What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2020-09-10 compared with 2019-09-12 · 76 added, 65 removed, 209 unchanged (40% of the section changed)

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Any determinations to pay dividends in the future will be at the discretion of our Board of Directors.

During the fourth quarter of fiscal 2019 and 2018, we repurchased 96,700 and 30,390 shares, respectively, at an aggregate cost of $1.3 million and $202,000, respectively, through a Board approved prearranged share repurchase plan intended to qualify for the safe harbor under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

In February 2017, our Board approved an At The Market Offering Agreement (ATM or 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, 2018, 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.

The shares were sold pursuant to the Companys shelf registration statement on Form S-3, as amended (File No.

333-215032), which was declared effective on February 8, 2017 by the SEC.

There were no sales of common shares during the fiscal year ended June 30, 2019.

During the fourth quarter of fiscal 2020 and 2019, we repurchased 26,353 and 96,700 shares, respectively, at an aggregate cost of $411,000 and $1.3 million, respectively, through Board approved prearranged share repurchase plans intended to qualify for the safe harbor under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

SELECTED FINANCIAL DATA

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The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition for the fiscal years ended June 30, 2020 and 2019.

The Company, headquartered in Irvine, California, specializes in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, spine, and maxocranial facial markets.

The Company, headquartered in Irvine, California, specializes in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets.

Additionally, we provide engineering, quality, and regulatory consulting services to our customers.

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Our products are found in hospitals, medical engineering labs, scientific research facilities, and high-tech manufacturing operations around the world.

COVID-19 Pandemic

We are continuing our business operations under the California exemption for essential critical infrastructure sectors based on our determination that we fall within the Healthcare and Public Health Sector exemption.

As we continue to operate, we have adjusted certain policies and procedures based on applicable national, state, and local emergency orders and safety guidance that may be issued from time to time, including:

Non-essential employees that are able to work remotely are doing so;

Increased frequency of disinfectant cleanings, especially for high-touch surfaces;

Curtailed business travel;

Multiple, staggered work shifts have been implemented in order to achieve effective social distancing;

Provided training, education and appropriate personal protective equipment.

While we have yet to see any decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders.

We provide our largest customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if this pandemic continues to adversely impact the United States and other markets where our products are sold, coupled with the recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from our principal customer.

We are focused on the health and safety of all those we serve our customers, our communities, our employees, and our suppliers.

We are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments.

We are focused on continuity of supply by working with our suppliers.

To date, a total of six of our employees including one temporary agency worker have tested positive for COVID-19 and all of them have made full recoveries and returned to work as of August 18, 2020.

While the COVID-19 pandemic did not materially adversely affect our financial results and business operations in our fiscal year ended June 30, 2020, economic and health conditions in the United States and across much of the globe have changed rapidly since the end of the quarter, and we cannot predict the full impact of the COVID-19 pandemic on our business.

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP.

Our financial statements are prepared in accordance with U.S.

The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures.

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Revenue Recognition

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:

Effective July 1, 2018, we adopted new revenue recognition guidance issued by the Financial Accounting Standards Board (FASB) related to contracts with customers.

Under Accounting Standards Update (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;

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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.

In fiscal 2020, the revenue from NRE and Prototypes represents approximately 2% of total revenue.

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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.

We hold investments in the common stock of public companies that are thinly traded.

These investments were subject to an independent valuation as of June 30, 2020.

Long-lived Assets

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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.

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 loss and tax credit carryovers.

Deferred tax assets at June 30, 2019 and 2018 consisted primarily of basis differences related to research and development tax credit utilization, intangible assets, accrued expenses and inventories.

Deferred tax assets at June 30, 2020 and 2019, consisted primarily of basis differences related to unrealized gain/loss related to investments, fixed assets, accrued expenses and inventories.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

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General and administrative expenses

Asset impairment charges

Gain from disposal of equipment

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Years Ended June 30,

(Decrease) From 2018

(Decrease) From 2019 To 2020

Dollars in thousands

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Industrial and scientific

NRE & Prototypes

NRE & Prototype services

Dental and component

Net sales in fiscal 2019 increased by $4.7 million, or 21%, as compared to fiscal 2018, due primarily to an increase in medical device sales of $4.3 million.

Discounts & Other

Net sales in fiscal 2020 increased by $7.7 million, or 28%, as compared to fiscal 2019, due primarily to an increase in repair revenue of $5.2 million generated mostly from our largest customer.

During fiscal 2020, sales to our largest customer increased by $5.6 million to $22.7 million, up from $17.1 million in fiscal 2019.

We manufacture a surgical handpiece designed to be used in orthopedic surgery applications for this customer and we have continued to see increased demand from this customer.

Sales of our industrial and scientific products, which consists primarily of our compact pneumatic air motors, increased $114,000 or 14 percent for fiscal 2019 compared to fiscal 2018.

Sales of our industrial and scientific products, which consists primarily of our compact pneumatic air motors, decreased $153,000, or 16% for fiscal 2020 compared to fiscal 2019.

The revenue decline relates to a lack of marketing efforts for these legacy products.

Our dental and component revenue is generated from sales to many distributors and end-users whose purchasing activity can vary widely from year to year.

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The cessation of our dental line of products is not expected to have a material impact on our financial position or results of operations.

Our repair revenue has increased approximately $743,000 or 189 percent to $1.1 million, due largely to repairs of the orthopedic device we sell to our largest customer.

Our fiscal 2020 repair revenue has increased approximately $5.2 million, or 458%, over fiscal 2019 to $6.3 million, due largely to repairs of the orthopedic device we sell to our largest customer.

Typically, upon initial product launch, repair revenue is minimal as most repairs are typically covered under warranty, but as the products mature in the marketplace and after a certain number of routine duty cycles in the operating room, repairs generally increase.

We expect to continue to see an increase in repairs in the first quarter of fiscal 2020, but then expect we will reach a level run-rate through the balance of next fiscal year.

Finally, our other revenue decreased $357,000 in fiscal 2019 compared to the prior fiscal year due to revenue generated from our Fineline and ESD Divisions of $358,000 and $10,000, respectively, in fiscal 2018.

Due to declining sales of Fineline, we sold the division in May 2018.

Additionally, and as indicated previously, in April 2017 we made a conscious decision to disband our ESD Division due to poor performance.

We expect similar repair revenue in fiscal 2021.

At June 30, 2020, we had a backlog of $7.0 million compared with a backlog of $17.7 million at June 30, 2019.

Our backlog represents firm purchase orders received and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts.

Our entire backlog at June 30, 2019 is expected to be delivered during fiscal 2020.

Our entire backlog at June 30, 2020, as well as purchase orders received and yet to be received subsequent to June 30, 2020, is expected to be delivered during fiscal 2021.

We have experienced, and may continue to experience, variability in our new order bookings due to, among other reasons, the launch of new products, the timing of customer orders based on end-user demand, and customer inventory levels.

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Years Ended June 30,

(Decrease) From 2018

Increase (Decrease) From 2019 To 2020

Dollars in thousands

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Product costs

Accrued losses on product development services

NRE and Prototype services costs

Under (over)-absorption of manufacturing overhead

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Cost of sales in fiscal 2020 increased $4.3 million, or 25%, from fiscal 2019, primarily due to the increase in product costs, consistent with the 28% increase in net sales.

During fiscal 2018, we accrued $83,000 for losses from the development services portion of certain contracts compared to none in fiscal 2019.

Under-absorption of manufacturing costs decreased by $156,000 for fiscal 2019 compared to fiscal 2018, due primarily to adjustments to our standard labor and overhead rates at the beginning of fiscal 2019 in anticipation of higher manufacturing volumes.

Costs related to inventory and warranty charges increased $48,000 in fiscal 2019 compared to 2018, due primarily to an accrual in the amount of $63,000 for a previously announced product recall related to legacy batteries.

During fiscal 2020, we incurred costs of $1.2 million to generate $834,000 in revenue related to NRE and Proto-type services, netting losses in the amount of $370,000 from the development services portion of certain contracts compared to none in fiscal 2019.

During fiscal 2020, we experienced over-absorption of manufacturing costs compared to an under-absorption in fiscal 2019, due primarily to adjustments to our standard labor and overhead rates at the beginning of fiscal 2020 in anticipation of higher manufacturing volumes.

Costs related to inventory and warranty charges remained relatively flat in fiscal 2020 compared to fiscal 2019.

Operating Expenses

Years Ended June 30,

(Decrease) From 2018

(Decrease) From 2019 To 2020

(Dollars in thousands)

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General and administrative expenses

Asset impairment charges

Research and development costs

Selling expenses consist of salaries and other personnel-related expenses related to our business development department, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining customer relationships.

Selling expenses increased $57,000, or 16%, compared to fiscal 2018, primarily related to increased personnel expenses in the amount of $178,000 as well as recruiting expense of $40,000 offset by decreases in the amount of $156,000 due to the sale of the Fineline division during the fourth quarter of fiscal 2018.

Selling expenses increased $162,000, or 39%, compared to fiscal 2019, primarily related to increased personnel expenses in the amount of $95,000 as well as consulting expenses of $96,000, offset by decreases in recruitment fees of $40,000 due to filling the previously vacant position of Director of Business Development during the first quarter of fiscal 2019.

General and administrative expenses (G&A) consist of salaries and other personnel-related expenses for corporate, accounting, finance, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors fees, and costs associated with being a public company.

The $205,000 increase in G&A expenses from fiscal 2018 to 2019 is due primarily to $120,000 in increased fiscal 2019 bonus accruals and $59,000 in severance expense.

The fiscal 2018 asset impairment charges relate to the impairment of our investment in Monogram in the amount of $800,000 as well as impairment of goodwill and intangible assets in the amount of $229,000 related to Fineline, which was impaired during the second quarter of fiscal 2018 in conjunction with an impairment analysis.

The $697,000 increase in G&A expenses from fiscal 2019 to 2020 is due primarily to $277,000 in increased fiscal 2020 bonus accruals, $93,000 in increased personnel expenses, $249,000 in increased equity compensation expense due to the reallocation of previously forfeited performance awards, and increased professional fees related to outsourced information technology services and audit fees in the amount of $85,000.

Research and development costs consist of salaries and other personnel-related costs of our product development and engineering personnel, related professional and consulting fees, and costs related to intellectual property, laboratory usage, materials, and travel and related costs incurred in the development and support of our products.

The $433,000 increase in research and development costs from fiscal 2019 to fiscal 2020 is due primarily to increased personnel-related costs in the amount of $386,000 and increased recruiting expenses as we hired new engineers during the fiscal 2020.

Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products.

Research and development costs represent between 34% and 39% of total operating expenses and are expected to increase in the future as we continue to invest in product development.

Research and development costs represent between 38% and 39% of total operating expenses during fiscal 2019 and 2020 and are expected to increase in the future as we continue to invest in product development.

The amount spent on projects under development is summarized below (in thousands):

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Sustaining & Other

Customer CMF Driver (1)

Costs incurred related to customer contracts are included in costs of sales and deferred costs and are not included in research and development costs.

We substantially completed this product and began initial shipments of a private-labeled version to an existing CMF customer beginning in the third quarter of fiscal 2020, generating $3.1 million in revenue during fiscal 2020.

This project has been internally pushed back to focus on our new internal Pro-Dex branded ENT shaver.

Internal development of this project is complete, but we are looking for the most attractive sales channel and have yet to sell this product.

As we previously discussed, in early fiscal 2019 we entered a development contract with a current significant customer to private-label our thoracic driver for their unique specifications.

We shipped initial launch quantities of this product during the third quarter ended March 31, 2020.

Additionally, the customer CMF driver listed in the prior year was completed during fiscal 2020 and we began shipping initial quantities to this customer during the fourth quarter of fiscal 2020 and generated $556,000 in revenue related to this new product.

Approximately $6,000 in expenses included in fiscal 2020 sustaining and other is related to the Jet Propulsion Laboratorys Ventilator Intervention Technology Accessible Locally (VITAL), a high-pressure, lower cost ventilator.

In the fourth quarter, we were one of eight US-based companies awarded a license to manufacture the VITAL.

We are currently in the process of creating proto-types for testing and look forward to adding this as a formal product under development in our next fiscal quarter.

We are excited about the opportunity to commercialize this product, which may alleviate some of the ventilator supply chain shortages experienced by hospitals during the COVID-19 pandemic.

Other Income (Expense)

Interest and Dividend Income

Our interest and dividend income includes $183,000 of interest related to our investment in a hotel through the Participation Agreement more fully described in Note 6 to the Financial Statements contained elsewhere in this report as well as $83,000 of interest and dividend income earned from our interest bearing money market accounts and portfolio of equity investments.

Our interest and dividend income earned in fiscal 2020 includes $95,000 earned from our interest-bearing money market accounts and portfolio of equity investments.

The fiscal 2019 interest and dividend income included $183,000 of interest related to an investment in a hotel as well as $83,000 of interest and dividend income earned from our interest-bearing money market accounts and portfolio of equity investments.

During the fourth quarter of fiscal 2020, the Monogram Orthopaedics Inc.

(Monogram) note was repaid with interest and we collected a total of $952,000 during fiscal 2020.

We invested in Monogram, a medical device start-up specializing in precision, patient-specific orthopedic implants in April 2017.

In conjunction with making the loan to Monogram, we were granted the exclusive right to develop, engineer, manufacture, and supply certain products on behalf of Monogram.

We impaired our entire $800,000 investment during the fourth quarter of fiscal 2018 due to indications that Monogram had exhausted its cash and had been unable to obtain additional financing to enable continued research to commercialize their technology.

Gain on Sale of Investments

During the fourth quarter of fiscal 2020, we liquidated one of the stocks in our portfolio of equity investments receiving proceeds of $128,000 and recording a gain of $25,000.

During the quarter ended December 31, 2018, we liquidated one of the stocks in our portfolio of equity investments receiving proceeds of $1.9 million and recording a gain on the sale in the amount of $356,000.

Interest Expense

Interest expense consists primarily of interest expense related to the Term Loan from Minnesota Bank & Trust (MBT) described more fully in Note 7 to the Financial Statements contained elsewhere in this report and capital lease obligations for leased equipment.

The effective tax rate for the years ended June 30, 2019 and 2018 was 24% and 38%, respectively.

The decrease in the fiscal 2019 effective tax rate is due to the benefit of applying the new federal corporate income tax rate of 21% to the full fiscal year.

The fiscal 2018 rate represents a blended rate for the rates in existence before and after the December 22, 2017 adoption of the Tax Cuts and Jobs Act.

Interest expense incurred in fiscal 2020 and 2019, consists primarily of interest expense related to the Term Loan from Minnesota Bank & Trust (MBT) described more fully in Note 6 to the Financial Statements contained elsewhere in this report and capital lease obligations for leased equipment.

The effective tax rate for the years ended June 30, 2020 and 2019, was consistent at 23% and 24%, respectively.

Liquidity and Capital Resources

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Cash Flows from Operating Activities

Cash provided by operating activities during fiscal 2020 relates primarily to our net income of $6.1 million, the non-cash depreciation and amortization and stock compensation expense of $573,000 and $286,000, respectively, offset by a gain on collection of a note receivable in the amount of $952,000, an increase in inventory in the amount of $2.0 million due to projected increased demand relating to two of our newest product launches, and an increase in accounts receivable in the amount of $1.1 million.

Offsetting the use of cash for inventory purchases and accounts receivable increases, our accounts payable, accrued expenses and deferred rent increased by $604,000 and our income taxes payable increased by $642,000, while our prepaid expenses and other assets decreased by $476,000.

Cash provided by operating activities during fiscal 2019 was $3.3 million and relates primarily to our net income of $4.1 million, non-cash depreciation and amortization in the amount of $438,000, and the non-cash decrease in the deferred income taxes of $1.4 million, offset by an increase in inventory in the amount of $1.8 million due to projected increased sales, and an increase in accounts receivable of $1.1 million.

Cash provided by operating activities during fiscal 2018 relates primarily to our net income of $1.6 million and non-cash asset impairment charge of $1.0 million, the non-cash decrease in deferred income taxes of $391,000, and non-cash depreciation and amortization and stock compensation expense of $557,000 and $194,000, respectively, offset by an increase in inventory in the amount of $1.3 million due to projected increased demand from our largest customer.

Offsetting the use of cash for inventory purchases, our accounts receivable decreased by $569,000 and our income taxes payable increased by $123,000.

Cash Flows from Investing Activities

Net cash used in investing activities in fiscal 2020 was $2.3 million and related primarily to the purchase of $2.8 million in marketable equity securities as well as purchases of $519,000 in equipment and leasehold improvements offset by the collection of a previously impaired note receivable due from Monogram in the amount of $952,000.

Net cash used in investing activities in fiscal 2019 was $1.2 million.

During the 2019 fiscal year, we invested $3.0 million in the purchase of marketable equity securities and generated $1.9 million in proceeds from sales of marketable equity securities under the direction of the Investment Committee of our Board, made capital expenditures in the amount of $1.4 million primarily for manufacturing equipment and collected $1.2 million from the Loan Participation described more fully in Note 6 to the Financial Statements contained elsewhere in this report.

Net cash used in investing activities in fiscal 2018 was $4.1 million and related to the $1,150,000 Participation Agreement and the additional $350,000 investment made in Monogram.

In addition, we invested $923,000 in equipment and $1.7 million in marketable equity securities during fiscal year 2018.

During the 2019 fiscal year, we invested $3.0 million in the purchase of marketable equity securities and generated $1.9 million in proceeds from sales of marketable equity securities under the direction of the Investment Committee of our Board, made capital expenditures in the amount of $1.4 million primarily for manufacturing equipment, and collected $1.2 million from collection of a note receivable.

Cash Flows from Financing Activities

Net cash used in financing activities for fiscal 2020 totaled $4.0 million and related primarily to the $3.4 million repurchase of 231,274 shares of our common stock pursuant to our share repurchase program, as well as $630,000 of principal payments on our term loan from Minnesota Bank and Trust (MBT) and an equipment lease more fully described in Note 6 to the Financial Statements contained elsewhere in this report.

Net cash provided by financing activities for fiscal 2019 included $5.0 million in a term loan from MBT more fully described in Note 6 to the Financial Statements contained elsewhere in this report, offset by $433,000 of principal payments on the MBT term loan and an equipment lease, as well as $4.0 million related to the repurchase of 322,068 shares of our common stock pursuant to our share repurchase program.

During fiscal 2018, we generated $2.3 million in cash from financing activities through sales of our common stock under our ATM program more fully described in Note 12 to the Financial Statements contained elsewhere in this report.

We also spent $220,000 on the repurchase of 33,026 shares of our common stock pursuant to the share repurchase program described in more detail below.

Liquidity Requirements for the Next 12 Months

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In particular, we have experienced negative operating cash flow in the past, especially as we procure long-lead time materials to satisfy our backlog, which can be subject to extensive variability.

We believe that if we need additional capital to fund our operations, we can raise additional capital by selling additional shares of our common stock through our ATM or borrow against our Revolving Loan with MBT.

We believe that if we need additional capital to fund our operations, we can borrow against our revolving loan with MBT.

Surplus Capital Investment Policy

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Swenson (Chair), Cabillot, and Van Kirk.

The Investment Committee approved each of the investments comprising the $3.2 million of marketable public equity securities held at June 30, 2019, which amount includes unrealized holding losses in the amount of $549,000 at June 30, 2019.

In September 2013, our Board approved a share repurchase program authorizing the Company to repurchase up to 750,000 shares of our common stock under parameters to be determined by the Investment Committee.

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.

The Investment Committee approved each of the investments comprising the $4.9 million of marketable public equity securities held at June 30, 2020, which amount includes unrealized holding losses in the amount of $1.6 million at June 30, 2020.

In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan, authorized by our Board in 2013, authorizing the repurchase of 750,000 shares of common stock was nearing completion.

In accordance with, and as part of, these share repurchase programs, 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, 2020, we repurchased 231,274 shares at an aggregate cost, inclusive of fees under the Plan, of $3.4 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 fees under the Plan, of $5.1 million.

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 819,325 shares under the share repurchase programs at an aggregate cost, inclusive of fess under the Plan, of $8.5 million.

All repurchases under the 10b5-1 Plans were administered through an independent broker.

Recent Accounting Pronouncements

On July 1, 2019, we adopted ASU 2016-02, (Topic 842) Leases , using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of fiscal 2020.

The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

The impact of adoption was an increase to long-term assets and total liabilities each in the amount of approximately $3.3 million as of July 1, 2019.

On July 1, 2018, we adopted ASU 2014-09, (Topic 606) "

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Accordingly, the timing of revenue recognition is not materially impacted by the new standard.

In February 2016, the FASB issued ASU 2016-02, (Topic 842) Leases .

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 the adoption will lead to an approximate $3.3 million increase in the assets and liabilities recorded on our balance sheet.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity