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What changed in PRO DEX INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PRO DEX INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+154 added−145 removedSource: 10-K (2023-10-13) vs 10-K (2022-09-08)

Top changes in PRO DEX INC's 2023 10-K

154 paragraphs added · 145 removed · 123 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

26 edited+4 added−2 removed27 unchanged
Biggest changeWe consider the turnover rate a valuable metric to measure the effectiveness of our programs and to assist in developing new programs. Employees At June 30, 2022, we had 135 employees, one of whom is part-time, working at either our corporate office in Irvine, California or our Franklin office in Tustin, California and one employee working remotely out of state.
Biggest changeOur employee turnover for the fiscal years ended June 30, 2023 and 2022 was 16% and 14%, respectively. We consider the turnover rate a valuable metric to measure the effectiveness of our programs and to assist in developing new programs.
We have certain federally registered trademarks relating to our products, including Pro-Dex ® , along with a number of other common law trademarks. We have not entered into any franchising agreements. We have not granted, nor do we hold any third-party licenses having terms under which we earn revenue or incur expense in material amounts.
We have certain federally registered trademarks relating to our products, including Pro-Dex ® , along with a number of other common law trademarks. We have not entered into any franchising agreements. We have not granted, nor do we hold any, third-party licenses having terms under which we earn revenue or incur expense in material amounts. 6
We consider our relationships with our employees to be good. Government Regulations The manufacture and distribution of medical devices are subject to state and federal requirements set forth by various agencies, including the FDA, and state medical boards. The statutes, regulations, administrative orders, and advisories that affect our businesses are complex and subject to diverse, often conflicting, interpretations.
We consider our relationships with our employees to be good. 5 Government Regulations The manufacture and distribution of medical devices are subject to state and federal requirements set forth by various agencies, including the FDA, and state medical boards. The statutes, regulations, administrative orders, and advisories that affect our businesses are complex and subject to diverse, often conflicting, interpretations.
Several of our competitors have significantly greater name recognition, as well as substantially greater financial, technical, product development, and marketing resources, than us. 3 We compete in all of our markets with other major medical device companies. As a provider of outsourced services, we also compete with our customers’ own internal development and manufacturing groups.
Several of our competitors have significantly greater name recognition, as well as substantially greater financial, technical, product development, and marketing resources, than us. We compete in all of our markets with other major medical device companies. As a provider of outsourced services, we also compete with our customers’ own internal development and manufacturing groups.
Also, there can be no assurance that our products and services will achieve broad market acceptance or will successfully compete with other products targeting the same customers. Research and Development We conduct research and development activities to both maintain and improve our market position.
Also, there can be no assurance that our products and services will achieve broad market acceptance or will successfully compete with other products targeting the same customers. 4 Research and Development We conduct research and development activities to both maintain and improve our market position.
Additionally, we continue to invest in property and equipment as well as personnel to expand our capacity to achieve higher sales volumes. 2 To that end, we purchased the Franklin Property in November 2020. 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.
Additionally, we continue to invest in property and equipment as well as personnel to expand our capacity to achieve higher sales volumes. 3 To that end, we purchased the Franklin Property in November 2020. 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.
We consider our relationships with our suppliers and manufacturers to be good, however, during fiscal 2022 many of our suppliers have increased lead times, experienced delays in shipments and raised prices or temporarily added surcharges.
We consider our relationships with our suppliers and manufacturers to be good, however, during fiscal 2022 and continuing into fiscal 2023, many of our suppliers have increased lead times, experienced delays in shipments and raised prices or temporarily added surcharges.
Management believes that each of our facilities has manufacturing systems and processes that are based on established Quality Management System standards. In addition, we believe that our Irvine, California facility is compliant with applicable Good Manufacturing Practices promulgated by the FDA and is compliant with applicable ISO standards set forth by the International Organization for Standardization.
Management believes that each of our facilities has manufacturing systems and processes that are based on established Quality Management System standards. In addition, we believe that both our Irvine, California and Tustin, California facilities are compliant with applicable Good Manufacturing Practices promulgated by the FDA and are compliant with applicable ISO standards set forth by the International Organization for Standardization.
Our medical device products are sold primarily to original equipment manufacturers and our air motors are sold primarily to a wide range of distributors and end users. In fiscal 2022, our top three customers accounted for 88% of our sales compared to 91% in fiscal 2021.
Our medical device products are sold primarily to original equipment manufacturers and our air motors are sold primarily to a wide range of distributors and end users. In fiscal 2023, our top three customers accounted for 92% of our sales compared to 88% in fiscal 2022.
In certain instances, we may share research and development costs with our customers by billing for non-recurring engineering services often provided for under development portions of certain contracts. Revenue recognized for non-recurring engineering services represented 2% of our revenue in fiscal 2022 and 1% of our revenue in fiscal 2021.
In certain instances, we may share research and development costs with our customers by billing for non-recurring engineering services often provided for under development portions of certain contracts. Revenue recognized for non-recurring engineering services represented 6% of our revenue in fiscal 2023 and 2% of our revenue in fiscal 2022.
In fiscal 2022, we had one customer, included in both medical device and repairs revenue above, that accounted for 66% of sales with our next largest customer accounting for 14% of sales. This compares to fiscal 2021, when these same two customers accounted for 58% and 27%, respectively, of our total sales.
In fiscal 2023, we had one customer, included in both medical device and repairs revenue above, that accounted for 67% of sales with our next largest customer accounting for 16% of sales. This compares to fiscal 2022, when these same two customers accounted for 66% and 14%, respectively, of our total sales.
During the fiscal years ended June 30, 2022 and 2021, we incurred research and development expenses amounting to $3.0 million and $4.4 million, respectively, which costs exclude labor and related expenses of approximately $739,000 and $121,000 in fiscal 2022 and 2021, respectively, that were reimbursed by our customers through billings for non-recurring engineering services.
During the fiscal years ended June 30, 2023 and 2022, we incurred research and development expenses amounting to $2.8 million and $3.0 million, respectively, which costs exclude labor and related expenses of approximately $724,000 and $739,000 in fiscal 2023 and 2022, respectively, that were reimbursed by our customers through billings for non-recurring engineering services.
In order to attract and retain highly qualified employees, we offer the following: · Competitive, reasonable, and equitable compensation programs; · Comprehensive and highly competitive health and welfare benefits to promote our employees’ physical health, as well as a 401(k) plan to support our employees’ financial health; · An Employee Stock Purchase Plan and equity compensation to provide financial value, align employee’s interests with those of our shareholders, and incentivize retention; · Flexible paid vacation and sick time, as well as paid volunteer time; and · Education/tuition reimbursement and referral programs. 4 Our employee turnover for the fiscal years ended June 30, 2022 and 2021 was 14% and 16%, respectively.
In order to attract and retain highly qualified employees, we offer the following: · Competitive, reasonable, and equitable compensation programs; · Comprehensive and highly competitive health and welfare benefits to promote our employees’ physical health, as well as a 401(k) plan to support our employees’ financial health; · An Employee Stock Purchase Plan and equity compensation to provide financial value, align employee’s interests with those of our shareholders, and incentivize retention; · Flexible paid vacation and sick time, as well as paid volunteer time; and · Education/tuition reimbursement and referral programs.
We expect that we will begin operations in the new facility during the third quarter of next fiscal year. Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets.
Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets.
At June 30, 2021, we had 118 employees, one of whom was part time, as well as three temporary employees all working at our corporate office in Irvine, California and one employee working remotely out of state. None of our employees are a party to any collective bargaining agreements with us.
At June 30, 2022, we had 135 employees, one of whom was part-time, working at either our corporate office in Irvine, California or our Franklin office in Tustin, California and one employee working remotely out of state. None of our employees are a party to any collective bargaining agreements with us.
With respect to our own patents, we have no reason to believe that our patents are invalid, and we believe that at least some of our patents cover certain aspects of our products.
We have no reason to believe that our activities infringe upon the intellectual property of any third party. With respect to our own patents, we have no reason to believe that our patents are invalid, and we believe that at least some of our patents cover certain aspects of our products.
The proportion of total sales by type is as follows (in thousands, except percentages): Years Ended June 30, 2022 2021 (In thousands) % of Revenue % of Revenue Medical devices $ 34,004 81 % $ 32,149 85 % Industrial and scientific 919 2 % 854 2 % NRE & Prototypes 1,014 2 % 324 1 % Dental and component 465 1 % 161 — Repairs 6,610 16 % 4,956 13 % Discounts & Other (971 ) (2 %) (415 ) (1 %) Total Sales $ 42,041 100 % $ 38,029 100 % Our medical device products utilize proprietary designs developed by us primarily under exclusive development and supply agreements and are manufactured in our Irvine, California facility, as are our rotary air motors.
The proportion of total sales by type is as follows (in thousands, except percentages): Years Ended June 30, 2023 2022 (In thousands) % of Revenue % of Revenue Medical devices $ 30,740 66 % $ 34,004 81 % Industrial and scientific 865 2 % 919 2 % NRE & Prototypes 2,695 6 % 1,014 2 % Dental and component 257 1 % 465 1 % Repairs 12,617 27 % 6,610 16 % Discounts & Other (1,087 ) (2 %) (971 ) (2 %) Total Sales $ 46,087 100 % $ 42,041 100 % Our medical device products utilize proprietary designs developed by us primarily under exclusive development and supply agreements and are currently machined in our Irvine, California facility, and assembled in our Tustin, California facility, as are our rotary air motors.
Other than as described in Note 10 to the consolidated financial statements contained elsewhere in this report, we are unaware of any reason that would cause us to assert or defend a claim of patent infringement, and such assertion or defense could materially and adversely affect our business and results of operations due to the costs involved.
Although we are currently unaware of any reason that would cause us to assert or defend a claim of patent infringement, any such assertion or defense could materially and adversely affect our business and results of operations due to the costs involved.
In many cases, including our largest customers, disclosure of customer names is prohibited by confidentiality agreements with such entities. We have no plans to discontinue the sales relationships with our existing significant customers. Our business today is almost entirely driven by sales of our medical devices.
In many cases, including our largest customers, disclosure of customer names is prohibited by confidentiality agreements with such entities. We have no plans to discontinue the sales relationships with our existing significant customers, nor does management have any knowledge that any existing significant customer intends to terminate its relationship with us.
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. Our entire backlog at June 30, 2022, as well as certain purchase orders received subsequent to June 30, 2022, are expected to be delivered during fiscal 2023.
At June 30, 2023, we had a backlog of $41.6 million compared with a backlog of $16.5 million at June 30, 2022. 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 expect that we will begin operations in the new facility during the third quarter of next fiscal year. 1 O ur 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 .
We believe the new facility will create additional capacity for our expected continued growth over the next several years. 2 O ur 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 .
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.
We continue to focus a significant percentage of our time and resources on providing outstanding products and service to our valued principal customers.
Food and Drug Administration (“FDA”) Establishment Registration and a State of California Device Manufacturing License (Department of Public Health Food and Drug Branch) with respect to our Irvine, California facility.
Food and Drug Administration (“FDA”) Establishment Registration and a State of California Device Manufacturing License (Department of Public Health Food and Drug Branch) with respect to our Irvine and Tustin, California facilities. In addition, both facilities produce products that are certified to ISO 13485:2016, Medical Device Directive 93/42/EEC – Annex II.
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.
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 substantially completed the build-out of the property during fiscal 2022 and we are actively engaged in various verification and validation activities. We anticipate that upon completion of these validation activities, which includes the validation of a new clean room, we will expand our capacity for the manufacture of batteries and new products.
We substantially completed the build-out of the property during fiscal 2022 and concluded various verification and validation activities during fiscal 2023. We moved our entire assembly and repairs operations to the new facility in the fourth quarter of fiscal 2023 and we are now fully operational in the new facility.
The near-term expiration of the patents, if any, is not expected to cause any change in our revenue-generating operations as the revenue from the products associated with those patents is not material. 5 We have no reason to believe that our activities infringe upon the intellectual property of any third party.
The near-term expiration of the patents, if any, is not expected to cause any change in our revenue-generating operations as changing the legal manufacturer of medical devices is a significant undertaking and the expiration of a patent would offer minimal inducement to make such a change.
Removed
We substantially completed the build-out of the property during fiscal 2022 and we are actively engaged in various verification and validation activities. We anticipate that upon completion of these validation activities, which includes the validation of a new clean room, we will expand our capacity for the manufacture of batteries and new products.
Added
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.
Removed
In addition, our Irvine, California facility produces products that are certified to Medical Device Directive 93/42/EEC – Annex II, including Conformity Assessment through full Quality Management System (“QMS”) excluding Section 4, which indicates that Pro-Dex QMS meets requirements. At June 30, 2022, we had a backlog of $16.5 million compared with a backlog of $9.7 million at June 30, 2021.
Added
We began operations in the new facility during the fourth quarter of fiscal 2023. While we believe that the efforts we completed to bring the facility operational will allow us ample capacity to increase revenues significantly in future years, there can be no assurance that we will increase revenue.
Added
Of our backlog at June 30, 2023, $31.4 million, as well as certain purchase orders received subsequent to June 30, 2023, are expected to be delivered during fiscal 2024 and the balance of $10.2 million is expected to be delivered in fiscal 2025.
Added
Employees At June 30, 2023, we had 146 employees, one of whom was part time, working at our two office locations in California and one employee working remotely out of state.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

32 edited+11 added−3 removed76 unchanged
Biggest changeIn addition to reducing our sales, delayed, reduced, or canceled purchase orders also may result in our inability to recover costs that we incur in anticipation of those orders, such as costs associated with purchased raw materials and write-offs of obsolete inventory. 7 In recent years, we have launched many new medical device products and our estimates of warranty claims are based largely on our previous history from similar legacy products.
Biggest changeIn recent years, we have launched several new medical device products and our estimates of warranty claims are based largely on our previous history from similar legacy products. If actual warranty claims exceed our estimates, it could have an adverse effect on our results of operations and financial condition.
Any such failure or delay could adversely affect our competitive position or could make our current products obsolete. We rely heavily on our proprietary technology, which, if not properly protected or if deemed invalid, could have a material adverse effect on our business, financial condition, and results of operations.
Any such failure or delay could adversely affect our competitive position or could make our current products obsolete. 8 We rely heavily on our proprietary technology, which, if not properly protected or if deemed invalid, could have a material adverse effect on our business, financial condition, and results of operations.
If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of opportunities, develop new products, or otherwise respond to competitive pressures, and our operating results and financial condition could be adversely affected. 10 Our operations are dependent upon our key personnel.
If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of opportunities, develop new products, or otherwise respond to competitive pressures, and our operating results and financial condition could be adversely affected. Our operations are dependent upon our key personnel.
Further, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States. 8 We do not believe that our operations or products infringe on the intellectual property rights of others.
Further, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and are often not enforced as vigorously as those in the United States. We do not believe that our operations or products infringe on the intellectual property rights of others.
Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic.
Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and may continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic.
A substantial portion of our business is derived from our core business area that, if not serviced properly, may result in a material adverse impact upon our business, financial condition, and results of operations. In fiscal 2022, we derived 97% of our revenue from sales of our medical device products and related services.
A substantial portion of our business is derived from our core business area that, if not serviced properly, may result in a material adverse impact upon our business, financial condition, and results of operations. In fiscal 2023, we derived 97% of our revenue from sales of our medical device products and related services.
Changes in the global economic environment have caused, and may cause in the future, a general tightening in the credit markets, lower levels of liquidity, increases in rates of default and bankruptcy, high rates of inflation, and extreme volatility in credit, equity and fixed income markets.
Changes in the global economic environment have caused, and may cause in the future, a general tightening in the credit markets, lower levels of liquidity, increases in rates of default and bankruptcy, high rates of inflation, higher interest rates, and extreme volatility in credit, equity and fixed income markets.
While we intend to hold our investments, until such time as we believe it is appropriate to sell them in accordance with our overall investment policy, we may have unexpected cash requirements that could necessitate the sale of some or all of these marketable securities for a loss.
While we intend to hold our investments, including our investment in Monogram, until such time as we believe it is appropriate to sell them in accordance with our overall investment policy, we may have unexpected cash requirements that could necessitate the sale of some or all of these investments for a loss.
We provide this customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if the COVID-19 pandemic continues to adversely impact the United States and other markets where our products are sold, coupled with the recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from our principal customer.
We provide this customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if the COVID-19 pandemic were to again materially adversely impact the United States and other markets where our products are sold, coupled with any new recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from our principal customer.
If we were to lose a key customer, it would have a material adverse effect on our business, financial condition, and results of operations. In fiscal 2022, our top three customers accounted for 88% of our sales, with our current largest customer accounting for 66% of our sales.
If we were to lose a key customer, it would have a material adverse effect on our business, financial condition, and results of operations. In fiscal 2023, our top three customers accounted for 92% of our sales, with our current largest customer accounting for 67% of our sales.
As of August 12, 2022, two of our directors, Nicholas J. Swenson and Raymond E. Cabillot, directly or indirectly, controlled voting power over approximately 38% (28% and 10%, respectively) of the outstanding shares of our common stock.
As of August 12, 2023, two of our directors, Nicholas J. Swenson and Raymond E. Cabillot, directly or indirectly, controlled voting power over approximately 39% (29% and 10%, respectively) of the outstanding shares of our common stock.
Our ability to achieve or sustain profitability is based on a number of factors, many of which are out of our control, including the material costs for our products and the demand for our products.
We have experienced operating losses in the past. Our ability to achieve or sustain profitability is based on a number of factors, many of which are out of our control, including the material costs for our products and the demand for our products.
As a result, we believe that interim period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not necessarily indicative of future performance for any particular period.
As a result, we believe that interim period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance.
Many of our products are complex and technologically advanced. Such products may, from time to time, be the subject of claims concerning product performance and construction, including warranty and patent infringement claims.
Such products may, from time to time, be the subject of claims concerning product performance and construction, including warranty and patent infringement claims.
In addition, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations. 9 We periodically invest surplus cash in marketable securities and other investments in order to realize a positive return, although there can be no assurance that a positive return will be realized, and we could lose some or all of our investments, which could adversely affect our financial condition and results of operation.
We periodically invest surplus cash in marketable securities and other investments in order to realize a positive return, although there can be no assurance that a positive return will be realized, and we could lose some or all of our investments, which could adversely affect our financial condition and results of operation.
The disclosure of a material weakness, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price, especially if a restatement of financial statements for past periods is required. 13 General Risks The global economic environment may impact our business, financial condition, and results of operations.
The disclosure of a material weakness, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price, especially if a restatement of financial statements for past periods is required.
If more of our employees test positive for COVID-19, or these conditions worsen, or last for an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks, and other risks facing us even prior to the pandemic may be elevated. 6 Risks Related to Our Business and the Industry in Which We Operate A substantial portion of our revenue is derived from a few customers.
If more of our employees test positive for COVID-19, or these conditions worsen, or last for an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks, and other risks facing us even prior to the pandemic may be elevated.
If actual warranty claims exceed our estimates, it could have an adverse effect on our results of operations and financial condition. In recent years, we have completed significant medical device development projects in the CMF and thoracic surgical segments for which we have made estimates of product warranty claims based upon similar, legacy products.
In recent years, we have completed significant medical device development projects in the CMF and thoracic surgical segments for which we have made estimates of product warranty claims based upon similar, legacy products.
Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our operations and business results. Risks Related to COVID-19 The COVID-19 pandemic, or the perception of its effects, could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to COVID-19 The COVID-19 pandemic, or the perception of its effects, could have a material adverse effect on our business, financial condition, and results of operations.
If market conditions or other factors require us to change our strategic direction, we may fail to realize the expected value from one or more of our acquisitions. Our failure to successfully integrate any future acquisitions or realize the expected value from past or future acquisitions could harm our business, financial condition, and results of operations.
If market conditions or other factors require us to change our strategic direction, we may fail to realize the expected value from one or more of our acquisitions.
We continually face the possibility of litigation as either a plaintiff or a defendant (See Note 10 to the consolidated financial statements contained elsewhere in this report). It is not reasonably possible to estimate the awards or damages, or the range of awards or damages, if any, that we might incur in connection with such litigation.
We continually face the possibility of litigation as either a plaintiff or a defendant. It is not reasonably possible to estimate the awards or damages, or the range of awards or damages, if any, that we might incur in connection with such litigation. Many of our products are complex and technologically advanced.
While we make every effort to maintain full compliance with all applicable laws and regulations, we are unable to eliminate the ongoing risk that one or more of our activities may at some point be determined to be non-compliant. The penalties for non-compliance could range from an administrative warning to termination of a portion of our business.
The statutes, regulations, administrative orders, and advisories that affect our businesses are complex and subject to diverse, often conflicting, interpretations. While we make every effort to maintain full compliance with all applicable laws and regulations, we are unable to eliminate the ongoing risk that one or more of our activities may at some point be determined to be non-compliant.
However, there can be no assurance that others will not assert infringement or trade secret claims against us with respect to our current or future products. As an example, see Note 10 to the consolidated financial statements contained elsewhere in this report.
However, there can be no assurance that others will not assert infringement or trade secret claims against us with respect to our current or future products.
We invest a significant portion of our excess capital in marketable securities, including equity securities of publicly traded companies. At June 30, 2022, the fair value of these marketable securities was approximately $2.5 million. Approximately $1.8 million of our investments at June 30, 2022 include equity securities of companies that are thinly traded.
We invest a significant portion of our excess capital in marketable securities, including equity securities of publicly traded companies. At June 30, 2023, the fair value of our investments was approximately $8.7 million. Of that amount $6.2 million relates to an investment in Monogram Orthopaedics Inc.
We have experienced losses in the past, and we cannot be certain that we will sustain our current profitability; we may need additional capital in the future to fund our businesses, which we may not be able to obtain on acceptable terms. We have experienced operating losses in the past.
Our failure to successfully integrate any future acquisitions or realize the expected value from past or future acquisitions could harm our business, financial condition, and results of operations. 10 We have experienced losses in the past, and we cannot be certain that we will sustain our current profitability; we may need additional capital in the future to fund our businesses, which we may not be able to obtain on acceptable terms.
Therefore, it is impossible at this time to predict the ultimate short-term or long-term impact of the pandemic on our business, financial condition, and results of operations. The ability of our employees to work may be significantly impacted by the COVID-19 crisis. Our employees are being affected by the COVID-19 pandemic.
Therefore, it is impossible to predict the future impact of the pandemic on our business, financial condition, and results of operations. 13 The ability of our employees to work may be significantly impacted by the COVID-19 crisis. Substantially all of our employees worked in the office during fiscal 2023.
Acquisitions could require significant capital investments and require us to integrate with companies that have different cultures, management teams, and business infrastructure.
We have acquired, and may acquire in the future, businesses, products, and technologies that complement or expand our current operations. Acquisitions could require significant capital investments and require us to integrate with companies that have different cultures, management teams, and business infrastructure.
The following factors, among others, affect our ability to forecast accurately our sales and production capacity: · Changes in the specific products or quantities our customers order; and · Long lead times and advance financial commitments for components required to complete actual/anticipated customer orders.
The following factors, among others, affect our ability to forecast accurately our sales and production capacity: • Changes in the specific products or quantities our customers order; and • Long lead times and advance financial commitments for components required to complete actual/anticipated customer orders. 7 In addition to reducing our sales, delayed, reduced, or canceled purchase orders also may result in our inability to recover costs that we incur in anticipation of those orders, such as costs associated with purchased raw materials and write-offs of obsolete inventory.
In addition, it is possible that our operating results in future quarters may be below the expectations of public market analysts and investors.
Further, our historical operating results are not necessarily indicative of future performance for any particular period. 11 In addition, it is possible that our operating results in future quarters may be below the expectations of public market analysts and investors. In such an event, the price of our common stock could be materially adversely affected.
The manufacture and distribution of medical devices are subject to state and federal requirements set forth by various government agencies including the FDA and EPA. The statutes, regulations, administrative orders, and advisories that affect our businesses are complex and subject to diverse, often conflicting, interpretations.
Regulatory & Compliance Risks Our operations are subject to a number of complex government regulations, the violation of which could have a material adverse effect on our business. The manufacture and distribution of medical devices are subject to state and federal requirements set forth by various government agencies including the FDA and EPA.
We may not be able to successfully integrate our business acquisitions, which could adversely affect our business, financial condition, and results of operations. We have acquired, and may acquire in the future, businesses, products, and technologies that complement or expand our current operations.
Additionally, these investments are subject to changes in their valuation, which could cause us to record a significant unrealized loss in the future. We may not be able to successfully integrate our business acquisitions, which could adversely affect our business, financial condition, and results of operations.
Management can give no assurance that material weaknesses in internal controls will not be discovered. If a material weakness is discovered, corrective action may be time consuming and costly, and could further divert the attention of management.
Management can give no assurance that material weaknesses in internal controls will not be discovered. The material weakness discovered in conjunction with the preparation of our consolidated financial statements for the fiscal year ended June 30, 2023, as described in Note 2 to the consolidated financial statements contained elsewhere in this report, for example, has been time consuming and costly.
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Some of our office and management personnel were continuing to work remotely during some of fiscal 2022, but our employees engaged in manufacturing and assembly continued and are continuing to work at our corporate headquarters.
Added
Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our operations and business results. Risks Related to Our Business and the Industry in Which We Operate A substantial portion of our revenue is derived from a few customers.
Removed
As such, these investments are classified as long-term in nature, as we may not be able to liquidate the investments in a timely manner even if we wish to sell them.
Added
In addition, we may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations. 9 Our cash and cash equivalents may be exposed to banking institution risk.
Removed
In such an event, the price of our common stock could be materially adversely affected. 11 Regulatory & Compliance Risks Our operations are subject to a number of complex government regulations, the violation of which could have a material adverse effect on our business.
Added
We hold our cash balances with a single financial institution which institution is subject to risks, which may include failure or other circumstances that limit our access to deposits or other banking services.
Added
For example, in March 2023, Silicon Valley Bank (“SVB”) was unable to continue their operations and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver for SVB. However, if further failures in financial institutions occur where we hold deposits, we could experience additional risk.
Added
Any such loss or limitation on our cash and cash equivalents would adversely affect our business. In addition, in such circumstances we might not be able to receive timely payment from customers. We and they may maintain cash balances that are not insured or are in excess of the FDIC’s insurance limit.
Added
Any delay in ours or our customers’ ability to access funds could have a material adverse effect on our operations.
Added
If any parties with which we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to continue to fund their business and perform their obligations to us could be adversely affected, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Added
(“Monogram”) described more fully in Note 5 to the consolidated financial statements contained elsewhere in this report. The investment in Monogram is also the subject of the restatement of our previous financial statements described in Note 2 to the consolidated financial statements contained elsewhere in this report.
Added
Our initial investment in Monogram was an $800,000 loan which we made primarily in exchange for exclusive development and supply rights. At that time, we believed that this long-term strategic investment would likely take several years to cultivate, which it has.
Added
The penalties for non-compliance could range from an administrative warning to termination of a portion of our business.
Added
General Risks The global economic environment may impact our business, financial condition, and results of operations.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe purchased this 25,000 square foot facility in November 2020 from an unrelated third party through a loan (See Note 8 of to the consolidated financial statements contained elsewhere in this report) and while we have moved some staff over there during fiscal 2022, we plan to move our assembly and repairs teams once our validations are completed, currently expected in the third quarter of fiscal 2023.
Biggest changeWe purchased this 25,000 square foot facility in November 2020 from an unrelated third party through a loan (See Note 5 of to the consolidated financial statements contained elsewhere in this report). The building is a one-story, stand-alone structure of concrete “tilt-up” construction, approximately 45 years old and in good condition.
ITEM 2. PROPERTIES Our executive offices and manufacturing facility are located at 2361 McGaw Avenue, Irvine, California 92614. We lease the 28,000 square foot facility from an unrelated third party at a current base monthly lease rate of approximately $41,000 with 3% annual escalations through the expiration of the lease in September 2027.
ITEM 2. PROPERTIES Our executive offices and manufacturing facility are located at 2361 McGaw Avenue, Irvine, California 92614. We lease the 28,000 square foot facility from an unrelated third party at a current base monthly lease rate of approximately $42,000 with 3% annual escalations through the expiration of the lease in September 2027.
The building is a one-story, stand-alone structure of concrete “tilt-up” construction, approximately 30 years old and in good condition. We are currently preparing the Franklin Property, located at 14401 Franklin Avenue, Tustin, California 92780, for our move-in.
The building is a one-story, stand-alone structure of concrete “tilt-up” construction, approximately 45 years old and in good condition. Our Franklin Property, located at 14401 Franklin Avenue, Tustin, California 92780, is used primarily for our assembly and repairs operations.
The building is a one-story, stand-alone structure of concrete “tilt-up” construction, approximately 45 years old and in good condition. We believe that our facilities are adequate for our current and expected future needs and are in full compliance with applicable state, EPA and other agency environmental standards.
We believe that our facilities are adequate for our current and expected future needs and are in full compliance with applicable state, EPA and other agency environmental standards.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth for the quarters indicated the high and low sales prices of our common stock as reported by NASDAQ. The quotations reflect inter-dealer prices, without retail markup, markdown, or commissions, and may not necessarily represent actual transactions.
Biggest changeThe quotations reflect inter-dealer prices, without retail markup, markdown, or commissions, and may not necessarily represent actual transactions. On September 29, 2023, the last sale price of our common stock as reported by NASDAQ was $15.70 per share.
Repurchases During the fourth quarter of fiscal 2022 and 2021, we repurchased 22,532 and 54,880 shares of our common stock, respectively, at an aggregate cost of $350,000 and $1.5 million, respectively, through Board approved prearranged share repurchase plans intended to qualify for the safe harbor under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
Repurchases During the fourth quarter of fiscal 2023 and 2022, we repurchased 0 and 22,532 shares of our common stock, respectively, at an aggregate cost of $0 and $350,000, respectively, through Board approved prearranged share repurchase plans intended to qualify for the safe harbor under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
This number does not include beneficial owners including holders whose shares are held in nominee, or “street,” name. Dividends We have never paid a cash dividend with respect to our common stock. The current policy of our Board of Directors is to retain any future earnings to provide funds for the operation and expansion of our business.
This number does not include beneficial owners including holders whose shares are held in nominee, or “street,” name. Dividends We have never paid a cash dividend with respect to our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is quoted under the symbol “PDEX” on the automated quotation system of the Nasdaq Capital Market (“NASDAQ”).
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is quoted under the symbol “PDEX” on the Nasdaq Capital Market (“NASDAQ”). The following table sets forth for the quarters indicated the high and low sales prices of our common stock as reported by NASDAQ.
High Low Year ended June 30, 2022: First Quarter $ 31.51 $ 23.78 Second Quarter 25.90 20.44 Third Quarter 25.81 15.00 Fourth Quarter 16.51 13.16 Year ended June 30, 2021: First Quarter $ 31.42 $ 17.01 Second Quarter 42.60 26.96 Third Quarter 33.66 21.97 Fourth Quarter 35.80 25.76 Holders As of September 6, 2022, there were 116 holders of record of our common stock.
High Low Year ended June 30, 2023: First Quarter $ 20.25 $ 14.94 Second Quarter 19.93 15.80 Third Quarter 17.71 15.29 Fourth Quarter 19.24 15.50 Year ended June 30, 2022: First Quarter $ 31.51 $ 23.78 Second Quarter 25.90 20.44 Third Quarter 25.81 15.00 Fourth Quarter 16.51 13.16 Holders As of September 29, 2023, there were 120 holders of record of our common stock.
Any determinations to pay dividends in the future will be at the discretion of our Board of Directors.
The current policy of our Board of Directors is to retain any future earnings to provide funds for the operation and expansion of our business or for repurchases of our common stock pursuant to our repurchase plans. Any determinations to pay dividends in the future will be at the discretion of our Board of Directors.
Removed
On September 6, 2022, the last sale price of our common stock as reported by NASDAQ was $19.68 per share.
Removed
Repurchases by us of our common stock by month during the quarter ended June 30, 2022, were as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs April 1, 2022 to April 30, 2022 — — — 737,885 May 1, 2022 to May 31, 2022 16,251 $ 15.41 16,251 721,634 June 1, 2022 to June 30, 2022 6,281 $ 15.89 6,281 715,353 All repurchases were made pursuant to our previously announced repurchase programs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCOVID-19 Pandemic We have adjusted certain policies and procedures based on applicable national, state, and local emergency orders and safety guidance that may be issued from time to time, in order to effectively manage our business during the pandemic, including: · Non-essential employees that are able to work remotely did so during most of fiscal 2021 and some of fiscal 2022; · Increased frequency of disinfectant cleanings, especially for high-touch surfaces; · Curtailed business travel; · Multiple, staggered work shifts have been implemented in order to achieve effective social distancing; · Provided training, education and appropriate personal protective equipment; · Implemented quarterly, then monthly, company-wide COVID-19 testing through June 2021; and · Daily temperature screenings and personal affidavits of wellness.
Biggest changeCOVID-19 Pandemic We have adjusted certain policies and procedures based on applicable national, state, and local emergency orders and safety guidance that may be issued from time to time, in order to effectively manage our business during the pandemic and to keep our employees safe. These measures have changed over time and continue to change as our specific circumstances change.
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 18 Intangibles Other intangibles consist of legal fees incurred in connection with patent applications.
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 Other intangibles consist of legal fees incurred in connection with patent applications.
Cash Flows from Investing Activities Net cash used in investing activities in fiscal 2022 was $1.2 million and related primarily to $1.6 million in purchases of equipment and improvements as well as the purchase of $334,000 of marketable equity securities, offset by $770,000 in proceeds from sales of marketable equity securities.
Net cash used in investing activities in fiscal 2022 was $1.2 million and related primarily to $1.6 million in purchases of equipment and improvements as well as the purchase of $334,000 of marketable equity securities, offset by $770,000 in proceeds from sales of marketable equity securities.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements and the Notes thereto contained elsewhere in this report, as well as the Risk Factors included in Item 1A of this report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto contained elsewhere in this report, as well as the Risk Factors included in Item 1A of this report.
The following discussion contains forward-looking statements. (See “Cautionary Note Regarding Forward-Looking Statements” included in Part I of this report.) Overview The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition for the fiscal years ended June 30, 2022 and 2021.
The following discussion contains forward-looking statements. (See “Cautionary Note Regarding Forward-Looking Statements” included in Part I of this report.) Overview The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition for the fiscal years ended June 30, 2023 and 2022.
Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort. Other Income (Expense) Interest and Dividend Income Our interest and dividend income earned in fiscal 2022 and 2021 includes income earned from our interest-bearing money market accounts and portfolio of equity investments.
Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort. Other Income (Expense) Interest and Dividend Income Our interest and dividend income earned in fiscal 2023 and 2022 includes income earned from our interest-bearing money market accounts and portfolio of equity investments.
Deferred tax assets at June 30, 2022 and 2021 consisted primarily of basis differences related to unrealized gain/loss related to investments, stock-based compensation, fixed assets, accrued expenses and inventories. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Deferred tax assets and liabilities at June 30, 2023 and 2022 consisted primarily of basis differences related to unrealized gain/loss related to investments, stock-based compensation, fixed assets, accrued expenses and inventories. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Gain on Sale of Investments During fiscal 2022, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $770,000 and recording a gain of $28,000.
During fiscal 2022, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $770,000 and recording a gain of $28,000.
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.
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.
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 2022 and 2021 related to these services totaled $0 and $71,000, respectively.
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 2023 and 2022 related to these services totaled $108,000 and $0, respectively.
In fiscal 2022, the revenue from non-recurring engineering (“NRE”) and prototype services represents approximately 2% of total revenue. Returns of our product for credit are not material; accordingly, we do not establish a reserve for product returns at the time of sale.
In fiscal 2023, the revenue from non-recurring engineering (“NRE”) and prototype services represents approximately 6% of total revenue. Returns of our product for credit are not material; accordingly, we do not establish a reserve for product returns at the time of sale.
Revenue Recognition Under Accounting Standards Update (“ASU”) 2014-09, (Topic 606) “ Revenue From Contracts with Customers ,” we recognize revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Actual results may differ from these estimates. 16 Revenue Recognition Under Accounting Standards Update (“ASU”) 2014-09, (Topic 606) “ Revenue From Contracts with Customers ,” we recognize revenue from the sales of products and services by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
Research and development costs represent between 37% and 48% of total operating expenses during fiscal 2021 and 2022 and are expected to increase in the future as we continue to invest in product development.
Research and development costs represent between 37% and 40% of total operating expenses during fiscal 2022 and 2023 and are expected to increase in the future as we continue to invest in product development.
At June 30, 2022, we had a backlog of $16.5 million compared with a backlog of $9.7 million at June 30, 2021. 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.
At June 30, 2023, we had a backlog of $41.6 million compared with a backlog of $16.5 million at June 30, 2022. 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 have experienced, and may continue to experience, variability in our new order bookings due to, among other reasons, the launch of new products, the timing of customer orders based on end-user demand, and customer inventory levels. We do not typically experience seasonal fluctuations in our shipments and revenues.
We have experienced, and may continue to experience, variability in our new order bookings due to, among other reasons, the launch of new products, the timing of customer orders based on end-user demand, and customer inventory levels.
The increase in sales in fiscal 2022 related to component sales of excess inventory directly to our largest customer due to the release of their next generation device. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory.
The decrease is as expected because in fiscal 2022 we sold components of excess inventory directly to our largest customer due to the release of their next generation device. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory.
Income Taxes The effective tax rate for the fiscal years ended June 30, 2022 and 2021, was 18% and 17%, respectively, slightly less than our combined expected federal and applicable state corporate income tax rates due primarily to federal and state research credits.
Income Taxes The effective tax rate for the fiscal years ended June 30, 2023 and 2022 was 26% and 20%, as restated, respectively, slightly less than our combined expected federal and applicable state corporate income tax rates due primarily to federal and state research credits.
The amount spent on projects under development is summarized below (in thousands): Years Ended June 30, Expected Market Launch (1) Estimated Annual Revenue (2) 2022 2021 Dollars in thousands Total Research and Development costs: $ 2,980 $ 4,384 Products in development: ENT Shaver 282 829 Q4 2022 $ 1,000 CMF Driver — 826 (3) $ 1,000 Vital Ventilator 115 191 Q1 2023 $ 1,500 Sustaining & Other 2,583 2,538 Total $ 2,980 $ 4,384 (1) Represents the calendar quarter of expected market launch.
The amount spent on projects under development is summarized below (in thousands): Years Ended June 30, Expected Market Launch (1) Estimated Annual Revenue (2) 2023 2022 Dollars in thousands Total Research and Development costs: $ 2,804 $ 2,980 Products in development: ENT Shaver $ 51 $ 282 Q4 2023 $ 1,000 Vital Ventilator — 115 (3 ) $ 1,500 Sustaining & Other 2,753 2,583 Total $ 2,804 $ 2,980 (1) Represents the calendar quarter of expected market launch.
In fiscal 2022, our engineering department has been engaged in more billable customer projects and therefore costs get shifted to cost of sales instead of research and development. 22 Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products.
In fiscal 2023, our engineering department has continued to be engaged in billable customer projects and therefore those costs are shifted to cost of sales instead of research and development. 20 Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products.
During fiscal 2022, we experienced $877,000 under-absorption of manufacturing costs compared to a $370,000 in fiscal 2021, due primarily to actual production hours being less than planned .
During fiscal 2023, we experienced $1.7 million of under-absorption of manufacturing costs compared to $877,000 in fiscal 2022, due primarily to actual production hours being less than planned .
(2) The products in development include risks that they could be abandoned in the future prior to completion, they could fail to become commercialized, or the actual annual revenue realized may be less than the amount estimated.
(2) The products in development include risks that they could be abandoned in the future prior to completion, they could fail to become commercialized, or the actual annual revenue realized may be less than the amount estimated. (3) We have suspended the vital ventilator project at this time.
Liquidity Requirements for the Next 12 Months As of June 30, 2022, our working capital was $19.8 million.
Liquidity Requirements for the Next 12 Months As of June 30, 2023, our working capital was $21.3 million.
Liquidity and Capital Resources The following table is a summary of our Statements of Cash Flows and Cash and Working Capital as of and for the fiscal years ended June 30, 2022 and 2021: As of and for the Years Ended June 30, 2022 2021 (In thousands) Cash provided by (used in): Operating activities $ (847 ) $ (2,078 ) Investing activities $ (1,235 ) $ (3,710 ) Financing activities $ (790 ) $ 3,088 Cash, cash equivalents and working capital: Cash and cash equivalents $ 849 $ 3,721 Working capital $ 19,812 $ 18,744 Cash Flows from Operating Activities Cash used in operating activities totaled $847,000 during fiscal 2022.
Liquidity and Capital Resources The following table is a summary of our Statements of Cash Flows and Cash and Working Capital as of and for the fiscal years ended June 30, 2023 and 2022: As of and for the Years Ended June 30, 2023 2022 (In thousands) Cash provided by (used in): Operating activities $ 5,462 $ (847 ) Investing activities $ (885 ) $ (1,235 ) Financing activities $ (2,490 ) $ (790 ) Cash, cash equivalents and working capital: Cash and cash equivalents $ 2,936 $ 849 Working capital $ 21,303 $ 19,812 Cash Flows from Operating Activities Cash provided by operating activities during fiscal 2023 totaled $5.5 million.
General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses for corporate, accounting, finance, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and costs associated with being a public company.
Selling expenses increased $64,000, or 70%, compared to fiscal 2022, primarily due to increased sales commissions. General and administrative expenses (“G&A”) consist of salaries and other personnel-related expenses for corporate, accounting, finance, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and costs associated with being a public company.
During the 2021 fiscal year, we generated $4.6 million in proceeds from sales of marketable equity securities under the direction of the Investment Committee of our Board, purchased the Franklin Property for $6.5 million and made capital expenditures in the amount of $1.8 million primarily for the Franklin Property. 24 Cash Flows from Financing Activities Net cash used in financing activities for fiscal 2022 totaled $790,000 and related primarily to the $1.6 million repurchase of 75,250 shares of our common stock pursuant to our share repurchase program, as well as $1.2 million of principal payments primarily related to our various loans from MBT offset by the $2.0 million in new borrowings from MBT more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report.
Net cash used in financing activities for fiscal 2022 totaled $790,000 and related primarily to the $1.6 million repurchase of 75,250 shares of our common stock pursuant to our share repurchase program, as well as $1.2 million of principal payments primarily related to our various loans from MBT offset by the $2.0 million in new borrowings from MBT more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report.
Net cash provided by financing activities for fiscal 2021, totaled $3.1 million and included $9.1 million in various loans from MBT more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report, offset by $5.5 million related to the repurchase of 216,171 shares of our common stock pursuant to our share repurchase program, $351,000 of principal payments on our loans with MBT, as well as payment of $259,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.
Cash Flows from Financing Activities Net cash used in financing activities for fiscal 2023 totaled $2.5 million and included $809,000 in net principal payments of various notes payable to MBT more fully described in Note 8 to the consolidated financial statements contained elsewhere in this report, and $1.5 million related to the repurchase of 86,422 shares of our common stock pursuant to our share repurchase program, as well as payment of $223,000 of employee payroll taxes related to the award of 37,500 shares of common stock to employees under previously granted performance awards.
Thinly traded investments were subject to a valuation analysis as of June 30, 2022 and 2021. Long-lived Assets We review the recoverability of long-lived assets, consisting of building, equipment, and improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable.
Long-lived Assets We review the recoverability of long-lived assets, consisting of building, equipment, and improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable.
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.
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 MBT.
While we have yet to see any decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders.
While we have yet to see any decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders. We are focused on the health and safety of all those we serve – our customers, our communities, our employees, and our suppliers.
Unrealized gain (loss) on marketable equity investments The unrealized gain (loss) on marketable equity investments relates to our investment portfolio more fully described in Note 5 to the consolidated financial statements contained elsewhere in this report.
Unrealized gain (loss) on investments The unrealized gain (loss) on investments relates to our investment portfolio, which is the subject of our restatement described in Note 2 to the consolidated financial statements contained elsewhere in this report.
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. 17 Warranties Most 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.
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.
However, we did not end up experiencing this anticipated decline in our sales because we were able to largely mitigate our biggest concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. In so doing, our cost of sales increased during the third and fourth quarter of fiscal 2022.
We have largely been able to mitigate our biggest supply chain concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. In so doing, our cost of sales increased during the second half of fiscal 2022 and in fiscal 2023.
The proportion of total sales by product/service type is as follows: Years Ended June 30, Increase (Decrease) From 2021 To 2022 2021 2022 Dollars in thousands % of Net Sales % of Net Sales Net sales: Medical devices $ 34,004 81 % $ 32,149 85 % 6 % Industrial and scientific 919 2 % 854 2 % 8 % NRE & Prototype services 1,014 2 % 324 1 % 213 % Dental and component 465 1 % 161 — 189 % Repairs 6,610 16 % 4,956 13 % 33 % Discounts & Other (971 ) (2 %) (415 ) (1 %) 134 % $ 42,041 100 % $ 38,029 100 % 11 % Net sales in fiscal 2022 increased by $4.0 million, or 11%, as compared to fiscal 2021, due primarily to an increase in medical device revenue of $1.9 million as well as a $1.7 million increase in repair revenue.
The proportion of total sales by product/service type is as follows: Years Ended June 30, Increase (Decrease) From 2022 To 2023 2023 2022 Dollars in thousands % of Net Sales % of Net Sales Net sales: Medical devices $ 30,740 66 % $ 34,004 81 % (10 %) Industrial and scientific 865 2 % 919 2 % (6 %) NRE & Prototype services 2,695 6 % 1,014 2 % 166 % Dental and component 257 1 % 465 1 % (45 %) Repairs 12,617 27 % 6,610 16 % 91 % Discounts & Other (1,087 ) (2 %) (971 ) (2 %) 12 % $ 46,087 100 % $ 42,041 100 % 10 % 18 Net sales in fiscal 2023 increased by $4.0 million, or 10%, as compared to fiscal 2022, due primarily to an increase in repair revenue of $6.0 million and an increase in NRE and prototype services of $1.7 million offset by a decrease in medical device revenue of $3.3 million.
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”). 25 During the fiscal year ended June 30, 2022, we repurchased 75,250 shares at an aggregate cost, inclusive of fees under the Plan, of $1.6 million.
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”).
Details of our medical device sales by type is as follows: Years Ended June 30, Increase (Decrease) From 2021 To 2022 2021 2022 Dollars in thousands % of Total % of Total Medical device sales: Orthopedic $ 21,877 64 % $ 18,061 56 % 21 % CMF 10,277 30 % 6,212 19 % 65 % Thoracic 1,850 6 % 7,876 25 % (77 %) Total $ 34,004 100 % $ 32,149 100 % 6 % Sales of our medical device products increased $1.9 million, or 6% during, fiscal 2022 as compared to fiscal 2021.
Details of our medical device sales by type is as follows: Years Ended June 30, Increase (Decrease) From 2022 To 2023 2023 2022 Dollars in thousands % of Total % of Total Medical device sales: Orthopedic $ 19,688 64 % $ 21,877 64 % (10 %) CMF 8,497 28 % 10,277 30 % (17 %) Thoracic 2,555 8 % 1,850 6 % 38 % Total $ 30,740 100 % $ 34,004 100 % (10 %) Sales of our medical device products decreased $3.3 million, or 10%, during fiscal 2023 as compared to fiscal 2022.
Some of our investments include the common stock of public companies that are thinly traded. Certain of these investments are classified as long-term in nature, as we may not be able to liquidate the investments in a timely manner even if we wish to sell them.
Certain of these investments are classified as long-term in nature, as we may not be able to liquidate the investments in a timely manner even if we wish to sell them. Thinly traded investments were subject to a valuation analysis as of June 30, 2023 and 2022.
During fiscal 2021, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $4.6 million and recording a gain of $1.3 million. 23 Interest Expense Interest expense incurred in fiscal 2022 and 2021 consists primarily of interest expense related to our debt with Minnesota Bank & Trust (“MBT”) described more fully in Note 8 to the consolidated financial statements contained elsewhere in this report.
Interest Expense Interest expense incurred in fiscal 2023 and 2022 consists primarily of interest expense related to our debt with Minnesota Bank & Trust (“MBT”) described more fully in Note 8 to the consolidated financial statements contained elsewhere in this report.
Results of Operations for the Fiscal Year Ended June 30, 2022 Compared to the Fiscal Year Ended June 30, 2021 The following tables set forth results from operations for the fiscal years ended June 30, 2022 and 2021: Years Ended June 30, 2022 2021 Dollars in thousands % of Net Sales % of Net Sales Net sales $ 42,041 100 % $ 38,029 100 % Cost of sales 28,909 69 % 24,454 64 % Gross profit 13,132 31 % 13,575 36 % Selling expenses 91 — 590 2 % General and administrative expenses 4,903 12 % 4,076 11 % Loss from disposal of equipment 35 — — — Research and development costs 2,980 7 % 4,384 11 % 8,009 19 % 9,050 24 % Operating income 5,123 12 % 4,525 12 % Other income (loss), net (417 ) (1 %) 2,472 6 % Income before income taxes 4,706 11 % 6,997 18 % Income tax expense 851 2 % 1,176 3 % Net income $ 3,855 9 % $ 5,821 15 % 19 Net Sales The majority of our revenue is derived from designing, developing, and manufacturing powered surgical instruments for medical device original equipment manufacturers.
In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). 17 Results of Operations for the Fiscal Year Ended June 30, 2023 Compared to the Fiscal Year Ended June 30, 2022 The following tables set forth results from operations for the fiscal years ended June 30, 2023 and 2022: Years Ended June 30, 2023 2022 (Restated) Dollars in thousands % of Net Sales % of Net Sales Net sales $ 46,087 100 % $ 42,041 100 % Cost of sales 33,338 72 % 28,909 69 % Gross profit 12,749 28 % 13,132 31 % Selling expenses 155 — 91 — General and administrative expenses 4,028 9 % 4,903 12 % Loss from disposal of equipment — — 35 — Research and development costs 2,804 6 % 2,980 7 % Total operating expenses 6,987 15 % 8,009 19 % Operating income 5,762 13 % 5,123 12 % Other income (loss), net 3,666 7 % 571 1 % Income before income taxes 9,428 20 % 5,694 13 % Income tax expense 2,354 5 % 1,122 2 % Net income $ 7,074 15 % $ 4,572 11 % Net Sales The majority of our revenue is derived from designing, developing, and manufacturing powered surgical instruments for medical device original equipment manufacturers.
Sales of our NRE & proto-type services increased $690,000 or 213% compared to fiscal 2021 and relates to billable engagement for multiple engineering projects. 20 Sales of our dental products and components in fiscal 2022 increased $304,000, or 189%, as compared to fiscal 2021.
Sales of our NRE & prototype services increased $1.7 million or 166% compared to fiscal 2022 and relates to billable engagement for multiple engineering projects. Sales of our dental products and components in fiscal 2023 decreased $208,000, or 45%, as compared to fiscal 2022.
Cost of Sales and Gross Margin Years Ended June 30, Increase (Decrease) From 2021 To 2022 2021 2022 Dollars in thousands % of Net Sales % of Net Sales Cost of sales: Product costs $ 26,296 63 % $ 23,093 60 % 14 % NRE and Prototype services costs 774 2 % 395 1 % 96 % Under (over)-absorption of manufacturing overhead 877 2 % 370 1 % 137 % Inventory and warranty charges 962 2 % 596 2 % 61 % Total cost of sales $ 28,909 69 % $ 24,454 64 % 18 % Cost of sales in fiscal 2022 increased $4.5 million, or 18%, from fiscal 2021, primarily due to the increase in product costs, consistent with the 11% increase in net sales, coupled with higher material and labor costs.
We do not typically experience seasonal fluctuations in our shipments and revenues. 19 Cost of Sales and Gross Margin Years Ended June 30, Increase (Decrease) From 2022 To 2023 2023 2022 Dollars in thousands Cost of sales: % of Net Sales % of Net Sales Product costs $ 29,600 64 % $ 26,296 63 % 13 % NRE and Prototype services costs 1,724 4 % 774 2 % 123 % Under (over)-absorption of manufacturing overhead 1,724 4 % 877 2 % 97 % Inventory and warranty charges 290 — 962 2 % (70 %) Total cost of sales $ 33,338 72 % $ 28,909 69 % 15 % Cost of sales in fiscal 2023 increased $4.4 million, or 15%, from fiscal 2022, primarily due to the increase in product costs, consistent with the 10% increase in net sales, coupled with higher material and labor costs.
Cash used in operating activities during fiscal 2021 totaled $2.1 million. Our net income was $5.8 million and included $1.3 million of gains on the sales of certain equity investments, $1.4 million in unrealized gains on marketable equity investments, as well as $901,000 of non-cash stock compensation.
Cash used in operating activities totaled $847,000 during fiscal 2022. Our net income was $4.6 million and included $931,000 of unrealized gains on certain equity investments, as well as non-cash stock compensation expense and depreciation and amortization expense in the amount of $1.3 million and $726,000, respectively. Additionally, our accounts payable and accrued expenses increased by $2.0 million.
We are focused on the health and safety of all those we serve – our customers, our communities, our employees, and our suppliers. We are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments.
We are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments. We are focused on continuity of supply by working with our suppliers, some of whom have delivered our orders late and are quoting longer lead times.
Our entire backlog at June 30, 2022, as well as certain purchase orders received subsequent to June 30, 2022, are expected to be delivered during fiscal 2023.
Of our backlog at June 30, 2023, $31.4 million, as well as certain purchase orders received subsequent to June 30, 2023, are expected to be delivered during fiscal 2024 and the balance of $10.2 million is expected to be delivered in fiscal 2025.
Costs related to inventory and warranty charges increased $366,000 in fiscal 2022 compared to fiscal 2021, primarily due to sourcing components for our printed circuit board assemblies at prices higher than usual . 21 Operating Expenses Years Ended June 30, Increase (Decrease) From 2021 To 2022 2021 2022 (Dollars in thousands) % of Net Sales % of Net Sales Operating expenses: Selling expenses $ 91 — $ 590 2 % (85 %) General and administrative expenses 4,903 12 % 4,076 11 % 20 % Research and development costs 2,980 7 % 4,384 11 % (32 %) $ 7,974 19 % $ 9,050 24 % (12 %) Selling expenses consist of salaries and other personnel-related expenses related to our business development department, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining customer relationships.
Operating Expenses Years Ended June 30, Increase (Decrease) From 2022 To 2023 2023 2022 (Dollars in thousands) % of Net Sales % of Net Sales Operating expenses: Selling expenses $ 155 — $ 91 — 70 % General and administrative expenses 4,028 9 % 4,903 12 % (18 %) Research and development costs 2,804 6 % 2,980 7 % (6 %) $ 6,987 15 % $ 7,974 19 % (12 %) Selling expenses consist of salaries and other personnel-related expenses related to our business development department, as well as trade show attendance, advertising and marketing expenses, and travel and related costs incurred in generating and maintaining customer relationships.
Sales of our industrial and scientific products, which consist primarily of our compact pneumatic air motors, increased $65,000, or 8%, for fiscal 2022 compared to fiscal 2021. The revenue increase relates to a continued interest in these legacy products, but is not due to any substantive marketing efforts .
Sales of our industrial and scientific products, which consist primarily of our compact pneumatic air motors, decreased $54,000, or 6%, for fiscal 2023 compared to fiscal 2022. The revenue decrease is expected as these are legacy products with no substantive marketing or sales efforts.
We are focused on continuity of supply by working with our suppliers, some of whom have delivered our orders late and are quoting longer lead times. 16 While the COVID-19 pandemic did not materially adversely affect our financial results and business during calendar 2021, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, and surcharges, much of which our suppliers indicate has been caused by the COVID-19 pandemic.
During fiscal 2022, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, higher prices, and surcharges, much of which our suppliers indicate have been caused by the COVID-19 pandemic.
Investments Investments consist of marketable equity securities of publicly held companies. The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized. Investments are marked to market at each measurement date, with unrealized gains and losses presented in other income (expense) in our consolidated income statements.
Investments Investments consist of marketable equity securities of publicly held companies and a warrant (the “Monogram Warrant”) to purchase common stock of a publicly held company. The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized.
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, authorizing the repurchase of 750,000 shares of common stock was nearing completion.
The Investment Committee approved each of the investments comprising the $8.8 million of investments consisting of a warrant to purchase common stock of a publicly held company and marketable public equity securities held at June 30, 2023, which amount includes unrealized holding gains in the amount of $6.1 million at June 30, 2023. 23 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, authorizing the repurchase of 750,000 shares of common stock was nearing completion.
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. On a cumulative basis, we have repurchased a total of 1,110,746 shares under the share repurchase programs at an aggregate cost, inclusive of fess under the Plan, of $15.7 million.
During the fiscal year ended June 30, 2023, we repurchased 86,422 shares at an aggregate cost, inclusive of fees under the Plan, of $1.5 million. During the fiscal year ended June 30, 2022, we repurchased 75,250 shares at an aggregate cost, inclusive of fees under the Plan, of $1.6 million.
Our net income was $3.9 million and included non-cash stock compensation expense and depreciation and amortization expense in the amount of $1.3 million and $726,000, respectively. Additionally, our accounts payable and accrued expenses increased by $2.0 million. Offsetting these inflows of cash, our accounts receivable and inventory balances grew by $4.4 million and $4.2 million, respectively.
Additionally, our accounts receivable decreased by $5.4 million due to the variability in the timing of shipments and our prepaid expenses and deferred income taxes decreased by $494,000 and $264,000, respectively. Offsetting this net inflow of cash, inventory increased by $3.5 million and our accounts payable and accrued expenses and deferred revenue decreased by $1.1 million and $1.0 million, respectively.
Our fiscal 2022 repair revenue has increased approximately $1.7 million, or 33%, over fiscal 2021 to $6.6 million, due to increased repairs of the orthopedic handpiece we sell to our largest customer.
Our fiscal 2023 repair revenue increased approximately $6.0 million, or 91%, to $12.6 million, as compared to fiscal 2022, due to increased repairs of the orthopedic handpiece we sell to our largest customer. We expected repair revenue to increase based upon the customer’s requested refurbishments to upgrade previously purchased handpieces to the next generation, which we collectively term “enhanced repairs”.
Research and development costs decreased $1.4 million from fiscal 2021 to 2022 due to decreased spending on internal product development projects.
Research and development costs decreased $176,000 from fiscal 2022 to 2023 due to increased personnel and related costs of $333,000 as well as increased legal fees related to IP matters of $89,000 offset by decreased spending on internal product development projects of $604,000.
The $827,000 increase in G&A expenses from fiscal 2021 to 2022 is due primarily to $374,000 in increased stock compensation expense related to awards granted in fiscal 2022 and 2021. We also incurred $261,000 in expenses in fiscal 2022 related to defending a patent infringement case brought against one of our customers.
The $875,000 decrease in G&A expenses from fiscal 2022 to 2023 is due primarily to reduced legal and settlement expenses related to employment matters and reduced non-cash compensation expense related to stock compensation.
Additionally, recurring revenue from distributors of CMF drivers increased $4.1 million in fiscal 2022 compared to fiscal 2021 in part due to the launch of a new driver to our existing largest customer during the third quarter of fiscal 2021.
Recurring revenue from distributors of CMF drivers decreased $1.8 million in fiscal 2023 compared to fiscal 2022. We do not have much visibility into our customers’ distribution networks, but we surmise the decline relates to a buildup of customer inventory.
All repurchases under the 10b5-1 Plans were administered through an independent broker.
On a cumulative basis, we have repurchased a total of 1,197,168 shares under the share repurchase programs at an aggregate cost, inclusive of fees under the Plan, of $17.2 million. All repurchases under the 10b5-1 Plans were administered through an independent broker.
Removed
We provide our largest customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if this pandemic continues to adversely impact the United States and other markets where our products are sold, coupled with the recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from our principal customer.
Added
Warranties Most 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.
Removed
As previously disclosed, during early calendar 2022, we saw these conditions persist and worsen such that we expected them to negatively impact our financial performance in the third quarter and possibly the fourth quarter of fiscal 2022, reflected as a reduction in net sales.
Added
Investments are marked to market at each measurement date, with unrealized gains and losses presented in other income (expense) in our consolidated income statements. Some of our investments include the common stock of public companies that are thinly traded.
Removed
In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).
Added
The Monogram Warrant is the subject of the restatement of our previous financial statements described in Note 2 to the consolidated financial statements contained elsewhere in this report.
Removed
During fiscal 2022, orthopedic sales increased by $3.8 million to $21.9 million, up from $18.1 million in fiscal 2021, due primarily to increased sales to our largest customer.
Added
As previously disclosed, from the time we were issued the Monogram warrant through the fourth quarter of fiscal 2023, we considered the Monogram warrant to be of little value and did not record it as an investment in our consolidated balance sheet.
Removed
Our fiscal 2022 thoracic sales revenue decreased $6.0 million compared to the prior fiscal year, due likely as a result of our customer filling the near-term requirements of its distribution network. Currently, the thoracic driver is only sold to one customer, although we are in discussions with other of our existing customers who have expressed an interest in this driver.
Added
During fiscal 2023, thoracic sales increased by $705,000 to $2.6 million, up from $1.9 million in fiscal 2022, due to additional orders from our single distributor of this driver. In late fiscal 2023, we executed a supply agreement with another distributor for a thoracic driver and we expect an increase in revenue of thoracic products in fiscal 2024.
Removed
We expect repair revenue to continue to increase based upon expected refurbishments to upgrade the handpiece to the next generation, which was released in the third quarter of fiscal 2022.
Added
Our orthopedic sales decreased $2.2 million in fiscal 2023 compared to fiscal 2022, in part, due to our largest customer shifting priorities to an enhanced repair program (described under the discussion of repair revenue below).
Removed
While we expect the volume of repairs to increase, we expect the gross margin to deteriorate, at least in the near term, as we are currently upgrading these handpieces at no additional cost while we continue to negotiate a new repair price with our largest customer in good-faith.
Added
We are rapidly refurbishing these handpieces and we believe that our largest customer will request enhanced repairs for a similar volume or number of handpieces in fiscal 2024, but there are no assurances that our customer will return the same volume of handpieces.
Removed
During fiscal 2021, we incurred costs of $395,000 to generate $324,000 in revenue related to NRE and Prototype services, netting losses in the amount of $71,000 compared to netting profit of $240,000 in fiscal 2022.
Added
Costs related to inventory and warranty charges decreased $672,000 in fiscal 2023 compared to fiscal 2022, primarily due to sourcing of components for our printed circuit board assemblies at prices higher than usual in fiscal 2022 coupled with reduced warranty repairs related to the handpiece we sell to our largest customer in fiscal 2023 .
Removed
Selling expenses decreased $499,000, or 85%, compared to fiscal 2021, primarily due to decreased personnel and related expenses due to combining our Director of Business Development position with our Director of Engineering position in the first quarter of fiscal 2022.
Added
Additional information related to the nature of our investments is more fully described in Note 5 to the consolidated financial statements contained elsewhere in this report. 21 Gain on Sale of Investments During fiscal 2023, we liquidated some of the investments in our portfolio of equity investments receiving proceeds of $89,000 and recording a gain of $6,000.
Removed
We incurred no similar expenses during the prior fiscal year. Finally, we incurred an increase in professional service fees in fiscal 2022 as compared to fiscal 2021 related to the costs associated with being a public company of approximately $142,000.
Added
Our net income was $7.1 million and included $3.9 million of unrealized gains on certain equity investments, as well as $857,000 of depreciation and amortization and $766,000 of non-cash stock compensation.
Removed
(3) The CMF Driver was completed in the third quarter of fiscal 2021 and began shipping to our existing largest customer under a distribution agreement we executed in the first quarter of fiscal 2021. We generated revenue of $1.8 million related to this product in fiscal 2022.
Added
Offsetting these inflows of cash, our accounts receivable and inventory balances grew by $4.4 million and $4.2 million, respectively. 22 Cash Flows from Investing Activities Net cash used in investing activities in fiscal 2023 was $885,000.
Removed
Offsetting this net inflow of cash, our accounts receivable balance increased by $5.8 million primarily because our largest customer changed their payment terms from net 30 to net 90 in conjunction with a contract extension executed in fiscal 2021.
Added
During the 2023 fiscal year, we made capital expenditures in the amount of $974,000 primarily for the Franklin Property and we received proceeds of $89,000 from the sales of marketable equity securities.
Removed
Net cash used in investing activities in fiscal 2021 was $3.7 million.

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