What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-09-04 compared with 2024-09-05 · 508 added, 512 removed, 571 unchanged (64% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Irvine California, Auditor ID:

Financial Statements:

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Notes to Consolidated Financial Statements

of Independent Registered Public Accounting Firm

Report of Independent Registered Public

Accounting Firm

To the Shareholders and the Board of Directors

1 unchanged sentence

Opinion on the Financial Statements

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

(the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of income, shareholders’ equity,

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

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

the Company as of June 30, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended,

in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated

balance sheets of Pro-Dex, Inc.

(the “Company”) as of June 30, 2025 and 2024, the related consolidated statements of income,

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

financial statements”).

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

financial position of the Company as of June 30, 2025 and 2024, and the consolidated results of its operations and its cash flows for

the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of

the Company’s management.

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

on our audits.

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

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

federal securities laws and the applicable

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

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

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

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

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

an audit of its internal control over financial reporting.

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

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

control over financial reporting.

These consolidated financial statements are the

responsibility of the Company’s management.

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

statements based on our audits.

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

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

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

We conducted our audits in accordance with the

standards of the PCAOB.

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

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

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

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

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

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material

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

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

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

the overall presentation of the consolidated financial statements.

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

Critical Audit Matters

Critical audit matters are matters

arising from the current period audit of the consolidated financial statements that were

communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to

the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no

Our audits included performing procedures to assess

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

to respond to those risks.

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

consolidated financial statements.

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

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

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

/s/ Moss Adams LLP

Critical audit matters are matters arising from

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

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

subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Baker Tilly US,

Irvine, California

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PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

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Deferred costs

Income taxes receivable

Prepaid expenses

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Lease liability, net of current portion

Deferred income taxes, net

Notes payable, net of current portion

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PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

CONSOLIDATED INCOME STATEMENTS

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Weighted-average common shares outstanding:

See notes to consolidated financial statements.

See notes to consolidated financial

PRO-DEX, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

For The Years Ended June 30, 2025 and 2024

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ESPP shares issued

Shares issued in connection with performance award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

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ESPP shares issued

Shares issued in connection with performance award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

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Balance at June 30, 2025

See notes to consolidated

financial statements .

to consolidated financial statements .

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Ended June 30,

Years Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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

and amortization

(gain) loss on marketable equity investments

of investments

Non-cash lease

of loan fees, net

Deferred income

operating assets and liabilities:

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

Depreciation and amortization

Unrealized (gain) loss on marketable equity investments

Gain on sale of investments

Non-cash straight-line lease amortization

Amortization of loan fees, net

Share-based compensation

Deferred income taxes

Changes in operating assets and liabilities:

Accounts receivable

Deferred costs

Prepaid expenses

Accounts payable

and accrued expenses

Prepaid expenses and other assets

Accounts payable and accrued expenses

Deferred revenue

taxes payable

cash provided by operating activities

FROM INVESTING ACTIVITIES:

equipment and improvements

Proceeds from

sale of investments

cash used in investing activities

FROM FINANCING ACTIVITIES:

Principal payments

on notes payable

Borrowing from

Minnesota Bank & Trust, net of loan origination fees

of common stock

employee taxes on net issuance of common stock

from exercise of stock options and ESPP contributions

cash used in financing activities

(decrease) in cash and cash equivalents

and cash equivalents, beginning of year

and cash equivalents, end of year

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of equipment and improvements

Proceeds from sale of investments

Investment in Monogram

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Borrowing from Minnesota Bank & Trust

Repurchases of common stock

Payments of employee taxes on net issuance of common stock

Proceeds from exercise of stock options and ESPP contributions

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

See notes to consolidated financial statements .

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Ended June 30,

disclosures of cash flow information:

Cash paid during the period for:

Income taxes, net of refunds

Years Ended June 30,

Supplemental disclosures of cash flow information:

Cash paid during the period for interest

Cash paid during the period for income taxes by jurisdiction:

Federal income tax payments

California income tax payments

Colorado income tax payments

Massachusetts income tax payments

Total income tax payments

Non-cash investing and financing activity:

Cashless stock option exercise

See notes to consolidated financial statements .

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 craniomaxillofacial markets.

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

which appeal to our customers, primarily medical device distributors.

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

In August 2020, we formed a wholly

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

We specialize in the design,

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

in the orthopedic, thoracic, and craniomaxillofacial markets.

We have patented adaptive torque-limiting technology and proprietary

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

We also manufacture and sell rotary air motors

to a wide range of industries;

however, these motors comprise a de minimis portion of our business.

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.

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This subsidiary has no separate operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

and objectivity.

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

States of America (“U.S.

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

consolidated financial statements.

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

The summary of significant

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

Such consolidated

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

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

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

Net sales consists of the

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Revenue Recognition

Revenue from product sales is recognized

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

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

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

each performance obligation, generally upon shipment.

Revenue from product sales

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

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

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

we satisfy each performance obligation, generally upon shipment.

from services, typically non-recurring engineering (“NRE”) services related to the design or customization of a medical device,

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of Sales

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with our inspection, warehousing, material planning and quality departments.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated Losses on Product Development Services

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determines the allowance for credit losses based on facts and circumstances related to specific accounts and the age of accounts.

receivables are written off when deemed uncollectible.

Recoveries of trade receivables previously reserved are offset against the allowance

when received.

Our operating lease consists solely of our corporate headquarters located

in Irvine, California.

June 30, 2025 and 2024 we have no allowance for doubtful accounts and expect to fully collect our trade receivable balances.

Trade receivables

are written off when deemed uncollectible.

Recoveries of trade receivables previously reserved are offset against the allowance when received.

Our operating

lease consists solely of our corporate headquarters located in Irvine, California.

We do not have any leases classified as financing leases.

We classify arrangements meeting the definition of a

lease as operating or financing leases, and leases are recorded on the consolidated balance sheets as both a right-of-use asset (“ROU”)

and lease liability, calculated by discounting the fixed lease payments over the term of the lease term at the rate implicit in the lease

or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and

the ROU asset is amortized over the lease term.

For operating leases, interest on the lease liability and the amortization of the ROU

asset result in straight-line rent expense over the lease term.

Operating lease assets and liabilities are recognized at commencement

date based on the present value of lease payments over the lease term.

Variable lease expenses are recorded when incurred.

short-term leases having an initial term of 12 month or less as an accounting policy election, and instead recognize rent expense on a

straight-line basis over the term of the lease.

We assess the impairment of ROU

assets when an event or change in circumstance indicates that the carrying value of such ROU assets may not be recoverable.

or a change in circumstance indicates that the carrying value of an ROU asset may not be recoverable and the estimated fair value attributable

to the ROU asset is less than its carrying value, an impairment loss equal to the excess of the ROU’s carrying value over its estimated

fair value is recognized.

We classify arrangements meeting the definition of a lease as operating or financing leases, and leases are recorded on the consolidated

balance sheets as both a right-of-use asset (“ROU”) and lease liability, calculated by discounting the fixed lease payments

over the term of the lease term at the rate implicit in the lease or our incremental borrowing rate.

Lease liabilities are increased by

interest and reduced by payments each period, and the ROU asset is amortized over the lease term.

For operating leases, interest on the

lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term.

Operating lease assets

and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Variable lease expenses

are recorded when incurred.

We exclude short-term leases having an initial term of 12 months or less as an accounting policy election,

and instead recognize rent expense on a straight-line basis over the term of the lease.

PRO-DEX, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We assess the impairment

of ROU assets when an event or change in circumstance indicates that the carrying value of such ROU assets may not be recoverable.

an event or a change in circumstance indicates that the carrying value of an ROU asset may not be recoverable and the estimated fair value

attributable to the ROU asset is less than its carrying value, an impairment loss equal to the excess of the ROU’s carrying value

over its estimated fair value is recognized.

Deferred Costs

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and 2024, consist of marketable equity securities of publicly held companies.

Investments at June 30, 2023 also included a warrant

(the “Monogram Warrant”) to purchase common stock of a company whose common stock first became publicly traded in May 2023,

which we exercised in the second quarter of fiscal 2024 (See Note 4).

The investments were made to realize a reasonable return, although

there is no assurance that positive returns will be realized.

Investments are marked to market at each measurement date, with unrealized

gains and losses presented separately within other income and expense on the consolidated income statement.

All of our investments consist

of common stocks of public companies that are either thinly traded or we hold a significant (in excess of 5%) interest in.

These investments

were subject to a valuation analysis as of June 30, 2024 and 2023.

The investments were made to realize a reasonable return,

although there is no assurance that positive returns will be realized.

Investments are marked to market at each measurement date, with

unrealized gains and losses presented separately within other income and expense on the consolidated income statement.

All of our investments

consist of common stocks of public companies that are either thinly traded or we hold a significant (in excess of 5%) interest in.

investments were subject to a valuation analysis as of June 30, 2025 and 2024.

Long-lived Assets

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognize deferred tax

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the Tax Cuts and Jobs Act.

While the One Big Beautiful Bill Act of 2025 (“OBBBA”) was enacted on July 4, 2025, we are continuing

to evaluate the impact of OBBBA on our income tax provision and results of operations.

Significant management judgment

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respectively, in the period such determination is made.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Uncertain Tax Positions

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

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

While such receivables are

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

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

While such receivables are not collateralized,

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

Segment Reporting

We have identified one business segment which management also considers

to be one reporting unit as our Chief Executive Officer (“CEO”) allocates resources, assesses performance, and manages our

business as one segment.

We have reached this conclusion because 99% of our business relates to designing, manufacturing, and repairing

medical devices.

We primarily design, sell, and repair handheld medical devices and accessories.

We provide medical devices, NRE and proto-type

services, as well as repairs to all our customers and we utilize one machine shop and purchasing team to procure and manufacture all the

products that we sell.

Our CEO utilizes consolidated operating income to analyze our business operations.

We have identified

one business segment which management also considers to be one reporting unit as our Chief Executive Officer (“CEO”) allocates

resources, assesses performance, and manages our business as one segment.

We have reached this conclusion because 99% of our fiscal 2025

business related to designing, manufacturing, and repairing medical devices.

We primarily design, sell, and repair handheld medical devices

and accessories.

We provide medical devices, NRE and proto-type services, as well as repairs to all our customers and we utilize one machine

shop and purchasing team to procure and manufacture all the products that we sell.

The Company’s chief

operating decision maker (“CODM”) is our CEO who reviews and evaluates consolidated operating income for purposes of assessing

performance, making operating decisions, allocating resources and planning and forecasting for future periods.

As our operations are managed

at the consolidated level, there are no differences between the measurement of the reportable segment’s profit or loss and our consolidated

statements of operations.

Further, there are no differences between i) segment revenues and expenses included in the measurement of the

reportable segment’s profit or loss and used by the CODM to manage operations and ii) those disclosed elsewhere in the consolidated

financial statements.

Segment asset measures are not used as a basis for the CODM to evaluate the performance of or to allocate resources.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Compensation Plans

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and the recoverability/extinguishment of deferred income tax assets and liabilities.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic and Diluted Per Share Information

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

consist of marketable equity securities of publicly held companies as well as, at June 30, 2023, a warrant (the Monogram Warrant) to purchase

outstanding stock of a publicly traded company.

Due to either the thinly traded nature of these stocks or our significant ownership percentage,

in excess of 5% of shares outstanding, all of our investments are classified within Level 2 of the valuation hierarchy as of June 30,

Due to the lack of an active market for the Monogram Warrant, the estimated fair value of the warrant was measured using pricing

models with no observable inputs and was therefore considered a Level 3 measurement within the valuation hierarchy.

The fair value of

all of our investments at June 30, 2024 and 2023 was based upon a valuation analysis.

consist of marketable equity securities of publicly held companies.

Due to either the thinly traded nature of these stocks or our significant

ownership percentage, in excess of 5% of shares outstanding, all of our investments are classified within Level 2 of the valuation hierarchy

as of June 30, 2025 and 2024.

The fair value of all of our investments at June 30, 2025 and 2024 was based upon a valuation analysis.

Although the methods above

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our valuation methods are appropriate.

Advertising costs

are charged to selling or general and administrative expense as incurred and amounted to $ 14,000 and $ 4,000 for the fiscal years ended

June 30, 2024 and 2023, respectively.

Advertising costs are

charged to selling or general and administrative expense as incurred and amounted to $ 78,000 and $ 14,000 for the fiscal years ended June 30,

2025 and 2024, respectively.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain prior year amounts have been reclassified

to conform to the current year presentation.

Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued ASU

No 2022-02 (Topic 326) Financial Instruments – Credit Losses to create a new model for credit losses that reflects current

expected credit losses (“CECL”) over the lifetime of the underlying accounts receivable.

The CECL methodology is applicable

to our trade accounts receivable and our deferred costs.

We adopted ASU 2022-02 effective July 1, 2023, and the adoption did not have

a material impact on our financial statements.

Recently Issued and Not Yet Adopted Accounting Pronouncements

December 2023, the FASB issued ASU No.

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taxes paid on an annual basis.

The new disclosure requirements are effective for fiscal years beginning after December 15, 2024.

adoption is permitted.

We are currently evaluating these new expanded disclosure requirements.

We adopted ASU 2023-09 effective July 1, 2024, and the adoption did not have a material impact on

our financial statements.

November 2023, the FASB issued ASU 2023-07, Segment Reporting:

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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.

business, as currently operated, has only one segment, we are evaluating the new disclosure requirements to ensure compliance.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the

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

We adopted ASU 2023-07 effective June 30, 2025, and the adoption did

not have a material impact on our financial statements.

Recently Issued and Not Yet Adopted Accounting Pronouncements

November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

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, selling, general and administrative, 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.

The following table presents

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

Schedule of disaggregation of net sales

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upon completion.

During the fiscal years ended June 30, 2024 and 2023, we recorded $ 0 and $ 1 .0 million, respectively, of revenue that

had been included in deferred revenue in the prior year.

The revenue recognized from the contract liabilities consisted of satisfying

our performance obligations during the normal course of business.

During the fiscal years ended June 30, 2025 and 2024, we recorded $ 14,000 and $ 0 , respectively, of revenue that had been

included in deferred revenue in the prior year.

The revenue recognized from the contract liabilities consisted of satisfying our performance

obligations during the normal course of business.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize

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Contract liabilities at end of year

FAIR VALUE MEASUREMENTS

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.

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.

have categorized our cash equivalents and investments within the fair value hierarchy as follows:

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.

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 June 30, 2025 and 2024, we have categorized our investments

in marketable equity securities as Level 2 assets and we utilized both a protective put option and a time-adjusted discount for the lack

of marketability valuation method to estimate fair value.

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 June 30, 2025 or 2024.

PRO-DEX, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

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

Schedule of investments

Ended June 30,

Schedule of marketable equity

Value Measurement at June 30, 2025

Financial Assets:

Cash equivalents

Marketable equity securities – short-term

Monogram Warrant

Marketable equity securities – long-term

Total Investments

Value Measurement at June 30, 2024

Financial Assets:

Cash equivalents

Marketable equity securities – short-term

Marketable equity securities – long-term

equity securities at June 30, 2025 and 2024 had an aggregate cost basis of $ 3,551,000 and

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unrealized gains of $ 3.5 million offset by gross unrealized losses of $ 213,000 ).

At June 30, 2023, the investments, excluding the Monogram

Warrant, included net unrealized losses of $ 219,000 (gross unrealized losses of $ 286,000 offset by gross unrealized gains of $ 67,000 ).

marketable equity securities at June 30, 2024 and 2023, $ 987,000 and $ 1,134,000 , respectively, represent an investment in the common stock

of Air T, Inc.

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 losses of $ 261,000 ).

Of the total marketable

equity securities at June 30, 2025 and 2024, $ 1.0 million and $ 987,000 , respectively, represent an investment in the common stock of Air

Two of our Board members, Messrs.

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(“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 of $ 3.2 million, is reflected in marketable equity securities – short term in the table above as of June 30, 2024.

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

At June 30, 2023,

the Monogram Warrant was exercisable into a total of 1,823,058 shares of Monogram’s outstanding stock.

The estimated fair value

of the Monogram Warrant at June 30, 2023 was $ 6,160,000 , using a Black-Scholes valuation model with the following assumptions:

Schedule of assumptions used

Stock Price (common)

Strike Price (common)

Time until expiration (years)

Risk-free interest rate

We invest surplus

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

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:

Additionally, in June 2025 we exercised additional warrants in full

in cash totaling $900,000 and received an additional 85,705 shares of common stock and 298,122 shares of Series D Preferred Stock.

July 14, 2025, the Series D preferred stock converted into the same number of common shares pursuant to the terms of the underlying certificate.

The fair value of the Monogram common stock and preferred stock is reflected in marketable equity securities – short term in the

tables above.

Our Chief Executive Officer, Mr.

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, Mr.

Van Kirk, and two non-management

2 unchanged sentences

Swenson, who chairs the committee.

Cabillot and Mr.

Swenson are active investors with extensive

Cabillot and Swenson are active investors with extensive

portfolio management expertise.

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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):

10 unchanged sentences

accumulated depreciation

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

and the balance of $ 5.2 million we financed through Minnesota Bank & Trust (“MBT”) (See Note 7).

We substantially completed

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

In the fourth quarter of fiscal 2023, we substantially completed all

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

The building is being amortized on

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

November 6, 2020, we acquired the Franklin Property in order to increase our operational capacity 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 8).

Depreciation expense for both fiscal years ended June 30, 2025 and 2024 totaled $ 94,000 .

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

Equipment and Improvements

5 unchanged sentences

accumulated depreciation and amortization

expense for the years ended June 30, 2024 and 2023 amounted to $ 1,038,000 and $ 727,000 , respectively.

During fiscal 2024 and 2023, fully

depreciated assets in the amount of $ 85,000 and $ 760,000 , respectively, were retired.

expense for the years ended June 30, 2025 and 2024 amounted to $ 1.1 million and $ 1.0 million, respectively.

During fiscal 2025 and 2024,

fully depreciated assets in the amount of $ 32,000 and $ 85,000 , respectively, were retired.

PRO-DEX, INC.

5 unchanged sentences

Less accumulated amortization

expense for the years ended June 30, 2024 and 2023 amounted to $ 28,000 and $ 37,000 , respectively.

Patent-related

2 unchanged sentences

the issuance of the patent.

Future amortization expense is estimated to be no more than $ 30,000 per year and all remaining costs are expected

to be fully amortized within two years.

All remaining costs are expected to be fully amortized in fiscal 2026.

Amortization expense for both years

ended June 30, 2025 and 2024 totaled $ 28,000 .

Accrued Liabilities

16 unchanged sentences

Balance at end of year

Warranty expense relating to new product sales and changes

to estimates was $ 267,000 and $ 52,000 , respectively, for the fiscal years ended June 30, 2024 and 2023.

PRO-DEX, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for

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

The provision for income

taxes consists of the following amounts (in thousands):

Schedule of provision for income taxes

1 unchanged sentence

Income tax expense

The effective income tax rate from income from continuing

operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except

percentages).

The effective income tax rate from income from

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

except percentages).

Schedule of reconciliation federal statutory income tax rates

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net effects of loss

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

and the amounts used for income tax purposes.

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

income taxes are as follows (in thousands):

Deferred income taxes reflect the net effects of

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

purposes and the amounts used for income tax purposes.

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

state income taxes are as follows (in thousands):

Schedule of deferred income tax assets and liabilities

5 unchanged sentences

Lease liability

Deferred state tax

Total gross deferred tax assets

7 unchanged sentences

Total gross deferred tax liabilities

Net deferred tax assets (liabilities)

Net deferred tax assets

Realization of our deferred

33 unchanged sentences

As of June 30, 2025, $ 28,000 of interest

applicable to our unrecognized tax benefits have been accrued.

applicable to our unrecognized tax benefits has been accrued.

We are subject to U.S.

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

We are currently open to audit under the statute of limitations

by the Internal Revenue Service for the years ended June 30, 2021, and later.

However, because of our prior net operating

losses and research credit carryovers, our tax years from June 30, 2013, are open to audit.

NOTES PAYABLE AND FINANCING TRANSACTIONS

Minnesota Bank & Trust

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

Franklin Property.

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

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

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

of MBT on the Closing Date.

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

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

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

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

of $ 26,037 .

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

Accrued interest

was paid on December 1, 2020, and both principal and interest in the amount of approximately $ 30,000 are due and payable on the first

day of each subsequent month until the maturity date of November 1, 2030 (the “Maturity Date”), at which time a balloon payment

in the amount of $ 3.1 million is due.

Any prepayment of the Property Loan (other than monthly scheduled interest and principal payments),

is subject to a prepayment fee equal to 4% of the principal amount prepaid for any prepayment made during the first or second year, 3%

of the principal amount prepaid for any prepayment made during the third or fourth year, 2% of the principal amount prepaid for any prepayment

made during the fifth or sixth year, and 1% of the principal amount prepaid for any prepayment made during the seventh or eighth year .

The Property Loan Agreement, Property Note, Deed, and Rents Assignment each contain representations, warranties, covenants, and events

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

The balance owed on the Property Loan at June 30, 2024 is $ 4,551,000 .

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Note A had an outstanding principal balance of $ 3,770,331 as of the Closing Date and could be borrowed against through May 30, 2021 (the

“Commitment Period”).

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

A for the purpose of repurchasing our common stock as described in Note 13.

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 described in Note 4.

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 June 30, 2024, is $ 3,834,000 .

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

Initial payments on the Term Loan B 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 B of approximately $ 15,000 ,

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

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

B and the balance outstanding on Term Note B was $ 571,000 on June 30, 2024.

On December 29, 2022

(the “Second Amendment Date”), we entered into Amendment No.

2 to Amended and Restated Credit Agreement (the “Second

Amendment”) with MBT, which amends the Amended Credit Agreement and provides for a supplemental line of credit in the amount of

$ 3,000,000 (the “Supplemental Loan”).

The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental

Note”) made by us in favor of MBT.

The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of

our common stock.

The Supplemental Loan may be borrowed against from time to time through its maturity date of December 29, 2024 , on the

terms set forth in the Amended Credit Agreement.

As of June 30, 2024, no amounts have been drawn against the Supplemental Loan.

The Revolving Loan

was also amended (the “Amended Revolving Loan”) in connection with the Second Amendment to extend the maturity date from November

5, 2023 to December 29, 2024 , to increase the Revolving Loan facility from $ 2,000,000 to $ 7,000,000 , and to increase the interest rate

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

made by us in favor of MBT.

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

terms set forth in the Amended Credit Agreement.

As of June 30, 2024, we had drawn $ 3,000,000 against the Amended Revolving Loan.

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

The Amended Revolving Loan and Supplemental

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

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

Commencing on the first day of each month after

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

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

Any principal

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

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

December 29, 2023, we entered into Amendment No.

3 to Amended and Restated Credit Agreement, which extended the maturity date of the Amended

Revolving Loan and the Supplemental Loan from December 29, 2024, to December 29, 2025.

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

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

Revenue Service for the years ended June 30, 2022, and later.

However, because of our prior net operating losses and research

credit carryovers, our tax years from June 30, 2020, are open to audit.

Additionally, the One Big

Beautiful Bill Act of 2025, or the 2025 Act, enacted on July 4, 2025, makes changes to U.S.

corporate income taxes including reinstating

the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20,

2025 and immediate expensing of research and development costs, with retroactive application beginning January 1, 2025.

We are currently

in the process of evaluating the impact of adoption of the 2025 Act to our financial position and results of operations for income tax

purposes for the fiscal year ending June 30, 2025.

PAYABLE AND FINANCING TRANSACTIONS

UMB Bank/Minnesota Bank & Trust

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”).

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,

On January 31, 2025, UMB Bank acquired MBT.

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.

PRO-DEX, INC.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The balance on

our outstanding loans at June 30, 2025 and June 30, 2024 (in thousands) is as follows (exclusive of unamortized loan fees):

Schedule of outstanding loans

Notes Payable:

Property Loan

Amended Revolving Loan

Total notes payable

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 .

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, 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 our assets pursuant to a Security

Agreement entered into between us and MBT on September 6, 2018.

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

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

that we are in compliance with all of our debt covenants as of June 30, 2024, but there can be no assurance that we will remain in compliance

for the duration of the term of these loans.

Scheduled principal

maturities of our loans, assuming repayment of the Amended Revolving Loan in full next fiscal year and exclusive of unamortized loan origination

fees in the amount of $ 46,000 , for future fiscal years ending June 30 are as follows (in thousands):

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”).

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 June 30, 2025, but

there can be no assurance that we will remain in compliance for the duration of the term of the Loans.

principal maturities of the Loans, assuming repayment of the Amended Revolving Loan in full in fiscal 2026 and exclusive of unamortized

loan origination fees in the amount of $37,000, for future fiscal years ending June 30 are as follows (in thousands):

Schedule of maturities of term loan for future fiscal years

Principal Payments

Term Loan Principal Payments

Total principal payments

Our operating lease ROU

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our operating lease ROU asset

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

The current portion of our operating lease liability,

3 unchanged sentences

Schedule of maturities of lease liabilities

Operating Lease

Total lease payments

2 unchanged sentences

our operating lease has a remaining lease term of 2.25 years and 3.25 years, respectively, and an imputed interest rate of 5.3 % .

agreement does not provide an implicit rate and, as a result, we used our estimated incremental borrowing rate at the time we adopted ASC

842 to determine the present value of future lease payments.

Cash paid for amounts included in the lease liability for the fiscal years

ended June 30, 2024 and 2023 was $ 519,000 and $ 504,000 , respectively.

agreement does not provide an implicit rate and, as a result, we used our estimated incremental borrowing rate at the time we adopted

ASC 842 to determine the present value of future lease payments.

Cash paid for amounts included in the lease liability for the fiscal

years ended June 30, 2025 and 2024 was $ 535,000 and $ 519,000 , respectively.

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

and 2024 was $ 609,000 and $ 559,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additionally, beginning in

fiscal 2025 we began renting on a month-to-month basis some parking spaces at a neighboring location near our Franklin Property.

2025, we incurred rent expense in the amount of $ 23,000 for parking.

Compensation Arrangements

4 unchanged sentences

Employees are eligible to participate

in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first day of each calendar quarter.

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

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

the fiscal years ended June 30, 2024 and 2023, we recognized compensation expense amounting to $ 188,000 and $ 164,000 , respectively,

in connection with the 401(k) Plan.

During our fiscal years ended June 30, 2024 and 2023, we used approximately $ 63,000 and $ 13,000 , respectively,

of forfeited match contributions to reduce our match expense.

in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first of the month following

60 days of service.

Participants are eligible to receive non-discretionary matching contributions by the Company equal to 50 % of their

contributions up to 5 % of eligible compensation.

For the fiscal years ended June 30, 2025 and 2024, we recognized compensation expense

amounting to $ 259,000 and $ 188,000 , respectively, in connection with the 401(k) Plan.

During our fiscal years ended June 30, 2025 and

2024, we used approximately $ 23,000 and $ 63,000 , respectively, of forfeited match contributions to reduce our match expense.

Legal Matters

We may be involved in legal proceedings

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

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

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

We may be involved in legal

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

There can be no certainty, however, that

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SHARE-BASED COMPENSATION

Stock Option Plans

Through 2014,

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

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

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

The Employee Stock Option Plan and Director’s

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

No options were granted under the Former Stock Option

Plans during the fiscal years ended June 30, 2024 and 2023 and all remaining outstanding stock options were exercised during fiscal 2023.

In September 2016, our Board

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

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

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

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 June 30,

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.

Performance Awards

In December 2017, the Compensation

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

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

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

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

at certain pre-determined prices.

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

In October 2023, the Compensation

Committee reallocated previously forfeited performance awards for 15,200 shares of common stock to other employees.

The weighted average

fair value of the performance awards reallocated in 2023 which were expected to vest was $ 10.17 , calculated using the weighted average

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

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

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

The weighted average fair value of the

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

Monte Carlo simulation.

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

the same remaining terms and conditions, to other employees.

The weighted average fair value of the performance awards reallocated in

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

In October 2023,

the Compensation Committee reallocated an additional 15,200 previously forfeited awards, having the same remaining terms and conditions,

to other employees.

The weighted average fair value of the performance awards reallocated in 2023 was $ 10.04 , calculated using the weighted

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

We recorded share-based compensation expense of $ 106,000 in

each of the fiscal years ended June 30, 2024 and 2023, respectively, related to these performance awards.

We recognize forfeitures for

our performance awards as they occur.

On June 30, 2024, there was approximately $ 55,000 of unrecognized compensation cost related to these

non-vested performance awards expected to be expensed over the weighted-average period of 1.0 years.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the fiscal years ended June 30, 2025 and 2024 we recorded share-based

compensation expense of $ 28,000 and $ 106,000 , respectively, related to outstanding performance awards.

On June 30, 2025, there was approximately

$28,000 of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period

On July 1, 2024, it was determined

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

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

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

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.

The following is a summary

1 unchanged sentence

Schedule of summary of stock option activity

Number of Shares

Weighted-Average

Grant Date Fair Value

Number of Shares

Weighted-Average

4 unchanged sentences

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.

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

range from 18 months to 10.5 years at inception and the achievement of our common stock trading at certain pre-determined prices.

compensation expense of $ 490,000 and $ 647,000 for the fiscal year ended June 30, 2024 and 2023, respectively, related to these options.

Committee of our Board of Directors granted non-qualified stock options for 310,000 shares of our common stock to our directors and certain

employees under the 2016 Equity Incentive Plan.

Whether any stock options vest, and the amount that does vest, is tied to the completion

of service periods that range from 18 months to 10.5 years at inception and the achievement of our common stock trading at certain pre-determined

We recorded compensation expense of $ 416,000 and $ 490,000 for the fiscal year ended June 30, 2025 and 2024, respectively, related

to these options.

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

forfeitures for our non-qualified stock options as they occur.

As of June 30, 2024, there was approximately $ 1.6 million of unrecognized

compensation cost related to these non-vested non-qualified stock options.

We recognize forfeitures for our non-qualified stock options as they occur.

As of June 30, 2025, there was approximately $1.1 million

of unrecognized compensation cost related to these non-vested non-qualified stock options expected to be expensed over the weighted-average

period of 44.6 months.

In February 2021, the Compensation

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

Incentive Plan.

Whether any stock options vest, and the amount that does vest, was tied to the completion of service periods that ranged

from 4 months to 1.3 years at inception and the achievement of our common stock trading at certain pre-determined prices.

Of these 62,000

stock options, 57,750 vested on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying agreements.

We recorded compensation expense of $ 182,000 for the fiscal year ended June 30, 2021 related to these options.

The weighted average fair

value of the stock option awards granted was $ 3.16 , calculated using a Monte Carlo simulation.

In December 2021, the Compensation Committee

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

The following is a summary of non-qualified

stock option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2024 and 2023:

Committee of our Board of Directors granted non-qualified stock options for 62,000 shares of our common stock to our directors and certain

employees under the 2016 Equity Incentive Plan.

Whether any stock options vest, and the amount that does vest, was tied to the completion

of service periods that ranged from 4 months to 1.3 years at inception and the achievement of our common stock trading at certain pre-determined

Of these stock options, the right to acquire 57,750 shares vested on July 1, 2021, as our common stock met the pre-determined

prices set forth in the underlying agreements.

We recorded compensation expense of $ 182,000 for the fiscal year ended June 30, 2021 related

to these options.

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

In December 2021, the Compensation Committee of our Board of Directors granted 5,000 previously forfeited non-qualified stock options

to another employee.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of non-qualified stock

option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2025 and 2024:

Schedule of summary of stock option activity

6 unchanged sentences

Options exercised

Options forfeited

Options forfeited/expired

Outstanding at June 30

Stock Options Exercisable at June 30,

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Stock Purchase

In September 2014, our Board

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

The ESPP conforms to the provisions of Section

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

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

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

Our Board of Directors also approved the provision that

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

aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP.

The ESPP was approved by our shareholders at our 2014 Annual

On February 2, 2015, the Company filed a Registration Statement on Form S-8 registering the 704,715 shares issuable under the

ESPP under the Securities Act of 1933.

In October 2023, our Board

approved an amendment to the ESPP (the “ESPP Amendment”), which extended the term of the ESPP for an additional ten years

from January 2025 to January 2035.

The ESPP Amendment was approved by our shareholders at our 2023 Annual Meeting.

The aggregate intrinsic

value of options, which represents the cumulative difference between the fair market value of the underlying common stock and the option

exercise prices, exercised was $ 82,000 in fiscal 2025.

On June 30, 2025 the options outstanding and exercisable had intrinsic values of

$ 299,000 and $ 907,000 , respectively.

On June 30, 2024 the options outstanding and exercisable had no intrinsic value.

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 fiscal year ended June 30, 2025, we recorded $ 105,000

of compensation expense related to these restricted shares.

As of June 30, 2025, there was approximately $ 753,000 of unrecognized compensation

cost related to these restricted shares expected to be expensed over the weighted-average period of 53 months.

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

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 fiscal years ended

5 unchanged sentences

recorded stock compensation expense in the amount of $ 7,000 and $ 9,000 , respectively, relating to the ESPP.

MAJOR CUSTOMERS & SUPPLIERS

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CUSTOMERS & SUPPLIERS

that accounted for more than 10% of our total sales in either

2 unchanged sentences

Ended June 30,

Percent of Total

Customer concentration:

Information with respect

to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2024 or June

Information with respect to

accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2025 or June

30, 2024 is as follows (in thousands, except percentages):

2 unchanged sentences

Customer concentration:

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 2025 and 2024,

we had three and four suppliers, respectively, that accounted for more than 10% of total inventory purchases, as follows (in thousands,

except percentages):

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

Total inventory purchases

Supplier concentration:

Information with respect to accounts payable due to our

top three suppliers at June 30, 2024 or June 30, 2023 is as follows (in thousands, except percentages):

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect to accounts payable due

to our top three suppliers at June 30, 2025 or June 30, 2024 is as follows (in thousands, except percentages):

Total accounts payable

1 unchanged sentence

NET INCOME PER SHARE

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

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

We calculate basic earnings

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

Diluted earnings

per share reflects the effects of potentially dilutive securities based upon the treasury stock method for in-the-money stock options

and the fully diluted shares outstanding method for restricted stock and performance awards.

The summary of the basic and diluted earnings

8 unchanged sentences

Diluted earnings per share

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 shares repurchase programs, our

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

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

During the fiscal year ended

June 30, 2024, we repurchased 184,901

shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5

During the fiscal year ended June 30, 2023, we repurchased 86,422

shares at an aggregate cost, inclusive of fees under the Plan, of $ 1.5

On a cumulative basis, since 2013 we have repurchased a total of 1,381,349

shares under the share repurchase programs at an aggregate cost, inclusive of fess under the Plan, of $ 20.7

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

SUBSEQUENT EVENTS

On July 31, 2024 (the

“Fourth Amendment Date”), we entered into Amendment No.

4 to our Amended and Restated Credit Agreement (the “Fourth

Amendment”) with MBT which amends the Company’s Amended Credit Agreement.

The Fourth Amendment (i) provides for a new term

loan, Term Loan C, in the amount of $ 5,000,000 , (ii) uses the proceeds from Term Loan C to repay the entire $ 3,000,000 balance that was

outstanding on the Fourth Amendment Date under the Amended Revolving Loan, and (iii) terminates the 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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

COMMON STOCK –

Share Repurchase Program

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

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

In accordance with, and as part of, these shares

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

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

the fiscal year ended June 30, 2025, we repurchased 130,148 shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5 million.

During the fiscal year ended June 30, 2024, we repurchased 184,901 shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5

On a cumulative basis, since 2013 we have repurchased a total of 1,511,497 shares under the share repurchase programs at an aggregate

cost, inclusive of fees under the Plan, of $ 24.2 million.

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

We have evaluated

subsequent events through the date of this filing.

There were no subsequent events that require disclosure.

AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data