Item 9A. Controls and Procedures
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, 2024. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of March 31, 2024.
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, 2024, 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, 2024 due to the material weaknesses described below.
Material Weaknesses
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.
Management identified a material weakness in the design of our controls over accounting for complex and non-routine transactions. Specifically, Management did not have adequate supervision and review controls over the complex accounting for goodwill impairment and acquisitions. This material weakness did not result in an error in any of our previously issued consolidated financial statements including the consolidated financial statements as of and for the year ended March 31, 2024.
Management identified a material weakness in the design of our controls over determining the useful lives of our recently acquired intangibles. Specifically, while still in the measurement period related to the acquisition of GKE, Management selected a useful life related to customer relationships acquired in the GKE acquisition, but there was evidence that a longer useful life may be appropriate. This material weakness did not result in a material error in any of our previously issued consolidated financial statements including the consolidated financial statements as of and for the year ended March 31, 2024.
Additionally, during the year ended March 31, 2024, Management identified that several change management and logical access controls related to our enterprise resource planning tool were not operating effectively for portions of the year ended March 31, 2024. The failure of these information technology general controls extended to automated application controls across portions of financial reporting and business transaction cycles which rely upon the affected information technology application controls. This combination of control deficiencies indicates that there is a reasonable possibility that a material misstatement could fail to be detected on a timely basis. Upon discovery of the failures, Management performed reviews of system data to ascertain whether change management processes had been used inappropriately and identified no instances of misuse of roles or unapproved changes to the enterprise resource planning tool. Management promptly initiated corrective actions to remediate the deficient controls that resulted in the material weakness; however, there are insufficient instances of each control having operated to evidence remediation of each control deficiency that aggregated to the material weakness. This material weakness did not result in an error in any of our previously issued financial statements, including the consolidated financial statements as of and for the year ended March 31, 2024.
Remediation Plans
Following identification of the material weaknesses, and as part of our commitment to strengthen our internal control over financial reporting, we are implementing remedial actions under the oversight of the Audit Committee of our Board of Directors to address our material weaknesses.
Technical accounting related to non-routine transactions
On highly-technical, non-routine and complex accounting transactions, we will begin to engage third-party advisors with the requisite skills and technical expertise to assist us in an appropriate combination of assessing, performing or reviewing such transactions. Specifically, we intend to:
●
identify non-routine transactions that arise and evaluate whether the transaction warrants additional advisor oversight or validation of analyses based on complexity or changes in applicable regulations;
●
identify and select qualified third-party advisors, ensuring that those advisors have adequate knowledge to prepare or review the specific complex accounting transaction contemplated;
●
ensure that third-party providers follow a process that incorporates appropriate review controls;
●
perform a final internal review over the work of third parties to ensure Management consensus with the work product.
Assessment of useful lives of recently acquired intangibles
During the first quarter of fiscal year 2025, during the measurement period related to the GKE acquisition, we will modify the useful life of our customer relationship intangible and record a cumulative effect true up to release amortization expense.
Information technology general controls
Management has modified the reports used as source data to test change management in its enterprise resource planning tool. Additionally, Management has designed a control to enhance its review of roles, particularly those with ability add, edit, or delete transactions. We believe that executing these steps will provide sufficient evidence to remediate the deficiencies related to operating effectiveness and design of our controls.
Management intends to thoroughly evaluate the design of its information technology application controls related to its enterprise resource planning tool and other in scope systems during its fiscal year 2025. Management may leverage the use of a third party specialist to accomplish this evaluation.
We will continue to monitor the design and operating effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.
Our CEO and CFO have certified that, based on their knowledge, our consolidated financial statements and other financial information included in this Annual Report on Form 10-K (“Form 10-K”), fairly present, in all material respects, our financial condition, results of operations and cash flows as of, and for, the periods presented in this Form 10-K.
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Prior Year Material Weakness
As disclosed in Part II Item 9A. Controls and Procedures in our annual report on Form 10-K filed with the Securities and Exchange Commission on May 30, 2023 for the year ended March 31, 2023, we identified two material weaknesses in internal controls:
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.
2) Management's review controls over the qualitative assessment of goodwill impairment were insufficient to identify potential impairment triggers.
Remediation Status for Prior Year Material Weaknesses in Internal Control Over Financial Reporting
In response to the material weaknesses identified in the prior year we, with the oversight from the Audit Committee of the Board of Directors, developed a plan to remediate the material weaknesses. Our remediation plan required that:
1) Management will utilize a valuation specialist with the requisite knowledge to perform such valuations for all acquisitions of businesses.
2) Members of Management with requisite knowledge perform formal quarterly analyses of potential impairment triggers.
As a result of control activities performed during fiscal year 2024, we concluded that the material weakness regarding fair value calculations was remediated as of June 30, 2023, and the material weakness regarding goodwill impairment assessments was remediated as of September 30, 2023. We will continue to perform formal quarterly impairment trigger analyses in future periods. We will likewise continue to utilize a valuation specialist with the requisite knowledge to perform valuations for all future acquisitions of businesses, as such acquisitions occur.
RSM US LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Form 10-K, has issued an unqualified opinion on our consolidated financial statements and has issued an attestation report on our internal control over financial reporting as of March 31, 2024 within Item 8. Financial Statements and Supplementary Data in this annual report on Form 10-K.
Changes in internal control over financial reporting
We acquired GKE in the third quarter of our fiscal year 2024. The financial results of each of these acquisitions are included in our audited consolidated financial statements as of March 31, 2024. The Company's total assets as of March 31, 2024 include $113.5 million from GKE. The Company's consolidated revenues for the year ended March 31, 2024 includes $9.2 million from GKE. As the acquisition occurred in the third quarter of fiscal year 2024, the scope of our assessment of our internal control over financial reporting does not include the acquisition. This exclusion is in accordance with the Securities and Exchange Commission’s guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.
Other than the items discussed above, there were no other changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three and twelve months ended March 31, 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference from the definitive Proxy Statement for our 2024 Annual Me eting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2024.
Item 11. Executive Compensation
Incorporated by reference from the definitive Proxy Statement for our 2024 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2024.
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, 2024. 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
287,408
$
181.89
372,953
Equity Compensation Plans Not Approved by Security Holders
None
N/A
None
Total
287,408
$
181.89
372,953
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, 2024. The weighted average exercise price in column (b) includes the weighted average exercise price of options only.
2.
Includes 372,953 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 2024 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference from the definitive Proxy Statement for our 2024 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2024.
Item 14. Principal Accountant Fees and Services
RSM US LLP , Los Angeles, California , PCAOB ID 49 is the Company's independent registered public accounting firm.
Plante & Moran, PPLC, Denver Colorado, PCAOB ID 166 was the Company's independent registered public accounting firm from 1986 to 2023 and issued opinions on prior period amounts presented in this Form 10-K.
Incorporated by reference from the definitive Proxy Statement for our 2024 Annual Meeting of Stockholders or an amendment to this report to be filed no later than 120 days after March 31, 2024.
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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:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets - March 31, 2024 and 2023
Consolidated Statements of Operations - Years ended March 31, 2024, 2023 and 2022
Consolidated Statements of Comprehensive (Loss) - Years ended March 31, 2024, 2023 and 2022
Consolidated Statements of Stockholders' Equity - Years ended March 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows - Years ended March 31, 2024, 2023 and 2022
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
Amended and Restated Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 25, 2023).
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.
10.1
Amended and Restated Credit Agreement, dated as of April 5, 2024, by and among the Company, the guarantors and lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the joint lead arrangers and joint bookrunners party thereto. (incorporated by reference from exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 8, 2024).
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).
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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).
19.1
Mesa Laboratories, Inc. Insider Trading Policy and Standards with Respect to Confidentiality and Certain Securities Transactions
21.1
Subsidiaries of Mesa Laboratories, Inc.
23.1
Consent of RSM US LLP.
23.2
Consent of Plante & Moran, PLLC .
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.
97.1
Mesa Laboratories, Inc. Executive Compensation Clawback Policy
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.
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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: June 28, 2024
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
June 28, 2024
John J. Sullivan
/s/Gary M. Owens
Chief Executive Officer, President, and Director
June 28, 2024
Gary M. Owens
/s/John V. Sakys
Chief Financial Officer and
June 28, 2024
John V. Sakys
Chief Accounting Officer, and Treasurer
/s/Jennifer S. Alltoft
Director
June 28, 2024
Jennifer S. Alltoft
/s/Mark C. Capone
Director
June 28, 2024
Mark C. Capone
/s/Shannon M. Hall
Director
June 28, 2024
Shannon M. Hall
/s/Shiraz S. Ladiwala
Director
June 28, 2024
Shiraz S. Ladiwala
/s/Tony Tripeny
Director
June 28, 2024
Tony Tripeny
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