Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Escalon Medical Corp. ("Escalon" or "Company") is a Pennsylvania corporation initially incorporated in California in 1987, and reincorporated in Pennsylvania in November 2001. Within this document, the “Company” collectively shall mean Escalon, which includes its division called "Trek" and its wholly owned subsidiaries: Sonomed, Inc. (“Sonomed”), Escalon Digital Solutions, Inc. (“EMI”), Escalon Holdings, Inc. (“EHI”), Escalon IP Holdings, Inc., and Sonomed IP Holdings, Inc.. All intercompany accounts and transactions have been eliminated.
The Company operates in the healthcare market, specializing in the development, manufacture, marketing and distribution of medical devices and pharmaceuticals in the area of ophthalmology. The Company and its products are subject to regulation and inspection by the United States Food and Drug Administration (the “FDA”). The FDA and other government authorities requires extensive testing of new products prior to sale and has jurisdiction over the safety, efficacy and manufacture of products, as well as product labeling and marketing.
2. Going Concern
The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability of manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products and its ability to raise capital to support its operations.
To date, the Company’s operations have not generated sufficient revenues to enable profitability. As of June 30, 2018, the Company had an accumulated deficient of $67.9 million, and incurred recurring losses from operations and negative cash flows from operating activities in prior years. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company's continuance as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is actively pursuing business partnerships, managing its continuing operations, implementing cost-cutting measures and seeking to sell certain assets. The Company may not be successful in any of these efforts.
3. Significant Accounting Policies and Foreign Currency Translation
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires ("US GAAP") management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and highly liquid investments with original maturities of
90
days or less to be cash and cash equivalents. From time to time cash balances exceed federal insurance limits.
Restricted Cash
As of June 30, 2018 and June 30, 2017 restricted cash included $250,000 and $0 respectively, which was pursuant to the requirements in the TD Bank Loan entered into June 2018. (see Note 12)
Foreign Currency Translation
The Company's functional currency is the US dollar. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Foreign currency transaction gains or losses included in net income (loss) were immaterial for the years ended June 30, 2018 and 2017.
Accounts Receivable
Accounts receivable are recorded at net realizable value. The Company performs ongoing credit evaluations of customers’ financial condition and does not require collateral for accounts receivable arising in the normal course of business. The Company maintains allowances for potential credit losses based on the Company’s historical trends, specific customer issues and current economic trends. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of individual accounts. Allowance for doubtful accounts activity for the years ended June 30,
2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2018
|
|
2017
|
Balance, July 1
|
$
|
172,120
|
|
|
$
|
202,667
|
|
Recovery in bad debts
|
(45,593
|
)
|
|
—
|
|
Write-offs
|
(7,597
|
)
|
|
(30,547
|
)
|
Balance, June 30
|
$
|
118,930
|
|
|
$
|
172,120
|
|
Inventory
Raw materials, work in process and finished goods are recorded at lower of cost (first-in, first-out) or net realizable value. The composition of inventory, net is as follows:
|
|
|
|
|
|
|
|
|
|
For the years ended June 30,
|
|
2018
|
|
2017
|
Raw materials
|
$
|
652,613
|
|
|
$
|
864,813
|
|
Work in process
|
192,287
|
|
|
336,934
|
|
Finished goods
|
978,514
|
|
|
716,191
|
|
Total inventory
|
$
|
1,823,414
|
|
|
$
|
1,917,938
|
|
Valuation allowance activity for the years ended June 30,
2018
and
2017
was as follows:
|
|
|
|
|
|
|
|
|
|
For the years ended June 30,
|
|
2018
|
|
2017
|
Balance, July 1
|
$
|
347,014
|
|
|
$
|
198,120
|
|
Provision for valuation allowance
|
114,000
|
|
|
150,000
|
|
Write-off
|
—
|
|
|
(1,106
|
)
|
Balance, June 30
|
$
|
461,014
|
|
|
$
|
347,014
|
|
Property and Equipment
Property and equipment are recorded at cost. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or lease term. Depreciation on property and equipment is recorded using the straight-line method over the estimated economic useful life of the related assets. Estimated useful lives are generally
three years
to
five years
for computer equipment and software,
five years
to
seven years
for furniture and fixtures and
five years
to
ten years
for production and test equipment. Depreciation and amortization expense for the years ended June 30,
2018
and
2017
was approximately
$29,000
and
$26,000
, respectively.
Property and equipment consist of the following at:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2018
|
|
2017
|
Equipment
|
$
|
701,848
|
|
|
$
|
695,311
|
|
Furniture and fixtures
|
143,330
|
|
|
99,321
|
|
Leasehold improvement
|
28,549
|
|
|
28,549
|
|
|
873,727
|
|
|
823,181
|
|
Less: Accumulated depreciation and amortization
|
(797,459
|
)
|
|
(768,289
|
)
|
|
$
|
76,268
|
|
|
$
|
54,892
|
|
Intangible Assets and Long-Lived Assets
Intangible assets deemed to have indefinite lives (including trademark and trade names) and goodwill are not amortized but, instead, are subject to an annual impairment assessment. additionally, if events or conditions were to indicate the carrying value or a reporting unit may not be recoverable, the Company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing described in ASU topic No. 350, Intangibles - Goodwill and other.
Long-lived assets including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the projected undiscounted cash flows from the asset are less than the carrying value of the asset the asset is considered to be impaired. The impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. As a result of the Company's testing during the year ended June 30, 2017, the goodwill carrying amount of $125,027 was deemed impaired and written off. During the year ended June 30, 2018, no impairments were recorded.
Accrued Warranties
The Company provides a limited one year warranty against manufacturer’s defects on its products sold to customers. The Company’s standard warranties require the Company to repair or replace, at the Company’s discretion, defective parts during such warranty period. The Company accrues for its product warranty liabilities based on estimates of costs to be incurred during the warranty period, based on historical repair information for warranty costs.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and related party note payable approximate their fair value because of their short-term maturity. The carrying amount of the accrued post retirement benefits approximates fair value since the Company utilizes approximate current market interest rates to calculate the liability. The Company determined that the carrying amount of the note payable approximates fair value since such debt borrowing bears interest at the approximate current market rate. While the Company believes the carrying value of the assets and liabilities are reasonable, considerable judgment is used to develop estimates of fair value; thus the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.
Revenue Recognition
Product revenue includes the sale of medical device products and the sale and installation of the Company's AXIS image management system software. Revenue is recognized for medical device products at the time of shipment and for software when the software is delivered and installed.
The Company provides products to its distributors at agreed wholesale prices and to the balance of its customers at set retail prices. Distributors can receive discounts for accepting high volume shipments. The discounts are reflected immediately
in the net invoice price, which is the basis for revenue recognition. No further material discounts or sales incentives are given. The Company’s considerations for recognizing revenue are based on the following:
- Persuasive evidence of an arrangement exists
- Delivery has occurred
-The Company's price or fee is fixed or determinable
-Collectability is reasonably assured
License and services plan revenues are recognized proportionally over the service period, which for both licenses and service plans are typically one year. Deferred revenue related to licenses and services plans was approximately $481,000 and $388,000 as of June 30, 2018 and June 30, 2017, respectively in the accompanying consolidated balance sheets.
Shipping and Handling Revenues and Costs
Shipping and handling revenues are included in product revenue and the related costs are included in cost of goods sold.
Stock-Based Compensation
Stock-based compensation expense for all share-based payment awards granted after July 1, 2006 is based on the grant date fair value estimate in accordance with the provisions of Financial Accounting Standards Board ("FASB") issued authoritative guidance. As of June 30,
2018
and
2017
there was
no
unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees under the plans. There is no remaining cost under the plan. For the years ended June 30,
2018
and
2017
, there was
no
compensation expense.
Valuations are based upon highly subjective assumptions about the future, including stock price volatility and exercise patterns. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee terminations. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
The Company has historically granted options under the Company’s option plans with an option exercise price equal to the closing market value of the stock on the date of the grant and with vesting, primarily for Company employees, either in equal annual amounts over a
two
to
five
year period or immediately, and, primarily for non-employee directors, immediately.
The Company did not receive any cash from share option exercises under stock-based payment plans for the years ended June 30,
2018
and
2017
. The Company did not realize any tax effect, which would be a reduction in its tax rate, on options due to the full valuation allowances established on its deferred tax assets.
The Company measures compensation expense for non-employee stock-based awards based on the fair value of the options issued, as this measurement is used to measure the transaction, and is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital. For the years ended June 30,
2018
and
2017
, there were no non-employee compensation expense.
Research and Development
All research and development costs are charged to operations as incurred.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising expense for the years ended June 30,
2018
and
2017
was
$27,000
and $
31,000
, respectively.
Earnings (Loss) Per Share
Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. All outstanding stock options are considered potential common stock. All outstanding convertible preferred stock are considered common stock at the beginning of the year or at the time of issuance, if later,
pursuant to the if-converted method. The dilutive effect, if any, of stock options is calculated using the treasury stock method. As of June, 2018 and 2017, the average market prices for the year are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the stock options would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the stock options have been excluded from the Company’s computation of loss per common for the year ended June 30, 2017. Therefore, the basic and diluted loss per common share for the year ended June 30, 2017 were the same. For the year ended June 30, 2018, the if converted method was used for the convertible preferred stock to calculate the dilutive earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended June 30,
|
|
For the Year Ended June 30,
|
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
Numerator for basic earnings per share
|
|
|
|
|
Net income (loss)
|
|
$
|
583,675
|
|
|
$
|
(726,895
|
)
|
Undeclared dividends on preferred stock
|
|
19,368
|
|
|
—
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
564,307
|
|
|
$
|
(726,895
|
)
|
Numerator for diluted earnings per share:
|
|
|
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
564,307
|
|
|
$
|
(726,895
|
)
|
Undeclared dividends on preferred stock
|
|
19,368
|
|
|
—
|
|
Net income (loss)
|
|
$
|
583,675
|
|
|
$
|
(726,895
|
)
|
Denominator:
|
|
|
|
|
Denominator for basic earnings per share - weighted average shares outstanding
|
|
7,551,057
|
|
|
7,551,430
|
|
Weighted average preferred stock converted to common stock
|
|
1,590,411
|
|
|
—
|
|
Denominator for diluted earnings per share - weighted average and assumed conversion
|
|
9,141,468
|
|
|
7,551,430
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.07
|
|
|
$
|
(0.10
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.06
|
|
|
$
|
(0.10
|
)
|
The following table summarizes securities that, if exercised would have an anti-dilutive effect on earnings per share.
|
|
|
|
|
|
|
|
For the Year Ended June 30,
|
|
For the Year Ended June 30,
|
|
2018
|
|
2017
|
Stock options
|
367,500
|
|
|
502,000
|
|
Total potential dilutive securities not included in income per share
|
367,500
|
|
|
502,000
|
|
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences
between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of June 30, 2018 and June 30, 2017, the Company has a fully recorded valuation allowance against its deferred tax assets.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations. As of June 30, 2018 and June 30, 2017, no accrued interest or penalties were required to be included on the related tax liability line in the consolidated balance sheets.
Reclassifications
Certain items in the June 30, 2017 consolidated financial statements have been reclassified to conform to the current period presentation.
New Accounting Pronouncements
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance under US GAAP and International Financial Reporting Standards. Following the FASB's finalization of a one year deferral of this standard, the ASU is now effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2016. This ASU can be adopted either retrospectively to each reporting period presented or as a cumulative effect adjustment as of the date of the adoption. The standard supersedes existing revenue recognition guidance and places it with a five step revenue model with a core principle that an entity recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
The Company adopted the new guidance on July 1, 2018, using the modified retrospective transition method and applying this approach to those contracts that were not completed as of that date. The Company completed its evaluation of customer agreements and changes to its controls to support recognition and disclosures under the new guidance. The Company does not expect the adoption of the standards to have a material impact on its consolidated financial statements.
In November 2015 FASB issued Accounting Standards Update No. 2015-17 Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes to reduce complexity in accounting standards. The amendments require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements.
In February 2016 FASB issued Accounting Standards Update No. 2016-02 Leases (Topic 842) that changes the recognition of lease assets and lease liabilities by lessees for those leases classified as operating lease. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for a public business entity. Early adoption is permitted. Management is evaluating the standard's impact on the consolidated financial statements.
In March 2016 FASB issued Accounting Standards Update No. 2016-09 Compensation-Stock Compensation -(Topic 718) Improvements to employee share-based payments accounting as part of simplicity initiatives. This update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements.
In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.
In August 2016 FASB issued Accounting Standards Update No. 2016-15 Statement of Cash Flows (Topic 230)Classification of Certain Cash Receipts and Cash Payments. The amendments in this Update provide guidance on the eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.
In November 2016 the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230)The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this standard does not have a material impact to the Company’s consolidated financial statements.
In January 2017 FASB issued Accounting Standards Update No. 2017-04 Intangibles—Goodwill and Other (Topic 350)Simplifying the Test for Goodwill Impairment.Under the amendments in this update an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact to the Company’s consolidated financial statements.
In May 2017 FASB issued the amendments in ASU 2017-09-
Compensation-Stock Compensation
(“ASC Topic 718”): Scope of Modification Accounting: These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. For public companies, these amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The effectiveness of this update is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
In June 2018 the FASB issued ASU 2018-07 "Improvements to Nonemployee Share-Based Payment Accounting (Topic 718)" that expands the scope to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2018-07 will have a material impact on the Company's financial condition or results of operations.
4. Intangible Assets
The Company's intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
2018 Net Carrying Amount
|
|
2017 Net Carrying Amount
|
Trademarks and trade names
|
|
|
|
|
$
|
605,006
|
|
|
$
|
605,006
|
|
Total
|
$
|
605,006
|
|
|
$
|
605,006
|
|
Patents
It is the Company’s practice to seek patent protection on processes and products in various countries. Patent application costs are capitalized and amortized over their estimated useful lives, not exceeding
17
years, on a straight-line basis from the date the related patents are issued. Costs associated with patents no longer being pursued are expensed. Accumulated amortization on patents from continuing operations was approximately
$91,000
at June 30,
2018
and
2017
, respectively. Amortization expense for the years ended June 30,
2018
and
2017
was approximately
$400
and
$2,000
, respectively.
The following table presents amortized intangible assets as of June 30,
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Impairment
|
|
Adjusted
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Amortized Intangible Assets Patents
|
|
|
|
|
|
|
|
|
|
|
$
|
90,962
|
|
|
$
|
—
|
|
|
$
|
90,962
|
|
|
$
|
(90,962
|
)
|
|
$
|
—
|
|
Total
|
$
|
90,962
|
|
|
$
|
—
|
|
|
$
|
90,962
|
|
|
$
|
(90,962
|
)
|
|
$
|
—
|
|
The following table presents amortized intangible assets as of June 30,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Impairment
|
|
Adjusted
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Amortized Intangible Assets Patents
|
|
|
|
|
|
|
|
|
|
|
$
|
90,962
|
|
|
$
|
—
|
|
|
$
|
90,962
|
|
|
$
|
(90,562
|
)
|
|
$
|
400
|
|
Total
|
$
|
90,962
|
|
|
$
|
—
|
|
|
$
|
90,962
|
|
|
$
|
(90,562
|
)
|
|
$
|
400
|
|
Licenses
The Company purchased new licenses of
$12,500
and
$8,000
for year end June 30, 2018 and 2017, respectively and the cost is capitalized and amortized over
10
years. Amortization expense is
$20,000
and
$18,000
for the year ended June 30, 2018 and 2017. Annual amortization related entirely to licenses is estimated to be approximately
$20,000
for the years ending June 30, 2019, 2020, 2021,2022 and 2023.
The following table presents amortized licenses as of June 30,
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Impairment
|
|
Adjusted
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Amortized Intangible Assets Licenses
|
|
|
|
|
|
|
|
|
|
|
$
|
199,000
|
|
|
$
|
—
|
|
|
$
|
199,000
|
|
|
$
|
(37,650
|
)
|
|
$
|
161,350
|
|
Total
|
$
|
199,000
|
|
|
$
|
—
|
|
|
$
|
199,000
|
|
|
$
|
(37,650
|
)
|
|
$
|
161,350
|
|
The following table presents amortized licenses as of June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Impairment
|
|
Adjusted
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Amortized Intangible Assets Licenses
|
|
|
|
|
|
|
|
|
|
|
$
|
186,500
|
|
|
$
|
—
|
|
|
$
|
186,500
|
|
|
$
|
(18,000
|
)
|
|
$
|
168,500
|
|
Total
|
$
|
186,500
|
|
|
$
|
—
|
|
|
$
|
186,500
|
|
|
$
|
(18,000
|
)
|
|
$
|
168,500
|
|
The Company tests goodwill for possible impairment on an annual basis at June 30, and at any other time events occur or circumstances indicate that the carrying amount of goodwill may be impaired. As a result of the Company's testing during the year ended June 30, 2017, the goodwill carrying amount of
$125,027
was deemed impaired and written off .
5. Accrued Expenses
The following table presents accrued expenses:
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30,
2017
|
Accrued compensation
|
$
|
424,871
|
|
|
$
|
375,451
|
|
Interest accrual
|
142,186
|
|
|
56,887
|
|
Customer deposits
|
61,494
|
|
|
28,447
|
|
Warranty reserve
|
32,078
|
|
|
32,078
|
|
Sales tax payable
|
104,539
|
|
|
43,639
|
|
Rent payable
|
49,458
|
|
|
—
|
|
Other accruals
|
59,795
|
|
|
40,827
|
|
Total accrued expenses
|
$
|
874,421
|
|
|
$
|
577,329
|
|
Accrued compensation as of June 30,
2018
and
2017
primarily relates to payroll, vacation accruals, and payroll tax liabilities.
6. Capital Stock Transactions
Stock Option Plans
As of June 30,
2018
, the Company had in effect
two
employee stock option plans that provide for incentive and non-qualified stock options. After accounting for shares issued upon exercise of options, a total of
367,500
shares of the Company’s common stock remain available for issuance as of June 30,
2018
. Under the terms of the plans, options may not be granted for less than the fair market value of the Common Stock at the date of grant. Vesting generally occurs ratably between
one
and
five
years and for non-employee directors, immediately, and the options are exercisable over a period no longer than
10
years after the grant date. As of June 30,
2018
, options to purchase
367,500
shares of the Company’s common stock were outstanding, of which
367,500
were exercisable, and
0
shares were unvested.
The following is a summary of Escalon’s stock option activity and related information for the fiscal years ended June 30,
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Common
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
Outstanding at the beginning of the year
|
502,000
|
|
|
$
|
2.12
|
|
|
616,500
|
|
|
$
|
2.27
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(134,500
|
)
|
|
3.05
|
|
|
(114,500
|
)
|
|
$
|
2.65
|
|
Outstanding at the end of the year
|
367,500
|
|
|
$
|
1.78
|
|
|
502,000
|
|
|
$
|
2.12
|
|
Exercisable at the end of the year
|
367,500
|
|
|
$
|
1.78
|
|
|
502,000
|
|
|
2.12
|
|
Weighted average fair value of options granted during the year
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
The following table summarizes information about stock options outstanding as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
Outstanding
at June 30,
2018
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
at June 30,
2018
|
|
Weighted
Average
Exercise
Price
|
Range of Exercise Prices
|
|
|
|
|
|
|
|
|
|
$0.79
|
21,000
|
|
|
7.5
|
|
$
|
0.79
|
|
|
21,000
|
|
|
$
|
0.79
|
|
$1.51 to $1.57
|
192,000
|
|
|
4.54
|
|
$
|
1.55
|
|
|
192,000
|
|
|
$
|
1.55
|
|
$2.21
|
154,500
|
|
|
0.42
|
|
$
|
2.21
|
|
|
154,500
|
|
|
$
|
2.21
|
|
Total
|
367,500
|
|
|
|
|
|
|
367,500
|
|
|
|
There was
no
compensation expense related to stock options for the years ended June 30,
2018
and
2017
,
Preferred stock
On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano, the Company's Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano is the sole owner and sole trustee (the “Holders”). Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of
$645,000
principal amount of debt related to the accounts receivable factoring program the Company owes the Holders for
2,000,000
shares of Series A Convertible Preferred Stock (the “Preferred Stock”). (see note 11)
7. Income Taxes
The provision for income taxes for the years ended June 30,
2018
and
2017
consists of the following:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Current income tax (benefit) provision
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
State
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Deferred income tax provision
|
|
|
|
Federal
|
(3,498,532
|
)
|
|
125,468
|
|
State
|
(999,581
|
)
|
|
22,142
|
|
Change in valuation allowance
|
4,498,113
|
|
|
(147,610
|
)
|
|
—
|
|
|
—
|
|
Income tax (benefit)
|
$
|
—
|
|
|
$
|
—
|
|
Income taxes (benefit) as a percentage of income (loss) for the years ended June 30,
2018
and
2017
differ from statutory federal income tax rate due to the following:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Statutory federal income tax rate
|
34.00
|
%
|
|
34.00
|
%
|
Increase in deductible timing differences
|
(0.51
|
)%
|
|
11.00
|
%
|
Tax Act-revaluation of net deferred tax assets
|
(33.49
|
)%
|
|
0.00
|
%
|
Net operating loss carryforward
|
0.00
|
%
|
|
(45.00
|
)%
|
Effective income tax rate
|
0.00
|
%
|
|
0.00
|
%
|
On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") was enacted. The Tax Act revises the U.S. corporate income tax by, among other things, lowering the corporate income tax rate from
35%
to
21%
, adopting a quasi-territorial income tax system and setting limitations on deductibility of certain costs (e.g., interest expense).
Due to the complexities involved in the accounting for the Tax Act, on December 22, 2017, the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB")118 was issued to provide guidance to companies that have not yet completed their accounting for the tax Act in the period of enactment. SAB 118 provides that the Company include in its consolidated financial statements a reasonable estimate of the impacts on the Tax Act on earnings to the extent such estimate has been determined. Accordingly, the U.S. provision for income tax for 2018 is based on the reasonable estimate guidance provided by SAB 118.
Pursuant to the SAB 118, the Company is allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to calculate the impact of the U.S. Tax Act and will record any resulting tax adjustments during the fiscal year ended June 30, 2019.
The components of the net deferred income tax assets and liabilities as of June 30,
2018
and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Deferred income tax assets:
|
|
|
|
Net operating loss carryforward
|
$
|
7,042,134
|
|
|
$
|
11,323,998
|
|
Executive post retirement costs
|
178,788
|
|
|
306,421
|
|
General business credit
|
207,698
|
|
|
207,698
|
|
Allowance for doubtful accounts
|
24,975
|
|
|
58,521
|
|
Accrued vacation
|
46,527
|
|
|
89,477
|
|
Inventory reserve
|
96,813
|
|
|
117,985
|
|
Accelerated depreciation
|
119,980
|
|
|
38,492
|
|
Warranty reserve
|
6,736
|
|
|
10,907
|
|
Total deferred income tax assets
|
7,723,651
|
|
|
12,153,499
|
|
Valuation allowance
|
(7,562,716
|
)
|
|
(12,060,831
|
)
|
|
160,935
|
|
|
92,668
|
|
Deferred income tax liabilities:
|
|
|
|
Accelerated depreciation
|
(160,935
|
)
|
|
(92,668
|
)
|
Total deferred income tax liabilities
|
(160,935
|
)
|
|
(92,668
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
As of
June 30, 2018
, the Company has a valuation allowance of
$7,562,716
, which primarily relates to the federal net operating loss carryforwards. During the year ended June 30, 2018, the valuation allowance decreased by
$4,498,113
and during the year ended June 30, 2017, the valuation increased by
$147,610
. The valuation allowance is a result of management evaluating its estimates of the net operating losses available to the Company as they relate to the results of operations of acquired businesses subsequent to their being acquired by the Company. The Company evaluates a variety of factors in determining the amount of the valuation allowance, including the Company’s earnings history, the number of years the Company’s operating loss and tax credits can be carried forward, the existence of taxable temporary differences, and near-term
earnings expectations. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings. Any tax benefits related to stock options that may be recognized in the future through reduction of the associated valuation allowance will be recorded as additional paid-in capital. The Company has available federal and state net operating loss carry forwards of approximately
$32,010,000
and
$3,340,000
, respectively, of which
$11,067,000
and
$2,500,000
, respectively, will expire over the next
ten years
, and
$20,943,000
and
$840,000
, respectively, will expire in years
eleven
through
twenty
.
The Company continues to monitor the realization of its deferred tax assets based on changes in circumstances, for example, recurring periods of income for tax purposes following historical periods of cumulative losses or changes in tax laws or regulations. The Company’s income tax provision and management’s assessment of the realizability of the Company’s deferred tax assets involve significant judgments and estimates. If taxable income expectations change, in the near term the Company may be required to reduce the valuation allowance which would result in a material benefit to the Company’s results of operations in the period in which the benefit is determined by the Company.
With few exceptions, the Company is no longer subject to audits by tax authorities for tax years prior to the year ended June 30, 2015. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss amount. At June 30, 2018, the Company did not have any significant unrecognized tax positions. The Company has provided what it believes to be an appropriate amount of tax for items that involve interpretation to the tax law. However, events may occur in the future that will cause the Company to reevaluate the current provision and may result in an adjustment to the liability for taxes.
8. Commitments and Contingencies
Commitments
The Company leases its manufacturing, research and corporate office facilities and certain equipment under non-cancelable operating lease arrangements. The future annual amounts to be paid under these arrangements as of June 30,
2018
are as follows:
|
|
|
|
|
Year Ending June 30,
|
Lease
Obligations
|
2019
|
$
|
365,351
|
|
2020
|
268,469
|
|
2021
|
182,972
|
|
2022
|
178,536
|
|
2023
|
183,892
|
|
Thereafter
|
286,238
|
|
Total
|
$
|
1,465,458
|
|
Rent expense charged to continuing operations during the years ended June 30,
2018
and
2017
was approximately
$425,000
and
$570,000
, respectively.
Legal Proceedings
The Company, from time to time is involved in various legal proceedings and disputes that arise in the normal course of business. These matters have included intellectual property disputes, contract disputes, employment disputes and other matters. The Company does not believe that the resolution of any of these matters has had or is likely to have a material adverse impact on the Company’s business, financial condition or results of operations.
9. Retirement and Post-Retirement Plans
The Company adopted a 401(k) retirement plan effective January 1, 1994. The Company’s employees become eligible for the plan commencing on the date of employment. Company contributions are discretionary, and
no
Company contributions have been made since the plan’s inception.
On January 14, 2000, the Company acquired Sonomed. Sonomed adopted a 401(k) retirement plan effective on January 1, 1993. This plan has continued subsequent to the acquisition and is available only to Sonomed employees. There were
no
discretionary contributions for the fiscal years ended June 30,
2018
and
2017
.
On June 23, 2005 the Company entered into a Supplemental Executive Retirement Benefit Agreement with its Chairman, Mr.DePiano. The agreement provides for the payment of supplemental retirement benefits to the covered executive in the event of the covered executive’s termination of services. In January 2013 the covered executive retired and the Company is obligated to pay the executive
$8,491
per month per life per life, with payments commencing the month after retirement.
As of June 30,
2018
and
2017
approximately
$851,000
and
$901,000
was accrued for Mr. DePiano's retirement benefits, respectively. These amounts represent the approximate present value of the supplemental retirement benefits awarded using a discount rate of
4.5%
and
3.9%
as of June 30, 2018 and 2017, respectively. The changes related to post-retirement plans for the years ended June 30,
2018
and
2017
were as follows:
|
|
|
|
|
2018
|
2017
|
Balance July 1,
|
$901,238
|
$937,480
|
Actuarial adjustment
|
52,024
|
65,649
|
Payment of benefits
|
(101,891)
|
(101,891)
|
Balance June 30,
|
$851,371
|
$901,238
|
10. Discontinued Operations
BH Holdings, S.A.S ("BHH")
Drew Scientific, Inc. ("Drew"), an inactive subsidiary of the Company which was sold in 2012 has a controling interest in BHH Holidngs, S.A.S ("BHH). On January 12, 2012 BHH, initiated the filing of an insolvency declaration with the Tribunal de Commerce de Rennes, France ("Commercial Court"). The Commercial Court on January 18, 2012 opened the liquidation proceedings with continuation of BHH's activity for
three months
and named an administrator to manage BHH
.
Since Drew no longer had a controlling financial interest in BHH it was deconsolidated in the December 31, 2011 quarterly consolidated financial statements and prior period amounts are presented as discontinued operations.
Assets and liabilities of discontinued operations of BHH included in the consolidated balance sheets are summarized as follows at June 30,
2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
2018
|
|
2017
|
Assets
|
|
|
|
Total assets
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
Accrued lease termination costs
|
93
|
|
|
91
|
|
Total liabilities
|
93
|
|
|
91
|
|
Net liabilities of discontinued operations
|
$
|
(93
|
)
|
|
$
|
(91
|
)
|
During fiscal year 2015 the Company was informed by French Counsel that the total amount claimed by the BHH landlord in the liquidation of BHH was approximately
$86,000
. The Company did not have insight into the French liquidation process due to the Liquidator's reticence to communicate with the Company. As such, the Company had accrued the present value of the maximum amount potentially due under the lease guaranteed by the Company on behalf of BHH. The landlord's claim under liquidation of approximately
$86,000
cannot be revisited by the landlord and can only be potentially increased by interest or sundry expenses. Beginning in 2016 any changes to this liability are included in continuing operations. As of June 30, 2018 and June 30, 2017 the liability was approximately
$93,000
and
$91,000
, respectively.
11. Related Party Transactions and Preferred Stock
Richard J. DePiano, Sr., (“Mr. DePiano”), the Company’s Chairman, participated in an accounts receivable factoring program that was implemented by the Company. Under the program, Mr. DePiano advanced the Company
$545,000
as of June 30, 2017 and advanced an additional
$100,000
during fiscal year 2018 prior to the Debt Exchange Agreement noted below. Interest on the transaction was
1.25%
per month. The transactions excluded fees typically charged by the factoring agent and provided much needed liquidity to the Company. Related party interest expense for the year ended June 30, 2018 and 2017 was
$59,162
and
$67,348
, respectively. As of June, 2018 and June 30, 2017, interest expense of
$112,389
and
$53,227
, respectively, was recorded in accrued expenses.
On February 14, 2018, the Company entered into a Debt Exchange Agreement (the “Exchange Agreement”) with Mr. DePiano, the Company's Chairman and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano is the sole owner and sole trustee (the “Holders”). Pursuant to the terms of the Exchange Agreement, effective February 15, 2018, the Holders exchanged a total of
$645,000
principal amount of debt related to the accounts receivable factoring program the Company owes the Holders for
2,000,000
shares of Series A Convertible Preferred Stock (the “Preferred Stock”).
Each share of Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders as of June 30, 2018 beneficially own approximately 77.49% of the voting power on all actions to be taken by the Company’s shareholders.
Subject to the terms and conditions of Preferred Stock, the holder of any share or shares of the Preferred Stock has the right, at its option at any time, to convert each such share of Preferred Stock (except that, upon any liquidation of the Company, the right of conversion will terminate at the close of business on the business day fixed for payment of the amounts distributable on the Preferred Stock) into
2.15
shares of Common Stock (the “Conversion Ratio”). The Conversion Ratio is subject standard provisions for adjustment in the event of a subdivision or combination of the Company’s Common Stock and upon any reorganization or reclassification of the capital stock of the Company. If the Holders were to convert their shares of Preferred Stock into Common Stock at the Conversion Ratio the Holders would receive a total of
4,300,000
shares of Common Stock, or approximately
36.28%
of the currently outstanding shares of Common Stock assuming such conversion.
Each outstanding share of the Preferred Stock accrues dividends calculated cumulatively at the annual rate of
$.0258
per share (such amount subject to equitable adjustment in the event of any stock dividend, stock split, combination, reclassification other similar event), payable upon the earlier of (i) a liquidation, dissolution or winding up of the Company or (ii) conversion of the Preferred Stock into Common Stock. Upon either of such events, all such accrued and unpaid dividends, whether or not earned or declared, to and until the date of such event, will become immediately due and payable and will be paid in full. The dividends payable to the holders of the Preferred Stock is payable in cash or, at the election of any such holder, in a number of additional shares of Common Stock equal to the amount of the dividend expressed in dollars divided by the then applicable Conversion Ratio, described above. As of June 30, 2018 the cumulative dividends payable was
$19,368
($0.0258)
per share).
12. Line of Credit
On December 29, 2016, the Company entered into a credit agreement providing the Company up to an aggregate of
$250,000
in cash, secured by the Company’s inventory. The Company, and its wholly owned subsidiary Sonomed, Inc., entered into an Inventory Advance Agreement as of December 29, 2016 (the "Agreement"), with CDS Business Services, Inc., doing business as Newtek Business Credit ("Newtek"). Newtek made in its discretion loans against the Company’s Eligible Inventory in an aggregate amount outstanding at any time up to the lesser of (i) fifty percent (
50%
) of the Inventory Value or (ii) the Inventory Advance Limit, as those terms were defined in the Agreement, which was $
250,000
. The credit agreement renewed annually and could be terminated upon 90 days written notice from the Company or 30 days written notice from Newtek.
Interest accrued on the daily balance at the per annum rate of
5.00%
above the Prime Rate (currently
5.00%
), but not less than
5.0%
. All interest payable by under the financing documents was computed on the basis of a 360 day year for the actual number of days elapsed on the daily balance. The Company was also obligated to pay to Newtek a closing fee equal to
1.00%
of the Advance Limit.
Upon any renewal of the Agreement, an annual fee was due from Company equal to
1.00%
of the Advance Limit. In consideration of monitoring, ledgering and other administrative functions undertaken by Newtek in connection with the Company’s inventory, and the merchant processor, Company was obligated pay Newtek a monthly collateral monitoring fee calculated by multiplying (i) seventy basis points (
0.70%
) (approximately an annual rate of
8.5%
) (except during the existence of an Event of Default at which time it shall be
1%
) by (ii) the amount of the average daily balances during the calendar month preceding the month for which the calculation is made.
As of June 30, 2018, the line of credit balance was
$165,000
. The line of credit interest expense was
$37,000
for the year ended June 30, 2018. The line of credit was paid off on July 3, 2018. The line of credit expense is
$33,000
for the year ended June 30, 2017.
On June 29, 2018 the Company entered a business loan agreement with TD bank receiving a promissory note of
$250,000
. The interest is subject to change based on changes in an independent index which the Wall Street Journal Prime. The index rate at the date of the agreement is
5.000%
per annum. Interest on the unpaid principal balance of the note will be calculated using a rate of
0.740
percentage points over the index, adjusted if necessary for any minimum and maximum rate limitations, resulting in an initial rate of
5.740%
per annum based on a year of 360 days. The Company was required to put
$250,000
in the TD bank savings account as collateral. Mr. Richard J. DePiano chairman of the Company executed a guarantee of the loan in favor of TD Bank. Upon signing the agreement the Company also authorizes TD bank to payoff the line of credit with Netwtek. The total payment was be
$201,574
which includes
$165,000
of outstanding line of credit,
$2,579
accrued interest, administrative/legal fee of
$1,000
, prime plus fee through July 12, 2018 of
$1,895
and underminimum fees of
$28,797
. The underminimum fees of
$28,797
was included in the accrued expense as of June 30, 2018.
13. Other Income
On October 2, 2017 Escalon and Modernizing Medicine Inc. (“MMI”) entered into a Source Code Software Licensing Agreement . The Agreement provided MMI a non-exclusive perpetual license to the source code of Escalon’s proprietary image management software (“AXIS source code”) for a one-time payment of
$500,000
. MMI continues to be an authorized reseller of the AXIS product
.
14. Concentration of Credit Risk
Credit Risk
Financial Instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents, and trade receivables. Concentration of credit risk with respect to trade receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States and international. The Company routinely address the financial strength of its customer and, as a consequence, believes that its receivable credit risk exposure is limited. The Company does not require customers to post collateral.
Major Customer
No customer accounted for more than
10%
of net sales during the years ended June 30, 2018 and 2017.
As of June 30, 2018 the Company had one customer that represents approximately
11%
of the total accounts receivable balance. As of June 30, 2017 the Company had one customer that represents approximately
12%
of the total accounts receivable balance.
Major supplier
Our largest supplier accounted for of total purchases for more than
41%
and
36%
of total purchase in years ended June 30, 2018 and 2017 respectively.
Foreign sales
Domestic and international sales from continuing operations are as follows in millions of dollars:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
Domestic
|
6,802,000
|
|
|
59.66
|
%
|
|
6,414,000
|
|
0.570894526
|
|
57.09
|
%
|
International
|
4,600,000
|
|
|
40.34
|
%
|
|
4,821,000
|
|
0.429105474
|
|
42.91
|
%
|
Total
|
11,402,000
|
|
|
100.00
|
%
|
|
11,235,000
|
|
1
|
|
100.00
|
%
|