PDEX 10-Q
Pro Dex Inc (PDEX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended
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OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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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 October 29, 2025.
PRO-DEX, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2025
TABLE OF CONTENTS
| Page | |
| PART I — FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of September 30, 2025 and June 30, 2025 | 1 |
| Condensed Consolidated Statements of Operations for the Three September 30, 2025 and June 30, 2025 | 2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2025 and 2024 | 3 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2025 and 2024 | 4 |
| Notes to Condensed Consolidated Financial Statements | 6 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 24 |
| ITEM 4. CONTROLS AND PROCEDURES | 24 |
| PART II — OTHER INFORMATION | |
| ITEM 1. LEGAL PROCEEDINGS | 26 |
| ITEM 1A. RISK FACTORS | 26 |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 26 |
| ITEM 5. OTHER INFORMATION | 26 |
| ITEM 6. EXHIBITS | 27 |
| SIGNATURES | 28 |
PART I — FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
PRO-DEX, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
| September
30, 2025 | June 30,
2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Deferred costs | ||||||||
| Inventory | ||||||||
| Income taxes receivable | ||||||||
| 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 | ||||||||
| 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 September 30, | ||||||||
| 2025 | 2024 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development costs | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other income (expense): | ||||||||
| Interest and dividend income | ||||||||
| Unrealized gain on investments | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income | ||||||||
| Income before income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Basic and diluted net income per share: | ||||||||
| Basic net income per share | $ | $ | ||||||
| Diluted net income 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 September 30, | ||||||||
| 2025 | 2024 | |||||||
| 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 | ||||||||
| Balance, at end of period | $ | $ | ||||||
| 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)
| Three
Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share-based compensation | ||||||||
| Unrealized gain on marketable equity investments | ( | ) | ( | ) | ||||
| Non-cash lease (recovery) | ( | ) | ( | ) | ||||
| Amortization of loan fees | ||||||||
| Credit loss expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and other receivables | ( | ) | ||||||
| Deferred costs | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Income taxes | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of equipment and improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from UMB Bank loans, net of origination fees | ||||||||
| Proceeds from stock option exercises and ESPP contributions | ||||||||
| Payments of employee taxes on net issuance of common stock | ( | ) | ||||||
| Repurchases of common stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase 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)
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes: | ||||||||
| Federal income tax payments | $ | $ | ||||||
| California income tax payments | ||||||||
| Total income tax payments | $ | $ | ||||||
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 with 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, 2025. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and consist of a normal recurring nature. 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, 2025.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Disaggregation of Income Statement Expenses. The ASU’s purpose is to improve disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling, general and administrative, and research and development). This ASU is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position.
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. Additionally, we provide engineering, quality, and regulatory consulting services to our customers. We also manufacture and sell rotary air motors to a wide range of industries; however, these motors comprise a de minimis portion of our business.
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.
| 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):
| Three months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| 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 months ended September 30, 2025 and 2024, we recorded $
The following tables summarize our contract assets and liability balances (in thousands):
| As of
and for the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| 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 | $ | $ | ||||||
| As of
and for the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Contract liabilities beginning balance | $ | $ | ||||||
| Payments received from customers | ||||||||
| Amounts reclassified to revenue | ( | ) | ( | ) | ||||
| Contract liabilities ending balance | $ | $ | ||||||
| 7 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income, and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
We have categorized our cash equivalents and investments within the fair value hierarchy as follows:
Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by observable market data. At September 30, 2025 and June 30, 2025, we categorized our investments in marketable equity securities as Level 2 assets. At September 30, 2025, our investment in Monogram Technologies, Inc. (“Monogram”) was valued at the cash price received in October 2025, upon its acquisition by Zimmer Biomet Holdings, Inc. (“Zimmer Biomet”) described below.
Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at September 30, 2025 or June 30, 2025.
| Fair Value Measurement at September 30, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities – short-term | ||||||||||||||||
| Marketable equity securities – long-term | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 8 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| Fair Value Measurement at June 30, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | ||||||||||||
| Marketable equity securities – short-term | ||||||||||||||||
| Marketable equity securities – long-term | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Investments
at September 30, 2025 and June 30, 2025 had an aggregate cost basis of $
Of
the total marketable equity securities at September 30, 2025 and June 30, 2025, $
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. 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 our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot 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.
| 9 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 5. 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):
| September
30, 2025 | June 30,
2025 | |||||||
| Raw materials/purchased components | $ | $ | ||||||
| Work in process | ||||||||
| Sub-assemblies/finished components | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Intangibles
Intangibles consist of the following (in thousands):
| September
30, 2025 | June 30,
2025 | |||||||
| Patent-related costs | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
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. These patent-related costs are expected to be fully amortized during fiscal 2026.
NOTE 6. 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 September 30, 2025 and June 30, 2025, the warranty
reserve amounted to $
| 10 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information regarding the accrual for warranty costs for the three months ended September 30, 2025 and 2024 are as follows (in thousands):
| As of
and for the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Beginning balance | $ | $ | ||||||
| Accruals during the period | ||||||||
| Changes in estimates of prior period warranty accruals | ( | ) | ( | ) | ||||
| Warranty amortization/utilization | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
We calculate basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted income per share reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options, restricted shares and performance awards.
The following table presents reconciliations of the numerators and denominators of the basic and diluted income per share computations. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):
| Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Basic: | ||||||||
| Net income | $ | $ | ||||||
| Weighted-average shares outstanding | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted: | ||||||||
| Net income | $ | $ | ||||||
| Weighted-average shares outstanding | ||||||||
| Effect of dilutive securities | ||||||||
| Weighted-average shares used in calculation of diluted earnings per share | ||||||||
| Diluted earnings per share | $ | $ | ||||||
NOTE 8. 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 bases. 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 or loss, with some consideration given to
our estimates of future taxable income or loss
by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable.
Our deferred tax asset is net of a valuation allowance in the gross amount of $
| 11 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
We
recognize accrued interest and penalties related to unrecognized tax benefits when applicable. As of
September 30, 2025 and 2024, we recognized accrued interest of $
We are subject to U.S. federal income tax, as well as income tax of California, Colorado, Florida and Indiana as well as Massachusetts through fiscal year ended June 30, 2024. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2022, and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2020, are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Additionally, the One Big Beautiful Bill Act of 2025, or the 2025 Act, enacted on July 4, 2025, makes changes to U.S. corporate income taxes including reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025, and immediate expensing of research and development costs, with retroactive application for tax years starting after December 31, 2025. We are continuing our evaluation of the impact the adoption of the 2025 Act will have on our financial statements for the fiscal year ended June 30, 2026.
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. The 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 September 30, 2025, 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
We have recorded share-based compensation expense of $ for the three months ended September 30, 2025 and 2024, related to our outstanding unvested performance awards. On September 30, 2025, there was approximately $ of unrecognized compensation cost related to these non-vested performance awards, which is expected to be expensed over the weighted-average period of nine months.
On July 1, 2024, it was determined by the Compensation Committee of our Board of Directors 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 shares and paid $ of participant-related payroll tax liabilities.
Non-Qualified Stock Options
In December 2020, the Compensation Committee of our Board of Directors granted non-qualified stock options to our directors and certain employees under the 2016 Equity Incentive Plan. We recorded compensation expense of $ for both the three months ended September 30, 2025 and 2024, related to these stock options. The weighted-average fair value of the stock option awards granted was $, calculated using a Monte Carlo simulation. As of September 30, 2025, of these stock options have vested, have been forfeited either due to termination or our stock price not attaining the pre-determined price, and remain outstanding and unvested and there was approximately $ million of unrecognized compensation cost related to the non-vested stock options.
| 12 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 September 30, 2025, we recorded $ of compensation expense related to these restricted shares. As of September 30, 2025, 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”). The ESPP conforms to the provisions of Section
423 of the Internal Revenue Code, has coterminous Our Board of Directors also
approved the provision that shares formerly reserved for issuance under former stock option plans in excess of shares issuable pursuant
to outstanding options, aggregating
In October 2023, our Board approved an amendment to the ESPP (the “ESPP Amendment”), which extended the term of the ESPP for an additional ten years from January 2025 to January 2035. The ESPP Amendment was approved by our shareholders at our 2023 Annual Meeting. In July 2025, the Compensation Committee of our Board of Directors amended the specific provisions of the ESPP to provide for a more favorable discount calculation for employees participating in the ESPP, as described above.
During the three months ended
September 30, 2025 and 2024, and shares were purchased, respectively, under the ESPP and allocated to employees based upon their
contributions at discount prices of $
NOTE 10. MAJOR CUSTOMERS & SUPPLIERS
Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month periods ended September 30, 2025 and 2024 is as follows (in thousands, except percentages):
| Three Months Ended September 30, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Total revenue | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| 13 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either September 30, 2025 and June 30, 2025 is as follows (in thousands, except percentages):
| September 30, 2025 | June 30, 2025 | |||||||||||||||
| Total gross accounts receivable | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
During
the three months ended September 30, 2025 and 2024, we had two suppliers, respectively, that each accounted for more than 10% of total
inventory purchases. Amounts owed to the fiscal 2026 significant suppliers at September 30, 2025 totaled $
NOTE 11. NOTES PAYABLE AND FINANCING TRANSACTIONS
UMB Bank (“UMB”)
As
previously disclosed, we have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) with
UMB (formerly Minnesota Bank & Trust or MBT). Additionally, on July 31, 2024 (the “Fourth Amendment Date”), we
entered into Amendment No. 4 to our Amended and Restated Credit Agreement (the “Fourth Amendment”) which amended the Company’s
Amended and Restated Credit Agreement with UMB. The Fourth Amendment (i) provided for a new term loan, Term Loan C, in the amount of
$
| 14 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
The balance on our outstanding loans (in thousands) is as follows (exclusive of unamortized loan fees):
| September 30, 2025 | June 30,
2025 | |||||||
| Notes Payable: | ||||||||
| Term Loan A | $ | $ | ||||||
| Term Loan B | ||||||||
| Term Loan C | ||||||||
| Property Loan | ||||||||
| Amended Revolving Loan | ||||||||
| Total notes payable | $ | $ | ||||||
Term
Loan A and Term Loan 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 Agreement, 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 September 30, 2025, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans.
NOTE 12. COMMON STOCK
Share Repurchase Program
In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these share repurchase programs, our Board has approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the three months ended September 30, 2025, we did t repurchase any shares. During the three months ended September 30, 2024, we repurchased shares at an aggregate cost, inclusive of fees under the Plan, of $ million. On a cumulative basis since 2013, we have repurchased a total of shares under the share repurchase programs at an aggregate cost, inclusive of fees, of $ million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
| 15 |
PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 13. 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 September 30, 2025, in the amount of $
As
of September 30, 2025, our operating lease has a remaining lease term of two years and an imputed interest rate of
As of September 30, 2025, the maturity of our lease liability is as follows (in thousands):
| Operating Lease | ||||||
| Fiscal Year: | ||||||
| 2026 | $ | |||||
| 2027 | ||||||
| 2028 | ||||||
| Total lease payments | ||||||
| Less imputed interest | ( | ) | ||||
| Total | $ | |||||
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Matters
We may be involved from time to time in 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 or adverse.
NOTE 15. SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of this filing. Other than the acquisition of Monogram by Zimmer Biomet on October 7, 2025, discussed in Note 4, there were no additional subsequent events that require recognition or disclosure.
| 16 |
| 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 periods ended September 30, 2025 and 2024. 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, contract negotiations, 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, 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, 2025.
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. Additionally, we provide engineering, quality, and regulatory consulting services to our customers. We also manufacture and sell rotary air motors to a wide range of industries; however, these motors comprise a de minimis portion of our business.
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 our fiscal year ending June 30, 2026, 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.
| 17 |
Critical Accounting Estimates and Judgments
Our financial statements are prepared in accordance with U.S. GAAP. 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 months ended September 30, 2025, to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for our fiscal year ended June 30, 2025.
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 by us 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 for us to supply their surgical handpieces to them through calendar 2025. Currently, we are in negotiations with our largest customer to extend the contract through calendar 2028. While we are still negotiating some of the specific commercial terms, we have no reason to believe that the contract amendment will not be executed and further, the customer has placed purchase orders to us through the end of calendar 2026. Additionally, based on the planned volumes of the next generation handpiece that we supply to our largest customer, we are simultaneously pursuing negotiations with one of our existing suppliers to acquire their business to help meet the expected increased demand currently being contemplated by our largest customer. In the event we do not acquire this business we will be obligated to reimburse the supplier for legal fees incurred in relation to the acquisition due diligence. This amount, not to exceed $62,500, is not accrued for, but is expected to be paid at the end of the current exclusivity period of October 31,2025, if not extended by mutual agreement of the parties, and will be credited towards the purchase price upon an acquisition.
We are also 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, our latest Pro-Dex branded product, the Helios driver for CMF applications, featuring our adaptive torque-limiting software, is expected to be released for production in the second quarter of this fiscal year. Although we anticipate this product will be released in the second quarter of this fiscal year, and we have had interest in this product, there is no guarantee that our existing customers or new customers will purchase this new driver.
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.
In summary, 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 commencement 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.
| 18 |
Results of Operations
The following tables set forth results from continuing operations for the three months ended September 30, 2025 and 2024 (in thousands, except percentages):
| Three Months Ended September 30, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Dollars in thousands | ||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||
| Net sales | $ | 18,530 | 100 | % | $ | 14,892 | 100 | % | ||||||||
| Cost of sales | 13,163 | 71 | % | 9,742 | 65 | % | ||||||||||
| Gross profit | 5,367 | 29 | % | 5,150 | 35 | % | ||||||||||
| Selling expenses | 73 | — | 48 | — | ||||||||||||
| General and administrative expenses | 1,417 | 8 | % | 1,246 | 8 | % | ||||||||||
| Research and development costs | 768 | 4 | % | 843 | 6 | % | ||||||||||
| 2,258 | 12 | % | 2,137 | 14 | % | |||||||||||
| Operating income | 3,109 | 17 | % | 3,013 | 20 | % | ||||||||||
| Other income, net | 3,113 | 17 | % | 306 | 2 | % | ||||||||||
| Income before income taxes | 6,222 | 34 | % | 3,319 | 22 | % | ||||||||||
| Provision for income taxes | 1,542 | 8 | % | 853 | 6 | % | ||||||||||
| Net income | $ | 4,680 | 25 | % | $ | 2,466 | 17 | % | ||||||||
Revenue
The majority of our revenue is derived from designing, developing, manufacturing, and repairing surgical devices. We continue to sell our rotary air motors for industrial and scientific applications, but our focus remains in medical devices. The proportion of total sales by type is as follows (in thousands, except percentages):
| Three Months Ended September 30, | Increase (Decrease) From | |||||||||||||||||||
| 2025 | 2024 | 2024 to 2025 | ||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||||||
| Net sales: | ||||||||||||||||||||
| Medical device | $ | 14,382 | 77 | % | $ | 9,912 | 67 | % | 45 | % | ||||||||||
| Industrial and scientific | 172 | 1 | % | 143 | 1 | % | 20 | % | ||||||||||||
| NRE & proto-types | 476 | 3 | % | 48 | — | 892 | % | |||||||||||||
| Repairs | 3,830 | 21 | % | 5,136 | 34 | % | (25 | %) | ||||||||||||
| Discounts and other | (330 | ) | (2 | %) | (347 | ) | (2 | %) | (5 | %) | ||||||||||
| $ | 18,530 | 100 | % | $ | 14,892 | 100 | % | 24 | % | |||||||||||
| 19 |
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 and assembled in our Tustin, California facility. Details of our medical device sales by type is as follows (in thousands, except percentages):
| Three Months Ended September 30, | Increase (Decrease) From | |||||||||||||||||||
| 2025 | 2024 | 2024 to 2025 | ||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Med Device Sales | % of Med Device Sales | |||||||||||||||||||
| Medical device sales: | ||||||||||||||||||||
| Orthopedic | $ | 11,053 | 77 | % | $ | 6,695 | 68 | % | 65 | % | ||||||||||
| CMF | 2,828 | 20 | % | 2,201 | 22 | % | 29 | % | ||||||||||||
| Thoracic | 501 | 3 | % | 1,016 | 10 | % | (51 | %) | ||||||||||||
| $ | 14,382 | 100 | % | $ | 9,912 | 100 | % | 45 | % | |||||||||||
Our medical device revenue increased $4.5 million, or 45%, for the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year. Our orthopedic sales increased $4.4 million, or 65%, for the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year, due primarily to the launch of our largest customer’s next generation handpiece. As previously disclosed, late in the third quarter of fiscal 2025 the customer requested we hold off on next generation handpiece shipments in favor of continued shipments and enhanced repair of the legacy handpieces. During the fourth quarter of fiscal 2025, at the customer’s request, we resumed production and shipments of the next generation handpiece. Because certain of the sub-assemblies included in the handpiece take several weeks of internal machining, the process to resume shipments at the requested levels has taken several months. By September 2025, our shipments reached the recurring level that the customer has requested. Recurring revenue from distributors of CMF drivers increased $627,000, or 29%, for the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year. Our thoracic sales decreased by $515,000, or 51% for the three months ended September 30, 2025, 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 (whether an increase or decrease) is not uncommon and fluctuations occur based upon required inventory levels.
Sales of our compact pneumatic air motors increased $29,000, or 20%, for the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year. The minimal and relatively flat sales volume is consistent with our lack of substantive marketing efforts for our air motors. Our non-recurring engineering (“NRE”) and proto-type revenue increased $428,000, or 892%, for the three months ended September 30, 2025 compared to the corresponding period of the prior fiscal year, due to an increase in billable contracts. Our NRE and proto-type revenue is typically a small percentage of our total revenue and can vary significantly from quarter to quarter.
Repair revenue decreased by $1.3 million, or 25%, for the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year, due to fewer repairs of the legacy orthopedic handpiece we sell to our largest customer. While we do not have much visibility into our largest customer’s distribution networks, they may be reducing repairs of legacy handpieces in favor of replacing them with the next generation handpiece.
Discounts and other decreased by $57,000, or 5%, in the first quarter of fiscal 2026 compared to the corresponding period of the prior fiscal year, due to volume rebates related to the legacy orthopedic handpiece we sell to our largest customer, which they negotiated in conjunction with our contract extension through 2025.
At September 30, 2025, we had a backlog of approximately $46.8 million, of which $43.6 million is scheduled for delivery during the remainder of fiscal 2026. 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
| Three Months Ended September 30, | Increase (Decrease) From | |||||||||||||||||||
| 2025 | 2024 | 2024 to 2025 | ||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| Cost of sales: | % of Net Sales | % of Net Sales | ||||||||||||||||||
| Product costs | $ | 12,408 | 67 | % | $ | 9,347 | 63 | % | 33 | % | ||||||||||
| Under-(over) absorption of manufacturing costs | 619 | 3 | % | 325 | 2 | % | 91 | % | ||||||||||||
| Inventory and warranty charges | 136 | 1 | % | 70 | — | 94 | % | |||||||||||||
| Total cost of sales | $ | 13,163 | 71 | % | $ | 9,742 | 65 | % | 35 | % | ||||||||||
| Gross profit and gross margin | $ | 5,367 | 29 | % | $ | 5,150 | 35 | % | 4 | % | ||||||||||
Cost of sales for the three months ended September 30, 2025, increased by $3.4 million, or 35%, compared to the corresponding period of the prior fiscal year. The increase in cost of sales is consistent with the 24% increase in revenue for the same period. Product costs increased by $3.1 million, or 33%, during the three months ended September 30, 2025, compared to the corresponding period of the prior fiscal year, which is consistent with higher revenue generated in the first quarter of fiscal 2026, but is higher than expected based partly on product mix and partly on negative fluctuations in repair service revenue margin. In the first quarter of fiscal 2026 our repair revenue margin is significantly lower than in prior year and this is caused by more expensive component replacement as well as an assembled workforce which normally repairs a higher volume of devices. During the three months ended September 30, 2025, we experienced under-absorption of $619,000 in manufacturing costs compared to $325,000 during the corresponding period of the prior fiscal year. We anticipate growth in our direct labor costs this fiscal year such that our absorption will stabilize without the need to increase our labor and overhead rates. Costs related to inventory and warranty charges increased $66,000, or 94%, for the three months ended September 30, 2025 compared to the corresponding period of the prior fiscal year, due an increase in both inventory and warranty reserves.
Gross profit increased by approximately $217,000, or 4%, for the three months ended September 30, 2025 compared to the corresponding period of the prior fiscal year, and gross margin as a percentage of sales decreased by six percentage points between such periods, primarily as a result of higher costs, including tariffs, which have not fully been passed on to our customers.
Operating Costs and Expenses
| Three Months Ended September 30, | Increase (Decrease) From | |||||||||||||||||||
| 2025 | 2024 | 2024 to 2025 | ||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling expenses | $ | 73 | — | $ | 48 | — | 52 | % | ||||||||||||
| General and administrative expenses | 1,417 | 8 | % | 1,246 | 8 | % | 14 | % | ||||||||||||
| Research and development costs | 768 | 4 | % | 843 | 6 | % | (9 | %) | ||||||||||||
| $ | 2,258 | 12 | % | $ | 2,137 | 14 | % | 6 | % | |||||||||||
| 21 |
Selling expenses consist of salaries and other personnel-related expenses in support of business development, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining our customer relationships. Selling expenses for the three months ended September 30, 2025, increased $25,000, or 52%, compared to the corresponding period of the prior fiscal year. The increase relates to personnel costs related to our former Director of Business Development hired in the second quarter of the prior fiscal year whose employment with us ended in the second quarter of fiscal 2026.
General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses of our accounting, finance, facilities, information technology and human resources 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 expenses increased by $171,000, or 14%, for the three months ended September 30, 2025, when compared to the corresponding period of the prior fiscal year. The increase in total G&A expenses relates to higher payroll and personnel expenses due to new hires in human resources, information technology and facilities.
Research and development costs generally consist of compensation and other personnel-related costs of our engineering and support personnel, related 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 decreased $75,000, or 9%, for the three months ended September 30, 2025 compared to the corresponding period of the prior fiscal year. The decrease is due primarily to a decrease in internal project spending and a reduction in recruiting fees, partially offset by an increase in personnel expenses. Although internal project spending is lower in the first quarter of fiscal 2026 compared to the same period in fiscal 2025, we expect to release an internally developed project, our Helios branded CMF driver, for production in the second quarter of fiscal 2026.
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.
Other Income (Expense), Net
Interest and Dividend Income
The interest and dividend income recorded during the three months ended September 30, 2025 and 2024, consists primarily of interest and dividends from our investments and money market accounts.
Unrealized Gain on Investments
The unrealized gain on marketable securities for the quarters ended September 30, 2025 and 2024, relates to our portfolio of investments described more fully in Note 4 to the condensed consolidated financial statements contained elsewhere in this report.
Interest Expense
The interest expense recorded during the three months ended September 30, 2025 and 2024, relates to our UMB Bank (“UMB”) loans described more fully in Note 11 to the condensed consolidated financial statements contained elsewhere in this report.
Income Tax Expense
The effective tax rate for the three months ended September 30, 2025 and 2024, was 25% and 26%, respectively, and is slightly less than our combined expected federal and applicable state corporate income tax rates due primarily to federal and state research credits.
| 22 |
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2025, increased $95,000 to $514,000 as compared to $419,000 million at June 30, 2025. The following table includes a summary of our condensed consolidated statements of cash flows contained elsewhere in this report.
| As of and For the Three Months Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| (in thousands) | ||||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | 2,310 | $ | 1,887 | ||||
| Investing activities | $ | (98 | ) | $ | (431 | ) | ||
| Financing activities | $ | (2,117 | ) | $ | (1,006 | ) | ||
| Cash and working capital: | ||||||||
| Cash and cash equivalents | $ | 514 | $ | 3,081 | ||||
| Working capital | $ | 37,121 | $ | 27,217 | ||||
Operating Activities
Net cash provided by operating activities during the three months ended September 30, 2025 totaled $2.3 million. Our net income was $4.7 million, which includes $3.3 million of unrealized gains, primarily related to our investment in Monogram, which is more fully described in Note 4 to the condensed consolidated financial statements contained elsewhere in this report as well as non-cash depreciation and amortization and stock-based compensation in the amount of $311,000 and $161,000, respectively. Proceeds of cash arose from income taxes of $1.5 million due to tax expense incurred in the first quarter of fiscal 2026 having been previously paid and a decrease in inventory of $649,000. Offsetting these inflows of cash, our accounts receivable increased by $1.8 million due to an increase in revenue in the first quarter of fiscal 2026.
Net cash provided by operating activities during the three months ended September 30, 2024, totaled $1.9 million. Our net income was $2.5 million, which includes $433,000 of unrealized gains on our marketable securities as well as non-cash depreciation and amortization and stock-based compensation in the amount of $302,000 and $113,000, respectively. Additionally, our inventory and income taxes payable increased by $1.3 million and $209,000, respectively. Offsetting these outflows of cash, our accounts receivable decreased by $428,000 and accounts payable and accrued expenses increased by $579,000.
Investing Activities
Net cash used in investing activities for the three months ended September 30, 2025, and 2024 was $98,000 and $431,000, respectively, related to the purchase of equipment and improvements.
Financing Activities
Net cash used in financing activities for the three months ended September 30, 2025, included net principal payments of $2.2 million on our loans from UMB (formerly MBT).
Net cash used in financing activities for the three months ended September 30, 2024, included the repurchase of $2.3 million of common stock pursuant to our share repurchase program, and proceeds of $5.0 million from a new term loan from UMB, offset by principal payments totaling $3.4 million. Additionally, we paid $273,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.
| 23 |
Financing Facilities & Liquidity Requirements for the Next Twelve Months
As of September 30, 2025, our working capital was $37.1 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, we expect to derive a portion of our liquidity from our cash flows from operations and, as described in Note 4 to the condensed consolidated financial statements contained elsewhere in this report, we received $8.9 million in cash in October 2025 upon the consummation of Zimmer Biomet’s acquisition of Monogram.
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 additional capital to fund our operations, we can borrow against our revolving loan with UMB which has an available balance of $8.8 million as of September 30, 2025.
| 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) 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 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 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 September 30, 2025, 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. |
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Based on that evaluation as of September 30, 2025, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective.
Internal Control over Financial Reporting
During the three months ended September 30, 2025, 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 14 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, 2025, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended September 30, 2025. 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, 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, 2025, except those set forth below.
Artificial intelligence (“AI”) may be generating information that is used incorrectly and may lead to an adverse effect on our business.
In August 2025, a law firm that practices securities litigation posted a press release and had a link on its website inviting our shareholders to request an investigation into Pro-Dex. The press release erroneously attributed a Form 8-K that we had filed nearly two years earlier, as well as other stale information, to a 20 percent decline in our stock price that occurred in August 2025. This law firm quickly removed these items from the internet, including from its website, before we initiated a request for them to do so. While we have no way of knowing for certain that AI led to the generation of the press release, it seems possible to us that misinformation was attributable to AI.
Other PDEX symbols exist in the marketplace, and the association may create confusion.
As we announced in a press release on October 16, 2025, Polkadex, which to our understanding trades on certain crypto exchanges (and possibly on certain other platforms) under the symbol PDEX may be creating confusion. Our common stock trades on the Nasdaq Capital Market under the symbol PDEX and there is no relationship or affiliation between Pro-Dex, In, and Polkadex. We do not know whether our shareholders obtain alerts or automated messages related to Polkadex that are misconstrued as being related to Pro-Dex, Inc. or vice versa. Similarly, we have no idea whether any trades in our common stock were intended for trades in cryptocurrencies or vice versa.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. |
Not applicable.
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| 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: October 30, 2025 | By: | /s/ Richard L. Van Kirk |
| Richard L. Van Kirk | ||
|
Chief Executive Officer (principal executive officer) | ||
| Date: October 30, 2025 | By: | /s/ Alisha K. Charlton |
| Alisha K. Charlton | ||
|
Chief Financial Officer (principal financial officer and principal accounting officer) |
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