UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended
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OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from __________ to __________ | |
Commission file number:
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices and zip code)
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: shares of common stock, no par value, as of May 5, 2022.
PRO-DEX, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2022
TABLE OF CONTENTS
| Page | |
| PART I — FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of March 31, 2022 and June 30, 2021 | 1 |
| Condensed Consolidated Income Statements for the Three and Nine Months Ended March 31, 2022 and 2021 | 2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended March 31, 2022 and 2021 | 3 |
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022 and 2021 | 4 |
| Notes to Condensed Consolidated Financial Statements | 6 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 17 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26 |
| ITEM 4. CONTROLS AND PROCEDURES | 26 |
| PART II — OTHER INFORMATION | |
| ITEM 1. LEGAL PROCEEDINGS | 27 |
| ITEM 1A. RISK FACTORS | 27 |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 27 |
| ITEM 6. EXHIBITS | 28 |
| SIGNATURES | 29 |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
| March 31, 2022 | June 30, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Deferred costs | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Land and building, net | ||||||||
| Equipment and leasehold improvements, net | ||||||||
| Right of use asset, net | ||||||||
| Intangibles, net | ||||||||
| Deferred income taxes, net | ||||||||
| Investments | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Note payable | ||||||||
| Total current liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| Income taxes payable | ||||||||
| Notes payable, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Common shares; | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss on disposal of equipment | ||||||||||||||||
| Research and development costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on marketable equity investments | ( | ) | ( | ) | ||||||||||||
| Interest and other income | ||||||||||||||||
| Gain on sale of investments | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Basic net income per share: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Diluted net income per share: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Common shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Common shares: | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Share-based compensation expense | ||||||||||||||||
| Share repurchases | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Shares withheld from common stock issued to pay employee payroll taxes | ( | ) | ||||||||||||||
| Exercise of stock options | ||||||||||||||||
| ESPP shares issued | ||||||||||||||||
| Balance, at end of period | $ | $ | $ | $ | ||||||||||||
| Retained earnings: | ||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Net income | ||||||||||||||||
| Balance, at end of period | $ | $ | $ | $ | ||||||||||||
| Total shareholders’ equity | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of loan fees | ||||||||
| Share-based compensation | ||||||||
| Unrealized (gain) loss on marketable equity investments | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Gain on sale of investments | ( | ) | ||||||
| Impairment of long-lived assets | ||||||||
| Bad debt expense (recovery) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and other current receivables | ( | ) | ||||||
| Deferred costs | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Income taxes payable | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of investments | ( | ) | ||||||
| Purchases of equipment and improvements | ( | ) | ( | ) | ||||
| Proceeds from sale of investments | ||||||||
| Purchase of land and building | ( | ) | ||||||
| Increase in intangibles | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Proceeds from exercise of options and ESPP contributions | ||||||||
| Payment of employee payroll taxes on net issuance of common stock | ( | ) | ||||||
| Proceeds from Minnesota Bank & Trust long-term debt, net of fees | ||||||||
| Principal payments on notes payable and finance lease | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(In thousands)
| Nine Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activity: | ||||||||
| Cashless stock option exercise | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
PRO-DEX, INC. AND SUBSIDIAIRIES
NOTES TO CONSDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2021.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2019-12 Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, to remove certain exceptions related to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences and requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update are effective for us beginning with fiscal year 2022. The adoption of the amendments has not had a material impact on our consolidated financial statements.
NOTE 2. DESCRIPTION OF BUSINESS
We specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
In August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued growth of our business. The consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations.
NOTE 3. REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR CORRECTION OF IMMATERIAL ERRORS
We failed to timely adopt
ASU 2016-01 – Accounting for Financial Instruments – Classification and Measurement, which states in part that changes in
fair value of equity investments must be recognized in net income. We have completed an evaluation of the quantitative and qualitative
impact of this error in our historical financial statements and concluded that our historical financial statements are not materially
misstated. We concluded that our historical financial statements are not materially misstated for several reasons, including the fact
that the cumulative three-year error had a negative impact to historical net income in the amount of $
| 6 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 4. NET SALES
The following table presents the disaggregation of net sales by revenue recognition model (in thousands):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Sales: | ||||||||||||||||
| Over-time revenue recognition | $ | $ | $ | $ | ||||||||||||
| Point-in-time revenue recognition | ||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
The timing of revenue recognition,
billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed
consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets),
where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. Our entire deferred revenue
balance of $
NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
| Raw materials /purchased components | $ | $ | ||||||
| Work in process | ||||||||
| Sub-assemblies/finished components | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Investments
Investments are stated at market value and consist of the following (in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
| Marketable equity securities - short-term | $ | $ | ||||||
| Marketable equity securities - long-term | ||||||||
| Total marketable equity securities | $ | $ | ||||||
Investments
at March 31, 2022 and June 30, 2021, had an aggregate cost basis of $
Of
the total marketable equity securities at March 31, 2022 and June 30, 2021, $
| 7 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both 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, such as Air T, Inc.
Land and building
Land and building consist of the following (in thousands):
| March 31, 2022 | June 30, 2021 | |||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Land and building | $ | $ | ||||||
On
November 6, 2020, we acquired the Franklin Property for a total purchase price of $
Intangibles
Intangibles consist of the following (in thousands):
March 31, 2022 | June 30, 2021 | |||||||
| Patent-related costs | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Patent-related costs consist of legal fees incurred in connection with both patent applications and a patent issuance and will be amortized over the estimated life of the product(s) that is or will be utilizing the technology or expensed immediately in the event the patent office denies the issuance of the patent. Since we do not know when, or if, our patent applications will be issued, the future amortization expense is not predictable.
NOTE 6. WARRANTY
The
warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included
in accrued expenses in the accompanying balance sheets. As of March 31, 2022 and June 30, 2021, the warranty reserve amounted to
$
| 8 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information regarding the accrual for warranty costs for the three and nine months ended March 31, 2022 and 2021, are as follows (in thousands):
| As of and for the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Accruals during the period | ||||||||
| Changes in estimates of prior period warranty accruals | ||||||||
| Warranty amortization and utilization | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
| As of and for the Nine Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Accruals during the period | ||||||||
| Changes in estimates of prior period warranty accruals | ||||||||
| Warranty amortization and utilization | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
The Company calculates basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The weighted-average number of common shares outstanding used in the calculation of diluted income per share reflects the effects of potentially dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.
The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Basic: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic income per share | $ | $ | $ | $ | ||||||||||||
| Diluted: | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Weighted average shares used in calculation of diluted earnings per share | ||||||||||||||||
| Diluted income per share | $ | $ | $ | $ | ||||||||||||
| 9 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 8. INCOME TAXES
Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets. Such determination is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable.
We recognize accrued interest
and penalties related to unrecognized tax benefits when applicable. As of March 31, 2022, we recognized
accrued interest of $
We are subject to U.S. federal income tax, as well as income tax of multiple state tax jurisdictions. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2018, and later. Our state income tax returns are open to audit under the statute of limitations for the years ended June 30, 2017, and later. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Through June 2014, we had two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the “Employee Stock Option Plan”) and the Amended and Restated 2004 Directors’ Stock Option Plan (the “Directors’ Stock Option Plan”) (collectively, the “Former Stock Option Plans”). The Employee Stock Option Plan and Director’s Stock Option Plan were terminated in June 2014 and December 2014, respectively.
In September 2016, our Board approved the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at our 2016 Annual Meeting. The 2016 Equity Incentive Plan provides for the award of up to shares of our common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards. As of March 31, 2022, performance awards and non-qualified stock options have been granted under the 2016 Equity Incentive Plan.
Former Stock Option Plans
No options were granted under the Former Stock Option Plans during the three or nine months ended March 31, 2022 and 2021.
| 10 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
As of March
31, 2022, there was no unrecognized compensation cost under the Former Stock Option Plans, as all outstanding
stock options are fully vested. As of March 31, 2022, the options outstanding under the Former Stock Option Plans had a weighted
average remaining contractual life of
| Nine Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Number of Shares | Weighted-Average Exercise Price | Number of Shares | Weighted-Average Exercise Price | |||||||||||||
| Outstanding at July 1, | $ | $ | ||||||||||||||
| Options granted | ||||||||||||||||
| Options exercised | ( | ) | ( | ) | ||||||||||||
| Options forfeited | ||||||||||||||||
| Outstanding at end of period | $ | $ | ||||||||||||||
| Stock Options Exercisable at March 31, | $ | $ | ||||||||||||||
Performance Awards
In December 2017, the Compensation Committee of our Board of Directors granted performance awards to our employees, which will generally be paid in shares of our common stock. Whether any performance awards vest, and the amount that does vest, is tied to In February 2020, the Compensation Committee reallocated previously forfeited awards, having the same remaining terms and conditions, to certain other employees. The weighted average fair value of the performance awards reallocated in 2020 was $, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. In December 2021, the Compensation Committee reallocated an additional previously forfeited awards, having the same remaining terms and conditions, to other employees. The weighted average fair value of the performance awards reallocated in 2021 was $, calculated using the weighted average fair market value for each award, using a Monte Carlo simulation. During the three months ended March 31, 2022 and 2021, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. During the nine months ended March 31, 2022 and 2021, we recorded share-based compensation expense of $ and $, respectively, related to outstanding performance awards. On March 31, 2022, there was approximately $ of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period of years.
On July 1, 2020, it was determined by the Compensation Committee of our Board of Directors that the second of five tranches of performance awards had been achieved and participants were awarded shares of common stock. Each participant elected a net issuance to cover their individual withholding taxes and, therefore, we issued shares and paid $ of participant-related payroll tax liabilities.
| 11 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Non-Qualified Stock Options
In December 2020, the Compensation Committee of our Board of Directors granted 310,000 non-qualified stock options to our directors and certain employees under the 2016 Equity Incentive Plan. Whether any stock options vest, and the amount that does vest, is tied to The weighted average fair value of the stock option awards granted was $16.72, calculated using a Monte Carlo simulation. In December 2021, the Compensation Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining terms and conditions, to another employee at a weighted average fair value of $6.69 calculated using a Monte Carlo simulation. During the three months ended March 31, 2022 and 2021, we recorded compensation expense of $ and $, respectively, related to these options. During the nine months ended March 31, 2022 and 2021, we recorded compensation expense of $ and $, respectively, related to these options. As of March 31, 2022, none of these non-qualified options have vested and there was approximately $ million of unrecognized compensation cost related to these non-vested non-qualified stock options.
In February 2021,
Employee Stock Purchase Plan
In September 2014, our Board
approved the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our
2014 Annual Meeting. The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase
periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase
price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period. Our Board
of Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares
issuable pursuant to outstanding options under those plans, aggregating
During the three months ended March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the amount of $ and $, respectively, and 1,446 and 1,192 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $ and $, respectively, per share. During the nine months ended March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the amount of $and $, respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of shares of our common stock.
| 12 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 10. MAJOR CUSTOMERS AND SUPPLIERS
Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month and the nine-month periods ended March 31, 2022 and 2021, is as follows (in thousands, except percentages):
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| Nine Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Net sales | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2022 or June 30, 2021, is as follows (in thousands, except percentages):
| March 31, 2022 | June 30, 2021 | |||||||||||||||
| Total gross accounts receivable | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
During the three and nine
months ended March 31, 2022, we had three and four suppliers, respectively, accounting for
| March 31, 2022 | June 30, 2021 | |||||||||||||||
| Total accounts payable | $ | % | $ | % | ||||||||||||
| Supplier concentration: | ||||||||||||||||
| Supplier 1 | $ | % | $ | % | ||||||||||||
| Supplier 2 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| 13 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 11. NOTES PAYABLE AND FINANCING TRANSACTIONS
Minnesota Bank & Trust
On November 6, 2020 (the “Closing Date”), PDEX Franklin, a newly created wholly owned subsidiary of the Company, purchased an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”). A portion of the purchase price was financed by a loan from MBT to PDEX Franklin in the principal amount of approximately $5.2 million (the “Property Loan”) pursuant to a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT (the “Property Loan Agreement”) and corresponding Term Note (the “Property Note”) issued by PDEX Franklin in favor of MBT on the Closing Date. The Property Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor of MBT (the “Deed”) and by an Assignment of Leases and Rents by PDEX Franklin in favor of MBT (the “Rents Assignment”). We paid loan origination fees to MBT on the Closing Date in the amount of $26,037.
The
Property Loan bears interest at a fixed rate of 3.55% per annum, which is subject to a 3% increase upon an event of default. Accrued interest
was paid on December 1, 2020, and both principal and interest in the amount of approximately $
On
the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”),
providing for a $
The
Term Loan A matures on
The
Term Loan B matures on
| 14 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
The
Revolving Loan may be borrowed against from time to time through its maturity date of
Any payment on the Loans not made within seven days after the due date is subject to a late payment fee equal to 5% of the overdue amount. Upon the occurrence and during the continuance of an event of default, the interest rate of all Loans will be increased by 3% and MBT may, at its option, declare the Loans immediately due and payable in full.
The Amended Credit Agreement, Security Agreement, Term Note A, Term Note B, and Revolving Note contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type.
NOTE 12. COMMON STOCK
Share Repurchase Program
In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these share repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the three and nine months ended March 31, 2022, we repurchased and shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ and $, respectively. During the three and nine months ended March 31, 2021, we repurchased shares at an aggregate cost, inclusive of fees under the Plan, of $. On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of shares under the share repurchase program at an aggregate cost of $ million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
At The Market Offering Agreement
In December 2020, our Board approved an ATM Agreement with Ascendiant Capital Markets, LLC (“Ascendiant”). The ATM Agreement allows us to sell shares of our common stock in transactions that are deemed to be “at-the-market” equity offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on Nasdaq. In connection with the ATM Agreement, we entered into a prearranged stock sales plan with Ascendiant, which is intended to qualify for the safe harbor under Rule 10b5-1 under the Exchange Act (“ATM 10b5-1 Plan”). No sales of common stock have been made under the ATM Agreement as of the date of this report, and the ATM 10b5-1 Plan was terminated on February 11, 2021, but future sales may occur at the direction of our Board in accordance with the terms of the ATM Agreement.
NOTE 13. LEASES
Effective July 1, 2019, we adopted
the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date. In addition,
we elected the practical expedient that allowed us to carry forward the historical lease classification of our sole operating lease for
our corporate office, which includes our manufacturing and research and development facilities. Adoption of this standard resulted in
the recording of net operating lease right-of-use (“ROU”) asset and corresponding operating lease liability each in the amount
of $
Our operating lease ROU asset
and long-term liability are presented separately on our condensed consolidated balance sheet. The current portion of our operating lease
liability as of March 31, 2022, in the amount of $
| 15 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
As of March 31, 2022, the maturity of our lease liability is as follows:
| Operating Lease | |||||
| Fiscal Year: | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less imputed interest: | ( | ) | |||
| Total | $ | ||||
As of March 31, 2022, our
operating lease has a remaining lease term of five years and six months and an imputed interest rate of
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Matters
On August 24, 2021, one of our customers, through its counsel, sent notice that it is seeking indemnification from us regarding a pending complaint filed by a third-party claiming patent infringement on one of the products that we manufacture for this customer. As of the date of this filing, our position is that there is no infringement and/or that the patent at issue is invalid. We have not accrued any amounts related to this claim and we intend to defend the claim, which we believe may take two years or more to resolve.
On October 12, 2021, we received a letter from an attorney representing a former employee, alleging, among other things, wrongful termination, failure to accommodate, and intentional infliction of emotional distress. The parties settled this matter upon the conclusion of a mediation hearing held on February 23, 2022.
In addition to the above matters, we are from time to time a party to various legal proceedings arising either in the ordinary course of our business or incidental to our business. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and adverse.
NOTE 15. SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of this filing. There were no subsequent events that require disclosure.
| 16 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim condensed financial statements and the related notes and other financial information appearing elsewhere in this report.
COMPANY OVERVIEW
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the results of operations and financial condition of Pro-Dex, Inc. (“Company,” “Pro-Dex,” “we,” “our,” or “us”) for the three-month and nine-month periods ended March 31, 2022 and 2021. This discussion should be read in conjunction with the condensed financial statements and the notes thereto included elsewhere in this report. This report contains certain forward-looking statements and information. The cautionary statements included herein should be read as being applicable to all related forward-looking statements wherever they may appear. Our actual future results could differ materially from those discussed herein.
Except for the historical information contained herein, the matters discussed in this report, including, but not limited to, discussions of our product development plans, business strategies, strategic opportunities and market factors influencing our results, including uncertainties related to the COVID-19 pandemic, are forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase sales in markets characterized by rapid technological evolution, the impact of the COVID-19 pandemic on our suppliers, customers, and us, consolidation within our target marketplace and among our competitors, competition from larger, better capitalized competitors, and our ability to realize returns on opportunities. Many other economic, competitive, governmental, and technological factors could impact our ability to achieve our goals. You are urged to review the risks, uncertainties, and other cautionary language described in this report, as well as in our other public disclosures and reports filed with the Securities and Exchange Commission (“SEC”) from time to time, including, but not limited to, the risks, uncertainties, and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal year ended June 30, 2021.
We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial (“CMF”) markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
Our principal headquarters are located at 2361 McGaw Avenue, Irvine, California 92614 and our phone number is (949) 769-3200. Our Internet address is www.pro-dex.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and other SEC filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. In addition, our Code of Ethics and other corporate governance documents may be found on our website at the Internet address set forth above. Our filings with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov and company specific information at www.sec.gov/edgar/searchedgar/companysearch.html.
| 17 |
Basis of Presentation
The condensed results of operations presented in this report are not audited and those results are not necessarily indicative of the results to be expected for the entirety of the fiscal year ending June 30, 2022, or any other interim period during such fiscal year. Our fiscal year ends on June 30 and our fiscal quarters end on September 30, December 31, and March 31. Unless otherwise stated, all dates refer to our fiscal year and those fiscal quarters.
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. Management believes that there have been no significant changes during the three and nine months ended March 31, 2022 to the items that we disclosed as our critical accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
Business Strategy and Future Plans
Our business today is almost entirely driven by sales of our medical devices. Many of our significant customers place purchase orders for specific products that were developed under various development and/or supply agreements. Our customers may request that we design and manufacture a custom surgical device or they may hire us as a contract manufacturer to manufacture a product of their own design. In either case, we have extensive experience with autoclavable, battery-powered and electric, multi-function surgical drivers and shavers. We continue to focus a significant percentage of our time and resources on providing outstanding products and service to our valued principal customers. During the first quarter of fiscal 2021, our largest customer executed an amendment to our existing supply agreement such that we shall continue to supply their surgical handpieces to them through calendar 2025.
Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets. Additionally, we have other significant engineering projects under way described more fully below under “Results of Operations.”
In November 2020, we purchased an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”). This building is located approximately four miles from our Irvine, California headquarters and was acquired to provide us additional capacity for our expected continued future growth, including anticipated expanded capacity for the manufacture of batteries and new products. We substantially completed the build-out of the property in the first quarter of this fiscal year. Currently, we are actively engaged in various verification and validation activities and we moved certain employees into the new building during the third quarter of this fiscal year.
In summary, our current objectives are focused primarily on maintaining our relationships with our current medical device customers, expanding our manufacturing capacity with the addition of the Franklin Property, investing in research and development activities to design Pro-Dex branded drivers to leverage our torque-limiting software, and promoting active product development proposals to new and existing customers for orthopedic shavers, screw drivers for a multitude of surgical applications, and other medical devices, while monitoring closely the progress of all these individual endeavors. Our investments in research and development have historically increased disproportionately to our growth in revenue and we anticipate this may continue in future periods. These expenditures are being made in an effort to release new products and garner new customer relationships. While we expect revenue growth in the future, it may not be a consistent trajectory but rather periods of incremental growth that current expenditures are helping to create. However, there can be no assurance that we will be successful in any of these objectives.
| 18 |
COVID-19 Pandemic
We have adjusted certain policies and procedures based on applicable national, state, and local emergency orders and safety guidance that may be issued from time to time, in order to effectively manage our business during the COVID-19 pandemic, including:
| · | Non-essential employees that are able to work remotely are doing so; |
| · | Increased frequency of disinfectant cleanings, especially for high-touch surfaces; |
| · | Curtailed business travel; |
| · | Multiple, staggered work shifts have been implemented in order to achieve effective social distancing; |
| · | Provided training, education and appropriate personal protective equipment; and |
| · | Company-wide COVID-19 testing on a periodic basis. |
While we have yet to see any significant decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders. We provide our largest customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if this pandemic continues to adversely impact the United States and other markets where our products are sold, coupled with any recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from certain of our customers, including our principal customer.
We are focused on the health and safety of all those we serve – our customers, our communities, our employees, and our suppliers. We are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments. We are focused on continuity of supply by working with our suppliers, some of whom have delivered our orders late and are quoting longer lead times.
While the COVID-19 pandemic has not materially adversely affected our financial results and business during calendar 2021, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, and surcharges, much of which our suppliers indicate has been caused by the COVID-19 pandemic. As previously disclosed, during early calendar 2022, we saw these conditions persist and worsen such that we expected them to negatively impact our financial performance in the third quarter and possibly the fourth quarter of fiscal 2022, reflected as a reduction in net sales. While we did see a decline in our third quarter sales compared to sales during our fiscal first and second quarter, we were able to largely mitigate our biggest concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. We continue to implement plans and processes to mitigate these challenges that many manufacturers similarly face. Our long-term prospects remain positive, and we believe these challenges will negatively impact us only in the short-term.
Description of Business Operations
Revenue
The majority of our revenue is derived from designing, developing and manufacturing surgical devices for the medical device industry. The proportion of total sales by type is as follows (in thousands, except percentages):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| % of Revenue | % of Revenue | % of Revenue | % of Revenue | |||||||||||||||||||||||||||||
| Net Sales: | ||||||||||||||||||||||||||||||||
| Medical device products | $ | 6,527 | 70 | % | $ | 10,645 | 91 | % | $ | 23,199 | 79 | % | $ | 23,757 | 83 | % | ||||||||||||||||
| Industrial and scientific | 321 | 4 | % | 208 | 2 | % | 775 | 3 | % | 593 | 2 | % | ||||||||||||||||||||
| Dental and component | 203 | 2 | % | 24 | — | 348 | 1 | % | 98 | 1 | % | |||||||||||||||||||||
| NRE & Proto-type | 549 | 6 | % | 55 | — | 859 | 3 | % | 185 | — | ||||||||||||||||||||||
| Repairs and other | 1,665 | 18 | % | 807 | 7 | % | 4,245 | 14 | % | 3,961 | 14 | % | ||||||||||||||||||||
| $ | 9,265 | 100 | % | $ | 11,739 | 100 | % | $ | 29,426 | 100 | % | $ | 28,594 | 100 | % | |||||||||||||||||
| 19 |
Certain of our medical device products utilize proprietary designs developed by us under exclusive development and supply agreements. All of our medical device products utilize proprietary manufacturing methods and know-how, and are manufactured in our Irvine, California facility, as are our industrial products. Details of our medical device sales by type is as follows (in thousands, except percentages):
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Medical device sales: | ||||||||||||||||||||||||||||||||
| Orthopedic | $ | 3,233 | 50 | % | $ | 4,534 | 43 | % | $ | 14,270 | 62 | % | $ | 12,664 | 53 | % | ||||||||||||||||
| CMF | 2,093 | 32 | % | 2,066 | 19 | % | 7,084 | 30 | % | 4,661 | 20 | % | ||||||||||||||||||||
| Thoracic | 1,201 | 18 | % | 4,045 | 38 | % | 1,845 | 8 | % | 6,432 | 27 | % | ||||||||||||||||||||
| Total | $ | 6,527 | 100 | % | $ | 10,645 | 100 | % | $ | 23,199 | 100 | % | $ | 23,757 | 100 | % | ||||||||||||||||
Sales of our medical device products decreased $4.1 million, or 39%, and $558,000, or 2%, respectively, for the three and nine months ended March 31, 2022, respectively, compared to the corresponding periods of the prior fiscal year. Our medical device revenue to our largest customer, included in orthopedic sales above, decreased $1.5 million and increased $1.2 million, respectively, for the three and nine months ended March 31, 2022 compared to the corresponding periods of the prior fiscal year. In the third quarter of this fiscal year there was a delay in shipping due to the release of our largest customer’s next generation device, which disruption we do not expect to recur. Additionally, recurring revenue from distributors of CMF drivers increased $27,000 and $2.4 million, respectively, for the three and nine months ended March 31, 2022, compared to the corresponding periods of the prior fiscal year in part due to the launch of a new driver to our existing largest customer during the third quarter of the prior fiscal year. Our thoracic sales revenue decreased $2.8 million and $4.6 million, respectively, for the three and nine months ended March 31, 2022, respectively, compared to the corresponding periods of the prior fiscal year, due primarily as a result of our customer filling the near-term requirements of its distribution network.
Sales of our compact pneumatic air motors, reported as industrial and scientific sales above, increased $113,000, or 54%, and $182,000, or 31%, respectively, for the three and nine months ended March 31, 2022, compared to the corresponding periods of the prior fiscal year. The revenue increase relates to a continued interest in these legacy products but is not due to any substantive marketing efforts.
Sales of our dental products and components increased $179,000, or 746%, and $250,000, or 255%, respectively, for the three and nine months ended March 31, 2022, compared to the corresponding periods of the prior fiscal year. The increase was primarily related to sales to our largest customer of component inventory used in their legacy design which we do not expect to recur. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory. As previously discussed, in January 2018, we sent notification to our dental product customers that we were discontinuing the manufacture of these products. The cessation of our dental line of products did not have a material impact on our financial position or results of operations and reflected a conscious decision to increase capacity for our medical device products.
Repair revenue increased $858,000, or 106%, and $284,000, or 7%, for the three and nine months ended March 31, 2022, respectively, compared to the corresponding periods of the prior fiscal year due to increased repairs of the orthopedic handpiece we sell to our largest customer.
At March 31, 2022, we had a backlog of approximately $21.2 million, of which $7.9 million is scheduled to be delivered in the fourth quarter of fiscal 2022 and the balance is scheduled to be delivered next fiscal year. Our backlog represents firm purchase orders received and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts. We may experience variability in our new order bookings due to various reasons, including, but not limited to, the timing of major new product launches and customer planned inventory builds. However, we do not typically experience seasonal fluctuations in our shipments and revenues.
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Cost of Sales and Gross Margin
(in thousands except percentages)
| Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| % of Total | % of Total | % of Total | % of Total | |||||||||||||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||||||||||||||
| Product cost | $ | 5,465 | 85 | % | $ | 7,000 | 95 | % | $ | 18,436 | 94 | % | $ | 17,120 | 94 | % | ||||||||||||||||
| Under(over)-absorption of manufacturing costs | 528 | 8 | % | 118 | 2 | % | 631 | 3 | % | 470 | 3 | % | ||||||||||||||||||||
| Inventory and warranty charges | 414 | 7 | % | 236 | 3 | % | 670 | 3 | % | 548 | 3 | % | ||||||||||||||||||||
| Total cost of sales | $ | 6,407 | 100 | % | $ | 7,354 | 100 | % | $ | 19,737 | 100 | % | $ | 18,138 | 100 | % | ||||||||||||||||
| Three Months Ended March 31, | Nine Months Ended March 31, | Year over Year ppt Change | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Three Months | Nine Months | |||||||||||||||||||
| Gross margin | 31 | % | 37 | % | 33 | % | 37 | % | (6 | ) | (4 | ) | ||||||||||||
Cost of sales for the three months ended March 31, 2022, decreased $947,000, or 13%, compared to the corresponding period of the prior fiscal year. The decrease in total costs of sales was caused by the 21% decrease in revenue for the same period. Under-absorption of manufacturing costs increased by $410,000 for the three months ended March 31, 2022, compared to the corresponding period of the prior fiscal year due in part to our inability absorb our fixed costs, which were not reduced in the third quarter, in anticipation of future revenue growth. Costs relating to inventory and warranty charges increased $178,000 for the third quarter ended March 31, 2022 compared to the third quarter of the prior fiscal year, largely due to sourcing components for our printed circuit board assemblies at prices higher than usual. As previously disclosed, our supply chain has incurred many disruptions that suppliers indicate have been caused by the COVID-19 pandemic.
Gross profit decreased by approximately $1.5 million, or 35%, for the three months ended March 31, 2022, compared to the corresponding period of the prior fiscal year, consistent with the overall decrease in revenue. Gross margin as a percentage of sales decreased by approximately 6 percentage points compared to the corresponding period of the prior fiscal year due primarily to reduced sales, increased under-absorption of manufacturing costs as a result of decreased sales and the increases in inventory and warranty charges, which relates mostly to component inventory write-downs to net realizable value as many of these component price increases cannot be passed on to our customers, many of whom have price protections in place under long-term contracts.
Cost of sales for the nine months ended March 31, 2022 increased by $1.6 million, or 9%, compared to the corresponding period of the prior fiscal year, consistent with the increased revenue of 3% for the same period, the reasons for which are discussed above. Additionally, total cost of sales reflects a $161,000 increase in under-absorbed manufacturing costs due to actual production hours being less than planned. Inventory and warranty charges increased by approximately $122,000, or 22%, for the nine months ended March 31, 2022, compared to the corresponding period of the prior fiscal year, due to component inventory write-downs to net realizable value.
Gross profit decreased by $767,000, or 7%, for the nine months ended March 31, 2022, compared to the corresponding period of the prior fiscal year, primarily as a result of the increase in cost of sales described above. Gross margin for the nine months ended March 31, 2022, decreased by 4 percentage points compared to the corresponding period of the prior fiscal year.
| 21 |
Operating Expenses
Operating Costs and Expenses
(in thousands except % change)
| Three Months Ended March 31, | Nine Months Ended March 31, | Year over Year % Change | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | Three Months | Nine Months | |||||||||||||||||||||||||||||||||||
| % of Net Sales | % of Net Sales | % of Net Sales | % of Net Sales | |||||||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Selling expenses | $ | 20 | — | $ | 136 | 1 | % | $ | 79 | — | $ | 415 | 2 | % | (85 | %) | (81 | %) | ||||||||||||||||||||||
| General and administrative expenses | 1,145 | 12 | % | 1,280 | 11 | % | 3,402 | 12 | % | 2,922 | 10 | % | (11 | %) | 16 | % | ||||||||||||||||||||||||
| Research and development costs | 658 | 7 | % | 1,104 | 10 | % | 2,254 | 8 | % | 3,184 | 11 | % | (40 | %) | (29 | %) | ||||||||||||||||||||||||
| $ | 1,823 | 20 | % | $ | 2,520 | 22 | % | $ | 5,735 | 20 | % | $ | 6,521 | 23 | % | (28 | %) | (12 | %) | |||||||||||||||||||||
Selling expenses consist of salaries and other personnel-related expenses for our business development department, as well as advertising and marketing expenses, and travel and related costs incurred in generating and maintaining our customer relationships. Selling expenses for the three and nine months ended March 31, 2022, decreased $116,000, or 85%, and $336,000, or 81%, respectively, compared to the corresponding periods of fiscal 2021. The decrease is primarily due to decreased personnel and related expenses due to combining our Director of Business Development position with our Director of Engineering position in the first quarter of fiscal 2022.
General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses of our accounting, finance and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and other costs and expenses attributable to being a public company. G&A decreased $135,000 and increased $480,000, respectively, during the three and nine months ended March 31, 2022, when compared to the corresponding periods of the prior fiscal year. The decrease in general and administrative expenses for the three months ended March 31, 2022, compared to the corresponding period of fiscal 2021 relates primarily to reduced non-cash compensation expense because 62,000 stock options granted in February 2021 vested in June 2021 and therefore compensation expense for those awards ceased in fiscal 2021. The increase in general and administrative expenses for the nine months ended March 31, 2022, compared to the corresponding period of fiscal 2021 relate primarily to higher non-cash stock-based compensation expense related to the remaining awards granted in the prior and current fiscal year.
Research and development costs generally consist of salaries, employer-paid benefits, and other personnel- related costs of our engineering and support personnel, as well as allocated facility and information technology costs, professional and consulting fees, patent-related fees, lab costs, materials, and travel and related costs incurred in the development and support of our products. Research and development costs for the three and nine months ended March 31, 2022, decreased $446,000 and $930,000, respectively, compared to the corresponding periods of the prior fiscal year. These decreases are primarily due to increased spending on billable development projects. When our engineers are engaged in a billable project as opposed to an internal project, costs get shifted to cost of sales instead of research and development.
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Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products. Many of our product development efforts are undertaken only upon completion of an analysis of the size of the market, our ability to differentiate our product from our competitors’, as well as an analysis of our specific sales prospects with new and/or existing customers. The research and development costs represent between 36% and 49% of total operating expenses for all periods presented and are expected to increase in the future as we continue to invest in the business. The amount spent on projects under development is summarized below (in thousands):
| Three
and Nine Months Ended March 31, 2022 | Three
and Nine Months Ended March 31, 2021 | Market
Launch (1) | Est
Annual Revenue (2) | |||||||||||||||||||||
| Total Research & Development costs: | $ | 658 | $ | 2,254 | $ | 1,104 | $ | 3,184 | ||||||||||||||||
| Products in development: | ||||||||||||||||||||||||
| ENT Shaver | 15 | 278 | 192 | 450 | Q4 2022 | $ | 1,000 | |||||||||||||||||
| Vital Ventilator | 7 | 115 | 26 | 91 | Q1 2023 | $ | 1,500 | |||||||||||||||||
| CMF Driver | — | — | 263 | 731 | (3 | ) | $ | 1,000 | ||||||||||||||||
| Sustaining & Other | 636 | 1,861 | 623 | 1,912 | ||||||||||||||||||||
| Total | $ | 658 | $ | 2,254 | $ | 1,104 | $ | 3,184 | ||||||||||||||||
| (1) | Represents the calendar quarter of expected market launch. |
| (2) | The products in development include risks that they could be abandoned in the future prior to completion, they could fail to become commercialized, or the actual annual revenue realized may be less than the amount estimated. |
| (3) | The CMF Driver was completed in the third quarter of fiscal 2021 and began shipping to our existing largest customer under a distribution agreement we executed in the first quarter of fiscal 2021. |
As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of- life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in our machine shop, assembly operations, and inspection areas to improve efficiency and through-put. Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort.
Interest & Other Income
Interest income for the three and nine months ended March 31, 2022 and 2021, includes interest and dividends from our money market accounts and investment portfolio.
Interest Expense
Interest expense consists primarily of interest expense related to the notes payable described more fully in Note 11 to the condensed consolidated financial statements contained elsewhere in this report.
Unrealized gain (loss) on marketable equity investments
The unrealized gain (loss) on marketable equity investments relates to our investment portfolio more fully described in Note 5 to the condensed consolidated financial statements contained elsewhere in this report.
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Gain on Sale of Investments
During the quarter ended March 31, 2021, we sold several of the stocks in our portfolio of equity investments receiving proceeds of $2.9 million and recording a gain on the sale in the amount of $783,000. During the quarter ended September 30, 2020, we liquidated two of the stocks in our portfolio of equity investments, receiving proceeds of $115,000 and recording a gain on the sale in the amount of $12,000.
Income Tax Expense
The effective tax rate for the three and nine months ended March 31, 2022, is slightly less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits. The effective tax rate for the three and nine months ended March 31, 2021, is less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits, as well as a tax benefit recognized as a result of common stock awarded to employees under previously granted performance awards in the first quarter of fiscal 2021 as described more fully in Note 9 to the condensed consolidated financial statements contained elsewhere in this report, as well as unrealized gains on our marketable equity investments.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2022, increased $1.0 million to $4.8 million as compared to $3.7 million at June 30, 2021. The following table includes a summary of our condensed statements of cash flows contained elsewhere in this report.
| As of and For the Nine Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | 4,432 | $ | (2,803 | ) | |||
| Investing activities | $ | (1,636 | ) | $ | (4,375 | ) | ||
| Financing activities | $ | (1,756 | ) | $ | 4,631 | |||
| Cash and Working Capital: | ||||||||
| Cash and cash equivalents | $ | 4,761 | $ | 3,874 | ||||
| Working capital | $ | 20,376 | $ | 20,091 | ||||
Operating Activities
Net cash provided by operating activities was $4.4 million for the nine months ended March 31, 2022, primarily due to net income of $2.4 million and non-cash depreciation and amortization of $546,000, share-based compensation of $932,000 and unrealized losses on marketable securities in the amount of $427,000 as well as an increase in accounts payable and accrued expenses of $673,000, deferred revenue of $746,000 and a decrease in accounts receivable in the amount of $2.3 million. Offsetting these sources of cash, our inventory increased by $3.4 million primarily due to replenishment of sub-assemblies and long-lead time parts.
Net cash used in operating activities was $2.8 million for the nine months ended March 31, 2021, primarily due to net income of $5.0 million and non-cash depreciation and amortization of $502,000 and share-based compensation of $508,000 offset by an unrealized gain on marketable securities in the amount of $1.4 million and an increase in accounts receivable in the amount of $6.8 million due to our largest customer changing their payment terms from net 30 to net 90 in conjunction with a contract extension. Additionally, our net income included $795,000 of realized gains from the sales of stock in our marketable securities portfolio.
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Investing Activities
Net cash used in investing activities for the nine months ended March 31, 2022, was $1.6 million and related to purchases of equipment and improvements primarily for the Franklin Property in the amount of $1.3 million and investments in marketable equity securities of publicly traded companies in the amount of $334,000.
Net cash used in investing activities for the nine months ended March 31, 2021, was $4.4 million and related primarily to the purchase of the Franklin Property acquired during the second quarter of fiscal 2021 for a purchase price of $6.5 million as well as expenditures related to machinery and equipment totaling $872,000. Offsetting these uses of cash, we sold some of our marketable securities during the nine months ended March 31, 2021 for $3.0 million.
Financing Activities
Net cash used in financing activities for the nine months ended March 31, 2022, totaled $1.8 million and related primarily to the $1.3 million repurchase of 52,718 shares of our common stock pursuant to our share repurchase program as well as $561,000 of principal payments on our term loan from Minnesota Bank and Trust (“MBT”) more fully described in Note 11 to the condensed consolidated financial statements contained elsewhere in this report.
Net cash provided by financing activities for the nine months ended March 31, 2021, totaled $4.6 million and included $9.1 million in various loans from MBT more fully described in Note 11 to the condensed consolidated financial statements contained elsewhere in this report, offset by $4.0 million related to the repurchase of 161,291 shares of our common stock pursuant to our share repurchase program, $307,000 of principal payments on our loans with MBT, as well as payment of $259,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.
Financing Facilities & Liquidity Requirements for the next twelve months
As of March 31, 2022, our working capital was $20.4 million. We currently believe that our existing cash and cash equivalent balances together with our accounts receivable balances will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. In addition to our cash and cash equivalent balances, we expect to derive a portion of our liquidity from our cash flows from operations. We may also liquidate some or all of our investment portfolio or borrow against our $2.0 million Revolving Loan with MBT (see Note 11 to condensed consolidated financial statements contained elsewhere in this report).
We are focused on preserving our cash balances by monitoring expenses, identifying cost savings, and investing only in those development programs and products that we believe will most likely contribute to our profitability. As we execute on our current strategy, however, we may require debt and/or equity capital to fund our working capital needs and requirements for capital equipment to support our manufacturing and inspection processes. In particular, we have experienced negative operating cash flow in the past, especially as we procure long-lead time materials to satisfy our backlog, which can be subject to extensive variability. We believe that if we need to raise additional capital to fund our operations we can do so by selling additional shares of our common stock under the ATM Agreement.
Investment Strategy
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both 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 $2.9 million of marketable public equity securities held at March 31, 2022.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) conducted an evaluation of the design and operation of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer of the effectiveness, as of March 31, 2022, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). “Internal control over financial reporting” includes those policies and procedures that:
| (1) | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
| (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and |
| (3) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements. |
Based on that evaluation as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective.
Internal Control Over Financial Reporting
During the three months ended March 31, 2022, there were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Inherent Limitations on the Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 14 of Notes to condensed consolidated financial statements contained elsewhere in this report.
ITEM 1A. RISK FACTORS
Our business, future financial condition and results of operations are subject to a number of factors, risks and uncertainties, which are disclosed in Item 1A, entitled “Risk Factors” in Part I of our Annual Report on Form 10-K for our fiscal year ended June 30, 2021, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended March 31, 2022. Additional information regarding some of those risks and uncertainties is contained in the notes to the condensed consolidated financial statements included elsewhere in this report and in Item 2, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I of this report. The risks and uncertainties disclosed in our Form 10-K, our quarterly reports on Form 10-Q and other reports filed with the SEC are not necessarily all of the risks and uncertainties that may affect our business, financial condition and results of operations in the future.
There have been no material changes to the risk factors as disclosed in our annual report on Form 10-K for the fiscal year ended June 30, 2021, except as provided in any amendments thereto.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Repurchases by us of our common stock during the quarter ended March 31, 2022, were as follows:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||
| January 1, 2022 to January 31, 2022 | 12,132 | $24.77 | 12,132 | 750,519 | ||||
| February 1, 2022 to February 28, 2022 | 12,634 | $22.45 | 12,634 | 737,885 | ||||
| March 1, 2022 to March 31, 2022 | – | – | – | 737,885 |
All repurchases were made pursuant to our previously announced repurchase programs.
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ITEM 6. EXHIBITS
| Exhibit | Description | |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PRO-DEX, INC. | ||
| Date: May 5, 2022 | By: | /s/ Richard L. Van Kirk |
| Richard L. Van Kirk | ||
|
Chief Executive Officer (principal executive officer) | ||
| Date: May 5, 2022 | By: | /s/ Alisha K. Charlton |
| Alisha K. Charlton | ||
|
Chief Financial Officer (principal financial officer and principal accounting officer) |
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EXHIBIT INDEX
| Exhibit | Description | |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |