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 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.

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. Beginning in fiscal 2026, we began selling precision machined parts and assemblies for the aerospace and defense industries through our newly acquired subsidiary, APM. 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

Under Accounting Standards Update (“ASU”) 2014-09, (Topic 606) “Revenue From Contracts with Customers,” we recognize revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. We primarily sell finished products and recognize revenue at point of sale or delivery. However, we also perform services when we are engaged to design a product for a customer and there is more judgment involved in determining the amount and timing of revenue recognition under those types of contracts. In fiscal 2025, the revenue from NRE and prototype services represents approximately 1% of total revenue.

Current wording

Under Accounting Standards Update (“ASU”) 2014-09, (Topic 606) “Revenue From Contracts with Customers,” we recognize revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. We primarily sell finished products and recognize revenue at point of sale or delivery. However, we also perform services when we are engaged to design a product for a customer and there is more judgment involved in determining the amount and timing of revenue recognition under those types of contracts. In fiscal 2026, the revenue from NRE and prototype services represents approximately 2% of total revenue.

Previous 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.

Current wording

Investments currently consist of marketable equity securities of publicly held companies as well as preferred stock of a private company. 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, 2026 and 2025.

Previous wording

We review the recoverability of long-lived assets, consisting of building, equipment, and improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable.

Current wording

We review the recoverability of long-lived assets, consisting of building, equipment, and improvements, and definite-lived intangibles when events or changes in circumstances occur that indicate carrying values may not be recoverable. We assess the impairment of indefinite-lived intangibles annually, and more frequently, if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

Previous wording

Building, equipment, and improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:

Current wording

Building, equipment, and improvements are recorded at historical cost and definite-lived intangibles are recorded at estimated fair value and depreciation is provided using the straight-line method over the following periods:

Previous wording

The majority of our revenue is derived from designing, developing, manufacturing and repairing powered surgical instruments for medical device original equipment manufacturers. We also manufacture and sell rotary air motors to a wide range of industries. The proportion of total sales by product/service type is as follows:

Current wording

The majority of our revenue isderived from designing, developing, manufacturing and repairing powered surgical instruments for medical device original equipment manufacturers. We also manufacture and sell rotary air motors to a wide range of industries and precision machined parts and assemblies for the aerospace and defense industries through our newly acquired subsidiary APM. The proportion of total salesby product/service type is as follows:

Previous 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:

Current wording

Net sales in fiscal 2026 increased by $11.0 million, or 16%, as compared to fiscal 2025, due primarily to an increase in medical device revenue of $14.4 million, offset by a decrease in repair revenue of $6.0 million. Details of our medical device sales by type is as follows:

Previous wording

Sales of our medical device products increased $10.8 million, or 29%, during fiscal 2025 as compared to fiscal 2024. Our medical device revenue to our largest customer, included in orthopedic sales above, increased $10.1 million, compared to the prior fiscal year due primarily to the launch of that customer’s next generation handpiece. As previously disclosed, late in the third quarter of fiscal 2025 the customer requested we hold off on next generation handpiece shipments in favor of continued shipments and enhanced repair of the legacy handpieces. During the fourth quarter of fiscal 2025, the customer requested that we resume production and shipments of the next generation handpiece. While this pause negatively impacted our fourth quarter results, we do not anticipate any additional delays in shipment of the next generation handpiece. During fiscal 2025, thoracic sales increased by $1.3 million to $4.3 million, up from $3.0 million in fiscal 2024. Recurring revenue from distributors of CMF drivers decreased $391,000 in fiscal 2025 compared to fiscal 2024. We do not have much visibility into our customers’ distribution networks, but these fluctuations are within expected levels.

Current wording

Sales of our medical device products increased $14.4 million, or 30%, during fiscal 2026 as compared to fiscal 2025. Our medical device revenue to our largest customer, included in orthopedic sales above, increased $15.3 million, compared to the prior fiscal year due primarily to the launch of that customer’s next generation handpiece. As previously disclosed, our largest customer executed a contract amendment which extends the contract through 2028 and also provides for higher volumes of their newest surgical handpiece. Therefore, we expect to see similar levels of revenue reported in orthopedic sales through 2028. During fiscal 2026, thoracic sales decreased by $2.2 million to $2.1 million, down from $4.3 million in fiscal 2025. Recurring revenue from distributors of CMF drivers increased $1.3 million in fiscal 2026 compared to fiscal 2025. We do not have much visibility into our customers’ distribution networks, but these fluctuations are within expected levels.

Previous 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.

Current wording

Sales of our NRE & prototype services increased $952,000, or 136%, during fiscal 2026 as compared to fiscal 2025 and relates to an increase in the number of billable engagements for various NRE projects undertaken for our customers.

Previous wording

Our fiscal 2025 repair revenue increased approximately $2.1 million, or 13%, to $18.6 million, as compared to fiscal 2024, due to increased repairs of the legacy orthopedic handpiece we sold to our largest customer. This increase relates to the continuation of the previously disclosed enhanced repair program. We anticipate that repair revenue may decline in future periods as this customer transitions to the next generation handpiece in lieu of enhancements of the legacy handpiece.

Current wording

Our fiscal 2026 repair revenue decreased approximately $6.0 million, or 33%, to $12.5 million, as compared to fiscal 2025, due to decreased repairs of the legacy orthopedic handpiece we sold to our largest customer. This decrease relates to the customers transition to their next generation handpiece. We anticipate that repair revenue may continue to decline in future periods as this customer continues to transition to the next generation handpiece in lieu of enhancements of the legacy handpiece. However, beginning in fiscal 2027 we expect to commence billable repairs of our customer’s next generation handpiece but we do not know yet at what volumes.

Previous 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.

Current wording

At June 30, 2026, we had a backlog of $32.9 million compared with a backlog of $50.4 million at June 30, 2025. 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, 2026, as well as certain purchase orders received subsequent to June 30, 2026, are expected to be delivered during fiscal 2027. 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. While the June 30, 2026 backlog is significantly less than the backlog from one year ago, we attribute this simply to timing. We do not typically experience seasonal fluctuations in our shipments and revenues.

Previous 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.

Current wording

Cost of sales in fiscal 2026 increased $6.1 million, or 13%, from fiscal 2025, primarily due to the increase in product costs, consistent with the 16% increase in net sales. During fiscal 2026, we experienced $2.0 million of under-absorption of manufacturing costs compared to $2.5 million in fiscal 2025. Costs related to inventory and warranty charges increased $858,000 in fiscal 2026 compared to fiscal 2025, primarily due to increased inventory reserves relating to a complex machined part used in our largest customer’s next generation handpiece.

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 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.

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 $172,000, or 50%, compared to fiscal 2025, primarily due to a $349,000 bad debt expense offset by reduced personnel and advertising expenses of $80,000 and $92,000, respectively.

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 $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.

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. Fiscal 2026 G&A expenses increased $2.6 million, or 55%, compared to fiscal 2025, primarily due to $449,000 in increased bonus accruals, $620,000 in increased personnel costs, $668,000 related to APM’s separate general and administrative expenses since the date of acquisition, $500,000 in non-recurring consulting fees paid to the former owner of APM and $133,000 in increased non-cash equity compensation expense.

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 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.

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 (“IT”) 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 2026 research and development costs decreased $291,000 from fiscal 2025 due to a $155,000 reduction in legal expenses related to intellectual property matters and $76,000 and $35,000 in decreased recruiting and IT expenses, respectively, as well as increased spending on billable project expenditures which get reclassified to cost of sales. The majority of our research and development expenditures incurred in fiscal 2026 and 2025 relates to our sustaining activities related to products we currently manufacture and sell. 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 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.

Current wording

As described in Note 5 to the consolidated financial statements contained elsewhere in this report, during the second quarter of fiscal 2026, Zimmer Biomet acquired Monogram Technologies, Inc. (“Monogram”) and upon consummation of the acquisition we received proceeds of $8.9 million and realized a gain on our investment of $6.8 million. Additionally, during the third quarter ended March 31, 2026, Monogram successfully completed the first of five milestones such that we earned and recorded an additional gain in the amount of $2.3 million. During fiscal 2025, we sold some of the stocks in our portfolio of equity investments receiving proceeds of $1.9 million and recording a gain on the sale in the amount of $595,000. In addition to these realized gains, during fiscal 2026 and 2025, we also recorded unrealized gains and losses to adjust our investment holdings to estimated fair value as well as eliminating the previously recorded unrealized gains on our Monogram investment during the second quarter of fiscal 2026 in conjunction with recording the realized gain.

Previous wording

Interest expense incurred in fiscal 2025 and 2024 consists primarily of interest expense related to our debt with Minnesota Bank & Trust (“MBT”) described more fully in Note 8 to the consolidated financial statements contained elsewhere in this report.

Current wording

Interest expense incurred in fiscal 2026 and 2025 consists primarily of interest expense related to our debt with UMB Bank N.A. (“UMB”) described more fully in Note 9 to the consolidated financial statements contained elsewhere in this report.

Previous wording

Cash used in operating activities during fiscal 2025 totaled $1.7 million. Our net income was $9.0 million, which includes $1.5 million of unrealized gains on certain equity investments, $595,000 of realized gains on the sale of certain equity investments as well as $1.2 million of depreciation and amortization and $555,000 of non-cash stock compensation. Additionally, at June 30, 2025 compared to June 30, 2024, our accounts receivable increased by $2.5 million corresponding with our increased revenue, our income tax accounts reflect a $1.5 million outlay of cash mostly related to higher estimated income tax payments, and our inventory increased by $6.9 million in anticipation of increased sales to support our largest customer’s release of their next generation orthopedic handpiece.

Current wording

Cash used in operating activities during fiscal 2025 totaled $1.7 million. Our net income was $9.0 million, which included $2.1 million of gains on certain equity investments, as well as $1.2 million of depreciation and amortization and $555,000 of non-cash stock compensation. Additionally, at June 30, 2025 compared to June 30, 2024, our accounts receivable increased by $2.5 million corresponding with our increased revenue, our income tax accounts reflected a $1.5 million outlay of cash mostly related to higher estimated income tax payments, and our inventory increased by $6.9 million in anticipation of increased sales to support our largest customer’s release of their next generation orthopedic handpiece.

Previous 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.

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 for cash in the amount of $899,000 (See Note 5 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 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.

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 UMB, more fully described in Note 9 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

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.

Current wording

As of June 30, 2026, our working capital was $40.3 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 UMB (See Note 9 to consolidated financial statements contained elsewhere in this report), under which we had availability of $11.0 million as of June 30, 2026.

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 $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.

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 $1.7 million of investments held at June 30, 2026, which amount includes unrealized holding losses in the amount of $97,000 at June 30, 2026.

Previous 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.

Current wording

During the fiscal year ended June 30, 2026, we repurchased 79,898 shares at an aggregate cost, inclusive of fees under the Plan, of $3.4 million. 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. On a cumulative basis, since 2013 we have repurchased a total of 1,591,395 shares under the share repurchase programs at an aggregate cost, inclusive of fees under the Plan, of $27.6 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.