PRO DEX INC 10-Q

ITEM 1. FINANCIAL STATEMENTS PRO-DEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share amounts) March 31, 2026 June 30, 2025 ASSETS Current Assets: Cash and cash equivalents $ 9,993 $ 419 Investments 986 6,740 Accounts receivable 19,473 16,433 Deferred costs 40 24 Inventory 22,357 22,213 Income tax receivable 301 1,056 Prepaid expenses and other current assets 560 410 Total current assets 53,710 47,295 Land and building, net 5,991 6,061 Equipment and leasehold improvements, net 5,530 5,153 Right-of-use asset, net 716 1,050 Intangibles, net 712 26 Deferred income taxes, net 1,277 1,415 Investments 456 148 Goodwill 6,525 — Other assets 60 44 Total assets $ 74,977 $ 61,192 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 5,246 $ 4,614 Accrued expenses 4,319 3,479 Deferred revenue 144 202 Income taxes payable 736 186 Notes payable 4,191 6,148 Total current liabilities 14,636 14,629 Lease liability, net of current portion 838 685 Notes payable, net of current portion 14,305 9,246 Total non-current liabilities 15,143 9,931 Total liabilities 29,779 24,560 Shareholders’ equity: Common shares; no par value; 50,000,000 shares authorized; 3,196,611 and 3,261,043 shares issued and outstanding at March 31, 2026 and June 30, 2025, respectively — 704 Retained earnings 45,198 35,928 Total shareholders’ equity 45,198 36,632 Total liabilities and shareholders’ equity $ 74,977 $ 61,192 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 PRO-DEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) (In thousands, except per share amounts) Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Net sales $ 19,949 $ 17,414 $ 57,143 $ 49,099 Cost of sales 13,816 11,616 39,899 33,080 Gross profit 6,133 5,798 17,244 16,019 Operating expenses: Selling, general and administrative expenses 2,212 1,211 5,454 3,943 Research and development costs 827 947 2,328 2,731 Total operating expenses 3,039 2,158 7,782 6,674 Operating income 3,094 3,640 9,462 9,345 Interest expense ( 201 ) ( 246 ) ( 542 ) ( 602 ) Gain on equity investments, net 2,394 1,145 5,443 1,655 Interest and other income 53 15 127 61 Income before income taxes 5,340 4,554 14,490 10,459 Provision for income taxes 1,402 1,279 3,685 2,678 Net income $ 3,938 $ 3,275 $ 10,805 $ 7,781 Basic and diluted net income per share: Basic $ 1.23 $ 1.00 $ 3.34 $ 2.36 Diluted $ 1.20 $ 0.98 $ 3.27 $ 2.31 Weighted average common shares outstanding: Basic 3,201,480 3,261,043 3,237,761 3,296,744 Diluted 3,269,657 3,337,312 3,302,115 3,366,099 Common shares outstanding 3,196,611 3,261,043 3,196,611 3,261,043 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 PRO-DEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (In thousands) Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Common shares: Balance, beginning of period $ — $ 366 $ 704 $ 3,917 Share-based compensation expense 185 158 511 401 Share repurchases ( 600 ) — ( 2,808 ) ( 3,504 ) Shares withheld from common stock issued to pay employee payroll taxes — — ( 27 ) ( 305 ) ESPP shares issued 44 27 85 42 Reclassification of excess share repurchases (1) 371 — 1,535 — Balance, at end of period $ — $ 551 $ — $ 551 Retained earnings: Balance, beginning of period $ 41,631 $ 31,456 $ 35,928 $ 26,950 Net income 3,938 3,275 10,805 7,781 Shareholder distribution ( 371 ) — ( 1,535 ) — Balance, at end of period $ 45,198 $ 34,731 $ 45,198 $ 34,731 Balance, beginning of period 41,613 31,822 36,632 30,867 Net income 3,938 3,275 10,805 7,781 Total shareholders’ equity $ 45,198 $ 35,282 $ 45,198 $ 35,282 (1) During the three and nine months ended March 31, 2026, our stock repurchases exceeded the value of cumulative common stock, and the excess has been reflected as a shareholder distribution, reducing our consolidated retained earnings. The accompanying notes are an integral part of these condensed consolidated financial statements. 4 PRO-DEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended March 31, 2026 2025 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,805 $ 7,781 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 988 925 Amortization of loan fees, net 8 16 Share-based compensation 511 401 Gain on equity investments ( 5,443 ) ( 1,655 ) Non-cash straight-line lease amortization ( 62 ) ( 24 ) Deferred income taxes 138 — Credit loss expense (recovery) 18 — Changes in operating assets and liabilities: Accounts receivable ( 2,233 ) ( 1,974 ) Deferred costs ( 16 ) 121 Inventory 731 ( 8,163 ) Prepaid expenses and other assets ( 113 ) ( 277 ) Accounts payable and accrued expenses 936 1,601 Deferred revenue ( 58 ) ( 14 ) Income taxes payable 1,305 ( 247 ) Net cash provided by (used in) operating activities 7,515 ( 1,509 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments ( 350 ) — Purchase of APM, net of cash acquired ( 6,495 ) — Purchases of equipment and improvements ( 280 ) ( 1,153 ) Proceeds from sale of investments 10,840 1,907 Net cash provided by investing activities 3,715 754 CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of common stock ( 2,808 ) ( 3,504 ) Proceeds from exercise of options and ESPP contributions 85 42 Payment of employee payroll taxes on net issuance of common stock ( 27 ) ( 305 ) Proceeds from notes, net of fees 22,048 12,890 Principal payments on notes payable and revolving loan ( 20,954 ) ( 6,526 ) Net cash provided by (used in) financing activities ( 1,656 ) 2,597 Net increase in cash and cash equivalents 9,574 1,842 Cash and cash equivalents, beginning of period 419 2,631 Cash and cash equivalents, end of period $ 9,993 $ 4,473 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 PRO-DEX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited) (In thousands) Nine Months Ended March 31, 2026 2025 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 508 $ 573 Cash paid during the period for income taxes by jurisdiction: Federal income tax payments $ 1,850 $ 2,090 California income tax payments 2 1,100 Indiana income tax payments 90 — Florida income tax payments 300 — Total income tax payments $ 2,242 $ 3,190 Non-cash investing and financing activity: Cashless stock option exercise $ — $ 117 Promissory note issued in conjunction with APM acquisition $ 2,000 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 6 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and applicable provisions of Regulation S-K. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the financial statements presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2025. Recently Adopted Accounting Standards In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606), which clarifies the application of derivative accounting to certain contracts and updates the guidance for share-based noncash consideration received from a customer in exchange for goods and services. Specifically, this ASU introduces a scope exception for contracts that are not exchange-traded and whose underlying is tied to operations or activities specific to one of the parties to the contract. It also clarifies the guidance for share-based consideration from a customer. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted and the option to apply on a prospective or modified retrospective basis. The Company early adopted this ASU on a prospective basis as of July 1, 2025. The Company expects this ASU to reduce the cost and complexity associated with analyzing and applying the derivative guidance to contracts with underlyings based on operations or activities specific to one of the parties of the contract, such as the contingent consideration received in exchange for the Company’s shares of common stock in Monogram Technologies, Inc. (“Monogram”) described more fully in Note 5. Recently Issued and Not Yet Adopted Accounting Pronouncements In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“DISE”) . The ASU’s purpose is to improve 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. In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11. No other new accounting pronouncements issued or effective during the fiscal year have, or are expected to have, a material impact on our condensed consolidated financial statements. Segment Reporting As of March 31, 2026, we have identified one reportable segment, as our chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, allocates resources, assesses performance, and manages our business as one segment. 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 condensed consolidated statement of operations. 7 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Reclassifications The Company’s selling expenses have been reclassified and combined with its general and administrative expenses in its consolidated statement of operations to conform to the current period presentation. Historically the Company has had only one employee in its sales department. Currently we have no employees in our sales department but in advance of the expanded disclosures required by DISE we are combining selling, general and administrative expenses to avoid potential disclosure of confidential compensation of one employee. NOTE 2. DESCRIPTION OF BUSINESS We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions that appeal to our customers, primarily medical device distributors. Additionally, we provide engineering, quality and regulatory consulting services to our customers. 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, and precision machined parts and assemblies for the aerospace and defense industries through our newly acquired subsidiary Advanced Precision Machining, LLC (“APM”). 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. This subsidiary has no separate operations. As described more fully in Note 3, in February 2026, we acquired APM, a manufacturer located in Costa Mesa, California. APM manufactures several of our machined sub-assemblies and also manufactures parts and assemblies for the aerospace and defense industries. In addition, it serves as a Prime Contractor for the U.S. Government and therefore maintains registrations under the International Traffic in Arms Regulations (“ITAR”) as well as a Joint Certification Program (“JCP”) certification. The condensed consolidated financial statements include the accounts of the Company, PDEX Franklin and APM and all significant inter-company accounts and transactions have been eliminated. NOTE 3. BUSINESS ACQUISITION On February 9, 2026, we completed the acquisition of all of the issued and outstanding membership interests of APM, a manufacturer of precision machined components and assemblies for the medical, aerospace and defense industries. The aggregate purchase price was $ 8,650,000 of which $ 6,650,000 was paid in cash through a new term loan (Term Loan D) we borrowed from UMB Bank, N.A. (see note 12) and $ 2,000,000 of which is to be paid by the Company under the terms of a sixty-three month promissory note (the “Subordinated Promissory Note”) issued to Advanced-Precision Machining Holding Company, Inc., the former owner of APM. The Subordinated Promissory Note bears interest at 8 % per annum and requires twenty-one quarterly payments of principal and accrued interest in the approximate amount of $ 118,000 . This Subordinated Promissory Note is subordinate to all debt issued under our Second Amended and Restated Credit and Security Agreement with UMB Bank, N.A. 8 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table summarizes the consideration paid and the estimated fair value of the assets acquired and liabilities assumed for APM as of the acquisition date of February 9, 2026 (in thousands). Schedule of estimated fair value of the assets acquired and liabilities assumed APM Purchase Price Allocation Consideration: Cash 6,650 Promissory note payable to seller 2,000 Total Consideration 8,650 Fair value of assets acquired and liabilities assumed: Cash 155 Inventory 875 Accounts receivable 426 Fixed assets 977 Prepaids and other assets 57 Tradename 210 Customer relationships 510 Accounts payable and accrued expenses ( 502 ) Long-term lease liabilities ( 583 ) Net assets acquired 2,125 Goodwill 6,525 The acquisition of APM was completed to support expansion of our business and broaden the Company’s customer base as well as to support the increased demand resulting from the contract extension executed with our largest customer in the second quarter of this fiscal year. We have accounted for this acquisition as a business combination using the acquisition method of accounting. This method requires, among other things, that assets acquired, and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The purchase price allocation reflected above is based upon our preliminary valuation and is subject to future adjustment. Pro forma historical results of operations related to APM during the period prior to the acquisition date have not been presented because they are not material to our condensed consolidated income statements. The results of operations related to APM have been included in the Company’s condensed consolidated income statements since the date of acquisition. The fair value determination of assets recorded and liabilities assumed are those of management. The fair value determination of the customer relationships was based on the excess of earnings method which is based on the prospective net cash flows of the existing customers. The fair value determination of the trade name was based upon a relief from royalty approach which assesses the royalty savings an entity realizes since it owns the asset and isn’t required to pay a third-party license for its use. 9 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. NET SALES The following table presents the disaggregation of net sales by revenue recognition model (in thousands): Schedule of disaggregation of net sales Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Net Sales: Over-time revenue recognition $ 531 $ 186 $ 1,156 $ 274 Point-in-time revenue recognition 19,418 17,228 55,987 48,825 Total net sales $ 19,949 $ 17,414 $ 57,143 $ 49,099 The timing of revenue recognition, billings, and cash collections results in billed accounts receivables , unbilled receivables or contract assets (presented as deferred costs on our condensed consolidated balance sheets), and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets), where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition model consists of non-recurring engineering (“NRE”) and prototype services and typically relates to NRE services related to the evaluation, design, or customization of a medical device and is typically recognized over time utilizing an input measure of progress based on costs incurred compared to the estimated total costs upon completion. During the three and nine months ended March 31, 2026, we recorded $ 122,000 and $ 202,000 , respectively, of revenue that had been included in deferred revenue in the prior fiscal year. During the three and nine months ended March 31, 2025, we recorded $ 0 and $ 14,000 , respectively, of revenue that had been included in deferred revenue in the prior fiscal year. The revenue recognized from contract liabilities consisted of satisfying our performance obligations during the normal course of business. As of March 31, 2026 and 2025, we had deferred revenue of $ 144,000 and $ 0 , respectively. The following tables summarize our contract assets and liability balances (in thousands): Schedule of contract assets and liability As of and for the Three Months Ended March 31, As of and for the Nine Months Ended March 31, 2026 2025 2026 2025 Contract assets beginning balance $ 174 $ 152 $ 24 $ 262 Expenses incurred during the year 92 $ 70 $ 322 $ 159 Amounts reclassified to cost of sales ( 226 ) ( 81 ) ( 306 ) ( 274 ) Amounts allocated to discounts for standalone selling price — — — ( 6 ) Contract assets ending balance $ 40 $ 141 $ 40 $ 141 As of and for the Three Months Ended March 31, As of and for the Nine Months Ended March 31, 2026 2025 2026 2025 Contract liabilities beginning balance $ 163 $ — $ 202 $ 14 Payments received from customers 103 $ — $ 144 $ — Amounts reclassified to revenue ( 122 ) — ( 202 ) ( 14 ) Contract liabilities ending balance $ 144 $ — $ 144 $ — 10 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income, and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy . The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. We have categorized our cash equivalents and investments within the fair value hierarchy as follows: Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities. Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by observable market data. At March 31, 2026 and June 30, 2025, we categorized our investments in equity securities as Level 2 assets. Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at March 31, 2026 or June 30, 2025. The following tables summarize the fair value measurements within the fair value hierarchy of our financial instruments (in thousands): Schedule of fair value, assets and liabilities Fair Value Measurement at March 31, 2026 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 6,627 $ — $ — $ 6,627 Equity securities – short-term — 986 — 986 Equity securities – long-term — 456 — 456 Total $ 6,627 $ 1,442 $ — $ 8,069 11 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Fair Value Measurement at June 30, 2025 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 33 $ — $ — 33 Equity securities – short-term — 6,740 — 6,740 Equity securities – long-term — 148 — 148 Total $ 33 4 6,888 $ — 6,921 Investments at March 31, 2026 and June 30, 2025 had an aggregate cost basis of $ 1.8 million and $ 3.5 million, respectively . Both short-term and long-term equity securities include equity securities of public companies that are thinly traded. We classified certain investments as long-term in nature because if we decide to sell these securities, we may not be able to sell our position within one year. At March 31, 2026, the investments included unrealized losses of $ 309,000 . 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 ). Of the total equity securities at March 31, 2026 and June 30, 2025, $ 986,000 and $ 1,040,000 , respectively, represent an investment in the common stock of Air T, Inc. Two of our Board members are also board members of Air T, Inc. and both, either individually or through affiliates, own an equity interest in Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive Officer and Chairman of Air T, Inc. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares were purchased through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc. On October 7, 2025, Zimmer Biomet Holdings, Inc. (“Zimmer Biomet”) announced that it had completed its acquisition of Monogram and soon after the announcement we received $4.04 per share in cash for each of the 2,212,378 common shares we owned of Monogram prior to the close of the acquisition, for total proceeds of $8.9 million. Accordingly, in our second quarter of fiscal 2026, we recorded a realized gain in the amount of $6.8 million. In addition, we received 2,212,378 non-tradeable contingent value rights (“CVR’s”) payable in cash to us if Monogram completes five milestones related to proof-of concept, FDA 510(k) approval, and specific revenue milestones. The CVR payments, if earned, will range in value from $1.04 to $3.43 per CVR for a total amount of $12.37 should all milestones be attained. In our third quarter of fiscal 2026, Monogram achieved the first of five milestones, and accordingly we earned and recorded an additional gain in the amount of $2.3 million. There is no guarantee or assurance that any additional milestones will be achieved. As disclosed previously, in conjunction with making our original investment in Monogram during fiscal 2017, we were granted the exclusive right to develop, engineer, manufacture and supply certain products on its behalf. Those rights were transferred in connection with Zimmer Biomet’s acquisition of Monogram and remain in effect post-acquisition. We made this investment in the hope that it could generate meaningful additional revenue which has yet to occur but may be more likely to occur in the future because Zimmer Biomet has more financial resources to assist with commercialization of Monogram’s products. However, there is no guarantee or assurance as to the amount of revenue, if any, that we may ultimately recognize from our exclusive right to develop, engineer, manufacture and supply certain products for Monogram. 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 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. 12 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 6. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS Inventory Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands): Schedule of investments March 31, 2026 June 30, 2025 Raw materials /purchased components $ 9,776 $ 10,397 Work in process 8,130 7,422 Sub-assemblies/finished components 2,749 2,874 Finished goods 1,702 1,520 Total inventory $ 22,357 $ 22,213 Intangibles Intangibles consist of the following (in thousands): Schedule of intangibles March 31, 2026 June 30, 2025 Patent-related costs $ 208 $ 208 Customer relationships 510 — Tradename 210 — Total Intangibles 928 208 Less: accumulated amortization ( 216 ) ( 182 ) $ 712 $ 26 Patent-related costs consist of legal fees incurred in connection with both patent applications and a patent issuance and will be amortized over the estimated life of the product(s) that is or will be utilizing the technology or expensed immediately in the event the patent office denies the issuance of the patent. These intangible assets are expected to be fully expensed this fiscal year. Both the customer relationships and the tradename relate to our acquisition of APM described in Note 3 and will be amortized on a straight-line basis over ten and seven years, respectively. As of March 31, 2026, the expected future amortization expense of our intangible assets is as follows (in thousands): Schedule of amortization expense of our intangible assets Amortization Expense Fiscal Year: 2026 $ 29 2027 73 2028 73 2029 73 2030 73 Thereafter 391 Total $ 712 13 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 7. WARRANTY The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying condensed consolidated balance sheets. As of March 31, 2026 and June 30, 2025, the warranty reserve amounted to $254,000 and $357,000, respectively. Warranty expenses are included in cost of sales in the accompanying condensed consolidated income statements. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Information regarding the accrual for warranty costs for the three and nine months ended March 31, 2026 and 2025, are as follows (in thousands): Schedule of accrual warranty costs As of and for the Three Months Ended March 31, As of and for the Nine Months Ended March 31, 2026 2025 2026 2025 Beginning balance $ 370 $ 312 $ 357 $ 277 Accruals during the period 68 $ 51 $ 206 $ 189 Changes in estimates of prior period warranty accruals — 11 ( 38 ) ( 14 ) Warranty amortization ( 184 ) ( 48 ) ( 271 ) ( 126 ) Ending balance $ 254 $ 326 $ 254 $ 326 NOTE 8. NET INCOME PER SHARE We calculate basic net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted income per share reflects the effects of potentially dilutive securities, which consist of outstanding stock options, restricted shares and performance awards. 14 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income. In the tables below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts): Schedule of net income per share Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Basic: Net income $ 3,938 $ 3,275 $ 10,805 $ 7,781 Weighted average shares outstanding 3,201 3,261 3,238 3,297 Basic income per share $ 1.23 $ 1.00 $ 3.34 $ 2.36 Diluted: Net income $ 3,938 $ 3,275 $ 10,805 $ 7,781 Weighted average shares outstanding 3,201 3,261 3,238 3,297 Effect of dilutive securities 69 76 64 69 Weighted average shares used in calculation of diluted earnings per share 3,270 3,337 3,302 3,366 Diluted income per share $ 1.20 $ 0.98 $ 3.27 $ 2.31 NOTE 9. INCOME TAXES Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more - likely - than - not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Significant management judgment is required in determining our provision for income taxes and the recoverability of our deferred tax assets. Such determination is based primarily on our historical taxable income, with some consideration given to our estimates of future taxable income by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable. Our deferred tax asset is net of a valuation allowance in the gross amount of $ 90,000 as of both March 31, 2026 and June 30, 2025 . We recognize accrued interest and penalties related to unrecognized tax benefits when applicable. The effective tax rate for the three months ended March 31, 2026 and 2025 was 26 % and 28 % , respectively. The decline in the effective tax rate for the three months ended March 31, 2026 compared to the prior fiscal year is largely due to the creation of state tax nexus in Florida and Indiana this fiscal year. The effective tax rate for the nine months ended March 31, 2026 and 2025 was 25 % and 26 % , respectively. We are subject to U.S. federal income tax, as well as various state jurisdictions. Our U.S. federal income taxes are currently open to audit under the statute of limitations by the Internal Revenue Service for the fiscal years ended June 30, 2022 and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2020 and after are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months. 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 for tax years starting after December 31, 2025. We do not expect the 2025 Act will have a material impact on our financial statements for fiscal 2026. 15 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 10. SHARE-BASED COMPENSATION Our 2016 Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards. As of March 31, 2026, performance awards for 200,000 shares of common stock, non-qualified stock options for 372,000 shares of common stock, and 33,500 restricted shares of common stock have been granted under the 2016 Equity Incentive Plan. Performance Awards During both the three months ended March 31, 2026 and 2025, we recorded share-based compensation expense of $ 7,000 related to outstanding performance awards. During both the nine months ended March 31, 2026, and 2025, we recorded share-based compensation expense of $ 20,000 related to outstanding performance awards. On March 31, 2026, there was approximately $ 7,000 of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over a weighted-average period of three months. On July 1, 2024, it was determined by the Compensation Committee that the vesting of performance awards for 40,000 shares of common stock had been achieved. Each participant elected a net issuance to cover their individual withholding taxes and, therefore, we issued participants 25,134 shares of common stock and paid $ 273,000 of participant-related payroll tax liabilities. Non-Qualified Stock Options In December 2020, the Compensation Committee granted non-qualified stock options for 310,000 shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The vesting of these stock options is tied to the completion of service periods that range from 18 months to 10.5 years from the date of grant and the achievement of our common stock trading at certain pre-determined prices. The weighted average fair value of the stock option awards granted in fiscal 2021 was $ 16.72 , calculated using a Monte Carlo simulation. During both the three months ended March 31, 2026 and 2025, we recorded compensation expense of $ 104,000 related to these options. During both the nine months ended March 31, 2026 and 2025, we recorded compensation expense of $ 312,000 related to these options. As of March 31, 2026, 26,250 of these stock options have vested, 126,250 have been forfeited either due to termination or our stock price not attaining the pre-determined price, and 157,500 remain outstanding and unvested and there was approximately $ 833,000 of unrecognized compensation cost related to the non-vested stock options. Restricted Shares In November 2024, the Compensation Committee awarded 18,000 restricted shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The shares vest ratably over five years from the date of grant. The fair value of the restricted shares on the date of grant was $ 857,000 , based upon the closing price of our common stock on the date of grant. During the second quarter of fiscal 2026, 3,600 shares were vested and 872 shares were forfeited by employees to pay their individual withholding taxes and therefore we issued 2,728 shares of common stock and paid $ 27,000 of participant-related payroll tax liabilities. In November 2025, the Compensation Committee awarded 15,500 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 $ 478,000 , based upon the closing price of our common stock on the date of grant. During the three months ended March 31, 2026 and 2025, we recorded compensation expense of $ 67,000 and $ 43,000 , respectively, related to these restricted shares. During the nine months ended March 31, 2026 and 2025, we recorded compensation expense of $ 163,000 and $ 62,000 , respectively, related to these restricted shares. As of March 31, 2026, there was approximately $ 1.1 million of unrecognized compensation cost related to these restricted shares. 16 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Employee Stock Purchase Plan In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) and reserved 704,715 shares of our common stock for issuance pursuant to the ESPP. The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per-share purchase price that approximates a 15% discount from the market price of a share of our common stock at either the beginning or the end of the purchase period, whichever is lower. The ESPP was approved by our shareholders at our 2014 Annual Meeting. An amendment to the ESPP to extend its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual Meeting. During the three months ended March 31, 2026 and 2025, we recorded ESPP share-based compensation expense in the amount of $ 8,000 and $ 5,000 , respectively. During the three months ended March 31, 2026 and 2025, 1,301 and 653 shares were purchased, respectively, under the ESPP and allocated to employees based upon their contribution prices of $ 34.36 and $ 41.11 , respectively, per share. During the nine months ended March 31, 2026 and 2025, we recorded ESPP share-based compensation expense in the amount of $ 15,000 and $ 7,000 , respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 39,357 shares of our common stock under the ESPP. NOTE 11. MAJOR CUSTOMERS AND SUPPLIERS Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month and the nine-month periods ended March 31, 2026 and 2025, is as follows (in thousands, except percentages): Schedule of sales by major customers Three Months Ended March 31, 2026 2025 Amount Perfect of Total Percent of Total Amount Net sales $ 19,949 100 % $ 17,414 100 % Customer concentration: Customer 1 $ 15,653 79 % $ 13,397 77 % Customer 2 1,196 6 % 1,917 11 % Total $ 16,849 85 % $ 15,314 88 % Nine Months Ended March 31, 2026 2025 Amount Perfect of Total Percent of Total Amount Net sales $ 57,143 100 % $ 49,099 100 % Customer concentration: Customer 1 $ 44,912 79 % $ 38,288 78 % Customer 2 4,717 8 % 5,538 11 % Total $ 49,629 87 % $ 43,826 89 % 17 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2026 or June 30, 2025, is as follows (in thousands, except percentages): Schedule of gross accounts receivable March 31, 2026 June 30, 2025 Total gross accounts receivable $ 19,473 100 % $ 16,433 100 % Customer concentration: Customer 1 $ 14,586 75 % $ 11,895 72 % Customer 2 1,988 10 % 2,768 17 % Total $ 16,574 85 % $ 14,663 89 % During the three and nine months ended March 31, 2026 and 2025 we had three suppliers, respectively, that accounted for 10% or more of total inventory purchases. One of our significant suppliers presented in the tables below is APM, our newly acquired subsidiary. Accordingly amounts below exclude amounts purchased from or payable to APM after the acquisition date of February 9, 2026. Information with respect to suppliers that accounted for in excess of 10% of our inventory purchases in either of the three-month or the nine-month periods ended March 31, 2026 and 2025, is as follows (in thousands, except percentages): Schedule of inventory purchases Three Months Ended March 31, 2026 2025 Amount Percent of Total Amount Percent of Total Total Inventory purchases $ 8,798 100 % $ 11,749 100 % Supplier concentration: Supplier 1 $ 1,829 21 % $ 2,924 25 % Supplier 2 987 11 % 1,698 14 % Supplier 3 516 6 % 1,607 14 % Total $ 3,332 38 % $ 6,229 53 % Nine Months Ended March 31, 2026 2025 Amount Percent of Total Amount Percent of Total Total inventory purchases $ 22,095 100 % $ 24,813 100 % Supplier concentration: Supplier 1 $ 3,665 16 % $ 6,113 25 % Supplier 2 3,032 14 % 3,122 13 % Supplier 3 2,543 12 % 3,322 13 % Total $ 9,240 42 % $ 12,557 51 % 18 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Information with respect to accounts payable due to those suppliers that comprised more than 10% of our inventory purchases at either March 31, 2026 or June 30, 2025, is as follows (in thousands, except percentages): Schedule of accounts payable March 31, 2026 June 30, 2025 Total accounts payable $ 5,246 100 % $ 4,614 100 % Supplier concentration: Supplier 1 $ 1,666 32 % $ 735 16 % Supplier 2 449 8 % 1,016 22 % Supplier 3 — — 298 6 % Total $ 2,115 40 % $ 2,049 44 % NOTE 12. NOTES PAYABLE AND FINANCING TRANSACTIONS UMB Bank, N.A. (“UMB”) We have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) with UMB (formerly Minnesota Bank & Trust or MBT). The Company entered into a Second Amended and Restated Credit and Security Agreement (the “Amended Credit Agreement”) with UMB Bank, N.A. on February 9, 2026, which among other things provided for financing to fund the cash portion of the purchase price of APM as described in Note 3 by issuing Term Loan D in the principal amount of $6,650,000. The Amended Credit Agreement also extended the maturity date of the Amended Revolving Loan from December 29, 2026 to December 29, 2027, pursuant to a Third Amended and Restated Revolving Credit Note entered into by the Company and UMB on February 9, 2026. Loan origination fees in the amount of $31,625 were paid to UMB in connection with the Amended Credit Agreement. Advanced Precision Machining (“APM”) Subordinated Promissory Note On February 9, 2026 in connection with the acquisition of APM as described in Note 3, we issued the seller a promissory note in the amount of $ 2,000,000 which bears interest at 8 % per annum and requires twenty-one equal quarterly payments of principal and accrued interest in the amount of approximately $ 118,000 each. The promissory note contains covenants and obligations of the Company customary for a subordinated promissory note of this type. 19 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The balance on our outstanding loans (in thousands) is as follows (exclusive of unamortized loan fees): Schedule of unamortized loan March 31, 2026 June 30, 2025 Notes Payable: Term Loan A $ 1,989 $ 2,795 Term Loan B 296 416 Term Loan C 3,417 4,167 Term Loan D 6,650 — Property Loan 4,189 4,347 APM Subordinated Loan 2,000 — Amended Revolving Loan — 3,706 Total notes payable $ 18,541 $ 15,431 Term Loan A and Term Loan 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 Loan C bears interest at an annual rate equal to the greater of (a) 5%, 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”). Term Note D bears interest at the greater of (a) 4.5% or (b) the Adjusted SOFR Rate. The Amended Revolving Loan bears interest at the greater of (a) 4% or (b) the Adjusted 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 and Term Note D is fully amortizing and matures on February 1, 2031 . The Property Loan matures on November 1, 2030 , at which time a balloon payment of $ 3.1 million is due, and the Amended Revolving Loan matures on December 29, 2027 . Any payment on Term Loan A, Term Loan B, Term Loan C, Term Loan D, the Property Loan, or the 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 UMB 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 on September 6, 2018, between the Company and UMB. 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 UMB and by an assignment of Leases and Rents by PDEX Franklin in favor of UMB (collectively, the “Property Loan Security Agreements”). The Amended Credit Agreement, Security Agreement, Property Loan Security Agreement, Term Loan A, Term Loan B, Term Loan C, Term Loan D, Property Loan, and Amended Revolving Loan contain representations and warranties, affirmative, negative and financial covenants, and events of default that are customary for loans of this type. We believe that we are in compliance with all of our debt covenants as of March 31, 2026, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans. NOTE 13. COMMON STOCK Share Repurchase Program In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to one million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these share repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the three and nine months ended March 31, 2026, we repurchased 14,422 and 69,422 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 0.6 million and $ 2.8 million, respectively. During both the three and nine months ended March 31, 2025, we repurchased 130,148 shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5 million. On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 1,580,919 shares under the share repurchase program at an aggregate cost, inclusive of fees, of $ 27.0 million. All repurchases under the 10b5-1 Plans were administered through an independent broker. 20 PRO-DEX INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2026, our cumulative stock repurchases have exceeded our recorded value of common stock, and the excess has been reflected as a shareholder distribution, reducing our consolidated retained earnings. NOTE 14. LEASES Our operating lease right-of-use asset and long-term term lease liabilities are presented separately on our condensed consolidated balance sheets. Additionally, we acquired some equipment leases in conjunction with our acquisition of APM in the third quarter of fiscal 2026. The current portion of our operating lease liability as of March 31, 2026, in the amount of $ 838,000 , is presented within accrued liabilities on the condensed consolidated balance sheets. As of March 31, 2026, our operating lease related to our corporate office has a remaining lease term of one year and six months and an imputed interest rate of 5.53 % . Cash paid for rent inclusive of common area maintenance charges for the three and nine months ended March 31, 2026 totaled $ 156,000 and $ 456,000 , respectively, and for the three and nine months ended March 31, 2025 totaled $ 149,000 and $ 442,000 , respectively. As of March 31, 2026, the maturity of our lease liabilities is as follows (in thousands): Schedule of maturities of lease liabilities Operating Leases Fiscal Year: 2026 227 2027 897 2028 362 2029 175 2030 51 Total lease payments 1,712 Less imputed interest: ( 36 ) Total $ 1,676 NOTE 15. COMMITMENTS AND CONTINGENCIES Legal Matters We may be involved from time to time in various legal proceedings arising either in the ordinary course of our business or incidental to our business. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and adverse. NOTE 16. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this filing. There were no subsequent events that require disclosure. 21