The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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 presented in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2022. In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that
may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual
Report on Form 10-K for the year ended June 30, 2022.
NOTE 2. DESCRIPTION OF BUSINESS
We specialize in the design, development
and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic,
thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which
appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries.
In
August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000
square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order
to allow for the continued growth of our business. The condensed consolidated financial statements include the accounts of the Company
and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations.
NOTE 3. 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, | |
| |
2022 | | |
2021 | |
Net Sales: | |
| | | |
| | |
Over-time revenue recognition | |
$ | 907 | | |
$ | 196 | |
Point-in-time revenue recognition | |
| 10,180 | | |
| 9,792 | |
Total net sales | |
$ | 11,087 | | |
$ | 9,988 | |
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, 2022 and 2021,
we recorded $551,000 and $0, respectively, of revenue that had been included in deferred revenue in the prior year. The revenue recognized
from the contract liabilities consisted of satisfying our performance obligations during the normal course of business. Our entire deferred
revenue balance of $851,000 at September 30, 2022, is currently expected to be recognized in the next 12-months.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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, | |
| |
2022 | | |
2021 | |
Contract assets beginning balance | |
$ | 710 | | |
$ | 212 | |
Expenses incurred during the year | |
| 333 | | |
| 96 | |
Amounts reclassified to cost of sales | |
| (448 | ) | |
| (111 | ) |
Amounts allocated to discounts for standalone selling price | |
| (8 | ) | |
| (12 | ) |
Contract assets ending balance | |
$ | 587 | | |
$ | 185 | |
| |
As of and for the Three Months Ended September 30, | |
| |
2022 | | |
2021 | |
Contract liabilities beginning balance | |
$ | 1,013 | | |
$ | 150 | |
Payments received from customers | |
| 389 | | |
| 143 | |
Amounts reclassified to revenue | |
| (551 | ) | |
| — | |
Contract liabilities ending balance | |
$ | 851 | | |
$ | 293 | |
NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT
ITEMS
Investments
Investments
are stated at fair market value and consist of the following (in thousands):
Schedule of investments | |
| | |
| |
| |
September 30, 2022 | | |
June 30, 2022 | |
Marketable equity securities - short-term | |
$ | 813 | | |
$ | 755 | |
Marketable equity securities - long-term | |
| 1,889 | | |
| 1,779 | |
Total marketable equity securities | |
$ | 2,702 | | |
$ | 2,534 | |
Investments
at September 30, 2022 and June 30, 2022 had an aggregate cost basis of $2,714,000 and $2,796,000,
respectively. We classified certain investments as long-term in nature because if we decide to sell these securities we may not be able
to sell our position within one year. At September 30, 2022, the investments included unrealized losses of $12,000 (gross
unrealized losses of $325,000 offset by gross unrealized gains of $313,000). At June 30, 2022, the
investments included net unrealized losses of $262,000 (gross unrealized losses of $369,000 offset by gross unrealized gains of $107,000).
Of
the total marketable equity securities at September 30, 2022 and June 30, 2022, $813,000 and $755,000, respectively, represent an investment
in the common stock of Air T, Inc. Two of our Board members are also board members of Air T, Inc. and both either individually or through
affiliates own an equity interest in Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive
Officer and Chairman of Air T, Inc. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares were purchased
through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved
by our then three Board members that are not affiliated with Air T, Inc.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
We invest surplus cash from time
to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors,
Mr. Cabillot and Mr. Swenson, who chairs the committee. Both Mr. Cabillot and Mr. Swenson are active investors with extensive portfolio
management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus
operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs.
Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies
whose boards they sit on, such as Air T, Inc.
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, 2022 | | |
June 30,
2022 | |
Raw materials/purchased components | |
$ | 7,641 | | |
$ | 6,323 | |
Work in process | |
| 4,104 | | |
| 3,463 | |
Sub-assemblies/finished components | |
| 2,183 | | |
| 2,118 | |
Finished goods | |
| 1,736 | | |
| 774 | |
Total inventory | |
$ | 15,664 | | |
$ | 12,678 | |
Intangibles
Intangibles consist
of the following (in thousands):
Schedule of intangibles | |
| | | |
| | |
| |
September 30, 2022 | | |
June 30, 2022 | |
Patent-related costs | |
$ | 208 | | |
$ | 208 | |
Less accumulated amortization | |
| (100 | ) | |
| (90 | ) |
| |
$ | 108 | | |
$ | 118 | |
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. Future amortization expense is estimated to be $27,000 for the balance of fiscal 2023 and annually through
fiscal 2026. All remaining costs are expected to be fully amortized within 3 years and nine months.
NOTE 5. WARRANTY
The
warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in
accrued expenses in the accompanying balance sheets. As of September 30, 2022 and June 30, 2022, the warranty reserve amounted to $366,000
and $340,000, respectively. 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.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Information regarding the accrual
for warranty costs for the three months ended September 30, 2022 and 2021 are as follows (in thousands):
Schedule of accrual warranty costs | |
| | | |
| | |
| |
As of and for the Three Months Ended September 30, | |
| |
2022 | | |
2021 | |
Beginning balance | |
$ | 340 | | |
$ | 221 | |
Accruals during the period | |
| 54 | | |
| 32 | |
Changes in estimates of prior period warranty accruals | |
| 14 | | |
| (8 | ) |
Warranty amortization/utilization | |
| (42 | ) | |
| (13 | ) |
Ending balance | |
$ | 366 | | |
$ | 232 | |
NOTE 6. 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 and performance awards.
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 weighted average shares outstanding calculation of basic and diluted per share | |
| | | |
| | |
| |
Three Months Ended September 30, | |
| |
2021 | | |
2021 | |
Basic: | |
| | | |
| | |
Net income | |
$ | 1,076 | | |
$ | 1,064 | |
Weighted-average shares outstanding | |
| 3,616 | | |
| 3,651 | |
Basic earnings per share | |
$ | 0.30 | | |
$ | 0.29 | |
Diluted: | |
| | | |
| | |
Net income | |
$ | 1,076 | | |
$ | 1,064 | |
Weighted-average shares outstanding | |
| 3,616 | | |
| 3,651 | |
Effect of dilutive securities | |
| 79 | | |
| 126 | |
Weighted-average shares used in calculation of diluted earnings per share | |
| 3,695 | | |
| 3,777 | |
Diluted earnings per share | |
$ | 0.29 | | |
$ | 0.28 | |
NOTE 7. 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 recognize accrued interest and
penalties related to unrecognized tax benefits when applicable. As of September 30, 2022 and 2021,
we recognized accrued interest of $5,000 and $51,000, respectively, related to unrecognized tax benefits. Our effective tax rate
for the three months ended September 30, 2022 and 2021, is 17% and 22%, 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 (see Note 8).
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
We
are subject to U.S. federal income tax, as well as income
tax of multiple state tax jurisdictions. We are currently open to audit
under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2019 and later. Our state income tax returns
are open to audit under the statute of limitations for the years ended June 30, 2018 and
later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to
audit. We do not anticipate a significant change to the
total amount of unrecognized tax benefits within the next 12 months.
NOTE 8. SHARE-BASED COMPENSATION
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 Directors’ 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.
As of September 30, 2022, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive
Plan.
Former Stock Option Plans
There were no stock options granted
during the three months ended September 30, 2022 and 2021. As of September
30, 2022, there was no unrecognized compensation cost under our Former Stock Option Plans as all outstanding
stock options under those plans are fully vested. As of September 30, 2022, there were 1,500 options outstanding under our Former
Stock Option Plans at a weighted-average exercise price of $2.14 per share. These outstanding options had a weighted-average remaining
contractual life of 0.35 years and an intrinsic value of $23,000. During the first quarter ended September 30, 2022 and 2021, 5,000 and
25,000 options under our Former Stock Option Plans were exercised, at exercise prices of $1.73 and $1.80 per share, respectively.
Performance Awards
In December 2017, the Compensation
Committee of our Board of Directors granted 200,000 performance awards to our employees under our 2016 Equity Incentive Plan, which will
generally be paid in shares of our common stock. Whether any performance awards vest, and the amount that does vest, is tied to 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 employees. The weighted-average fair value of the performance awards
reallocated in 2020 was $16.90, calculated using the weighted-average fair market value for each award, using a Monte Carlo simulation.
In December 2021, the Compensation Committee reallocated an additional 17,500 previously forfeited awards, having the same remaining terms
and conditions, to other employees. The weighted average fair value of the performance awards reallocated in 2021 was $20.34, calculated
using the weighted average fair market value for each award, using a Monte Carlo simulation. We recorded share-based compensation expense
of $30,000 and $21,000 for the three months ended September 30, 2022 and 2021, respectively, related to these performance awards. On September
30, 2022, there was approximately $292,000 of unrecognized compensation cost related to these non-vested performance awards, which is
expected to be expensed over the weighted-average period of 2.76 years.
On July 1, 2022, it was determined
by the Compensation Committee of our Board of Directors that the vesting of performance awards for 37,500 shares of common stock had been
achieved. Each participant elected a net issuance to cover their individual withholding taxes and therefore we issued 23,641 shares and
paid $223,000 of participant-related payroll tax liabilities.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
Non-Qualified Stock Options
In December 2020, the Compensation
Committee of our Board of Directors granted 310,000 non-qualified stock options to our directors and certain employees under the 2016
Equity Incentive Plan. The vesting of these stock options 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 $171,000 and $274,000 for the three months ended September 30, 2022 and 2021, respectively, 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 September 30, 2022, none of
these stock options had vested and there was approximately $2.9 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. The vesting of these stock options 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 and the required service periods
were already satisfied. The weighted-average fair value of the stock option awards granted was $3.16, calculated using a Monte Carlo simulation.
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 to purchase shares of our common
stock on a formula so as to result in a per-share purchase price that approximates a 15% discount from the market price of a share of
our common stock at the end of the purchase period. The 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.
During the first quarters ended
September 30, 2022 and 2021, 2,503 and 1,130 shares were purchased, respectively, under the ESPP and allocated to employees based upon
their contributions at discount prices of $13.52 and $26.17, respectively, per share. On a cumulative basis, since the inception of the
ESPP plan, employees have purchased a total of 29,542 shares. During the three months ended September 30, 2022 and 2021, we recorded stock
compensation expense in the amount of $6,000 and $5,000, respectively, relating to the ESPP.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 9. 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,
2022 and 2021 is as follows (in thousands, except percentages):
Schedule of sales by major customers | |
| | | |
| | | |
| | | |
| | |
| |
Three
Months Ended September 30, | |
| |
2022 | | |
2021 | |
| |
Amount | | |
Percent
of
Total | | |
Amount | | |
Percent
of
Total | |
| |
| | |
| | |
| | |
| |
Total revenue | |
$ | 11,087 | | |
| 100 | % | |
$ | 9,988 | | |
| 100 | % |
| |
| | | |
| | | |
| | | |
| | |
Customer concentration: | |
| | | |
| | | |
| | | |
| | |
Customer 1 | |
$ | 7,481 | | |
| 68 | % | |
$ | 6,991 | | |
| 70 | % |
Customer 2 | |
| 2,156 | | |
| 19 | % | |
| 879 | | |
| 9 | % |
Total | |
$ | 9,637 | | |
| 87 | % | |
$ | 7,870 | | |
| 79 | % |
Information
with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either
September 30, 2022 and June 30, 2022 is as follows (in thousands, except percentages):
Schedule of accounts receivable of major customers | |
| | | |
| | | |
| | | |
| | |
| |
September
30, 2022 | | |
June
30, 2022 | |
Total gross accounts receivable | |
$ | 11,047 | | |
| 100 | % | |
$ | 15,384 | | |
| 100 | % |
| |
| | | |
| | | |
| | | |
| | |
Customer concentration: | |
| | | |
| | | |
| | | |
| | |
Customer 1 | |
$ | 9,055 | | |
| 82 | % | |
$ | 11,551 | | |
| 75 | % |
Customer 2 | |
| 1,890 | | |
| 17 | % | |
| 2,152 | | |
| 14 | % |
Total | |
$ | 10,945 | | |
| 99 | % | |
$ | 13,703 | | |
| 89 | % |
During the three months ended September
30, 2022 and 2021, we had three suppliers that each accounted for more than 10% of total inventory purchases.
NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS
Minnesota Bank & Trust (“MBT”)
On
November 6, 2020 (the “Closing Date”), PDEX Franklin, a newly created wholly owned subsidiary of the Company, purchased an
approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”). A portion of the purchase
price was financed by a loan from MBT to PDEX Franklin in the principal amount of approximately $5.2 million (the “Property Loan”)
pursuant to a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT (the “Property Loan Agreement”)
and corresponding Term Note (the “Property Note”) issued by PDEX Franklin in favor of MBT on the Closing Date. The Property
Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture
Filing in favor of MBT (the “Deed”) and by an Assignment of Leases and Rents by PDEX Franklin in favor of MBT (the “Rents
Assignment”). We paid loan origination fees to MBT on the Closing Date in the amount of $26,037.
PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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 September 30, 2022
was $4,889,000.
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 shares of our common stock. 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.
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 were 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 September 30, 2022, was $5,556,000.
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 $827,000 on September 30, 2022.
The
Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2023, unless earlier terminated pursuant
to its terms, and bears interest at an annual rate equal to the greater of (a) 2.75% or (b) the prime rate minus 0.5% 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). The full $2,000,000 was drawn and outstanding on the Revolving Loan as of September 30,
2022.
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE 11. 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 Rule 10b5-1 under the Securities Exchange
Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the quarter ended September 30, 2022, we repurchased
20,853 shares at an aggregate cost, inclusive of fees under the plan, of $354,000. During the quarter ended September 30, 2021, we repurchased
3,616 shares at an aggregate cost, inclusive of fees under the plan, of $95,000. On a cumulative basis since 2013, we have repurchased
a total of 1,131,599 shares under the share repurchase programs at an aggregate cost, inclusive of fees, of $16.0 million. All repurchases
under the 10b5-1 Plans were administered through an independent broker.
NOTE 12. 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, 2022, in the amount of $388,000, is presented within accrued expenses on the condensed consolidated
balance sheet.
As of September 30, 2022, our operating
lease has a remaining lease term of five years and an imputed interest rate of 5.53%. Cash paid for amounts included in the lease liability
was $123,000 for the three months ended September 30, 2022, excluding $12,000 paid for common area maintenance charges.
As of September 30, 2022, the maturity
of our lease liability is as follows (in thousands):
Schedule of Maturities of Lease Liabilities | | |
| | |
| | |
Operating Lease | |
Fiscal Year: | | |
| | |
2023 | | |
$ | 381 | |
2024 | | |
| 519 | |
2025 | | |
| 535 | |
2026 | | |
| 551 | |
2027 | | |
| 567 | |
Thereafter | | |
| 143 | |
Total lease payments | | |
| 2,696 | |
Less imputed interest | | |
| (353 | ) |
Total | | |
$ | 2,343 | |
NOTE 13. COMMITMENTS AND CONTINGENCIES
Legal Matters
We may be involved from time to
time 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.