NOTES TO FINANCIAL STATEMENTS
1.
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.
Our Fineline Molds division (Fineline), acquired in fiscal 2015, manufactured plastic injection molding for a variety of industries. As disclosed in a Form 8-K filed with the SEC on May 30, 2018, we sold substantially all of the assets of Fineline on May 23, 2018. Management reviewed ASU 2014-08 Reporting Discontinued Operations and Disposals of Components of an Entity and concluded that the sale of Fineline does not require treatment as a discontinued operation because it is was not a material part of our operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies presented below is designed to assist the reader in understanding our financial statements. Such financial statements and related notes are the representations of management, who is responsible for their integrity and objectivity. In the opinion of management, these accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) in all material respects, and have been consistently applied in preparing the accompanying financial statements.
Revenue Recognition
Revenue from product sales is recognized as promulgated by the Financial Accounting Standards Board (FASB) in Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract have been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as) we satisfy each performance obligation, generally upon shipment.
Revenue from services, typically non-recurring engineering services related to the design or customization of a medical device, is typically recognized over-time.
Returns of our product for credit are minimal; accordingly, we do not establish a reserve for product returns at the time of sale.
Estimated Losses on Product Development Services
Cost and revenue estimates related to the product development service portions of development and supply contracts are reviewed and updated quarterly. An expected loss on development service contracts is recognized immediately in cost of sales.
Owing to the complexity of many of the contracts we have undertaken, the cost estimation process requires significant judgment. It is based upon the knowledge and experience of our project managers, engineers, and finance professionals. Factors that are considered in estimating the cost of work to be completed and ultimate profitability of the fixed price product development portion of development and supply contracts include the nature and complexity of the work to be performed, availability and productivity of labor, the effect of change orders, the availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals.
29
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Warranties
Certain of our products are sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the sale. At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors as return rates and repair costs, which factors are reviewed quarterly.
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. 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.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. At June 30, 2019 and 2018, cash equivalents consisted of investments in money market funds.
Accounts Receivable
Trade receivables are stated at their original invoice amounts, less an allowance for doubtful portions of such accounts. Management determines the allowance for doubtful accounts based on facts and circumstances related to specific accounts and the age of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously reserved are offset against the allowance when received.
Deferred Costs
Deferred costs reflect costs incurred related to non-recurring engineering services under the terms of the related development and/or supply contracts. These costs get recorded to cost of sales in the period that the revenue is recognized.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor and manufacturing overhead related to the purchase and production of inventories. Reductions to estimated market value are recorded, and charged to cost of sales, when indicated based on a formula that compares on-hand quantities to both historical usage and estimated demand over the ensuing 12 months from the measurement date. On an on-going basis, we evaluate inventory for obsolescence and slow-moving items. This evaluation includes analysis of historical sales and usage, existing demand, as well as specific factors known to management. As of June 30, 2019, there was approximately $276,000 of inventory in-transit.
Investments
Investments at June 30, 2019 and 2018 consist of marketable equity securities of publicly held companies. The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized. Investments are marked to market at each measurement date, with unrealized gains and losses, net of income taxes, presented as adjustments to accumulated other comprehensive income or loss. During fiscal 2019, we invested in the common stock of a public company that is listed on the Over-the-Counter market and is thinly traded. This investment was subject to an independent valuation as of June 30, 2019.
Long-lived Assets
We review the recoverability of long-lived assets, consisting of equipment and leasehold improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable.
30
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Equipment and leasehold improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:
|
|
Equipment
|
Three to ten years
|
Leasehold improvements
|
Shorter of the lease term or the assets estimated useful life
|
Intangibles
Intangibles consist of legal fees incurred in connection with patent applications. Certain of our patent costs are being amortized over a period of seven years, the estimated life of the product that is currently utilizing the patented technology. The remaining patent costs will be amortized over the estimated life of the product(s) that will be utilizing the technology, or expensed immediately in the event the patent office denies the issuance of the patent. The expense associated with the amortization of the patent costs is recognized in research and development costs.
Notes Receivable
Notes receivable are stated at unpaid principal balance and are subject to impairment losses. Management considers a note impaired when either i) based upon current information or factors it is probable that the principal and interest payments will not be collected, or converted to equity, according to the terms of the secured convertible promissory note or ii) the fair market of the underlying collateral securing the note is less than the book value of the note receivable.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating losses and tax credit carryovers. Deferred tax assets at both June 30, 2019 and 2018 consisted primarily of basis differences related to research and development tax credit utilization, accrued expenses, inventories and intangible assets.
Significant management judgment is required in determining the provision for income taxes and the recoverability of deferred tax assets. Such determination is based on historical taxable income, with consideration given to estimates of future taxable income and the periods over which deferred tax assets will be recoverable. We record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce the valuation allowance against deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Uncertain Tax Positions
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine 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, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Shipping and Handling
Payments from customers for shipping and handling are included in net sales. Shipping expenses, consisting primarily of payments made to freight companies, are included in cost of sales.
31
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents with major financial institutions. At June 30, 2019 and 2018, and throughout the fiscal years then ended, we had deposits in excess of federally insured limits. Credit sales are made to original equipment manufacturers and resellers throughout the world, and sales to such customers account for a substantial portion of our trade receivables. While such receivables are not collateralized, we evaluate their collectability based on several factors including customers payment histories.
Compensation Plans
We recognize compensation expense for the share-based awards that vest subject to market conditions under ASC 718 Compensation-Stock Compensation by estimating their fair value using a Monte Carlo simulation. The fair value using a Monte Carlo simulation model is affected by assumptions regarding a number of complex judgments including expected stock price volatility, risk free interest rates, and the forecasted future value and trading volume of our stock. The awards are considered granted for accounting purposes on the date the awards were approved by the Compensation Committee and we recognize compensation expense, based on the estimated fair value of the award, on a straight-line basis over the requisite service period.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Our operations are affected by numerous factors including market acceptance of our products, changes in technologies, and new laws, government regulations and policies. We cannot predict what impact, if any, the occurrence of these or other events might have on our operations. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, share-based compensation, the allowance for doubtful accounts, accrued warranty expense, inventory valuation, the carrying value of long-lived assets, the recoverability of notes receivable and the recovery of deferred income tax assets.
Basic and Diluted Per Share Information
Basic per share amounts are computed on the basis of the weighted-average number of common shares outstanding during each period presented. Diluted per share amounts assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards as discussed in Note 11, unless the effect of such exercise is to increase income, or decrease loss, per common share.
Fair Value Measurements
Fair value is measured based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Cash and cash equivalents: The carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short term nature of these instruments. As such, cash and cash equivalents are classified within Level 1 of the valuation hierarchy.
32
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Investments: Investments consist of marketable equity securities of publicly held companies. As such, most of our investments are classified within Level 1 of the valuation hierarchy. One of our marketable securities is an investment of common stock of a publicly traded company that is listed on the Over-the-Counter market and is thinly traded. Due to the thinly traded nature of this stock it is classified within Level 2 of the valuation hierarchy. The fair value of this investment was based upon an independent valuation.
Notes receivable: This investment was classified within Level 3 of the valuation hierarchy for purposes of evaluating potential impairment of these assets as of June 30, 2018. The fair value of the notes receivable was based upon the cost basis of the investment as well as our internal assessment of the value of the underlying collateral.
Although the methods above may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe our valuation methods are appropriate.
Advertising
Advertising costs are charged to selling or general and administrative expense as incurred and amounted to $2,000 and $36,000 for the fiscal years ended June 30, 2019 and 2018, respectively.
Recent Accounting Standards
In February 2016, the FASB issued ASU 2016-02, (Topic 842) Leases. 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. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. However, the FASB issued ASU 2018-11 on July 30, 2018, which allows entities to apply the provisions of ASC 842 at the effective date without adjusting comparative periods. We have completed the assessment of our leases and we expect our July 1, 2019 adoption will lead to an approximate $3.3 million increase in the assets and liabilities recorded on our balance sheet.
Recently Adopted Accounting Standards
Effective July 1, 2018, we adopted new revenue recognition guidance issued by the FASB related to contracts with customers. Under ASU 2014-09, (Topic 606) Revenue From Contracts with Customers, we recognize revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. We utilized the modified retrospective method of adoption and there was no impact on our financial statements as a result of adopting Topic 606 for the year ended June 30, 2019. We primarily sell finished products and recognize revenue at point of sale or delivery and the timing of revenue recognition has not changed with the adoption of the new guidance. However, we also perform services when we are engaged to design a product for a customer and there is more judgment involved in determining the amount and timing of revenue recognition under those types of contracts. In order to disclose the amount of revenue related to these services, where more judgment is required, we have added NRE & Prototypes to our net sales table included under Managements Discussion and Analysis of Financial Condition and Results of Operations of this report, which in our prior reports had been reflected in Medical device and services.
Reclassifications
We have reclassified our income taxes payable, which consists of uncertain tax positions, from current liabilities to non-current liabilities as prescribed by GAAP. This balance sheet reclassification had no impact on our net income.
33
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
3.
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Investments
Investments are stated at market value and consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Marketable equity securities short-term
|
|
$
|
2,649
|
|
|
$
|
2,220
|
|
Marketable equity securities long-term
|
|
|
582
|
|
|
|
|
|
Total Marketable equity securities
|
|
$
|
3,231
|
|
|
$
|
2,220
|
|
Investments at June 30, 2019 and 2018 had an aggregate cost basis of $3,780,000 and $2,373,000, respectively. The long-term investments include an equity security purchased during the third quarter of fiscal 2019 that is thinly traded and therefore we classified the asset as long term in nature because even if we decide to sell the stock we may not be able to sell our position within one year. At June 30, 2019, the investments included gross unrealized losses of $549,000 and no unrealized gains. At June 30, 2018, the investments included net unrealized losses of $153,000 (gross unrealized losses of $196,000 offset by gross unrealized gains of $43,000).
Of the total short-term marketable equity securities at June 30, 2019 and 2018, $938,000 and $285,000, 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 shares have been purchased through 10b5-1 Plans, which in accordance with our internal policies regarding the approval of related party transactions, was 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.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Raw materials /purchased components
|
|
$
|
3,132
|
|
|
$
|
1,878
|
|
Work in process
|
|
|
1,511
|
|
|
|
974
|
|
Sub-assemblies /finished components
|
|
|
1,524
|
|
|
|
1,193
|
|
Finished goods
|
|
|
72
|
|
|
|
348
|
|
Total inventory
|
|
$
|
6,239
|
|
|
$
|
4,393
|
|
34
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Office furnishings and fixtures
|
|
$
|
2,067
|
|
|
$
|
1,821
|
|
Machinery and equipment
|
|
|
5,119
|
|
|
|
4,488
|
|
Automobiles
|
|
|
21
|
|
|
|
|
|
Leasehold improvements
|
|
|
2,276
|
|
|
|
2,170
|
|
Total
|
|
|
9,483
|
|
|
|
8,479
|
|
Less: Accumulated depreciation and amortization
|
|
|
(6,757
|
)
|
|
|
(6,724
|
)
|
|
|
$
|
2,726
|
|
|
$
|
1,755
|
|
Depreciation expense for the years ended June 30, 2019 and 2018 amounted to $416,000 and $522,000, respectively. During fiscal 2019, fully depreciated assets in the amount of $103,000 were retired and an additional $280,000 of fully depreciated assets were sold. During fiscal 2018, assets in the amount of approximately $1.2 million were retired and an additional $359,000 of fully depreciated assets were sold.
Intangibles
Intangibles consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Covenant not to compete
|
|
$
|
|
|
|
$
|
30
|
|
Patent-related costs
|
|
|
175
|
|
|
|
164
|
|
Total intangibles
|
|
|
175
|
|
|
|
194
|
|
Less accumulated amortization
|
|
|
(46
|
)
|
|
|
(54
|
)
|
|
|
$
|
129
|
|
|
$
|
140
|
|
Amortization expense for the years ended June 30, 2019 and 2018 amounted to $22,000 and $20,000, respectively.
The covenant not to compete related to assets acquired in conjunction with a business acquisition. The covenant not to compete and related accumulated amortization were retired during the second quarter of fiscal 2019. 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.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Payroll and related items
|
|
$
|
480
|
|
|
$
|
438
|
|
Accrued inventory in transit
|
|
|
276
|
|
|
|
301
|
|
Accrued legal and professional fees
|
|
|
130
|
|
|
|
155
|
|
Accrued bonuses
|
|
|
221
|
|
|
|
109
|
|
Warranty
|
|
|
136
|
|
|
|
107
|
|
Accrued losses on development contracts
|
|
|
83
|
|
|
|
83
|
|
Accrued sales, use and excise taxes
|
|
|
2
|
|
|
|
6
|
|
Other
|
|
|
109
|
|
|
|
67
|
|
|
|
$
|
1,437
|
|
|
$
|
1,266
|
|
35
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
4.
WARRANTY ACCRUAL
Information relating to the accrual for warranty costs for the years ended June 30, 2019 and 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
107
|
|
|
$
|
159
|
|
Accruals during the year
|
|
|
119
|
|
|
|
102
|
|
Change in estimates of prior period accruals
|
|
|
(18
|
)
|
|
|
(97
|
)
|
Warranty amortization
|
|
|
(72
|
)
|
|
|
(57
|
)
|
Balance at end of year
|
|
$
|
136
|
|
|
$
|
107
|
|
Warranty expense relating to new product sales and changes to estimates was $101,000 and $5,000, respectively, for the fiscal years ended June 30, 2019 and 2018.
5.
INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted into law. The new legislation represents a fundamental and dramatic shift in US taxation. The new legislation contained several key tax provisions that impacted us including the reduction of the corporate income tax rate to 21% effective January 1, 2018. The new legislation also included a variety of other changes including but not limited to a limitation on the deductibility of interest expense, acceleration of business asset expensing and reduction in the amount of executive pay that could qualify as a tax deduction. The provision for income taxes consists of the following amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(140
|
)
|
|
$
|
579
|
|
State
|
|
|
21
|
|
|
|
19
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,079
|
|
|
|
247
|
|
State
|
|
|
339
|
|
|
|
144
|
|
Income tax expense
|
|
$
|
1,299
|
|
|
$
|
989
|
|
36
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Section 15 of the Internal Revenue Code stipulated that our fiscal year ended June 30, 2018 have a blended federal statutory tax rate of 27.55%, which was based on the applicable tax rates before and after the effectiveness of the Tax Act and the number of days in the year. The effective income tax rate from income (loss) from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except percentages).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Amount
|
|
|
Percent Pretax Income
|
|
|
Amount
|
|
|
Percent Pretax Income
|
|
Income before income taxes
|
|
$
|
5,447
|
|
|
|
100
|
%
|
|
$
|
2,610
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed expected income tax expense on income before income taxes
|
|
$
|
1,135
|
|
|
|
21
|
%
|
|
$
|
719
|
|
|
|
28
|
%
|
State tax, net of federal benefit
|
|
|
281
|
|
|
|
5
|
%
|
|
|
73
|
|
|
|
3
|
%
|
Tax incentives
|
|
|
(85
|
)
|
|
|
(1
|
%)
|
|
|
(47
|
)
|
|
|
(2
|
%)
|
Change in valuation allowance
|
|
|
11
|
|
|
|
|
|
|
|
202
|
|
|
|
8
|
%
|
Tax law changes
|
|
|
(8
|
)
|
|
|
|
|
|
|
119
|
|
|
|
5
|
%
|
Domestic production deduction
|
|
|
8
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(4
|
%)
|
Other
|
|
|
(43
|
)
|
|
|
(1
|
%)
|
|
|
7
|
|
|
|
|
|
Income tax expense
|
|
$
|
1,299
|
|
|
|
24
|
%
|
|
$
|
989
|
|
|
|
38
|
%
|
Deferred income taxes reflect the net effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal & State NOL carryforward
|
|
$
|
23
|
|
|
$
|
23
|
|
Research & other credits
|
|
|
347
|
|
|
|
1,517
|
|
Reserves and accruals
|
|
|
431
|
|
|
|
438
|
|
Stock based compensation
|
|
|
9
|
|
|
|
55
|
|
Inventory
|
|
|
357
|
|
|
|
371
|
|
Other intangibles
|
|
|
37
|
|
|
|
70
|
|
Other
|
|
|
147
|
|
|
|
48
|
|
Total gross deferred tax assets
|
|
$
|
1,351
|
|
|
$
|
2,522
|
|
Less: valuation allowance
|
|
|
(477
|
)
|
|
|
(368
|
)
|
Total deferred tax assets
|
|
|
874
|
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differing depreciation methods
|
|
$
|
(527
|
)
|
|
$
|
(318
|
)
|
Deferred state tax
|
|
|
(81
|
)
|
|
|
(152
|
)
|
Other
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Total gross deferred tax liabilities
|
|
|
(614
|
)
|
|
|
(476
|
)
|
Net deferred tax assets
|
|
$
|
260
|
|
|
$
|
1,678
|
|
Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. As of June 30, 2019, our deferred tax asset valuation allowance primarily consists of unrealized capital loss for investments held and the state net operating loss carryforwards for states in which we have filed a final return. For the year ended June 30, 2019, we recorded a net valuation allowance of $109,000, on the basis of managements reassessment of the amount of our deferred tax assets that are more likely than not to be realized.
37
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
As of June 30, 2019, we did not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate. We have no federal research and development and alternative minimum tax credit carry forwards at June 30, 2019. State tax research credit carry forwards at June 30, 2019 amount to $347,000, the majority of which do not expire.
As of June 30, 2019, we have accrued $490,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax expense if recognized. If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced. Any adjustment to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash outlay.
Information with respect to our accrual for unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
462
|
|
|
$
|
446
|
|
Additions based on federal tax positions related to the current year
|
|
|
11
|
|
|
|
8
|
|
Additions based on state tax positions related to the current year
|
|
|
11
|
|
|
|
8
|
|
Additions for tax positions of prior years
|
|
|
6
|
|
|
|
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
490
|
|
|
$
|
462
|
|
Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve months.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2019, 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 California and Colorado. 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. However, because of net operating losses and research credit carryovers, substantially all of our tax years are open to audit.
6.
NOTES RECEIVABLE
Loan Participation note receivable short-term
On September 20, 2017 (the Closing Date), we entered into a Participation Agreement with FS Special Opportunities I, L.P., a Minnesota limited partnership (Principal), pursuant to which we paid Principal $1,150,000 in cash to purchase a 50% (Participation Percentage) undivided interest (the Loan Participation) in Principals $2,300,000 loan (the Loan) to 414 New York LLC, a New York limited liability company (Borrower). The Loan Participation constituted the purchase by us of a property interest in the Loan from Principal and did not create a creditor-debtor relationship between us and Borrower. Borrower used the proceeds from the Loan to acquire a leasehold interest in certain real estate operated as a hotel in Manhattan, New York.
38
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Pursuant to the loan agreement entered into on the Closing Date between Principal and Borrower, the Loan initially bore interest at a fixed rate of 22% per annum, with payments of all accrued and unpaid interest due monthly commencing on October 1, 2017 and on the first day of each month thereafter. If the principal balance of the Loan was not paid in full by September 30, 2018, commencing on October 1, 2018 and continuing on the first day of the next 83 months thereafter, Borrower would, in addition to the aforementioned monthly interest payments, pay installments of principal equal to 1/84th of the principal balance outstanding under the Loan as of September 30, 2018. During the first quarter ended September 30, 2018, however, the Principal extended interest only payments to Borrower for an additional period of up to two months and continued to grant subsequent extensions. During the third quarter ended March 31, 2019, the Borrower repaid the loan in full. Additionally, we received payments in the amount of $35,000 representing the value of warrants issued to us in conjunction with the loan extensions, recorded in other income in the statement of operations and comprehensive income.
Raymond E. Cabillot, a director of the Company, is the managing partner of Farnam Street Capital, Inc. (Farnam) and Farnam is the founding partner of the Principal. In accordance with our internal policies regarding the approval of related party transactions, the Loan Participation was approved by our four Board members that are not affiliated with Farnam.
Fineline note receivable
On May 23, 2018, we completed the sale of substantially all of the assets of Fineline, which was engaged in the manufacture of plastic injection molds serving customers in a variety of industries. The aggregate purchase price was $310,000, of which $30,000 was paid in cash at closing and the balance of $280,000 was to be paid to us under the terms of a five-year promissory note, which bore interest at 4% per annum and required sixty equal monthly payments of principal and accrued interest in the amount of approximately $5,000 each, beginning February 15, 2019. We determined that there was uncertainty regarding the collectability of this note. Therefore, during fiscal 2018 we offset the gain on the sale of the division in the amount of approximately $211,000, against the impairment of the note receivable because we believed that the fair market value of the collateral securing the note was less than the face amount of the note. During the third quarter ended March 31, 2019, the loan fell into default. During the fourth quarter ended June 30, 2019 we sold the collateral securing the loan for $75,000 cash, eliminated the note receivable balance and recorded approximately $10,000, the amount in excess of the note receivable balance, to other income in our statement of operations and comprehensive income.
7.
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, which is being amortized to loan fees over the term of the underlying debt.
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 June 30, 2019 is $4.6 million. The Revolving Loan matures on September 6, 2019 unless earlier terminated pursuant to its terms 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).
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.
39
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Scheduled maturities of our Term Loan for future fiscal years ending June 30 are as follows (in thousands):
|
|
|
|
|
|
|
Term
Loan
Payments
|
|
Fiscal Year:
|
|
|
|
|
2020
|
|
$
|
624
|
|
2021
|
|
|
660
|
|
2022
|
|
|
697
|
|
2023
|
|
|
737
|
|
2024
|
|
|
778
|
|
Thereafter
|
|
|
1,107
|
|
Total principal payments
|
|
$
|
4,603
|
|
Farmers & Merchants Bank of Long Beach
On April 19, 2017, we entered into a Business Loan Agreement, dated effective March 28, 2017, with Farmers & Merchants Bank of Long Beach (FMB), providing for a $500,000 revolving loan facility (the Revolving Loan Facility). The Revolving Loan Facility was secured by substantially all of our assets and bore interest at prime plus 2 percent and matured on March 28, 2018. During the initial loan period, we did not borrow any funds. As disclosed in a Form 8-K filed with the SEC on April 17, 2018, we entered into a Change in Terms Agreement and an Amendment #1 to Business Loan Agreement, each dated effective April 6, 2018, which extended the maturity date of the Revolving Loan Facility to March 28, 2019. This loan was terminated by us on September 4, 2018 in conjunction with the MBT Loans described above.
Jules & Associates/Hitachi Capital America Corporation
On July 21, 2016, we entered a master equipment lease agreement with Jules and Associates, Inc. to lease a specific machine used in our inspection process. The cost of the equipment was approximately $106,000 and the lease provides for 36 monthly payments in the amount of $3,121, as well as interim rent in the amount of $7,388. The lease was subsequently assigned to Hitachi Capital America Corporation. The balance owed on the lease as of June 30, 2019 is approximately $6,000.
8.
COMMITMENTS AND CONTINGENCIES
Leases
We lease our office, production and warehouse facility in Irvine, California, (our corporate office) under an agreement that expires in September 2027. We leased our former San Dimas, California office until the sale of our Fineline division in May 2018 at which time it terminated. Our corporate office lease requires us to pay insurance, taxes, and other expenses related to the leased space.
Rent expense in fiscal 2019 and 2018 was $548,000 and $551,000, respectively. Minimum lease payments for future fiscal years ending June 30 are as follows (in thousands):
|
|
|
|
|
|
|
Operating
Leases
|
|
Fiscal Year:
|
|
|
|
|
2020
|
|
$
|
461
|
|
2021
|
|
|
475
|
|
2022
|
|
|
489
|
|
2023
|
|
|
504
|
|
2024
|
|
|
519
|
|
Thereafter
|
|
|
1,796
|
|
Total minimum lease payments
|
|
$
|
4,244
|
|
40
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Compensation Arrangements
Retirement Savings 401(k) Plan
The Pro-Dex, Inc. Retirement Savings 401(k) Plan (the 401(k) Plan) is a defined contribution plan we administer that covers substantially all our employees and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Employees are eligible to participate in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first day of each calendar quarter. Participants are eligible to receive non-discretionary Pro-Dex matching contributions of 25% of their contributions up to 5% of eligible compensation. For the fiscal years ended June 30, 2019 and 2018, we recognized compensation expense amounting to $42,000 and $54,000, respectively, in connection with the 401(k) Plan. During our fiscal year ended June 30, 2019, we used approximately $16,000 of forfeited match contributions to reduce our match expense.
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.
9.
SHARE-BASED COMPENSATION
Stock Option Plans
Through 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 June 30, 2019, 200,000 performance awards have been granted under the 2016 Equity Incentive Plan.
Stock Options
There were no stock options granted during the fiscal years ended June 30, 2019 and 2018. As of June 30, 2019, there was no unrecognized compensation cost under the Former Stock Option Plans as all outstanding stock options are fully vested. The intrinsic value of stock options outstanding and exercisable at June 30, 2019 was approximately $600,000.
The following is a summary of stock option activity under the stock option plans for the fiscal years ended June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at July 1,
|
|
|
57,000
|
|
|
$
|
1.88
|
|
|
|
57,000
|
|
|
$
|
1.88
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(3,000
|
)
|
|
|
2.14
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
57,000
|
|
|
$
|
1.88
|
|
Stock Options Exercisable at June 30,
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
57,000
|
|
|
$
|
1.88
|
|
41
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Performance Awards
In December 2017, the Compensation Committee of our Board of Directors granted 200,000 performance awards to our employees which will generally be paid in 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 at inception and the achievement of our common stock trading at certain pre-determined prices. The weighted average fair value of the performance awards granted was $4.46, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. We recorded share-based compensation expense of $33,000 and $187,000 for the fiscal years ended June 30, 2019 and 2018, respectively, related to these performance awards. On June 30, 2019, there was approximately $67,000 of unrecognized compensation cost related to these non-vested performance awards expected to be expensed over the weighted-average period of 3.88 years.
On July 1, 2018, it was determined by the Compensation Committee of our Board of Directors that the first of five tranches of the 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 the Company issued 24,727 shares.
Employee Stock Purchase Plan
In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the ESPP). 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, aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP. The ESPP was approved by our shareholders at the December 3, 2014 Annual Meeting. On February 2, 2015, the Company filed a Registration Statement on Form S-8 registering the 704,715 shares issuable under the ESPP under the Securities Act of 1933.
During the fiscal years ended June 30, 2019 and 2018, shares totaling 2,743 and 6,733, respectively, were purchased pursuant to the ESPP and allocated to participating employees based upon their contributions at weighted average prices of $8.02 and $5.60, respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 18,866 shares. During the fiscal years ended June 30, 2019 and 2018, we recorded stock compensation expense in the amount of $4,000 and $7,000, respectively, relating to the ESPP.
10.
MAJOR CUSTOMERS & SUPPLIERS
Customers that accounted for sales in excess of 10% of our total sales in either of fiscal year 2019 or 2018, is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
27,172
|
|
|
|
100
|
%
|
|
$
|
22,465
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
17,091
|
|
|
|
63
|
%
|
|
$
|
12,530
|
|
|
|
56
|
%
|
Customer 2
|
|
|
3,489
|
|
|
|
13
|
%
|
|
|
2,625
|
|
|
|
11
|
%
|
Customer 3
|
|
|
2,352
|
|
|
|
8
|
%
|
|
|
2,232
|
|
|
|
10
|
%
|
Total
|
|
$
|
22,932
|
|
|
|
84
|
%
|
|
$
|
17,387
|
|
|
|
77
|
%
|
42
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2019 or June 30, 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Total gross accounts receivable
|
|
$
|
4,100
|
|
|
|
100
|
%
|
|
$
|
2,969
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
2,587
|
|
|
|
63
|
%
|
|
$
|
1,673
|
|
|
|
56
|
%
|
Customer 2
|
|
|
780
|
|
|
|
19
|
%
|
|
|
679
|
|
|
|
23
|
%
|
Total.
|
|
$
|
3,367
|
|
|
|
82
|
%
|
|
$
|
2,352
|
|
|
|
79
|
%
|
During fiscal 2019 and 2018, we had two suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Total Inventory Purchases
|
|
$
|
12,234
|
|
|
|
100
|
%
|
|
$
|
9,262
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portescap
|
|
$
|
2,184
|
|
|
|
18
|
%
|
|
$
|
1,578
|
|
|
|
17
|
%
|
Fischer Connectors Inc.
|
|
|
1,800
|
|
|
|
15
|
%
|
|
|
1,069
|
|
|
|
12
|
%
|
Total
|
|
$
|
3,984
|
|
|
|
33
|
%
|
|
$
|
2,647
|
|
|
|
29
|
%
|
Information with respect to accounts payable due to the suppliers who comprised more than 10% of our accounts payable at either June 30, 2019 or June 30, 2018 is as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Total accounts payable
|
|
$
|
1,996
|
|
|
|
100
|
%
|
|
$
|
1,083
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portescap
|
|
$
|
373
|
|
|
|
19
|
%
|
|
$
|
183
|
|
|
|
17
|
%
|
Fischer Connectors Inc.
|
|
|
304
|
|
|
|
15
|
%
|
|
|
30
|
|
|
|
3
|
%
|
Total
|
|
$
|
677
|
|
|
|
34
|
%
|
|
$
|
213
|
|
|
|
20
|
%
|
11.
NET INCOME PER SHARE
We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the effects of potentially dilutive securities. The summary of the basic and diluted earnings per share calculations for the years ended June 30, 2019 and 2018 is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Basic:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,148
|
|
|
$
|
1,621
|
|
Weighted average shares outstanding
|
|
|
4,192
|
|
|
|
4,305
|
|
Basic earnings per share
|
|
$
|
0.99
|
|
|
$
|
0.38
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,148
|
|
|
$
|
1,621
|
|
Weighted average shares outstanding
|
|
|
4,192
|
|
|
|
4,305
|
|
Effect of dilutive securities stock options & performance awards
|
|
|
106
|
|
|
|
40
|
|
Weighted average shares used in calculation of diluted earnings per share
|
|
|
4,298
|
|
|
|
4,345
|
|
Diluted earnings per share
|
|
$
|
0.97
|
|
|
$
|
0.37
|
|
43
PRO-DEX, INC.
NOTES TO FINANCIAL STATEMENTS
12.
COMMON STOCK
Share Repurchase Program
In September 2013, our Board approved a share repurchase program authorizing the Company to repurchase up to 750,000 shares of our common stock. In accordance with, and as part of, this share repurchase program, our Board has approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (10b5-1 Plan or Plan). During the fiscal year ended June 30, 2018, we repurchased 33,026 shares at an aggregate cost, inclusive of fees under the Plan, of $220,000. During the fiscal year ended June 30, 2019, we repurchased 322,068 shares at an aggregate cost, inclusive of fees under the Plan, of $4.0 million. On a cumulative basis, we have repurchased a total of 588,051 shares under the share repurchase program at an aggregate cost, inclusive of fess under the Plan, of $5.1 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 allows 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 fiscal year ended June 30, 2017, we sold 8,276 shares of common stock at average prices of $6.04 and raised net proceeds of $48,000. The proceeds collected were accounted for as a reduction of the prepaid expenses relating to establishing the ATM. During the fiscal year ended June 30, 2018, during periods when we did not have a 10b5-1 Plan in place, we sold 332,189 shares of common stock under the ATM at average prices of $7.02 per share, resulting in proceeds to us of $2.3 million, net of commissions and fees. From the inception of the ATM in February 2017 through December 31, 2017, 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, our Board suspended the ATM indefinitely. Our Board has the discretion to reactivate the ATM prior to February 16, 2020, the expiration of the ATM Agreement, unless earlier terminated by Ascendiant or us.
44