What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-04-30 compared with 2026-01-29 · 207 added, 202 removed, 139 unchanged (75% of the section changed)

8 unchanged sentences

(“Company,” “Pro-Dex,”

“we,” “our,” or “us”) for the three-month and six-month periods ended December 31, 2025 and 2024.

This discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included

elsewhere in this report.

This report contains certain

forward-looking statements and information.

The cautionary statements included herein should be read as being applicable to all related

forward-looking statements wherever they may appear.

“we,” “our,” or “us”) for the three-month and nine-month periods ended March 31, 2026 and 2025.

discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere

in this report.

This report contains certain forward-looking statements and information.

The cautionary statements included herein should be read as being applicable to all related forward-looking statements wherever they may

Our actual future results could differ materially from those discussed herein.

7 unchanged sentences

sales in markets characterized by

rapid technological evolution, our ability to optimize our operations at our Franklin facility, consolidation within our target marketplace

and among our competitors, employee turnover, competition from larger, better capitalized competitors, and our ability to realize returns

on opportunities.

Many other economic, competitive, governmental, and

technological factors could impact our ability to achieve our goals.

You are urged to review the risks, uncertainties, and other cautionary

language described in this report, as well as in our other public disclosures and reports

filed with the Securities and Exchange Commission (“SEC”) from time to time, including, but not limited to, the risks, uncertainties,

and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal year ended June 30, 2025.

rapid technological evolution, our ability to integrate and effectively operate Advanced Precision Machining, LLC (“APM”) ,

our ability to service our debt and remain in compliance with our related covenants, consolidation within our target marketplace and among

our competitors, the impact of tariffs on the cost of our raw materials and purchased components,

employee turnover, competition from larger, better capitalized competitors, and our ability

to realize returns on opportunities.

Many other economic, competitive, governmental,

and technological factors could impact our ability to achieve our goals.

You are urged to review

the risks, uncertainties, and other cautionary language described in this report, as well as in our

other public disclosures and reports filed with the Securities and Exchange Commission (“SEC”) from time to time, including,

but not limited to, the risks, uncertainties, and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal

year ended June 30, 2025.

We specialize in the design,

2 unchanged sentences

We have patented adaptive torque-limiting software

and proprietary sealing solutions that appeal to our customers, primarily medical device distributors.

Additionally, we provide engineering,

quality, and regulatory consulting services to our customers.

We also manufacture and sell rotary air motors to a wide range of industries;

however, these motors compromise a de minimis portion of our business.

principal headquarters are located at 2361 McGaw Avenue, Irvine, California 92614 and our phone number is (949) 769-3200.

address is www.pro-dex.com.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to

those reports, and other SEC filings are available free of charge through our website as soon as reasonably practicable after such reports

are electronically filed with, or furnished to, the SEC.

In addition, our Code of Ethics and other corporate governance documents may

be found on our website at the Internet address set forth above.

Our filings with the SEC may also be read and copied at the SEC’s

Public Reference Room at 100 F Street, N.E., Washington, D.C.

You may obtain information on the operation of the Public Reference

Room by calling the SEC at 1-800-SEC-0330.

The SEC maintains an Internet site that contains reports, proxy and information statements,

and other information regarding issuers that file electronically with the SEC at www.sec.gov

and company specific information at www.sec.gov/edgar/searchedgar/companysearch.html.

and proprietary sealing solutions which appeal to our customers, primarily medical device distributors.

We also manufacture and sell rotary

air motors to a wide range of industries, and precision machined parts and assemblies for the aerospace and defense industries through

our APM subsidiary.

Our principal

headquarters are located at 2361 McGaw Avenue, Irvine, California 92614 and our phone number is (949) 769-3200.

addresses are www.pro-dex.com and www.advanced-precision.com.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q,

current reports on Form 8-K, amendments to those reports, and other SEC filings are available free of charge through our website as

soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.

In addition, our Code of

Ethics and other corporate governance documents may be found on our website at the Pro-Dex, Inc.

Internet address set forth above.

Our filings with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,

You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that

file electronically with the SEC at www.sec.govand company specific information at

www.sec.gov/edgar/searchedgar/companysearch.html.

Basis of Presentation

21 unchanged sentences

Management believes that there have been no significant changes during

the three and six months ended December 31, 2025 to the items that we disclosed as our critical accounting policies in Management’s

the three and nine months ended March 31, 2026 to the items that we disclosed as our critical accounting policies in Management’s

Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June

13 unchanged sentences

their surgical handpieces to them through calendar 2028.

We are actively pursuing the acquisition of one of our significant suppliers

to help meet the increased demand as a result of this contract extension.

During the third quarter of fiscal 2026, we completed the acquisition of APM,

one of our significant suppliers, to help meet the increased demand as a result of this contract extension.

Our acquisition of APM provides

us with a second machine shop located in Costa Mesa, California that not only provides machined assemblies to service our largest customer

but also provides machining to other customers primarily in the defense and aerospace industries.

We are also working to build

13 unchanged sentences

Our current objectives are

focused primarily on maintaining our relationships with our current medical device customers, investing in research and development activities

to design unique medical devices as well as Pro-Dex branded drivers to leverage our torque-limiting software, expanding our manufacturing

capacity through the continuation of operations at the Franklin Property, and promoting active product development proposals to new and

existing customers for both orthopedic shavers and screw drivers for a multitude of surgical applications, while monitoring closely the

progress of all these individual endeavors.

While we expect revenue growth in the future, it may not be a consistent trajectory but rather

periods of incremental growth that current expenditures are helping to create.

However, there can be no assurance that we will be successful

in any of these objectives.

focused primarily on maintaining our relationships with our current medical device customers, successfully integrating and operating APM,

investing in research and development activities to design unique medical devices as well as Pro-Dex branded drivers to leverage our torque-limiting

software, and promoting active product development proposals to new and existing customers for both orthopedic shavers and screw drivers

for a multitude of surgical applications, while monitoring closely the progress of all these individual endeavors.

While we expect revenue

growth in the future, it may not be a consistent trajectory but rather periods of incremental growth that current expenditures are helping

However, there can be no assurance that we will be successful in any of these objectives.

Description of Business Operations

3 unchanged sentences

(in thousands, except percentages):

Medical device products

Industrial and scientific

NRE & Prototype

Discounts and other

Three Months Ended

Nine Months Ended

device products

and scientific

of our medical device products utilize proprietary designs developed by us under exclusive

development and/or supply agreements.

development and supply agreements.

All of our medical device

products utilize proprietary manufacturing methods and know-how, are manufactured or machined in our Irvine, California facility,

and are assembled in our Tustin, California facility ( as are our industrial products).

our medical device sales by type is as follows (in thousands, except percentages):

products utilize proprietary manufacturing methods and know-how, and are manufactured either

in our Costa Mesa or Irvine, California facilities, and are assembled in our Tustin,

California facility, along with our industrial products.

Details of our medical device sales by

type is as follows (in thousands, except percentages):

Three Months Ended

Six Months Ended

Medical device sales:

of our medical device products increased $2.9 million, or 24%, for the three months ended December 31, 2025, and increased $7.4 million,

or 33%, for the six months ended December 31, 2025, compared to the corresponding periods of the prior fiscal year.

Our orthopedic

sales increased $2.6 million, or 27%, and $6.9 million, or 43%, respectively, for the three and six months ended December 31, 2025 compared

to the corresponding period of the prior fiscal year, due primarily to the launch of our largest customer’s next generation handpiece.

We expect to see similar increases in orthopedic sales for at least the remainder of this fiscal year.

Recurring revenue from CMF drivers

increased $1.3 million, or 69%, and $1.9 or 47%, respectively for the three and six months ended December 31, 2025 compared to the corresponding

period of the prior fiscal year.

Our thoracic sales decreased $880,000, or 83% and $1.4 million or 67%, respectively for the three and

six months ended December 31, 2025 compared to the corresponding period of the prior fiscal year.

While we do not have much visibility

into our customers’ distribution networks, this level of change in thoracic and CMF sales (whether an increase or decrease) is not

uncommon and fluctuations occur based upon our customers’ required inventory levels.

of our compact pneumatic air motors, reported as “Industrial and scientific”

sales above, increased $24,000, or 14%, and $52,000, or 17%, respectively, for the three and six months ended December 31, 2025, compared

to the corresponding periods of the prior fiscal year.

These are legacy products with no substantive marketing efforts and, as such, expect

to see continued minimal revenue from these products in the future.

Our non-recurring (“NRE”) and proto-type revenue increased

$108,000, or 263%, and $536,000, or 602%, respectively, for the three and six months ended December 31, 2025, compared to the corresponding

periods of the prior fiscal year, due to an increase in billable contracts for various NRE projects undertaken for our customers.

revenue decreased $1.7 million, or 35%, and $3.0 million, or 30%, respectively, for the three and six months ended December 31, 2025,

compared to the corresponding periods of the prior fiscal year, due to fewer repairs of the legacy orthopedic handpiece we sell to our

largest customer.

While we do not have much visibility into our largest customer’s distribution networks, they may be reducing repairs

of legacy handpieces in favor of replacing them with the next generation handpiece, in which case we may continue to experience future

declines in repair revenue.

December 31, 2025, we had a backlog of approximately $37.4 million, of which $32.5 million is scheduled to be delivered in fiscal 2026

and the balance is scheduled to be delivered the following fiscal year.

Our backlog represents firm purchase orders received and

acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts.

Nine Months Ended

Medical device

of our medical device products increased $4.3 million, or 36%, and $11.7 million, or 35%, respectively, for the three and nine months

ended March 31, 2026, compared to the corresponding periods of the prior fiscal year.

Our medical device revenue to our largest customer,

included in orthopedic sales above, increased $4.5 million and $11.4 million, respectively, for the three and nine months ended March

31, 2026, compared to the corresponding periods of the prior fiscal year.

As previously discussed, our largest customer executed

a contract amendment which extends the contract through 2028 and also provides for higher volumes of their newest surgical handpiece.

Therefore, we expect to see similar levels of revenue reported in orthopedic sales through 2028.

Additionally, recurring revenue from

distributors of thoracic drivers decreased $389,000 and $1.8 million, respectively, for the three and nine months ended March 31, 2026,

compared to the corresponding periods of the prior fiscal year.

Our CMF sales revenue increased $252,000 and $2.1 million, for

the three and nine months ended March 31, 2026, respectively, compared to the corresponding periods of the prior fiscal year.

we do not have much visibility into our customers’ distribution networks, this level of change in thoracic and CMF sales (whether

an increase or decrease) is not uncommon and fluctuations occur based upon required inventory levels.

and scientific sales increased $207,000, or 78%, and $260,000, or 45%, respectively, for the three and nine months ended March 31, 2026,

compared to the corresponding periods of the prior fiscal year, primarily due to the inclusion of APM sales from the acquisition date

of February 9, 2026.

Our NRE and prototype revenue increased $345,000, or 186%, and $882,000, or 322%, for the three and nine months ended

March 31, 2026, compared to the corresponding periods of the prior fiscal year, due to an increase in billable contracts for various NRE

projects undertaken for our customers.

revenue decreased $2.4 million or 48%, and $5.4 million, or 36%, for the three and nine months ended March 31, 2026, respectively, compared

to the corresponding periods of the prior fiscal year due to fewer repairs of the legacy orthopedic handpiece we sell to our largest customer.

While we do not have much visibility into our largest customer’s distribution networks, they may be reducing repairs of legacy handpieces

in favor of replacing them with the next generation handpiece, in which case we may continue to experience future declines in repair revenue.

March 31, 2026, we had a backlog of approximately $39.0 million, of which $15.6 million is scheduled to be delivered in the fourth quarter

of fiscal 2026 and the balance is scheduled to be delivered next fiscal year.

Our backlog represents firm purchase orders received

and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts.

may experience variability in our new order bookings due to various reasons, including, but not limited to, the timing of major new product

4 unchanged sentences

Cost of sales:

Under(over)-absorption of manufacturing costs

Inventory and warranty charges

Total cost of sales

of sales for the three and six months ended December 31, 2025, increased $1.2 million, or 10%, and $4.6 million, or 21%, respectively,

compared to the corresponding periods of the prior fiscal year.

The increase in cost of sales is consistent with the 11% and 17% increase

in revenue for the three and six months ended December 31, 2025, respectively, compared to the corresponding periods of the prior fiscal

Additionally, under-absorption for the three and six months ended December 31, 2025, decreased $132,000 and $64,000, respectively,

compared to the corresponding periods of the prior fiscal year.

Inventory and warranty charges

for the three and six months ended December 31, 2025, increased $201,000, or

609%, and $267,000 or 259%, respectively, compared to the corresponding periods of the prior fiscal year, primarily due to an increase

in inventory reserves .

profit increased by $671,000, or 13%, and $889,000, or 9%, for the three and six months ended December 31, 2025, respectively, compared

to the corresponding periods of the prior fiscal year.

Gross margin as a percentage of sales for the three months ended December 31, 2025,

increased 1 percentage point, and for the six months ended December 31, 2025, decreased 2 percentage points, compared to the corresponding

periods of the prior fiscal year.

Under(over)-absorption

of manufacturing costs

and warranty charges

cost of sales

of sales for the three months ended March 31, 2026, increased $2.2 million, or 19%, compared to the corresponding period of the prior

The increase in total costs of sales is consistent with the 15% increase in revenue for the same period.

Under-absorption

of manufacturing costs increased by $398,000 for the three months ended March 31, 2026, compared to the corresponding period of the prior

Costs relating to inventory and warranty charges increased $122,000 for the three months ended March 31, 2026, compared to

the corresponding period of the prior fiscal year, due to an increase in inventory reserves, offset by a decrease in warranty accruals.

profit increased by approximately $335,000, or 6%, for the three months ended March 31, 2026, compared to the corresponding period of

the prior fiscal year, primarily as a result of the increase in medical device revenue for the same periods as described above.

margin as a percentage of sales decreased by approximately 2 percentage points compared to the corresponding period of the prior fiscal

year due primarily to unfavorable product mix.

of sales for the nine months ended March 31, 2026, increased by $6.8 million, or 21%, compared to the corresponding period of the prior

The increase in total costs of sales is consistent with the 16% increase in revenue for the same period.

Under-absorption

of manufacturing costs increased by $333,000 for the nine months ended March 31, 2026, compared to the corresponding period of the prior

Inventory and warranty charges increased by $389,000, or 131%, for the nine months ended March 31, 2026, compared to the

corresponding period of the prior fiscal year.

A significant portion of the current fiscal year inventory charges relates to reserves

established related to a complex machined component in the next generation hand piece we sell to our largest customer.

profit increased by $1.2 million, or 8%, for the nine months ended March 31, 2026, compared to the corresponding period of the prior fiscal

year, primarily as a result of the increase in medical device revenue for the same periods as described above.

Gross margin as a percentage

of sales decreased by 3 percentage points compared to the corresponding period of the prior fiscal year primarily related to unfavorable

Operating Expenses

Operating Costs and Expenses

(in thousands except % change)

(in thousands except percentages)

over Year % Change

Operating expenses:

Selling expenses

General and administrative expenses

Research and development costs

General and administrative

Research and development

Selling expenses consist of

1 unchanged sentence

and travel and related costs incurred in generating and maintaining our customer relationships.

Selling expenses for the three months

ended December 31, 2025 decreased $10,000 compared to the corresponding periods of fiscal 2025.

Selling expenses for the six months ended

December 31, 2025 increased $14,000 compared to the corresponding periods of fiscal 2025.

Selling expenses for the three and nine

months ended March 31, 2026, decreased $73,000, or 65%, and $58,000, or 28%, respectively, compared to the corresponding periods of fiscal

The decrease in selling expenses relates to a reduction in personnel costs as currently we have no employees in the department.

General and administrative

expenses (“G&A”) consists of salaries and other personnel-related expenses of our accounting, finance, facilities, and

human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’ fees, and

other costs and expenses attributable to being a public company.

G&A expenses increased $322,000 and $494,000, respectively, during

the three and six months ended December 31, 2025, when compared to the corresponding periods of the prior fiscal year.

The increases relates

primarily to a $225,000 bonus earned and paid to the Company’s Chief Executive Officer in the second quarter of fiscal 2026 as well

as an overall increase in personnel costs and consulting fees related to the potential acquisition of one of our significant suppliers

that we are currently pursuing.

expenses (“G&A”) consist of salaries and other personnel-related expenses of our accounting, finance, facilities, business

systems, and human resource personnel, as well as costs for outsourced information technology services, professional fees, directors’

fees, and other costs and expenses attributable to being a public company.

G&A increased $1.1 million and $1.6 million, respectively,

during the three and nine months ended March 31, 2026, when compared to the corresponding periods of the prior fiscal year.

relates to increased personnel costs of approximately $200,000 and $500,000 for the three and nine months ended March 31, 2026, respectively,

as well as G&A expenses of our newly acquired subsidiary APM, which accounted for $233,000 of the increase during the three and nine

months ended March 31, 2026.

Additionally, consulting fees paid to the seller of APM contributed to an increase of $250,000 for the three

and nine months ended March 31, 2026.

In the current fiscal year, we have increased bonus accruals including the second quarter bonus

accrual earned and paid to our CEO in the amount of $225,000.

Additionally, we incurred increased legal and professional services fees

related to the APM acquisition along with our new debt agreements.

Research and development costs

3 unchanged sentences

Research and development costs for the three and

six months ended December 31, 2025, decreased $208,000 and $282,000, respectively, compared to the corresponding periods of the prior

The decrease for the three months ended December 31, 2025, compared to the comparable period of the prior year is primarily

related to an increase in billable project expenses of $64,000, a decrease in internal project expenses of $55,000, as well as decreases

in recruiting fees of $13,000 and legal fees related to our intellectual property of $51,000.

The decrease for the six months ended December

31, 2025, compared to the comparable period of the prior year is primarily related to a decrease in recruiting fees of $78,000, a decrease

in internal project costs of $117,000, an increase in billable project expenses of $65,000 and a decrease in legal fees related to our

intellectual property of $70,000.

When our engineers are engaged in billable projects as opposed to internal projects, costs get shifted

to cost of sales instead of research and development.

While we are currently in development on two internal projects, project expenses

for the periods presented in this report are not material.

nine months ended March 31, 2026, decreased $120,000, or 13%, and $403,000, or 15%, compared to the corresponding periods of the prior

The decrease relates to an increase in billable project expenses in the current fiscal year versus the prior fiscal year,

which costs get reclassified to cost of sales, as well as a reduction in legal costs related to intellectual property matters.

The nine-month

period ended March 31, 2025 also included recruiting fees in the amount of $78,000 which did not recur during the current fiscal year.

The majority of our research

and development costs relate to sustaining activities related to products we currently manufacture and sell.

As we introduce new products

into the market, we expect to see an increase in sustaining and other engineering expenses.

Typical examples of sustaining engineering

activities include, but are not limited to, end-of-life component replacement, especially in electronic components found in our printed

circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and

fixtures used in the machine shop, assembly operations, and inspection areas to improve efficiency and through-put.

Other Income (Expense), net

Interest and Other Income

and development costs relate to sustaining activities related to products we currently manufacture and sell, but we also have created

a product roadmap to develop future products.

Many of our product development efforts are undertaken only upon completion of an analysis

of the size of the market, our ability to differentiate our product from our competitors’, as well as an analysis of our specific

sales prospects with new and/or existing customers.

The research and development costs represent between 27% and 44% of total operating

expenses for all periods presented.

Interest & Other Income

Interest income for the three

and six months ended December 31, 2025, and 2024 includes interest and dividends from our money market accounts and investment portfolio.

Gain (Loss) on Investments

the second quarter of fiscal 2026 Zimmer Biomet Holdings, Inc.

acquired Monogram Technologies, Inc.

(“Monogram”) and we received

$4.04 in cash for each of the 2,212,378 common shares that we owned of Monogram prior to the close of the acquisition.

Accordingly, we

realized a gain in the amount of $6.8 million related to this investment described more fully in Note 4 to the condensed consolidated

financial statements contained elsewhere in this report.

During the three months ended December 31, 2025, we also reversed the

previously recorded unrealized gain related to Monogram in the amount of $6.8 million, which fully offset the realized gain.

addition, we have also recorded unrealized gains and losses on our investment portfolio for the three and six months ended December 31,

2025 and 2024.

All of our investments are recorded at estimated fair value as of December 31, 2025, and relate to common stock of publicly

traded companies whose stock price is subject to significant volatility.

and nine months ended March 31, 2026 and 2025, includes interest and dividends from our money market accounts and investment portfolio.

Interest Expense

Interest expense consists

primarily of interest expense related to our UMB Bank (“UMB”) loans described more fully in Note 11 to the condensed consolidated

financial statements contained elsewhere in this report.

primarily of interest expense related to the notes payable described more fully in Note 12 to the condensed consolidated financial statements

contained elsewhere in this report.

Gain on Equity

As described in Note 5 to

the consolidated financial statements contained elsewhere in this report, during the second quarter of fiscal 2026, Zimmer Biomet acquired

Monogram and upon consummation of the acquisition we received proceeds of $8.9 million and realized a gain on our investment of $6.8 million.

Additionally, during the third quarter ended March 31, 2026, Monogram successfully completed the first of five milestones such that we

earned and recorded an additional gain in the amount of $2.3 million.

During the third quarter ended March 31, 2025, we sold some of the

stocks in our portfolio of equity investments receiving proceeds of $1.9 million and recording a gain on the sale in the amount of $595,000.

In addition to these realized gains, during the three and nine months ended March 31, 2026 and 2025, we also recorded unrealized gains

and losses to adjust our investment holdings to estimated fair value as well as eliminating the previously recorded unrealized gains on

our Monogram investment during the second quarter of fiscal 2026 in conjunction with recording the realized gain.

Income Tax Expense

The effective tax rate for

the three months ended December 31, 2025, and 2024 was 25% and 21%, respectively.

The effective tax rate for the six months ended December

31, 2025, and 2024 is 25% and 24%, respectively.

The effective tax rate is slightly higher in fiscal 2026 than the prior year due to a

windfall related to vesting of performance awards in fiscal 2025 that did not recur during the current fiscal year.

each of the three months ended March 31, 2026 and 2025 was 26% and 28%, respectively.

These tax rates are consistent with our combined

expected federal and applicable state corporate income tax rates, and the current year decrease is attributable to the expanded state

tax nexus into Florida and Indiana which have lower tax rates than California.

The effective tax rate for the nine months ended March

31, 2026 and 2025 was 25% and 26%, respectively.

The prior year rate was slightly less than our combined expected federal and applicable

state corporate income tax rates due to a tax benefit recognized as a result of common stock awarded to employees under previously granted

performance awards in the first quarter of fiscal 2025 as described more fully in Note 10 to the condensed consolidated financial statements

contained elsewhere in this report.

Liquidity and Capital Resources

Cash and cash equivalents

at December 31, 2025 increased $7.5 million to $8.0 million as compared to $419,000 at June 30, 2025.

The following table includes a summary

of our condensed statements of cash flows contained elsewhere in this report.

and For the Six Months Ended December 31,

at March 31, 2026, increased $9.6 million to $10.0 million as compared to $419,000 at June 30, 2025.

The following table includes

a summary of our condensed statements of cash flows contained elsewhere in this report.

and For the Nine Months Ended March 31,

(in thousands)

8 unchanged sentences

Net cash provided by operating

activities was $5.9 million for the six months ended December 31, 2025, primarily due to our net income of $6.9 million plus non-cash

depreciation and share-based compensation of $625,000 and $325,000, respectively, less the net gains on marketable equity investments

of $3.0 million.

Additionally, income taxes payable increased by $1.8 million and inventory decreased by $503,000.

Offsetting these cash

inflows, our accounts receivable increased by $1.5 million consistent with increased revenue in fiscal 2026 compared to fiscal 2025.

activities was $7.5 million for the nine months ended March 31, 2026, primarily due to net income of $10.8 million including gains on

the investments in the amount of $5.4 million, non-cash depreciation and amortization of $988,000 and non-cash share-based compensation

expense of $511,000 offset by a $2.2 million increase in receivables.

Additionally, accounts payable and accrued expenses increased by

$936,000, and income taxes payable increased by $1.3 million.

The increases in these balance sheet accounts reflect our continued and

expected future revenue growth.

Net cash used in operating

activities was $2.3 million for the six months ended December 31, 2024, due in part to net income of $4.5 million and non-cash depreciation

and amortization of $615,000 offset by non-cash unrealized gains on marketable equity investments of $510,000.

Additionally, accounts

receivable, inventory and prepaid and other assets increased $4.6 million, $4.3 million, and $991,000, respectively, for the six months

ended December 31, 2024, offset by an increase in accounts payable and accrued expenses of $3.0 million.

As our business continues to

grow, we expect to see increases in both inventory and accounts payable.

Our accounts receivable is similarly expected to increase during

periods of increased revenue.

activities was $1.5 million for the nine months ended March 31, 2025, primarily due to net income of $7.8 million including gains on investments

in the amount of $1.7 million and non-cash depreciation and amortization of $925,000 offset by an $8.2 million increase in inventory and

a $2.0 million increase in receivables.

Offsetting these uses of cash, accounts payable and accrued expenses increased by $1.6 million.

Investing Activities

Net cash generated from investing

activities was $8.8 million and relates primarily to the proceeds received from our Monogram investment, more fully described in Note

4 to the condensed consolidated financial statements contained elsewhere in this report.

Net cash used in investing

activities for the six months ended December 31, 2024 was $973,000 and related mostly to equipment purchases for our machine shop, assembly,

and inspection.

Net cash provided by investing

activities for the nine months ended March 31, 2026, was $3.7 million and relates primarily to the proceeds received from the Zimmer Biomet

acquisition of Monogram previously described in the amount of $10.8 million offset by our acquisition of APM in the amount of $6.5 million

described further in Note 3 to the condensed consolidated financial statements contained elsewhere in this report.

Additionally, we spent

$280,000 during the nine months ended March 31, 2026, on the purchase of capital equipment and $350,000 related to Series A Preferred

Stock of a privately held technology company.

Net cash provided by investing

activities for the nine months ended March 31, 2025, was $754,000 and relates to the sale of some of our marketable securities for $1.9

million offset by purchases of capital equipment and improvements of $1.2 million.

Financing Activities

Net cash used in financing

activities for the six months ended December 31, 2025, totaled $7.1 million and related primarily to the net principal payments of $4.9

million on our loans from UMB more fully described in Note 11 to the condensed consolidated financial statements contained elsewhere in

this report, as well as repurchase of 55,000 shares of our common stock pursuant to our share repurchase program in the amount of $2.2

activities for the nine months ended March 31, 2026, totaled $1.7 million and relates primarily to $2.8 million attributable to the repurchase

of 69,422 shares of our common stock pursuant to our share repurchase program offset by $1.1 million in net borrowings from UMB Bank more

fully described in Note 12 to the condensed consolidated financial statements contained elsewhere in this report.

Net cash provided by financing

activities for the six months ended December 31, 2024, included net borrowings in the amount of $4.5 million primarily related to the

Term Loan C described in Note 11 the condensed consolidated financial statements contained elsewhere in this report, offset by the repurchase

of $3.5 million of our common stock pursuant to our share repurchase program, as well as $305,000 of employee payroll taxes related to

shares of common stock issued to employees under previously granted performance awards and nonqualified stock options.

activities for the nine months ended March 31, 2025, totaled $2.6 million and related primarily to the net increase in borrowings of $6.4

million from UMB Bank more fully described in Note 12 to the condensed consolidated financial statements contained elsewhere in this report

offset by $3.5 million attributable to the repurchase of 130,148 shares of our common stock pursuant to our share repurchase program.

Financing Facilities & Liquidity Requirements for the Next

Twelve Months

As of December 31, 2025, our

As of March 31, 2026, our

working capital was $39.1 million.

10 unchanged sentences

We believe that if we need additional capital to fund our operations,

we can borrow against our revolving loan with UMB which has an available balance of $11.0 million as of December 31, 2025.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

we can borrow against our revolving loan with UMB which has an available balance of $11.0 million as of March 31, 2026.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis