PRO DEX INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PRO-DEX, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Irvine California, Auditor ID: 23 ) 24 Financial Statements: Consolidated Balance Sheets, June 30, 2025 and 2024 25 Consolidated Income Statements, Years Ended June 30, 2025 and 2024 26 Consolidated Statements of Shareholders’ Equity, Years Ended June 30, 2025 and 2024 27 Consolidated Statements of Cash Flows, Years Ended June 30, 2025 and 2024 28 Notes to Consolidated Financial Statements 30 23 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Pro-Dex, Inc. Opinion on the Financial Statements 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. 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 provide a reasonable basis for our opinion. 24 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 critical audit matters. /s/ Baker Tilly US, LLP Irvine, California September 4, 2025 We have served as the Company’s auditor since 2003. 25 PRO-DEX, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, 2025 2024 ASSETS Current assets Cash and cash equivalents $ 419 $ 2,631 Investments 6,740 4,217 Accounts receivable 16,433 13,887 Deferred costs 24 262 Inventory 22,213 15,269 Income taxes receivable 1,056 — Prepaid expenses 410 345 Total current assets 47,295 36,611 Land and building, net 6,061 6,155 Equipment and improvements, net 5,153 5,024 Right of use asset, net 1,050 1,473 Intangibles, net 26 54 Deferred income taxes, net 1,415 1,555 Investments 148 1,563 Other assets 44 42 Total assets $ 61,192 $ 52,477 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,614 $ 4,513 Accrued liabilities 3,479 3,359 Income taxes payable 186 632 Deferred revenue 202 14 Notes payable 6,148 4,374 Total current liabilities 14,629 12,892 Non-current liabilities: Lease liability, net of current portion 685 1,182 Notes payable, net of current portion 9,246 7,536 Total non-current liabilities 9,931 8,718 Total liabilities 24,560 21,610 Commitments and Contingencies (Note 10): Shareholders’ equity: Common stock, no par value, 50,000,000 shares authorized; 3,261,043 and 3,363,412 shares issued and outstanding at June 30, 2025 and 2024, respectively 704 3,917 Retained earnings 35,928 26,950 Total shareholders’ equity 36,632 30,867 Total liabilities and shareholders’ equity $ 61,192 $ 52,477 See notes to consolidated financial statements 26 PRO-DEX, INC. AND SUBSIDIARY CONSOLIDATED INCOME STATEMENTS (In thousands, except share and per share data) Years Ended June 30, 2025 2024 Net sales $ 66,593 $ 53,844 Cost of sales 47,083 39,293 Gross profit 19,510 14,551 Operating expenses: Selling expenses 344 117 General and administrative expenses 4,841 4,072 Research and development costs 3,636 3,189 Total operating expenses 8,821 7,378 Operating income 10,689 7,173 Other income (expense): Interest and dividend income 82 144 Unrealized gain (loss) on marketable equity investments 1,521 ( 4,125 ) Gain on sale of investments 595 — Interest expense ( 829 ) ( 558 ) Total other income (expense) 1,369 ( 4,539 ) Income before income taxes 12,058 2,634 Income tax expense ( 3,080 ) ( 507 ) Net income $ 8,978 $ 2,127 Basic & Diluted income per share: Basic net income per share $ 2.73 $ 0.61 Diluted net income per share $ 2.67 $ 0.60 Weighted-average common shares outstanding: Basic 3,287,844 3,498,807 Diluted 3,361,207 3,571,207 See notes to consolidated financial statements. 27 PRO-DEX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For The Years Ended June 30, 2025 and 2024 (In thousands, except share data) Common Shares Number of Shares Amount Retained Earnings Total Balance at June 30, 2023 3,545,309 $ 6,767 $ 24,823 $ 31,590 Net income — — 2,127 2,127 ESPP shares issued 3,004 50 — 50 Share-based compensation — 605 — 605 Share repurchases ( 184,901 ) ( 3,505 ) — ( 3,505 ) Balance at June 30, 2024 3,363,412 $ 3,917 $ 26,950 $ 30,867 Net income — — 8,978 8,978 ESPP shares issued 1,593 42 — 42 Shares issued in connection with performance award vesting 40,000 — — — Shares withheld from common stock issued to pay employee payroll taxes ( 14,866 ) ( 273 ) — ( 273 ) Exercise of stock options 1,052 ( 33 ) — ( 33 ) Share-based compensation — 555 — 555 Share repurchases ( 130,148 ) ( 3,504 ) — ( 3,504 ) Balance at June 30, 2025 3,261,043 $ 704 $ 35,928 $ 36,632 See notes to consolidated financial statements . 28 PRO-DEX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended June 30, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,978 $ 2,127 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,239 1,160 Unrealized (gain) loss on marketable equity investments ( 1,521 ) 4,125 Gain on sale of investments ( 595 ) — Non-cash straight-line lease amortization ( 33 ) ( 17 ) Amortization of loan fees, net 9 12 Share-based compensation 555 605 Deferred income taxes 140 ( 1,563 ) Changes in operating assets and liabilities: Accounts receivable ( 2,546 ) ( 3,935 ) Deferred costs 238 232 Inventory ( 6,944 ) 898 Prepaid expenses and other assets ( 67 ) ( 49 ) Accounts payable and accrued expenses 179 2,436 Deferred revenue 188 14 Income taxes ( 1,502 ) 179 Net cash provided by (used in) operating activities ( 1,682 ) 6,224 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and improvements ( 1,246 ) ( 983 ) Proceeds from sale of investments 1,907 — Investment in Monogram ( 899 ) ( 1,250 ) Net cash used in investing activities ( 238 ) ( 2,233 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable ( 11,528 ) ( 4,841 ) Borrowing from Minnesota Bank & Trust 15,003 4,000 Repurchases of common stock ( 3,504 ) ( 3,505 ) Payments of employee taxes on net issuance of common stock ( 305 ) — Proceeds from exercise of stock options and ESPP contributions 42 50 Net cash used in financing activities ( 292 ) ( 4,296 ) Net decrease in cash and cash equivalents ( 2,212 ) ( 305 ) Cash and cash equivalents, beginning of year 2,631 2,936 Cash and cash equivalents, end of year $ 419 $ 2,631 See notes to consolidated financial statements . 29 PRO-DEX, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (In thousands) Years Ended June 30, 2025 2024 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 818 $ 555 Cash paid during the period for income taxes by jurisdiction: Federal income tax payments $ 3,030 $ 1,515 California income tax payments 1,427 334 Colorado income tax payments — 8 Massachusetts income tax payments — 34 Total income tax payments $ 4,457 $ 1,891 Non-cash investing and financing activity: Cashless stock option exercise $ 117 $ — See notes to consolidated financial statements . 30 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. 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 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. The consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations. 2. 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 (“U.S. GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements. Net Sales Net sales consists of the sale of products and services, as well as shipping and handling billed to our customers and is net of volume rebates and discounts and excludes sales tax. 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 services, typically non-recurring engineering (“NRE”) services related to the design or customization of a medical device, is typically recognized over time. The customer funding for costs incurred for NRE services is deferred and subsequently recognized as revenue as under-lying products or services are delivered to the customers. Additionally, expenses incurred, up to the customer agreed funding amount, are deferred as an asset and recognized as cost of sales when the under-lying products or services are delivered to the customer. The deferred customer funding and costs result in recognition of deferred costs (asset) and deferred revenue (liability) on our consolidated balance sheets. One of our customer contracts can give rise to variable consideration due to volume rebates. We estimate variable consideration at the most likely amount we will receive from this customer. Our estimates of variable consideration are based on an assessment of our anticipated performance and all information (historical, current, and forecasted) that is reasonably available to us. Returns of our product for credit are minimal; accordingly, we do not establish a reserve for product returns at the time of sale. 31 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cost of Sales Cost of sales consists primarily of the purchase price of goods and cost of services rendered including freight costs. Cost of sales also includes production labor and overhead costs for all of our manufacturing and assembly operations, which overhead includes all indirect labor and expenses associated with our inspection, warehousing, material planning and quality departments. Estimated Losses on Product Development Services Cost and revenue estimates related to the product development service portions of development and supply contracts are reviewed and updated quarterly. An expected loss on development service contracts is recognized immediately in cost of sales. Losses recorded in fiscal 2025 and 2024 related to these services totaled $ 155,000 and $ 118,000 , respectively. Due to the complexity of many of the contracts we have undertaken, the cost estimation process requires significant judgment. It is based upon the knowledge and experience of our project managers, engineers, and finance professionals. Factors that are considered in estimating the cost of work to be completed and ultimate profitability of the fixed price product development portion of development and supply contracts include the nature and complexity of the work to be performed, availability and productivity of labor, the effect of change orders, the availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals. Warranties Certain of our products are sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the sale. At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors as return rates and repair costs, which factors are reviewed quarterly. 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 consolidated balance sheets. Warranty expenses are included in cost of sales in the accompanying consolidated statements of operations. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. At June 30, 2025 and 2024, cash equivalents consisted of investments in money market funds. Accounts Receivable Trade receivables are stated at their original invoice amounts, less an allowance for doubtful portions of such accounts represented by expected credit losses. Management determines the allowance for credit losses based on facts and circumstances related to specific accounts and the age of accounts. As of 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. Leases 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 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. 32 PRO-DEX, INC. AND SUBSIDIARY 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. If 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 Deferred costs reflect costs incurred related to NRE services under the terms of the related development and/or supply contracts. These costs get recorded to cost of sales in the period that the revenue is recognized. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Reductions to estimated market value are recorded and charged to cost of sales, when indicated based on a formula that compares on-hand quantities to both historical usage and estimated demand as of the measurement date. On an ongoing basis, we evaluate inventory for obsolescence and slow-moving items. This evaluation includes analysis of historical sales and usage, existing demand, as well as specific factors known to management. As of June 30, 2025 and 2024, there was approximately $ 87,000 and $ 275,000 , respectively, of inventory in-transit from suppliers. Investments Investments at June 30, 2025 and 2024, consist of marketable equity securities of publicly held companies. 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, 2025 and 2024. Long-lived Assets We review the recoverability of long-lived assets, consisting of the land and building that we own, equipment, and improvements, including leasehold improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable. Our building, equipment and improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods: Schedule of building, equipment and improvements Building Thirty years Equipment Three to ten years Improvements Shorter of the remaining life of the underlying building, lease term, or the asset’s estimated useful life Intangibles Intangibles consist of legal fees incurred in connection with patent applications. Our patent costs are being amortized over a period of four to seven years. The expense associated with the amortization of the patent costs is recognized in research and development costs. 33 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating losses and tax credit carryovers. Net deferred tax assets or liabilities at both June 30, 2025 and 2024 consisted primarily of basis differences related to unrealized gain/loss related to investments, stock-based compensation, fixed assets, accrued expenses, and inventories. Our deferred tax assets also includes capitalization of our research expenditures as prescribed by 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 is required in determining the provision for income taxes, the recoverability of deferred tax assets, and the extinguishment of deferred tax liabilities. Such determination is based on historical taxable income, with consideration given to estimates of future taxable income and the periods over which deferred tax assets will be recoverable and deferred tax liabilities will be extinguished. We record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce the valuation allowance against deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made. Uncertain Tax Positions We record uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. Shipping and Handling Payments from customers for shipping and handling are included in net sales . Shipping expenses, consisting primarily of payments made to freight companies, are included in cost of sales. Concentration of Credit Risk Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents with major financial institutions. At June 30, 2025 and 2024, and throughout the fiscal years then ended, we had deposits in excess of federally insured limits. Credit sales are made to medical device distributors, original equipment manufacturers, and resellers, 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 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. 34 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Compensation Plans We recognize compensation expense for the share-based awards that vest subject to market conditions under ASC 718, Compensation-Stock Compensation by estimating their fair value using a Monte Carlo simulation. The fair value using a Monte Carlo simulation model is affected by assumptions regarding a number of complex judgments including expected stock price volatility, risk free interest rates, and the forecasted future value and trading volume of our stock. The awards are considered granted for accounting purposes on the date the awards were approved by the Compensation Committee of our Board of Directors and we recognize compensation expense, based on the estimated fair value of the award, on a straight-line basis over the requisite service period. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our operations are affected by numerous factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, government regulations, and policies. We cannot predict what impact, if any, the occurrence of these or other events might have on our operations. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, share-based compensation, the allowance for credit losses, accrued warranty expense, investments, inventory valuation, the carrying value of long-lived assets, and the recoverability/extinguishment of deferred income tax assets and liabilities. Basic and Diluted Per Share Information Basic per share amounts are computed on the basis of the weighted-average number of common shares outstanding during each period presented. Diluted per share amounts assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards as discussed in Note 11, unless the effect of such exercise is to increase income, or decrease loss, per common share. Fair Value Measurements Fair value is measured based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. Cash and cash equivalents: The carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short-term nature of these instruments. As such, cash and cash equivalents are classified within Level 1 of the valuation hierarchy. Investments: Investments 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 may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe our valuation methods are appropriate. Advertising 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. 35 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 December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tas 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. We adopted ASU 2023-09 effective July 1, 2024, and the adoption did not have a material impact on our financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures (Topic280) which expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to or easily computed from information regularly provided to the chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. 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 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, 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. 3. NET SALES The following table presents the disaggregation of net sales by revenue recognition model (in thousands): Schedule of disaggregation of net sales Year ended June 30, 2025 2024 Net Sales: Over-time revenue recognition $ 698 $ 786 Point-in-time revenue recognition 65,895 53,058 Total net sales $ 66,593 $ 53,844 The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our 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 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 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. 36 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables summarize our contract assets and liability balances (in thousands): Schedule of contract assets and liability June 30, 2025 2024 Contract assets at beginning of year $ 262 $ 494 Expenses incurred during the year 228 502 Amounts reclassified to cost of sales ( 460 ) ( 691 ) Amounts allocated to discounts for standalone selling price ( 6 ) ( 43 ) Contract assets at end of year $ 24 $ 262 June 30, 2025 2024 Contract liabilities at beginning of year $ 14 $ — Payments received from customers 202 267 Amounts reclassified to revenue ( 14 ) ( 253 ) Contract liabilities at end of year $ 202 $ 14 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 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. 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 June 30, 2025 or 2024. 37 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Schedule of marketable equity Fair Value Measurement at June 30, 2025 Level 1 Level 2 Level 3 Total Financial Assets: Cash equivalents $ 33 — $ — $ 33 Marketable equity securities – short-term — 6,740 — 6,740 Marketable equity securities – long-term — 148 — 148 Total $ 33 6,888 $ — $ 6,921 Fair Value Measurement at June 30, 2024 Level 1 Level 2 Level 3 Total 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 Marketable equity securities at June 30, 2025 and 2024 had an aggregate cost basis of $ 3,551,000 and $ 3,964,000 , respectively. Both current and long-term marketable equity securities include equity securities of public companies that are thinly traded. We classified certain investments as long term in nature because even if we decide to sell the stocks, we may not be able to sell our position within one year. At June 30, 2025, the investments included net unrealized gains of $ 3.3 million (gross unrealized gains of $ 3.5 million offset by gross unrealized losses of $ 213,000 ). 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 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 T, Inc. Two of our Board members, Messrs. Swenson and Cabillot, are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Mr. Swenson, our Chairman, also serves as the chief executive officer and chairman of Air T, Inc. Another of our Board members is employed by Air T as its Chief of Staff. The shares have been 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). 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. On 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 directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on, such as Air T, Inc. 38 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 inventory June 30, 2025 2024 Raw materials /purchased components $ 10,397 $ 6,703 Work in process 7,422 5,103 Sub-assemblies /finished components 2,874 2,342 Finished goods 1,520 1,121 Total inventory $ 22,213 $ 15,269 Land and Building Land and building consist of the following (in thousands): Schedule of land and building June 30, 2025 2024 Land $ 3,684 $ 3,684 Building 2,815 2,815 Total 6,499 6,499 Less: accumulated depreciation ( 438 ) ( 344 ) $ 6,061 $ 6,155 On 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 Equipment and improvements consist of the following (in thousands): Schedule of equipment and improvements June 30, 2025 2024 Office furnishings and fixtures $ 2,078 $ 1,982 Machinery and equipment 8,198 7,292 Automobiles 21 21 Improvements 5,205 4,993 Total 15,502 14,288 Less: accumulated depreciation and amortization ( 10,349 ) ( 9,264 ) $ 5,153 $ 5,024 Depreciation 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. 39 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangibles Intangibles consist of the following (in thousands): Schedule of intangibles June 30, 2025 2024 Patent-related costs $ 208 $ 208 Less accumulated amortization ( 182 ) ( 154 ) $ 26 $ 54 Patent-related costs consist of legal fees incurred in connection with both patent applications and patent issuances, 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. 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 Accrued liabilities consist of the following (in thousands): Schedule of accrued liabilities June 30, 2025 2024 Payroll and related items $ 850 $ 668 Accrued inventory in transit 87 276 Accrued legal and professional fees 267 301 Accrued bonuses 501 353 Current portion of lease liability 498 455 Warranty 357 277 Accrued customer rebate 690 840 Other 229 189 Total $ 3,479 $ 3,359 6. WARRANTY ACCRUAL Information relating to the accrual for warranty costs for the years ended June 30, 2025 and 2024, is as follows (in thousands): Schedule of accrual warranty costs June 30, 2025 2024 Balance at beginning of year $ 277 $ 200 Accruals during the year 336 197 Change in estimates of prior period accruals ( 84 ) 70 Warranty amortization/utilization ( 172 ) ( 190 ) Balance at end of year $ 357 $ 277 40 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. INCOME TAXES The provision for income taxes consists of the following amounts (in thousands): Schedule of provision for income taxes Years Ended June 30, 2025 2024 Current: Federal $ 2,114 $ 1,493 State 826 577 Deferred: Federal 76 ( 1,210 ) State 64 ( 353 ) Income tax expense $ 3,080 $ 507 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 Years Ended June 30, 2025 2024 Amount Percent Pretax Income Amount Percent Pretax Income Income before income taxes $ 12,058 100 % $ 2,634 100 % Computed “expected” income tax expense on income before income taxes $ 2,532 21 % $ 553 21 % State tax, net of federal benefit 964 8 % 212 8 % Tax incentives ( 149 ) ( 1 %) ( 214 ) ( 8 %) Uncertain tax position ( 116 ) ( 1 %) ( 88 ) ( 3 %) Stock based compensation ( 164 ) ( 1 %) 2 — Other 13 — 42 1 % Income tax expense $ 3,080 26 % $ 507 19 % 41 PRO-DEX, INC. AND SUBSIDIARY 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): Schedule of deferred income tax assets and liabilities June 30, 2025 2024 Deferred tax assets: Federal and state NOL carryforward $ 23 $ 23 Research and other credits 65 65 Reserves 170 146 Accruals 436 309 Stock based compensation 1,096 1,008 Section 174 capitalization 756 738 Lease liability 353 488 Inventory 614 596 Other 12 5 Total gross deferred tax assets $ 3,525 $ 3,378 Less: valuation allowance ( 90 ) ( 90 ) Total deferred tax assets 3,435 3,288 Deferred tax liabilities: Property and equipment, principally due to differing depreciation methods $ ( 651 ) $ ( 675 ) Right of use asset ( 313 ) ( 439 ) Deferred state tax ( 61 ) ( 78 ) Unrealized gains ( 995 ) ( 541 ) Total gross deferred tax liabilities ( 2,020 ) ( 1,733 ) Net deferred tax assets $ 1,415 $ 1,555 Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. As of June 30, 2025, our deferred tax asset valuation allowance primarily consists of state net operating loss carryforwards for states in which we have filed a final return. For the fiscal years ended June 30, 2025 and 2024, we recorded a net decrease to our valuation allowance of $ 0 and $ 1,000 , respectively, on the basis of management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized. As of June 30, 2025, we did not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate. We have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2025. As of June 30, 2025, we have accrued $ 159,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax expense if recognized. If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced. Any adjustment to our uncertain tax positions would result in a cash outlay. 42 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information with respect to our accrual for unrecognized tax benefits is as follows (in thousands): Schedule of accrual unrecognized tax benefits June 30, 2025 2024 Unrecognized tax benefits: Beginning balance $ 262 $ 345 Additions based on federal tax positions related to the current year 11 15 Additions based on state tax positions related to the current year 11 17 Additions (reductions) for tax positions of prior years ( 10 ) 3 Reductions due to lapses in statutes of limitation ( 115 ) ( 118 ) Ending balance $ 159 $ 262 Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve months. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2025, $ 28,000 of interest applicable to our unrecognized tax benefits has been accrued. We are subject to U.S. federal 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. 8. NOTES PAYABLE AND FINANCING TRANSACTIONS UMB Bank/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 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. 43 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 June 30, 2025 June 30, 2024 Notes Payable: Term Loan A $ 2,795 $ 3,834 Term Loan B 416 571 Term Loan C 4,167 — Property Loan 4,347 4,551 Amended Revolving Loan 3,706 3,000 Total notes payable $ 15,431 $ 11,956 Term Loan A and B both bear interest at a fixed rate of 3.84 % per annum, the Property Loan bears interest at a fixed rate of 3.55 % per annum and Term Note C bears interest at an annual rate equal to the greater of (a) 5 % , or (b) the SOFR one-month rate plus 2.5% (the “Adjusted Term SOFR Rate”). The Amended Revolving Loan bears interest at an annual rate equal to the greater of (a) 4 % , or (b) t he Adjusted Term SOFR Rate. Term Loan A and Term Loan B are both fully amortizing and mature on November 1, 2027 , Term Loan C is fully amortizing and matures on August 1, 2029 , the Property Loan matures on November 1, 2030 , at which time a balloon payment in the principal amount of $ 3.1 million is due (plus any accrued and unpaid interest), and the Amended Revolving Loan matures on December 29, 2026 . Any payment on Term Loan A, Term Loan B, Term Loan C, the Property Loan, or Amended Revolving Loan (collectively, the “Loans”) not made within seven days after the due date is subject to a late payment fee equal to 5 % of the overdue amount. Upon the occurrence and during the continuance of an event of default under any of the Loans, the interest rate of all Loans will be increased by 3 % and MBT may, at its option, declare all of the Loans immediately due and payable in full. The Loans are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into between the Company and MBT. The Property Loan is secured by the Franklin Property pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor of MBT and by an assignment of Leases and Rents by PDEX Franklin in favor of MBT (collectively, the “Property Loan Security Agreements”). The Amended Credit Agreement, 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. Scheduled 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 Term Loan Principal Payments Fiscal Year: 2026 $ 6,158 2027 2,508 2028 1,908 2029 1,235 2030 410 Thereafter 3,212 Total principal payments $ 15,431 44 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. LEASES 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, exclusive of imputed interest, as of June 30, 2025, in the amount of $ 498,000 , is presented within accrued expenses on the consolidated balance sheet. As of June 30, 2025, the maturity of our lease liability is as follows: Schedule of maturities of lease liabilities Operating Lease Fiscal Year: 2026 $ 551 2027 567 2028 143 Total lease payments 1,261 Less imputed interest: ( 78 ) Total $ 1,183 As of June 30, 2025 and 2024, 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 % . Our lease 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. 10. COMMITMENTS AND CONTINGENCIES Leases We lease our office, production, and warehouse facility in Irvine, California (our “corporate office”) under an agreement that expires in September 2027. Our corporate office lease requires us to pay insurance, taxes, and other expenses related to the leased space. Rent expense in fiscal 2025 and 2024 was $ 609,000 and $ 559,000 , respectively. 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. In fiscal 2025, we incurred rent expense in the amount of $ 23,000 for parking. Compensation Arrangements Retirement Savings 401(k) Plan The Pro-Dex, Inc. Retirement Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. 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 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. 45 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SHARE-BASED COMPENSATION Stock Option Plans 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 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. 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 of 1.0 year. 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. The following is a summary of performance awards activity for the fiscal years ended June 30, 2025 and 2024: Schedule of summary of stock option activity 2025 2024 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Outstanding at July 1, 80,000 $ 7.00 64,800 $ 7.03 Granted — — 15,200 10.04 Vested ( 40,000 ) 7.39 — — Forfeited — — — — Outstanding at June 30 40,000 $ 6.65 80,000 $ 7.00 Non-Qualified Stock Options In December 2020, the Compensation 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 prices. 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. 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 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 prices. 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. 46 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 2025 2024 Number of Shares Weighted-Average Exercise Price Number of Shares Weighted-Average Exercise Price Outstanding at July 1, 267,750 $ 42.11 298,937 $ 42.19 Options granted — — — — Options exercised ( 4,250 ) 27.50 — — Options forfeited/expired ( 26,250 ) 42.00 ( 31,187 ) 42.88 Outstanding at June 30 237,250 $ 42.38 267,750 $ 42.11 Stock Options Exercisable at June 30, 79,750 $ 32.27 57,750 $ 27.50 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 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 fiscal years ended June 30, 2025 and 2024, shares totaling 1,593 and 3,004 , respectively, were purchased pursuant to the ESPP and allocated to participating employees based upon their contributions at weighted- average prices of $ 26.42 and $ 16.64 , respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 37,095 shares. During the fiscal years ended June 30, 2025 and 2024, we recorded stock compensation expense in the amount of $ 7,000 and $ 9,000 , respectively, relating to the ESPP. 47 PRO-DEX, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. MAJOR CUSTOMERS & SUPPLIERS Customers that accounted for more than 10% of our total sales in either of fiscal year 2025 or 2024, is as follows (in thousands, except percentages): Schedule of sales by major customers Years Ended June 30, 2025 2024 Amount Percent of Total Amount Percent of Total Net sales $ 66,593 100 % $ 53,844 100 % Customer concentration: Customer 1 $ 49,930 75 % $ 38,159 71 % Customer 2 8,271 12 % 6,502 12 % Total $ 58,201 87 % $ 44,661 83 % 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): Schedule of accounts receivable, inventory purchases and accounts payable of major customers and suppliers June 30, 2025 June 30, 2024 Total gross accounts receivable $ 16,433 100 % $ 13,887 100 % Customer concentration: Customer 1 $ 11,895 72 % $ 10,488 76 % Customer 2 2,768 17 % 2,423 17 % Total $ 14,663 89 % $ 12,911 93 % During fiscal 2025 and 2024, we had three suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages): June 30, 2025 June 30, 2024 Total inventory purchases $ 32,556 100 % $ 20,926 100 % Supplier concentration: Supplier 1 $ 7,018 22 % $ 5,004 24 % Supplier 2 4,554 14 % 2,401 11 % Supplier 3 4,192 13 % 3,351 16 % Total $ 15,764 49 % $ 10,756 51 % 48 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): June 30, 2025 June 30, 2024 Total accounts payable $ 4,614 100 % $ 4,513 100 % Supplier concentration: Supplier 1 $ 735 16 % $ 1,405 31 % Supplier 2 1,016 22 % 371 8 % Supplier 3 298 6 % 416 9 % Total $ 2,049 44 % $ 2,192 48 % 13. NET INCOME PER SHARE 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 per share calculations for the years ended June 30, 2025 and 2024 is as follows (in thousands, except per share data): Schedule of net income per share Years Ended June 30, 2025 2024 Basic: Net income $ 8,978 $ 2,127 Weighted-average shares outstanding 3,288 3,499 Basic earnings per share $ 2.73 $ 0.61 Diluted: Net income $ 8,978 $ 2,127 Weighted-average shares outstanding 3,288 3,499 Effect of dilutive securities – stock options & performance awards 73 72 Weighted-average shares used in calculation of diluted earnings per share 3,361 3,571 Diluted earnings per share $ 2.67 $ 0.60 14. 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, 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 million. 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 broker. 15. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this filing. There were no subsequent events that require disclosure. 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.