PRO DEX INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands except per share amounts) December 31, 2024 June 30, 2024 ASSETS Current assets: Cash and cash equivalents $ 66 $ 2,631 Investments 4,671 4,217 Accounts receivable, net of allowance for expected credit losses of $ 27 and $ 0 at December 31, 2024 and at June 30, 2024, respectively 18,467 13,887 Deferred costs 152 262 Inventory 19,611 15,269 Prepaid expenses and other current assets 1,333 345 Total current assets 44,300 36,611 Land and building, net 6,108 6,155 Equipment and leasehold improvements, net 5,443 5,024 Right-of-use asset, net 1,265 1,473 Intangibles, net 40 54 Deferred income taxes, net 1,555 1,555 Investments 1,619 1,563 Other assets 44 42 Total assets $ 60,374 $ 52,477 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,689 $ 4,513 Accrued liabilities 5,234 3,359 Income taxes payable 303 632 Deferred revenue — 14 Notes payable 5,913 4,374 Total current liabilities 17,139 12,892 Lease liability, net of current portion 939 1,182 Notes payable, net of current portion 10,474 7,536 Total non-current liabilities 11,413 8,718 Total liabilities 28,552 21,610 Shareholders’ equity: Common stock; no par value; 50,000,000 shares authorized; 3,260,390 and 3,363,412 shares issued and outstanding at December 31, 2024 and June 30, 2024, respectively 366 3,917 Retained earnings 31,456 26,950 Total shareholders’ equity 31,822 30,867 Total liabilities and shareholders’ equity $ 60,374 $ 52,477 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share amounts) Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Net sales $ 16,793 $ 12,588 $ 31,686 $ 24,526 Cost of sales 11,721 9,786 21,464 18,066 Gross profit 5,072 2,802 10,222 6,460 Operating expenses: Selling expenses 49 37 98 63 General and administrative expenses 1,389 1,200 2,635 2,195 Research and development costs 942 788 1,784 1,593 Total operating expenses 2,380 2,025 4,517 3,851 Operating income 2,692 777 5,705 2,609 Interest expense ( 204 ) ( 139 ) ( 357 ) ( 271 ) Unrealized gain (loss) on marketable equity investments 77 ( 40 ) 510 ( 2,593 ) Interest and other income 21 22 46 46 Income (loss) before income taxes 2,586 620 5,904 ( 209 ) Income tax benefit (expense) ( 546 ) ( 120 ) ( 1,398 ) 94 Net income (loss) $ 2,040 $ 500 $ 4,506 $ ( 115 ) Basic net income (loss) per share Net income (loss) per share $ 0.63 $ 0.14 $ 1.36 $ ( 0.03 ) Diluted net income (loss) per share: Net income (loss) per share $ 0.61 $ 0.14 $ 1.33 $ ( 0.03 ) Weighted-average common shares outstanding: Basic 3,261,145 3,546,901 3,314,207 3,546,819 Diluted 3,337,337 3,611,701 3,378,862 3,546,819 Common shares outstanding 3,260,390 3,541,045 3,260,390 3,541,045 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In thousands) Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Common stock: Balance, beginning of period $ 1,461 $ 6,987 $ 3,917 $ 6,767 Share-based compensation expense 130 198 243 386 Share repurchases ( 1,192 ) ( 107 ) ( 3,504 ) ( 107 ) Shares withheld from common stock issued to employees to pay employee payroll taxes ( 33 ) — ( 305 ) — ESPP shares issued — — 15 32 Balance, end of period 366 7,078 366 7,078 Retained earnings: Balance, beginning of period 29,416 24,208 26,950 24,823 Net income (loss) 2,040 500 4,506 ( 115 ) Balance, end of period 31,456 24,708 31,456 24,708 Balance, beginning of period 30,877 31,195 30,867 31,590 Net income (loss) 2,040 500 4,506 ( 115 ) Total shareholders’ equity $ 31,822 $ 31,786 $ 31,822 $ 31,786 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 4,506 $ ( 115 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 615 568 Share-based compensation 243 386 Unrealized (gain) loss on marketable equity investments ( 510 ) 2,593 Non-cash lease recovery ( 14 ) ( 7 ) Amortization of loan fees, net 13 — Credit loss expense 27 — Changes in operating assets and liabilities: Accounts receivable ( 4,606 ) ( 3,217 ) Deferred costs 109 82 Inventory ( 4,342 ) 1,141 Prepaid expenses and other assets ( 991 ) ( 605 ) Accounts payable and accrued expenses 3,030 340 Deferred revenue ( 14 ) — Income taxes payable ( 329 ) ( 64 ) Net cash provided by (used in) operating activities ( 2,263 ) 1,102 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments — ( 1,250 ) Purchases of equipment and improvements ( 973 ) ( 759 ) Net cash used in investing activities ( 973 ) ( 2,009 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock ( 3,504 ) ( 107 ) Proceeds from ESPP contributions 15 32 Payment of employee payroll taxes on net issuance of common stock ( 305 ) — Proceeds from Minnesota Bank & Trust revolving loan 8,490 2,000 Principal payments on notes payable and revolving loan ( 4,025 ) ( 2,665 ) Net cash provided by (used in) financing activities 671 ( 740 ) Net decrease in cash and cash equivalents ( 2,565 ) ( 1,647 ) Cash and cash equivalents, beginning of period 2,631 2,936 Cash and cash equivalents, end of period $ 66 $ 1,289 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited) (In thousands) Six Months Ended December 31, 2024 2023 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 338 $ 272 Cash paid during the period for income taxes by jurisdiction: Federal income tax payments $ 1,570 $ 565 California income tax payments 1,100 74 Massachusetts income tax payments — 21 Total income tax payments $ 2,670 $ 660 Non-cash investing and financing activity: Cashless stock option exercise $ 117 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION 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 applicable provisions of 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, 2024. 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, 2024. Recently Issued and Not Yet Adopted Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures (Topic 740) . ASU 2023-09 expands the existing rules on income tax disclosures. This update requires entities to disclose specific categories in the tax rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and disclose additional information about income taxes paid on an annual basis. The new disclosure requirements are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position. In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (Topic280), which expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to, or easily computed from information regularly provided to, the entity’s chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. The new disclosure requirements are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Although our business, as currently operated, has only one segment, we are evaluating the new disclosure requirements to ensure compliance. NOTE 2. DESCRIPTION OF BUSINESS We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions that appeal to our customers, primarily medical device distributors. 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 in November 2020, 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. 6 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3. NET SALES The following table presents the disaggregation of net sales by revenue recognition model (in thousands): Schedule of disaggregation of net sales Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Net Sales: Over-time revenue recognition $ 41 $ 338 $ 89 $ 528 Point-in-time revenue recognition 16,752 12,250 31,597 23,998 Total net sales $ 16,793 $ 12,588 $ 31,686 $ 24,526 The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed consolidated balance sheets), and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets), where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition model consists of non-recurring engineering (“NRE”) and prototype services and typically relates to NRE services related to the evaluation, design, or customization of a medical device and is typically recognized over time utilizing an input measure of progress based on costs incurred compared to the estimated total costs upon completion. During the three and six months ended December 31, 2024 we recorded $ 0 and $ 14,000 , respectively, of revenue that had been included in deferred revenue in the prior year. 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. The revenue recognized from contract liabilities consisted of satisfying our performance obligations during the normal course of business. As of December 31, 2024 and 2023, we did no t have any deferred revenue. The following tables summarize our contract assets (in thousands): Schedule of contract assets and liability As of and for the Three Months Ended December 31, As of and for the Six Months Ended December 31, 2024 2023 2024 2023 Contract assets beginning balance $ 211 $ 591 $ 262 $ 494 Expenses incurred during the year 40 $ 107 $ 97 $ 326 Amounts reclassified to cost of sales ( 99 ) ( 277 ) ( 201 ) ( 382 ) Amounts allocated to discounts for standalone selling price — ( 9 ) ( 6 ) ( 26 ) Contract assets ending balance $ 152 $ 412 $ 152 $ 412 7 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS Inventory Inventory 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 December 31, 2024 June 30, 2024 Raw materials/purchased components $ 8,733 $ 6,703 Work in process 7,305 5,103 Sub-assemblies/finished components 2,883 2,342 Finished goods 690 1,121 Total inventory $ 19,611 $ 15,269 Investments Investments are stated at market value and consist of the following (in thousands): Schedule of investments December 31, 2024 June 30, 2024 Marketable equity securities: Short-term $ 4,671 $ 4,217 Long-term 1,619 1,563 Total Investments $ 6,290 $ 5,780 Investments at December 31, 2024 and June 30, 2024 had an aggregate cost basis of $ 4.0 million . Our investments include equity investments of thinly traded securities some of which are 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, 2024, investments included net unrealized gains of $ 2.3 million (gross unrealized gains of $ 2.7 million offset by gross unrealized losses of $ 341,000 ). At June 30, 2024, investments included net unrealized gains of $ 1.8 million (gross unrealized gains of $ 2.1 million offset by gross unrealized losses of $ 261,000 ). Of the total marketable equity securities at December 31, 2024 and June 30, 2024, $ 941,000 and $ 987,000 , respectively, represent an investment in the common stock of Air T, Inc. (NasdaqCM: AIRT). 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. 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. On October 6, 2023, in conjunction with the execution of a supply agreement with Monogram Technologies, Inc., formerly Monogram Orthopaedics Inc. (“Monogram”), we exercised a previously held warrant (the “Monogram Warrant”) in full in cash totaling $1,250,000 and received 1,828,551 shares of Monogram common stock (NasdaqCM: MGRM). The fair value of the Monogram common stock is reflected in short term in the table above. Our Chief Executive Officer, Richard (“Rick”) Van Kirk, is also a Monogram board member. 8 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 Cabillot and Nicholas Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Cabillot or Swenson 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 December 31, 2024 June 30, 2024 Land $ 3,684 $ 3,684 Building 2,815 2,815 Total 6,499 6,499 Less: accumulated depreciation ( 391 ) ( 344 ) $ 6,108 $ 6,155 In November 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 (the “Property Loan”) through Minnesota Bank & Trust (“MBT”) (see Note 10) and 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 2023. The building is being amortized on a straight-line basis over a period of 30 years. Intangibles Intangibles consist of the following (in thousands): Schedule of intangibles December 31, 2024 June 30, 2024 Patent-related costs $ 208 $ 208 Less: accumulated amortization ( 168 ) ( 154 ) $ 40 $ 54 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 2025 and $ 26,000 in fiscal 2026, at which time we expect these costs will be fully amortized. NOTE 5. WARRANTY Our warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued liabilities in the accompanying condensed consolidated balance sheets. As of December 31, 2024 and June 30, 2024, the warranty reserve amounted to $ 312,000 and $ 277,000 , 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. 9 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Information regarding the accrual for warranty costs for the three and six months ended December 31, 2024 and 2023, are as follows (in thousands): Schedule of accrual warranty costs As of and for the Three Months Ended December 31, As of and for the Six Months Ended December 31, 2024 2023 2024 2023 Beginning balance $ 300 $ 189 $ 277 $ 200 Accruals during the period 48 $ 29 $ 138 $ 53 Changes in estimates of prior period warranty accruals ( 7 ) 8 ( 25 ) 7 Warranty amortization ( 29 ) ( 32 ) ( 78 ) ( 66 ) Ending balance $ 312 $ 194 $ 312 $ 194 NOTE 6. NET INCOME (LOSS) 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. In income generating periods, the weighted-average number of common shares outstanding reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options, restricted stock, 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. In the tables below, net income amounts represent the numerator, and weighted average shares outstanding amounts represent the denominator (in thousands, except share and per share amounts): Schedule of net income per share Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Basic: Net income (loss) $ 2,040 $ 500 $ 4,506 $ ( 115 ) Weighted average shares outstanding 3,261,145 3,546,901 3,314,207 3,546,819 Basic income (loss) per share $ 0.63 $ 0.14 $ 1.36 $ ( 0.03 ) Diluted: Net income (loss) $ 2,040 $ 500 $ 4,506 $ ( 115 ) Weighted average shares outstanding 3,261,145 3,546,901 3,314,207 3,546,819 Effect of dilutive securities 76,192 64,800 64,655 — Weighted average shares used in calculation of diluted earnings per share 3,337,337 3,611,701 3,378,862 3,546,819 Diluted income (loss) per share $ 0.61 $ 0.14 $ 1.33 $ ( 0.03 ) 10 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 7. INCOME TAXES 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, 2024 and 2023, we recognized accrued interest of $ 54,000 and $ 61,000 , respectively, related to unrecognized tax benefits. The effective tax rate for the three months ended December 31, 2024, and 2023 was 21 % and 19 % , respectively. The increase in the fiscal 2025 effective tax rate is due primarily to the release in fiscal 2024 of a $ 60,000 valuation allowance related to previously recognized unrealized losses on investments. We have not had a similar release of a valuation allowance during fiscal 2025. The effective tax rate for the six months ended December 31, 2024 and 2023 was 24 % and 45 % , respectively. The fiscal 2024 effective tax rate was similarly impacted due to the release of the valuation allowance recorded in the second quarter of fiscal 2024 and was a tax benefit since we had a year-to-date pre-tax loss. We are subject to U.S. federal income tax, as well as income tax of California and Colorado, as well as Massachusetts through fiscal year ended June 30, 2024. Our U.S. federal income taxes are currently open to audit under the statute of limitations by the Internal Revenue Service for the fiscal years ended June 30, 2021 and after. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2013 and after are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months. NOTE 8. SHARE-BASED COMPENSATION 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, 2024, performance awards for 200,000 shares of common stock, non-qualified stock options for 372,000 shares of common stock, and 18,000 restricted shares of common stock have been granted under the 2016 Equity Incentive Plan. Performance Awards In October 2023, the Compensation Committee of our Board (the “Compensation Committee”) reallocated previously forfeited performance awards for 15,200 shares of common stock, having the same remaining terms and conditions as the forfeited awards, 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. During the three months ended December 31, 2024, and 2023, we recorded share-based compensation expense of $ 7,000 and $ 30,000 , respectively, related to outstanding performance awards. During the six months ended December 31, 2024, and 2023, we recorded share-based compensation expense of $ 14,000 and $ 45,000 , respectively, related to outstanding performance awards. On December 31, 2024, there was approximately $ 41,000 of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over a weighted-average period of 1.50 years. On July 1, 2024, it was determined by the Compensation Committee that the vesting of performance awards for 40,000 shares of common stock had been achieved. Each participant elected a net issuance to cover their individual withholding taxes and, therefore, we issued participants 25,134 shares of common stock and paid $ 273,000 of participant-related payroll tax liabilities. 11 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Non-Qualified Stock Options In December 2020, the Compensation Committee granted non-qualified stock options for 310,000 shares of common stock 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 18 months to 10.5 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. During the three months ended December 31, 2024 and 2023, we recorded compensation expense of $ 104,000 and $ 168,000 , respectively, related to these options. During the six months ended December 31, 2024 and 2023, we recorded compensation expense of $ 208,000 and $ 335,000 , respectively, related to these options. As of December 31, 2024, none of these stock options had vested and there was approximately $ 1.4 million of unrecognized compensation cost related to these stock options. Restricted Shares In November 2024, the Compensation Committee awarded 18,000 restricted shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The shares vest ratably over five years from the date of grant. The fair value of the restricted shares on the date of grant was $ 857,000 , based upon the closing price of our common stock on the date of grant. During the three months ended December 31, 2024, we recorded $ 19,000 of compensation expense related to these restricted shares. As of December 31, 2024, there was approximately $ 838,000 of unrecognized compensation cost related to these restricted shares. Employee Stock Purchase Plan In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) and reserved 704,715 shares of our common stock for issuance pursuant to 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 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 Meeting. During the three months ended December 31, 2024 and 2023, we did not 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, 2024 and 2023, 940 and 2,021 shares of our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $ 16.22 and $ 15.82 , respectively, per share. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 36,442 shares of our common stock. During the six months ended December 31, 2024 and 2023, we recorded share-based compensation expense in the amount of $ 3,000 and $ 6,000 , respectively, relating to the ESPP. 12 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9. MAJOR CUSTOMERS AND SUPPLIERS Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month or the six-month periods ended December 31, 2024 and 2023, is as follows (in thousands, except percentages): Schedule of sales by major customers Three Months Ended December 31, 2024 2023 Amount Percent of Total Amount Percent of Total Net sales $ 16,793 100 % $ 12,588 100 % Customer concentration: Customer 1 $ 13,515 80 % $ 8,437 67 % Customer 2 1,784 11 % 1,494 12 % Customer 3 804 5 % 1,313 10 % Total $ 16,103 96 % $ 11,244 89 % Six Months Ended December 31, 2024 2023 Amount Percent of Total Amount Percent of Total Net sales $ 31,686 100 % $ 24,526 100 % Customer concentration: Customer 1 24,892 79 % 16,812 69 % Customer 2 3,621 11 % 2,703 11 % Customer 3 1,564 5 % 1,965 8 % Total $ 30,077 95 % $ 21,480 88 % Information with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either December 31, 2024 or June 30, 2024, is as follows (in thousands, except percentages): Schedule of accounts receivable December 31, 2024 June 30, 2024 Total gross accounts receivable $ 18,494 100 % $ 13,887 100 % Customer concentration: Customer 1 $ 15,582 84 % $ 10,488 76 % Customer 2 2,226 12 % 2,423 17 % Total. $ 17,808 96 % $ 12,911 93 % During the three months ended December 31, 2024 and 2023, we had three and four suppliers, respectively, that accounted for 10 % or more of total inventory purchases, and during the six months ended December 31, 2024 and 2023, we had three suppliers that accounted for more than 10 % of our total inventory purchases. Amounts owed to the fiscal 2024 three most significant suppliers at December 31, 2024, totaled $ 1.8 million, $ 657,000 and $ 485,000 , respectively, and at June 30, 2024, totaled $ 1.4 million, $ 372,000 and $ 416,000 , respectively. 13 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 10. NOTES PAYABLE AND FINANCING TRANSACTIONS Minnesota Bank & Trust As previously disclosed, we have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) under our Amended and Restated Credit Agreement with MBT (as subsequently amended, the “Amended Credit Agreement”). On July 31, 2024 (the “Fourth Amendment Date”), we entered into Amendment No. 4 to the Amended Credit Agreement (the “Fourth Amendment”) which, (i) provided for a new term loan, Term Loan C, in the amount of $ 5.0 million, (ii) used the proceeds from Term Loan C to repay the entire $ 3.0 million balance that was outstanding on the Fourth Amendment Date under the Amended Revolving Loan, and (iii) terminated our Supplemental Loan, under which no amounts had been drawn. Loan origination fees in the amount of $ 10,000 were paid to MBT in conjunction with Term Loan C. On December 23, 2024, we entered into Amendment No. 5 to the Amended Credit Agreement (the “Fifth Amendment”), which extended the maturity date of the Amended and Revolving Loan from December 29, 2025, to December 29, 2026. The balance on our outstanding loans (in thousands) is as follows (exclusive of unamortized loan fees): Schedule of unamortized loan December 31, 2024 June 30, 2024 Notes Payable: Term Loan A $ 3,320 $ 3,834 Term Loan B 494 571 Term Loan C 4,667 — Property Loan 4,450 4,551 Amended Revolving Loan 3,500 3,000 Total notes payable $ 16,431 $ 11,956 Term Loan A and B both bear interest at a fixed rate of 3.84 % per annum, the Property Loan bears interest at a fixed rate of 3.55 % per annum and Term Note C bears interest at an annual rate equal to the greater of (a) 5 % , or (b) the SOFR one-month rate plus 2.5 % (the “Adjusted Term SOFR Rate”). The Amended Revolving Loan bears interest at an annual rate equal to the greater of (a) 4%, or (b) t he Adjusted Term SOFR Rate. Term Loan A and Term Loan B are both fully amortizing and mature on November 1, 2027 , Term Loan C is fully amortizing and matures on August 1, 2029 , the Property Loan matures on November 1, 2030 , at which time a balloon payment in the principal amount of $ 3.1 million is due (plus any accrued and unpaid interest), and the Amended Revolving Loan matures on December 29, 2026 . Any payment on Term Loan A, Term Loan B, Term Loan C, the Property Loan, or Amended Revolving 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 under any of the Loans, 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. The Loans are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into between the Company and MBT. 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 and by an assignment of Leases and Rents by PDEX Franklin in favor of MBT (collectively, the “Property Loan Security Agreements”). The Amended Credit Agreement, Amended Security Agreement, Property Loan Security Agreements,Term Note A, Term Note B, Term Note C, Property Note, and Amended Revolving Note contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of December 31, 2024, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans. 14 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 11. COMMON STOCK 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 the three and six months ended December 31, 2024, we repurchased 38,172 and 130,148 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 1.2 million and $ 3.5 million, respectively. 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 . On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 1,511,497 shares under the share repurchase program at an aggregate cost, inclusive of fees, of $ 24.2 million. All repurchases under the 10b5-1 Plans were administered through an independent broker. NOTE 12. LEASES Our operating lease right-of-use asset and long-term liability are presented separately on our condensed consolidated balance sheets. The current portion of our operating lease liability as of December 31, 2024, in the amount of $ 476,000 , is presented within accrued liabilities on the condensed consolidated balance sheets. As of December 31, 2024, our operating lease has a remaining lease term of two 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, 2024 totaled $ 135,000 and $ 265,000 , respectively, and for December 31, 2023 totaled $ 131,000 and $ 258,000 , respectively. As of December 31, 2024, the maturity of our lease liability is as follows (in thousands): Schedule of maturities of lease liabilities Operating Lease Fiscal Year: 2025 269 2026 551 2027 567 2028 143 Total lease payments 1,530 Less imputed interest: ( 115 ) Total $ 1,415 NOTE 13. COMMITMENTS AND CONTINGENCIES Legal Matters 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. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and adverse. NOTE 14. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this report. There were no subsequent events that require disclosure. 15