Pro-Dex earnings fall to $3.05M as sales rise 11%
Medical-device sales rose 21%, while supplier delays could put shipments to PDEX’s largest customer at risk.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Pro-Dex, Inc. (PDEX) reported net sales of $20.560 million for the three months ended September 30, 2026, compared with $18.530 million for the same period in 2025. Gross profit increased to $6.857 million from $5.367 million, and gross margin was 33%, compared with 29%. Operating income was $3.515 million, versus $3.109 million.
Net income was $3.048 million, compared with $4.680 million. The prior-year period included a $3.299 million unrealized gain on investments, compared with $73,000 in the current period. Operating cash flow was $6.490 million, versus $2.310 million. Backlog was approximately $43.1 million as of September 30, 2026, including $42.4 million scheduled for delivery during the remainder of fiscal 2027.
One customer accounted for 72% of quarterly sales. The exclusive supplier of a proprietary medical-grade finish for many handpiece parts told Pro-Dex shipments would resume on a timely basis by mid-November; the company said delays could put shipments to its largest customer at risk. Management said cash, cash equivalents and receivables were expected to meet requirements for at least the next 12 months.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Hollow bars mark forward-looking points. How the balance works
Positive
- Moderate pointNet sales increased 11% to $20.560 million from $18.530 million.
- Moderate pointGross profit increased 28% to $6.857 million from $5.367 million.
- Moderate pointOperating cash flow was $6.490 million, compared with $2.310 million.
Negative
- Moderate pointNet income was $3.048 million, compared with $4.680 million.
- Moderate pointOne customer represented 72% of quarterly sales.
- Moderate point. Forward-looking: it has not happened yet and may not happen.Supplier delays could put largest-customer shipments at risk before mid-November.
Filing Explained
The plans set limits for future dispositions, not completed sales; the company’s quarter’s buybacks were completed and cost six hundred thousand dollars.
Pro-Dex repurchased 9,735 shares for
Nicholas Swenson’s plan for AO Partners I, L.P. begins
At September 30, 2026, 3,203,334 shares were issued and outstanding, versus 3,186,135 at June 30, 2026; 224,249 shares remained under the repurchase program.
Key Figures
Key Terms
point-in-time revenue recognition financial
under-absorption of manufacturing costs financial
Adjusted SOFR Rate financial
contingent value rights financial
Rule 10b5-1 trading arrangement regulatory
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did PDEX report for the quarter ended September 30, 2026?
How much of PDEX’s revolving credit line was available?
What insider trading arrangements did PDEX disclose?
What new lease did PDEX’s APM subsidiary enter?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
For the quarterly period ended
| |
|
OR
| |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
|
For the transition period from __________ to __________ | |
Commission file number:
(Exact name of registrant as specified in its charter)
———————
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each
of the registrant’s classes of common stock outstanding as of the latest practicable date:
PRO-DEX, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2026
TABLE OF CONTENTS
| Page | |
| PART I — FINANCIAL INFORMATION | |
| ITEM 1. FINANCIAL STATEMENTS (Unaudited) | 1 |
| Condensed Consolidated Balance Sheets as of September 30, 2026 and June 30, 2026 | 1 |
| Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2026 and 2025 | 2 |
| Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2026 and 2025 | 3 |
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2026 and 2025 | 4 |
| Notes to Condensed Consolidated Financial Statements | 6 |
| ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19 |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26 |
| ITEM 4. CONTROLS AND PROCEDURES | 26 |
| PART II — OTHER INFORMATION | |
| ITEM 1. LEGAL PROCEEDINGS | 28 |
| ITEM 1A. RISK FACTORS | 28 |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 28 |
| ITEM 5. OTHER INFORMATION | 28 |
| ITEM 6. EXHIBITS | 29 |
| SIGNATURES | 29 |
i
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
| September
30, 2026 | June 30,
2026 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Accounts receivable, net of allowance for credit losses
of $ | ||||||||
| Deferred costs | ||||||||
| Inventory | ||||||||
| Income taxes receivable | ||||||||
| 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 | ||||||||
| Investments | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Income taxes payable | ||||||||
| Deferred revenue | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ Equity: | ||||||||
| Common stock; | — | — | ||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
PRO-DEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling, general and administrative expenses | ||||||||
| Research and development costs | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other income (expense): | ||||||||
| Interest and dividend income | ||||||||
| Unrealized gain on investments | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Income before income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Basic and diluted net income per share: | ||||||||
| Basic net income per share | $ | $ | ||||||
| Diluted net income per share | $ | $ | ||||||
| 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 September 30, | ||||||||
| 2026 | 2025 | |||||||
| COMMON STOCK: | ||||||||
| Balance, beginning of period | $ | — | $ | |||||
| Share-based compensation expense | ||||||||
| Share repurchases | ( | ) | — | |||||
| Shares withheld from common stock issued to employees to pay employee payroll taxes | ( | ) | — | |||||
| ESPP shares issued | ||||||||
| Reclassification(1) | — | |||||||
| Balance, end of period | $ | — | $ | |||||
| RETAINED EARNINGS: | ||||||||
| Balance, beginning of period | $ | $ | ||||||
| Net income | ||||||||
| Shareholder distribution | ( | ) | — | |||||
| Balance, at end of period | $ | $ | ||||||
| Balance, beginning of period | ||||||||
| Net income (loss) | ||||||||
| Total shareholders’ equity | $ | $ | ||||||
| (1) |
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)
| Three
Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Share-based compensation | ||||||||
| Unrealized gain on marketable equity investments | ( | ) | ( | ) | ||||
| Non-cash lease expense (recovery) | ( | ) | ( | ) | ||||
| Amortization of loan fees | ||||||||
| Credit loss expense (recovery) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable and other receivables | ( | ) | ||||||
| Deferred costs | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Income taxes | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of equipment and improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from UMB Bank loans, net of origination fees | — | |||||||
| Proceeds from stock option exercises and ESPP contributions | ||||||||
| Principal payments on equipment finance leases | ( | ) | — | |||||
| Payments of employee taxes on net issuance of common stock | ( | ) | — | |||||
| Repurchases of common stock | ( | ) | — | |||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase 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)
| Three
Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income taxes: | ||||||||
| Federal income tax payments | $ | $ | — | |||||
| Florida income tax payments | — | |||||||
| Indiana income tax payments | — | |||||||
| California income tax payments | ||||||||
| Total income tax payments | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
PRO-DEX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with 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 and footnotes thereto presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and consist of a normal recurring nature. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year.
Recently Issued and Not Yet Adopted Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Disaggregation of Income Statement Expenses. The ASU’s purpose is to improve disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling, general and administrative, and research and development). This ASU is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position.
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 craniomaxillofacial (“CMF”) markets. We have patented adaptive torque-limiting technology and proprietary sealing solutions that appeal to our customers, primarily medical device distributors. Additionally, we provide engineering, quality and regulatory consulting services to our customers. We also manufacture and 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, Advanced Precision Machining, LLC (“APM”).
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. This subsidiary has no separate operations.
In February 2026, we acquired APM, a manufacturer located in Costa Mesa, California. APM manufactures several of our machined sub-assemblies and also manufactures parts and assemblies for the aerospace and defense industries. In addition, it serves as a Prime Contractor for the U.S. Government and therefore maintains registrations under the International Traffic in Arms Regulations (“ITAR”) as well as a Joint Certification Program (“JCP”) certification. The consolidated financial statements include the accounts of the Company, PDEX Franklin and APM and all significant inter-company accounts and transactions have been eliminated.
| 6 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 3. NET SALES
The following table presents the disaggregation of net sales by revenue recognition model (in thousands):
| Schedule of disaggregation of net sales | ||||||||
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net Sales: | ||||||||
| Over-time revenue recognition | $ | $ | ||||||
| Point-in-time revenue recognition | ||||||||
| Total net sales | $ | $ | ||||||
The timing of revenue recognition,
billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed
consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets),
where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition
model consists of non-recurring engineering (“NRE”) and prototype services and typically relates to NRE services related to
the evaluation, design or customization of a medical device and is typically recognized over time utilizing an input measure of progress
based on costs incurred compared to the estimated total costs upon completion. During the three months ended September 30, 2026 and 2025,
we recorded $
The following tables summarize our contract assets and liability balances (in thousands):
| Schedule of contract assets and liability | ||||||||
| As of
and for the Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Contract assets beginning balance | $ | $ | ||||||
| Expenses incurred during the year | ||||||||
| Amounts reclassified to cost of sales | ( | ) | ( | ) | ||||
| Contract assets ending balance | $ | $ | ||||||
| As of
and for the Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Contract liabilities beginning balance | $ | $ | ||||||
| Payments received from customers | — | |||||||
| Amounts reclassified to revenue | ( | ) | ( | ) | ||||
| Contract liabilities ending balance | $ | $ | ||||||
| 7 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income, and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
We have categorized our cash equivalents and investments within the fair value hierarchy as follows:
Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from or corroborated by observable market data. At September 30, 2026 and June 30, 2026, we have categorized our investments in marketable equity securities and our investment in the preferred stock of a privately held company as Level 2 assets. We utilized both a protective put option and a time-adjusted discount for lack of marketability valuation method to estimate fair value for our marketable equity securities. The purchase price paid for our investment in the preferred stock of a privately held company is considered fair value due to our participation in its most recent investment round.
Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at September 30, 2026 and June 30, 2026.
| Schedule of fair value assets and liabilities | ||||||||||||||||
| Fair Value Measurement at September 30, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 4 | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | — | $ | — | $ | ||||||||||
| Marketable equity securities – short-term | — | — | ||||||||||||||
| Marketable equity securities – long-term | — | — | ||||||||||||||
| Preferred stock – long-term | — | — | ||||||||||||||
| Total | $ | $ | $ | — | $ | |||||||||||
| 8 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
| Fair Value Measurement at September 30, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 4 | |||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash equivalents | $ | $ | — | $ | — | $ | ||||||||||
| Marketable equity securities – short-term | — | — | ||||||||||||||
| Marketable equity securities – long-term | — | — | ||||||||||||||
| Preferred stock – long-term | — | — | ||||||||||||||
| Total | $ | $ | $ | — | $ | |||||||||||
Investments
at September 30, 2026 and June 30, 2026 had an aggregate cost basis of $
Of
the total marketable equity securities at September 30, 2026 and June 30, 2026, $
As disclosed previously, in conjunction with making our original investment in Monogram during fiscal 2017, we were granted the exclusive right to develop, engineer, manufacture and supply certain products on its behalf. Those rights were transferred to Zimmer Biomet and remain in effect post-acquisition. We made this investment in the hope that it could generate meaningful additional revenue which has yet to occur but we believe is more likely to occur because Zimmer Biomet has more financial resources to assist with commercialization of Monogram’s products. In this regard, we are currently working with the Monogram and Zimmer Biomet teams and expect to ship validation units in the second half of this fiscal year.
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 Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for 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.
| 9 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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):
| Schedule of inventory | ||||||||
| September
30, 2026 | June 30,
2026 | |||||||
| Raw materials/purchased components | $ | $ | ||||||
| Work in process | ||||||||
| Sub-assemblies/finished components | ||||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
Intangibles
Intangibles consist of the following (in thousands):
| Schedule of intangibles | ||||||||
| September
30, 2026 | June 30,
2026 | |||||||
| Patent-related costs | $ | $ | ||||||
| Customer relationships | ||||||||
| Tradename | ||||||||
| Total Intangibles | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Patent-related costs consist of legal fees incurred in connection with both patent applications and patent issuances and were amortized over the estimated life of the product(s) that is utilizing the technology, and these costs were fully amortized in fiscal 2026.
Both the customer relationships and the tradename relate to our acquisition of APM and will be amortized on a straight-line basis over ten and seven years, respectively.
| 10 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
As of September 30, 2026, the expected future amortization expense of our intangible assets is as follows (in thousands):
| Schedule of amortization expense of our intangible assets | ||||||
| Fiscal Year: | Amortization Expense | |||||
| 2027 | $ | |||||
| 2028 | ||||||
| 2029 | ||||||
| 2030 | ||||||
| 2031 | ||||||
| Thereafter | ||||||
| Total | $ | |||||
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 condensed consolidated balance sheets. As of September 30, 2026 and June 30, 2026, the warranty
reserve amounted to $
| Schedule of accrual warranty costs | ||||||||
| As of
and for the Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Beginning balance | $ | $ | ||||||
| Accruals during the period | ||||||||
| Changes in estimates of prior period warranty accruals | — | ( | ) | |||||
| Warranty amortization/utilization | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
NOTE 7. NET INCOME PER SHARE
We calculate basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted income per share reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options, restricted shares and performance awards.
| 11 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
The following table presents reconciliations of the numerators and denominators of the basic and diluted income per share computations. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):
| Schedule of net income per share | ||||||||
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Basic: | ||||||||
| Net income | $ | $ | ||||||
| Weighted-average shares outstanding | ||||||||
| Basic earnings 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 earnings per share | $ | $ | ||||||
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 bases. 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 or loss, with some consideration given to our estimates of future taxable income or loss by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable. We do not have a valuation allowance against our deferred tax assets as of September 30, 2026 or June 30, 2026.
Our effective tax rate for the three months ended
September 30, 2026 and 2025, is
We are subject to U.S. federal income tax, as well as income tax of California, Colorado, Florida, Indiana, and Minnesota. We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2023, and later. Additionally, we are currently open to audit under the statute of limitations for California for tax years from June 30, 2022 and later. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
The One Big Beautiful Bill Act of 2025, or the 2025 Act, enacted on July 4, 2025, makes changes to U.S. corporate income taxes including reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025, and immediate expensing of research and development costs, with retroactive application for tax years starting after December 31, 2025. Accordingly, the provisions of the 2025 Act impacting the Company were adopted in the fiscal year ended June 30, 2026.
| 12 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 9. SHARE-BASED COMPENSATION
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
Performance Awards
We have recorded share-based
compensation expense of $
On July 1, 2026, it was determined
by the Compensation Committee that the vesting of the fifth and final tranche of performance awards for
Non-Qualified Stock Options
In December 2020, the Compensation
Committee of our Board of Directors granted
Restricted Shares
In November 2025, the Compensation
Committee awarded
In November 2024, the Compensation
Committee awarded
| 13 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
During the three months ended
September, 2026 and 2025, we recorded compensation expense of $
Employee Stock Purchase Plan
In September 2014, our Board
approved the establishment of an Employee Stock Purchase Plan (the “ESPP”). The ESPP conforms to the provisions of Section
423 of the Internal Revenue Code, has coterminous
In October 2023, our Board approved an amendment to the ESPP (the “ESPP Amendment”), which extended the term of the ESPP for an additional ten years from January 2025 to January 2035. The ESPP Amendment was approved by our shareholders at our 2023 Annual Meeting. In July 2025, the Compensation Committee of our Board of Directors amended the specific provisions of the ESPP to provide for a more favorable discount calculation for employees participating in the ESPP, as described above.
During the three months ended
September 30, 2026 and 2025,
NOTE 10. MAJOR CUSTOMERS & SUPPLIERS
Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month periods ended September 30, 2026 and 2025 is as follows (in thousands, except percentages):
| Schedule of sales by major customers | ||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | |||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | |||||||||||||
| Total revenue | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Customer 3 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| 14 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information with respect to accounts receivable from those customers at September 30, 2026 and June 30, 2026 that comprised more than 10% of our total revenue for either of the three-month periods ended September 30, 2026 and 2025 is as follows (in thousands, except percentages):
| Schedule of accounts receivable | ||||||||||||||||
| September 30, 2026 | June 30, 2026 | |||||||||||||||
| Total gross accounts receivable | $ | % | $ | % | ||||||||||||
| Customer concentration: | ||||||||||||||||
| Customer 1 | $ | % | $ | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||||
| Customer 3 | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
During the three months ended
September 30, 2026 and 2025, we had two suppliers, respectively, that each accounted for more than 10% of total inventory purchases.
Amounts owed to the fiscal 2027 significant suppliers at September 30, 2026 totaled $
NOTE 11. NOTES PAYABLE AND FINANCING TRANSACTIONS
UMB Bank, N.A. (“UMB”)
We
have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) with UMB (formerly
Minnesota Bank & Trust or MBT). The Company entered into a Second Amended and Restated Credit and Security Agreement (the
“Amended Credit Agreement”) with UMB Bank, N.A. on February 9, 2026, which among other things provided for financing to
fund the cash portion of the purchase price of APM by issuing Term Loan D in the principal amount of $
The Amended Credit
Agreement also extended the maturity date of the Amended Revolving Loan from December 29, 2026, to December 29, 2027, pursuant to
a Third Amended and Restated Revolving Credit Note entered into by the Company and UMB on February 9, 2026. Loan origination fees in the
amount of $
Advanced Precision Machining (“APM”) Subordinated Promissory Note
On February
9, 2026, in connection with the acquisition of APM as described in Note 2, we issued the seller a promissory note in the amount of $
| 15 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
The balance on our outstanding loans (in thousands) is as follows (exclusive of unamortized loan fees):
| Schedule of unamortized loan | ||||||||
| September 30, 2026 | June 30,
2026 | |||||||
| Notes Payable: | ||||||||
| Term Loan A | $ | $ | ||||||
| Term Loan B | ||||||||
| Term Loan C | ||||||||
| Term Loan D | ||||||||
| Property Loan | ||||||||
| APM Subordinated Loan | ||||||||
| Amended Revolving Loan | — | — | ||||||
| Total notes payable | $ | $ | ||||||
Term
Loan A and Term Loan B both bear interest at a fixed rate of
Any
payment on Term Loan A, Term Loan B, Term Loan C, Term Loan D, the Property Loan, or the Amended Revolving Loan (collectively, the “Loans”)
not made within seven days after the due date is subject to a late payment fee equal to
The Amended Credit Agreement, Security Agreement, Property Loan Security Agreements, Term Note A, Term Note B, Term Note C, Term Note D, Property Loan, and Amended Revolving Loan contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of September 30, 2026, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans.
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 has approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor under Rule 10b5-1
of the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the three months ended September
30, 2026, we repurchased
| 16 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 13. LEASES
Our operating lease right-of-use
asset and long-term liability are presented separately on our condensed consolidated balance sheet. The current portion of our operating
lease liability as of September 30, 2026, in the amount of $
During the first quarter of
fiscal 2027, we executed the third amendment to the lease of our corporate office in Irvine, California. After giving effect to this third
amendment, as of September 30, 2026, our operating lease has a remaining lease term of four years and an imputed interest rate of
As of September 30, 2026, the maturity of our lease liabilities is as follows (in thousands):
| Schedule of maturities of lease liabilities | ||||||||||
| Operating Leases | Finance Leases | |||||||||
| Fiscal Year: | ||||||||||
| 2027 | $ | $ | ||||||||
| 2028 | ||||||||||
| 2029 | ||||||||||
| 2030 | ||||||||||
| 2031 | — | |||||||||
| Total lease payments | ||||||||||
| Less imputed interest | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Matters
In the ordinary course of our business or incidental to our business, we are periodically subject to legal or administrative proceedings. As of September 30, 2026, we were not involved in any material legal or administrative proceedings, that in the opinion of management, the ultimate disposition of which would have a material adverse effect on our consolidated financial position, results of operations, or liquidity. There can be no certainty, however, that we may not ultimately incur liability from such legal or administrative proceedings or that such liability will not be material or adverse.
| 17 |
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 15. SUBSEQUENT EVENTS
We have evaluated subsequent events through the date of this filing. On October 26, 2026, our wholly owned subsidiary APM renewed its existing real property leases and on October 29, 2026, entered a new real property lease for an adjacent space for APM’s expected continued expansion. The new lease agreements terminate on September 30, 2030, consistent with the third amendment of our corporate office in Irvine, California. Additional information will be provided in a Current Report on Form 8-K to be filed timely with the Securities and Exchange Commission.
| 18 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this report.
COMPANY OVERVIEW
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the results of operations and financial condition of Pro-Dex, Inc. (“Company,” “Pro-Dex,” “we,” “our,” or “us”) for the three-month periods ended September 30, 2026 and 2025. This discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this report. This report contains certain forward-looking statements and information. The cautionary statements included herein should be read as being applicable to all related forward-looking statements wherever they may appear. Our actual future results could differ materially from those discussed herein.
Except for the historical information contained herein, the matters discussed in this report, including, but not limited to, discussions of our product development plans, business strategies, strategic opportunities, contract negotiations, and market factors influencing our results, are forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase sales in markets characterized by rapid technological evolution, consolidation within our target marketplace and among our competitors, employee turnover, 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, 2026.
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 craniomaxillofacial (“CMF”) markets. We have patented adaptive torque-limiting technology and proprietary sealing solutions that appeal to our customers, primarily medical device distributors. Additionally, we provide engineering, quality, and regulatory consulting services to our customers. We also manufacture and 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, Advanced Precision Machining, LLC (“APM”).
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.
Basis of Presentation
The condensed consolidated results of operations presented in this report are not audited and those results are not necessarily indicative of the results to be expected for the entirety of our fiscal year ending June 30, 2027, 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.
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Critical Accounting Estimates and Judgments
Our financial statements are prepared in accordance with U.S. GAAP. 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 months ended September 30, 2026, to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for our fiscal year ended June 30, 2026.
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 second quarter of fiscal 2026, 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 2028. During the third quarter of fiscal 2026, we completed the acquisition of APM, one of our significant suppliers, to help meet the increased demand as a result of this contract extension. Our acquisition of APM provides us with a second machine shop located in Costa Mesa, California that not only provides machined assemblies to service our largest customer but also provides machining to other customers primarily in the defense and aerospace industries.
We are also 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, our latest Pro-Dex branded product, the Helios driver for CMF applications, featuring our adaptive torque-limiting software, has been released for production. Although this product has been released, and we have had interest in this product, there is no guarantee that our existing customers or new customers will purchase this new driver.
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.
In summary, our current objectives are focused primarily on maintaining our relationships with our current medical device customers, successfully integrating and operating APM, investing in research and development activities to design unique medical devices as well as Pro-Dex branded drivers to leverage our torque-limiting software, and promoting active product development proposals to new and existing customers for both orthopedic shavers and screw drivers for a multitude of surgical applications, while monitoring closely the progress of all these individual endeavors. While we expect revenue growth in the future, it may not be a consistent trajectory but rather periods of incremental growth that current expenditures are helping to create. However, there can be no assurance that we will be successful in any of these objectives.
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Results of Operations
The following tables set forth results from continuing operations for the three months ended September 30, 2026 and 2025 (in thousands, except percentages):
| Three Months Ended September 30, | ||||||||||||||||
| 2026 | 2025 | |||||||||||||||
| Dollars in thousands | ||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||
| Net sales | $ | 20,560 | 100 | % | $ | 18,530 | 100 | % | ||||||||
| Cost of sales | 13,703 | 67 | % | 13,163 | 71 | % | ||||||||||
| Gross profit | 6,857 | 33 | % | 5,367 | 29 | % | ||||||||||
| SG&A expenses | 2,132 | 10 | % | 1,490 | 8 | % | ||||||||||
| Research and development costs | 1,210 | 6 | % | 768 | 4 | % | ||||||||||
| 3,342 | 16 | % | 2,258 | 12 | % | |||||||||||
| Operating income | 3,515 | 17 | % | 3,109 | 17 | % | ||||||||||
| Other income (expense), net | (136 | ) | (1 | %) | 3,113 | 17 | % | |||||||||
| Income before income taxes | 3,379 | 16 | % | 6,222 | 34 | % | ||||||||||
| Provision for income taxes | 331 | 1 | % | 1,542 | 8 | % | ||||||||||
| Net income | $ | 3,048 | 15 | % | $ | 4,680 | 25 | % | ||||||||
Revenue
The majority of our revenue is derived from designing, developing, manufacturing, and repairing surgical devices. We continue to sell our rotary air motors for industrial and scientific applications, but our focus remains in medical devices. The proportion of total sales by type is as follows (in thousands, except percentages):
| Three Months Ended September 30, | Increase (Decrease) From 2025 to 2026 | |||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||||||
| Net sales: | ||||||||||||||||||||
| Medical device | $ | 17,393 | 85 | % | $ | 14,382 | 77 | % | 21 | % | ||||||||||
| Industrial and scientific | 740 | 4 | % | 172 | 1 | % | 330 | % | ||||||||||||
| NRE & proto-types | 236 | 1 | % | 476 | 3 | % | (50 | %) | ||||||||||||
| Repairs | 2,132 | 10 | % | 3,830 | 21 | % | (44 | %) | ||||||||||||
| Discounts and other | 59 | — | (330 | ) | (2 | %) | 118 | % | ||||||||||||
| $ | 20,560 | 100 | % | $ | 18,530 | 100 | % | 11 | % | |||||||||||
| 21 |
Certain of our medical device products utilize proprietary designs developed by us under exclusive development and supply agreements. All of our finished medical device products utilize proprietary manufacturing methods and know-how, and are manufactured in our Irvine, California facility and assembled in our Tustin, California facility. Details of our medical device sales by type is as follows (in thousands, except percentages):
| Three Months Ended September 30, | Increase (Decrease) From 2025 to 2026 | |||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Med Device Sales | % of Med Device Sales | |||||||||||||||||||
| Medical device sales: | ||||||||||||||||||||
| Orthopedic | $ | 12,808 | 74 | % | $ | 11,053 | 77 | % | 16 | % | ||||||||||
| CMF | 3,934 | 22 | % | 2,828 | 20 | % | 39 | % | ||||||||||||
| Thoracic | 651 | 4 | % | 501 | 3 | % | 30 | % | ||||||||||||
| $ | 17,393 | 100 | % | $ | 14,382 | 100 | % | 21 | % | |||||||||||
Our medical device revenue increased $3.0 million, or 21%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year. Our orthopedic sales increased $1.8 million, or 16%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year, due primarily to increased sales of our largest customer’s next generation handpiece. We expect to see similar sales volumes of our largest customer’s next generation and legacy handpiece for the remainder of this fiscal year. Currently, the exclusive supplier used to provide the proprietary medical grade finish of many parts of the next generation handpiece is experiencing delays in shipments to us. While the supplier has represented to us that shipments will resume on a timely basis by mid-November, there is a risk that we may fall behind in our shipments to our largest customer, especially if the aforementioned customer mandated supplier is unable to meet their communicated schedule. Recurring revenue from distributors of CMF drivers increased $1.1 million, or 39%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year. Our thoracic sales increased by $150,000, or 30%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year. While we do not have much visibility into our customers’ distribution networks, this level of change (whether an increase or decrease) is not uncommon and fluctuations occur based upon required inventory levels.
Our industrial and scientific sales increased $568,000, or 330%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year. The increase is almost entirely related to sales generated by APM, which we acquired in the third quarter of the prior fiscal year. Our non-recurring engineering (“NRE”) and proto-type revenue decreased $240,000, or 50%, for the three months ended September 30, 2026 compared to the corresponding period of the prior fiscal year, due to a decrease in billable contract amounts. Our NRE and proto-type revenue is typically a small percentage of our total revenue and can vary significantly from quarter to quarter.
Repair revenue decreased by $1.7 million, or 44%, for the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year, due to fewer repairs of the legacy orthopedic handpiece we sell to our largest customer. While we do not have much visibility into our largest customer’s distribution networks, they may be reducing repairs of legacy handpieces in favor of replacing them with the next generation handpiece, in which case we may continue to see declines in repair revenue.
Discounts and other increased $389,000 because the contract extension we executed with our largest customer during the second quarter of the prior fiscal year no longer includes volume rebates.
At September 30, 2026, we had a backlog of approximately $43.1 million, of which $42.4 million is scheduled for delivery during the remainder of fiscal 2027. 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
| Three Months Ended September 30, | Increase (Decrease) From 2025 to 2026 | |||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| Cost of sales: | % of Net Sales | % of Net Sales | ||||||||||||||||||
| Product costs | $ | 13,661 | 67 | % | $ | 12,408 | 67 | % | 10 | % | ||||||||||
| Under-(over) absorption of manufacturing costs | 258 | 1 | % | 619 | 3 | % | (58 | %) | ||||||||||||
| Inventory and warranty charges | (216 | ) | (1 | %) | 136 | 1 | % | (259 | %) | |||||||||||
| Total cost of sales | $ | 13,703 | 67 | % | $ | 13,163 | 71 | % | 4 | % | ||||||||||
| Gross profit and gross margin | $ | 6,857 | 33 | % | $ | 5,367 | 29 | % | 28 | % | ||||||||||
Cost of sales for the three months ended September 30, 2026, increased by $540,000, or 4%, compared to the corresponding period of the prior fiscal year. The increase in cost of sales is consistent with the 11% increase in revenue for the same period. Product costs increased by $1.3 million, or 10%, during the three months ended September 30, 2026, compared to the corresponding period of the prior fiscal year, which is consistent with higher revenue generated in the first quarter of fiscal 2027, but is higher than expected based on negative fluctuations in repair service revenue margin. In the first quarter of fiscal 2027 our repair revenue margin is significantly lower than in prior year due to more expensive component replacement as well as the cost of our assembled workforce which normally repairs a higher volume of devices. During the three months ended September 30, 2026, we experienced under-absorption of $258,000 in manufacturing costs compared to $619,000 during the corresponding period of the prior fiscal year. The decrease in under-absorption relates to higher labor and overhead rates used in the first quarter of fiscal 2027 compared to the rates used in the first quarter of fiscal 2026. Costs related to inventory and warranty charges decreased $352,000, or 259%, for the three months ended September 30, 2026 compared to the corresponding period of the prior fiscal year, due to elimination of inventory that had previously been reserved.
Gross profit increased by approximately $1.5 million, or 28%, for the three months ended September 30, 2026 compared to the corresponding period of the prior fiscal year, and gross margin as a percentage of sales increased by four percentage points between such periods, primarily due to favorable product mix.
Operating Costs and Expenses
| Three Months Ended September 30, | Increase (Decrease) From 2025 to 2026 | |||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||
| Dollars in thousands | ||||||||||||||||||||
| % of Net Sales | % of Net Sales | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling expenses | $ | 23 | — | $ | 73 | — | (69 | %) | ||||||||||||
| General and administrative expenses | 2,109 | 10 | % | 1,417 | 8 | % | 49 | % | ||||||||||||
| Research and development costs | 1,210 | 6 | % | 768 | 4 | % | 58 | % | ||||||||||||
| $ | 3,342 | 16 | % | $ | 2,258 | 12 | % | 48 | % | |||||||||||
| 23 |
Selling expenses consist of salaries and other personnel-related expenses in support of business development, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining our customer relationships. Selling expenses for the three months ended September 30, 2026, decreased $50,000, or 69%, compared to the corresponding period of the prior fiscal year. The decrease relates to personnel costs related to our former Director of Business Development whose employment with us ended in the second quarter of fiscal 2026. The current year expenses relate primarily to recruiting fees.
General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses of our accounting, finance, facilities, information technology and human resources 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 expenses increased by $692,000, or 49%, for the three months ended September 30, 2026, when compared to the corresponding period of the prior fiscal year. The increase in total G&A expenses is due to $466,000 in APM’s separate general and administrative expenses and $195,000 in higher payroll and personnel expenses related to expansion in human resources, accounting, mergers and acquisitions and information technology.
Research and development costs generally consist of compensation and other personnel-related costs of our engineering and support personnel, related 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 increased $442,000, or 58%, for the three months ended September 30, 2026 compared to the corresponding period of the prior fiscal year. The increase is due primarily to an increase in personnel expenses in the amount of $270,000 and internal project expenditures of $110,000 and approximately $25,000 less in billable projects, which expenses get reclassified to cost of sales.
The majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell. As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of-life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in our machine shop, assembly operations, and inspection areas to improve efficiency and through-put.
Other Income (Expense), Net
Interest and Dividend Income
The interest and dividend income recorded during the three months ended September 30, 2026 and 2025, consists primarily of interest and dividends from our investments and money market accounts.
Unrealized Gain on Investments
The unrealized gain on marketable securities for the quarters ended September 30, 2026 and 2025, relates to our portfolio of investments described more fully in Note 4 to the condensed consolidated financial statements contained elsewhere in this report.
Interest Expense
The interest expense recorded during the three months ended September 30, 2026 and 2025, relates to our UMB Bank (“UMB”) loans described more fully in Note 11 to the condensed consolidated financial statements contained elsewhere in this report. The interest expense recorded during the three months ended September 30, 2026, also contains interest expense related to the APM note issued to the seller and interest expense related to APM’s separate equipment finance leases.
Income Tax Expense
The effective tax rate for the three months ended September 30, 2026 and 2025, was 10% and 25%, respectively. The current year effective tax rate is less than the prior year rate due primarily to a tax benefit recognized as a result of the common stock awarded to our employees under previously granted performance awards.
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Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2026, increased $3.6 million to $11.8 million as compared to $8.2 million at June 30, 2026. The following table includes a summary of our condensed consolidated statements of cash flows contained elsewhere in this report.
| As of and For the Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Cash provided by (used in): | ||||||||
| Operating activities | $ | 6,490 | $ | 2,310 | ||||
| Investing activities | $ | (346 | ) | $ | (98 | ) | ||
| Financing activities | $ | (2,577 | ) | $ | (2,117 | ) | ||
| Cash and working capital: | ||||||||
| Cash and cash equivalents | $ | 11,759 | $ | 514 | ||||
| Working capital | $ | 41,062 | $ | 37,121 | ||||
Operating Activities
Net cash provided by operating activities during the three months ended September 30, 2026 totaled $6.5 million. Our net income was $3.0 million, which includes non-cash depreciation and amortization and stock-based compensation in the amount of $403,000 and $135,000, respectively. Proceeds of cash arose from accounts receivable collections of $3.8 million. Offsetting these inflows of cash, our inventory increased by $441,000 and our income tax receivable decreased by $461,000 due to the current quarter’s payments exceeding our income tax expense accruals during the first quarter of fiscal 2027.
Net cash provided by operating activities during the three months ended September 30, 2025 totaled $2.3 million. Our net income was $4.7 million, which includes $3.3 million of unrealized gains, primarily related to our investment in Monogram, which is more fully described in Note 4 to the condensed consolidated financial statements contained elsewhere in this report as well as non-cash depreciation and amortization and stock-based compensation in the amount of $311,000 and $161,000, respectively. Proceeds of cash arose from income taxes of $1.5 million due to tax expense incurred in the first quarter of fiscal 2026 having been previously paid and a decrease in inventory of $649,000. Offsetting these inflows of cash, our accounts receivable increased by $1.8 million due to an increase in revenue in the first quarter of fiscal 2026.
Investing Activities
Net cash used in investing activities for the three months ended September 30, 2026, and 2025 was $346,000 and $98,000, respectively, related to the purchase of equipment and improvements.
Financing Activities
Net cash used in financing activities for the three months ended September 30, 2026, included the repurchase of $600,00 of common stock pursuant to our share repurchase program, and principal payments on our debt totaling $1.0 million. Additionally, we paid $926,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.
Net cash used in financing activities for the three months ended September 30, 2025, included net principal payments of $2.2 million on our loans from UMB.
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Financing Facilities & Liquidity Requirements for the Next Twelve Months
As of September 30, 2026, our working capital was $41.1 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, we expect to derive a portion of our liquidity from our cash flows from operations.
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 additional capital to fund our operations, we can borrow against our revolving loan with UMB which has an available balance of $11 million as of September 30, 2026.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer and principal accounting officer) 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 September 30, 2026, 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 September 30, 2026, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective.
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Internal Control over Financial Reporting
During the three months ended September 30, 2026, 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 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, 2026, as well as any amendments thereto or additions and changes thereto contained in this quarterly report on Form 10-Q for the quarter ended September 30, 2026. 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 Part I, Item 2, of this report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The risks and uncertainties disclosed in our Form 10-K, our quarterly reports on Form 10-Q, and other reports filed with the SEC are not necessarily all of the risks and uncertainties that may affect our business, financial condition, and results of operations in the future. There have been no material changes to the risk factors as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Repurchases by the Company of its common stock during the quarter ended September 30, 2026 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 | ||||||||||||||
| July 1, 2026 to July 31, 2026 | 3,274 | $ | 61.08 | 3,274 | 230,710 | |||||||||||||
| August 1, 2026 to August 31, 2026 | 3,200 | $ | 62.49 | 3,200 | 227,510 | |||||||||||||
| September 1, 2026 to September 30, 2026 | 3,261 | $ | 61.33 | 3,261 | 224,249 | |||||||||||||
All repurchases were made pursuant to the Company’s previously announced repurchase program. For information concerning the Company’s repurchase program, please see the discussion under the caption “Share Repurchase Program” in Note 12 to the condensed consolidated financial statements included elsewhere in this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
On September 9, 2026, our
On September 9, 2026,
On September 22, 2026, our
No additional directors or
officers informed us of the
ITEM 6. EXHIBITS
| Exhibit | Description |
| 10.1 | Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease – Net by and between Irvine Business Properties and Pro-Dex, Inc. dated August 18, 2026 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 18, 2026). |
| 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 XBRL Instance Document |
| 101.SCH XBRL Taxonomy Extension Schema Document |
| 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF XBRL Taxonomy Extension Definition |
| 101.LAB XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE 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: October 29, 2026 |
By: /s/ Richard L. Van Kirk Richard L. Van Kirk Chief Executive Officer and President (principal executive officer) |
| Date: October 29, 2026 |
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 |
| 10.1 | Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease – Net by and between Irvine Business Properties and Pro-Dex, Inc. dated August 18, 2026 (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 18, 2026). |
| 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 XBRL Instance Document |
| 101.SCH XBRL Taxonomy Extension Schema Document |
| 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF XBRL Taxonomy Extension Definition |
| 101.LAB XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE 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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