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 | |
|
For the quarterly period ended
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OR
| |
| 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 ☐ No
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: shares of common stock, no par value, as of February 7, 2024.
PRO-DEX, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
| Page | |
| PART I — FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023 | 1 |
| Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2023 and 2022 | 2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended December 31, 2023 and 2022 | 3 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2023 and 2022 | 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 | 25 |
| ITEM 4. CONTROLS AND PROCEDURES | 25 |
| 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 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)
| December
31, 2023 | June 30,
2023 | |||||||
| 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 | ||||||||
| Investments | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Income taxes payable | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Deferred income taxes, net | ||||||||
| 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 per share amounts)
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (restated) | (restated) | |||||||||||||||
| 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 | ||||||||||||||||
| Gain on sale of investments | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ||||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Basic net income (loss) per share: | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Diluted net income (loss) per share: | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| 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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Common stock | (restated) | (restated) | ||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Share-based compensation expense | ||||||||||||||||
| Share repurchases | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Shares withheld from common stock issued to employees to pay employee payroll taxes | ( | ) | ||||||||||||||
| Exercise of stock options | ||||||||||||||||
| ESPP shares issued | ||||||||||||||||
| Balance, end of period | ||||||||||||||||
| Retained earnings: | ||||||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Balance, 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)
| Six Months
Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (restated) | ||||||||
| 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 expense (recovery) | ( | ) | ||||||
| Amortization of loan fees, net | ||||||||
| Gain on sale of investments | ( | ) | ||||||
| Deferred income taxes | ||||||||
| 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 operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of investments | ( | ) | ||||||
| Purchases of equipment and improvements | ( | ) | ( | ) | ||||
| Proceeds from sale of investments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Proceeds from exercise of options and 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 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, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
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 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, 2023. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2023.
Recently Adopted Accounting Pronouncements
In March 2022, the FASB issued Accounting Standards Update (“ASU”) No 2022-02 (Topic 326) Financial Instruments – Credit Losses to create a new model for credit losses that reflects current expected credit losses (“CECL”) over the lifetime of the underlying accounts receivable. The CECL methodology is applicable to our trade accounts receivable and our deferred costs. We adopted ASU 2022-02 effective July 1, 2023, and the adoption did not have a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU No 2023-09 (Topic 740) Income Taxes – Improvements to Income Tax Disclosures to enhance disclosures for the income tax rate reconciliation as well as cash income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending June 30, 2025. While we are still evaluating the specifics of the adoption, we anticipate this guidance will have a significant impact on our annual income tax disclosures.
Correction of Previously Reported Interim Condensed Consolidated Financial Statements
As described in more detail in Note 2 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2023, the Company previously restated certain of its financial statements, including its financial statements for the three and six months ended December 31, 2022, to correct the estimated fair value of the Company’s warrant to purchase up to five percent (5%) of the outstanding capital stock of Monogram Orthopaedics Inc. (NasdaqCM: MGRM), calculated on a fully diluted basis (the “Monogram Warrant”). The restatement recorded, for all restated periods, the Monogram Warrant at its estimated fair value, an unrealized gain on investments, and the deferred income tax expense associated with the corresponding unrealized gain on investments.
| 7 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Presented below are the changes to each financial statement line item for the three and six months ended December 31, 2022 that were affected by the restatement (in thousands except per share amounts).
Three months ended December 31, 2022 Unaudited Income Statement (Second Quarter Fiscal 2023)
| As Previously Reported | Restatement | As Restated | ||||||||||
| Unrealized gain(loss) on investments | $ | $ | (a) | $ | ||||||||
| Total other income (expense) | ||||||||||||
| Income before income taxes | ||||||||||||
| Income tax expense | (b) | |||||||||||
| Net income | ||||||||||||
| Basic income per share | $ | $ | $ | |||||||||
| Diluted income per share | $ | $ | $ | |||||||||
| (a) |
| (b) |
Six months ended December 31, 2022 Unaudited Income Statement
| As Previously Reported | Restatement | As Restated | ||||||||||
| Unrealized gain(loss) on investments | $ | $ | (a) | $ | ||||||||
| Total other income (expense) | ||||||||||||
| Income before income taxes | ||||||||||||
| Income tax expense | (b) | |||||||||||
| Net income | ||||||||||||
| Basic income per share | $ | $ | $ | |||||||||
| Diluted income per share | $ | $ | $ | |||||||||
| (a) |
| (b) |
NOTE 2. DESCRIPTION OF BUSINESS
We specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
| 8 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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.
NOTE 3. NET SALES
The following table presents the disaggregation of net sales by revenue recognition model (in thousands):
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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, 2023,
we did
The following tables summarize our contract assets and liability balances (in thousands):
As of and for the Three
Months Ended | As of and for the Six
Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||
| 9 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
As of and for the Three
Months Ended | As of and for the Six
Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Contract liabilities beginning balance | $ | $ | $ | $ | ||||||||||||
| Payments received from customers | $ | $ | $ | |||||||||||||
| Amounts reclassified to revenue | ( | ) | ( | ) | ( | ) | ||||||||||
| Contract liabilities ending balance | $ | $ | $ | $ | ||||||||||||
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):
December 31, 2023 | June 30, 2023 | |||||||
| 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):
December 31, 2023 | June 30, 2023 | |||||||
| Current: | ||||||||
| Marketable equity securities – short-term | $ | $ | ||||||
| Long-term: | ||||||||
| Warrant | ||||||||
| Marketable equity securities – long-term | ||||||||
| Total Investments | $ | $ | ||||||
Investments
at December 31, 2023 and June 30, 2023 had an aggregate cost basis of $
| 10 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Of
the total marketable equity securities at December 31, 2023 and June 30, 2023, $
On October
6, 2023, in conjunction with the execution of a supply agreement with Monogram, we exercised the Monogram Warrant in full in cash totaling
$
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 (“Ray”) Cabillot and Nicholas (“Nick”) Swenson, who chairs the committee. Both Nick and Ray 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 Nick or Ray 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):
| December
31, 2023 | June 30,
2023 | |||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
On
November 6, 2020, we acquired the Franklin Property for a total purchase price of $
Intangibles
Intangibles consist of the following (in thousands):
December 31, 2023 | June 30, 2023 | |||||||
| 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 $
| 11 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 5. WARRANTY
The
warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included
in accrued expenses in the accompanying condensed consolidated balance sheets. As of December 31, 2023 and June 30, 2023, the warranty
reserve amounted to $
Information regarding the accrual for warranty costs for the three and six months ended December 31, 2023 and 2022, are as follows (in thousands):
As of and for the Three
Months Ended | As of and for the Six
Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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. The weighted-average number of common shares outstanding reflects the effects of potentially dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.
The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings (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 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 per share amounts):
| Three
Months Ended December 31, | Six Months
Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic: | (restated) | (restated) | ||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | ||||||||||
| 12 |
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, 2023 and 2022, we recognized
accrued interest of $
We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2020 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2020 and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
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, 2023, performance awards and non-qualified stock options have been granted under the 2016 Equity Incentive Plan.
Performance Awards
In October 2023, the Compensation Committee reallocated an additional previously forfeited awards, having the same remaining terms and conditions, 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 each of the three months ended December 31, 2023, and 2022, we recorded share-based compensation expense of $ related to outstanding performance awards. During the six months ended December 31, 2023, and 2022, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. On December 31, 2023, there was approximately $ of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over the weighted-average period of years.
On July 1, 2022, 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.
| 13 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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. The weighted average fair value of the stock option awards granted in fiscal 2021 was $, calculated using a Monte Carlo simulation. In December 2021, the Compensation Committee reallocated previously forfeited non-qualified stock options, having the same remaining terms and conditions, to another employee. The weighted average fair value of the stock option awards granted in fiscal 2022 was $, calculated using a Monte Carlo simulation. During the three months ended December 31, 2023 and 2022, we recorded compensation expense of $ and $, respectively, related to these options. During the six months ended December 31, 2023 and 2022, we recorded compensation expense of $ and $, respectively, related to these options. As of December 31, 2023, none of these stock options had vested and there was approximately $.0 million of unrecognized compensation cost related to these stock options.
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 . The Board of Directors also approved that
During the three months
ended December 31, 2023 and 2022, we did t 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, 2023 and 2022, and shares
of our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of
$
| 14 |
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 and the six-month periods ended December 31, 2023 and 2022, is as follows (in thousands, except percentages):
| Three Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Customer 3 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| Six Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| 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 who comprised more than 10% of our gross accounts receivable at either December 31, 2023 or June 30, 2023, is as follows (in thousands, except percentages):
| December 31, 2023 | June 30, 2023 | |||||||||||||||
| Total gross accounts receivable | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total. | $ | % | $ | % | ||||||||||||
During the three months
ended December 31, 2023 and 2022 we had four suppliers accounting for
| 15 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS
Minnesota Bank & Trust
On
November 6, 2020 (the “Closing Date”), PDEX Franklin, a wholly owned subsidiary of the Company, purchased an approximate
The Property
Loan bears interest at a fixed rate of
On
the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”),
providing for a $
The Term
Loan A matures on
The
Term Loan B matures on
| 16 |
PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
On December 29, 2022 (the “Amendment Date”), we entered into Amendment No. 2 to Amended and Restated Credit Agreement (the “Amendment”) with MBT, which amends the Amended Credit Agreement and provides for a supplemental line of credit in the amount of $3,000,000 (the “Supplemental Loan”). The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental Note”) made by us in favor of MBT. The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of our common stock. The Supplemental Loan may be borrowed against from time to time through its current maturity date of December 29, 2025, on the terms set forth in the Amended Credit Agreement. As of December 31, 2023, no amounts have been drawn against the Supplemental Loan.
The Revolving Loan was also amended
(the “Amended Revolving Loan”) in connection with the Amendment to extend the
The Amended Revolving Loan and Supplemental Loan bear interest at an annual rate equal to the greater of (a) 5.0% or (b) SOFR for a one-month period from the website of the CME Group Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”). Commencing on the first day of each month after we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Amended Revolving Loan and Supplemental Loan through the date of payment. Any principal on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on the maturity date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan).
Any payment on the Term Loan A, the Term Loan B, the Amended Revolving Loan or the Supplemental Loan (collectively, the “Loans”) not made within seven days after the due date is subject to a late payment fee equal to 5% of the overdue amount. Upon the occurrence and during the continuance of an event of default, the interest rate of all Loans will be increased by 3% and MBT may, at its option, declare all of the Loans immediately due and payable in full.
The Amended Credit Agreement, Amended Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of December 31, 2023, but there can be no assurance that we will remain in compliance for the duration of the term of these loans.
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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 both the three and six months ended December 31, 2023, we repurchased shares at an aggregate cost, inclusive of fees under the Plan, of $. During the three and six months ended December 31, 2022, we repurchased and shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ and $ million, respectively. 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 sheet. The current portion of our operating lease
liability as of December 31, 2023, in the amount of $
As of December 31, 2023, our operating lease
has a remaining lease term of three years and nine months and an imputed interest rate of
As of December 31, 2023, the maturity of our lease liability is as follows (in thousands):
| Fiscal Year: | |||||
| 2024 | $ | ||||
| 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 filing. 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, 2023 and 2022. 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, the impact of the COVID-19 pandemic on our suppliers, customers, and us, consolidation within our target marketplace and among our competitors, competition from larger, better capitalized competitors, and our ability to realize returns on opportunities. Many other economic, competitive, governmental, and technological factors could impact our ability to achieve our goals. You are urged to review the risks, uncertainties, and other cautionary language described in this report, as well as in our other public disclosures and reports filed with the Securities and Exchange Commission (“SEC”) from time to time, including, but not limited to, the risks, uncertainties, and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal year ended June 30, 2023.
We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial (“CMF”) markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
Our principal headquarters are located at 2361 McGaw Avenue, Irvine, California 92614 and our phone number is (949) 769-3200. Our Internet address is www.pro-dex.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other SEC filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. In addition, our Code of Ethics and other corporate governance documents may be found on our website at the Internet address set forth above. Our filings with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov and company specific information at www.sec.gov/edgar/searchedgar/companysearch.html.
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Basis of Presentation
The condensed consolidated results of operations presented in this report are not audited and those results are not necessarily indicative of the results to be expected for the entirety of the fiscal year ending June 30, 2024, 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.
Critical Accounting Estimates and Judgments
Our 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, 2023, 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, 2023.
Business Strategy and Future Plans
Our business today is almost entirely driven by sales of our medical devices. Many of our significant customers place purchase orders for specific products that were developed under various development and/or supply agreements. Our customers may request that we design and manufacture a custom surgical device or they may hire us as a contract manufacturer to manufacture a product of their own design. In either case, we have extensive experience with autoclavable, battery-powered and electric, multi-function surgical drivers and shavers. We continue to focus a significant percentage of our time and resources on providing outstanding products and service to our valued principal customers. During the first quarter of fiscal 2021, our largest customer executed an amendment to our existing supply agreement such that we shall continue to supply their surgical handpieces to them through calendar 2025.
Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets.
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, expansion of 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.
| 20 |
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, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| % of Revenue | % of Revenue | % of Revenue | % of Revenue | |||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||
| Medical device products | 8,945 | 71 | % | 8,754 | 78 | % | 16,754 | 68 | % | 16,641 | 74 | % | ||||||||||||||||||||
| Industrial and scientific | 239 | 2 | % | 208 | 2 | % | 380 | 2 | % | 431 | 2 | % | ||||||||||||||||||||
| Dental and component | 45 | — | 36 | — | 84 | — | 139 | 1 | % | |||||||||||||||||||||||
| NRE & Prototype | 338 | 3 | % | 483 | 4 | % | 528 | 2 | % | 1,391 | 6 | % | ||||||||||||||||||||
| Repairs | 3,294 | 26 | % | 2,089 | 19 | % | 7,316 | 30 | % | 4,341 | 19 | % | ||||||||||||||||||||
| Discounts and other | (273 | ) | (2 | %) | (288 | ) | (3 | %) | (536 | ) | (2 | %) | (574 | ) | (2 | %) | ||||||||||||||||
| 12,588 | 100 | % | 11,282 | 100 | % | 24,526 | 100 | % | 22,369 | 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, and are manufactured or machined in our Irvine, California facility, and 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, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Medical device sales: | ||||||||||||||||||||||||||||||||
| Orthopedic | 5,533 | 62 | % | 5,770 | 66 | % | 10,371 | 62 | % | 11,405 | 69 | % | ||||||||||||||||||||
| CMF | 2,759 | 31 | % | 2,239 | 26 | % | 4,393 | 26 | % | 4,322 | 26 | % | ||||||||||||||||||||
| Thoracic | 653 | 7 | % | 745 | 8 | % | 1,990 | 12 | % | 914 | 5 | % | ||||||||||||||||||||
| Total | 8,945 | 100 | % | 8,754 | 100 | % | 16,754 | 100 | % | 16,641 | 100 | % | ||||||||||||||||||||
Sales of our medical device products increased $0.2 million, or 2%, for the three months ended December 31, 2023, and increased slightly by $113,000, or 1%, for the six months ended December 31, 2023, compared to the corresponding periods of the prior fiscal year.
Sales of our compact pneumatic air motors, reported as Industrial and scientific sales above, increased $31,000, or 15%, and decreased $51,000, or 12%, respectively, for the three and six months ended December 31, 2023, compared to the corresponding periods of the prior fiscal year. These are legacy products with no substantive marketing efforts. Our non-recurring (“NRE”) and proto-type revenue decreased $145,000, or 30%, and $863,000, or 62%, for the three and six months ended December 31, 2023, 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.
Repair revenue increased $1.2 million, or 58%, and $3.0 million, or 68%, respectively, for the three and six months ended December 31, 2023, compared to the corresponding periods of the prior fiscal year, primarily due to upgrades of handpieces for our largest customer. This increase was expected, as we have been asked to upgrade handpieces for this customer to its next generation, as well as include the advance replacement of certain components, beginning in December 2022. We expect to see continued heightened repair revenue from these upgrades for at least the remainder of this fiscal year.
At December 31, 2023, we had a backlog of approximately $29.1 million, of which $18.9 million is scheduled to be delivered in fiscal 2024 and the balance is scheduled to be delivered next 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, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||||||||||||||
| Product cost | 9,798 | 100 | % | 7,864 | 91 | % | 18,341 | 102 | % | 15,557 | 93 | % | ||||||||||||||||||||
| Under(over)-absorption of manufacturing costs | (31 | ) | (1 | %) | 696 | 8 | % | (316 | ) | (2 | %) | 977 | 6 | % | ||||||||||||||||||
| Inventory and warranty charges | 19 | 1 | % | 99 | 1 | % | 41 | — | 257 | 1 | % | |||||||||||||||||||||
| Total cost of sales | 9,786 | 100 | % | 8,659 | 100 | % | 18,066 | 100 | % | 16,791 | 100 | % | ||||||||||||||||||||
| Three
Months Ended December 31, | Six
Months Ended December 31, | Year
over Year ppt Change | ||||||||||||||||||||||
| 2023 | 2021 | 2023 | 2022 | Three Months | Six Months | |||||||||||||||||||
| Gross margin | 22 | % | 23 | % | 26 | % | 25 | % | (1 | ) | 1 | |||||||||||||
Cost of sales for the three and six months ended December 31, 2023, increased $1.1 million, or 13%, and $1.3 million, or 8%, respectively, compared to the corresponding periods of the prior fiscal year. The increase in cost of sales is consistent with the 12% and 10% increase in revenue for the three and six months ended December 31, 2023, compared to the corresponding periods of the prior fiscal year. Additionally, under(over)-absorption for the three and six months ended December 31, 2023, decreased $727,000, and $1.3 million, respectively, compared to the corresponding periods of the prior fiscal year, based upon increasing our labor and overhead rates to better absorb our indirect costs.
Gross profit increased by $179,000, or 7%, and $882,000, or 16%, for the three and six months ended December 31, 2023, respectively, compared to the corresponding periods of the prior fiscal year, primarily as a result of the increase in 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, 2023 remained relatively comparable (within one percentage point) 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 | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | Three Months | Six Months | |||||||||||||||||||||||||||||||||||
| % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Selling expenses | 37 | — | 68 | 1 | % | 63 | — | 122 | 1 | % | (46 | %) | (48 | %) | ||||||||||||||||||||||||||
| General and administrative expenses | 1,200 | 10 | % | 951 | 8 | % | 2,195 | 9 | % | 1,975 | 9 | % | 26 | % | 11 | % | ||||||||||||||||||||||||
| Research and development costs | 788 | 6 | % | 467 | 4 | % | 1,593 | 7 | % | 1,395 | 6 | % | 69 | % | 14 | % | ||||||||||||||||||||||||
| 2,025 | 16 | % | 1,486 | 13 | % | 3,851 | 16 | % | 3,492 | 16 | % | 36 | % | 10 | % | |||||||||||||||||||||||||
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, 2023 decreased $31,000 and $59,000, respectively, compared to the corresponding periods of fiscal 2023. The decrease in both periods is primarily due to decreased sales commissions.
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 $249,000 and $220,000, respectively, during the three and six months ended December 31, 2023, when compared to the corresponding periods of the prior fiscal year. The increases relate primarily to increased professional fees (consisting primarily of audit and valuation fees, related to the restatement of our financial statements as referenced in Note 1 to the condensed consolidated financial statements contained elsewhere in this report) and increased personnel costs, offset by decreased legal fees related to intellectual property matters.
Research and development costs generally consist of salaries, employer paid benefits, and other personnel- related costs of our engineering and support personnel, as well as allocated facility and information technology costs, professional and consulting fees, patent-related fees, lab costs, materials, and travel and related costs incurred in the development and support of our products. Research and development costs for the three and six months ended December 31, 2023, increased $321,000 and $198,000, respectively, compared to the corresponding periods of the prior fiscal year. These increases are primarily due to a reduction of billable customer projects in the current fiscal year compared to the prior year. 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.
| 22 |
Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products. The research and development costs represent between 31% and 41% of total operating expenses for all periods presented and are expected to increase in the future as we continue to invest in our business. The amount spent on internal projects under development is summarized below (in thousands):
| Three and Six Months Ended December 31, 2023 | Three and Six Months Ended December 31, 2022 | Est Market Launch | Est Annual Revenue | |||||||||||||||||||
| Total Research &
Development costs: | $ | 788 | $ | 1,593 | $ | 467 | $ | 1,395 | ||||||||||||||
| Products in development: | ||||||||||||||||||||||
| ENT Shaver. | 2 | 2 | 1 | 44 | Q4 2024 | $ | 1,000 | |||||||||||||||
| Sustaining & Other | 786 | 1,591 | 466 | 1,351 | ||||||||||||||||||
| Total | $ | 788 | $ | 1,593 | $ | 467 | $ | 1,395 | ||||||||||||||
| (1) | Represents the calendar quarter of expected market launch. |
| (2) | The products in development include risks that they could be abandoned in the future prior to completion, they could fail to become commercialized, or the actual annual revenue realized may be less than the amount estimated. |
As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of- life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in our machine shop, assembly operations, and inspection areas to improve efficiency and through-put. Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort or that later may ultimately be abandoned.
Interest & Other Income
Interest income for the three and six months ended December 31, 2023, and 2022 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 and as of December 31, 2023, all of these investments 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, 2023, and 2022 is 19% and 26%, respectively. The decrease in the current year effective tax rate is due primarily to the release of a $60,000 valuation allowance related to previously recognized unrealized losses on investments. The effective tax rate for the six months ended December 31, 2023, and 2022 is 45% and 24%, respectively. The increase in the current year effective tax rate is similarly due to the release of the valuation allowance recorded in the second quarter of fiscal 2024 and is a tax benefit since we have a year-to-date pre-tax loss.
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Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2023 decreased $1.6 million to $1.3 million as compared to $2.9 million at June 30, 2023. 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, | ||||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | 1,102 | $ | 2,497 | ||||
| Investing activities | $ | (2,009 | ) | $ | (598 | ) | ||
| Financing activities | $ | (740 | ) | $ | (2,366 | ) | ||
| Cash and Working Capital: | ||||||||
| Cash and cash equivalents | $ | 1,289 | $ | 382 | ||||
| Working Capital | $ | 26,610 | $ | 19,722 | ||||
Operating Activities
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.
Net cash provided by operating activities was $2.5 million for the six months ended December 31, 2022, primarily due to net income of $4.0 million and non-cash depreciation and amortization of $384,000 offset by unrealized gains on marketable securities in the amount of $3.2 million. Accounts receivable net collections amounted to $3.2 million for the six months ended December 31, 2022, offset by expenditures of $2.5 million for inventory, based primarily upon a forecast received from our largest customer, which later was reduced. Although current inventory levels exceed immediate requirements for this customer, they do not exceed the amounts that will ultimately be required to fulfill our customers’ contractual requirements.
Investing Activities
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.
Net cash used in investing activities for the six months ended December 31, 2022, was $598,000 and related mostly to improvements and equipment primarily for the Franklin Property.
Financing Activities
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.
Net cash used in financing activities for the six months ended December 31, 2022, included net principal payments of $839,000 on our existing loans from MBT, the repurchase of $1.3 million of our common stock pursuant to our share repurchase program, as well as $223,000 of employee payroll taxes related to the award of 37,500 shares of common stock to employees under previously granted performance awards.
| 24 |
Financing Facilities & Liquidity Requirements for the Next Twelve Months
As of December 31, 2023, our working capital was $26.6 million. We currently believe that our existing cash and cash equivalent balances together with our accounts receivable balances will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. In addition to our cash and cash equivalent balances, we expect to derive a portion of our liquidity from our cash flows from operations. We may also liquidate some of our marketable equity investments, which had an estimated fair market value of $7.3 million as of December 31, 2023.
We are focused on preserving our cash balances by monitoring expenses, identifying cost savings, and investing only in those development programs and products that we believe will most likely contribute to our profitability. As we execute on our current strategy, however, we may require debt and/or equity capital to fund our working capital needs and requirements for capital equipment to support our manufacturing and inspection processes. In particular, we have experienced negative operating cash flow in the past, especially as we procure long-lead time materials to satisfy our backlog, which can be subject to extensive variability. We believe that if we need to raise additional capital to fund our operations, we can do so by borrowing against our $7.0 million Amended Revolving Loan with MBT (See Note 10 to the condensed consolidated financial statements contained elsewhere in this report).
Investment Strategy
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Richard Van Kirk, and two non-management directors, Raymond (“Ray”) Cabillot and Nicholas (“Nick”) Swenson, who chairs the committee. Both Nick and Ray 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 Nick or Ray 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 $7.3 million of marketable public equity securities that we held on December 31, 2023.
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, 2023, 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 the valuation and disclosure of level 3 investments during fiscal 2023 as well as level 2 investments for the three months ended December 31, 2023. We are continuing to remediate this weakness. While we no longer hold any level 3 investments, all of the investments in our portfolio continue to be considered level 2 investments because they are either thinly traded, or we own a substantial percentage of total outstanding shares. While we believe that our fair value assessment and disclosures at December 31, 2023, are appropriate, we are continuing to monitor our internal controls.
Internal Control over Financial Reporting
During the three months ended December 31, 2023, 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.
| 25 |
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, 2023, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended December 31, 2023. 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, 2023.
| 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, 2023, 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, 2023 to October 31, 2023 | — | — | — | 628,931 | ||||||||||||||
| November 1, 2023 to November 30, 2023 | — | — | — | 628,931 | ||||||||||||||
| December 1, 2023 to December 31, 2023 | 6,285 | $ | 17.08 | 6,285 | 622,646 | |||||||||||||
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.
| ITEM 6. | EXHIBITS |
| 26 |
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: February 8, 2024 | By: | /s/ Richard L. Van Kirk |
| Richard L. Van Kirk | ||
|
Chief Executive Officer (principal executive officer) | ||
| Date: February 8, 2024 | By: | /s/ Alisha K. Charlton |
| Alisha K. Charlton | ||
|
Chief Financial Officer (principal financial officer and principal accounting officer) |
| 27 |
Exhibit 31.1
Certification of Principal 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: February 8, 2024 | By: | /s/ Richard L. Van Kirk |
| Richard L. Van Kirk | ||
|
Chief Executive Officer (principal executive officer) |
Exhibit 31.2
Certification of Principal 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: February 8, 2024 | By: | /s/ Alisha K. Charlton |
| Alisha K. Charlton | ||
|
Chief Financial Officer (principal financial officer and principal accounting officer) |
Exhibit 32
Certifications of Principal Executive Officer and Principal 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: February 8, 2024 | By: | /s/ Richard L. Van Kirk |
| Richard L. Van Kirk | ||
|
Chief Executive Officer (principal executive officer) |
| Date: February 8, 2024 | By: | /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.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Net of allowance for expected credit losses | $ 0 | $ 0 |
| Common stock, no par value | $ 0 | $ 0 |
| Common stock, shares authorized | 50,000,000 | 50,000,000 |
| Common stock, shares issued | 3,541,045 | 3,545,309 |
| Common stock, shares outstanding | 3,541,045 | 3,545,309 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Income Statement [Abstract] | ||||
| Net sales | $ 12,588 | $ 11,282 | $ 24,526 | $ 22,369 |
| Cost of sales | 9,786 | 8,659 | 18,066 | 16,791 |
| Gross profit | 2,802 | 2,623 | 6,460 | 5,578 |
| Operating expenses: | ||||
| Selling expenses | 37 | 68 | 63 | 122 |
| General and administrative expenses | 1,200 | 951 | 2,195 | 1,975 |
| Research and development costs | 788 | 467 | 1,593 | 1,395 |
| Total operating expenses | 2,025 | 1,486 | 3,851 | 3,492 |
| Operating income | 777 | 1,137 | 2,609 | 2,086 |
| Interest expense | (139) | (128) | (271) | (258) |
| Unrealized gain (loss) on marketable equity investments | (40) | 2,740 | (2,593) | 3,165 |
| Interest and other income | 22 | 7 | 46 | 225 |
| Gain on sale of investments | 7 | |||
| Income (loss) before income taxes | 620 | 3,756 | (209) | 5,225 |
| Income tax benefit (expense) | (120) | (1,004) | 94 | (1,270) |
| Net income (loss) | $ 500 | $ 2,752 | $ (115) | $ 3,955 |
| Basic net income (loss) per share: | ||||
| Net income (loss) | $ 0.14 | $ 0.77 | $ (0.03) | $ 1.10 |
| Diluted net income (loss) per share: | ||||
| Net income (loss) | $ 0.14 | $ 0.75 | $ (0.03) | $ 1.08 |
| Weighted-average common shares outstanding: | ||||
| Basic | 3,547 | 3,574 | 3,547 | 3,595 |
| Diluted | 3,612 | 3,652 | 3,547 | 3,672 |
| Common shares outstanding | 3,541 | 3,554 | 3,541 | 3,554 |
BASIS OF PRESENTATION |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BASIS OF PRESENTATION | NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2023. Recently Adopted Accounting Pronouncements In March 2022, the FASB issued Accounting Standards Update (“ASU”) No 2022-02 (Topic 326) Financial Instruments – Credit Losses to create a new model for credit losses that reflects current expected credit losses (“CECL”) over the lifetime of the underlying accounts receivable. The CECL methodology is applicable to our trade accounts receivable and our deferred costs. We adopted ASU 2022-02 effective July 1, 2023, and the adoption did not have a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU No 2023-09 (Topic 740) Income Taxes – Improvements to Income Tax Disclosures to enhance disclosures for the income tax rate reconciliation as well as cash income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending June 30, 2025. While we are still evaluating the specifics of the adoption, we anticipate this guidance will have a significant impact on our annual income tax disclosures.
Correction of Previously Reported Interim Condensed Consolidated Financial Statements As described in more detail in Note 2 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2023, the Company previously restated certain of its financial statements, including its financial statements for the three and six months ended December 31, 2022, to correct the estimated fair value of the Company’s warrant to purchase up to five percent (5%) of the outstanding capital stock of Monogram Orthopaedics Inc. (NasdaqCM: MGRM), calculated on a fully diluted basis (the “Monogram Warrant”). The restatement recorded, for all restated periods, the Monogram Warrant at its estimated fair value, an unrealized gain on investments, and the deferred income tax expense associated with the corresponding unrealized gain on investments.
Presented below are the changes to each financial statement line item for the three and six months ended December 31, 2022 that were affected by the restatement (in thousands except per share amounts). Three months ended December 31, 2022 Unaudited Income Statement (Second Quarter Fiscal 2023)
Six months ended December 31, 2022 Unaudited Income Statement
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DESCRIPTION OF BUSINESS |
6 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| DESCRIPTION OF BUSINESS | NOTE 2. DESCRIPTION OF BUSINESS We specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
In August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued growth of our business. The condensed consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations.
|
NET SALES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NET SALES | NOTE 3. NET SALES
The following table presents the disaggregation of net sales by revenue recognition model (in thousands):
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, 2023, we did not record any revenue that had been included in deferred revenue in the prior year. During the three and six months ended December 31, 2022, we recorded $312,000 and $862,000, respectively, of revenue that had been included in deferred revenue in the prior year. The revenue recognized from the contract liabilities consisted of satisfying our performance obligations during the normal course of business. As of December 31, 2023, we do not have any deferred revenue. The following tables summarize our contract assets and liability balances (in thousands):
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COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS | 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):
Investments Investments are stated at market value and consist of the following (in thousands):
Investments at December 31, 2023 and June 30, 2023 had an aggregate cost basis of $3,964,000 and $2,714,000, respectively. The long-term investments include equity investments of thinly traded securities that we classified as long term in nature because if we decide to sell these securities, we may not be able to sell our position within one year. At December 31, 2023, the investments included net unrealized gains of $3.3 million (gross unrealized gains of $3.8 million offset by gross unrealized losses of $482,000). At June 30, 2023, the investments, excluding the Monogram Warrant, included net unrealized losses of $219,000 (gross unrealized losses of $286,000 offset by gross unrealized gains of $67,000). Of the total marketable equity securities at December 31, 2023 and June 30, 2023, $763,000 and $1,134,000, respectively, represent an investment in the common stock of Air T, Inc. Two of our Board members are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive Officer and Chairman of Air T, Inc. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares were purchased through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc. On October 6, 2023, in conjunction with the execution of a supply agreement with Monogram, we exercised the Monogram Warrant in full in cash totaling $1,250,000 and received shares of Monogram common stock (NasdaqCM: MGRM). On the date of exercise our unrealized loss on the investment was approximately $38,000. The fair value of the Monogram common stock is reflected in marketable equity securities – short term in the table above as of December 31, 2023. Our Chief Executive Officer, Richard (“Rick”) Van Kirk, is also a Monogram board member. We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Rick Van Kirk, and two non-management directors, Raymond (“Ray”) Cabillot and Nicholas (“Nick”) Swenson, who chairs the committee. Both Nick and Ray 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 Nick or Ray 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):
On November 6, 2020, we acquired the Franklin Property for a total purchase price of $6.5 million, of which we paid $1.3 million in cash and the balance of $5.2 million we financed through Minnesota Bank & Trust (“MBT”) (See Note 10). We substantially completed the build-out of the property in the first quarter of fiscal 2022. We began operations in the new facility during the fourth quarter of fiscal 2023. The building is being amortized on a straight-line basis over a period of 30 years. Intangibles Intangibles consist of the following (in thousands):
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 $14,000 for the remainder of fiscal 2024 and $28,000 per fiscal year through fiscal 2026, at which time we expect these costs to be fully amortized.
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WARRANTY |
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| Guarantees and Product Warranties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WARRANTY | NOTE 5. WARRANTY
The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying condensed consolidated balance sheets. As of December 31, 2023 and June 30, 2023, the warranty reserve amounted to $194,000 and $200,000, respectively. Warranty expenses are included in cost of sales in the accompanying condensed consolidated statements of income. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Warranty expense relating to new product sales and changes to estimates for the three months ended December 31, 2023 and 2022 was $37,000 and $56,000, respectively, and for the six months ended December 31, 2023 and 2022 was $60,000 and $123,000, respectively. Information regarding the accrual for warranty costs for the three and six months ended December 31, 2023 and 2022, are as follows (in thousands):
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NET INCOME (LOSS) PER SHARE |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NET INCOME (LOSS) PER SHARE |
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. The weighted-average number of common shares outstanding reflects the effects of potentially dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards. The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings (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 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 per share amounts):
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INCOME TAXES |
6 Months Ended |
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Dec. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | 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, 2023 and 2022, we recognized accrued interest of $61,000 and $54,000, respectively, related to unrecognized tax benefits. We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2020 and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2020 and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months. |
SHARE-BASED COMPENSATION |
6 Months Ended |
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Dec. 31, 2023 | |
| Share-Based Payment Arrangement [Abstract] | |
| SHARE-BASED COMPENSATION |
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, 2023, performance awards and non-qualified stock options have been granted under the 2016 Equity Incentive Plan. Performance Awards
In October 2023, the Compensation Committee reallocated an additional previously forfeited awards, having the same remaining terms and conditions, 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 each of the three months ended December 31, 2023, and 2022, we recorded share-based compensation expense of $ related to outstanding performance awards. During the six months ended December 31, 2023, and 2022, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. On December 31, 2023, there was approximately $ of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over the weighted-average period of years. On July 1, 2022, 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. The weighted average fair value of the stock option awards granted in fiscal 2021 was $, calculated using a Monte Carlo simulation. In December 2021, the Compensation Committee reallocated previously forfeited non-qualified stock options, having the same remaining terms and conditions, to another employee. The weighted average fair value of the stock option awards granted in fiscal 2022 was $, calculated using a Monte Carlo simulation. During the three months ended December 31, 2023 and 2022, we recorded compensation expense of $ and $, respectively, related to these options. During the six months ended December 31, 2023 and 2022, we recorded compensation expense of $ and $, respectively, related to these options. As of December 31, 2023, none of these stock options had vested and there was approximately $.0 million of unrecognized compensation cost related to these stock options. 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 . The Board of Directors also approved that 704,715 shares be reserved for issuance pursuant to the ESPP. The ESPP was approved by our shareholders at our 2014 Annual Meeting. An amendment to the ESPP to extend its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual Meeting. During the three months ended December 31, 2023 and 2022, we did t 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, 2023 and 2022, and shares of our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $15.82 and $13.52, respectively, per share. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of shares of our common stock. During each of the six months ended December 31, 2023 and 2022, we recorded share-based compensation expense in the amount of $ relating to the ESPP. |
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| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MAJOR CUSTOMERS AND SUPPLIERS | NOTE 9. MAJOR CUSTOMERS AND SUPPLIERS Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month and the six-month periods ended December 31, 2023 and 2022, is as follows (in thousands, except percentages):
Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either December 31, 2023 or June 30, 2023, is as follows (in thousands, except percentages):
During the three months ended December 31, 2023 and 2022 we had four suppliers accounting for 10% or more of total inventory purchases, and during the six months ended December 31, 2023 and 2022, we had three suppliers that accounted for more than 10% of our total inventory purchases. Amounts owed to the fiscal 2024 three most significant suppliers at December 31, 2023, totaled $1.2 million, $300,000 and $115,000, respectively, and at June 30, 2023, totaled $621,000, $158,000 and $41,000, respectively. |
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NOTES PAYABLE AND FINANCING TRANSACTIONS |
6 Months Ended |
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Dec. 31, 2023 | |
| Debt Disclosure [Abstract] | |
| NOTES PAYABLE AND FINANCING TRANSACTIONS | NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS Minnesota Bank & Trust
On November 6, 2020 (the “Closing Date”), PDEX Franklin, a wholly owned subsidiary of the Company, purchased an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”). A portion of the purchase price was financed by a loan from MBT to PDEX Franklin in the principal amount of approximately $5.2 million (the “Property Loan”) pursuant to a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT (the “Property Loan Agreement”) and corresponding Term Note (the “Property Note”) issued by PDEX Franklin in favor of MBT on the Closing Date. The Property Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor of MBT (the “Deed”) and by an Assignment of Leases and Rents by PDEX Franklin in favor of MBT (the “Rents Assignment”). We paid loan origination fees to MBT on the Closing Date in the amount of $26,037.
The Property Loan bears interest at a fixed rate of 3.55% per annum, which is subject to a 3% increase upon an event of default. Accrued interest was paid on December 1, 2020, and both principal and interest in the amount of approximately $30,000 are due and payable on the first day of each subsequent month until the maturity date of November 1, 2030 (the “Maturity Date”), at which time a balloon payment in the amount of $3.1 million is due. Any prepayment of the Property Loan (other than monthly scheduled interest and principal payments), is subject to a prepayment fee equal to 4% of the principal amount prepaid for any prepayment made during the first or second year, 3% of the principal amount prepaid for any prepayment made during the third or fourth year, 2% of the principal amount prepaid for any prepayment made during the fifth or sixth year, and 1% of the principal amount prepaid for any prepayment made during the seventh or eighth year. The Property Loan Agreement, Property Note, Deed, and Rents Assignment each contain representations, warranties, covenants, and events of default that are customary for a loan of this type. The balance owed on the Property Loan at December 31, 2023 is $4,649,000. On the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”), providing for a $7,525,000 amended and restated term loan (the “Term Loan A”), a $1,000,000 term loan (the “Term Loan B”), and a $2,000,000 amended and restated revolving loan, evidenced by an Amended and Restated Term Note A (“Term Note A”), a Term Note B, and an Amended and Restated Revolving Credit Note (the “Revolving Note”) made by us in favor of MBT. The loans under the Amended Credit Agreement are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into on September 6, 2018, between the Company and MBT. The Term Note A had an outstanding principal balance of $3,770,331 as of the Closing Date and could be borrowed against through May 30, 2021 (the “Commitment Period”). During the third quarter ended March 31, 2021, we borrowed an additional $3,000,000 against Term Note A for the purpose of repurchasing shares of our common stock. The Term Note B had a zero balance as of the Closing Date and we borrowed the full $1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements to the Franklin Property.
The Term Loan A matures on November 1, 2027, and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan A of interest only were due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan A of approximately $97,000 plus any additional accrued and unpaid interest through the date of payment. The balance owed on Term Loan A as of December 31, 2023, is $4,337,000. The Term Loan B matures on November 1, 2027, and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan B of interest only were due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan B of approximately $15,000, plus any additional accrued and unpaid interest through the date of payment. The balance owing on Term Note B was $646,000 on December 31, 2023.
On December 29, 2022 (the “Amendment Date”), we entered into Amendment No. 2 to Amended and Restated Credit Agreement (the “Amendment”) with MBT, which amends the Amended Credit Agreement and provides for a supplemental line of credit in the amount of $3,000,000 (the “Supplemental Loan”). The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental Note”) made by us in favor of MBT. The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of our common stock. The Supplemental Loan may be borrowed against from time to time through its current maturity date of December 29, 2025, on the terms set forth in the Amended Credit Agreement. As of December 31, 2023, no amounts have been drawn against the Supplemental Loan. The Revolving Loan was also amended (the “Amended Revolving Loan”) in connection with the Amendment to extend the maturity date from November 5, 2023 to December 29, 2024, to increase the Revolving Loan facility from $2,000,000 to $7,000,000, and to increase the interest rate on the Revolving Loan (as described below), evidenced by an Amended and Restated Revolving Credit Note (the “Amended Revolving Note”) made by us in favor of MBT. The Amended Revolving Loan may be borrowed against from time to time by us through its current maturity date of December 29, 2025, on the terms set forth in the Amended Credit Agreement. On December 29, 2023, we entered into Amendment No. 3 to the Agreement to amend the termination date of the Supplemental Loan and Amended Revolving Loan from December 29, 2024, to December 29, 2025. As of December 31, 2023, we had drawn $2,500,000 against the Amended Revolving Loan. Loan origination fees in the amount of $16,000 each were paid to MBT in conjunction with the Revolving Loan and the Supplemental Loan in conjunction with both the Amendment on December 29, 2022 and on December 29, 2023. The Amended Revolving Loan and Supplemental Loan bear interest at an annual rate equal to the greater of (a) 5.0% or (b) SOFR for a one-month period from the website of the CME Group Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”). Commencing on the first day of each month after we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Amended Revolving Loan and Supplemental Loan through the date of payment. Any principal on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on the maturity date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan). Any payment on the Term Loan A, the Term Loan B, the Amended Revolving Loan or the Supplemental Loan (collectively, the “Loans”) not made within seven days after the due date is subject to a late payment fee equal to 5% of the overdue amount. Upon the occurrence and during the continuance of an event of default, the interest rate of all Loans will be increased by 3% and MBT may, at its option, declare all of the Loans immediately due and payable in full. The Amended Credit Agreement, Amended Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of December 31, 2023, but there can be no assurance that we will remain in compliance for the duration of the term of these loans. |
COMMON STOCK |
6 Months Ended |
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Dec. 31, 2023 | |
| Equity [Abstract] | |
| COMMON STOCK | 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 both the three and six months ended December 31, 2023, we repurchased shares at an aggregate cost, inclusive of fees under the Plan, of $. During the three and six months ended December 31, 2022, we repurchased and shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ and $ million, respectively. 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.
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LEASES |
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| LEASES | NOTE 12. LEASES Our operating lease right-of-use asset and long-term liability are presented separately on our condensed consolidated balance sheet. The current portion of our operating lease liability as of December 31, 2023, in the amount of $435,000, is presented within accrued expenses on the condensed consolidated balance sheet. As of December 31, 2023, our operating lease has a remaining lease term of three years and nine months and an imputed interest rate of 5.53%. Cash paid for amounts included in the lease liability for the three and six months ended December 31, 2023 totaled $131,000 and $258,000, respectively, and for December 31, 2022 totaled $127,000 and $250,000, respectively. As of December 31, 2023, the maturity of our lease liability is as follows (in thousands):
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COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
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Dec. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 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. |
SUBSEQUENT EVENTS |
6 Months Ended |
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Dec. 31, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 14. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this filing. There were no subsequent events that require disclosure. |
BASIS OF PRESENTATION (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in financial statement |
Six months ended December 31, 2022 Unaudited Income Statement
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NET SALES (Tables) |
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| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of disaggregation of net sales |
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| Schedule of contract assets and liability |
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COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Tables) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventory |
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| Schedule of intangibles |
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WARRANTY (Tables) |
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| Guarantees and Product Warranties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrual warranty costs |
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NET INCOME (LOSS) PER SHARE (Tables) |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of net income (loss) per share |
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MAJOR CUSTOMERS AND SUPPLIERS (Tables) |
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| Schedule of sales by major customers |
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| Schedule of accounts receivable |
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LEASES (Tables) |
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| Schedule of maturity of lease liability |
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BASIS OF PRESENTATION (Details) - USD ($) $ / shares in Units, $ in Thousands |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|||||||||||
| Unrealized gain(loss) on investments | $ (40) | $ 2,740 | $ (2,593) | $ 3,165 | ||||||||||
| Total other income (expense) | 2,619 | 3,139 | ||||||||||||
| Income before income taxes | 620 | 3,756 | (209) | 5,225 | ||||||||||
| Income Tax Expense (Benefit) | 120 | 1,004 | (94) | 1,270 | ||||||||||
| Net income | $ 500 | $ 2,752 | $ (115) | $ 3,955 | ||||||||||
| Basic income per share | $ 0.14 | $ 0.77 | $ (0.03) | $ 1.10 | ||||||||||
| Diluted income per share | $ 0.14 | $ 0.75 | $ (0.03) | $ 1.08 | ||||||||||
| Previously Reported [Member] | ||||||||||||||
| Unrealized gain(loss) on investments | $ 158 | $ 408 | ||||||||||||
| Total other income (expense) | 37 | 382 | ||||||||||||
| Income before income taxes | 1,174 | 2,468 | ||||||||||||
| Income Tax Expense (Benefit) | 295 | 513 | ||||||||||||
| Net income | $ 879 | $ 1,955 | ||||||||||||
| Basic income per share | $ 0.25 | $ 0.54 | ||||||||||||
| Diluted income per share | $ 0.24 | $ 0.53 | ||||||||||||
| Revision of Prior Period, Error Correction, Adjustment [Member] | ||||||||||||||
| Unrealized gain(loss) on investments | $ 2,582 | [1] | $ 2,757 | [2] | ||||||||||
| Total other income (expense) | 2,582 | 2,757 | ||||||||||||
| Income before income taxes | 2,582 | 2,757 | ||||||||||||
| Income Tax Expense (Benefit) | 709 | [3] | 757 | [4] | ||||||||||
| Net income | $ 1,873 | $ 2,000 | ||||||||||||
| Basic income per share | $ 0.52 | $ 0.56 | ||||||||||||
| Diluted income per share | $ 0.51 | $ 0.55 | ||||||||||||
| ||||||||||||||
NET SALES (Net Sales) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Net Sales: | ||||
| Over-time revenue recognition | $ 338 | $ 483 | $ 528 | $ 1,391 |
| Point-in-time revenue recognition | 12,250 | 10,799 | 23,998 | 20,978 |
| Total net sales | $ 12,588 | $ 11,282 | $ 24,526 | $ 22,369 |
NET SALES (Contract Assets and Liability) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Revenue from Contract with Customer [Abstract] | ||||
| Contract assets beginning balance | $ 591 | $ 591 | $ 494 | $ 714 |
| Expenses incurred during the year | 107 | 412 | 326 | 746 |
| Amounts reclassified to cost of sales | (277) | (117) | (382) | (566) |
| Amounts allocated to discounts for standalone selling price | (9) | (9) | (26) | (17) |
| Contract assets ending balance | 412 | 877 | 412 | 877 |
| Contract liabilities beginning balance | 851 | 1,013 | ||
| Payments received from customers | 312 | 43 | 700 | |
| Amounts reclassified to revenue | (312) | (43) | (862) | |
| Contract liabilities ending balance | $ 851 | $ 851 | ||
NET SALES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Revenue from Contract with Customer [Abstract] | ||||
| Deferred revenue | $ 0 | $ 312,000 | $ 0 | $ 862,000 |
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Inventory) (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Raw materials/purchased components | $ 7,524 | $ 8,824 |
| Work in process | 3,905 | 3,686 |
| Sub-assemblies/finished components | 2,721 | 2,387 |
| Finished goods | 876 | 1,270 |
| Total inventory | $ 15,026 | $ 16,167 |
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Investments) (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Current: | ||
| Marketable equity securities – short-term | $ 5,803 | $ 1,134 |
| Long-term: | ||
| Warrant | 6,160 | |
| Marketable equity securities – long-term | 1,509 | 1,361 |
| Total Investments | $ 7,312 | $ 8,655 |
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Land and Building) (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Land and building, gross | $ 6,499 | $ 6,499 |
| Less: accumulated depreciation | (297) | (250) |
| Land and building, net | 6,202 | 6,249 |
| Land [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Land and building, gross | 3,684 | 3,684 |
| Building [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Land and building, gross | $ 2,815 | $ 2,815 |
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Intangibles) (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Patent-related costs | $ 208 | $ 208 |
| Less accumulated amortization | (140) | (127) |
| Intangible assets,net | $ 68 | $ 81 |
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS (Details Narrative) - USD ($) |
6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|
Nov. 06, 2020 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Jun. 30, 2023 |
Oct. 06, 2023 |
|
| Defined Benefit Plan Disclosure [Line Items] | |||||
| Available for sale securities aggregate cost | $ 3,964,000 | $ 2,714,000 | |||
| Investments included net unrealized gains (losses) | 3,300,000 | 219,000 | |||
| Gross unrealized gains | 3,800,000 | 67,000 | |||
| Gross unrealized losses | 482,000 | 286,000 | |||
| Marketable equity securities | 763,000 | $ 1,134,000 | |||
| Cash | $ 1,250,000 | ||||
| Common stock shares | 1,828,551 | ||||
| Exercise unrealized loss investment | 38,000 | ||||
| Payment to acquired property plant equipment | 759,000 | $ 687,000 | |||
| Future amortization expense - 2024 | 14,000 | ||||
| Future amortization expense - 2025 | 28,000 | ||||
| Future amortization expense - 2026 | $ 28,000 | ||||
| Franklin [Member] | |||||
| Defined Benefit Plan Disclosure [Line Items] | |||||
| Payment to acquired property plant equipment | $ 6,500,000 | ||||
| Payment of property plant equipment | 1,300,000 | ||||
| Bank financed | $ 5,200,000 | ||||
WARRANTY (Accrual Warranty Costs) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Guarantees and Product Warranties [Abstract] | ||||
| Beginning balance | $ 189 | $ 365 | $ 200 | $ 340 |
| Accruals during the period | 29 | 55 | 53 | 109 |
| Changes in estimates of prior period warranty accruals | 8 | 1 | 7 | 14 |
| Warranty amortization | (32) | (77) | (66) | (119) |
| Ending balance | $ 194 | $ 344 | $ 194 | $ 344 |
WARRANTY (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Jun. 30, 2023 |
|
| Warranty reserve | $ 194,000 | $ 200,000 | |||
| Product Sales and Changes [Member] | |||||
| Warranty expense | $ 37,000 | $ 56,000 | $ 60,000 | $ 123,000 | |
NET INCOME (LOSS) PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Basic: | ||||
| Net income (loss) | $ 500 | $ 2,752 | $ (115) | $ 3,955 |
| Weighted average shares outstanding | 3,547 | 3,574 | 3,547 | 3,595 |
| Basic income (loss) per share | $ 0.14 | $ 0.77 | $ (0.03) | $ 1.10 |
| Diluted: | ||||
| Net income (loss) | $ 500 | $ 2,752 | $ (115) | $ 3,955 |
| Weighted average shares outstanding | 3,547 | 3,574 | 3,547 | 3,595 |
| Effect of dilutive securities | 65 | 78 | 77 | |
| Weighted average shares used in calculation of diluted earnings per share | 3,612 | 3,652 | 3,547 | 3,672 |
| Diluted income (loss) per share | $ 0.14 | $ 0.75 | $ (0.03) | $ 1.08 |
NET INCOME (LOSS) PER SHARE (Details Narrative) |
6 Months Ended |
|---|---|
|
Dec. 31, 2023
shares
| |
| Earnings Per Share [Abstract] | |
| Anti dilutive shares | 64,800 |
INCOME TAXES (Details Narrative) - USD ($) |
Dec. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Income Tax Disclosure [Abstract] | ||
| Unrecognized tax benefits | $ 61,000 | $ 54,000 |
MAJOR CUSTOMERS AND SUPPLIERS (Accounts Receivable) (Details) - Accounts Receivable [Member] - Customer Concentration Risk [Member] - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Dec. 31, 2023 |
Jun. 30, 2023 |
|
| Customer [Member] | ||
| Concentration Risk [Line Items] | ||
| Total gross accounts receivable | $ 13,169 | $ 9,952 |
| Percentage of concentrations risk | 100.00% | 100.00% |
| Customer 1 [Member] | ||
| Concentration Risk [Line Items] | ||
| Total gross accounts receivable | $ 9,693 | $ 7,231 |
| Percentage of concentrations risk | 74.00% | 73.00% |
| Customer 2 [Member] | ||
| Concentration Risk [Line Items] | ||
| Total gross accounts receivable | $ 1,716 | $ 1,951 |
| Percentage of concentrations risk | 13.00% | 19.00% |
| Customer Total [Member] | ||
| Concentration Risk [Line Items] | ||
| Total gross accounts receivable | $ 11,409 | $ 9,182 |
| Percentage of concentrations risk | 87.00% | 92.00% |
MAJOR CUSTOMERS AND SUPPLIERS (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Jun. 30, 2023 |
|
| Concentration Risk [Line Items] | |||||
| Total accounts payable | $ 2,909,000 | $ 2,909,000 | $ 2,261,000 | ||
| Purchase [Member] | Supplier Concentration Risk [Member] | Supplier 1 [Member] | |||||
| Concentration Risk [Line Items] | |||||
| Percentage of concentrations risk | 10.00% | 10.00% | 10.00% | 10.00% | |
| Total accounts payable | $ 1,200,000 | $ 1,200,000 | 621,000 | ||
| Purchase [Member] | Supplier Concentration Risk [Member] | Supplier 2 [Member] | |||||
| Concentration Risk [Line Items] | |||||
| Percentage of concentrations risk | 10.00% | 10.00% | 10.00% | 10.00% | |
| Total accounts payable | $ 300,000 | $ 300,000 | 158,000 | ||
| Purchase [Member] | Supplier Concentration Risk [Member] | Supplier 3 [Member] | |||||
| Concentration Risk [Line Items] | |||||
| Percentage of concentrations risk | 10.00% | 10.00% | 10.00% | 10.00% | |
| Total accounts payable | $ 115,000 | $ 115,000 | $ 41,000 | ||
COMMON STOCK (Details Narrative) - 10b5-1 Plan [Member] - Share Repurchase Program [Member] - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Equity, Class of Treasury Stock [Line Items] | |||||
| Number of shares repurchased, shares | 6,285 | 53,993 | 6,285 | 74,846 | |
| Number of shares repurchased, value | $ 107,000 | $ 995,000 | $ 107,000 | $ 1,300,000 | |
| Cumulative Basis [Member] | |||||
| Equity, Class of Treasury Stock [Line Items] | |||||
| Number of shares repurchased, shares | 1,203,453 | ||||
| Number of shares repurchased, value | $ 17,300,000 | ||||
LEASES (Maturity of Lease Liability) (Details) $ in Thousands |
Dec. 31, 2023
USD ($)
|
|---|---|
| Leases | |
| 2024 | $ 261 |
| 2025 | 535 |
| 2026 | 551 |
| 2027 | 567 |
| 2028 | 143 |
| Total lease payments | 2,057 |
| Less imputed interest: | (207) |
| Total | $ 1,850 |
LEASES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Leases | ||||
| Operating lease liability current portion | $ 435,000 | $ 435,000 | ||
| Imputed interest rate, percentage | 5.53% | 5.53% | ||
| Lease liability | $ 131,000 | $ 127,000 | $ 258,000 | $ 250,000 |