Pro Dex Inc 10-Q for FY2025 Q2
Pro Dex Inc (PDEX)
About this 10-Q
Pro Dex Inc filed this 10-Q on January 30, 2025, covering the quarter ended December 31, 2024 (FY2025 Q2).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $16.79M
- up 33.4% from $12.59M a year earlier
- Net income
- $2.04M
- up 308.0% from net income of $500K a year earlier
- Diluted EPS
- $0.61
- up 335.7% from $0.14 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended
| |
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:
(Exact name of registrant as specified in its charter)
———————
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
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).
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 ☐ |
| 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 ☐
Indicate the number of shares outstanding of each of the registrant’s classes of common stock outstanding as of the latest practicable date: shares of common stock, no par value, as of January 28, 2025.
PRO-DEX, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2024
TABLE OF CONTENTS
| Page | |
| PART I — FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of December 31, 2024 and June 30, 2024 | 1 |
| Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2024 and 2023 | 2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended December 31, 2024 and 2023 | 3 |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2024 and 2023 | 4 |
| Notes to Condensed Consolidated Financial Statements | 6 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 23 |
| ITEM 4. CONTROLS AND PROCEDURES | 23 |
| PART II — OTHER INFORMATION | |
| ITEM 1. LEGAL PROCEEDINGS | 24 |
| ITEM 1A. RISK FACTORS | 24 |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 24 |
| ITEM 5. OTHER INFORMATION | 25 |
| ITEM 6. EXHIBITS | 25 |
| SIGNATURES | 26 |
i
PART I — FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands except per share amounts)
| December
31, 2024 | June 30,
2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Accounts receivable, net of allowance for expected credit losses of $ | ||||||||
| Deferred costs | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Land and building, net | ||||||||
| Equipment and leasehold improvements, net | ||||||||
| Right-of-use asset, net | ||||||||
| Intangibles, net | ||||||||
| Deferred income taxes, net | ||||||||
| Investments | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Income taxes payable | ||||||||
| Deferred revenue | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock; | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on marketable equity investments | ( | ) | ( | ) | ||||||||||||
| Interest and other income | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Basic net income (loss) per share | ||||||||||||||||
| Net income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted net income (loss) per share: | ||||||||||||||||
| Net income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Common stock: | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Share-based compensation expense | ||||||||||||||||
| Share repurchases | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Shares withheld from common stock issued to employees to pay employee payroll taxes | ( | ) | ( | ) | ||||||||||||
| ESPP shares issued | ||||||||||||||||
| Balance, end of period | ||||||||||||||||
| Retained earnings: | ||||||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Balance, end of period | ||||||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Total shareholders’ equity | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Six Months
Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share-based compensation | ||||||||
| Unrealized (gain) loss on marketable equity investments | ( | ) | ||||||
| Non-cash lease recovery | ( | ) | ( | ) | ||||
| Amortization of loan fees, net | ||||||||
| Credit loss expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Deferred costs | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of investments | ( | ) | ||||||
| Purchases of equipment and improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Proceeds from ESPP contributions | ||||||||
| Payment of employee payroll taxes on net issuance of common stock | ( | ) | ||||||
| Proceeds from Minnesota Bank & Trust revolving loan | ||||||||
| Principal payments on notes payable and revolving loan | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(In thousands)
| Six Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes by jurisdiction: | ||||||||
| Federal income tax payments | $ | $ | ||||||
| California income tax payments | ||||||||
| Massachusetts income tax payments | ||||||||
| Total income tax payments | $ | $ | ||||||
| Non-cash investing and financing activity: | ||||||||
| Cashless stock option exercise | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
PRO-DEX, INC. AND SUBSIDIARY
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 applicable provisions of 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, 2024. 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, 2024.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures (Topic 740). ASU 2023-09 expands the existing rules on income tax disclosures. This update requires entities to disclose specific categories in the tax rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and disclose additional information about income taxes paid on an annual basis. The new disclosure requirements are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (Topic280), which expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to, or easily computed from information regularly provided to, the entity’s chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. The new disclosure requirements are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Although our business, as currently operated, has only one segment, we are evaluating the new disclosure requirements to ensure compliance.
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 that 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 in November 2020, 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.
| 6 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Sales: | ||||||||||||||||
| Over-time revenue recognition | $ | $ | $ | $ | ||||||||||||
| Point-in-time revenue recognition | ||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
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 six months ended December 31, 2024 we recorded $
The following tables summarize our contract assets (in thousands):
| Schedule of contract assets and liability | ||||||||||||||||
As of and for the Three
Months Ended | As of and for the Six
Months Ended | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Contract assets beginning balance | $ | $ | $ | $ | ||||||||||||
| Expenses incurred during the year | $ | $ | $ | |||||||||||||
| Amounts reclassified to cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amounts allocated to discounts for standalone selling price | ( | ) | ( | ) | ( | ) | ||||||||||
| Contract assets ending balance | $ | $ | $ | $ | ||||||||||||
| 7 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 | ||||||||
| December
31, 2024 | June 30,
2024 | |||||||
| Raw materials/purchased components | $ | $ | ||||||
| Work in process | ||||||||
| Sub-assemblies/finished components | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Investments
Investments are stated at market value and consist of the following (in thousands):
| Schedule of investments | ||||||||
December 31, 2024 | June 30,
2024 | |||||||
| Marketable equity securities: | ||||||||
| Short-term | $ | $ | ||||||
| Long-term | ||||||||
| Total Investments | $ | $ | ||||||
Investments
at December 31, 2024 and June 30, 2024 had an aggregate cost basis of $
Of
the total marketable equity securities at December 31, 2024 and June 30, 2024, $
| 8 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Rick Van Kirk, and two non-management directors, Raymond Cabillot and Nicholas Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Cabillot or Swenson 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.
Land and building
Land and building consist of the following (in thousands):
| Schedule of land and building | ||||||||
| December
31, 2024 | June 30,
2024 | |||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
In
November 2020, we acquired the Franklin Property for a total purchase price of $
Intangibles
Intangibles consist of the following (in thousands):
| Schedule of intangibles | ||||||||
| December
31, 2024 | June 30,
2024 | |||||||
| Patent-related costs | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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. Future amortization expense is expected to be $
NOTE 5. WARRANTY
Our
warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in
accrued liabilities in the accompanying condensed consolidated balance sheets. As of December 31, 2024 and June 30, 2024, the warranty
reserve amounted to $
| 9 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information regarding the accrual for warranty costs for the three and six months ended December 31, 2024 and 2023, are as follows (in thousands):
| Schedule of accrual warranty costs | ||||||||||||||||
As of and for the Three
Months Ended | As of and for the Six
Months Ended | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Accruals during the period | $ | $ | $ | |||||||||||||
| Changes in estimates of prior period warranty accruals | ( | ) | ( | ) | ||||||||||||
| Warranty amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
We calculate basic net income (loss) per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. In income generating periods, the weighted-average number of common shares outstanding reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options, restricted stock, and performance awards.
The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings (loss) per share computations for net income (loss). Because we incurred a net loss for the six months ended December 31, 2023, basic and diluted loss were the same, as the inclusion of 64,800 common shares potentially issuable under the terms of outstanding performance awards would have had an anti-dilutive effect. In the tables below, net income amounts represent the numerator, and weighted average shares outstanding amounts represent the denominator (in thousands, except share and per share amounts):
| Schedule of net income per share | ||||||||||||||||
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic: | ||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted: | ||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Weighted average shares used in calculation of diluted earnings per share | ||||||||||||||||
| Diluted income (loss) per share | $ | $ | $ | $ | ( | ) | ||||||||||
| 10 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 7. INCOME TAXES
Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. 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-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 be recoverable.
We recognize accrued interest
and penalties related to unrecognized tax benefits when applicable. As of December 31, 2024 and
2023, we recognized accrued interest of $
We are subject to U.S. federal income tax, as well as income tax of California and Colorado, as well as Massachusetts through fiscal year ended June 30, 2024. Our U.S. federal income taxes are currently open to audit under the statute of limitations by the Internal Revenue Service for the fiscal years ended June 30, 2021 and after. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2013 and after are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Our 2016 Equity Incentive Plan provides for the award of up to 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 December 31, 2024, performance awards for shares of common stock, non-qualified stock options for shares of common stock, and restricted shares of common stock have been granted under the 2016 Equity Incentive Plan.
Performance Awards
In October 2023, the Compensation Committee of our Board (the “Compensation Committee”) reallocated previously forfeited performance awards for shares of common stock, having the same remaining terms and conditions as the forfeited awards, to other employees. The weighted average fair value of the performance awards reallocated in 2023 was $, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. During the three months ended December 31, 2024, and 2023, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. During the six months ended December 31, 2024, and 2023, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. On December 31, 2024, there was approximately $ of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over a weighted-average period of years.
On July 1, 2024, it was determined by the Compensation Committee that the vesting of performance awards for shares of common stock had been achieved. Each participant elected a net issuance to cover their individual withholding taxes and, therefore, we issued participants shares of common stock and paid $ of participant-related payroll tax liabilities.
| 11 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Non-Qualified Stock Options
In December 2020, the Compensation Committee granted non-qualified stock options for shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The weighted average fair value of the stock option awards granted in fiscal 2021 was $, calculated using a Monte Carlo simulation. During the three months ended December 31, 2024 and 2023, we recorded compensation expense of $ and $, respectively, related to these options. During the six months ended December 31, 2024 and 2023, we recorded compensation expense of $ and $, respectively, related to these options. As of December 31, 2024, none of these stock options had vested and there was approximately $ million of unrecognized compensation cost related to these stock options.
Restricted Shares
In November 2024, the Compensation Committee awarded restricted shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The fair value of the restricted shares on the date of grant was $, based upon the closing price of our common stock on the date of grant. During the three months ended December 31, 2024, we recorded $ of compensation expense related to these restricted shares. As of December 31, 2024, there was approximately $ of unrecognized compensation cost related to these restricted shares.
Employee Stock Purchase Plan
In September 2014, our Board
approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) and reserved
During the three months
ended December 31, 2024 and 2023, we did not record any share-based compensation expense relating to the ESPP, due to the fact that
six-month offering period ended during either quarter. During the six months ended December 31, 2024 and 2023, and shares of
our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $
| 12 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 or the six-month periods ended December 31, 2024 and 2023, is as follows (in thousands, except percentages):
| Schedule of sales by major customers | ||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Customer 3 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| Six Months Ended December 31, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | % | % | ||||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Customer 3 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Information with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either December 31, 2024 or June 30, 2024, is as follows (in thousands, except percentages):
| Schedule of accounts receivable | ||||||||||||||||
| December 31, 2024 | June 30, 2024 | |||||||||||||||
| Total gross accounts receivable | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total. | $ | % | $ | % | ||||||||||||
During the three months ended
December 31, 2024 and 2023, we had three and four suppliers, respectively, that accounted for
| 13 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS
Minnesota Bank & Trust
As
previously disclosed, we have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) under
our Amended and Restated Credit Agreement with MBT (as subsequently amended, the “Amended Credit Agreement”). On July
31, 2024 (the “Fourth Amendment Date”), we entered into Amendment No. 4 to the Amended Credit Agreement (the “Fourth
Amendment”) which, (i) provided for a new term loan, Term Loan C, in the amount of $
The balance on our outstanding loans (in thousands) is as follows (exclusive of unamortized loan fees):
| Schedule of unamortized loan | ||||||||
December 31, 2024 | June 30, 2024 | |||||||
| Notes Payable: | ||||||||
| Term Loan A | $ | $ | ||||||
| Term Loan B | ||||||||
| Term Loan C | ||||||||
| Property Loan | ||||||||
| Amended Revolving Loan | ||||||||
| Total notes payable | $ | $ | ||||||
Term
Loan A and B both bear interest at a fixed rate of
Any
payment on Term Loan A, Term Loan B, Term Loan C, the Property Loan, or Amended Revolving Loan (collectively, the “Loans”)
not made within seven days after the due date is subject to a late payment fee equal to
The Amended Credit Agreement, Amended Security Agreement, Property Loan Security Agreements,Term Note A, Term Note B, Term Note C, Property Note, and Amended Revolving 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 December 31, 2024, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans.
| 14 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 11. COMMON STOCK
Share Repurchase Program
In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to one 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 six months ended December 31, 2024, we repurchased and shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ million and $ million, respectively. During both the three and six months ended December 31, 2023, we repurchased shares at an aggregate cost, inclusive of fees under the Plan, of $. On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of shares under the share repurchase program at an aggregate cost, inclusive of fees, of $ million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
NOTE 12. LEASES
Our operating lease right-of-use
asset and long-term liability are presented separately on our condensed consolidated balance sheets. The current portion of our operating
lease liability as of December 31, 2024, in the amount of $
As of December 31, 2024,
our operating lease has a remaining lease term of two years and nine months and an imputed interest rate of
As of December 31, 2024, the maturity of our lease liability is as follows (in thousands):
| Schedule of maturities of lease liabilities | ||||||
| Operating Lease | ||||||
| Fiscal Year: | ||||||
| 2025 | ||||||
| 2026 | ||||||
| 2027 | ||||||
| 2028 | ||||||
| Total lease payments | ||||||
| Less imputed interest: | ( | ) | ||||
| Total | $ | |||||
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 report. There were no subsequent events that require disclosure.
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| 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 six-month periods ended December 31, 2024 and 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, are forward-looking statements 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 characterized by rapid technological evolution, our ability to optimize our operations at our Franklin facility, consolidation within our target marketplace and among our competitors, employee turnover, 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, 2024.
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 that 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 are not necessarily indicative of the results to be expected for the entirety of the fiscal year ending June 30, 2025, or any other interim period during such fiscal year. 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.
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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 six months ended December 31, 2024 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, 2024.
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 and we are currently in discussions with them to renew the agreement.
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.
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 began operations in the new facility during the fourth quarter of fiscal 2023 and believe that the additional capacity will allow for our continued expected growth.
Our current objectives are focused primarily on maintaining our relationships with our current medical device customers, investing in research and development activities to design unique medical devices as well as Pro-Dex branded drivers to leverage our torque-limiting software, expanding our manufacturing capacity through the continuation of operations at the Franklin Property, and promoting active product development proposals to new and existing customers for both orthopedic shavers and screw drivers for a multitude of surgical applications, while monitoring closely the progress of all these individual endeavors. 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.
| 17 |
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 December 31, | Six Months Ended December 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| % of Revenue | % of Revenue | % of Revenue | % of Revenue | |||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||
| Medical device products | $ | 12,232 | 73 | % | $ | 8,945 | 71 | % | $ | 22,144 | 70 | % | $ | 16,754 | 68 | % | ||||||||||||||||
| Industrial and scientific | 167 | 1 | % | 239 | 2 | % | 311 | 1 | % | 380 | 2 | % | ||||||||||||||||||||
| Dental and component | 30 | — | 45 | — | 72 | — | 84 | — | ||||||||||||||||||||||||
| NRE & Prototype | 41 | — | 338 | 3 | % | 89 | — | 528 | 2 | % | ||||||||||||||||||||||
| Repairs | 4,862 | 29 | % | 3,294 | 26 | % | 9,998 | 32 | % | 7,316 | 30 | % | ||||||||||||||||||||
| Discounts and other | (539 | ) | (3 | %) | (273 | ) | (2 | %) | (928 | ) | (3 | %) | (536 | ) | (2 | %) | ||||||||||||||||
| $ | 16,793 | 100 | % | $ | 12,588 | 100 | % | $ | 31,686 | 100 | % | $ | 24,526 | 100 | % | |||||||||||||||||
Certain of our medical device products utilize proprietary designs developed by us under exclusive development and/or supply agreements. All of our medical device products utilize proprietary manufacturing methods and know-how, are manufactured or machined in our Irvine, California facility, and are assembled in our Tustin, California facility (as are our industrial products). Details of our medical device sales by type is as follows (in thousands, except percentages):
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Medical device sales: | ||||||||||||||||||||||||||||||||
| Orthopedic | $ | 9,330 | 76 | % | $ | 5,533 | 62 | % | $ | 16,024 | 72 | % | $ | 10,371 | 62 | % | ||||||||||||||||
| CMF | 1,839 | 15 | % | 2,759 | 31 | % | 4,041 | 18 | % | 4,393 | 26 | % | ||||||||||||||||||||
| Thoracic | 1,063 | 9 | % | 653 | 7 | % | 2,079 | 10 | % | 1,990 | 12 | % | ||||||||||||||||||||
| Total | $ | 12,232 | 100 | % | $ | 8,945 | 100 | % | $ | 22,144 | 100 | % | $ | 16,754 | 100 | % | ||||||||||||||||
Sales of our medical device products increased $3.3 million, or 37%, for the three months ended December 31, 2024, and increased $5.4 million, or 32%, for the six months ended December 31, 2024, compared to the corresponding periods of the prior fiscal year. Our orthopedic sales increased $3.8 million, or 69%, and $5.7 million, or 55%, respectively, for the three and six months ended December 31, 2024 compared to the corresponding period of the prior fiscal year, due primarily to the launch of our largest customer’s next generation handpiece. We expect to see similar increases in orthopedic sale for at least the remainder of this fiscal year. Recurring revenue from CMF drivers decreased $920,000, or 33%, and $352,000 or 8%, respectively for the three and six months ended December 31, 2024 compared to the corresponding period of the prior fiscal year. Our thoracic sales increased $410,000, or 63% and $89,000 or 5%, respectively for the three and six months ended December 31, 2024 compared to the corresponding period of the prior fiscal year. While we do not have much visibility into our customers’ distribution networks, this level of change in thoracic and CMF sales (whether an increase or decrease) is not uncommon and fluctuations occur based upon required inventory levels.
Sales of our compact pneumatic air motors, reported as “Industrial and scientific” sales above, decreased $72,000, or 30%, and $69,000, or 18%, respectively, for the three and six months ended December 31, 2024, compared to the corresponding periods of the prior fiscal year. These are legacy products with no substantive marketing efforts and, as such, we may continue to see a decline in revenue from these products. Our non-recurring (“NRE”) and proto-type revenue decreased $297,000, or 88%, and $439,000, or 83%, for the three and six months ended December 31, 2024, compared to the corresponding periods of the prior fiscal year, due to a decrease in billable contracts for various NRE projects undertaken for our customers.
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Repair revenue increased $1.6 million, or 48%, and $2.7 million, or 37%, respectively, for the three and six months ended December 31, 2024, compared to the corresponding periods of the prior fiscal year, primarily due to an increased number of repairs of the orthopedic handpiece we sell to our largest customer. This increase relates to the continuation of the previously disclosed enhanced repair program.
At December 31, 2024, we had a backlog of approximately $48.1 million, of which $36.3 million is scheduled to be delivered in fiscal 2025 and the balance is scheduled to be delivered the following fiscal 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.
Cost of Sales and Gross Margin
(in thousands except percentages)
| Three
Months Ended December 31, | Six
Months Ended December 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||||||||||||||
| Product cost | $ | 10,680 | 91 | % | $ | 9,798 | 100 | % | $ | 19,802 | 92 | % | $ | 18,341 | 102 | % | ||||||||||||||||
| Under(over)-absorption of manufacturing costs | 1,008 | 9 | % | (31 | ) | (1 | %) | 1,559 | 7 | % | (316 | ) | (2 | %) | ||||||||||||||||||
| Inventory and warranty charges | 33 | — | 19 | 1 | % | 103 | 1 | % | 41 | — | ||||||||||||||||||||||
| Total cost of sales | $ | 11,721 | 100 | % | $ | 9,786 | 100 | % | $ | 21,464 | 100 | % | $ | 18,066 | 100 | % | ||||||||||||||||
| Three
Months Ended December 31, | Six
Months Ended December 31, | Year
over Year ppt Change | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Three Months | Six Months | |||||||||||||||||||
| Gross margin | 30% | 22% | 32% | 26% | 8 | 6 | ||||||||||||||||||
Cost of sales for the three and six months ended December 31, 2024, increased $1.9 million, or 20%, and $3.4 million, or 19%, respectively, compared to the corresponding periods of the prior fiscal year. The increase in cost of sales is consistent with the 33% and 29% increase in revenue for the three and six months ended December 31, 2024, compared to the corresponding periods of the prior fiscal year. Additionally, under-absorption for the three and six months ended December 31, 2024, increased $1.0 million and $1.9 million, respectively, compared to the corresponding periods of the prior fiscal year. While we continue to anticipate growth in our direct labor hours during the second half of this fiscal year such that our absorption will stabilize without the need to increase our labor and overhead rates, however we also expect to increase our labor and overhead rates before the end of this fiscal year as needed. The inventory and warranty charges for all periods presented are minor.
Gross profit increased by $2.3 million, or 81%, and $3.8 million, or 58%, for the three and six months ended December 31, 2024, respectively, compared to the corresponding periods of the prior fiscal year, primarily as a result of the increase in medical device and repair revenue for the same periods as described above. Gross margin as a percentage of sales for the three and six months ended December 31, 2024, increased 8 and 6 percentage points, respectively, compared to the corresponding periods of the prior fiscal year.
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Operating Expenses
Operating Costs and Expenses
(in thousands except % change)
| Three
Months Ended December 31, | Six
Months Ended December 31, | Year over Year % Change | ||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | Three Months | Six Months | |||||||||||||||||||||||||||||||||||
| % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Selling expenses | 49 | — | 37 | — | 98 | — | 63 | — | 32 | % | 56 | % | ||||||||||||||||||||||||||||
| General and administrative expenses | 1,389 | 8 | % | 1,200 | 10 | % | 2,635 | 8 | % | 2,195 | 9 | % | 16 | % | 20 | % | ||||||||||||||||||||||||
| Research and development costs | 942 | 6 | % | 788 | 6 | % | 1,784 | 6 | % | 1,593 | 7 | % | 20 | % | 12 | % | ||||||||||||||||||||||||
| 2,380 | 14 | % | 2,025 | 16 | % | 4,517 | 14 | % | 3,851 | 16 | % | 18 | % | 17 | % | |||||||||||||||||||||||||
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 six months ended December 31, 2024 increased $12,000 and $35,000, respectively, compared to the corresponding periods of fiscal 2024. The increase in both periods is primarily due to recruiting fees related to our new Director of Business Development (who we hired in December, 2024).
General and administrative expenses (“G&A”) consists 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 increased $189,000 and $440,000, respectively, during the three and six months ended December 31, 2024, when compared to the corresponding periods of the prior fiscal year. The increases relate primarily to increased bonus accruals and personnel costs, offset by decreased audit fees and stock compensation expense.
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 and six months ended December 31, 2024, increased $154,000 and $191,000, respectively, compared to the corresponding periods of the prior fiscal year. The increase for the three months ended December 31, 2024, compared to the comparable prior year period is primarily due to an increase in internal project expenditures of $136,000 and legal fees related to our intellectual property of $46,000. The increase for the six months ended December 31, 2024, compared to the comparable period of the prior year is primarily related to an increase in recruiting fees of $73,000, billable project expense decreases of $72,000 and legal fees related to our intellectual property of $37,000. When our engineers are engaged in billable projects as opposed to internal projects, costs get shifted to cost of sales instead of research and development. While we are currently in development on two internal projects, project expenses for the periods presented in this report are not material.
The majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell. 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 the machine shop, assembly operations, and inspection areas to improve efficiency and through-put.
| 20 |
Other Income (Expense), Net
Interest and Other Income
Interest income for the three and six months ended December 31, 2024, and 2023 includes interest and dividends from our money market accounts and investment portfolio.
Unrealized Gain (Loss) on Investments
The unrealized gain (loss) on investments consists of our investment portfolio described more fully in Note 4 to the condensed consolidated financial statements contained elsewhere in this report. All of these investments are recorded at estimated fair value as of December 31, 2024, and relate to common stock of publicly traded companies whose stock price is subject to significant volatility.
Interest Expense
Interest expense consists primarily of interest expense related to our Minnesota Bank and Trust (“MBT”) loans described more fully in Note 10 to the condensed consolidated financial statements contained elsewhere in this report.
Income Tax Expense
The effective tax rate for the three months ended December 31, 2024, and 2023 was 21% and 19%, respectively. The fiscal 2024 effective tax rate was lower due primarily to the release of a $60,000 valuation allowance related to previously recognized unrealized losses on investments. We have not had a similar valuation allowance release in fiscal 2025. The effective tax rate for the six months ended December 31, 2024, and 2023 is 24% and 45%, respectively. The higher effective tax rate in the prior year was similarly due to the release of the valuation allowance recorded in the second quarter of fiscal 2024 and was a tax benefit since we had a year-to-date pre-tax loss.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2024 decreased $2.6 million to $66,000 as compared to $2.6 million at June 30, 2024. The following table includes a summary of our condensed statements of cash flows contained elsewhere in this report.
| As of and For the Six Months Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | (2,263 | ) | $ | 1,102 | |||
| Investing activities | $ | (973 | ) | $ | (2,009 | ) | ||
| Financing activities | $ | 671 | $ | (740 | ) | |||
| Cash and Working Capital: | ||||||||
| Cash and cash equivalents | $ | 66 | $ | 1,289 | ||||
| Working Capital | $ | 27,161 | $ | 26,610 | ||||
Operating Activities
Net cash used in operating activities was $2.3 million for the six months ended December 31, 2024, due in part to net income of $4.5 million and non-cash depreciation and amortization of $615,000 offset by non-cash unrealized gains on marketable equity investments of $510,000. Additionally, accounts receivable, inventory and prepaid and other assets increased $4.6 million, $4.3 million, and $991,000, respectively, for the six months ended December 31, 2024, offset by an increase in accounts payable and accrued expenses of $3.0 million. As our business continues to grow, we expect to see increases in both inventory and accounts payable. Our accounts receivable is similarly expected to increase during periods of increased revenue.
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Net cash provided by operating activities was $1.1 million for the six months ended December 31, 2023, primarily due to our net loss of $115,000 offset by non-cash stock-based compensation, depreciation and amortization, and unrealized losses on marketable equity investments of $386,000, $568,000, and $2.6 million, respectively. Although we experienced an influx of cash in the amount of $1.1 million due to a reduction in our inventory balance during the six months ended December 31, 2023, our accounts receivable balance increased by $3.2 million due to timing of customer payments.
Investing Activities
Net cash used in investing activities for the six months ended December 31, 2024 was $973,000 and related mostly to equipment purchases for our machine shop, assembly, and inspection.
Net cash used in investing activities for the six months ended December 31, 2023, was $2.0 million and related to the exercise of our Monogram Warrant for cash in the amount of $1,250,000 (see Note 4 to the condensed consolidated financial statements contained elsewhere in this report) as well as equipment and improvements purchases in the amount of $759,000.
Financing Activities
Net cash provided by financing activities for the six months ended December 31, 2024, included net borrowings on loans from MBT in the amount of $4.5 million primarily related to the Term Loan C described in Note 10 the condensed consolidated financial statements contained elsewhere in this report, offset by the repurchase of $3.5 million of our common stock pursuant to our share repurchase program, as well as $305,000 of employee payroll taxes related to shares of common stock issued to employees under previously granted performance awards and nonqualified stock options.
Net cash used in financing activities for the six months ended December 31, 2023, totaled $740,000 and related primarily to the net principal payments of $665,000 on our loans from MBT more fully described in Note 10 to the condensed consolidated financial statements contained elsewhere in this report, as well as repurchase of 6,285 shares of our common stock pursuant to our share repurchase program in the amount of $107,000.
Financing Facilities & Liquidity Requirements for the Next Twelve Months
As of December 31, 2024, our working capital was $27.2 million. We currently believe that our existing accounts receivable balances and cash flows from operations will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. While our December 31, 2024, cash balance was only $66,000, it was caused largely by a $2.1 million delay in receivable collections from our largest customer, which has since been received. Our working capital may also be supplemented by liquidating some of our marketable equity investments, which had an estimated fair market value of $6.3 million as of December 31, 2024.
We are focused on maximizing our working capital 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, assembly, 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, we can do so by borrowing against our $7.0 million Amended Revolving Loan with MBT, which had an available balance of $3.5 million at December 31, 2024 (see Note 10 to the condensed consolidated financial statements contained elsewhere in this report).
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Investment Strategy
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Richard Van Kirk, and two non-management directors, Raymond Cabillot and Nicholas Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Cabillot or Swenson 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 $6.3 million of marketable public equity securities that we held on December 31, 2024.
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 (our principal executive officer) and Chief Financial Officer (our principal financial officer and principal accounting officer) have concluded based on their evaluation as of December 31, 2024, that 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”)) are not effective due to a material weakness. The term “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 ensure that 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 officer and principal financial officer and principal accounting officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
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 controls related to the existence of inventory during fiscal 2024 and we are continuing to remediate this weakness. While we believe that our inventory exists and is accurately recorded and properly valued at December 31, 2024, we are continuing to expand our internal controls over the existence of inventory and have hired a warehouse manager in the second quarter of fiscal 2025 to ensure that we successfully implement effective standard operating procedures, provide adequate training to stockroom personnel, and continue our cycle count procedures.
Internal Control over Financial Reporting
During the three months ended December 31, 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.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 13 to condensed consolidated financial statements contained elsewhere in this report.
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, 2024, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended December 31, 2024. Additional information regarding some of those risks and uncertainties is contained in the notes to the condensed financial statements included elsewhere in this report and in Part I, Item 2, of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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 Report on Form 10-K for the fiscal year ended June 30, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Repurchases by the Company of its common stock during the quarter ended December 31, 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 | ||||||||||||||
| October 1, 2024 to October 31, 2024 | 38,172 | $ | 31.23 | 38,172 | 313,882 | |||||||||||||
| November 1, 2024 to November 30, 2024 | — | — | — | 313,882 | ||||||||||||||
| December 1, 2024 to December 31, 2024 | — | — | — | 313,882 | ||||||||||||||
All repurchases were made pursuant to the Company’s previously announced repurchase program. For information concerning the Company’s 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.
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ITEM 5. OTHER INFORMATION
Insider Trading Arrangements and Policies
On November 11, 2024, one of our
directors, Nicholas Swenson, adopted a “Rule 10b5-1 trading arrangement” as such term is defined in Item 408(a) of Regulations
S-K. This trading arrangement is intended to satisfy the Rule 10b5-1 affirmative defense. This trading arrangement commences on February
14, 2025, terminates on May 15, 2026, unless earlier terminated in accordance with its terms, and covers the disposition of up to 46,000
shares of our common stock. The remaining terms of the trading arrangement are confidential. No additional directors or officers informed
us of the
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) |
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SIGNATURES
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: January 30, 2025 | /s/ Richard L. Van Kirk | |
Richard L. Van Kirk (principal executive officer) |
| Date: January 30, 2025 | /s/ Alisha K. Charlton | |
Alisha K. Charlton (principal financial officer and principal accounting officer) |
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EXHIBIT INDEX
| Exhibit | Description |
| 10.1 | Form of Restricted Shares Award Agreement by and between Pro-Dex, Inc. and non-employee directors and select employees dated November 20, 2024 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed November 25, 2024). |
| 10.2 | Amendment No. 5 to Amended and Restated Credit Agreement dated December 23, 2024, by and between Pro-Dex, Inc. and Minnesota Bank & Trust, a division of HTLF Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed December 27, 2024). |
| 10.3 | Amendment and Restated Revolving Credit Note dated December 23, 2024, made by Pro-Dex, Inc. in favor of Minnesota Bank & Trust, a division of HTLF Bank (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed December 27, 2024). |
| 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) |
27
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Richard L. Van Kirk certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Pro-Dex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 30, 2025 | /s/ Richard L. Van Kirk | |
Richard L. Van Kirk (principal executive officer) |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Alisha K. Charlton certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Pro-Dex, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: January 30, 2025 | /s/ Alisha K. Charlton | |
Alisha K. Charlton (principal financial officer and principal accounting officer) |
Exhibit 32.1
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-Q of Pro-Dex, Inc., the undersigned hereby certifies in their capacities as Chief Executive Officer and Chief Financial Officer of Pro-Dex, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:
| 1. | The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Pro-Dex, Inc. |
Date: January 30, 2025
/s/ Richard L. Van Kirk
Richard L. Van Kirk
Chief Executive Officer
(principal executive officer)
Date: January 30, 2025
/s/ Alisha K. Charlton
Alisha K. Charlton
Chief Financial Officer
(principal financial officer and principal accounting officer)
This certification accompanies this quarterly report on Form 10-Q pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.