SCIENTIFIC INDUSTRIES INC - Quarter Report: 2019 September (Form 10-Q)

    

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, 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)

 

 

Delaware	04-2217279
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
80 Orville Drive, Suite 102, Bohemia, New York	11716
(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, 2019 is 1,496,112 shares.

 

 

 

 

 

SCIENTIFIC INDUSTRIES, INC.

 

Table of Contents

 

PART I - Financial Information
Item 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Changes in Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
Item 4.	CONTROLS AND PROCEDURES	15
PART II - Other Information
Item 6.	EXHIBITS AND REPORTS ON FORM 8-K	15
SIGNATURE		16

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

	September 30, 2019	June 30, 2019
Current assets:	(Unaudited)
Cash and cash equivalents	$1,259,700	$1,602,500
Investment securities	333,600	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
Inventories	2,713,100	2,592,300
Prepaid expenses and other current assets	93,500	91,200
Total current assets	6,267,700	6,591,100
Property and equipment, net	314,400	318,800
Intangible assets, net	162,900	175,000
Goodwill	705,300	705,300
Other assets	59,200	54,700
Deferred taxes	450,600	431,100
Operating lease right-of-use assets	902,500	-
Total assets	$8,862,600	$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.

 

 

 

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

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

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.

 

 

 

  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

 

 

  

  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.

 

 

 SCIENTIFIC INDUSTRIES, INC. AND SUBSIDIARIES

  

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 months ended September 30, 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 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, 2019 and 2018.

  

	Benchtop  Laboratory  Equipment	Catalyst  Research  Instruments	Bioprocessing   Systems	Consolidated
September 30, 2019:
Revenues	$1,576,200	$138,700	$289,300	$2,004,200
Foreign Sales	397,600	71,700	-	469,300
September 30, 2018:
Revenues	$1,691,900	$217,500	$129,200	$2,038,600
Foreign Sales	635,700	142,300	-	778,000

 

 

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.

 

  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
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
Income (Loss) From Operations	12,900	(90,200)	1,800	-	(75,500)
Assets	5,589,400	1,400,900	1,088,100	784,200	8,862,600
Long-Lived Asset Expenditures	7,800	-	16,700	-	24,500
Depreciation and Amortization	30,500	400	10,100	-	41,000

 

 

 

	Benchtop Laboratory Equipment	Catalyst Research Instruments	Bioprocessing Systems	Corporate And Other	Consolidated
Three Months Ended September 30, 2018:
Revenues	$1,691,900	$217,500	$129,200	$-	$2,038,600
Foreign Sales	635,700	142,300	-	-	778,000
Income (Loss) From Operations	175,400	(62,900)	63,200	-	175,700
Assets	4,633,500	1,343,100	623,500	709,300	7,309,400
Long-Lived Asset Expenditures	2,200	-	-	-	2,200
Depreciation and Amortization	66,300	200	9,400	-	75,900

 

 

For the three months ended September 30, 2019 and 2018, respectively, three customers accounted for approximately 23% (both periods) of net sales of the Benchtop Laboratory Equipment Operations (18% and 19% of the Company’s total revenues). 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 two customers during the three months ended September 30, 2019 accounted for approximately 90% of the Catalyst Research Instruments Operations revenues and 6% of the Company’s total revenues. Sales to three customers during the three months ended September 30, 2018 accounted for approximately 83% of the Catalyst Research Instrument Operations’ revenues and 9% of the Company’s total revenues.

 

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.

 

 

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, 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 at September 30, 2019	Level 1	Level 2	Level 3
Assets:
Cash and cash equivalents	$1,259,700	$1,259,700	$-	$-
Investment securities	333,600	333,600	-	-
Total	$1,593,300	$1,593,300	$-	$-
Liabilities:
Contingent consideration	$618,000	$-	$-	$618,000

 

		Fair Value Measurements Using Inputs Considered as
	Fair Value at June 30, 2019	Level 1	Level 2	Level 3
Assets:
Cash and cash equivalents	$1,602,500	$1,602,500	$-	$-
Investment securities	330,900	330,900	-	-
Total	$1,933,400	$1,933,400	$-	$-
Liabilities:
Contingent consideration	$618,000	$-	$-	$618,000

Investments in marketable securities classified as available-for-sale by security type at September 30, 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

 

	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

 

 

 

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, 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
At September 30, 2019:
Technology, trademarks	5/10 yrs.	$663,800	$661,800	$2,000
Trade names	6 yrs.	140,000	130,300	9,700
Websites	5 yrs.	210,000	210,000	-
Customer relationships	9/10 yrs.	357,000	311,400	45,600
Sublicense agreements	10 yrs.	294,000	231,500	62,500
Non-compete agreements	5 yrs.	384,000	384,000	-
IPR&D	3 yrs.	110,000	110,000	-
Other intangible assets	5 yrs.	229,200	186,100	43,100
		$2,388,000	$2,225,100	$162,900

  

 

	Useful Lives	Cost	Accumulated Amortization	Net
At June 30, 2019:
Technology, trademarks	5/10 yrs.	$663,800	$661,700	$2,100
Trade names	6 yrs.	140,000	124,400	15,600
Websites	5 yrs.	210,000	210,000	-
Customer relationships	9/10 yrs.	357,000	308,100	48,900
Sublicense agreements	10 yrs.	294,000	224,100	69,900
Non-compete agreements	5 yrs.	384,000	384,000	-
IPR&D	3 yrs.	110,000	110,000	-
Other intangible assets	5 yrs.	221,700	183,200	38,500
		$2,380,500	$2,205,500	$175,000

 

Total amortization expense was $19,500 and $61,000 for the three months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, estimated future amortization expense related to intangible assets is $51,000 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 for fiscal 2024.

 

7. Income (Loss) Per Common Share

 

Income (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

 

Approximately 44,200 and 92,000 shares of the Company's common stock issuable upon the exercise of outstanding options were excluded from the calculation of diluted earnings per common share for the three months ended September 30, 2019 and 2018, respectively, because the effect would be anti-dilutive.

 

 

8. Leases

 

On July 1, 2019 the Company adopted the new accounting pronouncement as it relates to its leases which requires a lessee to recognize all long-term leases on its balance sheet as a liability for its lease obligation, measured at the present value of lease payments not yet paid, and a corresponding asset representing its right to use the underlying asset over the lease term and expands disclosure of key information about leasing arrangements. 

 

The Company leases certain properties consisting principally of a facility in Bohemia, New York (headquarters) through February 2025, a facility in Pittsburgh, Pennsylvania for its Catalyst Research Instrument Operations through November 2020 and another facility in Pittsburgh, Pennsylvania for its Bioprocessing Systems Operations through November 2020. In addition, the Company had a lease for its Torbal Division of the Benchtop Laboratory Equipment Operations which was mutually terminated early effective as of October 31, 2019 and a new lease for a similar sales and administration office was entered into as of November 1, 2019 through October 2022. There are no renewal options with any of the leases, no residual values or significant restrictions or covenants other than those customary in such arrangements, and no non-cash activities, and any rent escalations incorporated within the leases are included in the calculation of the future minimum lease payments, as further described below. All of the Company’s leases are deemed operating leases. 

 

The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the Right-Of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate of 5.0% as the discount rate to calculate the present value of future lease payments, which was the interest rate that its bank would charge for a similar loan.

 

The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on an excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as  lease expenses in the period incurred. The Company’s lease agreements do not contain residual value guarantees.