Financial Performance - Net sales for the three months ended September 30, 2024, were $14.892 million, a 25% increase from $11.938 million in the same period of 2023[64] - Gross profit increased to $5.150 million, representing 35% of net sales, compared to $3.658 million or 31% of net sales in the prior year[64] - The company reported an operating income of $3.013 million, which is 20% of net sales, compared to $1.833 million or 15% in the previous year[64] - Gross profit increased by approximately $1.5 million, or 41%, for the three months ended September 30, 2024, with gross margin improving by four percentage points[72] - Operating expenses totaled $2.1 million, a 17% increase from $1.8 million in the prior year, with selling expenses rising by 92% to $48,000[73] Sales Breakdown - Medical device sales accounted for $9.912 million, or 67% of total net sales, up 27% from $7.808 million, driven primarily by orthopedic sales which increased by 38%[65][66] - Repair revenue increased by $1.1 million, or 28%, due to a higher number of repairs for orthopedic handpieces[68] - Recurring revenue from distributors of CMF drivers increased by $567,000, or 35%, compared to the same period last year[66] Costs and Expenses - Research and development costs were $843,000, representing 6% of net sales, slightly down from 7% in the prior year[64] - Cost of sales for the three months ended September 30, 2024, increased by $1.5 million, or 18%, compared to the same period in 2023, consistent with a 25% increase in revenue[71] - General and administrative expenses increased by $251,000, or 25%, primarily due to higher payroll and personnel expenses[74] - Research and development costs rose by $38,000, or 5%, driven by increased internal project spending[75] Cash Flow and Working Capital - Cash and cash equivalents increased by $450,000 to $3.1 million as of September 30, 2024, compared to $2.6 million at June 30, 2024[81] - Net cash provided by operating activities for the three months ended September 30, 2024, totaled $1.9 million, compared to $392,000 in the same period of 2023[83] - Net cash used in investing activities was $431,000 for the three months ended September 30, 2024, related to equipment purchases[85] - Net cash used in financing activities included the repurchase of $2.3 million of common stock and proceeds of $5.0 million from a new term loan[86] - Working capital as of September 30, 2024, was $27.2 million, indicating sufficient funds to meet cash requirements for at least the next 12 months[88] Future Outlook - The backlog at September 30, 2024, was approximately $56.8 million, with $45.6 million scheduled for delivery during the remainder of fiscal 2025[70] - The company expects production shipments of the next generation handpiece to ramp up in the third and fourth quarters of fiscal 2025[66] - Discounts and other increased by $126,000 due to volume rebates related to the orthopedic handpiece[69]

Core Insights - Pro-Dex, Inc. reported strong financial results for Q4 fiscal 2024, with net income of $1.6 million or 46 cents per share, an increase from 42 cents per share year-over-year [1][3] - Quarterly net sales surged by 41% to $15 million, up from $10.6 million in the same quarter last year, driven by a $3.4 million revenue increase from the largest customer [2][8] - The company faced challenges in maintaining gross margin levels, which contracted from 32% to 27%, attributed to price pressures and rising indirect labor costs [4][9] Quarterly Performance Overview - Operating expenses remained stable at $1.7 million, with a strategic reduction in general and administrative costs and a slight increase in engineering expenses [5] - Operating income rose by 46% year-over-year to $2.4 million, reflecting effective operational adjustments and sales initiatives [5] - The financial health of Pro-Dex indicates a strategic enhancement in operational execution, despite the impact of unrealized gains and losses on investments [3][9] Balance Sheet Update - As of June 30, 2024, Pro-Dex's cash and cash equivalents decreased to $2.6 million from $2.9 million at the end of the previous fiscal year [6] - Total assets increased slightly from $51.8 million to $52.5 million, while shareholders' equity decreased from $31.6 million to $30.9 million [6] Cash Flows - Pro-Dex generated $6.2 million in operating cash flows for fiscal 2024, an increase from $5.5 million in the prior year [7] Fiscal 2024 Update - Annual net sales increased by 17% to $53.8 million, primarily driven by recurring increases in repair and new unit sales to the primary customer [8] - Annual net income declined to $2.1 million or 60 cents per share, down from $1.95 per share in the previous year, largely due to a $4.1 million unrealized loss on marketable equity investments [9] - The year also saw a steady increase in research and development expenditures, reflecting the company's commitment to technology and product development [10]

Financial Performance - Net sales for Q4 2024 increased by $4.4 million, or 41%, to $15.0 million compared to $10.6 million in Q4 2023, driven primarily by a $3.4 million revenue increase from the largest customer[2] - Gross profit for Q4 2024 rose by $729,000, or 22%, but gross margin decreased from 32% in Q4 2023 to 27% in Q4 2024 due to price pressures and increased indirect labor costs[2] - Operating income for Q4 2024 increased by $742,000, or 46%, to $2.4 million compared to $1.6 million in Q4 2023[4] - Net income for Q4 2024 was $1.6 million, or $0.46 per diluted share, a slight increase from $1.5 million, or $0.42 per diluted share, in Q4 2023[4] - For the fiscal year 2024, net sales increased by $7.8 million, or 17%, to $53.8 million from $46.0 million in fiscal 2023, primarily due to revenue increases from the largest customer[5] - Gross profit for the fiscal year 2024 increased by $1.8 million, or 14%, to $14.5 million compared to $12.7 million in fiscal 2023[5] - Net income for the fiscal year 2024 was $2.1 million, or $0.60 per diluted share, down from $7.1 million, or $1.95 per diluted share, in fiscal 2023, impacted by unrealized losses on marketable equity investments of $4.1 million[7] - Net income for the year ended June 30, 2024, was $2,127,000, a decrease of 70% compared to $7,074,000 in 2023[11] Operating Expenses and Investments - Operating expenses for the fiscal year 2024 rose by 6% to $7.4 million from $7.0 million in the prior fiscal year, mainly due to increased research and development costs[6] - Depreciation and amortization increased to $1,160,000 from $857,000, reflecting a rise of 35%[11] - The company made an investment of $1,250,000 in Monogram during the year[11] Cash Flow and Financial Position - Net cash provided by operating activities was $6,199,000, up from $5,462,000, indicating an increase of 13.5%[11] - Net cash used in investing activities was $2,233,000, compared to $885,000 in the previous year, representing a significant increase of 152%[11] - Net cash used in financing activities totaled $4,271,000, an increase from $2,490,000, marking a rise of 71.7%[11] - Cash and cash equivalents at the end of the year were $2,631,000, down from $2,936,000, reflecting a decrease of 10.4%[11] - Accounts receivable decreased by $3,935,000, compared to an increase of $5,432,000 in the previous year[11] - Inventory increased by $898,000, contrasting with a decrease of $3,489,000 in the prior year[11] - Principal payments on notes payable were $4,816,000, down from $6,093,000, indicating a decrease of 21%[11] Strategic Focus - The company hired a new Director of Operations in Q1 fiscal 2025 to support growth, indicating a focus on operational efficiency and expansion[8] - The company continues to focus on developing new products and technologies, particularly in the orthopedic market, leveraging patented software and proprietary solutions[8]

Financial Performance - Net sales for fiscal 2024 increased by $7.8 million, or 17%, to $53.8 million compared to $46.1 million in fiscal 2023[119] - Gross profit for fiscal 2024 was $14.6 million, representing 27% of net sales, compared to $12.7 million or 28% in fiscal 2023[117] - Operating income for fiscal 2024 was $7.2 million, maintaining 13% of net sales, consistent with fiscal 2023[117] - Income before income taxes decreased to $2.6 million, or 5% of net sales, down from $9.4 million, or 20%, in fiscal 2023[117] - Net income for fiscal 2024 was $2.1 million, or 4% of net sales, compared to $7.1 million, or 15%, in fiscal 2023[117] Revenue Breakdown - Medical device revenue rose by $6.2 million, or 20%, to $37.0 million, driven by increased sales in orthopedic and CMF products[120] - Repair revenue increased by approximately $3.9 million, or 31%, to $16.5 million, attributed to refurbishments requested by the largest customer[124] - NRE and prototype services revenue decreased by $1.9 million, or 71%, due to a reduction in billable engagements[121] Expenses and Costs - Total operating expenses increased to $7.4 million, or 14% of net sales, from $7.0 million, or 15%, in fiscal 2023[117] - Total cost of sales increased by $6.0 million, or 18%, in fiscal 2024, primarily due to a 17% increase in net sales, with product costs accounting for $38.1 million, or 71% of net sales[126] - Operating expenses totaled $7.4 million in fiscal 2024, representing 14% of net sales, with selling expenses decreasing by 25% to $117,000[128] - Research and development costs rose by 14% to $3.2 million, accounting for 6% of net sales, driven by increased spending on internal product development[130] Cash Flow and Liquidity - Cash provided by operating activities was $6.2 million in fiscal 2024, with a net income of $2.1 million, despite $4.1 million in unrealized losses on equity investments[138] - As of June 30, 2024, working capital was $23.7 million, with cash and cash equivalents at $2.6 million, indicating sufficient liquidity for the next 12 months[143] Share Repurchase and Tax Rate - The company repurchased 184,901 shares at a total cost of $3.5 million during fiscal 2024, increasing total repurchases since 2013 to 1,381,349 shares at a cost of $20.7 million[147] - The effective tax rate decreased to 19% in fiscal 2024 from 25% in fiscal 2023, attributed to federal and state research credits[136] Manufacturing Costs and Backlog - The company experienced $74,000 of over-absorption of manufacturing costs in fiscal 2024, compared to $1.7 million of under-absorption in fiscal 2023[126] - The backlog as of June 30, 2024, was $19.8 million, down from $41.6 million on June 30, 2023, indicating a decline in firm purchase orders[125] Future Outlook - The company expects continued demand for enhanced repairs in fiscal 2025, although no assurances can be made regarding the volume[124] - Cash used in investing activities was $2.2 million in fiscal 2024, primarily for the exercise of the Monogram Warrant and equipment purchases[141]

Zacks Investment Research has recently initiated coverage of Pro-Dex, Inc. (PDEX) with an Outperform recommendation, signaling confidence in the company's growth prospects and financial health. Pro-Dex, a specialized manufacturer of surgical drivers and shavers primarily used in orthopedic procedures, has shown strong financial performance and strategic expansion, positioning it favorably within the competitive medical device market. Pro-Dex has reported a 10% increase in net sales year over year, reaching ...

Exhibit 99.1 Contact: Richard L. Van Kirk, Chief Executive Officer (949) 769-3200 For Immediate Release PRO-DEX, INC. ANNOUNCES FISCAL 2024 THIRD QUARTER AND NINE-MONTH RESULTS IRVINE, CA, May 2, 2024 - PRO-DEX, INC. (NasdaqCM: PDEX) today announced financial results for its fiscal 2024 third quarter ended March 31, 2024. The Company also filed its Quarterly Report on Form 10-Q for the third quarter of fiscal year 2024 with the Securities and Exchange Commission today. Quarter Ended March 31, 2024 Gross pro ...

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(Unaudited)) Unaudited condensed consolidated financial statements for Q3 and 9M FY2024 are presented, detailing financial position and performance, with notes on restatement and the company's surgical device business - The financial statements for the three and nine months ended March 31, 2023, were restated to correct the estimated fair value of the Monogram Warrant, which impacted unrealized gains, income tax expense, and net income[25](index=25&type=chunk) - The company specializes in the design, development, and manufacture of autoclavable, battery-powered, and electric multi-function surgical drivers and shavers, primarily for the orthopedic, thoracic, and maxocranial facial markets[32](index=32&type=chunk) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets were $50.5 million, a slight decrease from $51.8 million at June 30, 2023, primarily due to reduced long-term investments, while total liabilities and shareholders' equity also saw minor decreases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $3,219 | $2,936 | | Accounts receivable, net | $12,516 | $9,952 | | Inventory | $14,242 | $16,167 | | Total current assets | $35,957 | $30,979 | | Total assets | $50,548 | $51,823 | | **Liabilities & Equity** | | | | Total current liabilities | $10,419 | $9,676 | | Total liabilities | $19,610 | $20,233 | | Total shareholders' equity | $30,938 | $31,590 | [Condensed Consolidated Income Statements](index=5&type=section&id=Condensed%20Consolidated%20Income%20Statements) For Q3 2024, net sales increased to $14.3 million, but net income fell to $0.7 million due to an unrealized loss on investments, while for the nine-month period, net sales grew to $38.8 million, but net income significantly decreased to $0.5 million due to a $3.8 million unrealized loss Income Statement Summary (in thousands, except per share amounts) | Metric | Q3 2024 | Q3 2023 (restated) | 9M 2024 | 9M 2023 (restated) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $14,293 | $13,079 | $38,819 | $35,448 | | Gross profit | $4,002 | $3,811 | $10,462 | $9,390 | | Operating income | $2,213 | $2,065 | $4,822 | $4,152 | | Net income | $655 | $1,617 | $540 | $5,572 | | Diluted EPS | $0.19 | $0.45 | $0.15 | $1.52 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended March 31, 2024, net cash provided by operating activities increased to $5.2 million, while net cash used in investing and financing activities also increased, resulting in an overall cash and cash equivalents increase of $283,000 Cash Flow Summary for Nine Months Ended March 31 (in thousands) | Activity | 2024 | 2023 (restated) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,179 | $4,835 | | Net cash used in investing activities | ($2,126) | ($733) | | Net cash used in financing activities | ($2,770) | ($2,863) | | **Net increase in cash and cash equivalents** | **$283** | **$1,239** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the financial statements, including the basis of presentation, a significant restatement due to the Monogram Warrant valuation, customer concentration, share repurchase activities, and a material weakness in internal controls related to investment valuation - On October 6, 2023, the company exercised its Monogram Warrant in full for **$1,250,000**, receiving **1,828,551 shares** of Monogram common stock. The fair value is now reflected in marketable equity securities[40](index=40&type=chunk) Major Customer Concentration (Nine Months Ended March 31, 2024) | Metric | Customer 1 | Customer 2 | Total | | :--- | :--- | :--- | :--- | | % of Net Sales | 71% | 10% | 81% | | % of Accounts Receivable | 81% | 13% | 94% | - During the nine months ended March 31, 2024, the company repurchased **96,890 shares** of its common stock for an aggregate cost of **$1.83 million** under its share repurchase program[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Q3 and 9M FY2024 financial results, highlighting revenue growth, gross margin improvement, increased expenses, investment loss impact on net income, and sufficient liquidity for strategic initiatives - The company's business strategy is focused on maintaining relationships with current medical device customers, expanding manufacturing capacity with the Franklin Property, and investing in R&D for new products like orthopedic shavers and screwdrivers[90](index=90&type=chunk) - As of March 31, 2024, the company had a sales backlog of approximately **$25.2 million**, with **$9.9 million** scheduled for delivery in the fourth quarter of fiscal 2024[96](index=96&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) For the nine months ended March 31, 2024, net sales increased 9.6% to $38.8 million, driven by medical device sales, with gross profit up 11% to $10.5 million and operating income growing 16% to $4.8 million, despite a $3.8 million unrealized investment loss impacting pre-tax income Net Sales by Type (Nine Months Ended March 31, in thousands) | Sales Type | 2024 | 2023 | | :--- | :--- | :--- | | Medical device products | $26,536 | $23,631 | | NRE & Proto-type | $762 | $2,361 | | Repairs | $11,749 | $9,410 | | **Total Net Sales** | **$38,819** | **$35,448** | Medical Device Sales by Type (Nine Months Ended March 31, in thousands) | Device Type | 2024 | 2023 | | :--- | :--- | :--- | | Orthopedic | $17,136 | $15,271 | | CMF | $6,641 | $7,208 | | Thoracic | $2,759 | $1,152 | | **Total Medical Device Sales** | **$26,536** | **$23,631** | - Gross margin for the nine months ended March 31, 2024, increased by **1 percentage point** to **27%** compared to the prior year period[97](index=97&type=chunk)[101](index=101&type=chunk) - Research and development costs for the nine months ended March 31, 2024, increased by **12%** to **$2.4 million**, reflecting continued investment in product development efforts[104](index=104&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, the company had $3.2 million in cash and cash equivalents and working capital of $25.5 million, with management confident in sufficient liquidity from existing cash, operations, and available credit facilities for the next 12 months, managed by an Investment Committee Liquidity Summary (as of March 31, 2024, in thousands) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $3,219 | | Working capital | $25,538 | - The company believes its existing cash, operational cash flows, and available credit will be sufficient to fund its requirements for at least the next **12 months**[123](index=123&type=chunk) - The company has an Investment Committee, chaired by Nicholas Swenson, to manage surplus operating capital or borrowed funds, investing in a portfolio of marketable public equity securities valued at **$6.1 million** as of March 31, 2024[125](index=125&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable for the reporting period - The company has indicated that Quantitative and Qualitative Disclosures About Market Risk are not applicable[127](index=127&type=chunk) [Controls and Procedures](index=32&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective due to an ongoing material weakness related to the valuation and disclosure of Level 2 and Level 3 investments - A material weakness was identified in internal control over financial reporting concerning the valuation and disclosure of level 3 investments during fiscal 2023 and level 2 investments for the quarter ended December 31, 2023. Remediation is ongoing[129](index=129&type=chunk) - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective[130](index=130&type=chunk) [PART II — OTHER INFORMATION](index=33&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Legal Proceedings](index=33&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company may be involved in various legal proceedings from time to time in the ordinary course of business, with further details referenced in Note 13 of the financial statements - Information regarding legal proceedings is referenced in Note 13 to the condensed consolidated financial statements[136](index=136&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - No material changes have occurred in the risk factors as disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023[138](index=138&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During the quarter ended March 31, 2024, the company repurchased a total of 90,605 shares of its common stock at an average price of $19.01 per share under its publicly announced repurchase program Common Stock Repurchases for the Quarter Ended March 31, 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 23,838 | $20.84 | | February 2024 | 34,565 | $19.10 | | March 2024 | 32,202 | $17.56 | | **Total** | **90,605** | **$19.01** | [Other Information](index=34&type=section&id=ITEM%205.%20OTHER%20INFORMATION) During the quarter ended March 31, 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of fiscal 2024[142](index=142&type=chunk) [Exhibits](index=34&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files

Sales Performance - For the three months ended December 31, 2023, medical device product sales increased by $0.2 million, or 2%, compared to the same period in 2022, while for the six months, the increase was $113,000, or 1%[99] - Repair revenue surged by $1.2 million, or 58%, for the three months ended December 31, 2023, and by $3.0 million, or 68%, for the six months, primarily due to upgrades for the largest customer[101] - The company reported a backlog of approximately $29.1 million as of December 31, 2023, with $18.9 million scheduled for delivery in fiscal 2024[102] Cost and Profitability - Cost of sales increased by $1.1 million, or 13%, for the three months ended December 31, 2023, and by $1.3 million, or 8%, for the six months, consistent with a 12% and 10% increase in revenue, respectively[104] - Gross profit increased by $179,000, or 7%, for the three months ended December 31, 2023, and by $882,000, or 16%, for the six months, primarily due to increased repair revenue[105] - The gross margin for the three months ended December 31, 2023, was 22%, down from 23% in the prior year, while for the six months, it was 26%, up from 25%[104] Operating Expenses - Operating expenses for the three months ended December 31, 2023, totaled $2,025,000, a 36% increase year-over-year, while for the six months, they reached $3,851,000, a 10% increase[107] - Selling expenses decreased by 46% to $37,000 for the three months ended December 31, 2023, and by 48% to $63,000 for the six months, primarily due to reduced sales commissions[107] - General and administrative expenses increased by 26% to $1,200,000 for the three months and by 11% to $2,195,000 for the six months, driven by higher professional fees and personnel costs[108] - Research and development costs rose by 69% to $788,000 for the three months and by 14% to $1,593,000 for the six months, attributed to a reduction in billable customer projects[109] Cash Flow and Financial Position - Cash and cash equivalents decreased by $1.6 million to $1.3 million as of December 31, 2023, compared to $2.9 million at June 30, 2023[118] - Net cash provided by operating activities was $1.1 million for the six months ended December 31, 2023, despite a net loss of $115,000[120] - Net cash used in investing activities was $2.0 million for the six months ended December 31, 2023, primarily for the exercise of a warrant and equipment purchases[122] - Net cash used in financing activities totaled $740,000 for the six months ended December 31, 2023, mainly due to principal payments on loans and stock repurchases[124] - Working capital as of December 31, 2023, was $26.6 million, indicating sufficient funds to meet cash requirements for at least the next 12 months[126] Strategic Initiatives - The company continues to focus on maintaining relationships with current medical device customers and investing in research and development for new products[97] - The Franklin Property, a 25,000 square foot facility, began operations in the fourth quarter of fiscal 2023 to support anticipated growth and manufacturing capacity[96] - The company has patented adaptive torque-limiting software that has been well received in the CMF and thoracic markets, contributing to product development efforts[95] - The company plans to continue investing in development programs that are expected to contribute to profitability while monitoring expenses and cash balances[127] Revenue Decline - Non-recurring and prototype revenue decreased by $145,000, or 30%, for the three months ended December 31, 2023, and by $863,000, or 62%, for the six months, due to fewer billable contracts[100]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ——————— FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended PRO-DEX, INC. September 30, 2023 (Exact name of registrant as specified in its charter) ——————— COLORADO 84-1261240 OR (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ...

[Explanatory Note](index=4&type=section&id=Explanatory%20Note) This section explains the restatement of the company's financial statements for fiscal years 2022 and 2021, and interim periods from Q1 2021 through Q3 2023, due to an understatement in the fair value of the Monogram Warrant - The company restated its consolidated financial statements for fiscal years **2022 and 2021**, and all interim periods from September 30, 2020, through March 31, 2023[14](index=14&type=chunk) - The restatement was caused by a material understatement of the estimated fair value of a warrant to purchase up to **5% of Monogram Orthopaedics Inc.'s outstanding stock**[15](index=15&type=chunk) - As a result of the error, management and the Audit Committee concluded that the previously issued financial statements should no longer be relied upon[16](index=16&type=chunk) - Management identified a material weakness in internal control over financial reporting related to its application of ASC 815, Derivatives and Hedging, concerning the Monogram Warrant[17](index=17&type=chunk) [Part I](index=5&type=section&id=Part%20I) This section outlines the company's core business, key operational risks, and property holdings [Business](index=5&type=section&id=ITEM%201.%20Business) Pro-Dex, Inc. specializes in designing and manufacturing powered surgical drivers and shavers for orthopedic, thoracic, and craniomaxillofacial (CMF) markets, with most revenue from medical devices sold to OEMs - The company specializes in designing, developing, and manufacturing autoclavable, battery-powered, and electric multi-function surgical drivers and shavers for orthopedic, thoracic, and CMF markets[23](index=23&type=chunk) Sales by Type (Fiscal Years 2023 vs. 2022) | Product/Service Type | FY 2023 Sales (in thousands) | % of Revenue | FY 2022 Sales (in thousands) | % of Revenue | | :--- | :--- | :--- | :--- | :--- | | Medical devices | $30,740 | 66% | $34,004 | 81% | | Repairs | $12,617 | 27% | $6,610 | 16% | | NRE & Prototypes | $2,695 | 6% | $1,014 | 2% | | Industrial and scientific | $865 | 2% | $919 | 2% | | Dental and component | $257 | 1% | $465 | 1% | - Customer concentration is high, with the top three customers accounting for **92% of sales in fiscal 2023**, up from 88% in fiscal 2022, and the largest single customer accounted for **67% of sales in FY2023**[30](index=30&type=chunk) - The company's backlog increased significantly to **$41.6 million at June 30, 2023**, from $16.5 million at June 30, 2022, with **$31.4 million** expected to be delivered in fiscal 2024[35](index=35&type=chunk) - Research and development expenses were **$2.8 million in fiscal 2023** and $3.0 million in fiscal 2022[41](index=41&type=chunk) [Risk Factors](index=10&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks, primarily stemming from its heavy reliance on a few major customers, intense competition, potential product obsolescence, cybersecurity threats, and debt obligations - A substantial portion of revenue is derived from a few customers, with the top three accounting for **92% of sales in fiscal 2023**, and the largest customer representing **67%**[56](index=56&type=chunk) - The medical device market is characterized by rapid technological change, which could render existing products obsolete if the company fails to innovate in a timely manner[65](index=65&type=chunk) - The company's ability to service its debt obligations depends on its ability to generate cash, which is subject to many factors beyond its control[73](index=73&type=chunk) - The company's operations are subject to complex government regulations, particularly from the FDA, and non-compliance could have a material adverse effect on the business[88](index=88&type=chunk) - A material weakness was discovered in internal control over financial reporting during the preparation of the FY2023 financial statements, which has been time-consuming and costly[98](index=98&type=chunk) [Properties](index=17&type=section&id=ITEM%202.%20Properties) Pro-Dex operates from two main facilities in California, including a leased manufacturing site in Irvine and an owned assembly and repairs facility in Tustin - The company leases a **28,000 sq. ft. facility in Irvine, CA** for its executive offices and manufacturing, with the lease expiring in September 2027[103](index=103&type=chunk) - The company owns a **25,000 sq. ft. facility in Tustin, CA** (the "Franklin Property"), purchased in November 2020, which is used for assembly and repairs[104](index=104&type=chunk) [Part II](index=18&type=section&id=Part%20II) This section details the company's stock market information, financial performance analysis, and audited financial statements [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=ITEM%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the Nasdaq Capital Market under "PDEX", has never paid a cash dividend, and did not repurchase shares in Q4 FY2023 - The company's common stock is traded on the Nasdaq Capital Market under the symbol **"PDEX"**[110](index=110&type=chunk) - The company has never paid a cash dividend and its current policy is to retain earnings for business operations and expansion[113](index=113&type=chunk) - In Q4 FY2023, the company did not repurchase any shares of its common stock, whereas in Q4 FY2022, it repurchased **22,532 shares for $350,000**[114](index=114&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal 2023, Pro-Dex saw a 10% increase in net sales to $46.1 million, driven by a surge in repair and NRE revenue, despite a decline in medical device sales, leading to a significant increase in net income [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Comparing fiscal 2023 to 2022, net sales increased 10% to $46.1 million, primarily due to a 91% increase in repair revenue and a 166% increase in NRE services, partially offset by a 10% decrease in medical device sales Financial Performance Summary (FY2023 vs. FY2022 Restated) | Metric | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $46,087 | $42,041 | 10% | | Gross Profit | $12,749 | $13,132 | (3%) | | Operating Income | $5,762 | $5,123 | 12% | | Net Income | $7,074 | $4,572 | 55% | Net Sales Breakdown (FY2023 vs. FY2022) | Sales Type | FY 2023 (in thousands) | FY 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Medical devices | $30,740 | $34,004 | (10%) | | Repairs | $12,617 | $6,610 | 91% | | NRE & Prototype services | $2,695 | $1,014 | 166% | | Industrial and scientific | $865 | $919 | (6%) | | Dental and component | $257 | $465 | (45%) | - The decrease in medical device sales was driven by a **$2.2 million decline in orthopedic sales** and a **$1.8 million decline in CMF sales**, while thoracic sales increased by $0.7 million[141](index=141&type=chunk) - Gross margin fell from **31% in FY2022 to 28% in FY2023**, as cost of sales increased 15% to $33.3 million, outpacing the 10% sales growth, due to higher material costs and **$1.7 million in under-absorption of manufacturing costs**[138](index=138&type=chunk)[147](index=147&type=chunk) - General and administrative (G&A) expenses decreased by **$875,000**, primarily due to reduced legal/settlement expenses and lower non-cash stock compensation[149](index=149&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company's financial position strengthened in fiscal 2023, with working capital increasing to $21.3 million and cash provided by operating activities significantly improving to $5.5 million Summary of Cash Flows (in thousands) | Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Cash from Operating Activities | $5,462 | $(847) | | Cash used in Investing Activities | $(885) | $(1,235) | | Cash used in Financing Activities | $(2,490) | $(790) | | **Cash and cash equivalents, end of year** | **$2,936** | **$849** | - Working capital increased to **$21.3 million as of June 30, 2023**, from $19.8 million at the end of fiscal 2022[158](index=158&type=chunk) - During fiscal 2023, the company repurchased **86,422 shares of its common stock** for an aggregate cost of **$1.5 million**[170](index=170&type=chunk) - The company has a **$7.0 million Amended Revolving Loan with MBT**, with an availability of **$4.5 million as of June 30, 2023**, to supplement liquidity if needed[166](index=166&type=chunk) [Financial Statements and Supplementary Data](index=29&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for fiscal years ended June 30, 2023 and 2022, and the accompanying notes, highlighting the restatement due to the Monogram Warrant valuation error [Report of Independent Registered Public Accounting Firm](index=30&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Moss Adams LLP issued an opinion that the consolidated financial statements are fairly presented, noting the restatement of prior periods and identifying the Monogram Warrant valuation as a Critical Audit Matter - The auditor, Moss Adams LLP, issued an opinion that the financial statements are fairly presented in conformity with U.S. GAAP[176](index=176&type=chunk) - The report highlights the restatement of previously issued financial statements for fiscal years **2022 and 2021** due to the correction of errors[177](index=177&type=chunk) - The valuation of the Monogram Warrant was identified as a **Critical Audit Matter**, requiring a high degree of auditor judgment and the use of specialists to evaluate the Black-Scholes Option Pricing model and its assumptions[183](index=183&type=chunk)[184](index=184&type=chunk) [Consolidated Financial Statements](index=32&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets grew to $51.8 million in FY2023, total liabilities decreased, and shareholders' equity increased, with net income rising to $7.1 million for FY2023 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | June 30, 2022 (Restated) | | :--- | :--- | :--- | | Total Current Assets | $30,979 | $31,166 | | Total Assets | $51,823 | $49,089 | | Total Current Liabilities | $9,676 | $11,354 | | Total Liabilities | $20,233 | $23,658 | | Total Shareholders' Equity | $31,590 | $25,431 | Consolidated Income Statement Highlights (in thousands) | Account | FY 2023 | FY 2022 (Restated) | FY 2021 (Restated) | | :--- | :--- | :--- | :--- | | Net Sales | $46,087 | $42,041 | $38,029 | | Gross Profit | $12,749 | $13,132 | $13,575 | | Operating Income | $5,762 | $5,123 | $4,525 | | Net Income | $7,074 | $4,572 | $6,170 | [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the basis of the financial statements, including the restatement's impact, investment valuations, debt agreements, and significant customer concentration - Note 2 explains that the financial statements for **FY2022 and FY2021 were restated** to correct an error in the fair value of the Monogram Warrant, which had been understated[205](index=205&type=chunk) - Note 5 details the company's investments, valued at **$8.7 million at June 30, 2023**, including the Monogram Warrant, valued at **$6.16 million** using a Black-Scholes model[306](index=306&type=chunk)[311](index=311&type=chunk) - Note 8 describes multiple loans with Minnesota Bank & Trust (MBT) secured by company assets, with total scheduled principal payments of **$12.8 million**[332](index=332&type=chunk)[345](index=345&type=chunk) - Note 12 reveals high customer concentration, with Customer 1 accounting for **67% of sales and 73% of accounts receivable** in FY2023, while Customer 2 accounted for **16% of sales and 19% of receivables**[367](index=367&type=chunk) - Note 15 (Subsequent Events) discloses that on October 6, 2023, the company exercised its Monogram Warrant in full for **$1.25 million in cash**, receiving **1,828,551 shares of Monogram common stock**[372](index=372&type=chunk) [Controls and Procedures](index=64&type=section&id=ITEM%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were not effective as of June 30, 2023, due to a material weakness in valuing level 3 financial instruments - The CEO and CFO concluded that disclosure controls and procedures were **not effective as of June 30, 2023**[374](index=374&type=chunk) - Management concluded that internal control over financial reporting was **not effective as of June 30, 2023**, due to a material weakness[375](index=375&type=chunk) - The material weakness relates to a deficiency in the design of internal controls for the valuation and disclosure of **level 3 financial instruments**, specifically the Monogram Warrant[380](index=380&type=chunk) - The company is implementing remediation measures to improve the design of its control related to the valuation and disclosure of level 3 financial instruments[381](index=381&type=chunk) [Part III](index=66&type=section&id=Part%20III) Part III of the report incorporates information by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Shareholders, covering directors, executive compensation, security ownership, and related party transactions - Information for Items 10 (Directors, Executive Officers and Corporate Governance), 11 (Executive Compensation), 12 (Security Ownership), 13 (Certain Relationships and Related Transactions), and 14 (Principal Accountant Fees and Services) is incorporated by reference from the company's definitive Proxy Statement[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk) [Part IV](index=67&type=section&id=Part%20IV) This section lists all financial statements, schedules, and exhibits filed as part of the annual report, including required certifications [Exhibits, Financial Statement Schedules](index=67&type=section&id=ITEM%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the annual report, including corporate governance documents, material contracts, and required certifications from the CEO and CFO - Lists all financial statements, schedules, and exhibits filed as part of the Form 10-K[395](index=395&type=chunk) - Includes required certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[399](index=399&type=chunk)