PRO DEX INC

Previous wording

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 CMF markets. Additionally, we provide engineering, quality, and regulatory consulting services to our customers. We also sell rotary air motors. Our products are found in hospitals, medical engineering labs, scientific research facilities, and high-tech manufacturing operations around the world. We are headquartered in Irvine, California.

Current wording

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 CMF markets. Additionally, we provide engineering, quality, and regulatory consulting services to our customers. We also sell rotary air motors to a wide range of industries; however, these motors comprise a de minimis portion of our business. Our products are found in hospitals, medical engineering labs, scientific research facilities, and high-tech manufacturing operations around the world. We are headquartered in Irvine, California.

Previous wording

Investments consist of marketable equity securities of publicly held companies and, as of June 30, 2023, a warrant (the “Monogram Warrant”) to purchase common stock of a publicly held company (which we exercised in the second quarter of fiscal 2024). The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized. Investments are marked to market at each measurement date, with unrealized gains and losses presented in other income (expense) in our consolidated income statements. Some of our investments include the common stock of public companies that are thinly traded. Certain of these investments are classified as long-term in nature, as we may not be able to liquidate the investments in a timely manner even if we wish to sell them. All of our investments were subject to a valuation analysis as of June 30, 2024 and 2023.

Current wording

Investments consist of marketable equity securities of publicly held companies. The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized. Investments are marked to market at each measurement date, with unrealized gains and losses presented in other income (expense) in our consolidated income statements. Some of our investments include the common stock of public companies that are thinly traded. Certain of these investments are classified as long-term in nature, as we may not be able to liquidate the investments in a timely manner even if we wish to sell them. All of our investments were subject to a valuation analysis as of June 30, 2025 and 2024.

Previous wording

Net sales in fiscal 2024 increased by $7.8 million, or 17%, as compared to fiscal 2023, due primarily to an increase in repair revenue of $3.9 million and an increase in medical device revenue of $6.2 million offset by a decrease in NRE and prototype services of $1.9 million. Details of our medical device sales by type is as follows:

Current wording

Net sales in fiscal 2025 increased by $12.7 million, or 24%, as compared to fiscal 2024, due primarily to an increase in medical device revenue of $10.8 million and an increase in repair revenue of $2.1 million. Details of our medical device sales by type is as follows:

Previous wording

Sales of our industrial and scientific products, which consist primarily of our compact pneumaticair motors, decreased $100,000, or 12%, for fiscal 2024 compared to fiscal 2023. The revenue decrease is expected as these are legacy products with no substantive marketing or sales efforts.

Current wording

Sales of our industrial and scientific products, which consist primarily of our compact pneumatic air motors, increased $96,000, or 13%, for fiscal 2025 compared to fiscal 2024. These are legacy products with no substantive marketing or sales efforts.

Previous wording

Sales of our NRE & prototype services decreased $1.9 million or 71% compared to fiscal 2023 and relates to a reduction in the number of billable engagements during fiscal 2024 compared to fiscal 2023.

Current wording

Sales of our NRE & prototype services decreased $88,000, or 11%, during fiscal 2025 as compared to fiscal 2024 and relates to a reduction in the number of billable engagements for various NRE projects undertaken for our customers.

Previous wording

Sales of our dental products and components in fiscal 2024 decreased $56,000, or 22%, as compared to fiscal 2023. The decrease is as expected and we expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory.

Current wording

Sales of our dental products and components in fiscal 2025 decreased $7,000, or 4%, as compared to fiscal 2024. The decrease is as expected and we expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory.

Previous wording

At June 30, 2024, we had a backlog of $19.8 million compared with a backlog of $41.6 million at June 30, 2023. 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. Substantially all of our backlog at June 30, 2024, as well as certain purchase orders received subsequent to June 30, 2024, are expected to be delivered during fiscal 2025. We have experienced, and may continue to experience, variability in our new order bookings due to, among other reasons, the launch of new products, the timing of customer orders based on end-user demand, and customer inventory levels. We do not expect a reduction in fiscal 2025 revenue as compared to fiscal 2024 revenue and believe that the decline in backlog at June 30, 2024 compared to June 30, 2023 is related to timing of customer orders, although there can be no assurance that there will not be a decline in future revenue. Additionally, $10.2 million of our backlog at June 30, 2023 related to orders expected to be delivered in fiscal 2025. We do not typically experience seasonal fluctuations in our shipments and revenues.

Current wording

At June 30, 2025, we had a backlog of $50.4 million compared with a backlog of $19.8 million at June 30, 2024. 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. Substantially all of our backlog at June 30, 2025, as well as certain purchase orders received subsequent to June 30, 2025, are expected to be delivered during fiscal 2026. We have experienced, and may continue to experience, variability in our new order bookings due to, among other reasons, the launch of new products, the timing of customer orders based on end-user demand, and customer inventory levels. We do not typically experience seasonal fluctuations in our shipments and revenues.

Previous wording

Cost of sales in fiscal 2024 increased $6.0 million, or 18%, from fiscal 2023, primarily due to the increase in product costs, consistent with the 17% increase in net sales. During fiscal 2024, we experienced $74,000 of over-absorption of manufacturing costs compared to $1.7 million of under-absorption in fiscal 2023, due primarily toan increase in our standard labor and overhead rate recorded in the fourth quarter of fiscal 2024. Costs related to inventory and warranty charges increased $154,000 in fiscal 2024 compared to fiscal 2023, primarily due to increased inventory reserves.

Current wording

Cost of sales in fiscal 2025 increased $7.8 million, or 20%, from fiscal 2024, primarily due to the increase in product costs, consistent with the 24% increase in net sales. During fiscal 2025, we experienced $2.5 million of under-absorption of manufacturing costs compared to $74,000 of over-absorption in fiscal 2024, due primarily toan increase in our indirect manufacturing costs in fiscal 2025. Costs related to inventory and warranty charges decreased $180,000 in fiscal 2025 compared to fiscal 2024, primarily due to decreased inventory reserves.

Previous wording

Selling expenses consist of salaries and other personnel-related expenses related to our business development department, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining customer relationships. Selling expenses decreased $38,000, or 25%, compared to fiscal 2023, primarily due to decreased sales commissions in the amount of $74,000 offset by increased recruiting and advertising of $20,000 and $10,000, respectively.

Current wording

Selling expenses consist of salaries and other personnel-related expenses related to our business development department, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining customer relationships. Selling expenses increased $227,000, or 194%, compared to fiscal 2024, primarily due to recruiting fees and personnel costs related to our new Director of Business Development who we hired in December 2024 as well as increased advertising and related expenses.

Previous wording

General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses for corporate, accounting, finance, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and costs associated with being a public company. The $44,000 increase in G&A expenses from fiscal 2023 to 2024 is due primarily to increased audit and consulting fees in the amount of $323,000 and increased recruiting fees of $100,000 offset by reduced patent related legal fees of $233,000 and non-cash compensation expense related to stock compensation in the amount of $161,000 due primarily to forfeitures caused by employee turnover.

Current wording

General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses for corporate, accounting, finance, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and costs associated with being a public company. The $769,000 increase in G&A expenses from fiscal 2024 to 2025 is due primarily to $441,000 in increased bonus accruals, $249,000 in increased personnel costs, and $270,000 in increased legal and information technology expenses, offset by $157,000 in decreased audit fees.

Previous wording

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. Fiscal 2024 research and development costs increased $385,000 from fiscal 2023 due to increased spending on internal product development projects of $82,000 as well as reduced billable project expenditures which get reclassified to cost of sales. The majority of our research and development expenditures incurred in fiscal 2024 and 2023 relates to our sustaining activities related to products we currently manufacture and sell. As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of-life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in the machine shop, assembly operations, and inspection areas to improve efficiency and through-put.

Current wording

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. Fiscal 2025 research and development costs increased $447,000 from fiscal 2024 due to increased spending on internal product development projects of $378,000 as well as reduced billable project expenditures which get reclassified to cost of sales. The majority of our research and development expenditures incurred in fiscal 2025 and 2024 relates to our sustaining activities related to products we currently manufacture and sell. As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of-life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, and replacement and enhancement of tooling and fixtures used in the machine shop, assembly operations, and inspection areas to improve efficiency and through-put.

Previous wording

During fiscal 2024, our investment sales were immaterial. During fiscal 2023, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $89,000 and recording a gain of $6,000.

Current wording

During fiscal 2025, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $1.9 million and recording a gain of $595,000. During fiscal 2024, our investment sales were immaterial.

Previous wording

The effective tax rate for the fiscal years ended June 30, 2024 and 2023 was 19% and 25%, respectively, slightly less than our combined expected federal and applicable state corporate income tax rates due primarily to federal and state research credits.

Current wording

The effective tax rate for the fiscal years ended June 30, 2025 and 2024 was 26% and 19%, respectively, slightly less than our combined expected federal and applicable state corporate income tax rates due primarily to federal and state research credits. Our pre-tax income in fiscal 2025 was $12.0 million compared to $2.6 million in fiscal 2024. The impact of our tax credits is more significant when pre-tax income is lower.

Previous wording

Cash provided by operating activities totaled $6.2 million during fiscal 2024. Our net income was $2.1 million, which includes $4.1 million of unrealized losses on certain equity investments, as well as non-cash stock compensation expense and depreciation and amortization expense in the amount of $605,000 and $1.2 million, respectively. Additionally, our accounts payable and accrued expenses increased by $2.4 million and our inventory decreased by $898,000. Offsetting these inflows of cash, our accounts receivable and deferred tax assets grew by $3.9 million and $1.6 million, respectively.

Current wording

Cash provided by operating activities totaled $6.2 million during fiscal 2024. Our fiscal 2024 net income was $2.1 million, which includes $4.1 million of unrealized losses on certain equity investments, as well as non-cash stock compensation expense and depreciation and amortization expense in the amount of $605,000 and $1.2 million, respectively. Additionally, our accounts payable and accrued expenses at June 30, 2024 increased by $2.4 million and our inventory decreased by $898,000 as compared to June 30, 2023. Offsetting these inflows of cash, our accounts receivable and deferred tax assets at June 30, 2024 grew by $3.9 million and $1.6 million, respectively, compared to June 30, 2023.

Previous wording

Net cash used in investing activities in fiscal 2023 was $885,000. During the 2023 fiscal year, we made capital expenditures in the amount of $974,000 primarily for the Franklin Property and we received proceeds of $89,000 from the sales of marketable equity securities.

Current wording

Net cash used in investing activities in fiscal 2025 was $238,000. During the 2025 fiscal year, we made capital expenditures in the amount of $1.2 million and exercised warrants to purchase common stock and preferred stock of Monogram Technologies, Inc., formerly Monogram Orthopaedics Inc. (“Monogram”) for cash in the amount of $899,000 (See Note 4 to the consolidated financial statements contained elsewhere in this report) offset by proceeds of $1.9 million from the sales of marketable equity securities.

Previous wording

Net cash used in investing activities in fiscal 2024 was $2.2 million and related to the exercise of the Monogram Warrant for cash in the amount of $1,250,000 (See Note 4 to the consolidated financial statements contained elsewhere in this report) as well as equipment and improvements purchases in the amount of $983,000.

Current wording

Net cash used in investing activities in fiscal 2024 was $2.2 million and related to the exercise of the warrant to purchase Monogram common stock for cash in the amount of $1,250,000 (See Note 4 to the consolidated financial statements contained elsewhere in this report) as well as equipment and improvements purchases in the amount of $983,000.

Previous wording

Net cash used in financing activities for fiscal 2023 totaled $2.5 million and included $809,000 in net principal payments of various notes payable to MBT, and $1.5 million related to the repurchase of 86,422 shares of our common stock pursuant to our share repurchase program, as well as payment of $223,000 of employee payroll taxes related to the award of 37,500 shares of common stock to employees under previously granted performance awards.

Current wording

Net cash used in financing activities for fiscal 2025 totaled $292,000 and included $3.5 million in net borrowings on various notes payable to MBT, more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report, offset by $3.5 million related to the repurchase of 130,148 shares of our common stock pursuant to our share repurchase program, as well as payment of $305,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.

Previous wording

Net cash used in financing activities for fiscal 2024 totaled $4.3 million and related primarily to the $3.5 million repurchase of 184,901 shares of our common stock pursuant to our share repurchase program, as well as $816,000 of net principal payments related to our various loans from MBT more fully described in Note 7 to the consolidated financial statements contained elsewhere in this report.

Current wording

Net cash used in financing activities for fiscal 2024 totaled $4.3 million and related primarily to the $3.5 million repurchase of 184,901 shares of our common stock pursuant to our share repurchase program, as well as $841,000 of net principal payments related to our various loans from MBT more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report.

Previous wording

As of June 30, 2024, our working capital was $23.7 million. We currently believe that our existing cash and cash equivalent balances, together with our account receivable balances, and anticipated cash flows from operations will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. In addition to our cash and cash equivalent balances, we expect to derive a portion of our liquidity from our cash flows from operations. We may also liquidate some or all of our investment portfolio or borrow against our revolving loan with MBT (See Notes 7 and 14 to consolidated financial statements contained elsewhere in this report), under which we had availability of $4.0 million as of June 30, 2024.

Current wording

As of June 30, 2025, our working capital was $32.7 million. We currently believe that our existing cash and cash equivalent balances, together with our account receivable balances, and anticipated cash flows from operations will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. We may also liquidate some or all of our investment portfolio or borrow against our revolving loan with MBT (See Note 8 to consolidated financial statements contained elsewhere in this report), under which we had availability of $7.3 million as of June 30, 2025.

Previous wording

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 our current strategy, however, we may require debt and/or equity capital to fund our working capital needs and requirements for capital equipment to support our manufacturing and inspection processes. In particular, we have experienced negative operating cash flow in the past, especially as we procure long-lead time materials to satisfy our backlog, which can be subject to extensive variability. We believe that if we need additional capital to fund our operations, we can borrow against our revolving loan with MBT.

Current wording

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 our current strategy, however, we may require additional 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.

Previous wording

The Investment Committee iscomprised of Messrs. Swenson (Chair), Cabillot, and Van Kirk. Both Mr. Cabillot and Mr. Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on. The Investment Committee approved each of the investments comprising the $5.8 million of investments in marketable public equity securities held at June 30, 2024, which amount includes unrealized holding gains in the amount of $3.1 million at June 30, 2024.

Current wording

The Investment Committee iscomprised of Messrs. Swenson (Chair), Cabillot, and Van Kirk. Both Mr. Cabillot and Mr. Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on. The Investment Committee approved each of the investments comprising the $6.9 million of investments in marketable public equity securities held at June 30, 2025, which amount includes unrealized holding gains in the amount of $3.3 million at June 30, 2025.

Previous wording

During the fiscal year ended June 30, 2024, we repurchased 184,901 shares at an aggregate cost, inclusive of fees under the Plan, of $3.5 million. During the fiscal year ended June 30, 2023, we repurchased 86,422 shares at an aggregate cost, inclusive of fees under the Plan, of $1.5 million. On a cumulative basis, since 2013 we have repurchased a total of 1,381,349 shares under the share repurchase programs at an aggregate cost, inclusive of fees under the Plan, of $20.7 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.

Current wording

During the fiscal year ended June 30, 2025, we repurchased 130,148 shares at an aggregate cost, inclusive of fees under the Plan, of $3.5 million. During the fiscal year ended June 30, 2024, we repurchased 184,901 shares at an aggregate cost, inclusive of fees under the Plan, of $3.5 million. On a cumulative basis, since 2013 we have repurchased a total of 1,511,497 shares under the share repurchase programs at an aggregate cost, inclusive of fees under the Plan, of $24.2 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.