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,December 31, 2019
 
☐
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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 ☐No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐(Do not check if a smaller reporting company)
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.
 
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, 2019February 7, 2020 is 1,496,1121,502,773 shares.
 

 
 
 
    

 
 
SCIENTIFIC INDUSTRIES, INC.
 
Table of Contents
 
PART I - Financial Information 
   
Item 11..
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
   
 Condensed Consolidated Balance Sheets2
   
 Condensed Consolidated Statements of Operations3
   
 Condensed Consolidated Statements of Comprehensive Income (Loss)4
   
 Condensed Consolidated Statements of Changes in Shareholders'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 PROCEDURES1516
   
Item 4.
CONTROLS AND PROCEDURES18
PART II - Other Information
   
 OTHER INFORMATION
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K1518
   
SIGNATURESIGNATURE
 1619
 
 
 
 

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
  September 30, 2019
 
 
  June 30, 2019
 
 
December 31, 2019
 
 
June 30, 2019
 
Current assets:
 
  (Unaudited)  
 
 
   
 
 
(Unaudited)
 
 
 
 
Cash and cash equivalents
 $1,259,700 
 $1,602,500 
 $1,044,000 
 $1,602,500 
Investment securities
  333,600 
  330,900 
  345,200 
  330,900 
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 
Trade accounts receivable, less allowance for doubtful accounts of $11,600 at
December 31, 2019 and $15,000 at June 30, 2019
  1,812,500 
  1,974,200 
Inventories
  2,713,100 
  2,592,300 
  3,003,800 
  2,592,300 
Prepaid expenses and other current assets
  93,500 
  91,200 
  62,500 
  91,200 
Total current assets
  6,267,700 
  6,591,100 
  6,268,000 
  6,591,100 
    
    
Property and equipment, net
  314,400 
  318,800 
  309,400 
  318,800 
    
    
Intangible assets, net
  162,900 
  175,000 
  143,200 
  175,000 
    
    
Goodwill
  705,300 
  705,300 
    
    
Other assets
  59,200 
  54,700 
  56,000 
  54,700 
    
    
Deferred taxes
  450,600 
  431,100 
  451,200 
  431,100 
    
    
Operating lease right-of-use assets
  902,500 
  - 
  930,700 
  - 
    
    
Total assets
 $8,862,600 
 $8,276,000 
 $8,863,800 
 $8,276,000 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
   
 
 
   
 
Accounts payable
 $457,200 
 $569,000 
Accrued expenses and taxes
  437,700 
  608,300 
Contract liabilities
  62,000 
  - 
Contingent consideration, current portion
  268,000 
  268,000 
Bank overdraft
  9,400 
  140,000 
Current portion of operating lease liabilities
  231,100 
  - 
Total current liabilities
  1,465,400 
  1,585,300 
Contingent consideration payable, less current portion
  350,000 
  350,000 
Operating lease liabilities, less current portion
  738,000 
  - 
 
    
    
Total liabilities
  2,553,400 
  1,935,300 
Shareholders’ equity:
    
    
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
  2,617,300 
  2,592,700 
Retained earnings
  3,668,500 
  3,724,700 
 
  6,361,600 
  6,393,100 
Less common stock held in treasury at cost, 19,802 shares
  52,400 
  52,400 
 
    
    
Total shareholders’ equity
  6,309,200 
  6,340,700 
 
    
    
Total liabilities and shareholders’ equity
 $8,862,600 
 $8,276,000 
See notes to unaudited condensed consolidated financial statements.
Current liabilities:
 
 
 
 
 
 
Accounts payable
 $474,700 
 $569,000 
Accrued expenses and taxes
  338,500 
  608,300 
    Contract liabilities
  104,000 
  - 
Contingent consideration, current portion
  268,000 
  268,000 
Bank overdraft
  - 
  140,000 
Current portion of operating lease liabilities
  142,700 
  - 
Total current liabilities
  1,327,900 
  1,585,300 
 
    
    
Contingent consideration payable, less current portion
  350,000 
  350,000 
Operating lease liabilities, less current portion
  855,400 
  - 
 
    
    
Total liabilities
  2,533,300 
  1,935,300 
Shareholders’ equity:
    
    
Common stock, $.05 par value; authorized 7,000,000 shares; issued 1,522,575 and 1,513,914 shares, and 1,502,773 and 1,494,112 shares outstanding at December 31, 2019 and June 30, 2019
  76,100 
  75,700 
        Additional paid-in capital
  2,634,700 
  2,592,700 
        Retained earnings
  3,672,100 
  3,724,700 
 
  6,382,900 
  6,393,100 
Less common stock held in treasury at cost, 19,802 shares
  52,400 
  52,400 
 
    
    
Total shareholders’ equity
  6,330,500 
  6,340,700 
 
    
    
Total liabilities and shareholders’ equity
 $8,863,800 
 $8,276,000 
 
 
 2
 

 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
 
  For the Three Month Period Ended
September 30, 2019 
 
 
  For the Three Month Period Ended
September 30, 2018 
 
 
 
   
 
 
   
 
Revenues
 $2,004,200 
 $2,038,600 
 
    
    
Cost of revenues
  1,023,800 
  1,092,900 
 
    
    
Gross profit
  980,400 
  945,700 
 
    
    
Operating expenses:
    
    
General and administrative
  510,200 
  416,500 
Selling
  309,100 
  236,100 
Research and development
  236,600 
  117,400 
 
    
    
Total operating expenses
  1,055,900 
  770,000 
 
    
    
Income (loss) from operations
  (75,500)
  175,700 
 
    
    
Other income (expense):
    
    
Other income (expense), net
  (200)
  2,200 
Interest expense
  - 
  (400)
 
    
    
Total other income (expense), net
  (200)
  1,800 
 
    
    
Income (loss) before income tax expense (benefit)
  (75,700)
  177,500 
 
    
    
Income tax expense (benefit):
    
    
Current
  - 
  29,500 
Deferred
  (19,500)
  6,000 
 
    
    
Total income tax expense (benefit)
  (19,500)
  35,500 
 
    
    
Net income (loss)
 $(56,200)
 $142,000 
 
    
    
Basic earnings (loss) per common share
 $(.04)
 $.10 
 
    
    
Diluted earnings (loss) per common share
 $(.04)
 $.09 
 
 
For the Three
Month
Period Ended
December
31,
 
 
For the Three
Month
Period Ended
December
31,
 
  
For the Six
Month
Period Ended
December
 31,
 
 
For the Six
Month
Period Ended
December
 31,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $2,272,300 
 $2,163,200 
 $4,276,500 
 $4,201,800 
 
    
    
    
    
Cost of revenues
  1,180,800 
  1,187,500 
  2,204,600 
  2,280,400 
 
    
    
    
    
Gross profit
  1,091,500 
  975,700 
  2,071,900 
  1,921,400 
 
    
    
    
    
Operating expenses:
    
    
    
    
General and administrative
  510,100 
  462,100 
  1,020,300 
  878,600 
Selling
  330,500 
  248,200 
  639,600 
  484,300 
Research and development
  260,000 
  109,400 
  496,600 
  226,700 
 
    
    
    
    
Total operating expenses
  1,100,600 
  819,700 
  2,156,500 
  1,589,600 
 
    
    
    
    
Income (loss) from operations
  (9,100)
  156,000 
  (84,600)
  331,800 
 
    
    
    
    
Other income (expense):
    
    
    
    
    Interest income
  9,200 
  2,500 
  9,700 
  2,800 
    Other income (expense), net
  2,900 
  (9,300)
  2,200 
  (7,400)
    Interest expense
  - 
  (400)
    
  (800)
 
    
    
    
    
                              Total other income (expense), net
  12,100 
  (7,200)
  11,900 
  (5,400)
 
    
    
    
    
Income (loss) before income tax expense (benefit)
  3,000 
  148,800 
  (72,700)
  326,400 
 
    
    
    
    
Income tax expense (benefit):
    
    
    
    
Current
  - 
  24,400 
  - 
  53,900 
Deferred
  (600)
  6,000 
  (20,100)
  12,000 
 
    
    
    
    
                              Total income tax expense (benefit)
  (600)
  30,400 
  (20,100)
  65,900 
 
    
    
    
    
Net income (loss)
 $3,600 
 $118,400 
 $(52,600)
 $260,500 
 
    
    
    
    
Basic earnings (loss) per common share
 $.00 
 $.08 
 $(.04) 
 $.17 
 
    
    
    
    
Diluted earnings (loss) per common share
 $.00 
 $.08 
 $(.04)
 $.17 
 
    
    
    
    
Cash dividends declared per common share
 $.00 
 $.05 
 $.00 
 $.05 
 
See notes to unaudited condensed consolidated financial statements.
 
 

 3
 


 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 
  For the Three Month Period Ended
September 30, 2019 
 
 
  For the Three Month Period Ended
 September 30, 2018 
 
 
For the Three Month Period Ended December 31, 2019
 
 
For the Three Month Period Ended December 31, 2018
 
 
For the
 Six Month Period Ended December 31, 2019
 
 
For the
 Six Month Period Ended December 31, 2018
 
 
   
 
 
 
 
Net income (loss)
 $(56,200)
 $142,000 
 $3,600 
 $118,400 
 $(52,600)
 $260,500 
    
    
Other comprehensive loss:
    
    
Unrealized holding loss
    
    
arising during period,
    
    
net of tax
  - 
  (18,100)
  - 
  (2,900)
  - 
  (21,000)
    
    
Comprehensive income (loss)
 $(56,200)
 $123,900 
 $3,600 
 $115,500 
 $(52,600)
 $239,500 
 
See notes to unaudited condensed consolidated financial statements.
 
 
 4
 
  

 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2020
 
 Shares 
 
 
 Amount 
 
 
Capital
 
 
Gain (Loss)
 
 
Earnings
 
 
Shares
 
 
Amount
 
 
Equity
 
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 
  1,513,914 
 $75,700 
 $2,592,700 
 $- 
 $3,724,700 
  19,802 
 $52,400 
 $6,340,700 
    
    
Net loss
  - 
(56,200)
  - 
  (56,200)
  - 
  (56,200)
  - 
  (56,200)
    
    
Stock options exercised
  2,000 
  100 
  6,900 
  - 
 - 
7,000
  2,000 
  100 
  6,900 
  - 
  7,000 
    
    
Stock-based compensation
  - 
  17,700 
  - 
  17,700 
  - 
  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
  1,515,914 
  75,800 
  2,617,300 
  - 
  3,668,500 
  19,802 
  52,400 
  6,309,200 
    
Net income
  - 
  3,600 
  - 
  3,600 
    
Stock options exercised
  6,661 
  300 
  (300)
  - 
    
Stock-based compensation
  - 
  17,700 
  - 
  17,700 
    
Balance, December 31, 2019
  1,522,575 
 $76,100 
 $2,634,700 
 
$                                         -
 
 $3,672,100 
  19,802 
 $52,400 
 $6,330,500 
    
 
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
Additional
 
 
Accumulated
Other
 
 
 
 
 
 
 
 
Total
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
 
Common Stock
 
 
Paid-in
 
 
Comprehensive
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2019
 
 Shares 
 
 
 Amount 
 
 
Capital
 
 
Gain (Loss)
 
 
Earnings
 
 
Shares
 
 
Amount
 
 
Equity
 
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 
  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 
  - 
    
  22,000 
    
  22,000 
ASU 2016-01 – Financial Instruments
    
    
    
    
Net income
  - 
  142,000 
  - 
  142,000 
  - 
  142,000 
  - 
  142,000 
    
    
Cash dividend declared, $.05
  - 
  (74,700)
  - 
  (74,700)
  - 
  (74,700)
  - 
  (74,700)
    
    
Unrealized holding loss on investment securities, net of tax
  - 
  (18,100)
  - 
  (18,100)
  - 
  (18,100)
  - 
  (18,100)
    
    
Stock-based compensation
  - 
  8,700 
  - 
 8,700
  - 
  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 
  1,513,914 
  75,700 
  2,554,600 
  (16,900)
  3,221,100 
  19,802 
  52,400 
  5,782,100 
    
Net income
  - 
  118,400 
  - 
  118,400 
    
Unrealized holding loss on investment securities, net of tax
  - 
  (2.900)
  - 
  (2,900)
    
Stock-based compensation
  - 
  9,500 
  - 
  9,500 
    
Balance, December 31, 2018
  1,513,914 
 $75,700 
 $2,564,100 
 $(19,800)
 $3,339,500 
  19,802 
 $52,400 
 $5,907,100 
 
 5
 
 

 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Six Month Period Ended December 31,
 
 
 For the Three Month Period Ended
September 30,  2019
 
 
 For the Three Month Period Ended
September 30,  2018
 
 
2019
 
 
2018
 
Operating activities:
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(56,200)
 $142,000 
 $(52,600)
 $260,500 
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
    
Adjustments to reconcile net income (loss) provided by (used in) operating activities:
    
Gain (loss) on sale of investments
  (3,100)
  5,000 
Unrealized holding gain (loss) on investments
  (1,200)
  3,300 
Depreciation and amortization
  41,000 
  75,900 
  82,400 
  151,900 
Deferred income taxes
  (19,500)
  6,000 
  (20,100)
  7,100 
Stock-based compensation
  17,700 
  8,700 
  35,400 
  18,200 
Loss on sale of investments
  800 
  5,000 
Unrealized holding gain of investments
  (2,300)
  (6,400)
Changes in operating assets and liabilities:
    
    
Trade accounts receivable
  106,400 
  254,100 
  161,700 
  227,600 
Contract assets, current
  - 
  211,100 
Right -of- use assets
  (902,500)
  - 
Lease liability
  969,100 
  - 
Contract assets
  - 
  216,400 
Inventories
  (120,800)
  (33,100)
  (411,500)
  (456,000)
Prepaid and other assets
  (6,800)
  (33,500)
Right - of- use assets
  (930,700)
  - 
Prepaid and other current assets
  27,400 
  (67,900)
Lease liabilities
  998,100 
  - 
Accounts payable
  (111,800)
  (65,400)
  (94,300)
  142,700 
Contract liabilities
  62,000 
  12,100 
  104,000 
  50,500 
Accrued expenses and taxes
  (301,200)
  (115,800)
  (409,600)
  (162,000)
    
    
Total adjustments
 (267,900)
  318,700 
  (461,500)
  136,800 
    
    
Net cash provided by (used in) operating activities
  (324,100)
  460,700 
  (514,100)
  397,300 
    
    
Investing activities:
    
    
Redemption of investment securities
  51,900 
  75,100 
Purchase of investment securities
  (25,000)
  (75,200)
  (61,800)
  (75,200)
Redemption of investment securities
  23,800 
  72,500 
Capital expenditures
  (17,000)
  (900)
  (34,100)
  (7,900)
Purchase of other intangible assets
  (7,500)
  (1,300)
  (7,400)
  (6,300)
    
    
Net cash used in investing activities
  (25,700)
  (4,900)
  (51,400)
  (14,300)
    
    
Financing activities:
    
    
Proceeds from stock options exercised
  7,000 
  - 
  7,000 
  - 
Cash dividend declared and paid
  - 
  (74,700)
Principal payments on notes payable
  - 
  (1,600)
  - 
  (3,300)
    
    
Net cash provided by (used in) financing activities
  7,000 
  (1,600)
  7,000 
  (78,000)
    
    
Net increase (decrease) in cash and cash equivalents
  (342,800)
  454,200 
  (558,500)
  305,000 
    
    
Cash and cash equivalents, beginning of year
  1,602,500 
  1,053,100 
  1,602,500 
  1,053,100 
    
    
Cash and cash equivalents, end of period
 $1,259,700 
 $1,507,300 
 $1,044,000 
 $1,358,100 
    
    
Supplemental disclosures:
    
    
    
    
Cash paid during the period for:
    
    
Income taxes
 $40,900 
 $500 
 $37,900 
 $39,700 
Interest
  - 
  400 
  - 
  800 
    
Non-cash financing activities:
    
Issuance of 6,661 shares of the Company's Common Stock in cashless stock option exercises during the three and six months ended December 31, 2019.
    
 
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, 2019. The results for the three and six months ended September 30,December 31, 2019, are not necessarily an indication of the results for the full fiscal year ending June 30, 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.
 
Adopted Accounting Pronouncements
 
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases, which replaces previous lease guidance in its entirety with ASC 842 and requires lessees to recognize lease assets and lease liabilities for those arrangements classified as operating leases under previous guidance, with the exception of leases with a term of twelve months or less. The Company adopted ASU No. 2016-02 on July 1, 2019 using the 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 August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement", which is part of the FASB disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in the new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820, "Fair Value Measurement". The new standard is effective for fiscal years beginning after December 15, 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 all other requirements applied retrospectively to all periods presented. We are currently evaluating the impact of adopting this 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 accordance with ASC Topic 606, the Company 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 Company will collect substantially all of the 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.
 
 7
The following table summarizes the Company’s disaggregation of revenues for the three and six months ended September 30,December 31, 2019 and 2018.
 

 
  Benchtop  Laboratory  Equipment 
 
 
  Catalyst  Research
 Instruments 
 
 
  Bioprocessing  
Systems 
 
 
  Consolidated 
 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing
Systems
 
 
Consolidated
 
September 30, 2019:
 
   
 
Three Months Ended December 31, 2019:
 
 
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $2,004,200 
 $1,943,400 
 $39,500 
 $289,400
 
 $2,272,300 
Foreign Sales
  397,600 
  71,700 
  - 
  469,300 
  855,800 
  10,200 
  289,400
 
  1,155,400 
    
    
September 30, 2018:
    
Three Months Ended December 31, 2018:
    
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $2,038,600 
 $1,803,100 
 $227,200 
 $132,900 
 $2,163,200 
Foreign Sales
  635,700 
  142,300 
  - 
  778,000 
  743,600 
  222,900 
  128,600 
  1,095,100 
 
 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing
Systems
 
 
Consolidated
 
Six Months Ended December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $3,519,600 
 $178,200 
 $578,700
 
 $4,276,500 
Foreign Sales
  1,253,400 
  81,900 
  578,700
 
  1,914,000 
 7
 
Six Months Ended December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $3,495,100 
 $444,600 
 $262,100 
 $4,201,800 
Foreign Sales
  1,379,300 
  365,200 
 257,100
 2,001,600 
Benchtop 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.
 
Catalyst Research Instrument sales are comprised primarily of large instruments which begin with a standard model and 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 can 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 the 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 a period of twelve months for parts and labor which normally consists of replacement of small components or software support. Catalyst research instruments are never returned for repairs.
 
Royalty 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 determines revenue recognition through the following steps:
 
 ●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 FASB, in applying ASC Topic 606: 1) all revenues are recorded net of returns, allowances, customer discounts, and incentives; 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 Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and 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.

 8
 
 
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”Systems Operations”).
 
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, 2019:
 
 
 
Three Months Ended December 31, 2019:
 
 
 
 
 
 
 
 
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $- 
 $2,004,200 
 $1,943,400 
 $39,500 
 $289,400
 $- 
 $2,272,300 
    
    
Foreign Sales
  397,600 
  71,700 
  - 
  469,300 
  855,800 
  10,200 
 289,400
  - 
 1,155,400 
    
    
Income (Loss) From Operations
  12,900 
  (90,200)
  1,800 
  - 
  (75,500)
  179,400 
  (170,400)
  (18,100)
  - 
  (9,100)
    
    
Assets
  5,589,400 
  1,400,900 
  1,088,100 
  784,200 
  8,862,600 
  5,551,100 
  1,166,300 
  1,350,000 
  796,400 
  8,863,800 
    
    
Long-Lived Asset Expenditures
  7,800 
  - 
  16,700 
  - 
  24,500 
  14,100 
  - 
  2,900 
  - 
  17,000 
    
    
Depreciation and Amortization
  30,500 
 400 
  10,100 
  - 
  41,000 
  30,800 
  200 
  10,400 
  - 
  41,400 
 
 
 8

 
 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 December 31, 2018:
 
 
 
 
 
 
 
 
 
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $- 
 $2,038,600 
 $1,803,100 
 $227,200 
 $132,900 
 $- 
 $2,163,200 
    
    
Foreign Sales
  635,700 
  142,300 
  - 
  778,000 
  743,600 
  222,900 
 128,600
  - 
 1,095,100 
    
    
Income (Loss) From Operations
  175,400 
  (62,900)
  63,200 
  - 
  175,700 
  148,600 
  (48,300)
  55,700 
  - 
  156,000 
    
    
Assets
  4,633,500 
  1,343,100 
  623,500 
  709,300 
  7,309,400 
  4,762,000 
  1,376,100 
  727,300 
  693,300 
  7,558,700 
    
    
Long-Lived Asset Expenditures
  2,200 
  - 
  2,200 
  10,800 
  1,200 
  - 
  12,000 
    
    
Depreciation and Amortization
  66,300 
  200 
  9,400 
  - 
  75,900 
  66,400 
  200 
  9,400 
  - 
  76,000 
 
Approximately 36%50% and 49%51% of nettotal benchtop laboratory equipment sales (42% and 42% of Benchtop Laboratory Equipmenttotal revenues) for the three month periods ended September 30,December 31, 2019 and 2018, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.

Approximately 33%24% and 25% of total Benchtop Laboratory Equipmentbenchtop laboratory equipment sales (21% and 21% of total revenues) were derived from the Torbal Scales Division for the three months ended September 30,December 31, 2019 and 2018, respectively.
 
For the three months ended September 30,December 31, 2019 and 2018, respectively, three customers accounted for approximately 23% (both periods)27% and 21% of net sales of the Benchtop Laboratory Equipment Operations (18%(23% and 19%18% 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 one and two customers during the three months ended September 30,December 31, 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%66% and 96% of the Catalyst Research Instrument Operations’ revenues and 9%1% and 10% of the Company’s total revenues,. respectively.
 
 9

 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing
Systems
 
 
Corporate And Other
 
 
Consolidated
 
Six Months Ended December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $3,519,600 
 $178,200 
 $578,700
 $- 
 $4,276,500 
 
    
    
    
    
    
Foreign Sales
  1,253,400 
  81,900 
 578,700
  - 
  1,914,000 
 
    
    
    
    
    
Income (Loss) From Operations
  192,300 
  (260,700)
  (16,200)
  - 
  (84,600)
 
    
    
    
    
    
Assets
  5,551,100 
  1,166,300 
  1,350,000 
  796,400 
  8,863,800 
 
    
    
    
    
    
Long-Lived Asset Expenditures
  21,900 
  - 
  19,600 
  - 
  41,500 
 
    
    
    
    
    
Depreciation and Amortization
  61,300 
  600 
  20,500 
  - 
  82,400 
 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing
Systems
 
 
Corporate And Other
 
 
Consolidated
 
Six Months Ended December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $3,495,100 
 $444,600 
 $262,100 
 $- 
 $4,201,800 
 
    
    
    
    
    
Foreign Sales
  1,379,300 
  365,200 
 257,100
  - 
 2,001,600 
 
    
    
    
    
    
Income (Loss) From Operations
  324,200 
  (111,300)
  118,900 
  - 
  331,800 
 
    
    
    
    
    
Assets
  4,762,000 
  1,376,100 
  727,300 
  693,300 
  7,558,700 
 
    
    
    
    
    
Long-Lived Asset Expenditures
  13,000 
  1,200 
  - 
  - 
  14,200 
 
    
    
    
    
    
Depreciation and Amortization
  132,700 
  400 
  18,800 
  - 
  151,900 
Approximately 43% and 50% total benchtop laboratory equipment sales (36% and 41% of total revenues) for both six month periods ended December 31, 2019 and 2018, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.
Approximately 28% and 25% of total benchtop laboratory equipment sales (23% and 21% of total revenues) were derived from the Torbal Scales Division for both the six months ended December 31, 2019 and 2018, respectively. For the six months ended December 31, 2019 and 2018, respectively, three customers accounted for approximately 25% and 22% of net sales of the Benchtop Laboratory Equipment Operations for both six month periods ended December 31, 2019 and 2018 (21% and 18% of the Company’s total revenues), respectively.
Sales of catalyst 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 three and five customers during the six months ended December 31, 2019 and 2018, accounted for approximately 84% and 90% of the Catalyst Research Instrument Operations’ revenues and 4% and 10% of the Company’s total revenues, respectively.
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.
 
 10

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.
 
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,December 31, 2019 and June 30, 2019 according to the valuation techniques the Company used to determine their fair values:

 
 
 
 
Fair Value Measurements Using Inputs Considered as   
 
 
 
 
Fair Value Measurements Using Inputs Considered as
 
 
 Fair Value at September 30, 2019
 
 
 Level 1 
 
 
 Level 2 
 
 
 Level 3 
 
 
Fair Value at December 31, 2019
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $1,259,700 
 $- 
 $1,044,000 
 $- 
Investment securities
  333,600 
  - 
Investment Securities
  345,200 
  - 
    
    
Total
 $1,593,300 
 $- 
 $1,389,200 
 $- 
    
    
Liabilities:
    
    
    
Contingent consideration
 $618,000 
 $- 
 $618,000 
 $618,000 
 $- 
 $618,000 
 
 
 
 
 
 
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-saleavailable for sale by security type at September 30,December 31, 2019 and June 30, 2019 consisted of the following:
 
 
 Cost 
 
 
 Fair Value 
 
 
 Unrealized Holding Gain (Loss) 
 
At September 30, 2019:
 
 
 
 
 
 
 
 
 
Equity securities
 $71,300 
 $96,500 
 $25,200 
Mutual funds
  246,600 
  237,100 
  (9,500)
 
    
    
    
 
 $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
 
 
Cost
 
 
Fair Value
 
 
Unrealized Holding Gain (Loss)
 
At December 31, 2019:
 
 
 
 
 
 
 
 
 
    Equity securities
 $79,500 
 $109,500 
 $30,000 
Mutual funds
  251,000 
  235,700 
  (15,300)
 
    
    
    
 
 $330,500 
 $345,200 
 $14,700 
 

 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 

 
 1011
 
 
 
 
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
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value, and have been reduced by an allowance for excess and obsolete inventories. The estimate is based on managements review of inventories on hand compared to estimated future usage and sales. Cost of work-in-process and finished goods inventories include material, labor, and manufacturing overhead.
 
 
December 31, 2019
 
 
June 30,2019
 
Raw materials
 $1,927,500 
 $1,738,300 
Work-in-process
  340,400 
  106,400 
Finished goods
  735,900 
  747,600 
 
    
    
 
 $3,003,800 
 $2,592,300 
66.. 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,December 31, 2019 and June 30, 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, 2019: 
 
 
 
At December 31, 2019: 
 
 
 
Technology, trademarks5/10 yrs.
 $663,800 
 $661,800 
 $2,000 
5/10 yrs.
 $663,800 
 $661,800 
 $2,000 
Trade names6 yrs.
  140,000 
  130,300 
 9,700 
6 yrs.
  140,000 
  136,200 
  3,800 
Websites5 yrs.
  210,000 
  - 
5 yrs.
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  311,400 
  45,600 
9/10 yrs.
  357,000 
  314,700 
  42,300 
Sublicense agreements10 yrs.
  294,000 
  231,500 
  62,500 
10 yrs.
  294,000 
  238,900 
  55,100 
Non-compete agreements5 yrs.
  384,000 
  - 
5 yrs.
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  - 
3 yrs.
  110,000 
  - 
Other intangible assets5 yrs.
  229,200 
  186,100 
  43,100 
5 yrs.
  229,200 
  189,200 
  40,000 
    
    
 $2,388,000 
 $2,225,100 
 $162,900 
 $2,388,000 
 $2,244,800 
 $143,200 
 
 
 
Useful Lives
 
 Cost 
 
 
 Accumulated Amortization 
 
 
 Net 
 
At June 30, 2019: 
 
 
 
 
 
 
 
 
 
Technology, trademarks5/10 yrs.
 $663,800 
 $661,700 
 $2,100 
Trade names6 yrs.
  140,000 
  124,400 
  15,600 
Websites5 yrs.
  210,000 
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  308,100 
  48,900 
Sublicense agreements10 yrs.
  294,000 
  224,100 
  69,900 
Non-compete agreements5 yrs.
  384,000 
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  110,000 
  - 
Other intangible assets5 yrs.
  221,700 
  183,200 
  38,500 
 
    
    
    
 
 $2,380,500 
 $2,205,500 
 $175,000 
 12

 
 
Useful
Lives
 
Cost
 
 
Accumulated Amortization
 
 
Net
 
At June 30, 2019: 
 
 
 
 
 
 
 
 
 
Technology, trademarks5/10 yrs.
 $663,800 
 $661,700 
 $2,100 
Trade names6 yrs.
  140,000 
  124,400 
  15,600 
Websites5 yrs.
  210,000 
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  308,100 
  48,900 
Sublicense agreements10 yrs.
  294,000 
  224,100 
  69,900 
Non-compete agreements5 yrs.
  384,000 
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  110,000 
  - 
Other intangible assets5 yrs.
  221,700 
  183,200 
  38,500 
 
    
    
    
 
 $2,380,500 
 $2,205,500 
 $175,000 
 
Total amortization expense was $19,500$19,800 and $61,000$61,300 for the three months ended September 30,December 31, 2019 and 2018, respectively, and $39,300 and $122,300 for the six months ended December 31, 2019 and 2018, respectively. As of September 30,December 31, 2019, estimated future amortization expense related to intangible assets is $51,000$31,200 for the remainder of the fiscal year ending June 30, 2020, $54,300 for fiscal 2021, $31,700 for fiscal 2022, $15,000 for fiscal 2023 and $10,900$11,000 for fiscal 2024.
 
 13
7. IncomeEarnings (Loss) Per Common Share
 
Income (Loss)Earnings (loss) per common share data was computed as follows:
 
 
 For the Three Months Ended
September 30, 2019
 
 
 For the Three Months Ended
September 30, 2018
 
Net income (loss)
 $(56,200)
 $142,000 
 
    
    
Weighted average common shares outstanding
  1,494,212 
  1,494,112 
Effect of dilutive securities
  - 
  3,897 
Weighted average dilutive common shares outstanding
  1,494,212 
  1,498,009 
 
    
    
Basic earnings (loss) per common share
      (.04)
 $.10 
Diluted earnings (loss) per common share
(.04)
 $.09


 
For the Three Month Period Ended
December 31, 2019
 
 
For the Three Month Period Ended
December 31, 2018
 
 
For the Six Month Period Ended
December 31, 2019
 
 
For the Six Month Period Ended
December 31, 2018
 
Net income (loss)
 $3,600 
 $118,400 
 $(52,600)
 $260,500 
 
    
    
    
    
Weighted average common shares outstanding
  1,499,396 
  1,494,112 
  1,496,718 
  1,494,112 
Effect of dilutive securities
  58,330 
  18,839 
  - 
  11,368 
Weighted average dilutive common shares outstanding
  1,557,726 
  1,512,951 
  1,496,718 
  1,505,480 
 
    
    
    
    
Basic earnings (loss) per common share
 $.00 
 $.08 
 $(.04)
 $.17 
Diluted earnings (loss) per common share
 $.00 
 $.08 
 $(.04)
 $.17 
 
Approximately 44,200 and 92,000
During the six months ended December 31, 2019, the company did not include 51,269 dilutive 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, 2019 and 2018, respectively,Common Stock because the effect would be anti-dilutive.anti-dilutive due to the loss during the period.  There were no dilutive shares excluded during the six month period ended December 31, 2018 as well as for the three months periods ended December 31, 2019 and 2018.
 
 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 FebruaryJanuary 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.May 2021. 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.
 
 14

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,December 31, 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,$73,400 and $141,800 for the three and six month periods ended December 31, 2019 of which $68,300 was$74,200 and $142,500 were recorded as leases expense.
 
The Company’s approximate future minimum rental payments under all leases existing at September 30,December 31, 2019 through FebruaryJanuary 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.
Fiscal year ending June 30,
 
Amount
 
Remainder of 2020
 $153,900 
2021
  265,800 
2022
  210,600 
2023
  198,900 
2024
  195,900 
2025
  91,600 
Total future minimum payments
  1,116,700 
Less: Imputed interest
  118,600 
Total Present Value of Operating Lease Liabilities
  998,100 
 
 
  12
 15
 

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.
Overview.The Company reflected income before income tax expense of $3,000 for the three months ended December 31, 2019 compared to $148,800 for the three months ended December 31, 2018, primarily due to lower sales for Catalyst Instruments during the quarter, and significantly higher operating expenses for the Bioprocessing Systems Operations, partially offset by increased sales for the Benchtop Laboratory Equipment Operations. The Company reflected a loss before income tax expensebenefit of $75,700$72,700 for the threesix months ended September 30,December 31, 2019 compared to income before income tax expense of $177,500$326,400 for the threesix months ended September 30,December 31, 2018 primarily from the result of decreased revenues and gross marginsdue to lower sales for the Benchtop Laboratory Equipment Operations resulting from reduced orders from Asia, primarily China, and increased 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.Operations and increased operating expenses for the Bioprocessing Systems Operations. In the last quarter of the Company’s fiscal year ended June 30, 2019, the Company began to invest in its Bioprocessing Systems Operations with staffing, facilities, and new product development. The results reflected total non-cash amounts for depreciation and amortization of $41,400 $41,000and $82,400 for the three and $75,900six month periods ended December 31, 2019 compared to $76,000 and $151,900 for the corresponding three months ended September 30, 2019 and 2018, respectively.six month periods in 2018.
 
Results of Operations.Operations
The Three Months Ended December 31, 2019 Compared With The Three Months Ended December 31, 2018
Net revenues for the three months ended September 30,December 31, 2019 decreased $34,400 (1.7%increased $109,100 (5.0%) to $2,004,200$2,272,300 from $2,038,600$ 2,163,200 for the three months ended September 30,December 31, 2018, reflecting increased earned royalties of $156,500 by the Bioprocessing Systems Operations, increased sales of benchtop laboratory equipment of $140,300, partially offset by a decrease of $115,700 (6.8%)$187,700 decrease in net sales of Benchtop Laboratory Equipment primarily due to sales of its Genie brand products to Asia, particularly China.catalyst research instruments. The Benchtop Laboratory Equipmentbenchtop laboratory equipment sales reflected $522,400$476,100 and $458,700 of Torbal brand product gross sales for the three months ended September 30,December 31, 2019 compared to $425,300 in the three months ended September 30,and 2018, as a result of continued growth in sales of the new force gauges product line. Sales of Catalyst Research Instruments decreased by $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 due to low order input during the period. respectively.
As of September 30,December 31, 2019, the order backlog for Catalyst Research Instrumentscatalyst research instruments was $173,500,$516,800, substantially all of which is expected to be shipped during the fiscal year ending June 30, 2020, compared to $329,400$617,400 as of September 30,December 31, 2018. Revenues derived from the Bioprocessing Systems Operations which are comprised primarily of net royalties accrued from sublicenses increased by $160,100 (123.9%) to $289,300
The overall gross profit percentage for the three months ended September 30,December 31, 2019 increased to 48.0% compared to $129,20045.1% for the three months ended September 30, 2018 due to increased royalties on Europe sales.
December 31, 2018. The gross profit percentage on a combined basis was 48.9% forBenchtop Laboratory Equipment Operations reflected lower overhead cost during the three months ended September 30,December 31, 2019 compared to 46.4% for the three months ended September 30,December 31, 2018. However,The gross margins for the Benchtop Laboratory Equipment Operations were affected by higher component costs impacted by tariffs and the gross profit percentage for the Catalyst Research Instruments Operations was lowernegative during the three months ended December 31, 2019 compared to the three months ended December 31, 2018 due to decreasedlow sales during the period and high overhead.quarter.
 
General and administrative expenses for the three months ended September 30,December 31, 2019 increased by $93,700 (22.5%$48,000 (10.4%) to $510,200$510,100 compared to $416,500$462,100 for the three months ended September 30,December 31, 2018, mainly due to staffing and other administrative costs incurred by the ramp up in Scientific Bioprocessing Operations, and various other corporate expenses.Systems Operations.
 
Selling expenses for the three months ended September 30,December 31, 2019 increased $73,000 (30.9%$82,300 (33.2%) to $309,100$330,500 from $236,100$248,200 for the three months ended September 30,December 31, 2018, primarily due to increased market research andnew marketing activities byexpenses for the Bioprocessing Systems Operations, increased sales expenses by the Catalyst Research Instruments Operations and to a lesser extent increased marketing byonline advertising expenses for the Benchtop Laboratory Equipment Operations.
 
Research and development expenses increased by $119,200 (101.5%$150,600 (137.7%) to $236,600$260,000 for the three months ended September 30,December 31, 2019 compared to $117,400$109,400 for the three months ended September 30,December 31, 2018, mainlyprimarily due to the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing, facilities, and materials.
 
Total other income (expense), net was $12,100 for the three months ended December 31, 2019 compared to ($7,200) for the three months ended December 31, 2018 due to increased interest and dividend income generated from investment securities.
The Company reflected an income tax benefit of $19,500$600 for the three months ended September 30,December 31, 2019 compared to an income tax expense of $35,500$30,400 for the three months ended SeptemberDecember 31, 2018 due to much lower income.
 16


As a result of the foregoing, the Company recorded net income of $3,600 for the three months ended December 31, 2019 compared to $118,400 for the three months ended December 31, 2018.
The Six Months Ended December 31, 2019 Compared With The Six Months Ended December 31, 2018
Net revenues for the six months ended December 31, 2019 increased $74,700 (1.8%) to $4,276,500 from $4,201,800 for the six months ended December 31, 2018, reflecting an increase of $316,600 in earned royalties by the Bioprocessing Systems Operations, $24,500 increase in net sales of benchtop laboratory equipment, partially offset by a $266,400 decrease in net sales of catalyst research instruments. The benchtop laboratory equipment sales reflected $998,500 of Torbal brand product gross sales for the six months ended December 31, 2019, compared to $884,000 in the six months ended December 31, 2018. The increase in royalty revenues is due to the expectation of continued increased royalties from sublicenses. The Benchtop Laboratory Equipment Operations’s sales growth slowed due to slower order input from Asian markets, particularly China, and softer sales in Europe and Middle East. The Catalyst Research Instruments Operations suffered from low order input in the beginning of the year, particularly from China, however, the Company appointed a new China sales representative in China at the end of the period as well as several other sales representatives around the world. As of December 31, 2019, the order backlog for catalyst research instruments was $516,800, substantially all of which is expected to be shipped during fiscal year ending June 30, 2020, compared to $617,400 as of December 31, 2018.
The overall gross profit percentage for the six months ended December 31, 2019 was 48.4% compared to 45.7% for the six months ended December 31, 2018. The Benchtop Laboratory Equipment Operations reflected lower overhead cost during the six months ended December 31, 2019 compared to the six months ended December 31, 2018. The gross profit for the Catalyst Research Instruments was negative during the six months ended December 31, 2019 compared to the six months ended December 31, 2018 due to low sales during the current six month period.
General and administrative expenses for the six months ended December 31, 2019 increased $141,700 (16.1%) to $1,020,300 from $878,600 for the six months ended December 31, 2018 due to staffing and other administrative costs incurred by the Bioprocessing Systems Operations and legal and other corporate expenses related to strategic initiatives.
Selling expenses for the six months ended December 31, 2019 increased $155,300 (32.1%) to $639,600 from $484,300 for the six months ended December 31, 2018, mainly due to new marketing expenses for the Bioprocessing Systems Operations, increased sales expenses by the Catalyst Research Instruments Operations and increased online advertising expenses for the Benchtop Laboratory Equipment Operations.
Research and development expenses increased by $269,900 (119.1%) to $496,600 for the six months ended December 31, 2019 compared to $226,700 for the six months ended December 31, 2018, primarily due to to the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing, facilities, and materials.
Total other income (expense), net was $11,900 for the six months ended December 31, 2019 compared to ($5,400) for the six months ended December 31, 2018 principally due to increased interest income on investments, compared to realized losses on investment securities in the prior year period.
The Company reflected income tax benefit of $20,100 for the six months ended December 31, 2019 compared to $65,900 income tax expense for the six months ended December 31, 2018, primarily due to the loss generated during the three months ended September 30, 2019.current year period compared to income in the prior year period.
 
As a result of the foregoing, the Company recorded a net loss of $56,200$52,600 for the threesix months ended September 30,December 31, 2019 compared to net income of $142,000$260,500 for the threesix months ended September 30,December 31, 2018.
 
Liquidity and Capital Resources. Cash and cash equivalents decreased by $342,800$558,500 to $1,259,700$1,044,000 as of September 30,December 31, 2019 from $1,602,500 as of June 30, 2019.2019 primarily due to the loss during the period, increased investment in the Bioprocessing Systems Operations, and increased inventories, particularly for a new product of the Benchtop Laboratory Equipment Operations.
 
Net cash used in operating activities was $324,100$514,100 for the threesix months ended September 30,December 31, 2019 compared to net cash provided by operating activities of $460,700$397,300 during the threesix months ended September 30, 2018,December 31, 2018. The net cash used was primarily as a result of the loss incurred for the current year period. period and higher inventories.  Net cash used in investing activities was $25,700$51,400 for the threesix months ended September 30,December 31, 2019 compared to $4,900$14,300 used during thethree six months ended September 30,December 31, 2018 principally due to newan increased capital equipment purchased during the current periodpurchases by the Benchtop Laboratory Equipment Operations. and the Bioprocessing Systems Operations during the current period.  The Company received proceeds ofprovided $7,000 in financing activities in the threesix months ended September 30,December 31, 2019 compared to a loss of  $1,600$78,000 used in the threesix months ended September 30,December 31, 2018 mainly due to the exercise of stock optionsa cash dividend payment in the current year.
 13
prior year.
 
The Company's working capital decreased by $203,500$65,700 to $4,802,300$4,940,100 as of September 30,December 31, 2019 compared to $5,005,800, as of June 30, 2019 mainly due to the loss generated during the period.
 
The Company has a Demand Line of Credit through December 20192020 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 4.75%. currently. 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,December 31, 2019, 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,December 31, 2020 from its available financial resources including the lines of credit, its cash and investment securities, and operations. Commencingoperations, unless there is a material reduction in the fourth quarter of the fiscal year ended June 30, 2019, the Company began committing significant resourcesits cash inflows including expected royalty streams, or a material increase in expenditures 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.Operations.
 
 1417

 
ItemItem 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
Item 5. Other Information
 
Scientific Bioprocessing, Inc. a wholly-owned subsidiary of the Company, has entered into a monthly retainer agreement effective as of January 1, 2020 through December 31, 2020 with Mr. Joseph G. Cremonese, a Director since November 2002, through his affiliate, Laboratory Innovation Company, Ltd.  The agreement provides for consulting services as to  the operations of Scientific Bioprocessing, Inc. at a monthly fee of $9,000 plus the issuance of 20,000 stock options to Mr. Cremonese.  The agreement incorporates non-competition and confidentiality clauses.
Item 6. Exhibits and Reports on Form 8-KReportsForm 8-K.
 
Exhibit Number
Description
31.31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10 (d)-12
Monthly Retainer Agreement between the Company and Mr. Joseph Cremonese and affiliates
 
Reports on Form 8-K:
 
NoneReport dated December 11, 2019 reporting under item 1.01.
 
 
 
 1518
 
 
   SIGNATURE


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 14, 2019February 13, 2020
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
 
/s/ Helena R. Santos
 
 
Helena R. Santos
President, Chief Executive Officer,
Treasurer
Chief Financial and Treasurer
Principal Accounting Officer
 
 
 
 
 
 

  1619