ESCALON MEDICAL CORP. Certain statements contained in, or incorporated by reference in, this report are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan," "possible," "project," "should," "will," and similar words or expressions. The Company's forward-looking statements include certain information relating to general business strategy, growth strategies, financial results, liquidity, the Company's ability to continue as a going concern, discontinued operations, research and development, product development, the introduction of new products, the potential markets and uses for the Company's products, the Company's ability to increase its sales campaign effectively, the Company's regulatory filings with the FDA, acquisitions, dispositions, the development of joint venture opportunities, intellectual property and patent protection and infringement, the loss of revenue due to the expiration or termination of certain agreements, the effect of competition on the structure of the markets in which the Company competes, increased legal, accounting and Sarbanes-Oxley compliance costs, defending the Company in litigation matters and the Company's cost saving initiatives. The reader must carefully consider forward-looking statements and understand that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by assumptions that fail to materialize as anticipated. Consequently, no forward-looking statement can be guaranteed, and actual results may vary materially. It is not possible to foresee or identify all factors affecting the Company's forward-looking statements, and the reader therefore should not consider the list of such factors contained in its periodic report on Form 10-K for the year endedJune 30, 2019 and this Form 10-Q quarterly report to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions. Executive Overview-six-month periods endedDecember 31, 2019 and 2018 The following highlights are discussed in further detail within this Form 10-Q. The reader is encouraged to read this Form 10-Q in its entirety to gain a more complete understanding of factors impacting Company performance and financial condition.
• Consolidated net revenue increased approximately
to the same period of last fiscal year. The increase in net revenue is
attributed to an increase in sales of Trek products of
to back ordered items shipped in the six-month period
18--------------------------------------------------------------------------------
ended
• Consolidated cost of goods sold totaled approximately
of total revenue for the six-month period ended December 31, 2019 , as
compared to $2,483,000 , or 53.1%, of total revenue of the same period of
last fiscal year. The decrease of 0.8% in cost of goods sold as a
percentage of total revenue is mainly due to changes in product sales mix
and improved pricing.
• Consolidated marketing, general and administrative expenses decreased
2019, as compared to the same period of last fiscal year. The decrease is
mainly due to decreased legal expense, accounting and consulting expense.
• Consolidated research and development expenses increased
to
to the same period of last fiscal year. Research and development expenses
were primarily expenses associated with the introduction of new or enhanced
products. The increase in research and development expense is mainly due to
expense for AXIS software development work and ultrasound certification
costs incurred during the six-month period ended December 31, 2019 .
• The increase of operating loss is also due to the loss from an intangible
assets impairment of $605,000 in the six-month period ended December 31,
2019 as compared to the same period of the last fiscal year.
Company Overview
The following discussion should be read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto, which are set forth in Item 1 of this report.
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 FDA. The FDA 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. The Company's Internet address is www.escalonmed.com. Under the trade name of Sonomed-Escalon the Company develops, manufactures and markets ultrasound systems used for diagnosis or biometric applications in ophthalmology, develops, manufactures and distributes ophthalmic surgical products under the Trek Medical Products name, and manufactures and markets digital camera systems for ophthalmic fundus photography and image management systems. Critical Accounting Policies The preparation of unaudited condensed consolidated financial statements requires management to make estimates and assumptions that impact amounts reported therein. The most significant of those involve the application of FASB-issued authoritative guidance concerning revenue recognition, and intangible assets, discussed further in the notes to consolidated financial statements included in the Form 10-K for the year endedJune 30, 2019 . The unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted inthe United States of America ("US GAAP"), and, as such, include amounts based on informed estimates and judgments of management. For example, estimates are used in determining valuation allowances for deferred income taxes, uncollectible receivables, obsolete inventory, sales returns and rebates, warranty liabilities, right-of-use assets and related lease liabilities, and valuation of purchased intangible assets. Actual results achieved in the future could differ from current estimates. The Company used what it believes are reasonable assumptions and, where applicable, established valuation techniques in making its estimates. 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. The Company recorded an allowance for doubtful accounts of approximately$111,000 as ofDecember 31, 2019 andJune 30, 2019 . 19 --------------------------------------------------------------------------------
Inventories
Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. The Company writes down its inventories as it becomes aware of any situation whereas the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions. Intangible Assets and Long-Lived Assets Intangible assets deemed to have indefinite lives (including trademark and trade names) 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 the other intangible assets for impairment at that time. 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. The Company tests indefinite-life intangible assets for possible impairment on an annual basis atJune 30 , and at any other time events occur or circumstances indicate that the carrying amount of intangible assets may be impaired. Due to the current low market capitalization of the Company's common stock, the Company performed an interim impairment test on its intangible asset. The outcome of this impairment test resulted in non-cash change for the full impairment of the indefinite-lived intangible assets (trade marks and trade names) of$605,000 , which was recorded in the unaudited condensed consolidated financial statements for the three-month and six-month periods endedDecember 31, 2019 . No impairments were recorded in the three-month and six-month periods endedDecember 31, 2018 . 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. Revenue Recognition The Company recognizes revenue when its performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. 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 unaudited condensed 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 20 --------------------------------------------------------------------------------
reduce the provision for income taxes. As of
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 unaudited condensed consolidated statements of operations. As ofDecember 31, 2019 andJune 30, 2019 , no accrued interest or penalties were required to be included on the related tax liability line in the unaudited condensed consolidated balance sheets. 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 period 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 ofDecember 31, 2019 and 2018, the average market prices for the three-month and six-month periods then ended 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 convertible preferred stock has also been excluded from the Company's computation of loss per common for the three-month and six-month periods endedDecember 31, 2019 and 2018. Therefore, basic and diluted loss per common share for the three-month and six-month periods endedDecember 31, 2019 and 2018 are the same. Results of Operations Three Months and Six Months EndedDecember 31, 2019 and 2018 The following table shows consolidated net revenue, as well as identifying trends in revenues for the three-month and and six-month periods endedDecember 31, 2019 and 2018. Table amounts are in thousands: For the Three Months EndedDecember 31 , For
the Six Months Ended
2019 2018 % Change 2019 2018 % Change
Net Revenue:
Products $ 2,497 $ 2,197 13.7 % $ 4,549 $ 4,219 7.8 %
Service plans 243 222 9.5 % 479 458 4.6 %
Total $ 2,740 $ 2,419 13.3 % $ 5,028 $ 4,677 7.5 %
Consolidated net revenue increased approximately $321,000 or 13.3%, to
$2,740,000 during the three-month period ended December 31, 2019 as compared to
the same period of last fiscal year. The increase in net revenue is attributed
to a an increase in sales of Trek products of $291,000 mainly due to back
ordered items shipped in the three months ended December 31, 2019 and an
increase in sales of Sonomed's ultrasound products of $20,000 . The increase is
also due to an increase of $21,000 from the service plans, offset by a decrease
of $11,000 in ophthalmic fundus photography system products.
Consolidated net revenue increased approximately $351,000 or 7.5%, to $5,028,000
during the six-month period ended December 31, 2019 as compared to the same
period of last fiscal year. The increase in net revenue is attributed to a an
increase in sales of Trek products of $383,000 mainly due to back ordered items
shipped in the six-month period ended December 31, 2019 and an increase in sales
of Sonomed's ultrasound products of $13,000 . A decrease of $66,000 in the
ophthalmic fundus photography systems is offset by an increase of $21,000 from
the service plans.
The table amounts are in thousands:
For the Three Months Ended December 31, For
the Six Months Ended
2019 2018 2019 2018
Domestic $ 1,590 58.0 % $ 1,441 59.6 % $ 3,056 60.8 % $ 2,913 62.3 %
Foreign 1,150 42.0 % 978 40.4 % 1,972 39.2 % 1,764 37.7 %
Total $ 2,740 100.0 % $ 2,419 100.0 % $ 5,028 100.0 % $ 4,677 100.0 %
21-------------------------------------------------------------------------------- The following table presents consolidated cost of goods sold and as a percentage of revenues for the three-month and six-month periods endedDecember 31, 2019 and 2018. Table amounts are in thousands: For the Three Months EndedDecember 31 ,
For the Six Months Ended
2019 % 2018 % 2019 % 2018 %
Cost of Goods Sold:
$ 1,452 53.0 %$ 1,280 52.9 %$ 2,629 52.3 %$ 2,483 53.1 % Total$ 1,452 53.0 %$ 1,280 52.9 %$ 2,629 52.3 %$ 2,483 53.1 % Consolidated cost of goods sold totaled approximately$1,452,000 , or 53.0%, of total revenue for the three month period endedDecember 31, 2019 , as compared to$1,280,000 , or 52.9%, of total revenue of the same period of last fiscal year. The increase of 0.1% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix offset by the improved pricing. Consolidated cost of goods sold totaled approximately$2,629,000 , or 52.3%, of total revenue for the six-month period endedDecember 31, 2019 , as compared to$2,483,000 , or 53.1%, of total revenue of the same period of last fiscal year. The decrease of 0.8% in cost of goods sold as a percentage of total revenue is mainly due to changes in product sales mix and improved pricing. The following table presents consolidated marketing, general and administrative expenses for the three-month and six-month periods endedDecember 31, 2019 and 2018. Table amounts are in thousands: For the Three Months Ended December 31,
For the Six Months Ended
2019 2018 % Change 2019 2018 % Change
Marketing, General and
Administrative:
$ 1,094 $ 1,139 (4.0 )% $ 2,094 $ 2,141 (2.2 )%
Total $ 1,094 $ 1,139 (4.0 )% $ 2,094 $ 2,141 (2.2 )%
Consolidated marketing, general and administrative expenses decreased $45,000 ,
or 4.0%, to $1,094,000 for the three-month period ended December 31, 2019 , as
compared to the same period of last fiscal year. The decrease is mainly due to
decreased legal expense, accounting and consulting expense.
Consolidated marketing, general and administrative expenses decreased $47,000 ,
or 2.2%, to $2,094,000 for the six-month period ended December 31, 2019 , as
compared to the same period of last fiscal year. The decrease is mainly due to
decreased legal expense, accounting and consulting expense.
The following table presents consolidated research and development expenses for
the three-month and six-month periods ended December 31, 2019 and 2018.
Table amounts are in thousands:
For the Three Months Ended December 31, For
the Six Months Ended
2019 2018 % Change 2019 2018 % Change
Research and Development:
$ 262 $ 226 15.9 %$ 507 $ 323 57.0 % Total$ 262 $ 226 15.9 %$ 507 $ 323 57.0 % Consolidated research and development expenses increased$36,000 , or 15.9%, to$262,000 for the three-month period endedDecember 31, 2019 , as compared to the same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is due to expense for AXIS software development work and certification costs incurred in the three months endedDecember 31, 2019 . 22 -------------------------------------------------------------------------------- Consolidated research and development expenses increased$184,000 , or 57.0%, to$507,000 for the six-month period endedDecember 31, 2019 , as compared to the same period of last fiscal year. Research and development expenses were primarily expenses associated with the introduction of new or enhanced products. The increase in research and development expense is due to expense for AXIS software development work and certification costs incurred in the six-month period endedDecember 31, 2019 . Impairment The Company tests infinite-life intangible assets for possible impairment on an annual basis atJune 30 , and at any other time events occur or circumstances indicate that the carrying amount of intangible assets may be impaired. As a result of the Company's testing during the fiscal year endingJune 30, 2020 , the intangible assets (trade mark and trade names) carrying amount of$605,005 was deemed fully impaired. During the three-month and six-month periods ended December, 2018, no impairments were recorded. Other Income (Expense) The Company did not have significant other income during the three and six-month periods endedDecember 31, 2018 . As ofJune 30, 2019 ,$792,000 was accrued forMr. DePiano , Sr.'s retirement benefits. The amount represent the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as ofJune 30, 2019 .Mr. DePiano , Sr. passed away onOctober 3, 2019 . According to the agreement, the benefits terminate uponMr. DePiano Sr .'s death. Therefore, the Company recognized a gain with the termination of the retirement benefit obligation of$758,000 , which has been reported as other income for the six-month period endedDecember 31, 2019 .
The other income of
Liquidity and Capital Resources
Our total cash on hand as ofDecember 31, 2019 was approximately$235,000 of cash on hand and restricted cash of approximately$255,000 compared to approximately$410,000 of cash on hand and restricted cash of$253,000 as ofJune 30, 2019 . Approximately$48,000 was available under our line of credit as ofDecember 31, 2019 . Because our operations have not historically generated sufficient revenues to enable profitability we will continue to monitor costs and expenses closely and may need to raise additional capital in order to fund operations. We expect to continue to fund operations from cash on hand and through capital raising sources if possible and available, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. Additionally, we may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness in connection with a debt financing would result in increased fixed obligations and could contain covenants that would restrict our operations. As ofDecember 31, 2019 we had an accumulated deficit of approximately$68.2 million , incurred recurring losses from operations and negative cash flows from operating activities. These factors raise substantial doubt regarding our ability to 23 --------------------------------------------------------------------------------
continue as a going concern, and our ability to generate cash to meet our cash requirements for the following twelve months as of the date of this form 10-Q.
The following table presents overall liquidity and capital resources as of
December 31, June 30,
2019 2019
Current Ratio:
Current assets $4,427 $4,261
Less: Current liabilities 2,774 2,260
Working capital $1,653 $2,001
Current ratio 1.60 to 1 1.89 to 1
Debt to Total Capital Ratio:
Line of credit, note payable and lease liabilities $1,258 $220
Total debt 1,258 220
Total equity 2,108 2,162
Total capital $3,366 $2,382
Total debt to total capital 37.4% 9.2%
Working Capital Position
Working capital decreased approximately $348,000 as of December 31, 2019 , and
the current ratio decreased to 1.60 to 1 from 1.89 to 1 when compared to
June 30, 2019 .
Overall total current assets increased approximately $166,000 to approximately
$4,427,000 as of December 31, 2019 from $4,261,000 as of June 30, 2019 . Total
current liabilities, which consists of line of credit, current portion of note
payable, current portion of post-retirement pension benefits, related party
accrued interest, current portion of operating lease liabilities, accounts
payable, accrued expenses, deferred revenue and liabilities of discontinued
operations, increased approximately $514,000 to $2,774,000 as of December 31,
2019 from $2,260,000 as compared to June 30, 2019 . The increase in current
assets is mainly due to an increase in accounts receivable as back orders got
shipped in November 2019 and deferred revenue invoices generated in December,
2019. The increase in current liabilities is result of adoption of the ASU No.
2016-02, Leases (Topic 842).
Debt to total capital ratio was 37.4% and 9.2% as of December 31,
2019 and June 30, 2019 , respectively. The decrease in the working capital ratio
and increase in the debt to total capital ratio is due to primarily the adoption
of the ASU No. 2016-02, Leases (Topic 842).
Cash Flow Used In Operating Activities
During the six-month period ended December 31, 2019 the Company used
approximately $136,000 of cash in operating activities as compared to
approximately $249,000 of cash used in operating activities during the six-month
period ended December 31, 2018 .
For the six-month period ended December 31, 2019 , the Company had a net loss of
approximately $54,000 , which includes non cash post-retirement adjustment of
$758,000 and impairment loss of $605,000 . Cash inflows were mainly due to a
decrease in other current assets of $21,000 , an increase in accounts payable of
$175,000 , an increase in accrued expenses of $52,000 , and an increase in
non-cash expenditure on depreciation and amortization of approximately $23,000 .
The cash inflow is offset by an increase in accounts receivable of $276,000 , an
increase in inventory of $85,000 , and an increase in other long term assets of
$11,000 , a decrease in operating lease liability of $169,000 , a decrease in
accrued post retirement benefits of $34,000 , and a decrease in liabilities of
discontinued operations of $1,000 .
For the six-month period ended December 31, 2018 , the Company had a net loss of
approximately $266,000 . Cash inflows were mainly due to the cash inflow from an
increase in accounts payable and accrued expenses of $211,000 , decrease in
accounts receivable of $87,000 , a decrease in other current assets of $12,000 .
The cash inflow is offset by a decrease in accrued post retirement benefits of
$19,000 , a decrease in deferred revenue of $15,000 , a decrease in accrued
expense of $138,000 , and an increase in inventory of $145,000 .
24
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Cash Flows Used In Investing Activities
Cash flows used in investing activities for the six-month periods ended December
31, 2019 and 2018 were due to purchase of equipment of $36,000 and $7,000
respectively.
Any necessary capital expenditures have generally been funded out of cash from
operations, and the Company is not aware of any factors that would cause
historical capital expenditure levels to not be indicative of capital
expenditures in the future and, accordingly, does not believe that the Company
will have to commit material resources to capital investment for the foreseeable
future.
Cash Flows Used in or Provided by Financing Activities
For the six-month period ended December 31, 2019 the cash used in financing
activities of $2,000 was due to auto loan payment.
For the six-month period ended December 31, 2018 the cash inflow from financing
activities of $37,000 was due to the increase in the line of credit. On June 29,
2018 the Company entered a business loan agreement with TD bank receiving a line
of credit evidenced by a promissory note of $250,000 . Upon signing the agreement
the Company also authorizes TD bank to payoff the line of credit of $165,000
with Newtek with a total payment of $201,575 .
Financing Facilities
On June 29, 2018 the Company entered a business loan agreement with TD bank
receiving a line of credit evidenced by 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 interest rate was
6.24% as of December 31, 2019 . The Company was required to put $250,000 in the
TD bank savings account as collateral.
As of December 31, 2019 and June 30, 2019 , the line of credit balance was
$201,575 with TD bank. The line of credit interest expense was $4,000 and $3,000
for the three months ended December 31, 2019 and 2018, respectively. The line of
credit interest expense was $8,000 and $10,000 for the six-month periods ended
December 31, 2019 and 2018, respectively.
Preferred stock
OnFebruary 14, 2018 , the Company entered into a Debt Exchange Agreement (the "Exchange Agreement") withMr. DePiano , Sr., the Company's former Chairman and DP Associates Inc. Profit-Sharing Plan of whichMr. DePiano , Sr. is the sole owner and sole trustee (the "Holders"). Pursuant to the terms of the Exchange Agreement, effectiveFebruary 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"). As ofDecember 31, 2019 andJune 30, 2019 the cumulative dividends payable is$96,980 ($0.0428 per share) and$70,968 ($0.0355 per share), respectively.Mr. DePiano Sr . passed away onOctober 3, 2019 and left a will by which he appointedRichard J. DePiano , Jr., the Chief Executive Officer of the Company, as executor.Richard DePiano Jr . was elected to serve as chairman of the Company's board.Mr. DePiano , Jr. qualified as executor and has control over the listed shares in his capacity as executor ofMr. DePiano Sr .'s estate. Post-retirement Plans OnJune 23, 2005 the Company entered into a Supplemental Executive Retirement Benefit Agreement with its former Chairman,Mr. DePiano , Sr..The agreement provided for the payment of supplemental retirement benefits to the covered executive in the event of the covered executive's termination of services. InJanuary 2013 the covered executive retired and the Company was obligated to pay the executive$8,491 per month for life, with payments commencing the month after retirement. As ofJune 30, 2019 , approximately$792,000 was accrued forMr. DePiano Sr .'s retirement benefits. The amount represented the approximate present value of the supplemental retirement benefits awarded using a discount rate of 4.5% as ofJune 30, 2019 .Mr. DePiano , Sr. passed away onOctober 3, 2019 . According to the agreement, the benefits terminate uponMr. DePiano Sr .'s death. Therefore, the Company recognized a gain with the termination of the retirement benefit obligation of$758,000 , which has been reported under other income for the six-month period endedDecember 31, 2019 . 25 --------------------------------------------------------------------------------
Off-balance Sheet Arrangements and Contractual Obligations
The Company was not a party to any off-balance sheet arrangements during the
three-month and six-month periods ended
None.
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