MESA LABORATORIES INC /CO/ 10-K

Item 9A. Controls and Procedures   Evaluation of Disclosure Controls and Procedures   We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of March 31, 2023. Based on that evaluation, and as a result of the material weakness described below, our management concluded that our disclosure controls and procedures were not effective as of March 31, 2023.    Nevertheless, based on the performance of additional procedures by management designed to ensure reliability of financial reporting, our management has concluded that, notwithstanding the material weaknesses described below, the consolidated financial statements, included in this Annual Report on Form 10-K, fairly present, in all material respects, our financial position, results of operations, and cash flows as of the dates, and for each of the periods presented, in conformity with U.S. GAAP.   Management's Annual Report on Internal Control Over Financial Reporting   Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.    Management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2023, using the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of March 31, 2023 due to the material weaknesses described below.     A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.   There were two material weaknesses identified as of March 31, 2023:   1) Management's review controls over fair value calculations including Management's preliminary valuation of the Belyntic Acquisition were insufficient. Specifically, Management failed to utilize resources with an appropriate level of knowledge and expertise in performing and reviewing the fair value calculations including the preliminary Belyntic valuation. In fiscal year 2023, Mesa's acquisitions of businesses (net of cash acquired and including contingent consideration) totaled $6.1 million. Our auditors, Plante & Moran, PLLC identified errors in the preliminary valuation of Belyntic as part of their audit procedures after the preliminary valuation had been reviewed internally by Management. 2) Management's review controls over the qualitative assessment of goodwill impairment were insufficient to identify potential impairment triggers.    Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting   In response to the material weaknesses identified in "Management's Reporting on Internal Controls Over Financial Reporting," we, with the oversight from the Audit Committee of the Board of Directors, developed a plan to remediate the material weaknesses. Our remediation plan will require that, going forward, including for the final valuation of the Belyntic acquisition, Management will utilize a valuation specialist with the requisite knowledge to perform such valuations for all acquisitions of businesses. Management has committed to formally evaluate and document impairment triggers on a quarterly basis and ensure that such documentation is reviewed by a person competent to perform such a review.    We believe the use of a specialist with appropriate knowledge and experience valuing business combinations and putting in place a more robust process for identifying and evaluating potential impairment triggering events will effectively remediate the material weaknesses described in "Management's Report on Internal Control Over Financial Reporting."    Our independent auditor, Plante & Moran, PLLC, a registered public accounting firm, is appointed by the Audit Committee of our Board of Directors. Plante & Moran, PLLC has issued an adverse opinion on the effectiveness of our internal controls over financial reporting as of March 31, 2023, which appears in Item 8.  Financial Statements and Supplementary Data  of this Annual Report on Form 10-K.    Page 68 Table of Contents   Changes in internal control over financial reporting   The Agena Acquisition was completed on October 21, 2021, and the financial results of Agena are included in our Consolidated Financial Statements as of March 31, 2023 and for the period then ended and as of March 31, 2022 and for the year then ended. During the time since acquisition, we have assessed the control environment of Agena; made certain changes to Agena's internal controls over financial reporting, including design changes that were required as we brought Agena onto our enterprise resource planning system; and performed testing over the operating effectiveness of Agena's internal controls. We now consider Agena to be included in the scope of our assessment of internal controls over financial reporting.   Other than the remediation measures discussed above and the incorporation of Agena into our internal controls over financial reporting, there were no other changes during the quarter ended March 31, 2023 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.    Item 9B. Other Information   None.   Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections   Not applicable.   Page 69 Table of Contents   Part III   Item 10.  Directors, Executive Officers and Corporate Governance     Incorporated by reference from the definitive Proxy Statement for our  2023 Annual Me eting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2023.   Item 11. Executive Compensation   Incorporated by reference from the definitive Proxy Statement for our 2023 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2023.   Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   Securities Authorized for Issuance Under Equity Compensation Plans   The following table presents information regarding options and rights outstanding under our equity compensation plans as of March 31, 2023. All options reflected are options to purchase common stock.        (a) Number of Securities to be Issued upon Exercising of Outstanding Options and Rights (1)     (b) Weighted-Average Exercise Price of Outstanding Options and Rights (1)     (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) (2)   Equity Compensation Plan Approved by Security Holders     261,883     $ 216.41       144,588   Equity Compensation Plans Not Approved by Security Holders   None       N/A     None   Total     261,883     $ 216.41       144,588       1. Includes shares issuable in connection with awards with performance conditions, which will be issued based on achievement of performance criteria associated with the awards, with the number of shares issuable dependent on our level of performance. We have accounted for the shares based on the current achievement as of March 31, 2023. The weighted average exercise price in column (b) includes the weighted average exercise price of options only.   2. Includes 144,588 shares remaining available under the 2021 Equity Plan. Each share underlying a full value award such as restricted stock or performance shares count as one share used against the total number of securities authorized under the plan.   Additional information for this item is incorporated by reference from the definitive Proxy Statement for our 2023 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2023.   Page 70 Table of Contents   Item 13. Certain Relationships and Related Transactions, and Director Independence   Incorporated by reference from the definitive Proxy Statement for our 2023 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2023.     Item 14. Principal Accountant Fees and Services   Plante & Moran, PPLC , Denver, Colorado , PCAOB ID 166 is the Company's independent registered public accounting firm.   Incorporated by reference from the definitive Proxy Statement for our 2023 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2023.     Part IV   Item 15. Exhibits and Financial Statement Schedules   a) Consolidated Financial Statements   The following documents included in Part II, Item 8. Financial Statements and Supplementary Data  are filed as part of this Annual Report: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets - March 31, 2023 and 2022 Consolidated Statements of Income - Years ended March 31, 2023, 2022 and 2021 Consolidated Statements of Comprehensive Income - Years ended March 31, 2023, 2022 and 2021 Consolidated Statements of Stockholders' Equity - Years ended March 31, 2023, 2022 and 2021 Consolidated Statements of Cash Flows - Years ended March 31, 2023, 2022 and 2021 Notes to Consolidated Financial Statements    All financial statement schedules have been omitted either because they are not applicable or required, or the information that would be required to be included is disclosed in the notes to the Consolidated Financial Statements.   b) Exhibits   1.1 Open Market Sales Agreement SM dated April 5, 2022 by and among Mesa Laboratories, Inc and Jeffries LLC (incorporated by reference from the Company's Current Report on Form 8-K filed on April 5, 2022).       3.1 Articles of Incorporation and Amendments to Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on July 31, 2018).     3.2 Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 10, 2019).     4.1 Base Indenture, dated August 12, 2019, by and between the Company and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K  filed on August 12, 2019).     4.2 First Supplemental Indenture, dated August 12, 2019, by and between the Company and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K  filed on August 12, 2019).     4.3 Description of securities registered under section 12.   Page 71 Table of Contents   10.1 Credit Agreement dated as of March 5, 2021 among the Company, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 8, 2021).     10.1.1 Amendment No. 1 to Credit Agreement dated as of December 22, 2022 among the Company, the lenders party thereto, and JPMorgan Chase Bank, NA., as administrative agent (incorporated by reference from exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on February 6, 2023).     10.2.2 * Mesa Laboratories, Inc. 2014 Equity Plan (incorporated by reference from Exhibit 10.2.2 to the Company's Quarterly Report on Form 10-Q filed on July 31, 2018).     10.2.3 * Mesa Laboratories, Inc 2021 Equity Incentive Plan (incorporated by reference from Exhibit 10.2.3 to the Company's Annual Form 10-K filed on May 31, 2022).      10.3.1 * Form of 2014 Equity Plan Option Award Agreement (incorporated by reference from Exhibit 10.3.1 to the Company's Quarterly Report on Form 10-Q filed on July 31, 2018).     10.3.2 * Form of 2014 Equity Plan Option Award Agreement as amended (incorporated by reference from Exhibit 10.3.2 to the Company's Quarterly Report on Form 10-Q filed on July 31, 2018).   10.3.3 * Form of 2014 Equity Plan Restricted Stock Award Agreement (incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 11, 2018).     10.3.4 * Form of 2023 Performance Stock Unit Agreement, issued under the 2021 Equity Plan (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 4, 2022).      10.3.5 * Form of 2020 Performance Share Unit Agreement, issued under the 2014 Equity Plan (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q  filed on July 30, 2019).     10.3.6 * Form of 2021 Restricted Stock Unit Agreement, issued under the 2014 Equity Plan  (incorporated by reference from Exhibit 10.3.6 to the Company's Annual Report of Form 10-K filed on May 31, 2022).      10.3.7 * Form of 2021 Equity Incentive Plan Option Award Agreement (incorporated by reference from Exhibit 10.3.7 to the Company's form S-8 filed on August 30, 2021).     10.3.8 * Form of 2021 Equity Incentive Plan Restricted Stock Unit Agreement (incorporated by reference from Exhibit 10.3.8 to the Company's form S-8 filed on August 30, 2021).     10.4 * Form of Confidentiality, Non-Compete and Non-Solicitation Agreement (incorporated by reference from Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on July 31, 2018).     10.5.1 * α First Amended and Restated Executive Employment Agreement dated as of September 29, 2021, by and among Mesa Laboratories, Inc. and Gary Owens  (incorporated by reference from Exhibit 10.5.1 to the Company's Current report on Form 8-K filed on September 29, 2021).     10.5.2 * α First Amended and Restated Executive Employment Agreement dated as of September 29, 2021, by and among Mesa Laboratories, Inc. and John Sakys  (incorporated by reference from Exhibit 10.5.2 to the Company's Current report on Form 8-K filed on September 29, 2021).     10.5.3 * α Executive Employment Agreement dated as of September 29, 2021, by and among Mesa Laboratories, Inc. and Brian Archbold  (incorporated by reference from Exhibit 10.5.4 to the Company's Current report on Form 8-K filed on September 29, 2021).     21.1 Subsidiaries of Mesa Laboratories, Inc.      23.1 Consent of Plante & Moran, PLLC.   Page 72 Table of Contents   31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).     31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).   32.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.     32.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350.     101.INS+ Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH+ Inline XBRL Taxonomy Extension Schema Document. 101.CAL+ Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF+ Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB+ Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE+ Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104+ Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*).   * Indicates a management contract or compensatory plan, contract or arrangement. α Mesa Laboratories, Inc. has entered into an Executive Employment Agreement with each of Gary M. Owens, John V. Sakys, and Brian Archbold. + Filed electronically herewith.     Item 16. Form 10-K Summary   None.   Page 73 Table of Contents   Signatures   Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.        MESA LABORATORIES, INC.         Registrant                   Date: May 30, 2023 By: /s/  Gary M. Owens       Gary M. Owens         Chief Executive Officer       Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.   Name   Title Date         /s/John J. Sullivan, Ph.D.   Chairman of the Board of Directors May 30, 2023 John J. Sullivan               /s/Gary M. Owens   Chief Executive Officer, President, and Director May 30, 2023 Gary M. Owens               /s/John V. Sakys   Chief Financial Officer and  May 30, 2023 John V. Sakys   Chief Accounting Officer, and Treasurer           /s/Jennifer S. Alltoft   Director May 30, 2023 Jennifer S. Alltoft               /s/Shannon Hall   Director May 30, 2023 Shannon Hall               /s/Shiraz Ladiwala    Director May 30, 2023 Shiraz Ladiwala               /s/John B. Schmieder   Director May 30, 2023 John B. Schmieder               /s/Tony Tripeny   Director May 30, 2023 Tony Tripeny         Page 74