PRO DEX INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share amounts) March 31, 2025 June 30, 2024 ASSETS Current Assets: Cash and cash equivalents $ 4,473 $ 2,631 Investments 5,417 4,217 Accounts receivable, net of allowance for expected credit losses of $ 0 at March 31, 2025 and at June 30, 2024, respectively 15,861 13,887 Deferred costs 141 262 Inventory 23,432 15,269 Prepaid expenses and other current assets 619 345 Total current assets 49,943 36,611 Land and building, net 6,085 6,155 Equipment and leasehold improvements, net 5,344 5,024 Right of use asset, net 1,158 1,473 Intangibles, net 33 54 Deferred income taxes, net 1,555 1,555 Investments 111 1,563 Other assets 44 42 Total assets $ 64,273 $ 52,477 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 5,962 $ 4,513 Accrued expenses 3,542 3,359 Deferred revenue — 14 Income taxes payable 385 632 Note payable 8,428 4,374 Total current liabilities 18,317 12,892 Lease liability, net of current portion 813 1,182 Notes payable, net of current portion 9,861 7,536 Total non-current liabilities 10,674 8,718 Total liabilities 28,991 21,610 Shareholders’ equity: Common shares; no par value; 50,000,000 shares authorized; 3,261,043 and 3,363,412 shares issued and outstanding at March 31, 2025 and June 30, 2024, respectively 551 3,917 Retained earnings 34,731 26,950 Total shareholders’ equity 35,282 30,867 Total liabilities and shareholders’ equity $ 64,273 $ 52,477 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 PRO-DEX, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) (In thousands, except per share amounts) Three Months Ended March 31, Nine Months Ended March 31, 2025 2024 2025 2024 Net sales $ 17,414 $ 14,293 $ 49,099 $ 38,819 Cost of sales 11,616 10,291 33,080 28,357 Gross profit 5,798 4,002 16,019 10,462 Operating expenses: Selling expenses 113 17 211 79 General and administrative expenses 1,098 1,012 3,732 3,208 Research and development costs 947 760 2,731 2,353 Total operating expenses 2,158 1,789 6,674 5,640 Operating income 3,640 2,213 9,345 4,822 Interest expense ( 246 ) ( 138 ) ( 602 ) ( 409 ) Unrealized gain (loss) on marketable equity investments 550 ( 1,192 ) 1,060 ( 3,785 ) Interest and other income 15 30 61 76 Gain on sale of investments 595 — 595 — Income before income taxes 4,554 913 10,459 704 Income tax expense 1,279 258 2,678 164 Net income $ 3,275 $ 655 $ 7,781 $ 540 Basic net income per share: Net income $ 1.00 $ 0.19 $ 2.36 $ 0.15 Diluted net income per share: Net income $ 0.98 $ 0.19 $ 2.31 $ 0.15 Weighted average common shares outstanding: Basic 3,261,043 3,451,423 3,296,744 3,531,249 Diluted 3,337,312 3,523,823 3,366,099 3,603,649 Common shares outstanding 3,261,043 3,451,423 3,261,043 3,451,423 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 March 31, Nine Months Ended March 31, 2025 2024 2025 2024 Common shares: Balance, beginning of period $ 366 $ 7,078 $ 3,917 $ 6,767 Share-based compensation expense 158 201 401 588 Share repurchases — ( 1,722 ) ( 3,504 ) ( 1,830 ) Shares withheld from common stock issued to pay employee payroll taxes — — ( 305 ) — ESPP shares issued 27 18 42 50 Balance, at end of period $ 551 $ 5,575 $ 551 $ 5,575 Retained earnings: Balance, beginning of period $ 31,456 $ 24,708 $ 26,950 $ 24,823 Net income 3,275 655 7,781 540 Balance, at end of period $ 34,731 $ 25,363 $ 34,731 $ 25,363 Balance, beginning of period 31,822 31,786 30,867 31,590 Net income (loss) 3,275 655 7,781 540 Total shareholders’ equity $ 35,282 $ 30,938 $ 35,282 $ 30,938 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) Nine Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,781 $ 540 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 925 854 Amortization of loan fees, net 16 ( 6 ) Share-based compensation 401 588 Unrealized (gain) loss on marketable equity investments ( 1,060 ) 3,785 Non-cash straight-line lease amortization ( 24 ) ( 12 ) Gain on sale of investments ( 595 ) — Credit loss expense — 1 Changes in operating assets and liabilities: Accounts receivable ( 1,974 ) ( 2,565 ) Deferred costs 121 163 Inventory ( 8,163 ) 1,925 Prepaid expenses and other assets ( 277 ) ( 776 ) Accounts payable and accrued expenses 1,601 710 Deferred revenue ( 14 ) 35 Income taxes payable ( 247 ) ( 63 ) Net cash provided by (used in) operating activities ( 1,509 ) 5,179 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments — ( 1,250 ) Purchases of equipment and improvements ( 1,153 ) ( 876 ) Proceeds from sale of investments 1,907 — Net cash provided by (used in) investing activities 754 ( 2,126 ) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock ( 3,504 ) ( 1,830 ) Proceeds from exercise of options and ESPP contributions 42 50 Payment of employee payroll taxes on net issuance of common stock ( 305 ) — Proceeds from Minnesota Bank & Trust revolving loan, net of fees 12,890 2,000 Principal payments on notes payable and revolving loan ( 6,526 ) ( 2,990 ) Net cash provided by (used in) financing activities 2,597 ( 2,770 ) Net increase in cash and cash equivalents 1,842 283 Cash and cash equivalents, beginning of period 2,631 2,936 Cash and cash equivalents, end of period $ 4,473 $ 3,219 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) Nine Months Ended March 31, 2025 2024 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 573 $ 409 Cash paid during the period for income taxes by jurisdiction: Federal income tax payments $ 2,090 $ 885 California income tax payments 1,100 74 Massachusetts income tax payments — 21 Total income tax payments $ 3,190 $ 980 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 November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Disaggregation of Income Statement Expenses . The ASU’s purpose is to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). This ASU is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position. In December 2023, the FASB issued 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. 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 March 31, Nine Months Ended March 31, 2025 2024 2025 2024 Net Sales: Over-time revenue recognition $ 186 $ 234 $ 274 $ 762 Point-in-time revenue recognition 17,228 14,059 48,825 38,057 Total net sales $ 17,414 $ 14,293 $ 49,099 $ 38,819 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 nine months ended March 31, 2025, we recorded $ 0 and $ 14,000 respectively, of revenue that had been included in deferred revenue in the prior year. During the three and nine months ended March 31, 2024, we did not record any revenue that had been included in deferred revenue in the prior year. The revenue recognized from the contract liabilities consisted of satisfying our performance obligations during the normal course of business. The following tables summarize our contract assets and liability balances (in thousands): Schedule of contract assets and liability As of and for the Three Months Ended March 31, As of and for the Nine Months Ended March 31, 2025 2024 2025 2024 Contract assets beginning balance $ 152 $ 412 $ 262 $ 494 Expenses incurred during the year 70 106 159 376 Amounts reclassified to cost of sales ( 81 ) ( 179 ) ( 274 ) ( 505 ) Amounts allocated to discounts for standalone selling price — ( 8 ) ( 6 ) ( 34 ) Contract assets ending balance $ 141 $ 331 $ 141 $ 331 As of and for the Three Months Ended March 31, As of and for the Nine Months Ended March 31, 2025 2024 2025 2024 Contract liabilities beginning balance $ — $ — $ 14 $ — Payments received from customers — 225 — 267 Amounts reclassified to revenue — ( 190 ) ( 14 ) ( 232 ) Contract liabilities ending balance $ — $ 35 $ — $ 35 7 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income, and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy . The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. We have categorized our cash equivalents and investments within the fair value hierarchy as follows: Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities. Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by observable market data. At March 31, 2025 and June 30, 2024, we have categorized our investments in marketable equity securities as Level 2 assets. Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at March 31, 2025 or June 30, 2024. Schedule of fair value, assets and liabilities Fair Value Measurement at March 31, 2025 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 33 $ — $ — $ 33 Marketable equity securities – short-term — 5,417 — 5,417 Marketable equity securities – long-term — 111 — 111 Total $ 33 $ 5,528 $ — $ 5,561 8 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Fair Value Measurement at June 30, 2024 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 45 $ — $ — $ 45 Marketable equity securities – short-term — 4,217 — 4,217 Marketable equity securities – long-term — 1,563 — 1,563 Total $ 45 $ 5,780 $ — $ 5,825 Investments in marketable equity securities at March 31, 2025 and June 30, 2024 had an aggregate cost basis of $ 2,651,000 and $ 3,964,000 , 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. During the quarter ended March 31, 2025, we sold one of our marketable equity securities previously reported in long term investments for $1.9 million in cash and recorded a realized gain in the amount of $ 595,000 . At March 31, 2025, the investments included net unrealized gains of $ 2.9 million (gross unrealized gains of $ 3.4 million offset by gross unrealized losses of $ 493,000 ). At June 30, 2024, the investments included net unrealized gains of $ 1.8 million (gross unrealized gains of $ 2.1 million offset by gross unrealized gains of $ 261,000 ). Of the total marketable equity securities at March 31, 2025 and June 30, 2024, $ 797,000 and $ 987,000 , 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. 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 warrant to purchase common stock of Monogram (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 marketable equity securities – short term in the tables above. Our Chief Executive Officer, Richard Van Kirk (“Rick”), 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 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 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 they manage, or other companies whose boards they sit on, such as Air T, Inc. 9 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. 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 investments March 31, 2025 June 30, 2024 Raw materials /purchased components $ 10,065 $ 6,703 Work in process 9,332 5,103 Sub-assemblies/finished components 2,856 2,342 Finished goods 1,179 1,121 Total inventory $ 23,432 $ 15,269 Land and building Land and building consist of the following (in thousands): Schedule of land and building March 31, 2025 June 30, 2024 Land $ 3,684 $ 3,684 Building 2,815 2,815 Total 6,499 6,499 Less: accumulated depreciation ( 414 ) ( 344 ) $ 6,085 $ 6,155 On 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 (the “Property Loan”) through Minnesota Bank & Trust (“MBT”) (See Note 11). 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. For each of the three months ended March 31, 2025, and 2024 we recorded $ 23,000 of depreciation expense and for each of the nine months ended March 31, 2025 and 2024 we recorded $ 70,000 of depreciation expense. 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 March 31, 2025 June 30, 2024 Patent-related costs $ 208 $ 208 Less: accumulated amortization ( 175 ) ( 154 ) $ 33 $ 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. For each of the three months ended March 31, 2025 and 2024, we recorded $ 7,000 of amortization expense and for each of the nine months ended March 31, 2025 and 2024, we recorded $ 21,000 of amortization expense. Future amortization expense is expected to be $ 7,000 for the remainder of fiscal 2025 and $ 26,000 during fiscal 2026, at which time we expect these costs to be fully amortized. 10 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. WARRANTY The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying condensed consolidated balance sheets. As of March 31, 2025 and June 30, 2024, the warranty reserve amounted to $ 326,000 and $ 277,000 , 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. Information regarding the accrual for warranty costs for the three and nine months ended March 31, 2025 and 2024, are as follows (in thousands): Schedule of accrual warranty costs As of and for the Three Months Ended March 31, 2025 2024 Beginning balance $ 312 $ 194 Accruals during the period 51 102 Changes in estimates of prior period warranty accruals 11 — Warranty amortization and utilization ( 48 ) ( 23 ) Ending balance $ 326 $ 273 As of and for the Nine Months Ended March 31, 2025 2024 Beginning balance $ 277 $ 200 Accruals during the period 189 155 Changes in estimates of prior period warranty accruals ( 14 ) 7 Warranty amortization and utilization ( 126 ) ( 89 ) Ending balance $ 326 $ 273 NOTE 7. NET INCOME 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. 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, restricted shares, and performance awards. 11 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts): Schedule of net income per share Three Months Ended March 31, Nine Months Ended March 31, 2025 2024 2025 2024 Basic: Net income $ 3,275 $ 655 $ 7,781 $ 540 Weighted average shares outstanding 3,261 3,451 3,297 3,531 Basic income per share $ 1.00 $ 0.19 $ 2.36 $ 0.15 Diluted: Net income $ 3,275 $ 655 $ 7,781 $ 540 Weighted average shares outstanding 3,261 3,451 3,297 3,531 Effect of dilutive securities 76 73 69 73 Weighted average shares used in calculation of diluted earnings per share 3,337 3,524 3,366 3,604 Diluted income per share $ 0.98 $ 0.19 $ 2.31 $ 0.15 NOTE 8. 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 March 31, 2025 and 2024, we recognized accrued interest of $ 60,000 and $ 69,000 , respectively, related to unrecognized tax benefits. The effective tax rate for each of the three months ended March 31, 2025 and 2024 was 28 % . The effective tax rate for the nine months ended March 31, 2025 and 2024 was 26 % and 23 % , 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. We are subject to U.S. federal income tax, as well as income tax of California and Colorado. We were also subject to income tax of 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 9. 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 March 31, 2025, 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. 12 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Performance Awards In October 2023, the Compensation Committee reallocated previously forfeited performance awards for 15,200 shares of common stock, 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. During the three months ended March 31, 2025 and 2024, we recorded share-based compensation expense of $ 7,000 and $ 31,000 , respectively, related to outstanding performance awards. During the nine months ended March 31, 2025 and 2024, we recorded share-based compensation expense of $ 20,000 and $ 76,000 , respectively, related to outstanding performance awards. On March 31, 2025, there was approximately $ 34,000 of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period of 1.27 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. Non-Qualified Stock Options In December 2020, the Compensation Committee of our Board of Directors granted 310,000 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 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 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 the three months ended March 31, 2025 and 2024, we recorded compensation expense of $ 104,000 and $ 168,000 , respectively, related to these stock options. During the nine months ended March 31, 2025 and 2024, we recorded compensation expense of $ 312,000 and $ 503,000 , respectively, related to these stock options. As of March 31, 2025, 26,250 of these stock options have vested and there was approximately $ 1.2 million of unrecognized compensation cost related to the non-vested non-qualified 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 and nine months ended March 31, 2025, we recorded $ 43,000 and $ 62,000 , respectively, of compensation expense related to these restricted shares. As of March 31, 2025, there was approximately $ 795,000 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”), 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. Our Board 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 March 31, 2025 and 2024, we recorded ESPP share-based compensation expense in the amount of $ 5,000 and $ 3,000 , respectively. During the three months ended March 31, 2025 and 2024, 653 and 983 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $ 41.11 and $ 18.32 , respectively, per share. During the nine months ended March 31, 2025 and 2024, we recorded ESPP share-based compensation expense in the amount of $ 7,000 and $ 9,000 , respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 37,095 shares of our common stock under the ESPP. 13 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 10. 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 and the nine-month periods ended March 31, 2025 and 2024, is as follows (in thousands, except percentages): Schedule of sales by major customers Three Months Ended March 31, 2025 2024 Amount Percent of Total Amount Percent of Total Net sales $ 17,414 100 % $ 14,293 100 % Customer concentration: Customer 1 $ 13,397 77 % $ 10,679 75 % Customer 2 1,917 11 % 1,385 10 % Total $ 15,314 88 % $ 12,064 85 % Nine Months Ended March 31, 2025 2024 Amount Percent of Total Amount Percent of Total Net sales $ 49,099 100 % $ 38,819 100 % Customer concentration: Customer 1 $ 38,288 78 % $ 27,491 71 % Customer 2 5,538 11 % 4,087 11 % Total $ 43,826 89 % $ 31,578 82 % Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2025 or June 30, 2024, is as follows (in thousands, except percentages): Schedule of accounts receivable March 31, 2025 June 30, 2024 Total gross accounts receivable $ 15,861 100 % $ 13,887 100 % Customer concentration: Customer 1 $ 11,872 75 % $ 10,488 76 % Customer 2 2,312 15 % 2,423 17 % Total $ 14,184 90 % $ 12,911 93 % 14 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) During the three and nine months ended March 31, 2025 and 2024, we had three suppliers accounting for 10% or more of total inventory purchases. Amounts owed to these three suppliers at March 31, 2025 or June 30, 2024, is as follows (in thousands, except percentages). Schedule of suppliers accounting March 31, 2025 June 30, 2024 Total accounts payable $ 5,962 100 % $ 4,513 100 % Supplier concentration: Supplier 1 $ 1,995 34 % $ 1,405 31 % Supplier 2 652 11 % 416 9 % Supplier 3 430 7 % 371 8 % Total $ 3,077 52 % $ 2,192 48 % NOTE 11. 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 Revolving Loan from December 29, 2025, to December 29, 2026. On April 8, 2025, we entered into Amendment No. 6 to the Amended Credit Agreement (the “Sixth Amendment”), which among other things, increased the revolving line of credit under the Amended Revolving Loan from $7,000,000 to $ 11,000,000 . Loan origination fees in the amount of $ 8,000 were paid to MBT in connection with the Sixth Amendment. The balance on our outstanding loans at March 31, 2025 and June 30, 2024 (in thousands) is as follows (exclusive of unamortized loan fees): Schedule of unamortized loan March 31, 2025 June 30, 2024 Notes Payable: Term Loan A $ 3,058 $ 3,834 Term Loan B 455 571 Term Loan C 4,417 — Property Loan 4,399 4,551 Amended Revolving Loan 6,000 3,000 Total notes payable $ 18,329 $ 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) the 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 . 15 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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, Security Agreement, Property Loan Security Agreements, Term Loan A, Term Loan B, Term Loan C, Property Loan, and Amended Revolving Loan 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 March 31, 2025, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans. NOTE 12. 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 months ended March 31, 2025, we did no t repurchase any shares. During the nine months ended March 31, 2025, we repurchased 130,148 shares at an aggregate cost, inclusive of fees under the Plan of $ 3.5 million. During the three and nine months ended March 31, 2024, we repurchased 90,605 and 96,890 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 1,723,000 and $ 1,830,000 , respectively. 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 of $ 24.2 million. All repurchases under the 10b5-1 Plans were administered through an independent broker. NOTE 13. LEASES 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, 2025, in the amount of $ 487,000 , is presented within accrued expenses on the condensed consolidated balance sheet. As of March 31, 2025, the maturity of our lease liability is as follows (in thousands): Schedule of maturities of lease liabilities Operating Lease Fiscal Year: 2025 $ 135 2026 551 2027 567 2028 143 Total lease payments 1,396 Less imputed interest: ( 96 ) Total $ 1,300 16 PRO-DEX INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2025, the operating lease for our Irvine, California headquarters has a remaining lease term of two years and six months and an imputed interest rate of 5.53 % . Cash paid for our operating lease for the three and nine months ended March 31, 2025, was $ 149,000 and $ 442,000 , respectively. Cash paid for our operating lease for the three and nine months ended March 31, 2024, was $ 143,000 and $ 425,000 , respectively. NOTE 14. 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 15. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this filing. Other than the amendment to the Amended Credit Agreement discussed further in Note 11, there were no subsequent events that require disclosure. 17