NOTES TO FINANCIAL STATEMENTS
|
1.
|
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 markets. We have patented adaptive torque-limiting technology 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.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The
summary of significant accounting policies presented below is designed to assist the reader in understanding our consolidated financial
statements. Such consolidated financial statements and related notes are the representations of management, who is responsible for their
integrity and objectivity. In the opinion of management, these accounting policies conform to accounting principles generally accepted
in the United States of America (“U.S. GAAP”) in all material respects and have been consistently applied in preparing the
accompanying consolidated financial statements.
Revenue Recognition
Revenue from product sales is
recognized as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract
have been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as)
we satisfy each performance obligation, generally upon shipment. During fiscal 2021, in conjunction with a contract amendment with our
largest customer, we began accruing for estimated customer rebates in the amount of $394,000, which amounts are included in accrued expenses.
Revenue
from services, typically non-recurring engineering services related to the design or customization of a medical device, is typically recognized
over time.
Returns of our product for credit
are minimal; accordingly, we do not establish a reserve for product returns at the time of sale.
Estimated Losses on Product Development Services
Cost
and revenue estimates related to the product development service portions of development and supply contracts are reviewed and updated
quarterly. An expected loss on development service contracts is recognized immediately in cost of sales. Losses recorded in fiscal 2021
and 2020 related to these services totaled $71,000 and $370,000, respectively.
Owing
to the complexity of many of the contracts we have undertaken, the cost estimation process requires significant judgment. It is based
upon the knowledge and experience of our project managers, engineers, and finance professionals. Factors that are considered in estimating
the cost of work to be completed and ultimate profitability of the fixed price product development portion of development and supply contracts
include the nature and complexity of the work to be performed, availability and productivity of labor, the effect of change orders, the
availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warranties
Certain of our products are
sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the
sale. At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors
as return rates and repair costs, which factors are reviewed quarterly.
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. Warranty expenses are included in cost of sales in the accompanying statements of operations. Changes in
estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty
return rates and are included in current period warranty expense.
Cash and Cash Equivalents
We consider all highly liquid
investments with an original maturity of ninety days or less to be cash equivalents. At June 30, 2021 and 2020, cash equivalents consisted
of investments in money market funds.
Accounts Receivable
Trade receivables are stated
at their original invoice amounts, less an allowance for doubtful portions of such accounts. Management determines the allowance for doubtful
accounts based on facts and circumstances related to specific accounts and the age of accounts. Trade receivables are written off when
deemed uncollectible. Recoveries of trade receivables previously reserved are offset against the allowance when received.
Deferred Costs
Deferred costs reflect costs
incurred related to non-recurring engineering services under the terms of the related development and/or supply contracts. These costs
get recorded to cost of sales in the period that the revenue is recognized.
Inventories
Inventories are stated at the
lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor, and manufacturing overhead related
to the purchase and production of inventories. Reductions to estimated market value are recorded and charged to cost of sales, when indicated
based on a formula that compares on-hand quantities to both historical usage and estimated demand over the ensuing 12 months from the
measurement date. On an ongoing basis, we evaluate inventory for obsolescence and slow-moving items. This evaluation includes analysis
of historical sales and usage, existing demand, as well as specific factors known to management. As of June 30, 2021 and 2020, there was
approximately $128,000 and $303,000, respectively, of inventory in-transit.
Investments
Investments at June 30, 2021
and 2020, consist of marketable equity securities of publicly held companies. The investments were made to realize a reasonable return,
although there is no assurance that positive returns will be realized. Investments are marked to market at each measurement date, with
unrealized gains and losses, net of income taxes, presented as adjustments to accumulated other comprehensive income or loss. Our long-term
investments consist of common stocks of public companies that are thinly traded. These investments were subject to an independent valuation
as of June 30, 2021 and 2020.
Long-lived Assets
We review the recoverability
of long-lived assets, consisting of the land and building that we own, equipment, and improvements, including leasehold improvements,
when events or changes in circumstances occur that indicate carrying values may not be recoverable.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our building, equipment and
improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:
Building
|
Thirty years
|
Equipment
|
Three to ten years
|
Improvements
|
Shorter of the remaining life of the underlying building, lease term, or the asset’s estimated useful life
|
Intangibles
Intangibles
consist of legal fees incurred in connection
with patent applications. Certain of our patent costs are being amortized over a period of seven years, the estimated life of the product
that is currently utilizing the patented technology. The remaining patent costs will be amortized over the estimated life of the product(s)
that will be utilizing the technology or expensed immediately in the event the patent office denies the issuance of the patent. The expense
associated with the amortization of the patent costs is recognized in research and development costs.
Income Taxes
We recognize deferred tax assets
and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along
with net operating losses and tax credit carryovers. Deferred tax assets at both June 30, 2021 and 2020 consisted primarily of basis
differences related to unrealized gain/loss related to investments, stock-based compensation, fixed assets, accrued expenses, and inventories.
Significant management judgment
is required in determining the provision for income taxes and the recoverability of deferred tax assets. Such determination is based on
historical taxable income, with consideration given to estimates of future taxable income and the periods over which deferred tax assets
will be recoverable. We record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we
believe is more likely than not to be realized. When we establish or reduce the valuation allowance against deferred tax assets, the provision
for income taxes will increase or decrease, respectively, in the period such determination is made.
Uncertain Tax
Positions
We record uncertain tax positions
in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1) we determine
whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and
(2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that
is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Shipping and Handling
Payments from customers for
shipping and handling are included in net sales. Shipping expenses, consisting primarily of payments made to freight companies,
are included in cost of sales.
Concentration of Credit Risk
Financial instruments that potentially
subject us to credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents
with major financial institutions. At June 30, 2021 and 2020, and throughout the fiscal years then ended, we had deposits in excess
of federally insured limits. Credit sales are made to medical device distributors, original equipment manufacturers, and resellers throughout
the world, and sales to such customers account for a substantial portion of our trade receivables. While such receivables are not collateralized,
we evaluate their collectability based on several factors including customers’ payment histories.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation Plans
We recognize compensation
expense for the share-based awards that vest subject to market conditions under ASC 718, Compensation-Stock Compensation by estimating
their fair value using a Monte Carlo simulation. The fair value using a Monte Carlo simulation model is affected by assumptions regarding
a number of complex judgments including expected stock price volatility, risk free interest rates, and the forecasted future value and
trading volume of our stock. The awards are considered granted for accounting purposes on the date the awards were approved by the Compensation
Committee of our Board of Directors and we recognize compensation expense, based on the estimated fair value of the award, on a straight-line
basis over the requisite service period.
Use of Estimates
The preparation of financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Our operations are affected
by numerous factors including market acceptance of our products, changes in technologies, and new laws, effects from the COVID-19 pandemic,
government regulations, and policies. We cannot predict what impact, if any, the occurrence of these or other events might have on our
operations. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, share-based
compensation, the allowance for doubtful accounts, accrued warranty expense, inventory valuation, the carrying value of long-lived assets,
and the recoverability of deferred income tax assets.
Basic and Diluted Per Share Information
Basic per share amounts are
computed on the basis of the weighted-average number of common shares outstanding during each period presented. Diluted per share amounts
assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards as discussed
in Note 9, unless the effect of such exercise is to increase income, or decrease loss, per common share.
Fair Value Measurements
Fair value is measured based
on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair
value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs
for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Cash and cash equivalents:
The carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short-term nature
of these instruments. As such, cash and cash equivalents are classified within Level 1 of the valuation hierarchy.
Investments: Investments
consist of marketable equity securities of publicly held companies. As such, most of our investments are classified within Level 1 of
the valuation hierarchy. Our long-term marketable securities consist of investments of common stock of publicly traded companies that
are thinly traded. Due to the thinly traded nature of these stocks, they are classified within Level 2 of the valuation hierarchy. The
fair value of these investments was based upon an independent valuation.
Although the methods above may
produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe
our valuation methods are appropriate.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
Advertising costs are charged
to selling or general and administrative expense as incurred and amounted to $4,000 and $1,000 for the fiscal years ended June 30,
2021 and 2020, respectively.
Recently Adopted Accounting Standards
On July 1, 2019, we adopted
ASU 2016-02, (Topic 842) “Leases,” using a modified retrospective approach through a cumulative effect adjustment to
retained earnings in the amount of $42,000 as of the beginning of fiscal 2020. The objective of this update is to increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information
about leasing arrangements. The impact of adoption was an increase to both long-term assets and total liabilities of approximately $3.3
million as of July 1, 2019.
|
3.
|
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
|
Investments
Investments
are stated at market value and consist of the following (in thousands):
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Marketable equity securities – short-term
|
|
$
|
1,295
|
|
|
$
|
2,560
|
|
Marketable equity securities – long-term
|
|
|
1,704
|
|
|
|
2,360
|
|
Total Marketable equity securities
|
|
$
|
2,999
|
|
|
$
|
4,920
|
|
Investments
at June 30, 2021 and 2020 had an aggregate cost basis of $3,204,000 and $6,483,000,
respectively. The long-term investments include equity securities of public companies that are thinly traded and therefore we classified
the assets as long term in nature because even if we decide to sell the stocks we may not be able to sell our position within one year.
At June 30, 2021, the investments included net unrealized losses of $215,000 (gross unrealized losses of $386,000 offset by gross unrealized
gains of $171,000). At June 30, 2020, the investments included net unrealized losses of $1,563,000 (gross unrealized losses of $1,703,000
offset by gross unrealized gains of $140,000).
Of the total marketable equity
securities at June 30, 2021 and 2020, $1,224,000 and $847,000, respectively, represent an investment in either the common stock or both
the common and preferred stock of Air T, Inc. Two of our Board members Messrs. Swenson and Cabillot, are also board members of Air T,
Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Mr. Swenson, our Chairman, also serves as
the chief executive officer and chairman of Air T, Inc. Another of our Board members is employed by Air T as its Chief of Staff. The shares
have been purchased through 10b5-1 Plans that, in accordance with our internal policies regarding the approval of related-party transactions,
were approved by our three Board members that are not affiliated with Air T, Inc.
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.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventory
Inventory
is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Raw materials /purchased components
|
|
$
|
3,967
|
|
|
$
|
4,241
|
|
Work in process
|
|
|
2,218
|
|
|
|
2,339
|
|
Sub-assemblies /finished components
|
|
|
1,738
|
|
|
|
1,438
|
|
Finished goods
|
|
|
514
|
|
|
|
220
|
|
Total inventory
|
|
$
|
8,437
|
|
|
$
|
8,238
|
|
Land and Building
Land and building consist of the following (in thousands):
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Land
|
|
$
|
3,684
|
|
|
$
|
—
|
|
Building
|
|
|
2,815
|
|
|
|
—
|
|
Total
|
|
|
6,499
|
|
|
|
—
|
|
Less: accumulated depreciation
|
|
|
(62
|
)
|
|
|
—
|
|
|
|
$
|
6,437
|
|
|
$
|
—
|
|
On
November 6, 2020, we acquired the Franklin Property for a total purchase price of $6.5 million, of which we paid $1.3 million in cash
and the balance of $5.2 million we financed through Minnesota Bank & Trust (“MBT”) (see Note 6). As of the date of this
filing, we are continuing our build-out of the property, which we expect to complete in the first quarter of next fiscal year. The building
is being amortized on a straight-line basis over a period of 30 years.
Equipment and Improvements
Equipment and improvements consist of the following
(in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Office furnishings and fixtures
|
|
$
|
2,173
|
|
|
$
|
2,143
|
|
Machinery and equipment
|
|
|
5,895
|
|
|
|
5,382
|
|
Automobiles
|
|
|
21
|
|
|
|
21
|
|
Improvements
|
|
|
3,536
|
|
|
|
2,359
|
|
Total
|
|
|
11,625
|
|
|
|
9,905
|
|
Less: accumulated depreciation and amortization
|
|
|
(7,780
|
)
|
|
|
(7,219
|
)
|
|
|
$
|
3,845
|
|
|
$
|
2,686
|
|
Depreciation
expense for the years ended June 30, 2021 and 2020 amounted to $609,000 and $559,000, respectively. During fiscal 2021, fully depreciated
assets in the amount of $49,000 were retired. During fiscal 2020, fully depreciated assets in the amount of $58,000 were retired and an
additional $39,000 of fully depreciated assets were sold.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangibles
Intangibles
consist of the following (in thousands):
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Patent-related costs
|
|
$
|
260
|
|
|
$
|
222
|
|
Less accumulated amortization
|
|
|
(74
|
)
|
|
|
(60
|
)
|
|
|
$
|
186
|
|
|
$
|
162
|
|
Amortization
expense for the years ended June 30, 2021 and 2020 amounted to $14,000 each fiscal year.
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.
Accrued
Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Payroll and related items
|
|
$
|
505
|
|
|
$
|
689
|
|
Accrued inventory in transit
|
|
|
128
|
|
|
|
303
|
|
Accrued legal and professional fees
|
|
|
124
|
|
|
|
141
|
|
Accrued bonuses
|
|
|
300
|
|
|
|
570
|
|
Current portion of lease liability
|
|
|
344
|
|
|
|
339
|
|
Warranty
|
|
|
221
|
|
|
|
213
|
|
Accrued customer rebate
|
|
|
394
|
|
|
|
—
|
|
Accrued sales, use and excise taxes
|
|
|
7
|
|
|
|
7
|
|
Other
|
|
|
175
|
|
|
|
149
|
|
|
|
$
|
2,198
|
|
|
$
|
2,411
|
|
Information relating
to the accrual for warranty costs for the years ended June 30, 2021 and 2020, is as follows (in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Balance at beginning of year
|
|
$
|
213
|
|
|
$
|
136
|
|
Accruals during the year
|
|
|
339
|
|
|
|
204
|
|
Change in estimates of prior period accruals
|
|
|
(27
|
)
|
|
|
(27
|
)
|
Warranty amortization/utilization
|
|
|
(304
|
)
|
|
|
(100
|
)
|
Balance at end of year
|
|
$
|
221
|
|
|
$
|
213
|
|
Warranty expense relating to
new product sales and changes to estimates was $312,000 and $177,000, respectively, for the fiscal years ended June 30, 2021 and 2020.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 2020, President
Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act, among other things,
includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss
carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections
to tax depreciation methods for qualified improvement property (“QIP”). Under ASC 740, the effects of new legislation are
recognized upon enactment. The provisions of the CARES Act did materially impact our business or our tax provision.
The provision for income taxes
consists of the following amounts (in thousands):
|
|
Years Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
1,040
|
|
|
$
|
1,542
|
|
State
|
|
|
340
|
|
|
|
270
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(186
|
)
|
|
|
(243
|
)
|
State
|
|
|
(18
|
)
|
|
|
221
|
|
Income tax expense
|
|
$
|
1,176
|
|
|
$
|
1,790
|
|
The effective income tax rate
from income from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table
below (in thousands, except percentages).
|
|
Years Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Amount
|
|
|
Percent Pretax Income
|
|
|
Amount
|
|
|
Percent Pretax Income
|
|
Income before income taxes
|
|
$
|
5,626
|
|
|
|
100
|
%
|
|
$
|
7,902
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed “expected” income tax expense on income before income taxes
|
|
$
|
1,181
|
|
|
|
21
|
%
|
|
$
|
1,659
|
|
|
|
21
|
%
|
State tax, net of federal benefit
|
|
|
279
|
|
|
|
5
|
%
|
|
|
440
|
|
|
|
6
|
%
|
Tax incentives
|
|
|
(169
|
)
|
|
|
(3
|
%)
|
|
|
(85
|
)
|
|
|
(1
|
%)
|
Change in valuation allowance
|
|
|
—
|
|
|
|
—
|
|
|
|
(227
|
)
|
|
|
(3
|
%)
|
Stock based compensation
|
|
|
(93
|
)
|
|
|
(2
|
%)
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
Income tax expense
|
|
$
|
1,176
|
|
|
|
21
|
%
|
|
$
|
1,790
|
|
|
|
23
|
%
|
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect
the net effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities for
federal and state income taxes are as follows (in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal and state NOL carryforward
|
|
$
|
20
|
|
|
$
|
21
|
|
Research and other credits
|
|
|
65
|
|
|
|
65
|
|
Reserves and accruals
|
|
|
461
|
|
|
|
438
|
|
Stock based compensation
|
|
|
268
|
|
|
|
110
|
|
Unrealized losses
|
|
|
61
|
|
|
|
455
|
|
Inventory
|
|
|
371
|
|
|
|
334
|
|
Total gross deferred tax assets
|
|
$
|
1,246
|
|
|
$
|
1,423
|
|
Less: valuation allowance
|
|
|
(158
|
)
|
|
|
(543
|
)
|
Total deferred tax assets
|
|
|
1,088
|
|
|
|
880
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differing depreciation methods
|
|
$
|
(523
|
)
|
|
$
|
(577
|
)
|
Deferred state tax
|
|
|
(38
|
)
|
|
|
(33
|
)
|
Other
|
|
|
(64
|
)
|
|
|
(11
|
)
|
Total gross deferred tax liabilities
|
|
|
(625
|
)
|
|
|
(621
|
)
|
Net deferred tax assets
|
|
$
|
463
|
|
|
$
|
259
|
|
Realization of our deferred
tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. As of June 30, 2021, our deferred
tax asset valuation allowance primarily consists of unrealized capital loss for investments held and the state net operating loss carryforwards
for states in which we have filed a final return. For the fiscal year ended June 30, 2021, we recorded a net decrease to our valuation
allowance of $385,000 on the basis of management’s reassessment of the amount of our deferred tax assets that are more likely than
not to be realized.
As of June 30, 2021, we did
not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate. We
have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2021.
As of June 30, 2021, we
have accrued $550,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax expense
if recognized. If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced. Any adjustment
to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash outlay.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to our accrual for unrecognized tax benefits
is as follows (in thousands):
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
524
|
|
|
$
|
490
|
|
Additions based on federal tax positions related to the current year
|
|
|
30
|
|
|
|
15
|
|
Additions based on state tax positions related to the current year
|
|
|
20
|
|
|
|
13
|
|
Additions for tax positions of prior years
|
|
|
6
|
|
|
|
55
|
|
Reductions due to lapses in statutes of limitation
|
|
|
(30
|
)
|
|
|
(49
|
)
|
Ending balance
|
|
$
|
550
|
|
|
$
|
524
|
|
Although it is reasonably possible
that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities,
expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published
tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve
months.
We recognize accrued interest
and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2021, no interest or penalties
applicable to our unrecognized tax benefits have been accrued since we have sufficient tax attributes available to fully offset any potential
assessment of additional tax.
We are subject to U.S. federal
income tax, as well as income tax of California, Colorado, Maryland, and Massachusetts. 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. However, because of our prior
net operating losses and research credit carryovers, substantially all of our tax years are open to audit.
|
6.
|
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 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
is payable monthly beginning on December 1, 2020, and both principal and interest in the amount of approximately $30,000 are due and payable
on the first day of each subsequent month until the maturity date of November 1, 2030 (the “Maturity Date”), at which time
a balloon payment in the amount of $3.1 million is due. Any prepayment of the Property Loan (other than monthly scheduled interest and
principal payments), is subject to a prepayment fee equal to 4% of the principal amount prepaid for any prepayment made during the first
or second year, 3% of the principal amount prepaid for any prepayment made during the third or fourth year, 2% of the principal amount
prepaid for any prepayment made during the fifth or sixth year, and 1% of the principal amount prepaid for any prepayment made during
the seventh or eighth year. The Property Loan Agreement, Property Note, Deed, and Rents Assignment each contain representations, warranties,
covenants, and events of default that are customary for a loan of this type. The balance owed on the Property Loan at June 30, 2021 is
$5,118,000.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”),
providing for a $7,525,000 amended and restated term loan (the “Term Loan A”), a $1,000,000 term loan (the “Term Loan
B”), and a $2,000,000 amended and restated revolving loan (the “Revolving Loan” and, together with the Term Loan A and
the Term Loan B, collectively, the “Loans”), evidenced by an Amended and Restated Term Note A (“Term Note A”),
a Term Note B, and an Amended and Restated Revolving Credit Note (the “Revolving Note”) made by us in favor of MBT. The Loans
are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into on September 6, 2018 between
the Company and MBT. The Term Note A had an outstanding principal balance of $3,770,331 as of the Closing Date and could be borrowed against
through May 30, 2021 (the “Commitment Period”). During the third quarter ended March 31, 2021, we borrowed an additional $3,000,000
against Term Note A for the purpose of repurchasing our common stock as described in Note 12. The Term Note B had a zero balance as of
the Closing Date and we borrowed the full $1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements
to the Franklin property described in Note 3.
The
Term Loan A matures on November 1, 2027 and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan A of
interest only are due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month
thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan
A of approximately $97,000 plus any additional accrued and unpaid interest through the date of payment. The balance owed on Term Loan
A as of June 30, 2021, is $6,716,000.
The
Term Loan B matures on November 1, 2027 and bears interest at a fixed rate of 3.84% per annum. Initial payments on the Term Loan B of
interest only are due on December 1, 2020 through June 1, 2021. Commencing July 1, 2021 and continuing on the first day of each month
thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan B of approximately $15,000,
plus any additional accrued and unpaid interest through the date of payment. As of March 31, 2021, we had drawn fully against Term Note
B and the balance outstanding on Term Note B was $1,000,000 on June 30, 2021.
The
Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2021, unless earlier terminated pursuant
to its terms, and bears interest at an annual rate equal to the greater of (a) 3.25% or (b) the prime rate as published in the Money Rates
section of the Wall Street Journal. Commencing on the first day of each month after we initially borrow against the Revolving Loan and
each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Revolving Loan through the date of
payment. Any principal on the Revolving Loan that is not previously prepaid shall be due and payable in full on the maturity date (or
earlier termination of the Revolving Loan). No amounts have been drawn against the Revolving Loan.
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.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled
principal maturities of our loans, exclusive of unamortized loan origination fees, for future fiscal years ending June 30 are as follows
(in thousands):
|
|
|
Term Loan
Principal Payments
|
|
Fiscal Year:
|
|
|
|
|
|
2022
|
|
|
$
|
1,260
|
|
2023
|
|
|
|
1,293
|
|
2024
|
|
|
|
1,344
|
|
2025
|
|
|
|
1,396
|
|
2026
|
|
|
|
1,451
|
|
Thereafter
|
|
|
|
6,091
|
|
Total principal payments
|
|
|
$
|
12,835
|
|
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 which 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 $3.3 million.
Our operating lease ROU asset
and long-term liability are presented separately on our balance sheet. The current portion of our operating lease liability, exclusive
of imputed interest, as of June 30, 2021, in the amount of $344,000, is presented within accrued expenses on the balance sheet. As of
June 30, 2021, the maturity of our lease liability is as follows:
|
|
|
Operating Lease
|
|
Fiscal Year:
|
|
|
|
|
|
2022
|
|
|
$
|
489
|
|
2023
|
|
|
|
504
|
|
2024
|
|
|
|
519
|
|
2025
|
|
|
|
535
|
|
2026
|
|
|
|
551
|
|
Thereafter
|
|
|
|
710
|
|
Total lease payments
|
|
|
|
3,308
|
|
Less imputed interest:
|
|
|
|
(531
|
)
|
Total
|
|
|
$
|
2,777
|
|
As of June 30, 2021, our operating
lease has a remaining lease term of six years and three months and an imputed interest rate of 5.3%. Cash paid for amounts included in
the lease liability for the fiscal years ended June 30, 2021 and 2020 was $475,000 and $461,000, respectively.
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
Leases
We lease our office, production,
and warehouse facility in Irvine, California (our “corporate office”) under an agreement that expires in September 2027. Our
corporate office lease requires us to pay insurance, taxes, and other expenses related to the leased space.
Rent expense in fiscal 2021
and 2020 was $558,000 and $561,000, respectively.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation Arrangements
Retirement Savings 401(k) Plan
The Pro-Dex, Inc. Retirement
Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees
and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Employees are eligible to participate
in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first day of each calendar quarter.
Participants are eligible to receive non-discretionary matching contributions by the Company equal to 25% of their contributions up to
5% of eligible compensation. For the fiscal years ended June 30, 2021 and 2020, we recognized compensation expense amounting to $81,000
and $67,000, respectively, in connection with the 401(k) Plan. During our fiscal years ended June 30, 2021 and 2020, we used approximately
$17,000 and $7,000, respectively, of forfeited match contributions to reduce our match expense.
Legal Matters
On August 24, 2021, one of our
customers, through its counsel, sent notice that it is seeking indemnification from Pro-Dex regarding a pending complaint filed by a third-party
claiming patent infringement on one of the products which we manufacture for this customer. As of the date of this filing, we have not
accrued any losses relating to this matter nor have we completed our assessment of the claims made against our customer.
In addition to the above matter,
we may be involved in 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 or adverse.
|
9.
|
SHARE-BASED COMPENSATION
|
Stock Option Plans
Through 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 1,500,000 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.
Former Stock Option Plans
No options were granted under
the Former Stock Option Plans during the fiscal years ended June 30, 2021 and 2020. As of June 30,
2021, there was no unrecognized compensation cost under the Former Stock Option Plans as all outstanding
stock options are fully vested. The intrinsic value of stock options outstanding and exercisable at June 30, 2021, was approximately $906,000
with a weighted-average remaining contractual term of 0.43 years at June 30, 2021.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock option activity under the Former
Stock Option Plans for the fiscal years ended June 30, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at July 1,
|
|
|
54,000
|
|
|
$
|
1.86
|
|
|
|
54,000
|
|
|
$
|
1.86
|
|
Options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Options exercised
|
|
|
(22,500
|
)
|
|
|
1.94
|
|
|
|
—
|
|
|
|
—
|
|
Options forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at end of period
|
|
|
31,500
|
|
|
$
|
1.81
|
|
|
|
54,000
|
|
|
$
|
1.86
|
|
Stock Options Exercisable at June 30,
|
|
|
31,500
|
|
|
$
|
1.81
|
|
|
|
54,000
|
|
|
$
|
1.86
|
|
Performance Awards
In December 2017, the Compensation
Committee of our Board of Directors granted 200,000 performance awards to our employees, which upon vesting will generally be paid in
shares of our common stock. Whether any performance awards vest, and the amount that does vest, is tied to the completion of service periods
that range from 7 months to 9.5 years at inception and the achievement of our common stock trading at certain pre-determined prices. The
weighted-average fair value of the performance awards granted was $4.46, calculated using the weighted-average fair market value for each
award, using a Monte Carlo simulation. In February 2020, the Compensation Committee reallocated 48,000 previously forfeited awards, having
the same remaining terms and conditions, to certain current employees. The weighted average fair value of the performance awards granted
in fiscal 2020 was $16.90, calculated using the weighted-average fair market value for each award, using a Monte Carlo simulation. We
recorded share-based compensation expense of $84,000 and $279,000 for the fiscal years ended June 30, 2021 and 2020, respectively, related
to these performance awards. On June 30, 2021, there was approximately $160,000 of unrecognized compensation cost related to these non-vested
performance awards expected to be expensed over the weighted-average period of 2.98 years.
On July 1, 2020, it was determined
by the Compensation Committee that the second of five tranches of the performance awards had been achieved and participants were awarded
40,000 shares of common stock. Each participant elected a net issuance to cover their individual withholding taxes in the amount of $259,000
and therefore we issued 25,629 shares with an effective date of July 16, 2020, coinciding with the pay date that included July 1, 2020.
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 completion of service periods that
range from 18 months to 10.5 years at inception and the achievement of our common stock trading at certain pre-determined prices. We recorded
compensation expense of $624,000 for the fiscal year ended June 30, 2021, related to these options. The weighted average fair value of
the stock option awards granted was $16.72, calculated using a Monte Carlo simulation. As of June 30, 2021 there was approximately $4.2
million of unrecognized compensation cost related to these non-vested non-qualified stock options.
In February 2021, the Compensation
Committee of our Board of Directors granted 62,000 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 completion of service periods that range
from 4 months to 1.3 years at inception and the achievement of our common stock trading at certain pre-determined prices. Of these 62,000
stock options, 57,750 vested on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying agreements.
We recorded compensation expense of $182,000 for the fiscal year ended June 30, 2021 related to these options. The weighted average fair
value of the stock option awards granted was $3.16, calculated using a Monte Carlo simulation.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of non-qualified stock option activity under
the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2021:
|
|
2021
|
|
|
|
Number of Shares
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at July 1,
|
|
|
—
|
|
|
$
|
—
|
|
Options granted
|
|
|
372,000
|
|
|
|
41.83
|
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
Options forfeited
|
|
|
(25,500
|
)
|
|
|
41.83
|
|
Outstanding at end of period
|
|
|
346,500
|
|
|
$
|
41.83
|
|
Stock Options Exercisable at June 30,
|
|
|
—
|
|
|
$
|
—
|
|
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 offering and purchase periods of six months, and bases the pricing at which participant’s
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,
aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP. The ESPP was approved by our shareholders at our 2014 Annual
Meeting. On February 2, 2015, the Company filed a Registration Statement on Form S-8 registering the 704,715 shares issuable under the
ESPP under the Securities Act of 1933.
During the fiscal years ended
June 30, 2021 and 2020, shares totaling 2,677 and 2,920, respectively, were purchased pursuant to the ESPP and allocated to participating
employees based upon their contributions at weighted- average prices of $21.47 and $13.25, respectively. On a cumulative basis, since
the inception of the ESPP, employees have purchased a total of 24,463 shares. During the fiscal years ended June 30, 2021 and 2020, we
recorded stock compensation expense in the amount of $10,000 and $7,000, respectively, relating to the ESPP.
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
10.
|
MAJOR CUSTOMERS & SUPPLIERS
|
Customers that
accounted for more than 10% of our total sales in either
of fiscal year 2021 or 2020, is as follows (in thousands, except percentages):
|
|
Years Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
Amount
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
38,029
|
|
|
|
100
|
%
|
|
$
|
34,834
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
22,163
|
|
|
|
58
|
%
|
|
$
|
22,675
|
|
|
|
65
|
%
|
Customer 2
|
|
|
10,122
|
|
|
|
27
|
%
|
|
|
5,869
|
|
|
|
17
|
%
|
Customer 3
|
|
|
2,158
|
|
|
|
6
|
%
|
|
|
3,499
|
|
|
|
10
|
%
|
Total
|
|
$
|
34,443
|
|
|
|
91
|
%
|
|
$
|
32,043
|
|
|
|
92
|
%
|
Information with respect to
accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2021 or June
30, 2020 is as follows (in thousands, except percentages):
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Total gross accounts receivable
|
|
$
|
10,935
|
|
|
|
100
|
%
|
|
$
|
5,161
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer 1
|
|
$
|
6,666
|
|
|
|
61
|
%
|
|
$
|
2,205
|
|
|
|
42
|
%
|
Customer 2
|
|
|
3,710
|
|
|
|
34
|
%
|
|
|
1,593
|
|
|
|
31
|
%
|
Customer 3
|
|
|
—
|
|
|
|
—
|
|
|
|
972
|
|
|
|
19
|
%
|
Total
|
|
$
|
10,376
|
|
|
|
95
|
%
|
|
$
|
4,770
|
|
|
|
92
|
%
|
During fiscal 2021 and 2020,
we had two suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages):
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Total inventory purchases
|
|
$
|
13,844
|
|
|
|
100
|
%
|
|
$
|
12,829
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier 1
|
|
$
|
2,158
|
|
|
|
16
|
%
|
|
$
|
2,444
|
|
|
|
19
|
%
|
Supplier 2
|
|
|
2,238
|
|
|
|
16
|
%
|
|
|
1,971
|
|
|
|
15
|
%
|
Total
|
|
$
|
4,396
|
|
|
|
32
|
%
|
|
$
|
4,415
|
|
|
|
34
|
%
|
Information with respect to
accounts payable due to these suppliers at June 30, 2021 and June 30, 2020 is as follows (in thousands, except percentages):
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Total accounts payable
|
|
$
|
2,288
|
|
|
|
100
|
%
|
|
$
|
1,965
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplier 1
|
|
$
|
225
|
|
|
|
10
|
%
|
|
$
|
245
|
|
|
|
13
|
%
|
Supplier 2
|
|
|
206
|
|
|
|
9
|
%
|
|
|
161
|
|
|
|
8
|
%
|
Total
|
|
$
|
431
|
|
|
|
19
|
%
|
|
$
|
406
|
|
|
|
21
|
%
|
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We calculate
basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period.
Diluted earnings per share reflects the effects of potentially dilutive securities. The summary of the basic and diluted earnings per
share calculations for the years ended June 30, 2021 and 2020 is as follows (in thousands, except per share data):
|
|
Years Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
Basic:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,450
|
|
|
$
|
6,112
|
|
Weighted-average shares outstanding
|
|
|
3,797
|
|
|
|
3,911
|
|
Basic earnings per share
|
|
$
|
1.17
|
|
|
$
|
1.56
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,450
|
|
|
$
|
6,112
|
|
Weighted-average shares outstanding
|
|
|
3,797
|
|
|
|
3,911
|
|
Effect of dilutive securities – stock options & performance awards
|
|
|
139
|
|
|
|
167
|
|
Weighted-average shares used in calculation of diluted earnings per share
|
|
|
3,936
|
|
|
|
4,078
|
|
Diluted earnings per share
|
|
$
|
1.13
|
|
|
$
|
1.50
|
|
|
12.
|
COMMON STOCK – Share Repurchase Program
|
In December 2019, our Board
approved a new share repurchase program authorizing us to repurchase up to one 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 fiscal year ended
June 30, 2021, we repurchased 216,171 shares at an aggregate cost, inclusive of fees under the Plan, of $5.5 million. During the fiscal
year ended June 30, 2020, we repurchased 231,274 shares at an aggregate cost, inclusive of fees under the Plan, of $3.4 million. On a
cumulative basis, we have repurchased a total of 1,035,496 shares under the share repurchase programs at an aggregate cost, inclusive
of fess under the Plan, of $14.0 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
On August 24, 2021, one of our
customers, through its counsel, sent notice that it is seeking indemnification from Pro-Dex regarding a pending complaint filed by a third-party
claiming patent infringement on one of the products which we manufacture for this customer. As of the date of this filing, we have not
accrued any losses relating to this matter nor have we completed our assessment of the claims made against our customer.