What changed in this filing

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Item 1. Financial Statements

2024-02-08 compared with 2023-11-02 · 365 added, 356 removed, 276 unchanged (72% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for credit losses of $ 0 at September 30, 2023 and at June 30, 2023, respectively

Accounts receivable, net of allowance for expected credit losses of $ 0 at December 31, 2023 and at June 30, 2023, respectively

Deferred costs

Income taxes receivable

Prepaid expenses and other current assets

20 unchanged sentences

50,000,000 shares authorized;

3,547,330 and 3,545,309 shares issued and outstanding at September 30, 2023 and June 30, 2023, respectively

3,541,045 and 3,545,309 shares issued and outstanding at December 31, 2023 and June 30, 2023, respectively

Retained earnings

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

Months Ended September 30,

(as restated)

(In thousands, except per share amounts)

Cost of sales

5 unchanged sentences

Operating income

Other income (expense):

Interest and dividend income

Realized gain on sale of marketable equity investments

Unrealized gain (loss) on investments

Interest expense

Total other income (loss)

Unrealized gain (loss) on marketable equity investments

Interest and other income

Gain on sale of investments

Income (loss) before income taxes

Provision for income taxes

Income tax benefit (expense)

Net income (loss)

Basic and diluted net income per share:

Basic net income (loss) per share:

Net income (loss)

Diluted net income (loss) per share:

Net income (loss)

Weighted-average common shares outstanding:

6 unchanged sentences

(In thousands)

Three Months Ended

September 30,

COMMON STOCK:

Balance, beginning of period

Share-based compensation expense

Stock option exercise

Share repurchases

Shares withheld from common stock issued to employees to pay employee

payroll taxes

Shares withheld from common stock issued to employees to pay employee payroll taxes

Exercise of stock options

ESPP shares issued

3 unchanged sentences

Net income (loss)

Balance, at end of period

Balance, end of period

Balance, beginning of period

7 unchanged sentences

(In thousands)

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

(as restated)

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Unrealized (gain) loss on marketable equity investments

Non-cash lease expense

Amortization of loan fees

Non-cash lease expense (recovery)

Amortization of loan fees, net

Gain on sale of investments

2 unchanged sentences

Changes in operating assets and liabilities:

Accounts receivable and other receivables

Accounts receivable

Deferred costs

Prepaid expenses

Prepaid expenses and other assets

Accounts payable and accrued expenses

Deferred revenue

Income taxes payable

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of investments

Purchases of equipment and improvements

2 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Proceeds from Minnesota Bank & Trust loans, net of origination fees

Proceeds from stock option exercises and ESPP contributions

Payments of employee taxes on net issuance of common stock

Repurchases of common stock

Proceeds from exercise of options and ESPP contributions

Payment of employee payroll taxes on net issuance of common stock

Proceeds from Minnesota Bank & Trust revolving loan

Principal payments on notes payable and revolving loan

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

4 unchanged sentences

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS - CONTINUED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

September 30,

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Income taxes, net of refunds

The accompanying notes are an integral part of

these condensed consolidated financial statements.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc.

2 unchanged sentences

generally accepted in the United States (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and

Regulation S-K.

Accordingly, they do not include all of the information and footnotes required

GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation

Accordingly, they do not include all of the information and footnotes required by

GAAP for complete financial statements.

These financial statements should be read

in conjunction with the financial statements presented in our Annual Report on Form 10-K

for the fiscal year ended June 30, 2023.

These financial statements should be read in conjunction

with the financial statements presented in our Annual Report on Form 10-K for the fiscal

year ended June 30, 2023.

In the opinion of management, all adjustments considered necessary for a fair

10 unchanged sentences

We adopted ASU 2022-02 effective

July 1, 2023, and the adoption did not have a material impact on our financial statements for the three months ended September 30, 2023.

July 1, 2023, and the adoption did not have a material impact on our financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued

ASU No 2023-09 (Topic 740) Income Taxes – Improvements to Income Tax Disclosures to enhance disclosures for the income tax

rate reconciliation as well as cash income taxes paid by jurisdiction.

This amendment is effective for our fiscal year ending June 30,

While we are still evaluating the specifics of the adoption, we anticipate this guidance will have a significant impact on our annual

income tax disclosures.

Correction of Previously Reported Interim Condensed

Consolidated Financial Statements

As previously

disclosed, the Company restated its 2023 financial statements, which were presented in Note 2 to the audited consolidated financial

statements for Company’s fiscal year 2023 Form 10-K filed with the Securities and Exchange Commission (“SEC”) on

October 13, 2023.

The restatement corrected the error related to the understated fair value of the Monogram warrant.

The restatement

recorded the investment at its estimated fair value for all restated periods, recorded an unrealized gain on investments and

recorded the deferred income tax expense associated with the corresponding unrealized gain on investments.

Presented below are the

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

First Quarter Fiscal 2023 Unaudited Income Statement – Three months

ended September 30, 2022

As described in more detail

in Note 2 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended

June 30, 2023, the Company previously restated certain of its financial statements, including its financial statements for the three and

six months ended December 31, 2022, to correct the estimated fair value of the Company’s warrant to purchase up to five percent

(5%) of the outstanding capital stock of Monogram Orthopaedics Inc.

MGRM), calculated on a fully diluted basis (the “Monogram

The restatement recorded, for all restated periods, the Monogram Warrant at its estimated fair value, an unrealized gain

on investments, and the deferred income tax expense associated with the corresponding unrealized gain on investments.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Presented below are

the changes to each financial statement line item for the three and six months ended December 31, 2022 that were affected by the restatement (in thousands except per share amounts).

Three months ended December 31, 2022 Unaudited Income Statement (Second

Quarter Fiscal 2023)

Schedule of changes in financial statement

6 unchanged sentences

Diluted income per share

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

(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 September 30, 2022.

the three months ended December 31, 2022.

Six months ended December 31, 2022 Unaudited Income Statement

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 six months ended December 31, 2022.

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

the six months ended December 31, 2022.

DESCRIPTION OF BUSINESS

5 unchanged sentences

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

August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000

square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order

to allow for the continued growth of our business.

The condensed consolidated financial statements include the accounts of the Company

and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In August 2020, we formed

a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial

building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the

continued growth of our business.

The condensed consolidated financial statements include the accounts of the Company and PDEX Franklin

and all significant inter-company accounts and transactions have been eliminated.

This subsidiary has no separate operations.

2 unchanged sentences

Schedule of disaggregation of net sales

months ended September 30,

Over-time revenue recognition

10 unchanged sentences

based on costs incurred compared to the estimated total costs upon completion.

During the three months ended September 30, 2023 and 2022,

During the three and six months ended December 31, 2023,

we did no t record any revenue that had been included in deferred revenue in the prior year.

During the three and six months ended December

31, 2022, we recorded $ 312,000 and $ 862,000 , 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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize

our contract assets and liability balances (in thousands):

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

As of December 31, 2023, we do no t have any deferred revenue.

The following tables summarize our contract

assets and liability balances (in thousands):

Schedule of contract assets and liability

Three Months Ended

September 30,

of and for the

Contract assets beginning balance

1 unchanged sentence

Amounts reclassified to cost of sales

Amounts allocated to discounts for standalone selling price

allocated to discounts for standalone selling price

Contract assets ending balance

Three Months Ended

September 30,

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of and for the

Contract liabilities beginning balance

2 unchanged sentences

Contract liabilities ending balance

COMPOSITION OF CERTAIN FINANCIAL

STATEMENT ITEMS

are stated at fair market value and consist of the following (in thousands):

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

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

Schedule of inventory

Raw materials/purchased components

Work in process

Sub-assemblies/finished components

Finished goods

Total inventory

are stated at market value and consist of the following (in thousands):

Schedule of investments

2 unchanged sentences

Total Investments

at September 30, 2023 and June 30, 2023 had an aggregate cost basis of $ 2,714,000 .

We classified certain investments as long-term in nature because if we decide to sell these securities, we may not be able to sell

our position within one year.

At September 30, 2023, the investments, excluding the warrant (“Monogram Warrant”),

included unrealized gains of $ 200,000 (gross

unrealized gains of $ 362,000

offset by gross unrealized losses of $ 162,000 ) .

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

(gross unrealized losses of $ 286,000

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

at December 31, 2023 and June 30, 2023 had an aggregate cost basis of $ 3,964,000 and $ 2,714,000 , respectively.

The long-term investments

include equity investments of thinly traded securities that we classified as long term in nature because if we decide to sell these securities,

we may not be able to sell our position within one year.

At December 31, 2023, the investments included net unrealized gains of $ 3.3

million (gross unrealized gains of $ 3.8 million offset by gross unrealized losses of $ 482,000 ).

At June 30, 2023, the investments, excluding

the Monogram Warrant, included net unrealized losses of $ 219,000 (gross unrealized losses of $ 286,000 offset by gross unrealized gains

of $ 67,000 ).

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the total marketable equity securities at September 30, 2023 and June 30, 2023, $ 1,010,000 and $ 1,134,000 , respectively, represent an

investment in the common stock of Air T, Inc.

the total marketable equity securities at December 31, 2023 and June 30, 2023, $ 763,000 and $ 1,134,000 , respectively, represent an investment

in the common stock of Air T, Inc.

Two of our Board members are also board members of Air T, Inc.

and both either individually

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

Our Chairman, one of the two Board members aforementioned, also serves as

the Chief Executive Officer and Chairman of Air T, Inc.

and both either individually or through

affiliates own an equity interest in Air T, Inc.

Our Chairman, one of the two Board members aforementioned, also serves as the Chief

Executive Officer and Chairman of Air T, Inc.

Another of our Board members is employed by Air T, Inc.

as its Chief of Staff.

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

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

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

(“Monogram”) which

we were granted on December 18, 2018.

On October 6, 2023, in conjunction with the execution of a supply agreement with Monogram, 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 share.

30, 2023 and June 30, 2023, the Monogram Warrant was exercisable into a total of 1,825,405 and 1,823,058 shares of Monogram’s outstanding

stock, respectively.

The estimated fair value of the warrant at September 30, 2023 and June 30, 2023 was $ 3,670,000 and $ 6,160,000 , respectively,

using a Black-Scholes valuation model with the following assumptions:

Schedule of assumptions used

September 30,

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, Richard (“Rick”)

Van Kirk, and two non-management directors, Raymond (“Ray”) Cabillot and Nicholas (“Nick”) Swenson, who chairs

the committee.

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

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

6, 2023, in conjunction with the execution of a supply agreement with Monogram, we exercised the Monogram Warrant in full in cash totaling

$ 1,250,000 and received 1,828,551 shares of Monogram common stock (NasdaqCM:

On the date of exercise our unrealized loss on the

investment was approximately $ 38,000 .

The fair value of the Monogram common stock is reflected in marketable equity securities –

short term in the table above as of December 31, 2023.

Our Chief Executive Officer, Richard (“Rick”) Van Kirk,

is also a Monogram board member.

We invest surplus

cash from time to time through our Investment Committee, which is comprised of one management director, Rick Van

Kirk, and two non-management directors, Raymond (“Ray”) Cabillot and Nicholas (“Nick”) Swenson, who chairs the

Both Nick and Ray 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 Nick or Ray 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):

Schedule of inventory

Raw materials/purchased components

Work in process

Sub-assemblies/finished components

Finished goods

Total inventory

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 Nick or Ray 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.

Land and building

Land and building consist

of the following (in thousands):

Schedule of land and building

accumulated depreciation

November 6, 2020, we acquired the Franklin Property for a total purchase price of $ 6.5 million, of which we paid $ 1.3 million in cash

and the balance of $ 5.2 million we financed through Minnesota Bank & Trust (“MBT”) (See Note 10).

We substantially completed

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

We began operations in the new facility during the fourth quarter of

The building is being amortized on a straight-line basis over a period of 30 years.

consist of the following (in thousands):

1 unchanged sentence

Patent-related costs

Less accumulated amortization

Patent-related

costs consist of legal fees incurred in connection with both patent applications and a patent issuance, and will be amortized over the

estimated life of the product(s) that is or will be utilizing the technology, or expensed immediately in the event the patent office denies

the issuance of the patent.

Future amortization expense is estimated to be $ 27,000 for fiscal 2024 and annually through fiscal 2026.

remaining costs are expected to be fully amortized by June 30, 2026.

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 condensed consolidated balance sheets.

As of September 30, 2023 and June 30, 2023, the warranty reserve

amounted to $ 189,000 and $ 200,000 , respectively.

Warranty expenses are included in cost of sales in the accompanying condensed consolidated

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.

accumulated amortization

Patent-related costs consist of legal fees

incurred in connection with both patent applications and a patent issuance and will be amortized over the estimated life of the product(s)

that is or will be utilizing the technology, or expensed immediately in the event the patent office denies the issuance of the patent.

Future amortization expense is expected to be $ 14,000 for the remainder of fiscal 2024 and $ 28,000 per fiscal year through fiscal 2026,

at which time we expect these costs to be fully amortized.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 condensed consolidated balance sheets.

As of December 31, 2023 and June 30, 2023, the warranty

reserve amounted to $ 194,000 and $ 200,000 , respectively.

Warranty expenses are included in cost of sales in the accompanying condensed

consolidated statements of income.

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.

Warranty expense

relating to new product sales and changes to estimates for the three months ended December 31, 2023 and 2022 was $ 37,000 and $ 56,000 ,

respectively, and for the six months ended December 31, 2023 and 2022 was $ 60,000 and $ 123,000 , respectively.

Information regarding the

accrual for warranty costs for the three months ended September 30, 2023 and 2022 are as follows (in thousands):

accrual for warranty costs for the three and six months ended December 31, 2023 and 2022, are as follows (in thousands):

Schedule of accrual warranty costs

Three Months Ended

September 30,

of and for the

Beginning balance

1 unchanged sentence

Changes in estimates of prior period warranty accruals

Warranty amortization/utilization

Warranty amortization

Ending balance

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NET INCOME (LOSS) PER SHARE

We calculate basic net

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

income per share reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options and performance

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

The weighted-average number of common shares outstanding reflects the effects of potentially dilutive securities, in income generating

periods, which consist entirely of outstanding stock options and performance awards.

The following table presents

reconciliations of the numerators and denominators of the basic and diluted income per share computations.

For the three months ended

September 30, 2023, 64,800 dilutive securities, consisting exclusively of performance awards, were excluded from the diluted loss per

share because the impact would be anti-dilutive.

In the tables below, income amounts represent the numerator, and share amounts represent

the denominator (in thousands, except per share amounts):

reconciliations of the numerators and denominators of the basic and diluted earnings (loss) per share computations for net income (loss).

Because we incurred a net loss for the six months ended December 31, 2023, basic and diluted loss were the same as the inclusion of 64,800

common shares potentially issuable under the terms of outstanding performance awards would have had an anti-dilutive effect.

In the tables

below, net income amounts represent the numerator, and weighted average shares outstanding amounts represent the denominator (in thousands,

except per share amounts):

Schedule of net income (loss) per share

Months Ended September 30,

(as restated)

Net income (loss)

Weighted average shares outstanding

Basic earnings (loss) per share

Basic income (loss) per share

Net income (loss)

2 unchanged sentences

Weighted average shares used in calculation of diluted earnings per share

Diluted earnings (loss) per share

income taxes are provided on a liability method whereby deferred tax assets and liabilities

are recognized for temporary differences.

differences are the differences between the reported amounts of assets and liabilities and

their tax bases.

Deferred tax assets are reduced by a valuation

allowance when, in the opinion of management, it is more - likely - than - not

that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and

rates on the date of enactment.

management judgment is required in determining our provision for income taxes and the recoverability of our

deferred tax assets.

Such determination is based primarily on our historical taxable income or loss, with some consideration given to

our estimates of future taxable income or loss

by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable.

recognize accrued interest and penalties related to unrecognized tax benefits when applicable.

As of September 30, 2023 and 2022, we recognized accrued interest of $ 7,000 and $ 48,000 , respectively, related to unrecognized tax benefits.

Our effective tax rate for the three months ended September 30, 2023 and 2022, is 26 % and

18 %, respectively.

The prior year effective tax rate is less than the current year rate due primarily to a tax benefit recognized as

a result of the common stock awarded to our employees under previously granted performance awards (see Note 8).

are subject to U.S.

federal income tax, as well as income

tax of multiple state tax jurisdictions.

We are currently open to audit

under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2020 and later.

Our state income tax returns

are open to audit under the statute of limitations for the years ended June 30, 2019 and

However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to

We do not anticipate a significant change to the

total amount of unrecognized tax benefits within the next 12 months.

Diluted income (loss) per share

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are provided on a liability method whereby deferred

tax assets and liabilities are recognized for temporary differences.

Temporary differences are the differences between the reported amounts

of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,

it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities

are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Significant management

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

Such determination

is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions

in which we operate and the period over which our deferred tax assets would be recoverable.

We recognize accrued interest and penalties

related to unrecognized tax benefits when applicable.

As of December 31, 2023 and 2022, we recognized

accrued interest of $ 61,000 and $ 54,000 , respectively, related to unrecognized tax benefits.

are subject to U.S.

federal income tax, as well as income tax of multiple state tax jurisdictions.

We are currently open to audit under

the statute of limitations by the Internal Revenue Service for the years ended June 30, 2020 and later.

Our state income tax returns

are open to audit under the statute of limitations for the years ended June 30, 2020 and later.

However, because of our prior net operating

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

We do not anticipate a significant change

to the total amount of unrecognized tax benefits within the next 12 months.

SHARE-BASED COMPENSATION

Through 2014,

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

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

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

The Employee Stock Option Plan and Directors’

Stock Option Plan were terminated in June 2014 and December 2014, respectively and there are no remaining options outstanding under either

of these Former Stock Option Plans.

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.

As of September 30, 2023, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

Our 2016 Equity Incentive

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

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

As of December

31, 2023, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive Plan.

Performance Awards

In December 2017, the Compensation

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

generally be paid in shares of our common stock.

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

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

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

In October 2023, the Compensation

Committee reallocated an additional 15,200 previously forfeited awards, having the same remaining terms and conditions, to other employees.

The weighted average fair value of the performance awards reallocated in 2023 was $ 10.17 , calculated using the weighted average fair market

value for each award, using a Monte Carlo simulation.

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

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

The weighted-average fair value of the performance awards

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

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

and conditions, to other employees.

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

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

We recorded share-based compensation expense

of $ 15,000 and $ 30,000 for the three months ended September 30, 2023 and 2022, respectively, related to these performance awards.

30, 2023, there was approximately $ 83,000 of unrecognized compensation cost related to these non-vested performance awards, which is expected

During each of the three months ended December 31, 2023, and 2022, we recorded share-based

compensation expense of $ 30,000 related to outstanding performance awards.

During the six months ended December 31, 2023, and 2022, we

recorded share-based compensation expense of $ 45,000 and $ 60,000 , respectively, related to outstanding performance awards.

31, 2023, there was approximately $ 136,000 of unrecognized compensation cost related to non-vested performance awards, which is expected

to be expensed over the weighted-average period of 1.50 years.

4 unchanged sentences

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Non-Qualified Stock Options

3 unchanged sentences

The vesting of these stock options is tied to the completion of service periods that range from 18 months to 10.5

years at inception and the achievement of our common stock trading at certain pre-determined prices.

We recorded compensation expense

of $ 168,000 and $ 171,000 for the three months ended September 30, 2023 and 2022, respectively, related to these options.

The weighted-average

fair value of the stock option awards granted was $ 16.72 , calculated using a Monte Carlo simulation.

As of September 30, 2023, none of

these stock options had vested and there was approximately $ 2.2 million of unrecognized compensation cost related to these non-vested

non-qualified stock options.

In February 2021, the Compensation

Committee of our Board of Directors granted 62,000 non-qualified stock options to our directors and certain employees under the 2016 Equity

Incentive Plan.

The vesting of these stock options is tied to the completion of service periods that range from 4 months to 1.3 years

at inception and the achievement of our common stock trading at certain pre-determined prices.

Of these 62,000 stock options, 57,750 vested

on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying agreements and the required service periods

were already satisfied.

The weighted-average fair value of the stock option awards granted was $ 3.16 , calculated using a Monte Carlo simulation.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

years from the date of grant and the achievement of our common stock trading at certain pre-determined prices.

The weighted average fair

value of the stock option awards granted in fiscal 2021 was $ 16.72 , calculated using a Monte Carlo simulation.

In December 2021, the Compensation

Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining terms and conditions, to another

The weighted average fair value of the stock option awards granted in fiscal 2022 was $ 6.69 , calculated using a Monte Carlo

During the three months ended December 31, 2023 and 2022, we recorded compensation expense of $ 168,000 and $ 140,000 , respectively,

related to these options.

During the six months ended December 31, 2023 and 2022, we recorded compensation expense of $ 335,000 and $ 312,000 ,

respectively, related to these options.

As of December 31, 2023, none of these stock options had vested and there was approximately $ 2 .0

million of unrecognized compensation cost related to these stock options.

Employee Stock Purchase Plan

5 unchanged sentences

of a share of our common stock at the end of the purchase period .

The Board of Directors also approved the provision that shares formerly

reserved for issuance under the Former Stock Option Plans in excess of shares issuable pursuant to outstanding options, aggregating 704,715

shares, be reserved for issuance pursuant to the ESPP.

The Board of Directors also approved that 704,715 shares be reserved

for issuance pursuant to the ESPP.

The ESPP was approved by our shareholders at our 2014 Annual Meeting.

During the first quarters

ended September 30, 2023 and 2022, 2,021 and 2,503 shares were purchased, respectively, under the ESPP and allocated to employees based

upon their contributions at discount prices of $ 15.82 and $ 13.52 , respectively, per share.

As of September 30, 2023, on a cumulative basis,

since the inception of the ESPP plan, employees have purchased a total of 34,519 shares.

During each of the three months ended September

30, 2023 and 2022, we recorded stock compensation expense in the amount of $ 6,000 relating to the ESPP.

MAJOR CUSTOMERS & SUPPLIERS

An amendment to the ESPP to extend

its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual

During the three months

ended December 31, 2023 and 2022, we did no t record any share-based compensation expense relating to the ESPP, due to the fact that no

six-month offering period ended during either quarter.

During the six months ended December 31, 2023 and 2022, 2,021 and 2,503 shares

of our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of

$ 15.82 and $ 13.52 , respectively, per share.

On a cumulative basis, since the inception of the ESPP, employees have purchased a total of

34,519 shares of our common stock.

During each of the six months ended December 31, 2023 and 2022, we recorded share-based compensation

expense in the amount of $ 6,000 relating to the ESPP.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MAJOR CUSTOMERS AND SUPPLIERS

with respect to customers that accounted for sales in excess of 10% of our total sales in

either of the three-month periods ended September 30,

2023 and 2022 is as follows (in thousands, except percentages):

either of the three-month and the six-month periods

ended December 31, 2023 and 2022, is as follows (in thousands, except percentages):

Schedule of sales by major customers

Three Months Ended September 30,

Months Ended December 31,

Percent of Total

Total revenue

Customer concentration:

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either

September 30, 2023 and June 30, 2023 is as follows (in thousands, except percentages):

Ended December 31,

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 December 31, 2023 or

June 30, 2023, is as follows (in thousands, except percentages):

Schedule of accounts receivable

1 unchanged sentence

Customer concentration:

During the three months ended

September 30, 2023 and 2022, we had three suppliers that each accounted for more than 10 % of total inventory purchases.

Amounts owed to

the fiscal 2023 significant suppliers at September 30, 2023 totaled $ 1.1 million , $ 181,000 and $ 137,000 , respectively, and at June 30,

2023 totaled $ 621,000 , $ 158,000 and $ 41,000 , respectively.

NOTES PAYABLE AND FINANCING TRANSACTIONS

Minnesota Bank & Trust (“MBT”)

November 6, 2020 (the “Closing Date”), PDEX Franklin, a newly created wholly owned subsidiary of the Company, purchased the

Franklin Property.

A portion of the purchase price was financed by a loan from MBT to PDEX Franklin in the principal amount of approximately

$ 5.2 million (the “Property Loan”) pursuant to a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT

(the “Property Loan Agreement”) and corresponding Term Note (the “Property Note”) issued by PDEX Franklin in favor

of MBT on the Closing Date.

The Property Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases

and Rents, Security Agreement and Fixture Filing in favor of MBT (the “Deed”) and by an Assignment of Leases and Rents by

PDEX Franklin in favor of MBT (the “Rents Assignment”).

We paid loan origination fees to MBT on the Closing Date in the amount

of $ 26,037 .

Property Loan bears interest at a fixed rate of 3.55 % per annum, which is subject to a 3% increase upon an event of default.

During the three months

ended December 31, 2023 and 2022 we had four suppliers accounting for 10 % or more of total inventory purchases, and during the six months

ended December 31, 2023 and 2022, we had three suppliers that accounted for more than 10 % of our total inventory purchases.

to the fiscal 2024 three most significant suppliers at December 31, 2023, totaled $ 1.2 million, $ 300,000 and $ 115,000 , respectively,

and at June 30, 2023, totaled $ 621,000 , $ 158,000 and $ 41,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE

AND FINANCING TRANSACTIONS

Minnesota Bank & Trust

November 6, 2020 (the “Closing Date”), PDEX Franklin, a wholly owned subsidiary of the Company, purchased an approximate 25,000

square foot industrial building in Tustin, California (the “Franklin Property”).

A portion of the purchase price was financed

by a loan from MBT to PDEX Franklin in the principal amount of approximately $ 5.2 million (the “Property Loan”) pursuant to

a Loan Agreement, dated as of the Closing Date, between PDEX Franklin and MBT (the “Property Loan Agreement”) and corresponding

Term Note (the “Property Note”) issued by PDEX Franklin in favor of MBT on the Closing Date.

The Property Loan is secured

by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor

of MBT (the “Deed”) and by an Assignment of Leases and Rents by PDEX Franklin in favor of MBT (the “Rents Assignment”).

We paid loan origination fees to MBT on the Closing Date in the amount of $ 26,037 .

Loan bears interest at a fixed rate of 3.55 % per annum, which is subject to a 3% increase upon an event of default.

Accrued interest

8 unchanged sentences

of default that are customary for a loan of this type.

The balance owed on the Property Loan at September 30, 2023 is $ 4,698,000 .

The balance owed on the Property Loan at December 31, 2023 is $ 4,649,000 .

the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”),

providing for a $ 7,525,000 amended and restated term loan (the “Term Loan A”), a $ 1,000,000 term loan (the “Term Loan

B”), and a $ 2,000,000 amended and restated revolving loan (the “Revolving Loan” and, together with the Term Loan A and

the Term Loan B, collectively, the “Loans”), evidenced by an Amended and Restated Term Note A (“Term Note A”),

B”), and a $ 2,000,000 amended and restated revolving loan, evidenced by an Amended and Restated Term Note A (“Term Note A”),

a Term Note B, and an Amended and Restated Revolving Credit Note (the “Revolving Note”) made by us in favor of MBT.

are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into on September 6, 2018 between

the Company and MBT.

The Term Note A had an outstanding principal balance of $ 3,770,331 as of the Closing Date and could be borrowed against

through May 30, 2021 (the “Commitment Period”).

During the third quarter ended March 31, 2021, we borrowed an additional $ 3,000,000

against Term Note A for the purpose of repurchasing our common stock as described in Note 11.

The Term Note B had a zero balance as of

the Closing Date and we borrowed the full $ 1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements

to the Franklin Property.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Initial payments on the Term Loan A of

interest only were due on December 1, 2020 through June 1, 2021.

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

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

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

The balance owed on Term Loan A as of September 30, 2023,

is $ 4,586,000 .

under the Amended Credit Agreement are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered

into on September 6, 2018, between the Company and MBT.

The Term Note A had an outstanding principal balance of $ 3,770,331 as of the Closing

Date and could be borrowed against through May 30, 2021 (the “Commitment Period”).

During the third quarter ended March 31,

2021, we borrowed an additional $ 3,000,000 against Term Note A for the purpose of repurchasing shares of our common stock.

The Term Note

B had a zero balance as of the Closing Date and we borrowed the full $ 1,000,000 during the third quarter ended March 31, 2021, for the

purpose of making improvements to the Franklin Property.

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

Initial payments on the Term Loan A of interest

only were due on December 1, 2020 through June 1, 2021.

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

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

additional accrued and unpaid interest through the date of payment.

The balance owed on Term Loan A as of December 31, 2023, is $ 4,337,000 .

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

4 unchanged sentences

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

As of March 31, 2021, we had drawn fully against Term Note

B and the balance outstanding on Term Note B was $ 683,000 on September 30, 2023.

The balance owing on Term Note B was $ 646,000 on December

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 29, 2022 (the “Amendment

5 unchanged sentences

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 September 30, 2023, no amounts have been drawn against the Supplemental Loan.

Loan may be borrowed against from time to time through its current maturity date of December 29, 2025, on the terms set forth in the Amended

Credit Agreement.

As of December 31, 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 September 30, 2023, we had drawn $ 1,500,000

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”) 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 current maturity date of December

29, 2025, on the terms set forth in the Amended Credit Agreement.

On December 29, 2023, we entered into Amendment No.

3 to the Agreement

to amend the termination date of the Supplemental Loan and Amended Revolving Loan from December 29, 2024, to December 29, 2025.

December 31, 2023, we had drawn $ 2,500,000 against the Amended Revolving Loan.

Loan origination fees in the amount of $ 16,000 each were

paid to MBT in conjunction with the Revolving Loan and the Supplemental Loan in conjunction with both the Amendment on December 29, 2022

and on December 29, 2023.

The Amended Revolving Loan and

6 unchanged sentences

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

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.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

2023, we obtained a waiver from MBT extending the deadline to provide our audited financial statements for the fiscal year ended June

30, 2023 to November 15, 2023.

We provided our audited financial statements to MBT on October 13, 2023.

We believe that we are in compliance

with all of our debt covenants as of September 30, 2023, except for the aforementioned covenant for which we obtained and complied with

a waiver, but there can be no assurance that we will remain in compliance for the duration of the term of these loans.

that we are in compliance with all of our debt covenants as of December 31, 2023, but there can be no assurance that we will remain in

compliance for the duration of the term of these loans.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Share Repurchase Program

In December 2019, our Board

approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase

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 has approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor Rule 10b5-1 under

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

During the quarter ended September

30, 2023 we did not repurchase any shares.

During the quarter ended September 30, 2022, we repurchased 20,853 shares at an aggregate cost,

inclusive of fees under the plan, of $ 354,000 .

On a cumulative basis since 2013, we have repurchased a total of 1,197,168 shares under

the share repurchase programs at an aggregate cost, inclusive of fees, of $ 17.2 million.

All repurchases under the 10b5-1 Plans were administered

through an independent broker.

Our operating lease right-of-use

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

The current portion of our operating

lease liability as of September 30, 2023, in the amount of $ 425,000 , is presented within accrued expenses on the condensed consolidated

balance sheet.

As of September 30, 2023,

our operating lease has a remaining lease term of four years and an imputed interest rate of 5.53 %.

Cash paid for amounts included in

the lease liability was $ 127,000 for the three months ended September 30, 2023, excluding $ 12,000 paid for common area maintenance charges.

As of September 30, 2023,

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 both the three and six

months ended December 31, 2023, we repurchased 6,285 shares at an aggregate cost, inclusive of fees under the Plan, of $ 107,000 .

the three and six months ended December 31, 2022, we repurchased 53,993 and 74,846 shares, respectively, at an aggregate cost, inclusive

of fees under the Plan, of $ 995,000 and $ 1.3 million, respectively.

On a cumulative basis, since implementation of the share repurchase

program in 2013, we have repurchased a total of 1,203,453 shares under the share repurchase program at an aggregate cost, inclusive of

fees, of $ 17.3 million.

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

Our operating lease right-of-use asset and

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

The current portion of our operating lease

liability as of December 31, 2023, in the amount of $ 435,000 , is presented within accrued expenses on the condensed consolidated balance

As of December 31, 2023, our operating lease

has a remaining lease term of three years and nine months and an imputed interest rate of 5.53 %.

Cash paid for amounts included in the

lease liability for the three and six months ended December 31, 2023 totaled $ 131,000 and $ 258,000 , respectively, and for December 31,

2022 totaled $ 127,000 and $ 250,000 , respectively.

As of December 31, 2023,

the maturity of our lease liability is as follows (in thousands):

Schedule of maturities of lease liability

Schedule of maturity of lease liability

Total lease payments

Less imputed interest:

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

Legal Matters

We may be involved from time to

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

There can be no certainty,

however, that we may not ultimately incur liability or that such liability will not be material or adverse.

We may be involved from

time to time in various 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 and adverse.

SUBSEQUENT EVENTS

We have evaluated subsequent

events through the date of this filing.

There were no subsequent events that require 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-Q

Item 1. Financial Statements