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, 20192020
 
 ☐ 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.
 
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, 2019November 6, 2020 is 1,496,1122,861,263 shares.
 

 
 
 
SCIENTIFIC INDUSTRIES, INC.
 
Table of Contents
 
PART I - Financial Information 
   
Item 1.
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' Equity 54
   
 Condensed Consolidated Statements of Cash Flows65
   
 Notes to Unaudited Condensed Consolidated Financial Statements76
   
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS13
   
Item 4.
CONTROLS AND PROCEDURES1514
PART II - Other Information
   
PART II - Other InformationItem 6.
EXHIBITS AND REPORTS ON FORM 8-K14
   
Item 6.
EXHIBITS AND REPORTS ON FORM 8-K15
SIGNATURE
 1615
 
 
 
 

PART I – FINANCIAL INFORMATION
 
IItemtem 1. Financial Statements
 
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
  September 30, 2019
 
 
  June 30, 2019
 
 
September 30, 2020
 
 
June 30, 2020
 
Current assets:
 
  (Unaudited)  
 
 
   
 
 
(Unaudited)
 
 
 
 
Cash and cash equivalents
 $1,259,700 
 $1,602,500 
 $3,355,500 
 $7,559,700 
Investment securities
  333,600 
  330,900 
  4,017,700 
  331,800 
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 September 30, 2020
and June 30, 2020
  1,171,300 
  1,064,000 
Inventories
  2,713,100 
  2,592,300 
  2,941,200 
  2,884,700 
Income tax receivable
  331,500 
  334,800 
Prepaid expenses and other current assets
  93,500 
  91,200 
  134,700 
  112,300 
Total current assets
  6,267,700 
  6,591,100 
  11,951,900 
  12,287,300 
    
    
Property and equipment, net
  314,400 
  318,800 
  325,200 
  279,700 
    
    
Intangible assets, net
  162,900 
  175,000 
  129,000 
  128,700 
    
    
Goodwill
  705,300 
  705,300 
    
    
Other assets
  59,200 
  54,700 
  57,900 
  56,000 
    
    
Deferred taxes
  450,600 
  431,100 
  598,200 
  537,100 
    
    
Operating lease right-of-use assets
  902,500 
  - 
  826,600 
  803,300 
    
    
Total assets
 $8,862,600 
 $8,276,000 
 $14,594,100 
 $14,797,400 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
   
 
 
 
 
Accounts payable
 $457,200 
 $569,000 
 $531,900 
 $354,700 
Accrued expenses and taxes
  437,700 
  608,300 
Accrued expenses
  538,000 
  799,700 
Contract liabilities
  62,000 
  - 
  82,700 
  89,000 
Contingent consideration, current portion
  268,000 
  97,600 
  111,000 
Bank overdraft
  9,400 
  140,000 
  109,400 
  43,100 
Current portion of operating lease liabilities
  231,100 
  - 
  161,300 
  226,900 
Payroll Protection Program loan
  563,800 
Total current liabilities
  1,465,400 
  1,585,300 
  2,084,700 
  2,188,200 
Contingent consideration payable, less current portion
  350,000 
  247,000 
Operating lease liabilities, less current portion
  738,000 
  - 
  743,000 
  640,800 
    
    
Total liabilities
  2,553,400 
  1,935,300 
  3,074,700 
  3,076,000 
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 
Common stock, $.05 par value; 7,000,000 shares authorized; 2,881,065 shares issued; 2,861,263 shares outstanding at September 30, 2020 and June 30, 2020
  144,100 
Additional paid-in capital
  2,617,300 
  2,592,700 
  8,669,600 
  8,608,300 
Retained earnings
  3,668,500 
  3,724,700 
  2,758,100 
  3,021,400 
  6,361,600 
  6,393,100 
  11,571,800 
  11,773,800 
Less common stock held in treasury at cost, 19,802 shares
  52,400 
  52,400 
    
    
Total shareholders’ equity
  6,309,200 
  6,340,700 
  11,519,400 
  11,721,400 
    
    
Total liabilities and shareholders’ equity
 $8,862,600 
 $8,276,000 
 $14,594,100 
 $14,797,400 
See notes to unaudited condensed consolidated financial statements.
 
 
 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 
 
 
For the Three Month Period Ended September 30, 2020
 
 
For the Three Month Period Ended September 30, 2019
 
 
   
 
 
 
 
Revenues
 $2,004,200 
 $2,038,600 
 $2,156,300 
 $2,004,200 
    
    
Cost of revenues
  1,023,800 
  1,092,900 
  1,146,600 
  1,023,800 
    
    
Gross profit
  980,400 
  945,700 
  1,009,700 
  980,400 
    
    
Operating expenses:
    
    
General and administrative
  510,200 
  416,500 
  579,600 
  510,200 
Selling
  309,100 
  236,100 
  521,700 
  309,100 
Research and development
  236,600 
  117,400 
  244,300 
  236,600 
    
    
Total operating expenses
  1,055,900 
  770,000 
  1,345,600 
  1,055,900 
    
    
Income (loss) from operations
  (75,500)
  175,700 
Loss from operations
  (335,900)
  (75,500)
    
    
Other income (expense):
    
    
Other income (expense), net
  (200)
  2,200 
  11,500 
  (200)
Interest expense
  - 
  (400)
    
    
Total other income (expense), net
  (200)
  1,800 
Loss before income tax benefit
  (324,400)
  (75,700)
    
    
Income (loss) before income tax expense (benefit)
  (75,700)
  177,500 
    
Income tax expense (benefit):
    
Income tax benefit:
    
Current
  - 
  29,500 
  - 
Deferred
  (19,500)
  6,000 
  (61,100)
  (19,500)
    
    
Total income tax expense (benefit)
  (19,500)
  35,500 
Total income tax benefit
  (61,100)
  (19,500)
    
    
Net income (loss)
 $(56,200)
 $142,000 
Net loss
 $(263,300)
 $(56,200)
    
    
Basic earnings (loss) per common share
 $(.04)
 $.10 
Basic loss per common share
 $(.09)
 $(.04)
    
    
Diluted earnings (loss) per common share
 $(.04)
 $.09 
Diluted loss per common share
 $(.09)
 $(.04)
See notes to unaudited condensed consolidated financial statements.

  3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2021
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Shares
 
 
Amount
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2020
  2,881,065 
 $144,100 
 $8,608,300 
 $3,021,400 
  19,802 
 $52,400 
 $11,721,400 
 
    
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  (263,300)
  - 
  - 
  (263,300)
 
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  61,300 
  - 
  - 
  - 
  61,300 
Balance, September 30, 2020
  2,881,065 
 $144,100 
 $8,669,600 
 $2,758,100 
  19,802 
 $52,400 
 $14,594,100 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
Paid-in
 
 
Retained
 
 
Treasury Stock
 
 
Shareholders’
 
Fiscal Year 2019
 
Shares
 
 
Amount
 
 
Capital
 
 
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 

  4
SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
For the Three Month Period Ended
September 30, 2020
 
 
For the Three Month Period Ended
September 30, 2019
 
Operating activities:
 
 
 
 
 
 
Net loss
 $(263,300)
 $(56,200)
Adjustments to reconcile net loss to net
cash used in operating activities:
    
    
Depreciation and amortization
  40,600 
  41,000 
Deferred income taxes
  (61,100)
  (19,500)
Stock-based compensation
  61,300 
  17,700 
(Gain) loss on sale of investments
  (16,800)
  800 
Unrealized holding (gain) loss of investments
  20,900 
  (2,300)
Changes in operating assets and liabilities:
    
    
Trade accounts receivable
  (107,300)
  106,400 
Income tax receivable
  3,300 
  - 
Right -of- use assets
  (23,300)
  (902,500)
Lease liability
  36,600 
  969,100 
Inventories
  (56,500)
  (120,800)
Prepaid and other assets
  (24,300)
  (6,800)
Accounts payable
  177,200 
  (111,800)
Contract liabilities
  (6,300)
  62,000 
Bank overdraft
  66,300 
  - 
Accrued expenses
  (261,700)
  (301,200)
 
    
    
Total adjustments
  (151,100)
  (267,900)
 
    
    
Net cash used in operating activities
  (414,400)
  (324,100)
 
    
    
Investing activities:
    
    
Purchase of investment securities
  (3,723,500)
  (25,000)
Redemption of investment securities
  33,800 
  23,800 
Capital expenditures
  (70,500)
  (17,000)
Purchase of other intangible assets
  (16,200)
  (7,500)
 
    
    
Net cash used in investing activities
  (3,776,400)
  (25,700)
 
    
    
Financing activities:
    
    
Proceeds from stock options exercised
  - 
  7,000 
Payments of contingent consideration
  (13,400)
  - 
 
    
    
Net cash provided by (used in) financing activities
  (13,400)
  7,000 
 
    
    
Net decrease in cash and cash equivalents
  (4,204,200)
  (342,800)
 
    
    
Cash and cash equivalents, beginning of year
  7,559,700 
  1,602,500 
 
    
    
Cash and cash equivalents, end of period
 $3,355,500 
 $1,259,700 
 
    
    
Supplemental disclosures:
    
    
 
    
    
Cash paid during the period for:
    
    
Income taxes
 $500 
 $40,900 
Interest
  - 
  - 
 
See notes to unaudited condensed consolidated financial statements.
 
 
 35
 
 
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 
 
 
 
   
 
 
   
 
Net income (loss)
 $(56,200)
 $142,000 
 
    
    
Other comprehensive loss:
    
    
Unrealized holding loss
    
    
arising during period,
    
    
net of tax
  - 
  (18,100)
 
    
    
Comprehensive income (loss)
 $(56,200)
 $123,900 
See notes to unaudited condensed consolidated financial statements.
  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,  2019
 
 
 For the Three Month Period Ended
September 30,  2018
 
Operating activities:
 
 
 
 
 
 
Net income (loss)
 $(56,200)
 $142,000 
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
    
    
Depreciation and amortization
  41,000 
  75,900 
Deferred income taxes
  (19,500)
  6,000 
Stock-based compensation
  17,700 
  8,700 
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 
Contract assets, current
  - 
  211,100 
Right -of- use assets
  (902,500)
  - 
Lease liability
  969,100 
  - 
Inventories
  (120,800)
  (33,100)
Prepaid and other assets
  (6,800)
  (33,500)
Accounts payable
  (111,800)
  (65,400)
Contract liabilities
  62,000 
  12,100 
Accrued expenses and taxes
  (301,200)
  (115,800)
 
    
    
Total adjustments
 (267,900)
  318,700 
 
    
    
Net cash provided by (used in) operating activities
  (324,100)
  460,700 
 
    
    
Investing activities:
    
    
Purchase of investment securities
  (25,000)
  (75,200)
Redemption of investment securities
  23,800 
  72,500 
Capital expenditures
  (17,000)
  (900)
Purchase of other intangible assets
  (7,500)
  (1,300)
 
    
    
Net cash used in investing activities
  (25,700)
  (4,900)
 
    
    
Financing activities:
    
    
Proceeds from stock options exercised
  7,000 
  - 
Principal payments on notes payable
  - 
  (1,600)
 
    
    
   Net cash provided by (used in) financing activities
  7,000 
  (1,600)
 
    
    
Net increase (decrease) in cash and cash equivalents
  (342,800)
  454,200 
 
    
    
Cash and cash equivalents, beginning of year
  1,602,500 
  1,053,100 
 
    
    
Cash and cash equivalents, end of period
 $1,259,700 
 $1,507,300 
 
    
    
Supplemental disclosures:
    
    
 
    
    
Cash paid during the period for:
    
    
Income taxes
 $40,900 
 $500 
Interest
  - 
  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, 2019.2020. The results for the three months ended September 30, 2019,2020, are not necessarily an indication of the results for the full fiscal year ending June 30, 2020.2021.
 
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.
 
COVID-19 Pandemic
The challenges posed by the COVID-19 pandemic on the global economy began to impact the Company’s operations at the end of the third quarter of the year ended June 30, 2020.  At that time, the Company took appropriate action and put plans in place to diminish the effects of COVID-19 on its operations, enabling the Company to continue to operate with minor or temporary disruptions to its operations. The Company took immediate action as it pertains to COVID-19 preparedness by implementing the Center for Disease Control’s guidelines for employers in order to protect the Company’s employees’ health and safety, with actions such as implementing work from home, social distancing in the workplace, requiring self -quarantine for any employee showing symptoms, wearing face coverings, and training employees on maintaining a healthy work environment. However, if an employee becomes infected in the future, and the Company is forced to shut down for a period of time, it could have a short-term negative impact on operations. At the beginning of the pandemic, the Catalyst Research Instruments and Bioprocessing Systems Operations were shut down due to state mandates, however, the impact on operations was immaterial, and the Company has been able to retain its employees without furloughs or layoffs, in part, due to the Company’s receipt of a $563,800 loan under the Federal Government’s Paycheck Protection Program. The Company has not experienced and does not anticipate any material impact on its ability to collect its accounts receivable due to the nature of its customers, which are primarily distributors of laboratory equipment and supplies that have the ability to pay. However, there were some delays in receiving some accounts receivable due for catalyst research instruments due to customer shutdowns, and there was a material negative impact on the revenues of the Catalyst Research Instruments operations. The Company has not experienced and does not anticipate any material impairment to its tangible and intangible assets, system of internal controls, supply chain, or delivery and distribution of its products as a result of COVID-19, however the ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration or worsening of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.
Adopted Accounting Pronouncements
 
In February 2016,August 2018, the The Financial Accounting Standards Board ("FASB"(“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".Measurement." The new standard iswas effective for fiscal years beginning after December 15, 2019. Early adoption iswas 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 areThe adoption of this standard on July 1, 2020 did not have a material impact on the Company’s financial statements. 
RRecent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years; this ASU allows for early adoption in any interim period after issuance of the update. The Company is currently evaluating the impact of adopting this guidance.guidance.
 
 6

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 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.
 
The following table summarizes the Company’s disaggregation of revenues for the three months ended September 30, 20192020 and 2018.2019.
 

 
  Benchtop  Laboratory  Equipment 
 
 
  Catalyst  Research
 Instruments 
 
 
  Bioprocessing  
Systems 
 
 
  Consolidated 
 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing
Systems
 
 
Corporate
And
Other
 
 
Consolidated
 
September 30, 2019:
 
   
 
Three Months Ended
September 30, 2020:
 
 
 
 
 
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $2,004,200 
 $1,930,300 
 $137,100 
 $88,900 
 $- 
 $2,156,300 
    
Foreign Sales
  397,600 
  71,700 
  - 
  469,300 
  631,900 
  57,200 
  86,300 
  - 
  775,400 
    
September 30, 2018:
    
Revenues
 $1,691,900 
 $217,500 
 $129,200 
 $2,038,600 
Foreign Sales
  635,700 
  142,300 
  - 
  778,000 
 
 
 
Benchtop Laboratory Equipment
 
 
Catalyst Research Instruments
 
 
Bioprocessing Systems
 
 
Corporate
And
Other
 
 
Consolidated
 
Three Months Ended
September 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $- 
 $2,004,200 
 
    
    
    
    
    
Foreign Sales
  397,600 
  71,700 
  - 
  - 
  469,300 
 7
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 days, 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 comprisedfor a period of, one to two years offor 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 the fulfillment of 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
 7
 
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.
 
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, 2019:
 
 
 
Three Months Ended
September 30, 2020:
 
 
 
 
 
 
 
 
 
Revenues
 $1,576,200 
 $138,700 
 $289,300 
 $- 
 $2,004,200 
 $1,930,300 
 $137,100 
 $88,900 
 $- 
 $2,156,300 
    
    
Foreign Sales
  397,600 
  71,700 
  - 
  469,300 
  631,900 
  57,200 
  86,300 
  - 
  775,400 
    
    
Income (Loss) From Operations
  12,900 
  (90,200)
  1,800 
  - 
  (75,500)
  383,800 
  (135,200)
  (532,300)
  (52,200)
  (335,900)
    
    
Assets
  5,589,400 
  1,400,900 
  1,088,100 
  784,200 
  8,862,600 
  5,871,900 
  996,000 
  775,700 
  6,950,500 
  14,594,100 
    
    
Long-Lived Asset Expenditures
  7,800 
  - 
  16,700 
  - 
  24,500 
  21,800 
  - 
  64,900 
  - 
  86,700 
    
    
Depreciation and Amortization
  30,500 
 400 
  10,100 
  - 
  41,000 
  26,300 
  300 
  14,000 
  - 
  40,600 
 
 
 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
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 
 
Approximately 36%47% and 49%36% of net sales of Benchtop Laboratory Equipment for the three month periods ended September 30, 20192020 and 2018,2019, respectively, were derived from the Company’s main product, the Vortex-Genie 2 mixer, excluding accessories.

Approximately 33%27% and 25%33% of total Benchtop Laboratory Equipment sales were derived from the Torbal Scales Division for the three months ended September 30, 2020 and 2019, and 2018, respectively.
For the three months ended September 30, 20192020 and 2018,2019, respectively, three customers accounted for approximately 23% (both periods) of net sales of the Benchtop Laboratory Equipment Operations (18%(21% and 19%18% of the Company’s total revenues). Sales of Catalyst Research Instruments are generally comprisecomprised of 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, 20192020 accounted for approximately 90%88% of the Catalyst Research Instruments Operations revenues and 6% of the Company’s total revenues. Sales to threetwo other customers during the three months ended September 30, 20182019 accounted for approximately 83%90% of the Catalyst Research Instrument Operations’ revenues and 9%6% of the Company’s total revenues.
 
 8
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.
 
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, 20192020 and June 30, 20192020 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 September 30, 2020
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $1,259,700 
 $- 
 $3,355,500 
 $- 
Investment securities
  333,600 
  - 
  4,017,700 
  - 
    
    
Total
 $1,593,300 
 $- 
 $7,373,200 
 $- 
    
    
Liabilities:
    
    
Contingent consideration
 $618,000 
 $- 
 $618,000 
 $344,600 
 $- 
 $344,600 
 
 
 
 
 
  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 
Payments amounting to $13,400 for contingent consideration were made during the three months ended September 30, 2020.
 
 
 
 
 
  Fair Value Measurements Using Inputs Considered as
 
 
 
Fair Value at June 30, 2020
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $7,559,700 
 $7,559,700 
 $- 
 $- 
Investment securities
  331,800 
  331,800 
  - 
  - 
 
    
    
    
    
Total
 $7,891,500 
 $7,891,500 
 $- 
 $- 
 
    
    
    
    
Liabilities:
    
    
    
    
Contingent consideration
 $358,000 
 $- 
 $- 
 $358,000 
 9
 
Investments in marketable securities classified as available-for-sale by security type at September 30, 20192020 and June 30, 20192020 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 September 30, 2020:
 
 
 
 
 
 
 
 
 
Equity securities
 $110,800 
 $118,400 
 $7,600 
Mutual and bond funds
  3,876,200 
  3,899,300 
  23,100 
 
    
    
    
 
 $3,987,000 
 $4,017,700 
 $30,700 
 

 
 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)
 
 
 
Cost
 
 
Fair Value
 
 
Unrealized Holding Gain (Loss)
 
At June 30, 2020:
 
 
 
 
 
 
 
 
 
Equity securities
 $77,600 
 $101,900 
 $24,300 
Mutual funds
  250,300 
  229,900 
  (20,400)
 
    
    
    
 
 $327,900 
 $331,800 
 $3,900 
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
 
 
September 30,2020
 
 
June 30,2020
 
Raw materials
 $1,883,500 
 $1,838,500 
Work-in-process
  323,500 
  228,600 
Finished goods
  734,200 
  817,600 
 
 $2,941,200 
 $2,884,700 
 
 
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, 20192020 and June 30, 2019,2020, 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 September 30, 2020: 
 
 
 
Technology, trademarks5/10 yrs.
 $663,800 
 $661,800 
 $2,000 
5/10 yrs.
 $664,700 
 $662,000 
 $2,700 
Trade names6 yrs.
  140,000 
  130,300 
 9,700 
6 yrs.
  140,000 
  - 
Websites5 yrs.
  210,000 
  - 
5 yrs.
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  311,400 
  45,600 
9/10 yrs.
  357,000 
  324,800 
  32,200 
Sublicense agreements10 yrs.
  294,000 
  231,500 
  62,500 
10 yrs.
  294,000 
  260,900 
  33,100 
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.
  262,700 
  201,700 
  61,000 
    
    
 $2,388,000 
 $2,225,100 
 $162,900 
 $2,422,400 
 $2,293,400 
 $129,000 

 10
 
 
Useful Lives
 
 Cost 
 
 
 Accumulated Amortization 
 
 
 Net 
 
Useful Lives
 
Cost
 
 
Accumulated Amortization
 
 
Net
 
At June 30, 2019: 
 
 
 
At June 30, 2020: 
 
 
 
Technology, trademarks5/10 yrs.
 $663,800 
 $661,700 
 $2,100 
5/10 yrs.
 $664,700 
 $662,000 
 $2,700 
Trade names6 yrs.
  140,000 
  124,400 
  15,600 
6 yrs.
  140,000 
  - 
Websites5 yrs.
  210,000 
  - 
5 yrs.
  210,000 
  - 
Customer relationships9/10 yrs.
  357,000 
  308,100 
  48,900 
9/10 yrs.
  357,000 
  321,400 
  35,600 
Sublicense agreements10 yrs.
  294,000 
  224,100 
  69,900 
10 yrs.
  294,000 
  253,600 
  40,400 
Non-compete agreements5 yrs.
  384,000 
  - 
5 yrs.
  384,000 
  - 
IPR&D3 yrs.
  110,000 
  - 
3 yrs.
  110,000 
  - 
Other intangible assets5 yrs.
  221,700 
  183,200 
  38,500 
5 yrs.
  246,600 
  196,600 
  50,000 
    
    
 $2,380,500 
 $2,205,500 
 $175,000 
 $2,406,300 
 $2,277,600 
 $128,700 
 
Total amortization expense was $19,500$15,800 and $61,000$19,500 for the three months ended September 30, 20192020 and 2018,2019, respectively. As of September 30, 2019,2020, estimated future amortization expense related to intangible assets is $51,000$44,000 for the remainder of the fiscal year ending, June 30, 2020, $54,300 for fiscal 2021, $31,700$36,800 for fiscal 2022, $15,000$20,200 for fiscal 2023, and $10,900$16,400 for fiscal 2024.2024 and $11,600 for fiscal 2025.
 
7. Income (Loss)Loss Per Common Share
 
Income (Loss)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 Months Ended September 30, 2020
 
 
For the Three Months Ended September 30, 2019
 
Loss
 $(263,300)
 $(56,200)
 
    
    
Weighted average common shares outstanding
  2,861,263 
  1,494,212 
 
    
    
Basic loss per common share
  (.09)
  (.04)
Diluted loss per common share
  (.09)
  (.04)
 
Approximately 44,200126,700 and 92,0001,349,850 shares of the Company's common stock issuable upon the exercise of options and warrants, respectively, were excluded from the calculation because the effect would be anti-dilutive due to the loss for the three months ended September 30, 2020. Approximately, 44,200 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, because the effect would bethey were anti-dilutive.
 
 11
  
8. Leases
 
On July 1, 2019 theThe Company adopted the new accounting pronouncement as it relates to its leases which requires a lessee to recognizerecognizes 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.term.
 
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 on a month to month basis thereafter, and another facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through November 2020. In addition, the Company hadMay 2023, and a leasesales and administration office in Orangeburg, New York 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.
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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, 2019,2020, the weighted-average remaining lease term for operating lease liabilities was approximately 43.5 years and the weighted-average discount rate was 5.0%. Total cash payments under these leases were $68,400,$78,600, of which $68,300$78,800 was recorded as leases expense.
 
The Company’s approximate future minimum rental payments under all leases existing at September 30, 20192020 through February 2025 are as follows:
 
Fiscal year ending June 30,
 
Amount   (1)
 
 
 
Amount
 
Remainder of 2020
 $208,800 
 
2021
  222,500 
 
Remainder of 2021
 $204,200 
2022
 184,600 
 
  260,300 
2023
  190,200 
 
  245,300 
2024
  195,900 
 
  195,900 
2025
  91,600 
 
  91,600 
    
Total future minimum payments
 1,093,600
 
  997,300 
Less: Imputed interest
  124,500 
 
  93,000 
    
Total Present Value of Operating Lease Liabilities
  969,100 
 
  904,300 
  
(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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IItemtem 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 expensebenefit of $75,700$324,400 for the three months ended September 30, 2020 compared to a loss before income tax benefit of $75,500 for the three months ended September 30, 2019, comparedprimarily due to increased operating expenses incurred by the Company’s Bioprocessing Systems Operations, partially offset by increased income before tax expense of $177,500 for the three months ended September 30, 2018, primarily from the result of decreased revenues and gross margins for the Benchtop Laboratory Equipment Operations resulting from reducedincreased orders from Asia, primarily China,for its Genie™ brand products. The Bioprocessing Systems Operations continues to expand its operations with additional personnel 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 investmentinfrastructure and investing 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 depreciationsales and amortization of $41,000 and $75,900 for the three months ended September 30, 2019 and 2018, respectively.marketing.
 
Results of Operations. Net revenues for the three months ended September 30, 2019 decreased $34,400 (1.7%2020 increased $152,100 (7.6%) to $2,004,200$2,156,300 from $2,038,600$2,004,200 for the three months ended September 30, 2018,2019, reflecting a decreasean increase of $115,700 (6.8%$354,100 (22.5%) decrease in net sales of Benchtop Laboratory Equipment primarily due to sales of its Genie brand products, to Asia, particularly China.which are used in COVID related research and testing. The Benchtop Laboratory Equipment sales reflected $522,400$517,700 of TorbalTorbal® brand product sales for the three months ended September 30, 2019,2020, compared to $425,300$522,400 in the three months ended September 30, 2018 as a result of continued growth in2019 due to decreased sales of thepharmacy scales, partially offset by increased sales of its new force gauges product line.automated pill counter. Sales of Catalyst Research Instruments decreased slightly by $78,800$1,600 to $137,100 for the three months ended September 30, 2020 compared 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. As of September 30, 2019, thewith an order backlog for Catalyst Research Instruments was $173,500,of $263,500, all of which is expected to be shipped during the fiscal year ending June 30, 2020,2021, compared to $329,400$173,500 as of September 30, 2018.2019. Revenues derived from the Bioprocessing Systems Operations which are comprised primarily of net royalties accrued from sublicenses increaseddecreased by $160,100 (123.9%$200,400 (69.3%) to $88,900 for the three months ended September 30, 2020 compared to $289,300 for the three months ended September 30, 2019 compared to $129,200 for the three months ended September 30, 2018 due to increaseddecreased royalties on Europe sales.resulting from the termination of the Company’s previously held European patent.
 
The gross profit percentage on a combined basis was 46.8% for the three months ended September 30, 2020 compared to 48.9% for the three months ended September 30, 2019 compareddue primarily to 46.4% forlower margins on the three months ended September 30, 2018.Catalyst Research Instruments. However, 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 was lower due to decreasedincreased sales, during the period and high overhead.particularly of higher margin products.
 
General and administrative expenses for the three months ended September 30, 20192020 increased by $93,700 (22.5%$69,400 (13.6%) to $510,200$579,600 compared to $416,500$510,200 for the three months ended September 30, 20182019 mainly due to the ramp up inexpansion of the Scientific Bioprocessing Operations with increased personnel and various otherrelated expenses, and corporate expenses.expenses
.
Selling expenses for the three months ended September 30, 20192020 increased $73,000 (30.9%$212,600 (68.8%) to $309,100$521,700 from $236,100$309,100 for the three months ended September 30, 20182019 primarily due to increased sales and marketing costs related to new personnel, websites, market research, and marketing activitiesadvertising expenditures by the Bioprocessing Systems Operations, and to a lesser extent increased marketing by the Benchtop Laboratory Equipment Operations.
 
Research and development expenses increased by $119,200 (101.5%$7,700 (3.3%) to $244,300 for the three months ended September 30, 2020 compared to $236,600 for the three months ended September 30, 2019, compared to $117,400 for the three months ended September 30, 2018, mainly due to the ramp up in product development activities by the Bioprocessing Systems Operations which included staffing and materials.Operations.
 
The Company reflected an income tax benefit of $19,500$61,100 for the three months ended September 30, 20192020 compared to an income tax expense of $35,500$19,500 for the three months ended September 30, 2018,2019, primarily due to the increased loss generated during the three months ended September 30, 2019.current period.
 
As a result of the foregoing, the Company recorded a net loss of $56,200$263,300 for the three months ended September 30, 20192020 compared to a net incomeloss of $142,000$56,200 for the three months ended September 30, 2018.2019.
 
Liquidity and Capital Resources. Cash and cash equivalents decreased by $342,800$4,204,200 to $1,259,700$3,355,500 as of September 30, 20192020 from $1,602,500$7,559,700 as of June 30, 2019.2020, due primarily to converting cash on-hand to short term liquid investments.
 
Net cash used in operating activities was $324,100$414,400 for the three months ended September 30, 20192020 compared to net cash provided by operating activities of $460,700$324,100 during the three months ended September 30, 2018,2019, primarily as a result of the increased loss incurred for the current year period. Net cash used in investing activities was $25,700$3,776,400 for the three months ended September 30, 20192020 compared to $4,900$25,700 used during the three months ended September 30, 20182019 principally due to purchases of investments, and to a lesser extent new capital equipment purchased during the current periodpurchases by the Benchtop Laboratory EquipmentBioprocessing Systems Operations. The Company receivedNet cash used in financing activities was $13,400 for the three months ended September 30, 2020 all due to contingent consideration payments made to sellers of the Bioprocessing Systems Operations, compared to cash proceeds of $7,000 in financing activities induring the three months ended September 30, 2019 from exercises of stock options.
The Company's working capital decreased by $231,900 to $9,867,200 as of September 30, 2020 compared to a loss$10,099,100, as of $1,600 in the three months ended SeptemberJune 30, 20182020 due to the exercise of stock options inloss generated during the current year.period.

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The Company's working capital decreased by $203,500 to $4,802,300 as of September 30, 2019 compared to $5,005,800, as of June 30, 2019 due to the loss generated during the period.
The Company has a Demand Line of Credit through December 2019 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%. 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, 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, 2020 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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IIttemem 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.

PPARTART II – OTHER INFORMATION
 
IteItemm 6. Exhibits and Reports on Form 8-K
 
Exhibit Number Description
   
31.
 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.
 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:
 
NoneCurrent Report filed on Form 8-K dated July 22, 2020 reporting under Items 1.01 and 5.2.
Current Report filed on Form 8-K dated August 13, 2020 reporting under Item 5.03.
 
 

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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 14, 201923, 2020
SCIENTIFIC INDUSTRIES, INC.
(Registrant)
 
/s/ Helena R. Santos
 
 
Helena R. Santos
President, Chief Executive Officer,
Chief Financial Officer and Treasurer
 
 
 
 
 
 
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