What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-09-03 compared with 2025-09-04 · 603 added, 379 removed, 700 unchanged (58% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Report of Independent Registered Public Accounting Firm

Financial Statements

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Notes to Consolidated Financial Statements

Report of Independent Registered Public

Accounting Firm

of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

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We determined that there are no critical audit matters.

/s/ Baker Tilly US,

/s/ Baker Tilly US, LLP

Irvine, California

2 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

2 unchanged sentences

Cash and cash equivalents

Accounts receivable

Accounts receivable, net of allowance for credit losses of $ 349 and $ 0 at June 30, 2026 and 2025, respectively

Deferred costs

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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

Common stock, no

par value, 50,000,000 shares authorized;

and 3,261,043 shares issued and outstanding at June

30, 2026 and 2025, respectively

Retained earnings

3 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

3 unchanged sentences

Operating expenses:

Selling expenses

General and administrative expenses

Selling, general and administrative expenses

Research and development costs

3 unchanged sentences

Interest and dividend income

Unrealized gain (loss) on marketable equity investments

Gain on sale of investments

Gain on marketable equity investments, net

Interest expense

Total other income (expense)

Total other income

Income before income taxes

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PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

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ESPP shares issued

Shares issued in connection with performance award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

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ESPP shares issued

Shares issued in connection with performance award vesting

Shares issued in connection with restricted share award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

Reclassification of excess share repurchases (1)

Share repurchases

Balance at June 30, 2026

(1) During the fiscal year ended June 30, 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.

to consolidated financial statements .

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended June 30,

Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Depreciation and amortization

Unrealized (gain) loss on marketable equity investments

Unrealized loss (gain) on equity investments

Gain on sale of investments

Non-cash straight-line lease amortization

Allowance for credit losses

Amortization of loan fees, net

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Purchases of equipment and improvements

Purchase of APM, net of cash acquired

Purchases of investments

Proceeds from sale of investments

Investment in Monogram

Net cash used in investing activities

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Borrowing from Minnesota Bank & Trust

Principal payments on notes payable, leases, and revolving loan

Proceeds from notes and revolving loan, net of fees

Repurchases of common stock

2 unchanged sentences

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

2 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(In thousands)

Years Ended June 30,

Ended June 30,

Supplemental disclosures of cash flow information:

Cash paid during the period for interest

Cash paid during the period for income taxes by jurisdiction:

Federal income tax payments

California income tax payments

Colorado income tax payments

Massachusetts income tax payments

Total income tax payments

paid during the period for interest

Cash paid during the period for income taxes by jurisdiction, net of refunds:

income tax payments

income tax refunds

Florida income

income tax payments

Non-cash investing and financing activity:

Cashless stock option exercise

Promissory note issued in conjunction with APM acquisition

See notes to consolidated financial statements .

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS

We specialize in the design,

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

in the orthopedic, thoracic, and craniomaxillofacial markets.

We have patented adaptive torque-limiting technology and proprietary

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

We also manufacture and sell rotary air motors

to a wide range of industries;

Pro-Dex, Inc.

“we,” “our,” or “us”) specializes 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.

have patented adaptive torque-limiting technology and proprietary sealing solutions which 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.

fiscal 2026 we began selling 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

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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.

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.

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 consolidated financial

statements include the accounts of the Company, PDEX Franklin and APM and all significant inter-company accounts and transactions have

been eliminated.

SUMMARY OF SIGNIFICANT

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

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.

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

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we satisfy each performance obligation, generally upon shipment.

At June 30, 2026, we had a backlog of $ 32.9 million compared with

a backlog of $ 50.4 million at June 30, 2025.

Our backlog represents firm purchase orders received and acknowledged from our customers

and does not include all revenue expected to be generated from existing customer contracts.

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

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our consolidated balance sheets.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

gave rise to variable consideration due to volume rebates through the second quarter of fiscal 2026.

We estimated variable consideration

at the most likely amount we expected to receive from this customer.

Our estimates of variable consideration were based on an assessment

of our anticipated performance and all information (historical, current, and forecasted) that was reasonably available to us.

Returns of our product for

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of Sales

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

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

Trade receivables

are written off when deemed uncollectible.

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

Our operating

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

We do not have any leases classified as financing leases.

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

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

over the term of the lease term at the rate implicit in the lease or 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.

June 30, 2026 and 2025 we had $ 349,000 and $ 0 , respectively reserved as an allowance for expected credit losses, included in selling,

general and administrative expenses.

Trade receivables are written off when deemed uncollectible.

Recoveries of trade receivables previously

reserved are offset against the allowance when received.

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our operating

leases consist of our corporate headquarters located in Irvine, California as well as the APM offices located in Costa Mesa, California.

In conjunction with our acquisition of APM, we acquired several financing leases related to machinery and equipment.

We classify arrangements

meeting the definition of a lease as operating or financing leases.

Our operating 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.

Our financing leases are recorded on the consolidated

balance sheets as equipment and improvements and lease liability.

Lease liabilities are increased by interest and reduced by payments

each period, and the related ROU asset or equipment 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, which includes

the operating leases associated with the APM offices, and instead recognize rent expense on a straight-line basis over the term of the

We assess the impairment

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

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

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

over its estimated fair value is recognized.

of ROU assets and equipment and improvements when an event or change in circumstance indicates that the carrying value of such assets

may not be recoverable.

If an event or a change in circumstance indicates that the carrying value of an underlying leased asset may not

be recoverable and the estimated fair value attributable to the asset is less than its carrying value, an impairment loss equal to the

excess of the asset’s carrying value over its estimated fair value is recognized.

Deferred Costs

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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 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.

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

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, 2026 and

2025, our provision for excess and obsolete inventory totaled $ 2.1 million and $ 1.3 million, respectively.

If actual economic trends

are less favorable than those forecasted, additional future inventory write-downs may be required.

As of June 30, 2026 and 2025,

there was approximately $ 895,000

and $ 87,000 , respectively,

of inventory in-transit from suppliers.

Investments consist of marketable

equity securities of publicly held companies and, as of June 30, 2026, an investment in Series A preferred stock of a private company.

The investments were made to realize a reasonable return, although there is no assurance that positive returns will be realized.

are marked to market at each measurement date, with unrealized gains and losses presented within other income and expense on the consolidated

income statement.

Some 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, 2026 and 2025.

Long-lived Assets

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when events or changes in circumstances occur that indicate carrying values may not be recoverable.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our building, equipment and

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Shorter of the remaining life of the underlying building, lease term, or the asset’s estimated useful life

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.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill & Intangibles

is the excess of the consideration transferred over the fair value of the acquired assets and liabilities assumed in a business

Goodwill of $6.5 6,525 million was recognized during fiscal 2026 in conjunction with our APM acquisition described in

Note 3 and will be tested for impairment annually on the first day of the fourth quarter.

In evaluating goodwill for impairment, the

Company may first assess the qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment

Alternatively, the Company may bypass the qualitative assessment and apply the quantitative impairment test to determine

whether the carrying value of the reporting unit exceeds the fair value of the reporting unit.

Quantitative assessments of fair

value rely upon various valuation methods, including market-based valuation methods or income-based valuation methods.

assessments require significant assumptions including projected growth rates, profitability margins and discount rates, which are

subject to variability year over year and are impacted by market and industry conditions.

No goodwill impairment was recognized

during fiscal 2026 and there were no other changes in the carrying amount of goodwill during the year.

assets consist of customer relationships and tradename.

Useful lives of amortized intangible assets are estimated based on the nature

of the asset and the pattern in which the economic benefits of the asset are consumed.

If a pattern of economic benefit cannot be reliably

determined or if a straight-line amortization approximates the pattern of economic benefit, straight line amortization is used.

assets are amortized to amortization expense within selling, general and administrative expense on a straight-line basis over the applicable

useful lives.

We recognize deferred tax

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Net deferred tax assets or liabilities at both June 30, 2026 and 2025

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.

consisted primarily of basis differences related to stock-based compensation, fixed assets, accrued expenses, unrealized gain/loss related

to investments, and inventories.

Our deferred tax assets also include capitalization of our research expenditures as prescribed by the

Tax Cuts and Jobs Act.

The One Big Beautiful Bill Act of 2025 (“OBBBA”) was enacted on July 4, 2025, which allowed us to claim

100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025, and immediate

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

The Company adopted the

applicable provisions of OBBBA in fiscal 2026.

Additionally, we adopted the provisions of ASU 2023-09

in fiscal 2026 as described below.

Significant management judgment

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is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Shipping and Handling

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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.

one business segment as our Chief Executive Officer (“CEO”) allocates resources, assesses performance, and manages our business

as one segment.

We have reached this conclusion because 98% of our fiscal 2026 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.

The Company’s chief

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

We account for business

combinations by applying the acquisition method.

If the assets acquired are not a business, we account for the transaction as an asset

We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their estimated

Any excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities

is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and

assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include, but are not

limited to, future expected cash flows from customer relationships and discount rates.

Our estimates of fair value are based upon assumptions

we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ materially

from estimates.

Other estimates associated with the accounting for acquisitions may change as additional information becomes available

regarding the assets acquired and liabilities assumed.

Any adjustments from change in facts and circumstances as of the acquisition date

and that impact our preliminary estimates are recorded to goodwill if identified within the measurement period.

Any adjustments subsequent

to the measurement period of our final determination of fair value of assets and liabilities are reported in current results of operations.

Compensation Plans

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basis over the requisite service period.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

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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.

Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, business combinations,

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

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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.

assume the issuance of all potential common stock equivalents, consisting of outstanding stock options, restricted shares, and performance

awards as discussed in Note 12, unless the effect of such exercise is to increase income, or decrease loss, per common share.

Fair Value Measurements

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

consist of marketable equity securities of publicly held companies.

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.

consist of marketable equity securities of publicly held companies as well as preferred stock of a privately held company at June 30,

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 in marketable equity securities of public companies are classified within Level 2 of the valuation hierarchy as

of June 30, 2026 and 2025.

Our investment in preferred stock of a privately held company is similarly classified within Level 2 of the

valuation hierarchy as of June 30, 2026.

The respective carrying value

of certain financial instruments included in the consolidated balance sheets approximated their fair values due to the short-term nature

of these instruments.

These financial instruments include accounts receivable, accounts payable, accrued liabilities and current portion

of notes payable.

Similarly, the carrying value of the notes payable net of current portion, approximates fair value due to the associated

effective interest rate of the debt instrument.

Although the methods above

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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,

charged to selling, general and administrative expense as incurred and amounted to $ 2,000 and $ 94,000 for the fiscal years ended June 30,

2026 and 2025, respectively.

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain prior year amounts have been reclassified

to conform to the current year presentation.

The Company’s

selling expenses have been reclassified and combined with its general and administrative expenses in its consolidated income statements

to conform to the current period presentation.

Historically the Company has had only one employee in its sales department.

have no employees in our sales department but in advance of the expanded disclosures required by ASU

2024-03 we are combining selling, general and administrative expenses to avoid potential disclosure of confidential compensation

of one employee.

Recently Adopted Accounting Pronouncements

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.

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.

In September 2025,

the FASB issued 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.

December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740):

Improvement to Income Tax Disclosures, which requires an entity

to annually disclose categories in the rate reconciliation for reconciling items that meet a quantitative threshold, and certain information

about income taxes paid.

Effective July 1, 2025, the Company adopted ASU 2023-09 on a prospective basis.

The adoption of ASU 2023-09 did

not have any impact on our consolidated financial statements as it only affects disclosures.

Recently Issued and Not Yet Adopted Accounting Pronouncements

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

2024-03, Disaggregation of Income Statement Expenses .

The ASU’s purpose is to improve the disclosures about

a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses

(including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions

(such as cost of sales, selling, general and administrative, and research and development).

This ASU is effective for fiscal years beginning

after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

We are currently

evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position.

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.

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.

other new accounting pronouncements issued or effective during the fiscal year have, or are expected to have, a material impact on our

consolidated financial statements.

BUSINESS COMBINATION

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 9) 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.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 assets acquired and liabilities assumed

APM Purchase Price Allocation

Consideration:

Promissory note payable to seller

Total Consideration

Fair value of assets acquired and liabilities assumed:

Accounts receivable

Prepaids and other assets

Customer relationships

Accounts payable and accrued expenses

Long-term lease liabilities

Net assets acquired

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

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 consolidated income statements.

The results of operations related to APM have been

included in the Company’s consolidated income statements since the date of acquisition.

While APM was acquired primarily for vertical

integration, the consolidated income statement for the year ended June 30, 2026, includes $ 719,000 of revenue and $ 84,000 of income before

income taxes, respectively, generated from APM.

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

We incurred approximately $ 434,000 in acquisition-related costs which are primarily included in selling, general and administrative

We expect that the APM goodwill in the amount of $6.5 million will be deductible for income tax purposes.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents

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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.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the fiscal years ended June 30, 2026 and 2025, we recorded $ 202,000 and $ 14,000 , 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.

The following tables summarize

26 unchanged sentences

particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

At June 30, 2026 and 2025, 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.

in marketable equity securities and our investment in the preferred stock of a privately held company 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 for our

marketable equity securities.

The purchase price paid for our investment in the preferred stock of a privately held company is considered

fair value due to our participation in its recent investment round.

3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant

1 unchanged sentence

We held no Level 3 assets or liabilities at June 30,2026 or 2025.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Schedule of marketable equity

4 unchanged sentences

Marketable equity securities – long-term

Preferred stock – long-term

Value Measurement at June 30, 2025

9 unchanged sentences

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

At June 30, 2026, the investments included net unrealized losses of $ 97,000 (gross unrealized

losses of $ 180,000 offset by gross unrealized gains of $ 83,000 ).

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 ).

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

marketable equity securities at June 30, 2026 and 2025, $ 1.2 million and $ 1.0 million, respectively, represent an investment in the

common stock of Air T, Inc.

Two of our Board members, Messrs.

1 unchanged sentence

and both either individually or through affiliates own an equity interest in Air T, Inc.

Swenson, our Chairman, also serves as

the chief executive officer and chairman of Air T, Inc.

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.

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.

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 7, 2025,

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:

Additionally, in June 2025 we exercised additional warrants in full

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

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

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

tables above.

Our Chief Executive Officer, Mr.

Van Kirk, is also a Monogram board member.

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 (“CVRs”) payable in cash

to us if Monogram completes five milestones related to proof-of concept, FDA 510(k) approval, and specific revenue milestones.

payments, if earned, will range in value from $1.04 to $3.43 per CVR for a total amount of $12.37 per CVR 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

12 unchanged sentences

or other companies whose boards they sit on, such as Air T, Inc.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMPOSITION OF CERTAIN

7 unchanged sentences

Total inventory

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Land and Building

4 unchanged sentences

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).

of which we paid $ 1.3 million in cash and the balance of $ 5.2 million we financed (the “Property Loan”) through UMB Bank N.A.

(formerly Minnesota Bank & Trust or MBT) (See Note 9).

Depreciation expense for both fiscal years ended June 30, 2026 and 2025 totaled

8 unchanged sentences

expense for the years ended June 30, 2026 and 2025 amounted to $ 1.2 million and $ 1.1 million, respectively.

During fiscal 2025 and 2024,

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consist of the following (in thousands):

1 unchanged sentence

Patent-related costs

Customer relationships

Total Intangibles

Less accumulated amortization

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 .

costs consist of legal fees incurred in connection with both patent applications and patent issuances, and were amortized over the estimated

life of the product(s) that is utilizing the technology, and these costs were fully amortized in fiscal 2026.

Amortization expense for

the years ended June 30, 2026 and 2025 totaled $ 60,000 and $ 28,000 , respectively.

Of the total fiscal 2026 amortization expense, $ 26,000

was recorded to research and development and $ 34,000 was recorded in selling, general and administrative expenses.

The fiscal 2025 amortization

expense was recorded in research and development costs.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2026, the expected

future amortization expense of our intangible assets is as follows (in thousands):

of amortization expense of our intangible assets

Amortization Expense

Accrued Liabilities

7 unchanged sentences

Current portion of lease liability

Accrued interest expense

Accrued customer rebate

8 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15 unchanged sentences

Tax incentives

Nontaxable or nondeductible items

Uncertain tax position

2 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 unchanged sentences

Section 174 capitalization

Unrealized losses

Lease liability

6 unchanged sentences

Deferred state tax

Intangible assets

Unrealized gains

4 unchanged sentences

As of June 30, 2026, 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.

tax asset valuation allowance was eliminated as it primarily consisted of state net operating loss carryforwards and research and development

credits for states in which we have filed a final return and the carryforward period has lapsed.

For the fiscal years ended June 30, 2026

and 2025, we recorded a net decrease to our valuation allowance of $ 90,000 and $ 0 , 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, 2026, we did

7 unchanged sentences

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6 unchanged sentences

Additions based on state tax positions related to the current year

Additions (reductions) for tax positions of prior years

Reductions for tax positions of prior years

Reductions due to lapses in statutes of limitation

10 unchanged sentences

We are subject to U.S.

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

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

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

However, because of our prior net operating losses and research

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

Additionally, the One Big

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

corporate income taxes including reinstating

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

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

We are currently

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

purposes for the fiscal year ending June 30, 2025.

PAYABLE AND FINANCING TRANSACTIONS

UMB Bank/Minnesota Bank & Trust

previously disclosed, we have several outstanding term loans as well as a revolving loan (the “Amended Revolving Loan”) under

our Amended and Restated Credit Agreement with MBT (as subsequently amended, the “Amended Credit Agreement”).

31, 2024 (the “Fourth Amendment Date”), we entered into Amendment No.

4 to the Amended Credit Agreement (the “Fourth

Amendment”) which, (i) provided for a new term loan, Term Loan C, in the amount of $ 5.0 million, (ii) used the proceeds from Term

Loan C to repay the entire $ 3.0 million balance that was outstanding on the Fourth Amendment Date under the Amended Revolving Loan, and

(iii) terminated our Supplemental Loan, under which no amounts had been drawn.

Loan origination fees in the amount of $ 10,000 were

paid to MBT in conjunction with Term Loan C.

On December 23, 2024, we entered into Amendment No.

5 to the Amended Credit Agreement (the

“Fifth Amendment”), which extended the maturity date of the Amended Revolving Loan from December 29, 2025, to December 29,

On January 31, 2025, UMB Bank acquired MBT.

On April 8, 2025, we entered into Amendment No.

6 to the Amended Credit Agreement (the

“Sixth Amendment”), which among other things, increased the revolving line of credit under the Amended Revolving Loan from

$7,000,000 to $ 11,000,000 .

Loan origination fees in the amount of $ 8,000 were paid to MBT in connection with the Sixth Amendment.

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

We are currently open to audit under the statute of limitations

by the Internal Revenue Service for the years ended June 30, 2023, and later.

Additionally, we are currently open to audit

under the statute of limitations for California for tax years from June 30, 2022 and later.

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.

Accordingly, the provisions of the

2025 Act impacting the Company have been reflected in the consolidated financial statements.

The following table summarizes

income taxes paid for the years ended June 30, 2026 and 2025 (in thousands):

Schedule of income taxes paid

Income tax payments (refunds):

Total cash payments

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

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):

PAYABLE AND FINANCING TRANSACTIONS

UMB Bank, N.A.

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

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.

The balance on our outstanding loans

at June 30, 2026 and June 30, 2025 (in thousands) is as follows (exclusive of unamortized loan fees):

Schedule of outstanding loans

1 unchanged sentence

Property Loan

APM Subordinated Loan

Amended Revolving Loan

Total notes payable

Loan A and B both bear interest at a fixed rate of 3.84 % per annum, the Property Loan bears interest at a fixed rate of 3.55 % per annum

and Term Note C bears interest at an annual rate equal to the greater of (a) 5 % , or (b) the SOFR one-month rate plus 2.5% (the

“Adjusted Term SOFR Rate”).

The Amended Revolving Loan bears interest at an annual rate

equal to the greater of (a) 4 % , or (b) t he Adjusted Term SOFR Rate.

Term Loan A and Term Loan B are both fully amortizing and mature

on November 1, 2027 , Term Loan C is fully amortizing and matures on August 1, 2029 , the Property Loan matures on November 1, 2030 , at

which time a balloon payment in the principal amount of $ 3.1 million is due (plus any accrued and unpaid interest), and the Amended Revolving

Loan matures on December 29, 2026 .

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

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 .

As of June 30, 2026, we have $ 11.0 million, or 100 % , of the Amended Revolving Loan available to us.

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 under any of the Loans, the interest rate of all Loans will be increased by 3 % and MBT

may, at its option, declare all of the Loans immediately due and payable in full.

The Loans are secured by substantially all of the Company’s

assets pursuant to a Security Agreement entered into between the Company and MBT.

The Property Loan is secured by the Franklin Property

pursuant to a Deed of Trust with Assignment of Leases and Rents, Security Agreement and Fixture Filing in favor of MBT and by an assignment

of Leases and Rents by PDEX Franklin in favor of MBT (collectively, the “Property Loan Security Agreements”).

Amended Credit Agreement, Security Agreement, Property Loan Security Agreements, Term Loan A, Term Loan B, Term Loan C, Property Loan,

and Amended Revolving Loan contain representations and warranties, affirmative, negative and financial covenants, and events of default

that are customary for loans of this type.

We believe that we are in compliance with all of our debt covenants as of June 30, 2025, but

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

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

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

Schedule of maturities of term loan for future fiscal years

Term Loan Principal Payments

Total principal payments

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”).

PRO-DEX, INC.

AND SUBSIDIARY

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amended Credit Agreement, Security Agreement, Property Loan Security Agreement, Term Note A, Term Note B, Term Note C, Term Note 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 June 30,

2026, but there can be no assurance that we will remain in compliance for the duration of the term of the Loans.

principal maturities of the Loans, exclusive of unamortized loan origination fees in the amount of $43,000, for future fiscal years ending

June 30 are as follows (in thousands):

of maturities of term loan for future fiscal years

Principal Payments

Total principal payments

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:

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 lease liabilities exclusive of

imputed interest, as of June 30, 2026, in the amount of $ 844,000 , is presented within accrued expenses on the consolidated balance sheet.

As of June 30, 2026, the maturity of our lease liabilities is as follows:

Schedule of maturities of lease liabilities

Operating Lease

Operating Leves

Finance Leases

Total lease payments

1 unchanged sentence

As of June 30, 2026 and 2025,

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

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

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

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

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

our operating lease for our office, production, and warehouse facility in Irvine, California (our “corporate office”) has

a remaining lease term of 1.25 years and 2.25 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.

The APM equipment financing leases have interest rates ranging from 3.99% to 7.79%.

for amounts included in the lease liability for the fiscal years ended June 30, 2026 and 2025 was $ 713,000 and $ 535,000 , respectively.

COMMITMENTS AND CONTINGENCIES

We lease our office, production,

and warehouse facility in Irvine, California (our “corporate office”) under an agreement that expires in September 2027.

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.

We lease 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.

We assumed the APM leases for its office, production and warehouse facility in Costa Mesa, California in

February 2026 which expire on December 31, 2026.

Rent expense for our corporate

office in fiscal 2026 and 2025 was $ 617,000 and $ 609,000 , respectively.

Rent expense recorded for the APM facility was $ 83,000 in fiscal

Additionally, beginning in

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

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

2026 and 2025, we incurred rent expense in the amount of $ 36,000 and $ 23,000 , respectively, for parking.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Compensation Arrangements

6 unchanged sentences

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.

The 401(k) Plan was amended effective February 9, 2026, to allow employees of Advanced Precision Machining, LLC to

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, 2026 and 2025, we recognized compensation expense amounting

to $ 312,000 and $ 259,000 , respectively, in connection with the 401(k) Plan.

During our fiscal years ended June 30, 2026 and 2025, we used

approximately $ 40,000 and $ 23,000 , respectively, of forfeited match contributions to reduce our match expense.

Legal Matters

3 unchanged sentences

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

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SHARE-BASED COMPENSATION

7 unchanged sentences

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

In December 2017, the Compensation

Committee of our Board of Directors granted 200,000 performance awards to our employees which were to be paid in shares of our common

Whether any performance awards were to vest, and the amount that vests were tied to the completion of service periods ranging from

7 months to 9.5 years at inception and the achievement of our common stock trading at certain pre-determined prices.

The awards were expected

to vest in increments of 40,000 shares, or five distinct tranches, biannually beginning July 1, 2018, through July 1, 2026.

The Compensation

Committee reallocated 48,000 , 17,500 and 15,200 forfeited performance awards during fiscal 2020, fiscal 2022, and fiscal 2024 respectively,

having the same remaining terms and conditions to other current employees.

The performance awards granted and reallocated were recorded

at estimated fair value using a Monte Carlo simulation in each case.

During each of the fiscal years ended June 30, 2026 and 2025 we recorded

share-based compensation expense of $ 28,000 related to outstanding performance awards.

On June 30, 2026, there was no unrecognized compensation

cost as the fifth and final tranche of awards vested on July 1, 2026.

On July 1, 2026, 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

Number of Shares

Weighted-Average

Grant Date Fair Value

Number of Shares

Weighted-Average

Grant Date Fair Value

Outstanding at July 1,

Outstanding at June 30

by the Compensation Committee that the vesting of the fifth and final tranche 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

25,230 shares of common stock and paid $ 926,000 of participant-related payroll tax liabilities.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Qualified Stock Options

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

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

to these options.

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

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

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

prices set forth in the underlying agreements.

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

to these options.

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

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

to another employee.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recorded compensation expense of $ 416,000 for both fiscal years ended June 30, 2026 and 2025 related to these options.

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, 2026, there was approximately $ 729,000 of unrecognized compensation

cost related to these non-vested non-qualified stock options expected to be expensed over the weighted-average period of 39.22 months.

The following is a summary of non-qualified stock

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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.

No options were exercised in fiscal 2026.

On June 30, 2026, the options outstanding

and exercisable had intrinsic values of $ 3.8 million and $ 2.0 million, respectively.

On June 30, 2025, the options outstanding and exercisable

had intrinsic values of $ 299,000 and $ 907,000 , respectively.

Restricted Shares

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

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 years ended June 30, 2026 and 2025, we recorded

$ 171,000 and $ 105,000 , respectively, of compensation expense related to these restricted shares.

As of June 30, 2026, there was approximately

$ 581,000 of unrecognized compensation cost related to these restricted shares expected to be expensed over the weighted-average period

of 41 months.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of restricted share

activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2026 and 2025:

Schedule of summary of stock option activity

Weighted-Average

Outstanding at July 1,

Shares granted

Shares vested

Shares forfeited

Outstanding at June 30

Employee Stock Purchase Plan

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2023 Annual Meeting.

Additionally, in July 2025 the Compensation Committee amended the ESPP such that the 15% discount from the market

price of a share of our common stock is measured at either the beginning or the end of the purchase period, whichever is lower.

During the fiscal years ended

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recorded stock compensation expense in the amount of $ 15,000 and $ 7,000 , respectively, relating to the ESPP.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CUSTOMERS & SUPPLIERS

MAJOR CUSTOMERS &

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

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Customer concentration:

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect to

1 unchanged sentence

30, 2025 is as follows (in thousands, except percentages):

Schedule of accounts receivable, inventory purchases and accounts payable of major customers and suppliers

Schedule of accounts receivable

Total gross accounts receivable

Customer concentration:

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):

During fiscal 2026 we acquired

APM as described in Note 3, which had been a significant supplier to us prior to the acquisition.

While APM continues to supply components

to us, fiscal 2026 inventory purchases have been adjusted to exclude inventory sourced from APM after the acquisition.

In fiscal 2026

and 2025, we had two suppliers that accounted for more than 10% of total inventory purchases, as follows (in thousands, except percentages):

Schedule of inventory purchases

Total inventory purchases

Supplier concentration:

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):

Information with respect to accounts

payable due to our top two suppliers at June 30, 2026 or June 30, 2025 is as follows (in thousands, except percentages):

Schedule of accounts payable

Total accounts payable

Supplier concentration:

NET INCOME PER SHARE

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME PER SHARE

We calculate basic earnings

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Diluted earnings per share

COMMON STOCK –

Share Repurchase Program

COMMON STOCK – Share Repurchase Program

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

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subsequent events through the date of this filing.

There were no subsequent events that require disclosure.

AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On July 1, 2026, the Compensation Committee determined that the fifth and final tranche

of performance awards for 40,000 shares of common stock had vested.

Each participant elected a net share settlement to cover applicable

withholding taxes, and, accordingly, the Company issued 25,230 shares of common stock and paid $ 926,000 of participant-related payroll

tax liabilities.

Other than as described above and elsewhere in these consolidated financial statements, there were no subsequent events

that require disclosure.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data