UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 20232024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 0-14942

PRO-DEX, INCINC..

(Exact name of registrant as specified in its charter)

———————

colorado84-1261240
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)

2361 McGaw Avenue, Irvine, California 92614

(Address of principal executive offices and zip code)

((949)949) 769-3200

(Registrant's telephone number, including area code)

———————

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valuePDEXNASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   Accelerated filer   
Non-accelerated filer     Smaller reporting company  
Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock outstanding as of the latest practicable date: 3,545,3093,419,089 shares of common stock, no par value, as of May 4, 2023.April 30, 2024.

 

 
 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

 

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIXNINE MONTHS ENDED MARCH 31, 20232024

 

TABLE OF CONTENTS

 

 

Page
PART I — FINANCIAL INFORMATION
ITEM 1.       FINANCIAL STATEMENTS (Unaudited)1
Condensed Consolidated Balance Sheetsas of March 31, 20232024 and June 30, 202220231
Condensed Consolidated Statements of Income Statementsfor the Three and Nine Months Ended March 31, 20232024 and 202220232
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended March 31, 20232024 and 2022202333
Condensed Consolidated Statements of Cash Flowsfor the Nine Months Ended March 31, 20232024 and  202220234
Notes to Condensed Consolidated Financial Statements6
ITEM 2.2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS1820
ITEM 3.3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK2625
ITEM 4.4.       CONTROLS AND PROCEDURES2625
PART II — OTHER INFORMATION
ITEM 1.       LEGAL PROCEEDINGS2829
ITEM 1A.    RISK FACTORS2829
ITEM 2.2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS2830
ITEM 5.       OTHER INFORMATION 30
  
ITEM 6.      EXHIBITS2930
SIGNATURES3031

 

 

i

 
 

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)

 

         
  March 31,
2023
  June 30,
2022
 
ASSETS        
Current Assets:        
Cash and cash equivalents $2,088  $849 
Investments  1,149   755 
Accounts receivable, net of allowance for doubtful accounts of $2 and $0 at March 31, 2023 and at June 30, 2022, respectively  10,565   15,384 
Deferred costs  279   710 
Inventory  15,145   12,678 
Prepaid expenses and other current assets  1,919   790 
Total current assets  31,145   31,166 
Land and building, net  6,273   6,343 
Equipment and leasehold improvements, net  5,162   4,833 
Right of use asset, net  1,968   2,248 
Intangibles, net  87   118 
Deferred income taxes, net  764   797 
Investments  1,534   1,779 
Other assets  42   42 
Total assets $46,975  $47,326 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable $3,068  $3,761 
Accrued expenses  2,425   2,751 
Deferred revenue  57   1,013 
Income taxes payable  1,480   544 
Note payable  3,114   3,285 
Total current liabilities  10,144   11,354 
Lease liability, net of current portion  1,745   2,054 
Notes payable, net of current portion  9,247   10,250 
Total non-current liabilities  10,992   12,304 
Total liabilities  21,136   23,658 
 Shareholders’ equity:        
Common shares; no par value; 50,000,000 shares authorized; 3,545,309 and 3,596,131 shares issued and outstanding at March 31, 2023 and June 30, 2022, respectively  6,585   7,682 
Retained earnings  19,254   15,986 
Total shareholders’ equity  25,839   23,668 
Total liabilities and shareholders’ equity $46,975  $47,326 

       
  March 31,
2024
  June 30,
2023
 
ASSETS        
Current Assets:        
Cash and cash equivalents $3,219  $2,936 
Investments  4,577   1,134 
Accounts receivable, net of allowance for expected credit losses of $1 and $0 at March 31, 2024 and at June 30, 2023, respectively  12,516   9,952 
Deferred costs  331   494 
Inventory  14,242   16,167 
Prepaid expenses and other current assets  1,072   296 
Total current assets  35,957   30,979 
Land and building, net  6,179   6,249 
Equipment and leasehold improvements, net  5,191   5,079 
Right of use asset, net  1,575   1,872 
Intangibles, net  61   81 
Investments  1,543   7,521 
Other assets  42   42 
Total assets $50,548  $51,823 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable $3,435  $2,261 
Accrued expenses  2,701   3,135 
Deferred revenue  35    
Income taxes payable  390   453 
Note payable  3,858   3,827 
Total current liabilities  10,419   9,676 
Lease liability, net of current portion  1,299   1,638 
Deferred income taxes, net  8   8 
Notes payable, net of current portion  7,884   8,911 
Total non-current liabilities  9,191   10,557 
Total liabilities  19,610   20,233 
 Shareholders’ equity:        
Common shares; no par value; 50,000,000 shares authorized; 3,451,423 and 3,545,309 shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively  5,575   6,767 
Retained earnings  25,363   24,823 
Total shareholders’ equity  30,938   31,590 
Total liabilities and shareholders’ equity $50,548  $51,823 
         

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED INCOME STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

             
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2023  2022  2023  2022 
             
Net sales $13,079  $9,265  $35,448  $29,426 
Cost of sales  9,268   6,407   26,058   19,737 
Gross profit  3,811   2,858   9,390   9,689 
                 
Operating expenses:                
Selling expenses  24   20   146   79 
General and administrative expenses  1,009   1,145   2,983   3,402 
Loss on disposal of equipment       14        14 
Research and development costs  713   658   2,109   2,254 
Total operating expenses  1,746   1,837   5,238   5,749 
                 
Operating income  2,065   1,021   4,152   3,940 
Interest expense  (131)  (112)  (389)  (349)
Unrealized gain (loss) on marketable equity investments  (177)  (275)  231   (427)
Interest and other income  11        235   50 
Gain on sale of investments            7      
Income before income taxes  1,768   634   4,236   3,214 
Income tax expense  (455)  (172)  (968)  (764)
Net income $1,313  $462  $3,268  $2,450 
                 
Basic net income per share:                
Net income $0.37  $0.13  $0.91  $0.67 
Diluted net income per share:                
     Net income $0.36  $0.12  $0.89  $0.65 
                 
Weighted average common shares outstanding:                
Basic  3,548   3,626   3,580   3,645 
Diluted  3,623   3,749   3,656   3,774 
Common shares outstanding  3,545   3,618   3,545   3,618 

 

                 
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2024  2023  2024  2023 
     (restated)     (restated) 
Net sales $14,293  $13,079  $38,819  $35,448 
Cost of sales  10,291   9,268   28,357   26,058 
Gross profit  4,002   3,811   10,462   9,390 
                 
Operating expenses:                
Selling expenses  17   24   79   146 
General and administrative expenses  1,012   1,009   3,208   2,983 
Research and development costs  760   713   2,353   2,109 
Total operating expenses  1,789   1,746   5,640   5,238 
                 
Operating income  2,213   2,065   4,822   4,152 
Interest expense  138   131   409   389 
Unrealized gain (loss) on marketable equity investments  (1,192)  242   (3,785)  3,407 
Interest and other income  30   11   76   235 
Gain on sale of investments           7 
Income before income taxes  913   2,187   704   7,412 
Income tax expense  258   570   164   1,840 
Net income $655  $1,617  $540  $5,572 
                 
Basic net income per share:                
Net income $0.19  $0.46  $0.15  $1.56 
Diluted net income per share:                
     Net income $0.19  $0.45  $0.15  $1.52 
                 
                 
Weighted average common shares outstanding:                
Basic  3,451   3,548   3,531   3,580 
Diluted  3,524   3,623   3,604   3,656 
Common shares outstanding  3,451   3,545   3,451   3,545 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

                 
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2023  2022  2023  2022 
Common shares:            
Balance, beginning of period $6,533  $7,886  $7,682  $7,953 
Share-based compensation expense  206   358   584   932 
Share repurchases  (198)  (584)  (1,547)  (1,255)
Shares withheld from common stock issued to pay employee payroll taxes            (223)     
Exercise of stock options            11      
ESPP shares issued  44   30   78   60 
Balance, at end of period $6,585  $7,690  $6,585  $7,690 
                 
Retained earnings:                
Balance, beginning of period $17,941  $14,119  $15,986  $12,131 
Net income  1,313   462   3,268   2,450 
Balance, at end of period $19,254  $14,581  $19,254  $14,581 
Balance, beginning of period        23,668    
Net income  1,313   462   3,268   2,450 
                 
Total shareholders’ equity $25,839  $22,271  $25,839  $22,271 

 

                 
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2024  2023  2024  2023 
Common shares:    (restated)     (restated) 
Balance, beginning of period $7,078  $6,533  $6,767  $7,682 
Share-based compensation expense  201   206   588   584 
Share repurchases  (1,722)  (198)  (1,830)  (1,547)
Shares withheld from common stock issued to pay employee payroll taxes           (223)
Exercise of stock options           11 
ESPP shares issued  18   44   50   78 
Balance, at end of period $5,575  $6,585  $5,575  $6,585 
                 
Retained earnings:                
Balance, beginning of period $24,708  $21,704  $24,823  $17,749 
Net income  655   1,617   540   5,572 
Balance, at end of period $25,363  $23,321  $25,363  $23,321 
Balance, beginning of period        31,590    
Net income (loss)  655   1,617   540   5,572 
                 
Total shareholders’ equity $30,938  $29,906  $30,938  $29,906 

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

         
  Nine Months Ended
March 31,
 
  2024  2023 
CASH FLOWS FROM OPERATING ACTIVITIES:    (restated) 
Net income $540  $5,572 
Adjustments to reconcile net income to net cash provided by operating activities:        
 Depreciation and amortization  854   594 
Amortization of loan fees, net  (6)  8 
Share-based compensation  588   584 
Unrealized (gain) loss on marketable equity investments  3,785   (3,407)
Non-cash straight-line lease amortization  (12)  (1)
Gain on sale of investments     (7)
Deferred income taxes     905 
Bad debt expense  1   2 
Changes in operating assets and liabilities:        
Accounts receivable and other current receivables  (2,565)  4,817 
Deferred costs  163   431 
Inventory  1,925   (2,467)
Prepaid expenses and other assets  (776)  (1,129)
Accounts payable and accrued expenses  710   (1,047)
Deferred revenue  35   (956)
Income taxes payable  (63)  936 
Net cash provided by operating activities  5,179   4,835 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of investments  (1,250)   
Purchases of equipment and improvements  (876)  (822)
Proceeds from sale of investments     89 
Net cash used in investing activities  (2,126)  (733)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repurchases of common stock  (1,830)  (1,547)
Proceeds from exercise of options and ESPP contributions  50   89 
Payment of employee payroll taxes on net issuance of common stock     (223)
Proceeds from Minnesota Bank & Trust revolving loan, net of fees  2,000   3,584 
Principal payments on notes payable and revolving loan  (2,990)  (4,766)
Net cash used in financing activities  (2,770)  (2,863)
         
Net increase in cash and cash equivalents  283   1,239 
Cash and cash equivalents, beginning of period  2,936   849 
Cash and cash equivalents, end of period $3,219  $2,088 
         

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

PRO-DEX, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

         
  Nine Months Ended
March 31,
 
  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $3,268  $2,450 
Adjustments to reconcile net income to net cash provided by operating activities:        
 Depreciation and amortization  594   546 
 Amortization of loan fees  8   7 
 Share-based compensation  584   932 
Unrealized (gain) loss on marketable equity investments  (231)  427 
Non-cash straight-line lease amortization  (1)  10 
Gain on sale of investments  (7)     
Impairment of long-lived assets       61 
Deferred income taxes  33      
Bad debt expense (recovery)  2   (2)
Changes in operating assets and liabilities:        
Accounts receivable and other current receivables  4,817   2,255 
Deferred costs  431   (148)
Inventory  (2,467)  (3,429)
Prepaid expenses and other assets  (1,129)  (863)
Accounts payable and accrued expenses  (1,047)  673 
Deferred revenue  (956)  746 
Income taxes payable  936   767 
Net cash provided by operating activities  4,835   4,432 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of investments       (334)
Purchases of equipment and improvements  (822)  (1,270)
Proceeds from sale of investments  89      
Increase in intangibles       (32)
Net cash used in investing activities  (733)  (1,636)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repurchases of common stock  (1,547)  (1,255)
    Proceeds from exercise of options and ESPP contributions  89   60 
    Payment of employee payroll taxes on net issuance of common stock  (223)     
    Proceeds from Minnesota Bank & Trust revolving loan, net of fees  3,584      
Principal payments on notes payable and revolving loan  (4,766)  (561)
Net cash used in financing activities  (2,863)  (1,756)
         
Net increase in cash and cash equivalents  1,239   1,040 
Cash and cash equivalents, beginning of period  849   3,721 
Cash and cash equivalents, end of period $2,088  $4,761 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

 

 Nine Months Ended
March 31,
  Nine Months Ended
March 31,
 
 2023  2022  2024  2023 
Supplemental disclosures of cash flow information:             
             
Cash paid during the period for:                
Interest $384  $311  $409  $384 
Income taxes $1,107  $1,025  $980  $1,107 
        
Non-cash investing and financing activity:        
Cashless stock option exercise $  $45 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

PRO-DEX INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.2023. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2022.2023.

Recently IssuedAdopted Accounting Pronouncements

In June 2016,March 2022, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “FinancialNo 2022-02 (Topic 326) Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introducesto create a forward-looking approach, based on expected losses, to estimatenew model for credit losses on certain types of financial instruments, including trade receivables. The estimate ofthat reflects current expected credit losses will require entities(“CECL”) over the lifetime of the underlying accounts receivable. The CECL methodology is applicable to incorporate considerations of historical information, current information,our trade accounts receivable and reasonableour deferred costs. We adopted ASU 2022-02 effective July 1, 2023, and supportable forecasts.the adoption did not have a material impact on our financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU No 2023-09 (Topic 740) Income Taxes – Improvements to Income Tax Disclosures to enhance disclosures for the income tax rate reconciliation as well as cash income taxes paid by jurisdiction. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidanceamendment is effective for our fiscal years beginning after December 15, 2022 (fiscal 2024 foryear ending June 30, 2025. While we are still evaluating the Company) with early adoption permitted. We do not believespecifics of the adoption, ofwe anticipate this ASUguidance will have a significant impact on our consolidated financial statements.annual income tax disclosures.

 

There are no other recently issued accounting pronouncements thatCorrection of Previously Reported Interim Condensed Consolidated Financial Statements

As described in more detail in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2023, we have not yet adopted that we believe will have a material effect onpreviously restated certain of our financial statements.statements, including our financial statements for the three and nine months ended March 31, 2023, to correct the estimated fair value of our warrant to purchase up to five percent (5%) of the outstanding capital stock of Monogram Orthopaedics Inc. (NasdaqCM: MGRM), calculated on a fully diluted basis (the “Monogram Warrant”). The restatement recorded, for all restated periods, the Monogram Warrant at its estimated fair value, an unrealized gain on investments, and the deferred income tax expense associated with the corresponding unrealized gain on investments.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

Presented below are the changes to each financial statement line item for the three and nine months ended March 31, 2023 that were affected by the restatement (in thousands except per share amounts).

Three months ended March 31, 2023 Unaudited Income Statement (Third Quarter Fiscal 2023)

Schedule of changes in financial statement            
  As Previously Reported  Restatement  As Restated 
          
Unrealized gain(loss) on investments $(177) $419(a) $242 
Total other income (expense)  (297)  419   122 
Income before income taxes  1,768   419   2,187 
Income tax expense  455   115(b)  570 
Net income  1,313   304   1,617 
Basic income per share $0.37  $0.09  $0.46 
Diluted income per share $0.36  $0.09  $0.45 

(a)This amount represents the unrealized gain on the Monogram Warrant for the three months ended March 31, 2023.
(b)This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the three months ended March 31, 2023.

Nine months ended March 31, 2023 Unaudited Income Statement

             
  As Previously Reported  Restatement  As Restated 
          
Unrealized gain(loss) on investments $231  $3,176(a) $3,407 
Total other income (expense)  84   3,176   3,260 
Income before income taxes  4,236   3,176   7,412 
Income tax expense  968   872(b)  1,840 
Net income  3,268   2,304   5,572 
Basic income per share $0.92  $0.64  $1.56 
Diluted income per share $0.89  $0.63  $1.52 

(a)This amount represents the unrealized gain on the Monogram Warrant for the nine months ended March 31, 2023.
(b)This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the nine months ended March 31, 2023.

NOTE 2. DESCRIPTION OF BUSINESS

We specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, 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.

 

In August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued growth of our business. The condensed consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations.

 

67 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)(Unaudited)

(In thousands)

 

NOTE 3. NET SALES

 

The following table presents the disaggregation of net sales by revenue recognition model (in thousands):

Schedule of disaggregation of net sales                                
 Three Months Ended
March 31,
  Nine Months Ended
March 31,
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023  2024  2023 
Net Sales:                                
Over-time revenue recognition $970  $549  $2,361  $859  $234  $970  $762  $2,361 
Point-in-time revenue recognition  12,109   8,716   33,087   28,567   14,059   12,109   38,057   33,087 
Total net sales $13,079  $9,265  $35,448  $29,426  $14,293  $13,079  $38,819  $35,448 

 

The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets), where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition model consists of non-recurring engineering (“NRE”) and prototype services and typically relates to NRE services related to the evaluation, design or customization of a medical device and is typically recognized over time utilizing an input measure of progress based on costs incurred compared to the estimated total costs upon completion. During the three and nine months ended March 31, 2023,2024, we recorded $did 405,000no and $956,000, respectively, oft record any revenue that had been included in deferred revenue in the prior year. During the three and nine months ended March 31, 2022,2023, we did recorded $405,000 and $no956,000t record any, respectively, of revenue that had been included in deferred revenue in the prior year. The revenue recognized from the contract liabilities consisted of satisfying our performance obligations during the normal course of business. Our entire deferred revenue balance of $57,00035,000 at March 31, 2023,2024, is currently expected to be recognized in the next 12-month period.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

The following tables summarize our contract assets and liability balances (in thousands):

Schedule of contract assets and liability                                
 

As of and for the

Three Months Ended
March 31,

 

As of and for the

Nine Months Ended
March 31,

  

As of and for the

Three Months Ended
March 31,

 

As of and for the

Nine Months Ended
March 31,

 
 2023  2022  2023  2022  2024  2023  2024  2023 
Contract assets beginning balance $877  $424  $710  $193  $412  $877  $494  $710 
Expenses incurred during the year  362  $371  $1,108  $732   106  362  376  1,108 
Amounts reclassified to cost of sales  (935)  (445)  (1,497)  (556)  (179)  (935)  (505)  (1,497)
Amounts allocated to discounts for standalone selling price  (25)  (9)  (42)  (28)  (8)  (25)  (34)  (42)
Contract assets ending balance $279  $341  $279  $341  $331  $279  $331  $279 

 

                
  

As of and for the

Three Months Ended
March 31,

  

As of and for the

Nine Months Ended
March 31,

 
  2023  2022  2023  2022 
Contract liabilities beginning balance $851  $584  $1,013  $150 
     Payments received from customers  41  $861  $741  $1,393 
     Amounts reclassified to revenue  (835)  (549)  (1,697)  (647)
Contract liabilities ending balance $57  $896  $57  $896 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  

As of and for the

Three Months Ended
March 31,

  

As of and for the

Nine Months Ended
March 31,

 
  2024  2023  2024  2023 
Contract liabilities beginning balance $  $851  $  $1,013 
     Payments received from customers  225  41  267  741 
     Amounts reclassified to revenue  (190)  (835)  (232)  (1,697)
Contract liabilities ending balance $35  $57  $35  $57 

 

NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):

Schedule of inventory        
  March 31,
2024
  June 30,
2023
 
Raw materials /purchased components $6,383  $8,824 
Work in process  3,944   3,686 
Sub-assemblies/finished components  2,379   2,387 
Finished goods  1,536   1,270 
Total inventory $14,242  $16,167 

Schedule of inventory      
  March 31,
2023
  June 30,
2022
 
Raw materials /purchased components $8,673  $6,323 
Work in process  2,991   3,463 
Sub-assemblies/finished components  2,058   2,118 
Finished goods  1,423   774 
Total inventory $15,145  $12,678 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

 

Investments

Investments are stated at market value and consist of the following (in thousands):

Schedule of investments      
  March 31,
2023
  June 30,
2022
 
Marketable equity securities - short-term $1,149  $755 
Marketable equity securities - long-term  1,534   1,779 
Total marketable equity securities $2,683  $2,534 
Schedule of investments        
  

March 31,

2024

  

June 30,

2023

 
Current:        
Marketable equity securities – short-term $4,577  $1,134 
Long-term:        
Warrant     6,160 
Marketable equity securities – long-term  1,543   1,361 
Total Investments $6,120  $8,655 

Investments at March 31, 20232024 and June 30, 2022,2023 had an aggregate cost basis of $2,714,0003,964,000 and $2,796,0002,714,000, respectively. The long-term investments include equity investments of thinly traded securities that we classified as long term in nature because if we decide to sell these securities, we may not be able to sell our position within one year. At March 31, 2024, the investments included net unrealized gains of $2.2 million (gross unrealized gains of $2.4 million offset by gross unrealized losses of $253,000). At June 30, 2023, the investments, excluding the Monogram Warrant, included net unrealized losses of $31,000219,000 (gross unrealized losses of $113,000286,000 offset by gross unrealized gains of $82,00067,000). At June 30, 2022, the investments included net unrealized losses of $262,000 (gross unrealized losses of $369,000 offset by gross unrealized gains of $107,000).

Of the total marketable equity securities at March 31, 20232024 and June 30, 2022,2023, $1,149,0001.0 million and $755,0001.1, million, respectively, represent an investment in the common 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. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares were purchased through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc.

On October 6, 2023, in conjunction with the execution of a supply agreement with Monogram, we exercised the Monogram Warrant in full in cash totaling $1,250,000 and received 1,828,551 shares of Monogram common stock (NasdaqCM: MGRM). On the date of exercise our unrealized loss on the investment was approximately $38,000. The fair value of the Monogram common stock is reflected in marketable equity securities – short term in the table above as of March 31, 2024. Our Chief Executive Officer, Richard Van Kirk (“Rick”), is also a Monogram board member.

We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk,Rick, and two non-management directors, Mr.Raymond Cabillot (“Ray”) and Mr.Nicholas Swenson (“Nick”), who chairs the committee. Both Mr. CabillotNick and Mr. SwensonRay 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. SwensonNick or Cabillot or bothRay (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.

810 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)(Unaudited)

(In thousands)

 

Land and building

 

Land and building consist of the following (in thousands):

Schedule of land and building        
  March 31,
2024
  June 30,
2023
 
Land $3,684  $3,684 
Building  2,815   2,815 
Total  6,499   6,499 
Less: accumulated depreciation  (320)  (250)
  $6,179  $6,249 
         

Schedule of land and building      
  March 31,
2023
  June 30,
2022
 
Land $3,684  $3,684 
Building  2,815   2,815 
Total  6,499   6,499 
Less: accumulated depreciation  (226)  (156)
Land and building  $6,273  $6,343 

On November 6, 2020, we acquired the Franklin Property for a total purchase price of $6.5 million, of which we paid $1.3 million in cash and the balance of $5.2 million we financed through Minnesota Bank & Trust (“MBT”) (See Note 10). We substantially completed the build-out of the property in the first quarter of this fiscal year. Currently, we are actively engaged in various verification and validation activities.2022. We expect that we will beginbegan operations in the new facility during the fourth quarter of this fiscal year.2023. For the three months ended March 31, 2024 and 2023 we recorded $23,000 of depreciation expense and for the nine months ended March 31, 2024 and 2023 we recorded $70,000 of depreciation expense. The building is being amortized on a straight-line basis over a period of 30 years.

Intangibles

Intangibles consist of the following (in thousands):

Schedule of intangibles      
  March 31,
2023
  June 30,
2022
 
Patent-related costs $208  $208 
       Less accumulated amortization  (121)  (90)
  $87  $118 

Schedule of intangibles        
  March 31,
2024
  June 30,
2023
 
Patent-related costs $208  $208 
       Less accumulated amortization  (147)  (127)
  $61  $81 

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. SinceFor the three months ended March 31, 2024, and 2023 we do not know when, or if, our patent applications will be issued, the futurerecorded $7,000 and $10,000 of amortization expense, is not predictable.respectively, and for the nine months ended March 31, 2024 and 2023 we recorded $21,000and $31,000 of depreciation expense, respectively. Future amortization expense is expected to be $7,000for the remainder of fiscal 20232024 and $27,00028,000 per fiscal year through fiscal 2026, at which time we expect these costs to be fully amortized. During the three months ended December 31, 2021, we impaired $46,000 in previously capitalized legal fees because although we were granted the underlying patent, in this case, we had (and continue to have) no products either in development or sold that utilize the intellectual property protected by the patent.

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5. WARRANTY

The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying condensed consolidated balance sheets. As of March 31, 20232024 and June 30, 2022,2023, the warranty reserve amounted to $252,000273,000 and $340,000200,000, respectively. Warranty expenses are included in cost of sales in the accompanying condensed consolidated income statements. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Warranty expense relating to new product sales and changes to estimates for the three months ended March 31, 20232024 and 2022,2023, was $(77,000)102,000 and $102,000(77,000), respectively, and for the nine months ended March 31, 20232024 and 2022,2023, was $46,000162,000 and $170,00046,000, respectively.

11 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

Information regarding the accrual for warranty costs for the three and nine months ended March 31, 20232024 and 2022,2023, are as follows (in thousands):

Schedule of accrual warranty costs                
 As of and for the
Three Months Ended
March 31,
  As of and for the
Three Months Ended
March 31,
 
 2023  2022  2024  2023 
Beginning balance $344  $255  $194  $344 
Accruals during the period  26   52   102   26 
Changes in estimates of prior period warranty accruals  (103)  50      (103)
Warranty amortization and utilization  (15)  (29)  (23)  (15)
Ending balance $252  $328  $273  $252 

 

  As of and for the
Nine Months Ended
March 31,
 
  2023  2022 
Beginning balance $340  $221 
Accruals during the period  135   117 
Changes in estimates of prior period warranty accruals  (89)  53 
Warranty amortization and utilization  (134)  (63)
Ending balance $252  $328 

10 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

  As of and for the
Nine Months Ended
March 31,
 
  2024  2023 
Beginning balance $200  $340 
Accruals during the period  155   135 
Changes in estimates of prior period warranty accruals  7   (89)
Warranty amortization and utilization  (89)  (134)
Ending balance $273  $252 

 

NOTE 6. NET INCOME PER SHARE

The Company calculatesWe calculate basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The weighted-average number of common shares outstanding used in the calculation of diluted income per share reflects the effects of potentially dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.

The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

Schedule of weighted average shares outstanding calculation of basic and diluted per share                
Schedule of net income per share                
 Three Months Ended
March 31,
  Nine Months Ended
March 31,
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
 2023  2022  2023  2022  2024  2023  2024  2023 
Basic:             (restated)     (restated) 
Net income $1,313  $462  $3,268  $2,450  $655  $1,617  $540  $5,572 
Weighted average shares outstanding  3,548   3,626   3,580   3,645   3,451   3,548   3,531   3,580 
Basic income per share $0.37  $0.13  $0.91  $0.67  $0.19  $0.46  $0.15  $1.56 
Diluted:                
Net income $1,313  $462  $3,268  $2,450 
Weighted average shares outstanding  3,548   3,626   3,580   3,645 
Effect of dilutive securities  75   123   76   129 
Weighted average shares used in calculation of diluted earnings per share  3,623   3,749   3,656   3,774 
Diluted income per share $0.36  $0.12  $0.89  $0.65 
                

12 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2024  2023  2024  2023 
Diluted:                
Net income $655  $1,617  $540  $5,572 
Weighted average shares outstanding  3,451   3,548   3,531   3,580 
Effect of dilutive securities  73   75   73   76 
Weighted average shares used in calculation of diluted earnings per share  3,524   3,623   3,604   3,656 
Diluted income per share $0.19  $0.45  $0.15  $1.52 
                 

 

NOTE 7. INCOME TAXES

 

Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized fortemporarydifferences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-notmore-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets. Such determination is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions in which we operate and the period over which our deferred tax assets would berecoverable.

We recognize accrued interest and penalties related to unrecognized tax benefits when applicable. As of March 31, 20232024 and 2022,2023, we recognized accrued interest of $59,00069,000 and $70,00059,000, respectively, related to unrecognized tax benefits.

We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 20192020 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2019 and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

11 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8. SHARE-BASED COMPENSATION

Through June 2014, we had two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the “Employee Stock Option Plan”) and the Amended and Restated 2004 Directors’ Stock Option Plan (the “Directors’ Stock Option Plan”) (collectively, the “Former Stock Option Plans”). The Employee Stock Option Plan and Director’s 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 our 2016 Annual Meeting. TheOur 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 MarchDecember 31, 2023, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive Plan.

Former Stock Option Plans

Nooptions were granted under the Former Stock Option Plans during the three or nine months ended March 31, 2023 and 2022.

As of March 31, 2023, there was no unrecognized compensation cost under the Former Stock Option Plans, as all remaining outstanding stock options have been exercised during fiscal 2023. The following is a summary of stock option activity for the nine months ended March 31, 2023 and 2022:

Schedule of stock option activity                
  Nine Months Ended March 31, 
  2023  2022 
  Number of Shares  Weighted-Average
Exercise Price
  Number of Shares  Weighted-Average
Exercise Price
 
Outstanding at July 1,  6,500  $1.82   31,500  $1.81 
Options granted                    
Options exercised  (6,500)  1.82   (25,000)  1.80 
Options forfeited                    
Outstanding at end of period      $     6,500  $1.82 
Stock Options Exercisable at March 31,      $     6,500  $1.82 

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. In February 2020, the Compensation Committee reallocated 48,000 previously forfeited awards, having the same remaining terms and conditions, to certain other employees. The weighted average fair value of the performance awards reallocated in 2020 was $16.90, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. In December 2021,October 2023, the Compensation Committee reallocated an additional 17,50015,200 previously forfeited awards, having the same remaining terms and conditions, to other employees. The weighted average fair value of the performance awards reallocated in 20212023 was $20.3410.17, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. During the three months ended March 31, 20232024 and 2022,2023, we recorded share-based compensation expense of $30,00031,000 and $81,00030,000, respectively, related to outstanding performance awards. During the nine months ended March 31, 20232024 and 2022,2023, we recorded share-based compensation expense of $91,00076,000 and $123,00091,000, respectively, related to outstanding performance awards. On March 31, 2023,2024, there was approximately $232,00086,000 of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period of 2.251.23 years.

13 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

On July 1, 2022, it was determined by the Compensation Committee of our Board of Directors that the vesting of performance awards for 37,500 shares of common stock had been achieved. Each participant elected a net issuance to cover their individual withholding taxes and therefore we issued 23,641 shares and paid $223,000 of participant-related payroll tax liabilities.

 

12 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Non-Qualified Stock Options

In December 2020, the Compensation Committee of our Board of Directors granted 310,000 non-qualified stock options to our directors and certain employees under the 2016 Equity Incentive Plan. Whether anyThe vesting of these stock options vest, and the amount that does vest, is tied to the completion of service periods that range from 18 months to 10.5 years from the date of grant and the achievement of our common stock trading at certain pre-determined prices. The weighted average fair value of the stock option awardsoptions granted was $16.72, calculated using a Monte Carlo simulation. In December 2021, the Compensation Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining terms and conditions, to another employee at a weighted average fair value of $6.69 calculated using a Monte Carlo simulation. During each of the three months ended March 31, 20232024 and 2022,2023, we recorded compensation expense of $168,000 and $271,000, respectively, related to these stock options. During the nine months ended March 31, 20232024 and 2022,2023, we recorded compensation expense of $479,000503,000 and $799,000479,000, respectively, related to these stock options. As of March 31, 2023,2024, none of these non-qualifiedstock options have vested and there was approximately $2.51.8 million of unrecognized compensation cost related to these non-vested non-qualified stock options.

In February 2021, the Compensation Committee of our Board of Directors granted 62,000 stock options to our directors and certain employees under the 2016 Equity Incentive Plan. Whether any stock options vest, and the amount that does vest, is tied to the completion of service periods that range from 4 months to 1.3 years at inception and the achievement of our common stock trading at certain pre-determined prices. Of these stock options, 4,250 were forfeited and the remaining 57,750 vested on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying agreements. We recorded compensation expense of $59,000 for the three and nine months ended March 31, 2021, related to these options. The weighted fair value of the stock option awards granted was $3.16, calculated using a Monte Carlo simulation.

Employee Stock Purchase Plan

In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our 2014 Annual Meeting. The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period.period. Our Board of Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares issuable pursuant to outstanding options under those plans, aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP. An amendment to the ESPP to extend its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual Meeting.

During the three months ended March 31, 20232024 and 2022,2023, we recorded ESPP share-based compensation expense in the amount of $8,0003,000 and $5,0008,000, respectively,respectively. During the three months ended March 31, 2024 and 2023, 983 and 2,956 and 1,446 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $14.7918.32 and $21.1114.79, respectively, per share. During the nine months ended March 31, 20232024 and 2022,2023, we recorded ESPP share-based compensation expense in the amount of $14,0009,000 and $11,00014,000, respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 32,24935,502 shares of our common stock.

 

1314 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)(Unaudited)

(In thousands)

 

NOTE 9. MAJOR CUSTOMERS AND SUPPLIERS

Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month and the nine-month periods ended March 31, 20232024 and 2022,2023, is as follows (in thousands, except percentages):

 Schedule of sales by major customers                
  Three Months Ended March 31, 
  2023  2022 
  Amount  Percent of Total  Amount  Percent of Total 
    
Net sales $13,079   100% $9,265   100%
                 
Customer concentration:                
Customer 1 $8,622   66% $5,007   54%
Customer 2  2,059   16%  2,429   26%
 Total $10,681   82% $7,436   80%

 

Schedule of sales by major customers                
 Nine Months Ended March 31,  Three Months Ended March 31, 
 2023  2022  2024  2023 
 Amount  Percent of Total  Amount  Percent of Total  Amount  Percent of Total  Amount  Percent of Total 
      
Net sales $35,448   100% $29,426   100% $14,293   100% $13,079   100%
                                
Customer concentration:                                
Customer 1 $23,578   66% $18,721   63% $10,679   75% $8,622   66%
Customer 2  5,912   17%  4,617   16%  1,385   10%  2,059   16%
Total $29,490   83% $23,338   79% $12,064   85% $10,681   82%

  Nine Months Ended March 31, 
  2024  2023 
  Amount  Percent of Total  Amount  Percent of Total 
    
Net sales $38,819   100% $35,448   100%
                 
Customer concentration:                
Customer 1 $27,491   71% $23,578   66%
Customer 2  4,087   10%  5,912   17%
 Total $31,578   81% $29,490   83%

Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 20232024 or June 30, 2022,2023, is as follows (in thousands, except percentages):

 Schedule of accounts receivable                
  March 31, 2023  June 30, 2022 
Total gross accounts receivable $10,567   100% $15,384   100%
                 
Customer concentration:                
     Customer 1 $7,861   74% $11,551   75%
     Customer 2  2,100   20%  2,152   14%
 Total. $9,961   94% $13,703   89%

Schedule of accounts receivable                
  March 31, 2024  June 30, 2023 
Total gross accounts receivable $12,517   100% $9,952   100%
                 
Customer concentration:                
     Customer 1. $10,117   81% $7,231   73%
     Customer 2.  1,625   13%  1,951   19%
 Total. $11,742   94% $9,182   92%

1415 

PRO-DEX, INC. AND SUBSIDIARIESSUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS - CONTINUED

(UNAUDITED)(Unaudited)

(In thousands)

 

During the three and nine months ended March 31, 2024 and 2023, we had two and three suppliers, respectively, accounting for 10% or more of total inventory purchases. During the three and nine months ended March 31, 2022, we had three and four suppliers, respectively, accounting for 10%10% or more of total inventory purchases. Amounts owed to the significant suppliers who comprised more than 10% of total accounts payable at either March 31, 20232024 or June 30, 2022,2023, is as follows (in thousands, except percentages).

Schedule of accounts payable                                
 March 31, 2023  June 30, 2022  March 31, 2024  June 30, 2023 
Total accounts payable $3,068   100% $3,761   100% $3,435   100% $2,261   100%
                                
Supplier concentration:                                
Supplier 1 $1,240   40% $721   19%
Supplier 2  106   4%  430   11%
Supplier 3  14             %  372   10%
Supplier 1. $1,014   29% $620   27%
Supplier 2.  365   11%  158   7%
Supplier 3.  349   10%  41   2%
Total. $1,360   44% $1,523   40% $1,728   50% $819   36%

NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS

Minnesota Bank & Trust

On November 6, 2020 (the “Closing Date”), PDEX Franklin, a newly createdour wholly owned subsidiary, of the Company, purchased an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property (See Note 2)Property”). A portion of the purchase price was financed by a loan from MBT to PDEX Franklin in the principal amount of approximately $5.2 million (the “Property Loan”) pursuant to a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT (the “Property Loan Agreement”) and corresponding Term Note (the “Property Note”) issued by PDEX Franklin in favor of MBT on the Closing Date. The Property Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor of MBT (the “Deed”) and by an Assignment of Leases and Rents by PDEX Franklin in favor of MBT (the “Rents Assignment”). We paid loan origination fees to MBT on the Closing Date in the amount of $26,037.

The Property Loan bears interest at a fixed rate of 3.55% per annum, which is subject to a 3% increase upon an event of default. Accrued interest was paid on December 1, 2020, and both principal and interest in the amount of approximately $30,000 are due and payable on the first day of each subsequent month until the maturity date of November 1, 2030 (the “Maturity Date”), at which time a balloon payment in the amount of $3.1 million is due. Any prepayment of the Property Loan (other than monthly scheduled interest and principal payments), is subject to a prepayment fee equal to 4% of the principal amount prepaid for any prepayment made during the first or second year, 3% of the principal amount prepaid for any prepayment made during the third or fourth year, 2% of the principal amount prepaid for any prepayment made during the fifth or sixth year, and 1% of the principal amount prepaid for any prepayment made during the seventh or eighth year. The Property Loan Agreement, Property Note, Deed, and Rents Assignment each contain representations, warranties, covenants, and events of default that are customary for a loan of this type. The balance owed on the Property Loan at March 31, 20232024 is $4,794,0004,599,000.

On the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”), providing for a $7,525,000 amended and restated term loan (the “Term Loan A”), a $1,000,000 term loan (the “Term Loan B”), and a $2,000,000 amended and restated revolving loan, evidenced by an Amended and Restated Term Note A (“Term Note A”), a Term Note B, and an Amended and Restated Revolving Credit Note (the “Revolving Note”) made by us in favor of MBT. The loans under the Amended Credit Agreement are secured by substantially all of the Company’sour assets pursuant to a Security Agreement entered into on September 6, 2018, between the Companyus and MBT. The Term Note A had an outstanding principal balance of $3,770,331 as of the Closing Date and could be borrowed against through May 30, 2021 (the “Commitment Period”). During the third quarter ended March 31, 2021, we borrowed an additional $3,000,000 against Term Note A for the purpose of repurchasing shares of our common stock. The Term Note B had a zero balance as of the Closing Date and we borrowed the full $1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements to the Franklin Property.

16 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

The Term Loan A matures on November 1, 2027, and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan A of interest only were due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan A of approximately $97,000 plus any additional accrued and unpaid interest through the date of payment. The balance owed on Term Loan A as of March 31, 2023,2024, is $5,075,0004,086,000.

The Term Loan B matures on November 1, 2027, and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan B of interest only were due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan B of approximately $15,000, plus any additional accrued and unpaid interest through the date of payment. The balance owing on Term Note B was $756,000608,000 on March 31, 2023.2024.

15 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On December 29, 2022 (the “Amendment Date”), we entered into Amendment No. 2 to Amended and Restated Credit Agreement (the “Amendment”) with MBT, which amends the Amended Credit Agreement and provides for a supplemental line of credit in the amount of $3,000,000 (the “Supplemental Loan”). The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental Note”) made by us in favor of MBT. The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of our common stock. The Supplemental Loan may be borrowed against from time to time through its current maturity date of December 29, 2024,2025, on the terms set forth in the Amended Credit Agreement. As of March 31, 2023, 2024, no amounts have been drawn against the Supplemental Loan.

The Revolving Loan was also amended (the “Amended Revolving Loan”) in connection with the Amendment to extend the maturity date from November 5, 2023 to December 29, 2024, to increase the Revolving Loan facility from $2,000,000 to $7,000,000, and to increase the interest rate on the Revolving Loan (as described below), evidenced by an Amended and Restated Revolving Credit Note (the “Amended Revolving Note”) made by us in favor of MBT. The Amended Revolving Loan may be borrowed against from time to time by us through its current maturity date of December 29, 2025, on the terms set forth in the Amended Credit Agreement. On December 29, 2023, we entered into Amendment No. 3 to the Agreement to amend the termination date of the Supplemental Loan and Amended Revolving Loan from December 29, 2024, to December 29, 2025. As of March 31, 2023,2024, we had drawn $1,800,0002,500,000 against the Amended Revolving Loan. Loan origination fees in the amount of $16,000 each were paid to MBT in conjunction with the Amended Revolving Loan and the Supplemental Loan.Loan in conjunction with both the Amendment on December 29, 2022 and on December 29, 2023.

The Amended Revolving Loan and Supplemental Loan bear interest at an annual rate equal to the greater of (a) 5.0%5.0% or (b) SOFR for a one-month period from the website of the CME Group Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”). Commencing on the first day of each month after we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Amended Revolving Loan and Supplemental Loan through the date of payment. Any principal on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on the maturity date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan).

Any payment on the Term Loan A, the Term Loan B, the Amended Revolving Loan or the Supplemental Loan (collectively, the “Loans”) not made within seven days after the due date is subject to a late payment fee equal to 5%5% of the overdue amount. Upon the occurrence and during the continuance of an event of default, the interest rate of all Loans will be increased by 3%3% and MBT may, at its option, declare all of the Loans immediately due and payable in full.

 

The Amended Credit Agreement, Amended Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of March 31, 2023,2024, but there can be no assurance that we will remain in compliance for the duration of the term of these loans.

17 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

NOTE 11. COMMON STOCK

Share Repurchase Program

In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1one million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these share repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the three and nine months ended March 31, 2024, we repurchased 90,605 and 96,890 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $1,723,000 and $1,830,000, respectively. During the three and nine months ended March 31, 2023, we repurchased 11,576 and 86,422 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $198,000 and $1,547,000, respectively. During the three and nine months ended March 31, 2022, we repurchased 24,766 and 52,718 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $584,000 and $1,256,000, respectively. On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 1,197,1681,293,338 shares under the share repurchase program at an aggregate cost of $17.219.0 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.

16 

PRO-DEX INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

At The Market Offering Agreement

In December 2020, our Board approved an ATM Agreement with Ascendiant Capital Markets, LLC (“Ascendiant”). The ATM Agreement allows us to sell shares of our common stock in transactions that are deemed to be “at-the-market” equity offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on Nasdaq. In connection with the ATM Agreement, we entered into a prearranged stock sales plan with Ascendiant, which is intended to qualify for the safe harbor under Rule 10b5-1 under the Exchange Act (“ATM 10b5-1 Plan”). No sales of common stock have been made under the ATM Agreement as of the date of this report, but future sales may occur pursuant to the parameters of the ATM 10b5-1 Plan or otherwise at the direction of our Board in accordance with the terms of the ATM Agreement.

NOTE 12. LEASES

Our operating lease right-of-use asset and long-term liability are presented separately on our condensed consolidated balance sheet. The current portion of our operating lease liability as of March 31, 2023,2024, in the amount of $406,000445,000, is presented within accrued expenses on the condensed consolidated balance sheet.

As of March 31, 2023,2024, the maturity of our lease liability is as follows (in thousands):

Schedule of maturities of lease liabilities   
Schedule of maturity of lease liability     
 Operating Lease  Operating Lease 
Fiscal Year:        
2023 $127
2024  519  $130 
2025  535   535 
2026  551   551 
2027  567   567 
Thereafter  143
2028   143 
Total lease payments  2,442   1,926 
Less imputed interest:  (291)   (181)
Total $2,151  $1,745 

As of March 31, 2023,2024, the operating lease for our Irvine, California headquarters has a remaining lease term of fourthree years and six months and an imputed interest rate of 5.53%. Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2023,2024, was $139,000143,000 and $418,000425,000, respectively. Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2022,2023, was $123,000139,000 and $366,000418,000, respectively.

18 

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)

 

NOTE 13. COMMITMENTS AND CONTINGENCIES

Legal Matters

We may be involved from time to time in various legal proceedings arising either in the ordinary course of our business or 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.

NOTE 14. SUBSEQUENT EVENTS

We have evaluated subsequent events through the date of this filing. There were no subsequent events that require disclosure.

 

 

 

17 ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.

COMPANY OVERVIEW

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the results of operations and financial condition of Pro-Dex, Inc. (“Company,” “Pro-Dex,” “we,” “our,” or “us”) for the three-month and nine-month periods ended March 31, 20232024 and 2022.2023. This discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this report. This report contains certain forward-looking statements and information. The cautionary statements included herein should be read as being applicable to all related forward-looking statements wherever they may appear. Our actual future results could differ materially from those discussed herein.

Except for the historical information contained herein, the matters discussed in this report, including, but not limited to, discussions of our product development plans, business strategies, strategic opportunities, and market factors influencing our results, including uncertainties related to the COVID-19 pandemic, are forward-lookingstatements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase sales in markets characterizedby rapid technological evolution, the impact of the COVID-19 pandemic on our suppliers, customers, and us,ability to optimize our operations at our Franklin facility, consolidation within our target marketplace and among our competitors, competition from larger, better capitalized competitors, and our ability to realize returns on opportunities. Many other economic, competitive,governmental,and technological factors could impact our ability to achieve our goals. You are urged to review the risks, uncertainties, and other cautionary language described in this report, as well as in our other public disclosures and reports filed with the Securities and Exchange Commission (“SEC”) from time to time, including, but not limited to, the risks, uncertainties, and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal year ended June 30, 2022.2023.

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, thoracic, and maxocranial facial (“CMF”) 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 principal headquarters are located at 2361 McGaw Avenue, Irvine, California 92614 and our phone number is (949) 769-3200. Our Internet address is www.pro-dex.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other SEC filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. In addition, our Code of Ethics and other corporate governance documents may be found on our website at the Internet address set forth above. Our filings with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov and company specific information at www.sec.gov/edgar/searchedgar/companysearch.html.

Basis of Presentation

The condensed consolidated results of operations presented in this report are not audited and those results are not necessarily indicative of the results to be expected for the entirety of the fiscal year ending June 30, 2023.2024. Our fiscal year ends on June 30 and our fiscal quarters end on September 30, December 31, and March 31. Unless otherwise stated, all dates refer to our fiscal year and those fiscal quarters.

1720 
 

Critical Accounting Estimates and Judgments

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. 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. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. Management believes that there have been no significant changes during the three and nine months ended March 31, 20232024 to the items that we disclosed as our critical accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.2023.

Business Strategy and Future Plans

Our business today is almost entirely driven by sales of our medical devices. Many of our significant customers place purchase orders for specific products that were developed under various development and/or supply agreements. Our customers may request that we design and manufacture a custom surgical device or they may hire us as a contract manufacturer to manufacture a product of their own design. In either case, we have extensive experience with autoclavable, battery-powered and electric, multi-function surgical drivers and shavers. We continue to focus a significant percentage of our time and resources on providing outstanding products and service to our valued principal customers. During the first quarter of fiscal 2021, our largest customer executed an amendment to our existing supply agreement such that we shall continue to supply their surgical handpieces to them through calendar 2025.

 

Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets. Additionally, we have other significant engineering projects under way described more fully below under “Results of Operations.”

 

In November 2020, we purchased an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”). This building is located approximately four miles from our Irvine, California headquarters and was acquired to provide us additional capacity for our expected continued future growth, including anticipated expanded capacity for the manufacture of batteries and new products. We substantially completed the build-out of the property in the first quarter of the prior fiscal year. Currently, we are actively engaged in various verification and validation activities and we expect we will beginbegan operations in the new facility during the fourth quarter of this fiscal year.2023 and believe that the additional capacity will allow for our continued expected growth.

 

In summary, our current objectives are focused primarily on maintaining our relationships with our current medical device customers, expanding our manufacturing capacity with the addition of the Franklin Property, investing in research and development activities to design Pro-Dex branded drivers to leverage our torque-limiting software, and promoting active product development proposals to new and existing customers for orthopedic shavers, screw drivers for a multitude of surgical applications, and other medical devices, while monitoring closely the progress of all these individual endeavors. Our investments in research and development have historically increased disproportionately to our growth in revenue and we anticipate this may continue in future periods. These expenditures are being made in an effort to release new products and garner new customer relationships. This fiscal year, however, the majority of our engineering efforts relate to customer funded non-recurring engineering (“NRE”) projects, which costs are reclassified to cost of sales. While we expect revenue growth in the future, it may not be a consistent trajectory but rather periods of incremental growth that current expenditures are helping to create. However, there can be no assurance that we will be successful in any of these objectives.

1821 
 

COVID-19 Pandemic

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, in order to effectively manage our business during the pandemic and to keep our employees safe. These measures have changed over time and continue to change as our specific circumstances change.

While we have yet to see any significant decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders. 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, some of whom have delivered our orders late and are quoting longer lead times.

During fiscal 2022, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, higher prices, and surcharges, much of which our suppliers indicate have been caused by the COVID-19 pandemic. We have largely been able to mitigate our biggest supply chain concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. In so doing, our cost of sales increased during the second half of fiscal 2022 and thus far in fiscal 2023. We continue to implement plans and processes to mitigate these challenges that many manufacturers similarly face. Our long-term prospects remain positive, and we believe these challenges will negatively impact us only in the short-term.

Description of Business Operations

Revenue

The majority of our revenue is derived from designing, developing and manufacturing surgical devices for the medical device industry. The proportion of total sales by type is as follows (in thousands, except percentages):

  Three Months Ended
March 31,
 Nine Months Ended
March 31,
  2023 2022 2023 2022
    % of Revenue   % of Revenue   % of Revenue   % of Revenue
Net Sales:                                
   Medical device products  6,990   54%  6,527   70%  23,631   67%  23,199   79%
   Industrial and scientific  260   2%  321   4%  691   2%  775   3%
   Dental and component  43   —     203   2%  182   —     348   1%
   NRE & Proto-type  970   7%  549   6%  2,361   7%  859   3%
   Repairs and other  4,816   37%  1,665   18%  8,583   24%  4,245   14%
   13,079   100%  9,265   100%  35,448   100%  29,426   100%

  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2024  2023  2024  2023 
     % of Revenue     % of Revenue     % of Revenue     % of Revenue 
Net Sales:                                
Medical device products $9,782   68% $6,990   54% $26,536   68% $23,631   67%
Industrial and scientific  211   1%  260   2%  591   2%  691   2%
Dental and component  62   1%  43      146      182    
NRE & Proto-type  234   2%  970   7%  762   2%  2,361   7%
Repairs  4,433   31%  5,068   39%  11,749   30%  9,410   26%
Discounts and other  (429)  (3%)  (252)  (2%)  (965)  (2%)  (827)  (2%)
  $14,293   100% $13,079   100% $38,819   100% $35,448   100%

Certain of our medical device products utilize proprietary designs developed by us under exclusive development and supply agreements. All of our medical device products utilize proprietary manufacturing methods and know-how, and are manufactured in our Irvine, California facility, as arealong with our industrial products. Details of our medical device sales by type is as follows (in thousands, except percentages):

  Three Months Ended
March 31,
 Nine Months Ended
March 31,
  2023 2022 2023 2022
    % of Total   % of Total   % of Total   % of Total
Medical device sales:                                
   Orthopedic  3,866   55%  3,233   50%  15,271   65%  14,270   62%
   CMF  2,886   41%  2,093   32%  7,208   30%  7,084   30%
   Thoracic  238   4%  1,201   18%  1,152   5%  1,845   8%
Total  6,990   100%  6,527   100%  23,631   100%  23,199   100%

  Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
  2024  2023  2024  2023 
     % of Total     % of Total     % of Total     % of Total 
Medical device sales:                                
Orthopedic $6,765   69% $3,866   55% $17,136   65% $15,271   65%
CMF  2,247   23%  2,886   41%  6,641   25%  7,208   30%
Thoracic  770   8%  238   4%  2,759   10%  1,152   5%
Total $9,782   100% $6,990   100% $26,536   100% $23,631   100%

Sales of our medical device products increased $463,000,$2.8 million, or 7%40%, and $432,000,$2.9 million, or 2%12%, respectively, for the three and nine months ended March 31, 2023,2024, compared to the corresponding periods of the prior fiscal year. Our medical device revenue to our largest customer, included in orthopedic sales above, increased $633,000$2.9 million and $1.0$1.9 million, respectively, for the three and nine months ended March 31, 20232024 compared to the corresponding periods of the prior fiscal year. Additionally, recurring revenue from distributors of CMFthoracic drivers increased $793,000$532,000 and $124,000,$1.6 million, respectively, for the three and nine months ended March 31, 2023,2024, compared to the corresponding periods of the prior fiscal year in part due to the launch of a new driver to one of our existing largest customer duringcustomers in the thirdfirst quarter of the priorthis fiscal year. Our thoracicCMF sales revenue decreased $963,000$639,000 and $693,000,$567,000, for the three and nine months ended March 31, 2023,2024, respectively, compared to the corresponding periods of the prior fiscal yearyear., due primarily as a result While we do not have much visibility into our customers’ distribution networks, we do know that one of our customerdistributors is selling some legacy products in their inventory which has caused a reduction in demand for our thoracicthe CMF driver filling the near-term requirements of its distribution network.they procure from us.

19 

Sales of our compact pneumatic air motors, reported as industrial and scientific sales above, decreased $61,000,$49,000, or 19%, and $84,000,$100,000, or 11%14%, respectively, for the three and nine months ended March 31, 2023,2024, compared to the corresponding periods of the prior fiscal year. These are legacy products with no substantive marketing efforts. Our NRE and proto-type revenue increased $421,000,decreased $736,000, or 77%76%, and $1.5$1.6 million, or 175%68%, for the three and nine months ended March 31, 2023,2024, compared to the corresponding periods of the prior fiscal year, due to an increasea decrease in billable contracts for various NRE projects undertaken for our customers.

Sales of our dental products and components decreased $160,000,increased $19,000, or 79%44%, and $166,000,decreased $36,000, or 48%20%, respectively, for the three and nine months ended March 31, 2023,2024, compared to the corresponding periods of the prior fiscal year. In the prior fiscal year we sold component inventory to our largest customer used in their legacy design which did not recur in the current fiscal year. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory.

Repair revenue decreased $635,000 or 13%, and increased $3.2$2.3 million, or 189%, and $4.3 million, or 102%25%, for the three and nine months ended March 31, 2023,2024, respectively, compared to the corresponding periods of the prior fiscal year due to increased repairs of the orthopedic handpiece we sell to our largest customer. ThisThe year-to-date increase was expected as we have been upgrading handpieces to the next generation, which design was released to manufacture in the third quarter of fiscal 2022. Additionally, we completed negotiations onThe repair pricing and terms with this customerrevenue recorded during the three months ended March 31, 2023, and receivedincluded an additional $520,000 in compensation, during the third quarter of this fiscal year, for handpieces upgraded between July 2022 and December 2022 and reached an agreement for future consideration which we expect to recognize2022. There was no similar adjustment in a futurethe current fiscal year. We expect to continue to see increases in repair revenue, albeit at reduced margins, for the remainder of this fiscal year because this customer has requested that we perform an enhanced repair on each handpiece, which includes the advance replacement of certain components.

22 

At March 31, 2023,2024, we had a backlog of approximately $18.8$25.2 million, of which $8.5$9.9 million is scheduled to be delivered in the fourth quarter of fiscal 20232024 and the balance is scheduled to be delivered next fiscal year and beyond.year. 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. We may experience variability in our new order bookings due to various reasons, including, but not limited to, the timing of major new product launches and customer planned inventory builds. However, we do not typically experience seasonal fluctuations in our shipments and revenues.

20 

Cost of Sales and Gross Margin
(in thousands except percentages)

 

 Three Months Ended
March 31,
 Nine Months Ended
March 31,
 Three Months Ended
March 31,
  Nine Months Ended
March 31,
 
 2023 2022 2023 2022 2024  2023  2024  2023 
   % of Total   % of Total   % of Total   % of Total    % of Total     % of Total     % of Total     % of Total 
Cost of sales:                                 
Product cost  8,510   92%  5,465   85%  24,066   92%  18,436   94% $9,815   95% $8,510   92% $28,156   99% $24,066   92%
Under(over)-absorption of manufacturing costs  729   8%  528   8%  1,705   7%  631   3%  170   2%  729   8%  (146)     1,705   7%
Inventory and warranty charges  29   —     414   7%  287   1%  670   3%  306   3%  29      347   1%  287   1%
Total cost of sales  9,268   100%  6,407   100%  26,058   100%  19,737   100% $10,291   100% $9,268   100% $28,357   100% $26,058   100%

 

  Three Months Ended
March 31,
 Nine Months Ended
March 31,
 Year over Year
ppt Change
  2023 2022 2023 2022 Three Months 

Nine

Months

                         
 Gross margin  29%  31%  26%  33%  (2)  (7)
  Three Months Ended
March 31,
  Nine Months Ended
March 31,
  Year over Year
ppt Change
 
  2024  2023  2024  2023  Three Months  

Nine

Months

 
                         
 Gross margin  28%  29%  27%%  26%  (1)  1 

Cost of sales for the three months ended March 31, 2023,2024, increased $2.9$1.0 million, or 45%11%, compared to the corresponding period of the prior fiscal year. The increase in total costs of sales was caused byis consistent with the 41%9% increase in revenue for the same period. Under-absorption of manufacturing costs increaseddecreased by $201,000$559,000 for the three months ended March 31, 2023,2024, compared to the corresponding period of the prior fiscal year due to increases in part to our inability to absorb our fixed costs, which were not reduced in the third quarter of the current fiscal year in anticipation of future revenue growth.standard labor and overhead rates. Costs relating to inventory and warranty charges decreased $385,000increased $277,000 for the third quarterthree months ended March 31, 20232024 compared to the third quartercorresponding period of the prior fiscal year, largely due to a reductionan increase in both inventory reserves and warranty expenses.accruals.

Gross profit increased by approximately $953,000,$191,000, or 33%5%, for the three months ended March 31, 2023,2024, compared to the corresponding period of the prior fiscal year, consistent with the overall increase in revenue. Gross margin as a percentage of sales decreased by approximately 21 percentage pointspoint compared to the corresponding period of the prior fiscal year due primarily to our increased under-absorptioninventory and warranty charges compared to the corresponding period of manufacturing costs as a result of additional indirect costs in our manufacturing, assembly, and quality departments, especially related to ongoing verification and validation activities for the Franklin Property.prior fiscal year.

 

Cost of sales for the nine months ended March 31, 20232024, increased by $6.3$2.3 million, or 32%9%, compared to the corresponding period of the prior fiscal year. Although some of the increase in cost of sales is consistent with the 21%4% increase in revenue for the same period, for the reasons for which are discussed above, the enhanced repair program implemented for our largest customer includesmajority of the advance replacementincrease relates to increased labor and overhead rates in the current fiscal year, compared to the corresponding period of certain components which has contributed to a $1.4 million increase in cost of sales. Additionally, total cost of sales reflects a $1.1 million increase in under-absorbed manufacturing costs due to actual production hours being less than planned as well as the additional indirect costs in our manufacturing, assembly, and quality operations described above.prior fiscal year. Inventory and warranty charges decreasedincreased by approximately $383,000,$60,000, or 57%21%, for the nine months ended March 31, 2023,2024, compared to the corresponding period of the prior fiscal year, due to reduced componentan increase in both inventory write-downs as a resultreserves and warranty accruals. Some of sourcing high priced components forthe inventory charges relate to our printed circuit board assemblies inin-house packaging of batteries. This fiscal year we have begun the prior fiscal year.process of packaging our batteries, which we had previously out-sourced, and we are continuing to make improvements to our assembly procedures and processes to reduce our costs.

 

23 

Gross profit decreasedincreased by $299,000,$1.1 million, or 3%11%, for the nine months ended March 31, 2023,2024, compared to the corresponding period of the prior fiscal year, primarily as a resultrepresenting an increase of the increase in cost of sales described above. Gross margin for the nine months ended March 31, 2023, decreased by 71 percentage pointspoint compared to the corresponding period of the prior fiscal year.

 

21 

Operating Expenses

 

Operating Costs and Expenses
(in thousands except percentages)

 

 Three Months Ended
March 31,
 Nine Months Ended
March 31,
 Year over Year % Change Three Months Ended
March 31,
  Nine Months Ended
March 31,
  Year over Year % Change 
 2023 2022 2023 2022 Three Months Nine Months 2024  2023  2024  2023  Three Months  Nine Months 
   % of Net Sales   % of Net Sales   % of Net Sales   % of Net Sales        % of Net Sales     % of Net Sales     % of Net Sales     % of Net Sales       
Operating expenses:                                                                                
Selling expenses  24   —     20   —     146   —     79   —     20%  85% $17     $24     $79     $146      (29%)  (46%)
General and administrative expenses  1,009   8%  1,145   13%  2,983   9%  3,402   12%  (12%)  (12%)  1,012   7%  1,009   8%  3,208   9%  2,983   9%     8%
Research and development costs  713   5%  658   7%  2,109   6%  2,254   8%  8%  (6%)  760   5%  713   5%  2,353   6%  2,109   6%  7%  12%
  1,746   13%  1,823   20%  5,238   15%  5,735   20%  (4%)  (9%) $1,789   12% $1,746   13% $5,640   15% $5,238   15%  2%  8%

 

Selling expenses consist of salaries and other personnel-related expenses for our business development department, as well as advertising and marketing expenses, and travel and related costs incurred in generating and maintaining our customer relationships. Selling expenses for the three and nine months ended March 31, 2023, increased $4,000,2024, decreased $7,000, or 20%29%, and $67,000, or 85%46%, respectively, compared to the corresponding periods of fiscal 2022.2023. The increasedecrease in both periods is primarily due to increaseddecreased sales commissions.

General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses of our accounting, finance and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and other costs and expenses attributable to being a public company. G&A decreased $136,000increased $3,000 and $419,000,$225,000, respectively, during the three and nine months ended March 31, 2023,2024, when compared to the corresponding periods of the prior fiscal year. The decreasesincreases relate primarily to reduced legalincreased professional fees (consisting primarily of audit and settlement expensesvaluation fees, related to employment mattersthe restatement of our financial statements as referenced in Note 1 to the condensed consolidated financial statements contained elsewhere in this report) and reduced non-cash compensation expense related to stock compensation,increased personnel costs, offset by increaseddecreased legal fees related to intellectual property matters.

Research and development costs generally consist of salaries, employer-paid benefits, and other personnel- related costs of our engineering and support personnel, as well as allocated facility and information technology costs, professional and consulting fees, patent-related fees, lab costs, materials, and travel and related costs incurred in the development and support of our products. Research and development costs for the three months ended March 31, 2023, increased $55,000, or 8%, compared to the corresponding periods of the prior fiscal year. Research and development costs for the nine months ended March 31, 2023, decreased $145,000,2024, increased $47,000, or 6%7%, and $244,000, or 12%, compared to the corresponding periods of the prior fiscal year. This relates to increased personnel and related expense offset by decreased spending on internal engineering projects and a shift to increaseddecrease in personnel-related costs as well as a decrease in spending on billable development projects. When our engineers are engaged in a billable project as opposed to an internal project, costs get shifted to cost of sales instead of research and development.

24 

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. Many of our product development efforts are undertaken only upon completion of an analysis of the size of the market, our ability to differentiate our product from our competitors’, as well as an analysis of our specific sales prospects with new and/or existing customers. The research and development costs represent between 36%40% and 41%42% of total operating expenses for all periods presented and are expected to increase in the future as we continue to invest in product development efforts. The amount spent on internal projects under development is summarized below (in thousands):

 

 Three and Nine Months Ended March 31, 2023 Three and Nine Months Ended March 31, 2022 Market Launch (1) Est Annual Revenue (2) Three and Nine Months Ended March 31, 2024  Three and Nine Months Ended March 31, 2023  Market Launch (1) Est Annual Revenue (2) 
Total Research & Development costs: $713  $2,109  $658  $2,254        $760  $2,353  $713  $2,109       
                                        
Products in development:                                        
ENT Shaver  6   50   15   278  Q4 2023 $1,000 
ENT Shaver. $  $2  $6  $50  n/a  n/a 
CMF Driver.  3   3   10   17  Q1 2025 $500 
Sustaining & Other  707   2,059   643   1,976         757   2,348   697   2,042       
Total. $713  $2,109  $658  $2,254        $760  $2,353  $713  $2,109       

 

(1)Represents the calendar quarter of expected market launch. The ENT Shaver project has been suspended. At this time, we do not know when or whether we will continue with this product development effort.
(2)The products in development include risks that they could be abandoned in the future prior to completion, they could fail to become commercialized, or the actual annual revenue realized may be less than the amount estimated.

 

As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of- life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in our machine shop, assembly operations, and inspection areas to improve efficiency and through-put. Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort.

 

Interest & Other Income

Interest income for the three and nine months ended March 31, 20232024 and 2022,2023, includes interest and dividends from our money market accounts and investment portfolio.

Interest Expense

Interest expense consists primarily of interest expense related to the notes payable described more fully in Note 10 to the condensed consolidated financial statements contained elsewhere in this report.

 

Unrealized gain (loss)Gain (Loss) on marketable equity investmentsMarketable Equity Investments

The unrealized gain (loss) on marketable equity investments relates to our investment portfolio more fully described in Note 4 to the condensed consolidated financial statements contained elsewhere in this report. All of these investments are recorded at estimated fair value and as of March 31, 2024, all of these investments relate to common stock of publicly traded companies whose stock price is subject to significant volatility.

 

25 

Gain on Sale of Investments

During the first quarter ended September 30, 2022, we sold some of the stocks in our portfolio of equity investments receiving proceeds of $88,000$89,000 and recording a gain on the sale in the amount of $7,000.

23 

 

Income Tax Expense

 

The effective tax rate for the three months ended March 31, 2024 and 2023 was 28% and 25%, respectively. These tax rates are consistent with our combined expected federal and applicable state corporate income tax rates. The effective tax rate for the nine months ended March 31, 2024 and 2023 was 23% and 2022,24%, respectively, and is slightly less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits. Additionally,the release of a valuation allowance related to previously recognized unrealized losses on investments in the current fiscal year effective tax rate for the nine months ended March 31, 2023 is less than our combined expected federal and applicable state corporate income tax rates due to a tax benefit recognized as a result of common stock awarded to employees under previously granted performance awards in the first quarter of fiscal 2023 as described more fully in Note 8 to the condensed consolidated financial statements contained elsewhere in this report, as well as unrealized gains on our marketable equity investments.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2023,2024, increased $1.2 million$283,000 to $2.1$3.2 million as compared to $849,000$2.9 million at June 30, 2022.2023. The following table includes a summary of our condensed statements of cash flows contained elsewhere in this report.

 As of and For the Nine Months Ended March 31, As of and For the Nine Months Ended March 31, 
 2023 2022 2024  2023 
 (in thousands) (in thousands) 
Cash provided by (used in):                
Operating activities $4,835  $4,432  $5,179  $4,835 
Investing activities $(733) $(1,636) $(2,126) $(733)
Financing activities $(2,863) $(1,756) $(2,770) $(2,863)
                
Cash and Working Capital:                
Cash and cash equivalents $2,088  $4,761  $3,219  $2,088 
Working capital $21,001  $20,376  $25,538  $21,001 

Operating Activities

Net cash provided by operating activities was $5.2 million for the nine months ended March 31, 2024, primarily due to net income of $540,000, non-cash unrealized losses on marketable equity investments of $3.8 million, depreciation and amortization of $854,000, share-based compensation of $588,000 as well as a decrease in inventory of $1.9 million. Offsetting these sources of cash, our accounts receivable increased by $2.6 million consistent with our increase in revenue.

Net cash provided by operating activities was $4.8 million for the nine months ended March 31, 2023, primarily due to net income of $3.3$5.6 million, non-cash depreciation and amortization of $594,000, share-based compensation of $584,000, and collections of accounts receivable in the amount of $4.8 million offset by non-cash unrealized gains on marketable equity investments of $3.4 million, a decrease in accounts payable and accrued expenses of $1.0 million, a decrease in deferred revenue of $956,000, and an increase in inventory in the amount of $2.5 million.

Investing Activities

Net cash provided by operatingused in investing activities was $4.4 million for the nine months ended March 31, 2022, primarily due2024, was $2.1 million and related to net incomethe exercise of $2.4 million, non-cash depreciation and amortization of $546,000, share-based compensation of $932,000 and unrealized losses on marketable securitiesthe Monogram Warrant for cash in the amount of $427,000,$1,250,000 (See Note 4 to the condensed consolidated financial statements contained elsewhere in this report) as well as an increase in accounts payableequipment and accrued expenses of $673,000, an increase in deferred revenue of $746,000, and a decrease in accounts receivableimprovements purchases in the amount of $2.3 million. Offsetting these sources of cash, our inventory increased by $3.4 million primarily due to replenishment of sub-assemblies and long-lead time parts.

Investing Activities$876,000.

Net cash used in investing activities for the nine months ended March 31, 2023, was $733,000 and related primarily to the purchases of equipment and improvements primarily for the Franklin Property totaling $822,000. Offsetting this use of cash, we sold some of our marketable securities during the nine months ended March 31, 2023 for $89,000.

26 

Financing Activities

Net cash used in investingfinancing activities for the nine months ended March 31, 2022, was $1.62024, totaled $2.8 million and related primarily to purchasesthe $1.8 million repurchase of equipment96,890 shares of our common stock pursuant to our share repurchase program as well as $990,000 of net principal payments on our loans from Minnesota Bank and improvements primarily forTrust (“MBT”) more fully described in Note 10 to the Franklin Propertycondensed consolidated financial statements contained elsewhere in the amount of $1.3 million and investments in marketable equity securities of publicly traded companies in the amount of $334,000.

24 

Financing Activitiesthis report.

Net cash used in financing activities for the nine months ended March 31, 2023, totaled $2.9 million and related primarily to the $1.5 million repurchase of 86,422 shares of our common stock pursuant to our share repurchase program, $4.8 million of payments to Minnesota Bank and Trust (“MBT”)MBT as well as payment of $223,000 of employee payroll taxes related to the award of 37,500 shares of common stock to employees under previously granted performance awards. Offsetting these uses of cash we also borrowed $3.6 million from MBT under our amended revolving loan, and collected $78,000 and $11,000, respectively, related to employee contributions to the ESPP plan and exercises of stock options.

Net cash used in financing activities for the nine months ended March 31, 2022, totaled $1.8 million and related primarily to the $1.3 million repurchase of 52,718 shares of our common stock pursuant to our share repurchase program as well as $561,000 of principal payments on our loans from MBT more fully described in Note 10 to the condensed consolidated financial statements contained elsewhere in this report.

Financing Facilities & Liquidity Requirements for the next twelve months

As of March 31, 2023,2024, our working capital was $21.0$25.5 million. We currently believe that our existing cash and cash equivalent balances together with our accounts receivable balances will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. In addition to our cash and cash equivalent balances, we expect to derive a portion of our liquidity from our cash flows from operations. We may also liquidate some or all of our investment portfolio or borrow further against our $7.0 million Amended Revolving Loan with MBT (see Note 10 to condensed consolidated financial statements contained elsewhere in this report), under which we had availability of $5.2$4.5 million as of March 31, 2023.2024.

     

We are focused on preserving our cash balances by monitoring expenses, identifying cost savings, and investing only in those development programs and products that we believe will most likely contribute to our profitability. As we execute on our current strategy, however, we may require debt and/or equity capital to fund our working capital needs and requirements for capital equipment to support our manufacturing and inspection processes. 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 to raise additional capital to fund our operations beyond the cash available from the strategies mentioned above, we can do so by selling additional shares of our common stock under the ATM Agreement. (See Note 11 to condensed consolidated financial statements contained elsewhere in this report).

Investment Strategy

We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr.Richard Van Kirk, and two non-management directors, Mr.Raymond (“Ray”) Cabillot and Mr.Nicholas (“Nick”) Swenson, who chairs the committee. Both Mr. CabillotNick and Mr. SwensonRay 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. SwensonNick or CabillotRay 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. The Investment Committee approved each of the investments comprising the $2.7$6.1 million of marketable public equity securities held at March 31, 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.2024.

 

 

ITEM 4. CONTROLS AND PROCEDURES

27 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer (the principal executive officer and principalfinancial officer, respectively) conducted an evaluation of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). The term “disclosure“disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensurethat information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,processed,summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer of the effectiveness, as of March 31, 2023,2024, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). “Internal control over financial reporting” includes those policies and procedures that:

 

(1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.  

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. A material weakness was discovered relating to the valuation and disclosure of level 3 investments during fiscal 2023 as well as level 2 investments for the three months ended December 31, 2023. We are continuing to remediate this weakness. While we no longer hold any level 3 investments, all of the investments in our portfolio continue to be considered level 2 investments because they are either thinly traded, or we own a substantial percentage of total outstanding shares. While we believe that our fair value assessment and disclosures at March 31, 2024, are appropriate, we are continuing to monitor our internal controls.

Based on that evaluation as of March 31, 2023,2024, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are not effective.

28 

 Internal Control Over Financial Reporting

During the three months ended March 31, 2023,2024, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Inherent Limitations on the Effectiveness of Controls

In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

27 

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1.LEGAL PROCEEDINGS

See Note 13 to condensed consolidated financial statements contained elsewhere in this report.

ITEM 1A. RISK FACTORS

ITEM 1A.RISK FACTORS

Our business, future financial condition and results of operations are subject to a number of factors, risks and uncertainties, which are disclosed in Item 1A, entitled “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended June 30, 2022,2023, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended March 31, 2023.2024. Additional information regarding some of those risks and uncertainties is contained in the notes to the condensed consolidated financial statements included elsewhere in this report and in Part I, Item 2, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,Operations. in Part I of this report. The risks and uncertainties disclosed in our Form 10-K, our quarterly reports on Form 10-Q and other reports filed with the SEC are not necessarily all of the risks and uncertainties that may affect our business, financial condition and results of operations in the future.

There have been no material changes to the risk factors as disclosed in our annual reportAnnual Report on Form 10-K for the fiscal year ended June 30, 2022,2023, except as provided in any amendments thereto.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Repurchases by the Companyus of itsour common stock during the quarter ended DecemberMarch 31, 2022,2024, were as follows:

 

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
 January 1, 2023 to
January 31, 2023
   6,047  $17.17   6,047   634,460 
 February 1, 2023 to
February 28, 2023
   5,529  $17.09   5,529   628,931 
 March 1, 2023 to
March 31, 2023
   —     —     —     628,931 
 Total   11,576  $17.13   11,576     

Period  Total Number of Shares Purchased  Average Price Paid per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 
 January 1, 2024 to
January 31, 2024
   23,838  $20.84   23,838   598,808 
 February 1, 2024 to
February 29, 2024
   34,565  $19.10   34,565   564,243 
 March 1, 2024 to
March 31, 2024
   32,202  $17.56   32,202   532,041 
 Total   90,605  $19.01   90,605     

 

All repurchases were made pursuant to the Company’sour previously announced repurchase program.programs. For information concerning the Company’sour repurchase program, please see the discussion under the caption “Share Repurchase Program” in Note 11 to the condensed consolidated financial statements included elsewhere in this report.

ITEM 5.OTHER INFORMATION

Insider Trading Arrangements and Policies

 

28 

During the quarter ended March 31, 2024, no director or officer of the Company adoptedITEM 6. EXHIBITSor terminateda “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.

 

ITEM 6.EXHIBITS

Exhibit Description
   
31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

2930 
 

SIGNATURESSIGNATURES

 

Pursuant to the requirements 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.

 

 PRO-DEX, INC.
   
Date:  May 4, 20232, 2024By:/s/ Richard L. Van Kirk
  Richard L. Van Kirk
  

Chief Executive Officer

(principal executive officer)

 

 

Date:  May 4, 20232, 2024By:/s/ Alisha K. Charlton
  Alisha K. Charlton
  

Chief Financial Officer

(principal financial officer and principal accounting officer)

 

 

3031 
 

EXHIBIT INDEX

Exhibit Description
   
31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

32