What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-10-13 compared with 2022-09-08 · 875 added, 545 removed, 537 unchanged (73% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Irvine, California, Auditor ID:

Financial Statements:

Consolidated Balance Sheets, June 30, 2022 and 2021

Consolidated Income Statements, Years

Ended June 30, 2022 and 2021

Consolidated Statements of Shareholders’ Equity, Years Ended June 30, 2022 and 2021

Consolidated Statements of Cash Flows, Years Ended June 30, 2022 and 2021

Consolidated Balance Sheets, June 30, 2023 and 2022 (Restated)

Consolidated Income Statements, Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

Consolidated Statements of Shareholders’ Equity, Years Ended June

30, 2023, 2022 (Restated) and 2021 (Restated)

Consolidated Statements of Cash Flows, Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

Notes to Consolidated Financial Statements

Report of Independent

Registered Public Accounting Firm

the Shareholders and the Board of Directors

of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Pro-Dex, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance

sheet s of Pro-Dex, Inc.

and Subsidiaries (the “Company”) as of June 30, 2022 and 2021, the related consolidated income

statements, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the

“consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the consolidated financial position of the Company as of June 30, 2022 and 2021, and the consolidated results of its operations

and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Pro-Dex

(the “Company”) as of June 30, 2023 and 2022, the related consolidated income statements, shareholders’ equity,

and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of

the Company as of June 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three

years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Restatement of Previously Issued Financial Statements

As described in Note 2, the Company has restated its consolidated

financial statements as of June 30, 2022, and for the years ended June 30, 2022 and 2021, for the correction of errors.

Basis for Opinion

These consolidated financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit s in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the

consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain

an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of

the Company’s internal control over financial reporting.

These consolidated financial statements are the responsibility of

the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a

matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated

to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements, and

(2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter

in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Investment Valuation

As described in Notes 2 and 5 to the consolidated

financial statements, the Company’s consolidated investments total $2,534,000 at June 30, 2022.

Both current and long-term investments

include the common stock of publicly traded companies that are considered thinly traded.

We identified the valuation of thinly traded securities

The critical audit matter communicated below is a matter arising from

the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee

and that (1) relates to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially

challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the

consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate

opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Warrant Valuation

As described in Notes 2 and Note 5 to the consolidated financial statements,

the Company holds a warrant to purchase common stock of a publicly traded company, which has an estimated fair value of $6,160,000 at

June 30, 2023 and resulted in an unrealized gain of $3,856,000 during the year ended June 30, 2023.

The warrant was determined to

be a derivative financial instrument that is subject to remeasurement at each balance sheet date with changes in fair value recognized

We identified the valuation of the warrant

as a critical audit matter.

The Company’s current and long-term investments represent shares that materially exceed the average

daily trading volume of the thinly traded securities, thus the Company must consider a discount due to the lack of liquidity and marketability.

The Company uses a third-party specialist to perform the discount analysis for financial statement reporting purposes in order to comply

with the guidelines set forth in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 320, Investments

– Debt and Equity Securities and FASB Accounting Standards Update (ASU) No.

2016-01, Financial Instruments – Overall

(Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities .

The discount analysis is derived using

a two-part approach.

The first analysis uses a protective put model to estimate the discount for lack of liquidity and marketability.

The second analysis is a time-adjusted analysis based on restricted stock studies, which is used to adjust the discount to reflect the

dribble-out period associated with the securities.

The determination of the discount involves significant judgment by management.

management’s judgments regarding the appropriate discount involves a high degree of subjectivity, including the use of professionals

with specialized skill and knowledge.

The primary procedures we performed to address this

critical audit matter included:

· Reviewed the qualifications, independence, and

objectives and scope of the third-party specialist.

· Used historical average daily trading volumes

in conjunction with the estimated shares that can be transacted per day in order to determine the average expected days to sell securities,

and whether that classifies them as thinly traded.

· With the assistance of an internal valuation specialist, tested the methodology

and assumptions used in the valuation.

This includes testing of the protective put model.

Specific assumptions that were tested in the

model include the stock price of the securities, volatility of the securities, the risk-free rate of interest, and the illiquidity horizons.

· Comparison of the methods and assumptions used

with those used in preceding periods.

· Testing proper classification of investment valuations

within the Fair Value Hierarchy as set forth in ASC 820.

We tested management’s analysis of the securities, which considered the

Company’s holdings relative to the average daily trading volume of the securities over a period of time to determine whether the

investment is thinly traded.

See also the “Restatement of Previously Issued Financial Statements” section of our report.

estimated fair value of the warrant was determined using a Black Scholes Option Pricing (“BSOP”) model.

The principal considerations

for our determination that auditing the estimated fair value of the warrant is a critical audit matter are (i) the judgment required

by management in the determination of the significant assumptions used, including the underlying stock price, strike price of the warrant,

volatility, risk-free rate, discount for lack of marketability and time-to-maturity (ii) a high degree of auditor judgment, subjectivity,

and effort in performing procedures and evaluating audit evidence related to the significant assumptions used in the BSOP model;

(iii) the use of professionals with specialized skill and knowledge.

The primary procedures we performed to address this critical audit

matter included:

reading the agreements and evaluating management’s

process for determining the estimated fair value of the warrant.

testing management’s process included (i)

evaluating the method used by management to determine the estimated fair value of the warrant;

(ii) testing the mathematical accuracy

of management’s model;

(iii) evaluating the reasonableness of the significant assumptions used in the model and (iv) testing the

completeness and accuracy of the data used.

professionals with specialized skill and knowledge

were used to assist in evaluating the appropriateness of the BSOP model used by management to determine the estimated fair value of the

warrant, and evaluating whether the significant assumptions used in the BSOP model were reasonable.

/s/ Moss Adams LLP

Moss Adams LLP

Irvine, California

September 8, 2022

October 13, 2023

We have served as the Company’s auditor since 2003.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED BALANCE

(In thousands, except

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 0 and $ 2 at June 30, 2022 and 2021, respectively

Accounts receivable, net of allowance for doubtful accounts

of $ 0 at June 30, 2023 and 2022

Deferred costs

Prepaid expenses and other current assets

Prepaid expenses

Total current assets

14 unchanged sentences

Lease liability, net of current portion

Deferred income taxes, net

Notes payable, net of current portion

10 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In thousands, except share and per share data)

Years Ended June 30,

Ended June 30,

Cost of sales

8 unchanged sentences

Interest and dividend income

Unrealized gain (loss) on marketable equity investments

Unrealized gain on investments

Gain on sale of investments

Interest expense

Total other income (expense)

Total other income

Income before income taxes

7 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

For The Years Ended June 30, 2022 and 2021

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For The Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

(In thousands, except share data)

Common Shares

Number of Shares

Retained Earnings

Balance at June 30, 2020

Cumulative effect of restatement (1)

Net income, restated

ESPP shares issued

5 unchanged sentences

Balance at June 30, 2021

Net income, restated

ESPP shares issued

3 unchanged sentences

Balance at June 30, 2022

ESPP shares issued

Shares issued in connection with performance award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

Share repurchases

Balance at June 30, 2023

is the estimated fair value of the Monogram Warrant as of June 30, 2020.

Excludes 112 shares forfeited to affect a cashless exercise.

Excludes 1,855 shares forfeited to affect a cashless exercise.

See notes to consolidated financial statements .

See notes to consolidated

financial statements .

PRO-DEX, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended June 30,

Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

Unrealized (gain) loss on marketable equity investments

Unrealized gain on investments

Gain on sale of investments

Impairment of long-lived assets

Non-cash lease expense

Non-cash lease expense (recovery)

Loss on sale or disposal of equipment

6 unchanged sentences

Deferred costs

Prepaid expenses and other assets

Prepaid expenses

Accounts payable and accrued expenses

1 unchanged sentence

Income taxes payable

Net cash used in operating activities

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

7 unchanged sentences

Principal payments on notes payable

Borrowing from Minnesota Bank & Trust, net of loan origination fees

Borrowing from revolving loan, net of loan origination fees

Repurchases of common stock

2 unchanged sentences

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

5 unchanged sentences

(In thousands)

Years Ended June 30,

Ended June 30,

Supplemental disclosures of cash flow information:

5 unchanged sentences

PRO-DEX, INC.

NOTES TO FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS

specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and

shavers used primarily in the orthopedic, thoracic, and craniomaxillofacial markets.

We have patented adaptive torque-limiting technology

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

We also manufacture and sell rotary

air motors to a wide range of industries.

We specialize in the design, development

and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic,

thoracic, and craniomaxillofacial markets.

We have patented adaptive torque-limiting technology and proprietary sealing solutions

which appeal to our customers, primarily medical device distributors.

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

In August 2020, we formed a wholly

5 unchanged sentences

This subsidiary has no separate operations.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its

consolidated financial statements as of and for the years ended June 30, 2022 and 2021 and as of and for the first three quarters of

fiscal 2021, 2022 and 2023.

The restatement corrects the error related to the fair value of the Monogram Warrant which had been

understated (See Note 5).

The restatement records the investment at its estimated fair value for all restated periods, records the

unrealized gain on investments for each restated period, and records the deferred income tax expense associated with the

corresponding unrealized gain on investments.

The restatement does not impact previously reported revenues, operating income, cash

or cash flows for any previous periods.

Presented below are the changes

to each financial statement line item which changed as a result of the restatement.

June 30, 2022 Balance Sheet

Schedule of changes

to each financial statement line item which changed as a result of restatement

As Previously

Deferred income taxes, net

$ ( 541 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram

(b) This amount represents the estimated fair value of the Monogram Warrant at June 30, 2022.

Fiscal 2022 Income Statement

As Previously

Unrealized gain (loss) on investments

Total other income (loss)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the fiscal

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the fiscal year 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal 2021 Income Statement

As Previously

Unrealized gain on investments

Total other income

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the fiscal

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the fiscal year 2021.

2023 Unaudited Quarterly Periods

September 30,

Net income, as previously reported

Adjustments to net income:

Unrealized gain on investments (a)

Income tax expense (b)

Net income, as restated

Basic & Diluted income per share as previously reported:

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated:

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 Unaudited Quarterly Periods

September 30,

Net income as previously reported

Adjustments to net income:

Unrealized gain on investments (a)

Income tax expense (b)

Net income as restated

Basic & Diluted income per share as previously reported

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

2021 Unaudited Quarterly Periods

September 30,

Net income as previously reported

Adjustments to net income:

Unrealized loss on investments (a)

Income tax (benefit) expense (b)

Net income as restated

Basic & Diluted income per share as previously reported

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 Unaudited Balance Sheet

(First Quarter Fiscal 2021)

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax benefit associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2020.

First Quarter Fiscal 2021 Unaudited Income Statement – Three

months ended September 30, 2020

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized loss on the Monogram Warrant for the three months ended September 30, 2020.

(b) This amount represents the income tax benefit related to the unrealized loss on the Monogram Warrant for

the three months ended September 30, 2020.

December 31, 2020 Unaudited Balance Sheet

(Second Quarter Fiscal 2021)

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax benefit associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2020.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2020

Unaudited Income Statement (Second Quarter Fiscal 2021)

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2020.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2020.

March 31, 2021 Unaudited Balance Sheet (Third Quarter Fiscal

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2021.

Three months ended March 31, 2021 Unaudited

Income Statement (Third Quarter Fiscal 2021)

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March 31, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2021.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 Unaudited Balance Sheet

(First Quarter Fiscal 2022)

As Previously

Deferred income taxes, net

$ ( 276 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2021.

First Quarter Fiscal 2022 Unaudited Income Statement – Three

months ended September 30, 2021

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended September 30, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended September 30, 2021.

December 31, 2021 Unaudited Balance Sheet

(Second Quarter Fiscal 2022)

As Previously

Deferred income taxes, net

$ ( 335 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2021.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2021

Unaudited Income Statement (Second Quarter Fiscal 2022)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2021.

March 31, 2022 Unaudited Balance Sheet (Third Quarter Fiscal

As Previously

Deferred income taxes, net

$ ( 378 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2022.

Three months ended March 31, 2022 Unaudited

Income Statement (Third Quarter Fiscal 2022)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March, 31, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022 Unaudited Balance Sheet

(First Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 589 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2022.

First Quarter Fiscal 2023 Unaudited Income

Statement – Three months ended September 30, 2022

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended September 30, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended September 30, 2022.

December 31, 2022 Unaudited Balance Sheet

(Second Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 764 ) (a)

Deferred income taxes

Total liabilities

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2022

Unaudited Income Statement (Second Quarter Fiscal 2023)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2022.

March 31, 2023 Unaudited Balance Sheet (Third

Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 764 ) (a)

Deferred income taxes

Total liabilities

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2023.

Three months ended March 31, 2023 Unaudited

Income Statement (Third Quarter Fiscal 2023)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March 31, 2023.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2023.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of significant accounting policies presented below is designed to assist the reader in understanding our consolidated financial statements.

Such consolidated financial statements and related notes are the representations of management, who is responsible for their integrity

and objectivity.

In the opinion of management, these accounting policies conform to accounting principles generally accepted in the United

States of America (“U.S.

GAAP”) in all material respects and have been consistently applied in preparing the accompanying

consolidated financial statements.

The summary of significant accounting

policies presented below is designed to assist the reader in understanding our consolidated financial statements.

Such consolidated financial

statements and related notes are the representations of management, who is responsible for their integrity and objectivity.

In the opinion

of management, these accounting policies conform to accounting principles generally accepted in the United States of America (“U.S.

GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements.

Net sales consists of the sale of products

and services, as well as shipping and handling costs billed to our customers and is net of volume rebates and discounts and excludes

Revenue Recognition

Revenue from product sales is recognized

as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”) 2014-09,

Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract have

been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as) we satisfy

each performance obligation, generally upon shipment.

Revenue from product sales is

recognized as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”)

2014-09, Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract

have been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as)

we satisfy each performance obligation, generally upon shipment.

from services, typically non-recurring engineering services related to the design or customization of a medical device, is typically recognized

5 unchanged sentences

balance sheets.

One of our customer contracts can

give rise to variable consideration due to volume rebates.

One of our customer contracts

can give rise to variable consideration due to volume rebates.

We estimate variable consideration at the most likely amount we will receive

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(historical, current, and forecasted) that is reasonably available to us.

Returns of our product for credit

Returns of our product for

credit are minimal;

accordingly, we do not establish a reserve for product returns at the time of sale.

Cost of Sales

Cost of sales consists primarily of the purchase price

of goods and cost of services rendered including freight costs.

Cost of sales also includes production labor and overhead costs for all

of our manufacturing and assembly operations, which overhead includes all indirect labor and expenses associated with our inspection,

warehousing, material planning and quality departments.

Estimated Losses on Product Development Services

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and 2022 related to these services totaled $ 108,000 and $ 0 , respectively.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to the complexity of many of the contracts we have undertaken, the cost estimation process requires significant judgment.

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availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals.

Certain of our products are sold

with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the sale.

At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors as return

rates and repair costs, which factors are reviewed quarterly.

The warranty accrual is based on

historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying

balance sheets.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of our products

are sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after

At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors

as return rates and repair costs, which factors are reviewed quarterly.

The warranty accrual is

based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in

the accompanying balance sheets.

Warranty expenses are included in cost of sales in the accompanying statements of operations.

Changes in estimates to

previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return

rates and are included in current period warranty expense.

in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and

warranty return rates and are included in current period warranty expense.

Cash and Cash Equivalents

We consider all highly liquid investments

with an original maturity of ninety days or less to be cash equivalents.

At June 30, 2022 and 2021, cash equivalents consisted of investments

in money market funds.

We consider all highly liquid

investments with an original maturity of ninety days or less to be cash equivalents.

At June 30, 2023 and 2022, cash equivalents consisted

of investments in money market funds.

Accounts Receivable

Trade receivables are stated at

their original invoice amounts, less an allowance for doubtful portions of such accounts.

Trade receivables are stated

at their original invoice amounts, less an allowance for doubtful portions of such accounts.

Management determines the allowance for doubtful

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Deferred Costs

Deferred costs reflect costs incurred

related to non-recurring engineering services under the terms of the related development and/or supply contracts.

These costs get recorded

to cost of sales in the period that the revenue is recognized.

Inventories are stated at the lower

of cost (first-in, first-out method) or net realizable value.

Cost includes materials, labor, and manufacturing overhead related to the

purchase and production of inventories.

Deferred costs reflect

costs incurred related to non-recurring engineering services under the terms of the related development and/or supply contracts.

costs get recorded to cost of sales in the period that the revenue is recognized.

Inventories are stated at

the lower of cost (first-in, first-out method) or net realizable value.

Cost includes materials, labor, and manufacturing overhead related

to the purchase and production of inventories.

Reductions to estimated market value are recorded and charged to cost of sales, when indicated

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approximately $ 637,000 and $ 177,000 , respectively, of inventory in-transit from suppliers.

Investments at June 30, 2022 and

2021, consist of marketable equity securities of publicly held companies.

Investments at June

30, 2023 and 2022, consist of marketable equity securities of publicly held companies as well as a warrant to purchase common stock of

a company whose common stock first became publicly traded in May 2023.

The investments were made to realize a reasonable return, although

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These investments were subject to a valuation analysis as of June 30, 2023

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-lived Assets

We review the recoverability of

long-lived assets, consisting of the land and building that we own, equipment, and improvements, including leasehold improvements, when

events or changes in circumstances occur that indicate carrying values may not be recoverable.

Our building, equipment and improvements

are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:

We review the recoverability

of long-lived assets, consisting of the land and building that we own, equipment, and improvements, including leasehold improvements,

when events or changes in circumstances occur that indicate carrying values may not be recoverable.

Our building, equipment

and improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:

Schedule of building, equipment and improvements

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Shorter of the remaining life of the underlying building, lease term, or the asset’s estimated useful life

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consist of legal fees incurred in connection

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Our patent costs are being amortized over a period of four to seven years.

The expense associated with

the amortization of the patent costs is recognized in research and development costs.

We recognize deferred tax assets

and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along

with net operating losses and tax credit carryovers.

Deferred tax assets at both June 30, 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.

The expense associated with the amortization

of the patent costs is recognized in research and development costs.

We recognize deferred tax

assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities

along with net operating losses and tax credit carryovers.

Net deferred tax assets or liabilities at both 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.

Our fiscal 2023 deferred tax assets also includes capitalization of our research expenditures as prescribed

by the Tax Cuts and Jobs Act.

Significant management judgment

is required in determining the provision for income taxes and the recoverability of deferred tax assets.

Such determination is based on

historical taxable income, with consideration given to estimates of future taxable income and the periods over which deferred tax assets

will be recoverable.

We record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we

believe is more likely than not to be realized.

When we establish or reduce the valuation allowance against deferred tax assets, the provision

for income taxes will increase or decrease, respectively, in the period such determination is made.

is required in determining the provision for income taxes, the recoverability of deferred tax assets, and the extinguishment of deferred

tax liabilities.

Such determination is based on historical taxable income, with consideration given to estimates of future taxable income

and the periods over which deferred tax assets will be recoverable and deferred tax liabilities will be extinguished.

We record a valuation

allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized.

When we establish or reduce the valuation allowance against deferred tax assets, the provision for income taxes will increase or decrease,

respectively, in the period such determination is made.

Uncertain Tax Positions

We record uncertain tax positions

in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1) we determine

whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and

(2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that

is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We record uncertain tax

positions in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1)

we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position,

and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit

that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Shipping and Handling

Payments from customers for shipping

and handling are included in net sales .

Shipping expenses, consisting primarily of payments made to freight companies, are included

in cost of sales.

Payments from customers

for shipping and handling are included in net sales .

Shipping expenses, consisting primarily of payments made to freight companies,

are included in cost of sales.

Concentration of Credit Risk

Financial instruments that potentially

subject us to credit risk consist principally of cash, cash equivalents, and trade receivables.

We place our cash and cash equivalents

with major financial institutions.

At June 30, 2022 and 2021, and throughout the fiscal years then ended, we had deposits in excess

of federally insured limits.

Credit sales are made to medical device distributors, original equipment manufacturers, and resellers throughout

the world, and sales to such customers account for a substantial portion of our trade receivables.

While such receivables are not collateralized,

we evaluate their collectability based on several factors including customers’ payment histories.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial instruments that

potentially subject us to credit risk consist principally of cash, cash equivalents, and trade receivables.

We place our cash and cash

equivalents with major financial institutions.

At June 30, 2023 and 2022, and throughout the fiscal years then ended, we had deposits

in excess of federally insured limits.

Credit sales are made to medical device distributors, original equipment manufacturers, and resellers

throughout the world, and sales to such customers account for a substantial portion of our trade receivables.

While such receivables are

not collateralized, we evaluate their collectability based on several factors including customers’ payment histories.

Compensation Plans

We recognize compensation expense

for the share-based awards that vest subject to market conditions under ASC 718, Compensation-Stock Compensation by estimating

We recognize compensation

expense for the share-based awards that vest subject to market conditions under ASC 718, Compensation-Stock Compensation by estimating

their fair value using a Monte Carlo simulation.

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basis over the requisite service period.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent

assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting

The preparation of financial

statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during

the reporting period.

Actual results could differ from those estimates.

Our operations are affected by numerous

factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, effects from the

COVID-19 pandemic, government regulations, and policies.

We cannot predict what impact, if any, the occurrence of these or other events

might have on our operations.

Significant estimates and assumptions made by management include, but are not limited to, revenue recognition,

share-based compensation, the allowance for doubtful accounts, accrued warranty expense, investments, inventory valuation, the carrying

value of long-lived assets, and the recoverability of deferred income tax assets.

Our operations are affected

by numerous factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, effects

from the COVID-19 pandemic, government regulations, and policies.

We cannot predict what impact, if any, the occurrence of these or other

events might have on our operations.

Significant estimates and assumptions made by management include, but are not limited to, revenue

recognition, share-based compensation, the allowance for doubtful accounts, accrued warranty expense, investments, inventory valuation,

the carrying value of long-lived assets, and the recoverability/extinguishment of deferred income tax assets and liabilities.

Basic and Diluted Per Share Information

Basic per share amounts are computed

on the basis of the weighted-average number of common shares outstanding during each period presented.

Diluted per share amounts assume

the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards as discussed in

Note 11, unless the effect of such exercise is to increase income, or decrease loss, per common share.

Basic per share amounts

are computed on the basis of the weighted-average number of common shares outstanding during each period presented.

Diluted per share

amounts assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards

as discussed in Note 13, unless the effect of such exercise is to increase income, or decrease loss, per common share.

Fair Value Measurements

Fair value is measured based on

the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

Fair value is measured based

on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date.

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Cash and cash equivalents:

carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short-term nature of

these instruments.

The carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short-term nature

of these instruments.

As such, cash and cash equivalents are classified within Level 1 of the valuation hierarchy.

consist of marketable equity securities of publicly held companies.

Our long-term marketable securities consist of investments of common

stock of publicly traded companies that are thinly traded.

Due to the thinly traded nature of these stocks, they are classified within

Level 2 of the valuation hierarchy.

The fair value of all of our investments at June 30, 2022 was based upon an independent valuation.

Although the methods above may produce

a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe our valuation

methods are appropriate.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising costs are charged to

selling or general and administrative expense as incurred and amounted to $ 1,000 and $ 4,000 for the fiscal years ended June 30, 2022

and 2021, respectively.

Reclassifications

prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued and Adopted Accounting Standards

consist of marketable equity securities of publicly held companies as well as a warrant to purchase outstanding stock of a publicly traded

Due to the thinly traded nature of these stocks and the lack of an active market for the warrant, all of our investments are

classified within Level 2 of the valuation hierarchy.

The estimated fair value of the warrant is measured using pricing models with no

observable inputs and is therefore considered a Level 3 measurement within the valuation hierarchy.

The fair value of all of our investments

at June 30, 2023 and 2022 was based upon a valuation analysis.

Although the methods above

may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe

our valuation methods are appropriate.

Advertising costs

are charged to selling or general and administrative expense as incurred and amounted to $ 4,000 and $ 1,000 for the fiscal years ended

June 30, 2023 and 2022, respectively.

Recently Issued and Not Yet Adopted Accounting Standards

June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

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does not expect the adoption of this ASU to have a material impact on the consolidated financial statements.

December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740) – Simplifying the

Accounting for Income Taxes, to remove certain exceptions related to the approach for intraperiod tax allocation, recognition of deferred

tax liabilities for outside basis differences and requiring that an entity reflect the effect of an enacted change in tax laws or rates

in the annual effective tax rate computation in the interim period that includes the enactment date.

The amendments in this update are

effective for us beginning with fiscal year 2022.

The adoption of the amendments has not had a material impact on our consolidated financial

October 2020, the FASB issued ASU No.

2020-10, Codification Improvements, which updates various codification topics by clarifying disclosure

requirements to align with the SEC's regulations.

The guidance is effective for the Company’s annual reporting period beginning

after December 15, 2020 and interim reporting periods within the annual period beginning after December 15, 2020.

The adoption of the

amendments has not had a material impact on the consolidated financial statements or related footnote disclosures.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR CORRECTION OF IMMATERIAL ERRORS

We failed to timely adopt ASU 2016-01

– Accounting for Financial Instruments – Classification and Measurement, which states in part that changes in fair value of

equity investments must be recognized in net income.

We have completed an evaluation of the quantitative and qualitative impact of this

error in our historical financial statements and concluded that our historical financial statements are not materially misstated.

that our historical financial statements are not materially misstated for several reasons, including the fact that the cumulative three-year

error had a negative impact to historical net income in the amount of $ 61,000 , an amount we deem immaterial, as well as the fact that

the amounts did not contain a calculation error but rather amounts were presented on an incorrect line item within the financial statements.

We also considered the fact that this error did not impact cash or operating income for any historical period, which we believe is important

to our investors.

Accordingly, the prior year financial statements have been revised to reflect the impact of ASU 2016-1.

classification and reported values of our unrealized gains (losses) on marketable equity investments as accounted for under ASU 2016-01

are included in the consolidated financial statements herein.

The impact to net income for the year ended June 30, 2021, was an increase

of $1.4 million with a corresponding decrease in unrealized gain on marketable equity securities of $1.4 million, previously presented

in other comprehensive income (loss).

The revision resulted in an increase to basic earnings per share of $0.36 and diluted earnings per

share of $0.35 for the year ended June 30, 2021.

As of June 30, 2021, the revision reclassified the remaining accumulated other comprehensive

loss of $215,000 to retained earnings.

PRO-DEX, INC.

4 unchanged sentences

Schedule of disaggregation of net sales

Year ended June 30,

ended June 30,

Over-time revenue recognition

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During the fiscal years ended June 30, 2023 and 2022, we recorded $ 1 .0

and $ 50,000 , respectively, of revenue that had been included in deferred revenue in the prior year.

The revenue recognized from the contract

liabilities consisted of satisfying our performance obligations during the normal course of business.

Our entire deferred revenue balance

of $ 1.0 million at June 30, 2022, is currently expected to be recognized in the next 12-months.

The following tables summarize our

contract assets and liability balances (in thousands):

million and $ 98,000 , respectively, of revenue that had been included in deferred revenue in the prior year.

The revenue recognized from

the contract liabilities consisted of satisfying our performance obligations during the normal course of business.

The following tables summarize

our contract assets and liability balances (in thousands):

Schedule of contract assets and liability

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Contract liabilities at end of year

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

1 unchanged sentence

Schedule of investments

Ended June 30,

Marketable equity securities – short-term

Marketable equity securities – long-term

Total Marketable equity securities

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

at June 30, 2022 and 2021 had an aggregate cost basis of $ 2,796,000

and $ 3,204,000 ,

Total Investments

equity securities at June 30, 2023 and 2022 had an aggregate cost basis of $ 2,714,000 and

$ 2,796,000 , respectively.

Both current and long-term investments include equity securities of public companies that are thinly traded.

classified certain investments as long term in nature because even if we decide to sell the stocks we may not be able to sell our

position within one year.

At June 30, 2022, the investments included net unrealized losses of $ 262,000

(gross unrealized losses of $ 369,000

offset by gross unrealized gains of $ 107,000 ).

Both current and long-term marketable equity securities include equity securities of public companies

that are thinly traded.

We classified certain investments as long term in nature because even if we decide to sell the stocks we may not

be able to sell our position within one year.

At June 30, 2023, the investments included net unrealized losses of $ 219,000 (gross unrealized

losses of $ 286,000 offset by gross unrealized gains of $ 67,000 ).

At June 30, 2022, the investments included net unrealized losses of $ 262,000

(gross unrealized losses of $ 376,000

offset by gross unrealized gains of $ 171,000 ).

Of the total marketable equity securities

at June 30, 2022 and 2021, $ 755,000 and $ 847,000 , respectively, represent an investment in the common stock of Air T, Inc.

Board members, Messrs.

Swenson and Cabillot, are also board members of Air T, Inc.

and both either

individually or through affiliates own an equity interest in Air T, Inc.

Swenson, our Chairman, also serves as the chief executive

officer and chairman of Air T, Inc.

(gross unrealized losses of $ 369,000 offset by gross unrealized gains of $ 107,000 ).

marketable equity securities at June 30, 2023 and 2022, $ 1,134,000 and $ 755,000 , respectively, represent an investment in the common stock

of Air T, Inc.

Two of our Board members, Messrs.

Swenson and Cabillot, are also board members of Air T,

and both either individually or through affiliates own an equity interest in Air T, Inc.

Swenson, our Chairman, also serves as

the chief executive officer and chairman of Air T, Inc.

Another of our Board members is employed by Air T as its Chief of Staff.

The shares have been purchased

through 10b5-1 Plans that, in accordance with our internal policies regarding the approval of related-party transactions, were approved

by our then three Board members that are not affiliated with Air T, Inc.

We invest surplus cash from time

to time through our Investment Committee, which is comprised of one management director, Mr.

Van Kirk, and two non-management directors,

have been purchased through 10b5-1 Plans that, in accordance with our internal policies regarding the approval of related-party transactions,

were approved by our then three Board members that are not affiliated with Air T, Inc.

warrant represents our right to purchase up to 5% of the outstanding stock of Monogram Orthopaedics Inc.

which we were granted on December 18, 2018.

By way of background, we invested in Monogram, a medical device start-up specializing in

precision, patient specific implants in fiscal 2017, by making an $ 800,000

loan to Monogram pursuant to a promissory note in the same amount.

At that time, our Chief Executive Officer, Mr.

Van Kirk, was

appointed to Monogram’s board of directors, a position he has held through the date of this filing.

We impaired our entire $ 800,000

investment in the fourth quarter of fiscal 2018 due to indications that Monogram had exhausted its cash and had been unable to

obtain additional financing to enable continued research to commercialize their technology.

In fiscal 2019, we modified the

promissory note to allow Monogram more time to re-pay the note and, concurrently, we were issued the warrant, with an exercise price

of $ 1,250,000 ,

which at the time we deemed of de minimis value.

During the fourth quarter of fiscal 2020, Monogram repaid the promissory note with

interest, but at that time and through the end of the third quarter of fiscal 2023, we considered the warrant to be of little value

and therefore did not record it as an investment on our consolidated balance sheet.

In May of 2023, Monogram raised funds through a

Regulation A+ offering filed with the Securities and Exchange Commission and contemporaneously converted all of its outstanding

preferred stock to common shares and publicly listed its common shares on the NASDAQ under the ticker symbol MGRM.

The valuation of

the warrant for all prior periods is the subject of the restatement of our previous financial statements because the value of $0 we

had ascribed to the Monogram Warrant in previous periods want not based on its estimated fair value (See Note 2).

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2023 and 2022, the warrant was exercisable into a total of 1,823,058 and 783,386 shares of Monogram’s outstanding stock.

The estimated

fair value of the warrant at June 30, 2023 and 2022 was $ 6,160,000 and $ 2,304,000 , respectively, using a Black-Scholes valuation model

with the following assumptions:

Schedule of assumptions used

Stock Price (common)

Strike Price (common)

Time until expiration (years)

Risk-free interest rate

surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr.

Van Kirk, and two

non-management directors, Mr.

Cabillot and Mr.

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Cabillot and Mr.

Swenson are active investors with extensive portfolio

management expertise.

We leverage the experience of these committee members to make investment decisions for the investment of our surplus

operating capital or borrowed funds.

Additionally, many of our securities holdings include stocks of public companies that either Messrs.

Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies

whose boards they sit on, such as Air T, Inc.

Swenson are active investors

with extensive portfolio management expertise.

We leverage the experience of these committee members to make investment decisions for

the investment of our surplus operating capital or borrowed funds.

Additionally, many of our securities holdings include stocks of public

companies that either Messrs.

Swenson or Cabillot or both may own from time to time either individually or through the investment funds

that they manage, or other companies whose boards they sit on, such as Air T, Inc.

is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):

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Land and Building

Land and building consist of the

following (in thousands):

Land and building consist

of the following (in thousands):

Schedule of land and building

4 unchanged sentences

the build-out of the property in the first quarter of fiscal 2022.

Currently, we are actively engaged in various verification and validation

activities and we moved certain of our employees into the new building during the third quarter of fiscal 2022.

The building is being

amortized on a straight-line basis over a period of 30 years.

In the fourth quarter of fiscal 2023 we substantially completed all

of our validation activities, and we moved our repairs and assembly departments to the new facility.

The building is being amortized on

a straight-line basis over a period of 30 years.

PRO-DEX, INC.

2 unchanged sentences

Equipment and Improvements

Equipment and improvements consist

of the following (in thousands):

Equipment and improvements

consist of the following (in thousands):

Schedule of equipment and improvements

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expense for the years ended June 30, 2023 and 2022 amounted to $ 727,000 and $ 616,000 , respectively.

During fiscal 2022, $ 87,000 of assets

were retired either due to physical disposal or major part replacement with a net book value of $ 35,000 recorded as a loss on disposal

of equipment in our consolidated income statement.

During fiscal 2021, fully depreciated assets in the amount of $ 49,000 were retired.

Intangibles consist

of the following (in thousands):

During fiscal 2023, fully depreciated

assets in the amount of $ 760,000 were retired.

During fiscal 2022, $ 87,000 of assets were retired either due to physical disposal or major

part replacement with a net book value of $ 35,000 recorded as a loss on disposal of equipment in our consolidated income statement.

consist of the following (in thousands):

Schedule of intangibles

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future benefit.

This impairment expense is included in research and development costs in our consolidated income statement.

This impairment expense was included in research and development costs in our consolidated income statement.

Future amortization

expense is estimated to be no more than $ 30,000 per year and all remaining costs are expected to be fully amortized within four years.

Accrued Liabilities

Accrued liabilities consist of the

following (in thousands):

expense is estimated to be no more than $ 30,000 per year and all remaining costs are expected to be fully amortized within three years.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued liabilities consist

of the following (in thousands):

Schedule of accrued liabilities

6 unchanged sentences

Total accrued expenses

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WARRANTY ACCRUAL

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Balance at end of year

Warranty expense relating to new product sales and changes

to estimates was $ 231,000 and $ 312,000 , respectively, for the fiscal years ended June 30, 2022 and 2021.

provision for income taxes consists of the following amounts (in thousands):

Warranty expense relating to new product sales and

changes to estimates was $ 52,000 and $ 231,000 , respectively, for the fiscal years ended June 30, 2023 and 2022.

The provision

for income taxes consists of the following amounts (in thousands):

Schedule of provision for income taxes

Years Ended June 30,

Ended June 30,

Income tax expense

The effective income tax rate from

income from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below

(in thousands, except percentages).

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective income tax rate

from income from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table

below (in thousands, except percentages).

Schedule of reconciliation federal statutory income tax rates

Years Ended June 30,

Ended June 30,

Pretax Income

Income before income taxes

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Income tax expense

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the

net effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial

reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities for

federal and state income taxes are as follows (in thousands):

Deferred income taxes reflect the net effects of loss

and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting purposes

and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities for federal and state

income taxes are as follows (in thousands):

Schedule of deferred income tax assets and liabilities

4 unchanged sentences

Unrealized losses

Section 174 capitalization

Lease liability

Deferred state tax

Total gross deferred tax assets

5 unchanged sentences

Deferred state tax

Unrealized gains

Total gross deferred tax liabilities

Net deferred tax assets

Realization of our deferred tax

assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

As of June 30, 2022, our deferred tax

asset valuation allowance primarily consists of unrealized capital loss for investments held and the state net operating loss carryforwards

Net deferred tax assets (liabilities)

Realization of our deferred

tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

As of June 30, 2023, our deferred

tax asset valuation allowance primarily consists and the state net operating loss carryforwards

for states in which we have filed a final return.

2 unchanged sentences

not to be realized.

As of June 30, 2022, we did not

have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate.

no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2022.

As of June 30, 2022, we have

accrued $ 509,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax expense

if recognized.

If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced.

Any adjustment

to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash outlay.

PRO-DEX, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect to our

accrual for unrecognized tax benefits is as follows (in thousands):

As of June 30, 2023, we

did not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate.

We have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2023.

As of June 30, 2023,

we have accrued $ 345,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax

expense if recognized.

If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced.

adjustment to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash

Information with respect to our accrual for unrecognized

tax benefits is as follows (in thousands):

Schedule of accrual unrecognized tax benefits

3 unchanged sentences

Additions based on state tax positions related to the current year

Additions for tax positions of prior years

Additions (reductions) for tax positions of prior years

Reductions due to lapses in statutes of limitation

Ending balance

Although it is reasonably possible

that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities,

expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published

tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve

We recognize accrued interest and

penalties related to unrecognized tax benefits in income tax expense when applicable.

As of June 30, 2022, no interest or penalties

applicable to our unrecognized tax benefits have been accrued since we have sufficient tax attributes available to fully offset any potential

assessment of additional tax.

Although it is reasonably

possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement

activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results

of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the

next twelve months.

We recognize accrued interest

and penalties related to unrecognized tax benefits in income tax expense when applicable.

As of June 30, 2023, $ 45,000 of interest

applicable to our unrecognized tax benefits have been accrued.

We are subject to U.S.

federal income

tax, as well as income tax of California, Colorado, and Massachusetts.

income tax, as well as income tax of California, Colorado, and Massachusetts.

We are currently open to audit under the statute of limitations

1 unchanged sentence

However, because of our prior net operating losses

and research credit carryovers, our tax years from June 30, 2007, years are open to audit.

and research credit carryovers, our tax years from June 30, 2008, are open to audit.

NOTES PAYABLE AND FINANCING TRANSACTIONS

44 unchanged sentences

Commencing July 1, 2021 and continuing on the first day of each month

thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan

A of approximately $ 97,000 plus any additional accrued and unpaid interest through the date of payment.

The balance owed on Term Loan

A as of June 30, 2022, is $ 5,792,000 .

thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan A of approximately $ 97,000

plus any additional accrued and unpaid interest through the date of payment.

The balance owed on Term Loan A as of June 30, 2023, is $ 4,832,000 .

Term Loan B matures on November 1, 2027 and bears interest at a fixed rate of 3.84 % per annum.

6 unchanged sentences

B and the balance outstanding on Term Note B was $ 719,000 on June 30, 2023.

Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2023 , unless earlier terminated pursuant

to its terms, and bears interest at an annual rate equal to the greater of (a) 2.75 % or (b) the prime rate minus 0.5% as published in

the Money Rates section of the Wall Street Journal.

Commencing on the first day of each month after we initially borrow against the Revolving

Loan and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Revolving Loan through the

date of payment.

Any principal on the Revolving Loan that is not previously prepaid shall be due and payable in full on the maturity date

(or earlier termination of the Revolving Loan).

During the fourth quarter of fiscal 2022 we borrowed $ 2,000,000 against the Revolving

payment on the Loans not made within seven days after the due date is subject to a late payment fee equal to 5 % of the overdue amount.

Upon the occurrence and during the continuance of an event of default, the interest rate of all Loans will be increased by 3 % and MBT

may, at its option, declare the Loans immediately due and payable in full.

Amended Credit Agreement, Security Agreement, Term Note A, Term Note B, and Revolving Note contain representations and warranties, affirmative,

negative and financial covenants, and events of default that are customary for loans of this type.

As of June 30, 2022, we failed one

of the financial covenants required by our Amended Credit Agreement, but we obtained a waiver of default from MBT.

Although there can

be no assurances, we anticipate that we will be in compliance with our debt covenants for at least the next fiscal year, and therefore

we do not believe we will require any future waivers of default from MBT.

On December 29, 2022 (the “Amendment

Date”), we entered into Amendment No.

2 to Amended and Restated Credit Agreement (the “Amendment”) with MBT, which amends

the Amended Credit Agreement and provides for a supplemental line of credit in the amount of $ 3,000,000 (the “Supplemental Loan”).

The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental Note”) made by us in favor of

The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of our common stock.

The Supplemental

Loan may be borrowed against from time to time through its maturity date of December 29, 2024 , on the terms set forth in the Amended Credit

As of June 30, 2023, no amounts have been drawn against the Supplemental Loan.

The Revolving Loan was also amended

(the “Amended Revolving Loan”) in connection with the Amendment to extend the maturity date from November 5, 2023 to December

29, 2024 , to increase the Revolving Loan facility from $ 2,000,000 to $ 7,000,000 , and to increase the interest rate on the Revolving Loan

(as described below), evidenced by an Amended and Restated Revolving Credit Note (the “Amended Revolving Note”) made by us

in favor of MBT.

The Amended Revolving Loan may be borrowed against from time to time by us through its maturity date on the terms set

forth in the Amended Credit Agreement.

As of June 30, 2023, we had drawn $ 2,500,000 against the Amended Revolving Loan.

Loan origination

fees in the amount of $ 16,000 were paid to MBT in conjunction with the Amended Revolving Loan and the Supplemental Loan.

The Amended Revolving Loan and

Supplemental Loan bear interest at an annual rate equal to the greater of (a) 5.0 % or (b) SOFR for a one-month period from the website

of the CME Group Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”).

Commencing on the first day of

each month after we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity,

we are required to pay all accrued and unpaid interest on the Amended Revolving Loan and Supplemental Loan through the date of payment.

Any principal on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on

the maturity date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan).

PRO-DEX, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

principal maturities of our loans, exclusive of unamortized loan origination fees in the amount of $ 55,000 , for future fiscal years ending

June 30 are as follows (in thousands):

payment on the Term Loan A, the Term Loan B, the Amended Revolving Loan or the Supplemental Loan (collectively, the “Loans”)

not made within seven days after the due date is subject to a late payment fee equal to 5 % of the overdue amount.

Upon the occurrence

and during the continuance of an event of default, the interest rate of all Loans will be increased by 3 % and MBT may, at its option,

declare all of the Loans immediately due and payable in full.

Amended Credit Agreement, Amended Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations

and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type.

that we are in compliance with all of our debt covenants as of June 30, 2023, but there can be no assurance that we will remain in compliance

for the duration of the term of these loans.

Scheduled principal

maturities of our loans, assuming repayment of our revolver in full next fiscal year and exclusive of unamortized loan origination fees

in the amount of $ 59,000 , for future fiscal years ending June 30 are as follows (in thousands):

Schedule of maturities of term loan for future fiscal years

Principal Payments

Total principal payments

Our operating lease ROU asset and

long-term liability are presented separately on our balance sheet.

The current portion of our operating lease liability, exclusive of

imputed interest, as of June 30, 2022, in the amount of $ 379,000 , is presented within accrued expenses on the balance sheet.

30, 2022, the maturity of our lease liability is as follows:

Our operating lease ROU

asset and long-term liability are presented separately on our balance sheet.

The current portion of our operating lease liability, exclusive

of imputed interest, as of June 30, 2023, in the amount of $ 416,000 , is presented within accrued expenses on the balance sheet.

June 30, 2023, the maturity of our lease liability is as follows:

Schedule of maturities of lease liabilities

Operating Lease

Total lease payments

Less imputed interest:

As of June 30, 2022, our operating

lease has a remaining lease term of five years and three months and an imputed interest rate of 5.3 %.

Cash paid for amounts included in

the lease liability for the fiscal years ended June 30, 2022 and 2021 was $ 489,000 and $ 475,000 , respectively.

As of June 30, 2023, our

operating lease has a remaining lease term of four years and three months and an imputed interest rate of 5.3 %.

Cash paid for amounts

included in the lease liability for the fiscal years ended June 30, 2023 and 2022 was $ 504,000 and $ 489,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

corporate office lease requires us to pay insurance, taxes, and other expenses related to the leased space.

Rent expense in fiscal 2022 and

2021 was $ 559,000 and $ 558,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rent expense in fiscal 2023

and 2022 was $ 563,000 and $ 559,000 , respectively.

Compensation Arrangements

1 unchanged sentence

The Pro-Dex, Inc.

Retirement Savings

401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees and

is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.

Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees

and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.

Employees are eligible to participate

1 unchanged sentence

Participants are eligible to receive non-discretionary matching contributions by the Company equal to 25 % of their contributions up to

5 % of eligible compensation.

For the fiscal years ended June 30, 2022 and 2021, we recognized compensation expense amounting to $ 72,000

and $ 81,000 , respectively, in connection with the 401(k) Plan.

During our fiscal years ended June 30, 2022 and 2021, we used approximately

$ 25,000 and $ 17,000 , respectively, of forfeited match contributions to reduce our match expense.

5 % of eligible compensation through December 15, 2022 and 50 % of their contributions up to 5 % of eligible compensation thereafter.

the fiscal years ended June 30, 2023 and 2022, we recognized compensation expense amounting to $ 164,000 and $ 72,000 , respectively,

in connection with the 401(k) Plan.

During our fiscal years ended June 30, 2023 and 2022, we used approximately $ 13,000 and $ 25,000 , respectively,

of forfeited match contributions to reduce our match expense.

Legal Matters

On August 24, 2021, one of our customers,

through its counsel, sent notice that it is seeking indemnification from Pro-Dex regarding a pending complaint filed by a third-party

claiming patent infringement on one of the products which we manufacture for this customer.

Our position is that there is no infringement

and/or that the patent at issue is invalid.

We have not accrued any amounts related to this claim.

On August 26, 2022, the third-party

voluntarily dismissed all of its claims with prejudice.

In addition to the above matter,

we may be involved in legal proceedings arising either in the ordinary course of our business or incidental to our business.

be no certainty, however, that we may not ultimately incur liability or that such liability will not be material or adverse.

We may be involved in legal proceedings

arising either in the ordinary course of our business or incidental to our business.

There can be no certainty, however, that we may not

ultimately incur liability or that such liability will not be material or adverse.

SHARE-BASED COMPENSATION

Stock Option Plans

Through 2014, we had

two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the “Employee Stock Option Plan”) and

the Amended and Restated 2004 Directors’ Stock Option Plan (the “Directors’ Stock Option Plan”) (collectively,

the “Former Stock Option Plans”).

The Employee Stock Option Plan and Director’s Stock Option Plan were terminated in

June 2014 and December 2014, respectively.

In September 2016, our Board approved

the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at our 2016 Annual Meeting.

The 2016 Equity

Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory

Through 2014,

we had two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the

“Employee Stock Option Plan”) and the Amended and Restated 2004 Directors’ Stock Option Plan (the “Directors’

Stock Option Plan”) (collectively, the “Former Stock Option Plans”).

The Employee Stock Option Plan and Director’s

Stock Option Plan were terminated in June 2014 and December 2014, respectively.

In September 2016, our Board

approved the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at our 2016 Annual Meeting.

Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory

stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards.

Former Stock Option Plans

No options were granted under the

Former Stock Option Plans during the fiscal years ended June 30, 2022 and 2021.

As of June 30, 2022,

there was no unrecognized compensation cost under the Former Stock Option Plans as all outstanding

stock options are fully vested.

The intrinsic value of stock options outstanding and exercisable at June 30, 2022, was approximately $ 92,000

with a weighted-average remaining contractual term of 0.29 years at June 30, 2022.

No options were granted

under the Former Stock Option Plans during the fiscal years ended June 30, 2023 and 2022.

30, 2023, there was no unrecognized compensation cost under the Former Stock Option Plans and all remaining outstanding stock options

were exercised during fiscal 2023 .

PRO-DEX, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of stock

option activity under the Former Stock Option Plans for the fiscal years ended June 30, 2022 and 2021:

The following is a

summary of stock option activity under the Former Stock Option Plans for the fiscal years ended June 30, 2023 and 2022:

Schedule of summary of stock option activity

Number of Shares

Weighted-Average

Exercise Price

Number of Shares

Weighted-Average

5 unchanged sentences

Outstanding at end of period

Stock Options Exercisable at June 30,

Stock Options Exercisable at

Performance Awards

In December 2017, the Compensation

Committee of our Board of Directors granted 200,000 performance awards to our employees, which upon vesting will generally be paid in

shares of our common stock.

Whether any performance awards vest, and the amount that does vest, is tied to the completion of service periods

that range from 7 months to 9.5 years at inception and the achievement of our common stock trading at certain pre-determined prices.

weighted-average fair value of the performance awards granted was $ 4.46 , calculated using the weighted-average fair market value for each

award, using a Monte Carlo simulation.

In February 2020, the Compensation Committee reallocated 48,000 previously forfeited awards, having

the same remaining terms and conditions, to certain current employees.

The weighted average fair value of the performance awards granted

in fiscal 2020 was $ 16.90 , calculated using the weighted-average fair market value for each award, using a Monte Carlo simulation.

December 2021, the Compensation Committee reallocated an additional 17,500 previously forfeited awards, having the same remaining terms

and conditions, to other employees.

The weighted average fair value of the performance awards reallocated in 2021 was $ 20.34 , calculated

using the weighted average fair market value for each award, using a Monte Carlo simulation.

We recorded share-based compensation expense

of $ 194,000 and $ 84,000 for the fiscal years ended June 30, 2022 and 2021, respectively, related to these performance awards.

30, 2022, there was approximately $ 322,000 of unrecognized compensation cost related to these non-vested performance awards expected to

be expensed over the weighted-average period of 1.97 years.

On July 1, 2020, it was determined

by the Compensation Committee that the second of five tranches of the performance awards had been achieved and participants were awarded

40,000 shares of common stock.

Each participant elected a net issuance to cover their individual withholding taxes in the amount of $ 259,000

and therefore we issued 25,629 shares with an effective date of July 16, 2020, coinciding with the pay date that included July 1, 2020.

The following is a summary of performance

awards activity for the fiscal years ended June 30, 2022 and 2021:

Committee of our Board of Directors granted 200,000 performance awards to our employees under the 2016 Equity Incentive Plan, which upon

vesting will generally be paid in shares of our common stock.

Whether any performance awards vest, and the amount that does vest, is tied

to the completion of service periods that range from 7 months to 9.5 years at inception and the achievement of our common stock trading

at certain pre-determined prices .

The weighted-average fair value of the performance awards granted was $ 4.46 , calculated using the weighted-average

fair market value for each award, using a Monte Carlo simulation.

In February 2020, the Compensation Committee reallocated 48,000 previously

forfeited awards, having the same remaining terms and conditions, to certain current employees.

The weighted average fair value of the

performance awards granted in fiscal 2020 was $ 16.90 , calculated using the weighted-average fair market value for each award, using a

Monte Carlo simulation.

In December 2021, the Compensation Committee reallocated an additional 17,500 previously forfeited awards, having

the same remaining terms and conditions, to other employees.

The weighted average fair value of the performance awards reallocated in

2021 was $ 20.34 , calculated using the weighted average fair market value for each award, using a Monte Carlo simulation.

We recorded share-based

compensation expense of $ 106,000 and $ 194,000 for the fiscal years ended June 30, 2023 and 2022, respectively, related to these performance

On June 30, 2023, there was approximately $ 98,000 of unrecognized compensation cost related to these non-vested performance awards

expected to be expensed over the weighted-average period of 2.0 years.

On July 1, 2022, it was

determined by the Compensation Committee of our Board of Directors that the vesting of performance awards for 37,500 shares of common

stock had been achieved.

Each participant elected a net issuance to cover their individual withholding taxes and therefore we issued 23,641

shares and paid $ 223,000 of participant-related payroll tax liabilities.

The following is a summary

of performance awards activity for the fiscal years ended June 30, 2023 and 2022:

Schedule of summary of stock option activity

Weighted-Average

Grant Date Fair Value

Weighted-Average

Grant Date Fair Value

Outstanding at July 1,

25 unchanged sentences

of our Board of Directors granted, 5,000 previously forfeited non-qualified stock options to another employee.

The following is a summary of non-qualified

stock option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2022 and 2021:

The following is a summary of

non-qualified stock option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2023 and 2022:

Schedule of summary of stock option activity

8 unchanged sentences

Outstanding at end of period

Stock Options Exercisable at June 30,

Employee Stock Purchase Plan

In September 2014, our Board approved

the establishment of an Employee Stock Purchase Plan (the “ESPP”).

The ESPP conforms to the provisions of Section 423 of the

Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing at which participant’s

Stock Options Exercisable at

Employee Stock Purchase

In September 2014, our Board

approved the establishment of an Employee Stock Purchase Plan (the “ESPP”).

The ESPP conforms to the provisions of Section

423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing at which participant’s

purchase shares of our common stock on a formula so as to result in a per share purchase price that approximates a 15% discount from the

6 unchanged sentences

ESPP under the Securities Act of 1933.

During the fiscal years ended June

30, 2022 and 2021, shares totaling 2,576 and 2,677 , respectively, were purchased pursuant to the ESPP and allocated to participating employees

based upon their contributions at weighted- average prices of $ 23.33 and $ 21.47 , respectively.

On a cumulative basis, since the inception

of the ESPP, employees have purchased a total of 27,039 shares.

During the fiscal years ended June 30, 2022 and 2021, we recorded stock

compensation expense in the amount of $ 11,000 and $ 10,000 , respectively, relating to the ESPP.

During the fiscal years

ended June 30, 2023 and 2022, shares totaling 5,459 and 2,576 , respectively, were purchased pursuant to the ESPP and allocated to participating

employees based upon their contributions at weighted- average prices of $ 14.21 and $ 23.33 , respectively.

On a cumulative basis, since

the inception of the ESPP, employees have purchased a total of 32,498 shares.

During the fiscal years ended June 30, 2023 and 2022, we

recorded stock compensation expense in the amount of $ 14,000 and $ 11,000 , respectively, relating to the ESPP.

PRO-DEX, INC.

6 unchanged sentences

Years Ended June 30,

Percent of Total

Customer concentration:

Information with respect to accounts

receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2022 or June 30, 2021

Information with respect

to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2023 or June

30, 2022 is as follows (in thousands, except percentages):

4 unchanged sentences

Customer concentration:

During fiscal 2022 and 2021, we had

between two and four suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages):

During fiscal 2023 and 2022,

we had four suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages):

June 30, 2023

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect to accounts

payable due to those suppliers who comprised more than 10% of our accounts payable at either June 30, 2022 or June 30, 2021 is as follows

(in thousands, except percentages):

June 30, 2022

June 30, 2021

Information with respect

to accounts payable due to those suppliers who comprised more than 10% of our accounts payable at either June 30, 2023 or June 30, 2022

is as follows (in thousands, except percentages):

Total accounts payable

1 unchanged sentence

NET INCOME PER SHARE

basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period.

Diluted earnings per share reflects the effects of potentially dilutive securities.

The summary of the basic and diluted earnings per

share calculations for the years ended June 30, 2022 and 2021 is as follows (in thousands, except per share data):

Schedule of weighted average shares outstanding calculation of basic and diluted per share

Years Ended June 30,

We calculate basic earnings

per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period.

Diluted earnings

per share reflects the effects of potentially dilutive securities.

The summary of the basic and diluted earnings per share calculations

for the years ended June 30, 2023 and 2022 is as follows (in thousands, except per share data):

Schedule of net income per share

Ended June 30,

Weighted-average shares outstanding

5 unchanged sentences

COMMON STOCK – Share Repurchase Program

December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to one million shares of our common stock,

as the prior repurchase plan authorized by our Board in 2013 was nearing completion.

In accordance with, and as part of, these share repurchase

programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided

by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”).

During the fiscal

year ended June 30, 2022, we repurchased 75,250 shares at an aggregate cost, inclusive of fees under the Plan ,

December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to one million shares of our common

stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion.

In accordance with, and as part of, these

shares repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the

safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”).

During the fiscal year ended June 30, 2023, we repurchased 86,422 shares at an aggregate cost, inclusive of fees under the Plan, of $ 1.5

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.

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.

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 fess under the Plan, of $ 17.2 million.

All repurchases under the 10b5-1 Plans were administered through an independent

SUBSEQUENT EVENTS

We have evaluated subsequent events

through the date of this filing.

There were no subsequent events that require disclosure.

On October 6, 2023, in

conjunction with the execution of a supply agreement, we exercised our Monogram Warrant in full in cash totaling $ 1,250,000

and have received 1,828,551

shares of Monogram common stock (NasdaqCM:

The closing price of Monogram stock on October 6, 2023, was $ 2.67 per

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data