What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2024-02-08 · 323 added, 292 removed, 349 unchanged (64% of the section changed)

6 unchanged sentences

Cash and cash equivalents

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

Accounts receivable, net of allowance for expected credit losses of $ 1 and $ 0 at March 31, 2024 and at June 30, 2023, respectively

Deferred costs

8 unchanged sentences

Accounts payable

Accrued liabilities

Accrued expenses

Deferred revenue

Income taxes payable

Notes payable

Total current liabilities

5 unchanged sentences

Shareholders’ equity:

Common stock;

Common shares;

no par value;

50,000,000 shares authorized;

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

3,451,423 and 3,545,309 shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively

Retained earnings

5 unchanged sentences

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

Cost of sales

9 unchanged sentences

Gain on sale of investments

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Basic net income (loss) per share:

Net income (loss)

Diluted net income (loss) per share:

Net income (loss)

Income before income taxes

Income tax expense

Basic net income per share:

Diluted net income per share:

Weighted average common shares outstanding:

6 unchanged sentences

(In thousands)

Common shares:

Balance, beginning of period

1 unchanged sentence

Share repurchases

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

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

ESPP shares issued

Balance, end of period

Balance, at end of period

Retained earnings:

Balance, beginning of period

Net income (loss)

Balance, end of period

Balance, at end of period

Balance, beginning of period

8 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Amortization of loan fees, net

Share-based compensation

Unrealized (gain) loss on marketable equity investments

Non-cash lease expense (recovery)

Amortization of loan fees, net

Non-cash straight-line lease amortization

Gain on sale of investments

Deferred income taxes

Credit loss expense

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable and other current receivables

Deferred costs

13 unchanged sentences

Payment of employee payroll taxes on net issuance of common stock

Proceeds from Minnesota Bank & Trust revolving loan

Proceeds from Minnesota Bank & Trust revolving loan, net of fees

Principal payments on notes payable and revolving loan

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

10 unchanged sentences

these condensed consolidated financial statements.

PRO-DEX, INC.

AND SUBSIDIARY

1 unchanged sentence

BASIS OF PRESENTATION

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

(“we,” “us,” “our,”

“Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles

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

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

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

The accompanying unaudited condensed consolidated financial statements

of Pro-Dex, Inc.

(“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been

prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) for interim financial

information and the instructions to Form 10-Q and Regulation S-K.

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

required by U.S.

GAAP for complete financial statements.

These financial statements should be read in conjunction

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

year ended June 30, 2023.

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

presentation have been included.

The results of operations for such interim periods are not necessarily indicative of the results that

may be expected for the full year.

For further information, refer to the financial statements and footnotes thereto included in our Annual

Report on Form 10-K for the year ended June 30, 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 presentation have been included.

The results of operations for such interim periods are not necessarily indicative

of the results that may be expected for the full year.

For further information, refer to the financial statements and footnotes thereto

included in our Annual Report on Form 10-K for the year ended June 30, 2023.

Recently Adopted Accounting Pronouncements

15 unchanged sentences

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.

in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2023,

we previously restated certain of our financial statements, including our financial statements for the three and nine months ended March

31, 2023, to correct the estimated fair value of our 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 Warrant”).

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

below are the changes to each financial statement line item for the three and nine months ended March 31, 2023 that were affected by

the restatement (in thousands except per share amounts).

Three months ended March 31, 2023 Unaudited Income Statement (Third

Quarter Fiscal 2023)

7 unchanged sentences

Diluted income per share

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

(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 December 31, 2022.

Six months ended December 31, 2022 Unaudited Income Statement

the three months ended March 31, 2023.

Nine months ended March 31, 2023 Unaudited Income Statement

As Previously

5 unchanged sentences

Diluted income per share

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

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

(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

the nine months ended March 31, 2023.

We specialize in the design, development

4 unchanged sentences

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

In August 2020, we formed a wholly

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

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

growth of our business.

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

significant inter-company accounts and transactions have been eliminated.

This subsidiary has no separate operations.

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.

The following table presents the

disaggregation of net sales by revenue recognition model (in thousands):

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

The following table presents

the disaggregation of net sales by revenue recognition model (in thousands):

Schedule of disaggregation of net sales

11 unchanged sentences

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

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

During the three and nine months ended March 31, 2024,

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

During the three and nine months ended March

31, 2023, we recorded $ 405,000 and $ 956,000 , respectively, of revenue that had been included in deferred revenue in the prior year.

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):

Our entire deferred revenue balance of $ 35,000 at March 31, 2024, is currently expected to be recognized in the next 12-month period.

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

The following tables summarize

our contract assets and liability balances (in thousands):

Schedule of contract assets and liability

4 unchanged sentences

Amounts reclassified to cost of sales

allocated to discounts for standalone selling price

Amounts allocated to discounts for standalone selling price

Contract assets ending balance

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of and for the

4 unchanged sentences

Contract liabilities ending balance

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

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):

5 unchanged sentences

Total inventory

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

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

3 unchanged sentences

Total Investments

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,

Investments at March

31, 2024 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 March 31, 2024, the investments included net unrealized gains of $ 2.2 million

(gross unrealized gains of $ 2.4 million offset by gross unrealized losses of $ 253,000 ).

At June 30, 2023, the investments, excluding

1 unchanged sentence

of $ 67,000 ).

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Of the total marketable

equity securities at March 31, 2024 and June 30, 2023, $ 1 .0 million and $ 1.1 million, 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.

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.

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.

On October 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

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 March 31, 2024.

Our Chief Executive Officer, Richard Van Kirk (“Rick”), is also a Monogram board

We invest surplus cash from time to time through our Investment Committee,

which is comprised of one management director, Rick, and two non-management directors, Raymond Cabillot (“Ray”) and Nicholas

Swenson (“Nick”), who chairs the committee.

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.

We leverage the experience of these committee members to make investment decisions for our surplus operating capital or borrowed funds.

Additionally, many of our securities holdings include stocks of public companies that Nick or Ray (or both) may own from time to time

either individually or through the investment funds they manage, or other companies whose boards they sit on, such as Air T, Inc.

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Land and building

4 unchanged sentences

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.

and the balance of $ 5.2 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 fiscal

For the three months ended March 31, 2024 and 2023 we recorded $ 23,000 of depreciation expense and for the nine months ended March

31, 2024 and 2023 we recorded $ 70,000 of depreciation expense.

The building is being amortized on a straight-line basis over a period

consist of the following (in thousands):

1 unchanged sentence

Patent-related costs

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.

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.

For the three months ended March 31, 2024, and 2023 we recorded $ 7,000

of amortization expense, respectively, and for the nine months ended March 31, 2024 and

2023 we recorded $ 21,000

of depreciation expense, respectively.

Future amortization expense is expected to be

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

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 March 31, 2024 and June 30, 2023, the warranty reserve

amounted to $ 273,000 and $ 200,000 , respectively.

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

income statements.

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 March 31, 2024 and 2023, was $ 102,000 and $ ( 77,000 ), respectively, and

for the nine months ended March 31, 2024 and 2023, was $ 162,000 and $ 46,000 , respectively.

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 and six months ended December 31, 2023 and 2022, are as follows (in thousands):

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Information regarding

the accrual for warranty costs for the three and nine months ended March 31, 2024 and 2023, are as follows (in thousands):

Schedule of accrual warranty costs

of and for the

Three Months Ended

Beginning balance

1 unchanged sentence

Changes in estimates of prior period warranty accruals

Warranty amortization

Warranty amortization and utilization

Ending balance

NET INCOME (LOSS) PER SHARE

Nine Months Ended

Beginning balance

Accruals during the period

Changes in estimates of prior period warranty accruals

Warranty amortization and utilization

Ending balance

NET INCOME PER SHARE

We calculate basic net

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.

income 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 used in the calculation of diluted income per share 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 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.

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

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

Net income (loss)

below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

Schedule of net income per share

Weighted average shares outstanding

Basic income (loss) per share

Net income (loss)

Basic income per share

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Weighted average shares outstanding

1 unchanged sentence

Weighted average shares used in calculation of diluted earnings per share

Diluted income (loss) per share

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Diluted income per share

Deferred income taxes are provided on a liability method whereby deferred

6 unchanged sentences

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.

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 March 31, 2024 and 2023, we recognized accrued interest of $ 69,000 and $ 59,000 , respectively, related

to unrecognized tax benefits.

We are subject to U.S.

federal income tax, as

well as income tax of multiple state tax jurisdictions.

We are currently open to audit under the statute of limitations by the Internal

Revenue Service for the years ended June 30, 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 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

9 unchanged sentences

value for each award, using a Monte Carlo simulation.

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.

During the three months ended March 31, 2024 and 2023, we recorded share-based compensation

expense of $ 31,000 and $ 30,000 , respectively, related to outstanding performance awards.

During the nine months ended March 31, 2024 and

2023, we recorded share-based compensation expense of $ 76,000 and $ 91,000 , respectively, related to outstanding performance awards.

March 31, 2024, there was approximately $ 86,000 of unrecognized compensation cost related to non-vested performance awards expected to

be expensed over the weighted-average period of 1.23 years.

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

On July 1, 2022, it was

3 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

5 unchanged sentences

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.

value of the stock options granted 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 employee

at a weighted average fair value of $ 6.69 calculated using a Monte Carlo simulation.

During each of the three months ended March 31, 2024

and 2023, we recorded compensation expense of $ 168,000 related to these stock options.

During the nine months ended March 31, 2024 and

2023, we recorded compensation expense of $ 503,000 and $ 479,000 , respectively, related to these stock options.

As of March 31, 2024, none

of these stock options have vested and there was approximately $ 1.8 million of unrecognized compensation cost related to these non-vested

non-qualified stock options.

Employee Stock Purchase Plan

In September 2014, our Board

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

The ESPP conforms to the provisions of Section

423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing to purchase shares

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

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

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

for issuance pursuant to the ESPP.

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

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

approved the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our

2014 Annual Meeting.

The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase

periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase

price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period .

of Directors also approved that 704,715 shares, be reserved for issuance pursuant to the ESPP.

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 Meeting.

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.

ended March 31, 2024 and 2023, we recorded ESPP share-based compensation expense in the amount of $ 3,000 and $ 8,000 , respectively.

the three months ended March 31, 2024 and 2023, 983 and 2,956 shares were purchased, respectively, and allocated to employees based upon

their contributions at prices of $ 18.32 and $ 14.79 , respectively, per share.

During the nine months ended March 31, 2024 and 2023, we

recorded ESPP share-based compensation expense in the amount of $ 9,000 and $ 14,000 , respectively.

On a cumulative basis, since the inception

of the ESPP, employees have purchased a total of 35,502 shares of our common stock.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

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 and the six-month periods

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

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

ended March 31, 2024 and 2023, is as follows (in thousands, except percentages):

Schedule of sales by major customers

Months Ended December 31,

Percent of Total

Months Ended March 31,

Customer concentration:

Ended December 31,

Months Ended March 31,

Percent of Total

2 unchanged sentences

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):

to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2024 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 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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

three and nine months ended March 31, 2024 and 2023, we had two and three suppliers, respectively, accounting for 10% or more of total

inventory purchases.

Amounts owed to the suppliers who comprised more than 10% of total accounts payable at either March 31, 2024 or June

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

Schedule of accounts payable

Total accounts payable

Supplier concentration:

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

November 6, 2020 (the “Closing Date”), PDEX Franklin, our wholly owned subsidiary, 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.

3 unchanged sentences

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.

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

Accrued interest

8 unchanged sentences

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

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

The balance owed on the Property Loan at March 31, 2024 is $ 4,599,000 .

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

2 unchanged sentences

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

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 .

under the Amended Credit Agreement are secured by substantially all of our assets pursuant to a Security Agreement entered into on September

6, 2018, between us 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.

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

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 March 31, 2024, is

$ 4,086,000 .

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.

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The balance owing on Term Note B was $ 608,000 on March 31,

On December 29, 2022 (the “Amendment

7 unchanged sentences

Credit Agreement.

As of December 31, 2023, no amounts have been drawn against the Supplemental Loan.

As of March 31, 2024, no amounts have been drawn against the Supplemental Loan.

The Revolving Loan was also amended

8 unchanged sentences

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.

March 31, 2024, 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).

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.

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 December 31, 2023, 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 March 31, 2024, 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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Share Repurchase Program

In December 2019, our Board

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

plan authorized by our Board in 2013 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 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.

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

During the three and nine months ended March 31, 2024, we repurchased 90,605

shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 1,723,000

and $ 1,830,000 ,

respectively.

During the three and nine months ended March 31, 2023, we repurchased 11,576

shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 198,000

and $ 1,547,000 ,

respectively.

On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a

total of 1,293,338

shares under the share repurchase program at an aggregate cost of $ 19 .0

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):

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 March 31, 2024, in the amount of $ 445,000 , is presented within accrued expenses on the condensed consolidated balance

As of March 31, 2024, the

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

Schedule of maturity of lease liability

Operating Lease

Total lease payments

Less imputed interest:

As of March 31, 2024, the

operating lease for our Irvine, California headquarters has a remaining lease term of three years and six months and an imputed interest

rate of 5.53 %.

Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2024, was $ 143,000

and $ 425,000 , respectively.

Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2023,

was $ 139,000 and $ 418,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

COMMITMENTS AND CONTINGENCIES

8 unchanged sentences

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