 
 
    
    
    
    
Total
 $1,593,300 
 $1,593,300 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
Contingent consideration
 $618,000 
 $- 
 $- 
 $618,000 
 
 
   
 Fair Value Measurements Using Inputs Considered as 
 
 Fair Value at September 30, 2018 
 Level 1 
 Level 2 
 Level 3 
 
   
   
   
   
Assets:
   
   
   
   
 
   
   
   
   
Cash and cash equivalents
 $1,507,300 
 $1,507,300 
 $- 
 $- 
Available for sale securities
  322,700 
  322,700 
  - 
  - 
 
    
    
    
    
Total
 $1,830,000 
 $1,830,000 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
 
    
    
    
    
Contingent consideration
��$408,000 
 $- 
 $- 
 $408,000 
 
 
 
   
 Fair Value Measurements Using Inputs Considered as 
 
 Fair Value at June 30, 2018 
 Level 1 
 Level 2 
 Level 3 
 
   
   
   
   
Assets:
   
   
   
   
 
   
   
   
   
Cash and cash equivalents
 $1,053,100 
 $1,053,100 
 $- 
 $- 
Available for sale securities
  314,700 
  314,700 
  - 
  - 
 
    
    
    
    
Total
 $1,367,800 
 $1,367,800 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
 
    
    
    
    
Contingent consideration
 $408,000 
 $- 
 $- 
 $408,000 
The following table sets forth an analysis of changes during the three months ended September 30, 2018 and 2017 in Level 3 financial liabilities of the Company:
 
 2018 
 2017 
Beginning balance
 $408,000 
 $297,000 
Payments
  - 
  (142,700)
 
    
    
Ending balance
 $408,000 
 $154,300 
 
 
 
 
  Fair Value Measurements Using Inputs Considered as
 
 
 Fair Value at June 30, 2019
 
 
 Level 1 
 
 
 Level 2 
 
 
 Level 3 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $1,602,500 
 $1,602,500 
 $- 
 $- 
Investment securities
  330,900 
  330,900 
  - 
  - 
 
    
    
    
    
Total
 $1,933,400 
 $1,933,400 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
Contingent consideration
 $618,000 
 $- 
 $- 
 $618,000 
 
Investments in marketable securities classified as available-for-sale by security type at September 30, 20182019 and June 30, 20182019 consisted of the following:
 Cost 
 Fair Value 
 Unrealized Holding Gain (Loss) 
 
 Cost 
 
 
 Fair Value 
 
 
 Unrealized Holding Gain (Loss) 
 
At September 30, 2018:
   
Available for sale:
   
At September 30, 2019:
 
 
 
Equity securities
 $48,500 
 $76,800 
 $28,300 
 $71,300 
 $96,500 
 $25,200 
Mutual funds
  262,800 
  245,900 
  (16,900)
  246,600 
  237,100 
  (9,500)
    
    
 $311,300 
 $322,700 
 $11,400 
 $317,900 
 $333,600 
 $15,700 
 

 
 Cost 
 
 
 Fair Value 
 
 
 Unrealized Holding Gain (Loss) 
 
At June 30, 2019:
 
 
 
 
 
 
 
 
 
Equity securities
 $47,100 
 $72,000 
 $24,900 
Mutual funds
  292,300 
  258,900 
  (33,400)
 
    
    
    
 
 $339,400 
 $330,900 
 $(8,500)

5. Inventories

 September 30,
2019
 
 June 30,
2019 
Raw materials
 $1,737,500 
 $1,738,300 
Work-in-process
  229,900 
  106,400 
Finished goods
  745,700 
  747,600 
 
 $2,713,100 
 $2,592,300 
 
 10
 
 
 
 Cost 
 Fair Value 
 Unrealized Holding Gain (Loss) 
At June 30, 2018:
   
   
   
Available for sale:
   
   
   
Equity securities
 $45,700 
 $67,800 
 $22,100 
Mutual funds
  267,800 
  246,900 
  (20,900)
 
    
    
    
 
 $313,500 
 $314,700 
 $1,200 
5. Inventories
 
 September 30, 2018 
 June 30, 2018 
 
   
   
Raw materials
 $1,312,700 
 $1,488,000 
Work-in-process
  425,900 
  352,700 
Finished goods
  562,400 
  427,200 
 
    
    
 
 $2,301,000 
 $2,267,900 

6. Goodwill and Other Intangible Assets
 
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in connection with the Company’s acquisitions. Goodwill amounted to $705,300 at September 30, 20182019 and June 30, 2018,2019, all of which is expected to be deductible for tax purposes.
 
The components of other intangible assets are as follows:
Useful Lives
 Cost 
 Accumulated Amortization 
 Net 
Useful Lives
 
 Cost 
 
 
 Accumulated Amortization 
 
 
 Net 
 
At September 30, 2018: 
   
 
   
At September 30, 2019: 
 
 
 
Technology, trademarks5/10 yrs.
 $662,800 
 $631,500 
 $31,300 
5/10 yrs.
 $663,800 
 $661,800 
 $2,000 
Trade names6 yrs.
  140,000 
  106,900 
  33,100 
6 yrs.
  140,000 
  130,300 
 9,700 
Websites5 yrs.
  210,000 
  192,500 
  17,500 
5 yrs.
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  298,100 
  58,900 
9/10 yrs.
  357,000 
  311,400 
  45,600 
Sublicense agreements10 yrs.
  294,000 
  202,100 
  91,900 
10 yrs.
  294,000 
  231,500 
  62,500 
Non-compete agreements5 yrs.
  384,000 
  361,500 
  22,500 
5 yrs.
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  - 
3 yrs.
  110,000 
  - 
Other intangible assets
5 yrs.
  199,300 
  175,600 
  23,700 
5 yrs.
  229,200 
  186,100 
  43,100 
    
    
 $2,357,100 
 $2,078,200 
 $278,900 
 $2,388,000 
 $2,225,100 
 $162,900 
  
 
Useful Lives
 Cost 
 Accumulated Amortization 
 Net 
Useful Lives
 
 Cost 
 
 
 Accumulated Amortization 
 
 
 Net 
 
 
   
At June 30, 2018: 
   
 
   
At June 30, 2019: 
 
 
 
Technology, trademarks5/10 yrs.
 $662,800 
 $613,400 
 $49,400 
5/10 yrs.
 $663,800 
 $661,700 
 $2,100 
Trade names6 yrs.
  140,000 
  101,100 
  38,900 
6 yrs.
  140,000 
  124,400 
  15,600 
Websites5 yrs.
  210,000 
  182,000 
  28,000 
5 yrs.
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  294,800 
  62,200 
9/10 yrs.
  357,000 
  308,100 
  48,900 
Sublicense agreements10 yrs.
  294,000 
  194,800 
  99,200 
10 yrs.
  294,000 
  224,100 
  69,900 
Non-compete agreements5 yrs.
  384,000 
  348,000 
  36,000 
5 yrs.
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  - 
3 yrs.
  110,000 
  - 
Other intangible assets
5 yrs.
  198,100 
  173,100 
  25,000 
5 yrs.
  221,700 
  183,200 
  38,500 
    
    
 $2,355,900 
 $2,017,200 
 $338,700 
 $2,380,500 
 $2,205,500 
 $175,000 
 
Total amortization expense was $61,000$19,500 and $61,100$61,000 for the three months ended September 30, 20182019 and 2017,2018, respectively. As of September 30, 2018,2019, estimated future amortization expense related to intangible assets is $125,900$51,000 for the remainder of the fiscal year ending, June 30, 2019, $66,400 for fiscal 2020, $49,100$54,300 for fiscal 2021, $26,100$31,700 for fiscal 2022, $9,800$15,000 for fiscal 2023 and $1,600 thereafter.$10,900 for fiscal 2024.
 
 11

7. Income (Loss) Per Common Share
 
Income (Loss) per common share data was computed as follows:
 For the Three Months Ended September 30, 2018 
 For the Three Months Ended September 30, 2017 
   
 
 For the Three Months Ended
September 30, 2019
 
 
 For the Three Months Ended
September 30, 2018
 
Net income (loss)
 $142,000 
 $(232,600)
 $(56,200)
 $142,000 
    
    
Weighted average common shares outstanding
  1,494,112 
  1,494,212 
  1,494,112 
Effect of dilutive securities
  3,897 
  - 
  - 
  3,897 
Weighted average dilutive common shares outstanding
  1,498,009 
  1,494,112 
  1,494,212 
  1,498,009 
    
    
Basic earnings (loss) per common share
 $.10 
 $(.16)
      (.04)
 $.10 
Diluted earnings (loss) per common share
 $.09 
 $(.16)
(.04)
 $.09
 
Approximately 92,00044,200 and 82,00092,000 shares of the Company's common stock issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share for the three months ended September 30, 20182019 and 2017,2018, respectively, because the effect would be anti-dilutive.
 
 12 11
 

8.Leases
On July 1, 2019 the Company adopted the new accounting pronouncement as it relates to its leases which requires a lessee to recognize all long-term leases on its balance sheet as a liability for its lease obligation, measured at the present value of lease payments not yet paid, and a corresponding asset representing its right to use the underlying asset over the lease term and expands disclosure of key information about leasing arrangements.
The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) through February 2025, a facility in Pittsburgh, Pennsylvania for its Catalyst Research Instrument Operations through November 2020 and another facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through November 2020. In addition, the Company had a lease for its Torbal Division of the Benchtop Laboratory Equipment Operations which was mutually terminated early effective as of October 31, 2019 and a new lease for a similar sales and administration office was entered into as of November 1, 2019 through October 2022. There are no renewal options with any of the leases, no residual values or significant restrictions or covenants other than those customary in such arrangements, and no non-cash activities, and any rent escalations incorporated within the leases are included in the calculation of the future minimum lease payments, as further described below. All of the Company’s leases are deemed operating leases. 
The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the Right-Of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate of 5.0% as the discount rate to calculate the present value of future lease payments, which was the interest rate that its bank would charge for a similar loan.
The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on an excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as  lease expenses in the period incurred. The Company’s lease agreements do not contain residual value guarantees. 
The Company elected available practical expedients for existing or expired contracts of lessees wherein the Company is not required to reassess whether such contracts contain leases, the lease classification or the initial direct costs. The Company is not utilizing the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets. The Company utilized the transition method allowing entities to only apply the new lease standard in the year of adoption.  
As of September 30, 2019, the weighted-average remaining lease term for operating lease liabilities was approximately 4 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $68,400, of which $68,300 was recorded as leases expense.
The Company’s approximate future minimum rental payments under all leases existing at September 30, 2019 through February 2025 are as follows:
Fiscal year ending June 30,
 
Amount   (1)
 
 
Remainder of 2020
 $208,800 
 
2021
  222,500 
 
2022
 184,600 
 
2023
  190,200 
 
2024
  195,900 
 
2025
  91,600 
 
Total future minimum payments
 1,093,600
 
Less: Imputed interest
  124,500 
 
Total Present Value of Operating Lease Liabilities
  969,100 
 
(1)  Operating lease payments exclude $76,400 of legally binding lease payments for real estate leases signed but not yet commenced.  Operating leases that have been signed but not yet commenced are expected to commence in the second quarter of fiscal 2020, with a lease term of 3 years.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking statements. 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. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s financial statements and the related notes included elsewhere in this report.
 
Overview. The Company reflected a loss before income tax expense of $75,700 for the three months ended September 30, 2019 compared to income before tax expense of $177,500 for the three months ended September 30, 2018, compared to a loss before income tax benefit of $306,500 for the three months ended September 30, 2017, primarily from the result of decreased revenues and gross margins for the Benchtop Laboratory Equipment Operations resulting from reduced orders from Asia, primarily China, and increased revenues across all business segments.component costs as a result of tariffs imposed. In addition, the Company’s Scientific Bioprocessing Operations also reflected decreased income from operations due to the substantial investment in its new product development efforts resulting in increased expenses. The Company’s Catalyst Research Instruments reflected lower income resulting from lower sales. The results reflected total non-cash amounts for depreciation and amortization of $75,900$41,000 and $77,100$75,900 for the three months ended September 30, 20182019 and 2017,2018, respectively.
 
Results of Operations. Net revenues for the three months ended September 30, 2018 increased $757,800 (59.2%2019 decreased $34,400 (1.7%) to $2,038,600$2,004,200 from $1,280,800$2,038,600 for the three months ended September 30, 2017,2018, reflecting an increasea decrease of $492,500 (41.1%$115,700 (6.8%) decrease in net sales of benchtop laboratory equipment.Benchtop Laboratory Equipment primarily due to sales of its Genie brand products to Asia, particularly China. The benchtop laboratory equipmentBenchtop Laboratory Equipment sales reflected $425,300$522,400 of Torbal brand product sales for the three months ended September 30, 2018,2019, compared to $304,200$425,300 in the three months ended September 30, 20172018 as a result of continued growth in sales of the new force gauges product line. Sales of catalyst research instruments increasedCatalyst Research Instruments decreased by $188,800$78,800 to $138,700 for the three months ended September 30, 2019 compared to $217,500 for the three months ended September 30, 2018 compareddue to $28,700 for the three months ended September 30, 2017 because there were no large orders shippedlow order input during the prior year period. As of September 30, 2018,2019, the order backlog for catalyst research instrumentsCatalyst Research Instruments was $329,400,$173,500, all of which is expected to be shipped during the fiscal year ending June 30, 2019,2020, compared to $323,900$329,400 as of September 30, 2017.2018. Revenues derived from the Bioprocessing Systems Operations which compriseare comprised primarily of net royalties accrued from sublicenseessublicenses increased by $76,500 (145.2%$160,100 (123.9%) to $289,300 for the three months ended September 30, 2019 compared to $129,200 for the three months ended September 30, 2018 compareddue to $52,700increased royalties on Europe sales.
The gross profit percentage on a combined basis was 48.9% for the three months ended September 30, 2017.
The gross profit percentage2019 compared to 46.4% for the three months ended September 30, 2018 was 46.4% compared to 35.3% for the three months ended September 30, 2017. The current period2018. However, gross margin reflected increased gross profit margin percentagemargins for the Benchtop Laboratory Equipment Operations as a result ofwere affected by higher salescomponent costs impacted by tariffs and lower overhead costs. Thethe gross profit margin percentage for catalyst research instrumentsthe Catalyst Research Instruments was higher forlower due to decreased sales during the current period compared to the same period last year because the prior year period was negatively impacted by fixed overhead on significantly lower sales.and high overhead.
 
General and administrative expenses for the three months ended September 30, 2018 amounted2019 increased by $93,700 (22.5%) to $416,500$510,200 compared to $428,400$416,500 for the three months ended September 30, 20172018 mainly due to various minor decreasesthe ramp up in expenses for theScientific Bioprocessing Systems Operations, and the Catalyst Research Instruments Operations.various other corporate expenses.
 
Selling expenses for the three months ended September 30, 20182019 increased $35,100 (17.5%$73,000 (30.9%) to $236,100$309,100 from $201,000$236,100 for the three months ended September 30, 20172018 primarily due to increased salesmarket research and marketing activities by the Bioprocessing Systems Operations, and to a lesser extent increased marketing by the Benchtop Laboratory Equipment Operations.
 
Research and development expenses decreasedincreased by $11,700 (9.1%$119,200 (101.5%) to $236,600 for the three months ended September 30, 2019 compared to $117,400 for the three months ended September 30, 2018, comparedmainly due to $129,100the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing and materials.
The Company reflected an income tax benefit of $19,500 for the three months ended September 30, 2017, primarily because of reduced new product development activities in the current year period for benchtop laboratory equipment.
Total other income was $1,800 for the three months ended September 30, 20182019 compared to $300 for the three months ended September 30, 2017, due primarily to unrealized holding gains on equity securities.
The Company reflectedan income tax expense of $35,500 for the three months ended September 30, 2018, compared to a tax benefit of $73,900 for the three months ended September 30, 2017, primarily due to the incomeloss generated during the three months ended September 30, 2018.2019.
 
As a result of the foregoing, the Company recorded a net loss of $56,200 for the three months ended September 30, 2019 compared to net income of $142,000 for the three months ended September 30, 2018 compared to a net loss of $232,600 for the three months ended September 30, 2017.2018.
 
Liquidity and Capital Resources. Cash and cash equivalents increaseddecreased by $454,200$342,800 to $1,507,300$1,259,700 as of September 30, 20182019 from $1,053,100$1,602,500 as of June 30, 2018.2019.
 
Net cash provided byused in operating activities was $460,700$324,100 for the three months ended September 30, 20182019 compared to $103,600 usednet cash provided by operating activities of $460,700 during the three months ended September 30, 2017,2018, primarily as a result of the incomeloss incurred for the current year period.Net cash used in investing activities was $4,900$25,700 for the three months ended September 30, 20182019 compared to $41,500$4,900 used during thethree months ended September 30, 20172018 principally due to new capital equipment purchased during the prior yearcurrent period by the Benchtop Laboratory Equipment Operations. Operations.The Company used $1,600received proceeds of $7,000 in financing activities in the three months ended September 30, 20182019 compared to $144,300a loss of  $1,600 in the three months ended September 30, 20172018 due to the contingent consideration paidexercise of stock options in the priorcurrent year period..
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The Company's working capital increaseddecreased by $159,600$203,500 to $4,277,800$4,802,300 as of September 30, 20182019 compared to $4,118,200,$5,005,800, as of June 30, 20182019 due to the incomeloss generated during the period.
 
The Company has a Demand Line of Credit through December 20182019 with First National Bank of Pennsylvania which provides for borrowings of up to $300,000 for regular working capital needs, bearing interest at prime, currently 5.25%4.75%. Advances on the line, are secured by a pledge of the Company’s assets including inventory, accounts, chattel paper, equipment and general intangibles of the Company. As of September 30, 20182019 no borrowings were outstanding under such line.
 
Management believes that the Company will be able to meet its cash flow needs during the 12 months ending September 30, 20192020 from its available financial resources including the lines of credit, its cash and investment securities, and operations. Commencing in the fourth quarter of the fiscal year ended June 30, 2019, the Company began committing significant resources for the Bioprocessing Systems Operations for new engineering personnel, market research, materials, supplies, and administration, and expects to continue to grow this business segment which will require substantial cash outlays.
 
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Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, based on an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the Chief Executive and Chief Financial Officer of the Company has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC's rules and forms. The Company also concluded that information required to be disclosed in such reports is accumulated and communicated to the Company's management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
As a result of our adoption of the new revenue standard (Topic 606), we implemented controls to ensure adequate evaluation of contracts and assessment of the impact of the new accounting standard related to revenue recognition on our financial statements to facilitate its adoption on July 1, 2018. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the period covered by this Quarterly Report or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
As a result of our adoption of the new leases standard (Topic 842), we implemented controls to ensure adequate review and assessment of contracts containing leases and calculations of assets and liabilities related to the Company's leases as well as required disclosures within the Company's financial statements to facilitate its adoption on July 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the period covered by this Quarterly Report or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION
 
ItemItem 6. Exhibits and Reports on Form 8-K
 
Exhibit Number
Description
 
31.131.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.132.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Reports on Form 8-K:
 
Report dated September 28, 2018 reporting under item 8.01None
 
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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Date: November 13, 201814, 2019
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
 
/s/ Helena R. Santos
 
 
Helena R. Santos
President, Chief Executive Officer, Treasurer
Chief Financial and Principal Accounting OfficerTreasurer
 
 
 
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