The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
NOTES TO CONSDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Pro-Dex, Inc. (we, us, our, Pro-Dex, or the Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with applicable rules of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2019.
Recently Adopted Accounting Standards
On July 1, 2019, we adopted ASU 2016-02 (Topic 842) Leases, using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of fiscal 2020. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The impact of adoption was an increase to long-term assets and total liabilities each in the amount of approximately $3.3 million as of July 1, 2019.
NOTE 2. DESCRIPTION OF BUSINESS
We specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
Raw materials /purchased components
|
|
$
|
4,113
|
|
|
$
|
3,132
|
|
Work in process
|
|
|
2,574
|
|
|
|
1,511
|
|
Sub-assemblies/finished components
|
|
|
1,662
|
|
|
|
1,524
|
|
Finished goods
|
|
|
294
|
|
|
|
72
|
|
Total inventory
|
|
$
|
8,643
|
|
|
$
|
6,239
|
|
Investments
Investments are stated at market value and consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
Marketable equity securities - short-term
|
|
$
|
2,771
|
|
|
$
|
2,649
|
|
Marketable equity securities - long-term
|
|
|
1,659
|
|
|
|
582
|
|
Total marketable equity securities
|
|
$
|
4,430
|
|
|
$
|
3,231
|
|
Investments at March 31, 2020 and June 30, 2019 had an aggregate cost basis of $5,592,000 and $3,780,000, respectively. At March 31, 2020, the investments included net unrealized losses of $1,162,000 (gross unrealized losses of $1,384,000 offset by gross unrealized gains of $222,000). At June 30, 2019, the investments included net unrealized losses of $549,000 and no unrealized gains.
6
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Of the total marketable equity securities at March 31, 2020 and June 30, 2019, $930,000 and $938,000, respectively, represent an investment in the common and preferred stock of Air T, Inc. Two of our Board members are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive Officer and Chairman of Air T, Inc. The common stock was purchased through 10b5-1 Plans, and the purchased preferred stock was purchased through the exercise of issued warrants and in both cases, in accordance with our internal policies regarding the approval of related party transactions, purchases were approved by our three Board members that are not affiliated with Air T, Inc.
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both Mr. Cabillot and Mr. Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on, such as Air T, Inc.
Intangibles
Intangibles consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
June 30,
2019
|
|
Patent-related costs
|
|
$
|
195
|
|
|
$
|
175
|
|
Less accumulated amortization
|
|
|
(57
|
)
|
|
|
(46
|
)
|
|
|
$
|
138
|
|
|
$
|
129
|
|
Patent-related costs consist of legal fees incurred in connection with both patent applications and a patent issuance, and will be amortized over the estimated life of the product(s) that is or will be utilizing the technology, or expensed immediately in the event the patent office denies the issuance of the patent. Since we do not know when, or if, our patent applications will be issued, the future amortization expense is not predictable.
NOTE 4. WARRANTY
The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying balance sheets. As of March 31, 2020 and June 30, 2019, the warranty reserve amounted to $173,000 and $136,000, respectively. Warranty expenses are included in cost of sales in the accompanying statements of operations. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Warranty expense relating to new product sales and changes to estimates for the three months ended March 31, 2020 and 2019 was $69,000 and $52,000, respectively, and for the nine months ended March 31, 2020 and 2019 was $125,000 and $82,000, respectively.
Information regarding the accrual for warranty costs for the three and nine months ended March 31, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
141
|
|
|
$
|
99
|
|
Accruals during the period
|
|
|
77
|
|
|
|
39
|
|
Changes in estimates of prior period warranty accruals
|
|
|
(8
|
)
|
|
|
13
|
|
Warranty amortization
|
|
|
(37
|
)
|
|
|
(15
|
)
|
Ending balance
|
|
$
|
173
|
|
|
$
|
136
|
|
7
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Nine Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
136
|
|
|
$
|
107
|
|
Accruals during the period
|
|
|
130
|
|
|
|
93
|
|
Changes in estimates of prior period warranty accruals
|
|
|
(5
|
)
|
|
|
(11
|
)
|
Warranty amortization
|
|
|
(88
|
)
|
|
|
(53
|
)
|
Ending balance
|
|
$
|
173
|
|
|
$
|
136
|
|
NOTE 5. NET INCOME PER SHARE
The Company calculates basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The weighted-average number of common shares outstanding used in the calculation of diluted income per share reflects the effects of potentially dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.
The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,213
|
|
|
$
|
732
|
|
|
$
|
3,567
|
|
|
$
|
3,260
|
|
Weighted average shares outstanding
|
|
|
3,871
|
|
|
|
4,143
|
|
|
|
3,944
|
|
|
|
4,224
|
|
Basic income per share
|
|
$
|
0.31
|
|
|
$
|
0.18
|
|
|
$
|
0.90
|
|
|
$
|
0.77
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,213
|
|
|
$
|
732
|
|
|
$
|
3,567
|
|
|
$
|
3,260
|
|
Weighted average shares outstanding
|
|
|
3,871
|
|
|
|
4,143
|
|
|
|
3,944
|
|
|
|
4,224
|
|
Effect of dilutive securities
|
|
|
128
|
|
|
|
114
|
|
|
|
127
|
|
|
|
114
|
|
Weighted average shares used in calculation of diluted earnings per share
|
|
|
3,999
|
|
|
|
4,257
|
|
|
|
4,071
|
|
|
|
4,338
|
|
Diluted income per share
|
|
$
|
0.30
|
|
|
$
|
0.17
|
|
|
$
|
0.88
|
|
|
$
|
0.75
|
|
NOTE 6. INCOME TAXES
Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets. Such determination is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable.
As of March 31, 2020, we have accrued $489,000 of unrecognized tax benefits related to federal and state income tax matters. None of this balance is expected to reduce our income tax expense if recognized.
8
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of and for the
Nine Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
490
|
|
|
$
|
462
|
|
Additions based on tax positions related to the current year
|
|
|
22
|
|
|
|
17
|
|
Reductions based on tax positions related to prior years
|
|
|
(23
|
)
|
|
|
|
|
Ending balance
|
|
$
|
489
|
|
|
$
|
479
|
|
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP). Under ASC 740, the effects of new legislation are recognized upon enactment. Accordingly, the effects of the CARES Act are effective for the period ending March 31, 2020.
As of March 31, 2020, we have, as a result of the technical amendments made by the CARES Act to QIP, accelerated tax depreciation expenses of approximately $92,000 which represents favorable temporary book-to-tax timing differences (i.e., no effective tax rate impact) for income tax purposes and are recorded as components within our deferred income tax assets and income tax receivable, included in prepaid expenses and other current assets, on our condensed consolidated balance sheets. We are continuing to examine additional impacts that the CARES Act may have on our business.
We recognize accrued interest and penalties related to unrecognized tax benefits when applicable. As of March 31, 2020, no interest or penalties applicable to our unrecognized tax benefits have been accrued since we have sufficient tax attributes available to fully offset any potential assessment of additional tax.
We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2016 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2015 and later. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
NOTE 7. SHARE-BASED COMPENSATION
Through June 2014, we had two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the Employee Stock Option Plan) and the Amended and Restated 2004 Directors Stock Option Plan (the Directors Stock Option Plan) (collectively, the Former Stock Option Plans). The Employee Stock Option Plan and Directors Stock Option Plan were terminated in June 2014 and December 2014, respectively.
In September 2016, our Board approved the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at the November 29, 2016 Annual Meeting. The 2016 Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards. As of March 31, 2020, we have granted performance awards under the 2016 Equity Incentive Plan for up to 200,000 shares of our common stock, of which 40,000 shares have vested as further described below under the heading Performance Awards.
9
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Stock Options
No options were granted during the three or nine months ended March 31, 2020 and 2019.
As of March 31, 2020, there was no unrecognized compensation cost under the Former Stock Option Plans, as all outstanding stock options are fully vested. As of March 31, 2020, the options outstanding had a weighted average remaining contractual life of 1.3 years and an intrinsic value of $774,000. Following is a summary of stock option activity for the nine months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at July 1,
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
57,000
|
|
|
$
|
1.88
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
2.14
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
54,000
|
|
|
$
|
1.86
|
|
Stock Options Exercisable at March 31,
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
54,000
|
|
|
$
|
1.86
|
|
Performance Awards
In December 2017, the Compensation Committee of the Board of Directors granted performance awards to certain of our employees, for an aggregate of up to 200,000 shares of our common stock. Whether any performance awards vest, and the amount that does vest, is tied to the completion of service periods that range from 7 months to 9.5 years and the achievement of our common stock trading at certain pre-determined prices. The weighted average fair value of the performance awards granted in 2017 was $4.46, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. In February 2020, the Compensation Committee of the Board of Directors reallocated 48,000 previously forfeited awards, having the same remaining terms and conditions, to certain current employees. The weighted average fair value of the performance awards granted in 2020 was $16.90, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. We recorded share-based compensation expense of $70,000 and $8,000 for the three months ended March 31, 2020 and 2019, respectively, and $86,000 and $24,000 for the nine months ended March 31, 2020 and 2019, respectively, related to these performance awards. On March 31, 2020, there was approximately $437,000 of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period of 3.11 years.
On July 1, 2018, it was determined by the Compensation Committee of our Board of Directors that the first of five tranches of performance awards had been achieved and participants were awarded 40,000 shares of common stock. Each participant elected a net issuance to cover their individual withholding taxes and therefore we issued 24,727 shares of common stock and paid $101,000 of participant related payroll tax liabilities.
Employee Stock Purchase Plan
In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the ESPP), which was approved by our shareholders at the December 3, 2014 Annual Meeting. The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period. Our Board of Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares issuable pursuant to outstanding options under those plans, aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP.
During the three months ended March 31, 2020 and 2019, we recorded share-based compensation expense in the amount of $4,000 and $2,000, respectively, and 1,628 and 923 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $14.43 and $12.96, respectively, per share. During the nine months ended March 31, 2020 and 2019, we recorded share-based compensation expense in the amount of $7,000 and $4,000, respectively, relating to the ESPP. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 21,786 shares of our common stock.
10
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. MAJOR CUSTOMERS AND SUPPLIERS
Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month and the nine-month periods ended March 31, 2020 and 2019 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
|
|
|
Net sales
|
|
$
|
8,508
|
|
|
|
100
|
%
|
|
$
|
6,854
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
5,373
|
|
|
|
63
|
%
|
|
$
|
4,116
|
|
|
|
60
|
%
|
Customer 2
|
|
|
2,337
|
|
|
|
28
|
%
|
|
|
1,077
|
|
|
|
16
|
%
|
Customer 3
|
|
|
428
|
|
|
|
5
|
%
|
|
|
905
|
|
|
|
13
|
%
|
Total
|
|
$
|
8,138
|
|
|
|
96
|
%
|
|
$
|
6,098
|
|
|
|
89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
|
|
|
Net sales
|
|
$
|
23,710
|
|
|
|
100
|
%
|
|
$
|
20,168
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
|
16,440
|
|
|
|
69
|
%
|
|
|
12,556
|
|
|
|
62
|
%
|
Customer 2
|
|
|
3,458
|
|
|
|
15
|
%
|
|
|
2,601
|
|
|
|
13
|
%
|
Total
|
|
$
|
19,898
|
|
|
|
84
|
%
|
|
$
|
15,157
|
|
|
|
75
|
%
|
Information with respect to accounts receivable from those customers who comprised more than 10 % of our gross accounts receivable at either March 31, 2020 or June 30, 2019 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
Total gross accounts receivable
|
|
$
|
4,176
|
|
|
|
100
|
%
|
|
$
|
4,100
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
1,772
|
|
|
|
42
|
%
|
|
$
|
2,587
|
|
|
|
63
|
%
|
Customer 2
|
|
|
1,975
|
|
|
|
47
|
%
|
|
|
780
|
|
|
|
19
|
%
|
Total
|
|
$
|
3,747
|
|
|
|
89
|
%
|
|
$
|
3,367
|
|
|
|
82
|
%
|
During the three and nine months ended March 31, 2020, we had three suppliers accounting for 10% or more of total inventory purchases. During the three and nine months ended March 31, 2019, we had one supplier that accounted for more than 10% of our total inventory purchases. Amounts owed to the fiscal 2020 significant suppliers at March 31, 2020 and June 30, 2019 is as follows (in thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
June 30, 2019
|
|
Total accounts payable
|
|
$
|
1,912
|
|
|
|
100
|
%
|
|
$
|
1,996
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portescap
|
|
$
|
133
|
|
|
|
7
|
%
|
|
$
|
373
|
|
|
|
19
|
%
|
Fischer Connectors, Inc.
|
|
|
183
|
|
|
|
10
|
%
|
|
|
304
|
|
|
|
15
|
%
|
Tadiran Batteries
|
|
|
163
|
|
|
|
8
|
%
|
|
|
142
|
|
|
|
7
|
%
|
Total
|
|
$
|
479
|
|
|
|
25
|
%
|
|
$
|
819
|
|
|
|
41
|
%
|
11
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9. NOTES PAYABLE AND FINANCING TRANSACTIONS
Minnesota Bank & Trust
On September 6, 2018, we entered into a Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (MBT), providing for a $5,000,000 term loan (the Term Loan) as well as a $2,000,000 revolving loan (the Revolving Loan and together with the Term Loan, collectively the Loans), evidenced by a Term Note A and a Revolving Credit Note made by us in favor of MBT. The Loans are secured by substantially all of our assets pursuant to a Security Agreement entered into on September 6, 2018 between us and MBT. We paid loan origination fees to MBT in the amount of $60,000.
The Term Loan matures on October 1, 2025 and bears interest at a fixed rate of 5.53% per annum. An initial payment of interest only in the amount of $18,433 was paid on October 1, 2018. Commencing November 1, 2018 and continuing on the first day of each subsequent month thereafter until the maturity date, we are required to make payments of principal and interest on the Term Loan of approximately $72,000, plus any additional accrued and unpaid interest through the date of payment. The balance owed on the Term Loan at March 31, 2020 is $4.1 million, net of unamortized loan fees. The Revolving Loan had an original maturity date of September 6, 2019, which has since been extended to November 6, 2020, and bears interest at the greater of (a) 4.5% or (b) the difference of the prime rate as published in the Money Rates section of the Wall Street Journal minus 0.50%. Commencing on the first day of each month after we initially borrow against the Revolving Loan, which we have yet to do, and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Revolving Loan through the date of payment. Any principal on the Revolving Loan that is not previously prepaid shall be due and payable on the maturity date (or earlier termination of the Revolving Loan). As we have yet to borrow under the Revolving Loan, the balance owed under it at March 31, 2020 was $0.
Any payment on the Loans not made within seven days after the due date is subject to a late payment fee equal to 5% of the overdue amount. Upon the occurrence and during the continuance of an event of default, the interest rate of both Loans will be increased by 3% and MBT may, at its option, declare the Loans immediately due and payable in full.
The Credit Agreement and Security Agreement contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type.
NOTE 10. COMMON STOCK
Share Repurchase Program
In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these share repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (10b5-1 Plan or Plan). During the three and nine months ended March 31, 2020, we repurchased 48,236 and 204,921 shares, respectively, at an aggregate cost, inclusive of fees under the plan, of $761,000 and $2,977,000, respectively. During the three and nine months ended March 31, 2019 we repurchased 7,914 and 225,368 shares, respectively at an aggregate cost, inclusive of fees under the plan, of $115,000 and $2,675,000, respectively. On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 792,972 shares under the share repurchase program at an aggregate cost of $8.1 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
At The Market Offering Agreement
In February 2017, our Board approved an ATM Agreement with Ascendiant Capital Markets, LLC (Ascendiant). The ATM Agreement allowed us to sell shares of our common stock pursuant to specific parameters defined by us as well as those defined by the SEC and the ATM Agreement. During the three and nine months ended March 31, 2020 and 2019 we did not issue any shares under the ATM. From the inception of the ATM in February 2017 through December 31, 2017, during periods when we did not make purchases under our share repurchase program, we sold 340,465 shares of common stock for gross proceeds of $2,311,000 net of commissions and fees paid to Ascendiant totaling $72,000. In December 2017, the Board suspended the ATM indefinitely and the ATM expired, pursuant to its terms, in February 2020.
12
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11. LEASES
Effective July 1, 2019, we adopted the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date. In addition, we elected the practical expedient which allowed us to carry forward the historical lease classification of our sole operating lease for our corporate office, which includes our manufacturing and research and development facilities. Adoption of this standard resulted in the recording of net operating lease right-of-use (ROU) asset and corresponding operating lease liability each in the amount of $3.3 million. Our financial position for reporting periods beginning on or after July 1, 2019 is presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.
Our operating lease ROU asset and long-term liability are presented separately on our Condensed Balance Sheet. The current portion of our operating lease liability as of March 31, 2020, in the amount of $304,000, is presented within accrued expenses on the Condensed Balance Sheet.
As of March 31, 2020, the maturity of our lease liability is as follows:
|
|
|
|
|
|
|
Operating Lease
|
|
Fiscal Year:
|
|
|
|
|
2020
|
|
$
|
116
|
|
2021
|
|
|
475
|
|
2022
|
|
|
489
|
|
2023
|
|
|
504
|
|
2024
|
|
|
519
|
|
Thereafter
|
|
|
1,796
|
|
Total lease payments
|
|
|
3,899
|
|
Less imputed interest:
|
|
|
(738
|
)
|
Total
|
|
$
|
3,161
|
|
As of March 31, 2020, our operating lease has a remaining lease term of seven years and six months and an imputed interest rate of 5.3%. Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2020 was $116,000 and $345,000, respectively. As previously disclosed in our 2019 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for our only operating lease having an initial or remaining noncancellable lease term in excess of one year would have been as follows:
|
|
|
|
|
|
|
Operating Leases at
June 30, 2019
|
|
Fiscal Year:
|
|
|
|
2020
|
|
$
|
461
|
|
2021
|
|
|
475
|
|
2022
|
|
|
489
|
|
2023
|
|
|
504
|
|
2024
|
|
|
519
|
|
Thereafter
|
|
|
1,796
|
|
Total minimum lease payments
|
|
$
|
4,244
|
|
NOTE 12. COMMITMENTS AND CONTINGENCIES
Legal Matters
We are from time to time a party to various legal proceedings incidental to our business. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and adverse.
13
PRO-DEX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13. SUBSEQUENT EVENT
On April 7, 2020, as reported in our Current Report filed with the SEC on April 14, 2020, we entered into a Paycheck Protection Program Loan (the PPP Loan) sponsored by the Small Business Administration (SBA) through MBT, providing for $1,360,100 in proceeds, which amount was funded to the Company on April 10, 2020. The PPP Loan was made pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). We repaid the loan on May 5, 2020, after careful consideration of additional guidance issued by the SBA and the Department of Treasury.
14