PRO DEX INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PRO-DEX, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 26 Financial Statements Consolidated Balance Sheets, June 30, 2026 and 2025 27 Consolidated Income Statements, Years Ended June 30, 2026 and 2025 28 Consolidated Statements of Shareholders’ Equity, Years Ended June 30, 2026 and 2025 29 Consolidated Statements of Cash Flows, Years Ended June 30, 2026 and 2025 30 Notes to Consolidated Financial Statements 32 25 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Pro-Dex, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Pro-Dex, Inc. (the “Company”) as of June 30, 2026 and 2025, the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2026 and 2025, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Baker Tilly US, LLP Irvine, California September 3, 2026 23 We have served as the Company’s auditor since 2003. 26 PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30, 2026 2025 ASSETS Current assets: Cash and cash equivalents $ 8,192 $ 419 Investments 1,150 6,740 Accounts receivable, net of allowance for credit losses of $ 349 and $ 0 at June 30, 2026 and 2025, respectively 21,205 16,433 Deferred costs 70 24 Inventory 21,458 22,213 Income taxes receivable 620 1,056 Prepaid expenses 553 410 Total current assets 53,248 47,295 Land and building, net 5,967 6,061 Equipment and improvements, net 5,373 5,153 Right of use asset, net 602 1,050 Intangibles, net 686 26 Deferred income taxes, net 1,544 1,415 Investments 504 148 Goodwill 6,525 — Other assets 60 44 Total assets $ 74,509 $ 61,192 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,262 $ 4,614 Accrued liabilities 4,366 3,479 Income taxes payable 124 186 Deferred revenue 26 202 Notes payable 4,205 6,148 Total current liabilities 12,983 14,629 Non-current liabilities: Lease liability, net of current portion 627 685 Notes payable, net of current portion 13,266 9,246 Total non-current liabilities 13,893 9,931 Total liabilities 26,876 24,560 Commitments and Contingencies (Note 11): Shareholders’ equity: Common stock, no par value, 50,000,000 shares authorized; 3,186,135 and 3,261,043 shares issued and outstanding at June 30, 2026 and 2025, respectively — 704 Retained earnings 47,633 35,928 Total shareholders’ equity 47,633 36,632 Total liabilities and shareholders’ equity $ 74,509 $ 61,192 See notes to consolidated financial statements. 27 PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (In thousands, except share and per share data) Years Ended June 30, 2026 2025 Net sales $ 77,548 $ 66,593 Cost of sales 53,213 47,083 Gross profit 24,335 19,510 Operating expenses: Selling, general and administrative expenses 7,999 5,185 Research and development costs 3,345 3,636 Total operating expenses 11,344 8,821 Operating income 12,991 10,689 Other income (expense): Interest and dividend income 181 82 Gain on marketable equity investments, net 5,655 2,116 Interest expense ( 812 ) ( 829 ) Total other income 5,024 1,369 Income before income taxes 18,015 12,058 Income tax expense ( 4,353 ) ( 3,080 ) Net income $ 13,662 $ 8,978 Basic & Diluted income per share: Basic net income per share $ 4.24 $ 2.73 Diluted net income per share $ 4.12 $ 2.67 Weighted-average common shares outstanding: Basic 3,225,884 3,287,844 Diluted 3,317,064 3,361,207 See notes to consolidated financial statements. 28 PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For The Years Ended June 30, 2026 and 2025 (In thousands, except share data) Common Shares Number of Shares Amount Retained Earnings Total Balance at June 30, 2024 3,363,412 $ 3,917 $ 26,950 $ 30,867 Net income — — 8,978 8,978 ESPP shares issued 1,593 42 — 42 Shares issued in connection with performance award vesting 40,000 — — — Shares withheld from common stock issued to pay employee payroll taxes ( 14,866 ) ( 273 ) — ( 273 ) Exercise of stock options 1,052 ( 33 ) — ( 33 ) Share-based compensation — 555 — 555 Share repurchases ( 130,148 ) ( 3,504 ) — ( 3,504 ) Balance at June 30, 2025 3,261,043 $ 704 $ 35,928 $ 36,632 Net income — — 13,662 13,662 ESPP shares issued 2,262 85 — 85 Shares issued in connection with restricted share award vesting 3,600 — — — Shares withheld from common stock issued to pay employee payroll taxes ( 872 ) ( 26 ) — ( 26 ) Share-based compensation — 688 — 688 Reclassification of excess share repurchases (1) — 1,957 ( 1,957 ) — Share repurchases ( 79,898 ) ( 3,408 ) — ( 3,408 ) Balance at June 30, 2026 3,186,135 $ — $ 47,633 $ 47,633 (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. See notes to consolidated financial statements . 29 PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended June 30, 2026 2025 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,662 $ 8,978 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,394 1,239 Unrealized loss (gain) on equity investments 3,434 ( 1,521 ) Gain on sale of investments ( 9,089 ) ( 595 ) Non-cash straight-line lease amortization ( 49 ) ( 33 ) Allowance for credit losses 368 — Amortization of loan fees, net 12 9 Share-based compensation 688 555 Deferred income taxes ( 129 ) 140 Changes in operating assets and liabilities: Accounts receivable ( 4,713 ) ( 2,546 ) Deferred costs ( 46 ) 238 Inventory 1,630 ( 6,944 ) Prepaid expenses and other assets ( 105 ) ( 67 ) Accounts payable and accrued expenses ( 12 ) 179 Deferred revenue ( 176 ) 188 Income taxes 373 ( 1,502 ) Net cash provided by (used in) operating activities 7,242 ( 1,682 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and improvements ( 483 ) ( 1,246 ) Purchase of APM, net of cash acquired ( 6,493 ) — Purchases of investments ( 350 ) ( 899 ) Proceeds from sale of investments 11,239 1,907 Net cash provided by (used in) investing activities 3,913 ( 238 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable, leases, and revolving loan ( 23,649 ) ( 11,528 ) Proceeds from notes and revolving loan, net of fees 23,617 15,003 Repurchases of common stock ( 3,408 ) ( 3,504 ) Payments of employee taxes on net issuance of common stock ( 27 ) ( 305 ) Proceeds from exercise of stock options and ESPP contributions 85 42 Net cash used in financing activities ( 3,382 ) ( 292 ) Net increase (decrease) in cash and cash equivalents 7,773 ( 2,212 ) Cash and cash equivalents, beginning of year 419 2,631 Cash and cash equivalents, end of year $ 8,192 $ 419 See notes to consolidated financial statements . 30 PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (In thousands) Years Ended June 30, 2026 2025 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 775 $ 818 Cash paid during the period for income taxes by jurisdiction, net of refunds: Federal income tax payments $ 3,460 $ 3,030 California income tax payments 2 1,427 Colorado income tax refunds ( 50 ) — Florida income tax payments 570 — Indiana income tax payments 130 — T otal income tax payments $ 4,112 $ 4,457 Non-cash investing and financing activity: Cashless stock option exercise $ — $ 117 Promissory note issued in conjunction with APM acquisition $ 2,000 $ — See notes to consolidated financial statements . 31 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Pro-Dex, Inc. (“Company,” “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. We 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. Beginning in 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 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 consolidated financial statements include the accounts of the Company, PDEX Franklin and APM and all significant inter-company accounts and transactions have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The summary of significant accounting policies presented below is designed to assist the reader in understanding our consolidated financial statements. Such consolidated financial statements and related notes are the representations of management, who is responsible for their integrity and objectivity. In the opinion of management, these accounting policies conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) in all material respects and have been consistently applied in preparing the accompanying consolidated financial statements. Net Sales Net sales consists of the sale of products and services, as well as shipping and handling billed to our customers and is net of volume rebates and discounts and excludes sales tax. Revenue Recognition Revenue from product sales is recognized as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract have been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as) we satisfy each performance obligation, generally upon shipment. 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. Revenue from services, typically non-recurring engineering (“NRE”) services related to the design or customization of a medical device, is typically recognized over time. The customer funding for costs incurred for NRE services is deferred and subsequently recognized as revenue as under-lying products or services are delivered to the customers. Additionally, expenses incurred, up to the customer agreed funding amount, are deferred as an asset and recognized as cost of sales when the under-lying products or services are delivered to the customer. The deferred customer funding and costs result in recognition of deferred costs (asset) and deferred revenue (liability) on our consolidated balance sheets. 32 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS One of our customer contracts 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 credit are minimal; accordingly, we do not establish a reserve for product returns at the time of sale. Cost of Sales Cost of sales consists primarily of the purchase price of goods and cost of services rendered including freight costs. Cost of sales also includes production labor and overhead costs for all of our manufacturing and assembly operations, which overhead includes all indirect labor and expenses associated with our inspection, warehousing, material planning and quality departments. Estimated Losses on Product Development Services Cost and revenue estimates related to the product development service portions of development and supply contracts are reviewed and updated quarterly. An expected loss on development service contracts is recognized immediately in cost of sales. Losses recorded in fiscal 2026 and 2025 related to these services totaled $ 0 and $ 155,000 , respectively. Due to the complexity of many of the contracts we have undertaken, the cost estimation process requires significant judgment. It is based upon the knowledge and experience of our project managers, engineers, and finance professionals. Factors that are considered in estimating the cost of work to be completed and ultimate profitability of the fixed price product development portion of development and supply contracts include the nature and complexity of the work to be performed, availability and productivity of labor, the effect of change orders, the availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals. Warranties Certain of our products are sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the sale. At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors as return rates and repair costs, which factors are reviewed quarterly. The warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the accompanying consolidated balance sheets. Warranty expenses are included in cost of sales in the accompanying consolidated statements of operations. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. At June 30, 2026 and 2025, cash equivalents consisted of investments in money market funds. Accounts Receivable Trade receivables are stated at their original invoice amounts, less an allowance for doubtful portions of such accounts represented by expected credit losses. Management determines the allowance for credit losses based on facts and circumstances related to specific accounts and the age of accounts. As of June 30, 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. 33 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases 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 lease. We assess the impairment 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 Deferred costs reflect costs incurred related to NRE services under the terms of the related development and/or supply contracts. These costs get recorded to cost of sales in the period that the revenue is recognized. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Reductions to estimated market value are recorded and charged to cost of sales when indicated based on a formula that compares on-hand quantities to both historical usage and estimated demand as of the measurement date. On an ongoing basis, we evaluate inventory for obsolescence and slow-moving items. This evaluation includes analysis of historical sales and usage, existing demand, as well as specific factors known to management. As of June 30, 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 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. Investments 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 We review the recoverability of long-lived assets, consisting of the land and building that we own, equipment, and improvements, including leasehold improvements, when events or changes in circumstances occur that indicate carrying values may not be recoverable. 34 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our building, equipment and improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods: Schedule of building, equipment and improvements Building Thirty years Equipment Three to ten years Improvements Shorter of the remaining life of the underlying building, lease term, or the asset’s estimated useful life Goodwill & Intangibles Goodwill is the excess of the consideration transferred over the fair value of the acquired assets and liabilities assumed in a business combination. 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 test. 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. These 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. Intangible 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. Intangible assets are amortized to amortization expense within selling, general and administrative expense on a straight-line basis over the applicable useful lives. Income Taxes We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities along with net operating losses and tax credit carryovers. Net deferred tax assets or liabilities at both June 30, 2026 and 2025 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 is required in determining the provision for income taxes, the recoverability of deferred tax assets, and the extinguishment of deferred tax liabilities. Such determination is based on historical taxable income, with consideration given to estimates of future taxable income and the periods over which deferred tax assets will be recoverable and deferred tax liabilities will be extinguished. We record a valuation allowance against deferred tax assets to reduce the net carrying value to an amount that we believe is more likely than not to be realized. When we establish or reduce the valuation allowance against deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made. Uncertain Tax Positions We record uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. 35 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Shipping and Handling Payments from customers for shipping and handling are included in net sales . Shipping expenses, consisting primarily of payments made to freight companies, are included in cost of sales. Concentration of Credit Risk Financial instruments that potentially subject us to credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents with major financial institutions. At June 30, 2026 and 2025, and throughout the fiscal years then ended, we had deposits in excess of federally insured limits. Credit sales are made to medical device distributors, original equipment manufacturers, and resellers, and sales to such customers account for a substantial portion of our trade receivables. While such receivables are not collateralized, we evaluate their collectability based on several factors including customers’ payment histories. Segment Reporting We have identified one business segment 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 operating decision maker (“CODM”) is our CEO who reviews and evaluates consolidated operating income for purposes of assessing performance, making operating decisions, allocating resources and planning and forecasting for future periods. As our operations are managed at the consolidated level, there are no differences between the measurement of the reportable segment’s profit or loss and our consolidated statements of operations. Further, there are no differences between i) segment revenues and expenses included in the measurement of the reportable segment’s profit or loss and used by the CODM to manage operations and ii) those disclosed elsewhere in the consolidated financial statements. Segment asset measures are not used as a basis for the CODM to evaluate the performance of or to allocate resources. 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 acquisition. We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values. 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 We recognize compensation expense for the share-based awards that vest subject to market conditions under ASC 718, Compensation-Stock Compensation by estimating their fair value using a Monte Carlo simulation. The fair value using a Monte Carlo simulation model is affected by assumptions regarding a number of complex judgments including expected stock price volatility, risk free interest rates, and the forecasted future value and trading volume of our stock. The awards are considered granted for accounting purposes on the date the awards were approved by the Compensation Committee of our Board of Directors and we recognize compensation expense, based on the estimated fair value of the award, on a straight-line basis over the requisite service period. 36 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our operations are affected by numerous factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, government regulations, and policies. We cannot predict what impact, if any, the occurrence of these or other events might have on our operations. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, 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 Basic per share amounts are computed on the basis of the weighted-average number of common shares outstanding during each period presented. Diluted per share amounts assume the issuance of all potential common stock equivalents, consisting of outstanding stock options, 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 Fair value is measured based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. Cash and cash equivalents: The carrying value of cash and cash equivalents is considered to be representative of their fair values based on the short-term nature of these instruments. As such, cash and cash equivalents are classified within Level 1 of the valuation hierarchy. Investments: Investments consist of marketable equity securities of publicly held companies as well as preferred stock of a privately held company at June 30, 2026. 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 may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values, we believe our valuation methods are appropriate. Advertising Advertising costs are charged to selling, 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. 37 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications 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. Currently we have no employees in our sales department but in advance of the expanded disclosures required by ASU No. 2024-03 we are combining selling, general and administrative expenses to avoid potential disclosure of confidential compensation of one employee. Recently Adopted Accounting Pronouncements 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. In 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 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 consolidated financial statements. 3. BUSINESS COMBINATION 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 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. 38 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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. 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 its use. We incurred approximately $ 434,000 in acquisition-related costs which are primarily included in selling, general and administrative expenses. We expect that the APM goodwill in the amount of $6.5 million will be deductible for income tax purposes. 39 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. NET SALES The following table presents the disaggregation of net sales by revenue recognition model (in thousands): Schedule of disaggregation of net sales Year ended June 30, 2026 2025 Net Sales: Over-time revenue recognition $ 1,650 $ 698 Point-in-time revenue recognition 75,898 65,895 Total net sales $ 77,548 $ 66,593 The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our consolidated balance sheets), where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition model consists of NRE and prototype services and typically relates to NRE services related to the evaluation, design or customization of a medical device and is typically recognized over time utilizing an input measure of progress based on costs incurred compared to the estimated total costs upon completion. During the fiscal years ended June 30, 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 our contract assets and liability balances (in thousands): Schedule of contract assets and liability June 30, 2026 2025 Contract assets at beginning of year $ 24 $ 262 Expenses incurred during the year 408 228 Amounts reclassified to cost of sales ( 362 ) ( 460 ) Amounts allocated to discounts for standalone selling price — ( 6 ) Contract assets at end of year $ 70 $ 24 June 30, 2026 2025 Contract liabilities at beginning of year $ 202 $ 14 Payments received from customers 144 202 Amounts reclassified to revenue ( 320 ) ( 14 ) Contract liabilities at end of year $ 26 $ 202 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. 40 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We have categorized our cash equivalents and investments within the fair value hierarchy as follows: Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities. Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from or corroborated by observable market data. At June 30, 2026 and 2025, we have categorized our investments 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. Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at June 30,2026 or 2025. Schedule of marketable equity Fair Value Measurement at June 30, 2026 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 6,082 $ — $ — $ 6,082 Marketable equity securities – short-term — 1,150 — 1,150 Marketable equity securities – long-term — 154 — 154 Preferred stock – long-term — 350 — 350 Total $ 6,082 $ 1,654 $ — $ 7,736 Fair Value Measurement at June 30, 2025 Level 1 Level 2 Level 3 Level 4 Financial Assets: Cash equivalents $ 33 $ — $ — $ 33 Marketable equity securities – short-term — 6,740 — 6,740 Marketable equity securities – long-term — 148 — 148 Total $ 33 $ 6,888 $ — $ 6,921 Marketable equity securities at June 30, 2026 and 2025 had an aggregate cost basis of $ 1,751,000 and $ 3,551,000 , respectively. Both current and long-term marketable equity securities include equity securities of public companies that are thinly traded. We classified certain investments as long term in nature because even if we decide to sell the stocks, we may not be able to sell our position within one year. At June 30, 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 ). 41 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Of the total 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. Swenson and Cabillot, are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Mr. Swenson, our Chairman, also serves as the chief executive officer and chairman of Air T, Inc. Another of our Board members is employed by Air T as its Chief of Staff. The shares have been purchased through 10b5-1 Plans that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc. On October 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 (“CVRs”) 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 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 from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on, such as Air T, Inc. 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 inventory June 30, 2026 2025 Raw materials /purchased components $ 9,219 $ 10,397 Work in process 7,699 7,422 Sub-assemblies /finished components 2,668 2,874 Finished goods 1,872 1,520 Total inventory $ 21,458 $ 22,213 42 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Land and Building Land and building consist of the following (in thousands): Schedule of land and building June 30, 2026 2025 Land $ 3,684 $ 3,684 Building 2,815 2,815 Total 6,499 6,499 Less: accumulated depreciation ( 532 ) ( 438 ) $ 5,967 $ 6,061 On November 6, 2020, we acquired the Franklin Property in order to increase our operational capacity for a total purchase price of $ 6.5 million, of which we paid $ 1.3 million in cash and the balance of $ 5.2 million we financed (the “Property Loan”) through 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 $ 94,000 . The building is being amortized on a straight-line basis over a period of 30 years. Equipment and Improvements Equipment and improvements consist of the following (in thousands): Schedule of equipment and improvements June 30, 2026 2025 Office furnishings and fixtures $ 2,262 $ 2,078 Machinery and equipment 9,322 8,198 Automobiles 21 21 Improvements 5,354 5,205 Total 16,959 15,502 Less: accumulated depreciation and amortization ( 11,586 ) ( 10,349 ) $ 5,373 $ 5,153 Depreciation expense for the years ended June 30, 2026 and 2025 amounted to $ 1.2 million and $ 1.1 million, respectively. Intangibles Intangibles consist of the following (in thousands): Schedule of intangibles June 30, 2026 2025 Patent-related costs $ 208 $ 208 Customer relationships 510 — Tradename 210 — Total Intangibles 928 208 Less accumulated amortization ( 242 ) ( 182 ) $ 686 $ 26 Patent-related 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. 43 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 June 30, 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: 2027 $ 81 2028 81 2029 81 2030 81 2031 81 Thereafter 281 Total $ 686 Accrued Liabilities Accrued liabilities consist of the following (in thousands): Schedule of accrued liabilities June 30, 2026 2025 Payroll and related items $ 1,093 $ 850 Accrued inventory in transit 895 87 Accrued legal and professional fees 209 267 Accrued bonuses 780 501 Current portion of lease liability 844 498 Warranty 260 357 Accrued interest expense 102 64 Accrued customer rebate — 690 Other 183 165 $ 4,366 $ 3,479 7. WARRANTY ACCRUAL Information relating to the accrual for warranty costs for the years ended June 30, 2026 and 2025, is as follows (in thousands): Schedule of accrual warranty costs June 30, 2026 2025 Balance at beginning of year $ 357 $ 277 Accruals during the year 267 336 Change in estimates of prior period accruals ( 38 ) ( 84 ) Warranty amortization/utilization ( 326 ) ( 172 ) Balance at end of year $ 260 $ 357 44 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. INCOME TAXES The provision for income taxes consists of the following amounts (in thousands): Schedule of provision for income taxes Years Ended June 30, 2026 2025 Current: Federal $ 3,685 $ 2,114 State 797 826 Deferred: Federal ( 99 ) 76 State ( 30 ) 64 Income tax expense $ 4,353 $ 3,080 The effective income tax rate from income from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except percentages). Schedule of reconciliation federal statutory income tax rates Years Ended June 30, 2026 2025 Amount Percent Pretax Income Amount Percent Pretax Income Income before income taxes $ 18,015 100 % $ 12,058 100 % Computed “expected” income tax expense on income before income taxes $ 3,783 21 % $ 2,532 21 % State tax, net of federal benefit 663 3 % 964 8 % Tax incentives ( 57 ) — ( 149 ) ( 1 %) Nontaxable or nondeductible items 44 — — — Uncertain tax position ( 73 ) — ( 116 ) ( 1 %) Stock based compensation — — ( 164 ) ( 1 %) Other ( 7 ) — 13 — Income tax expense $ 4,353 24 % $ 3,080 26 % 45 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes reflect the net effects of loss and credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands): Schedule of deferred income tax assets and liabilities June 30, 2026 2025 Deferred tax assets: Federal and state NOL carryforward $ — $ 23 Research and other credits — 65 Reserves 211 170 Accruals 344 436 Stock based compensation 1,015 1,096 Section 174 capitalization 40 756 Unrealized losses 24 — Lease liability 166 353 Inventory 704 614 Other 1 12 Total gross deferred tax assets $ 2,505 $ 3,525 Less: valuation allowance — ( 90 ) Total deferred tax assets 2,505 3,435 Deferred tax liabilities: Property and equipment, principally due to differing depreciation methods $ ( 716 ) $ ( 651 ) Right of use asset ( 146 ) ( 313 ) Deferred state tax ( 69 ) ( 61 ) Intangible assets ( 30 ) — Unrealized gains — ( 995 ) Total gross deferred tax liabilities ( 961 ) ( 2,020 ) Net deferred tax assets $ 1,544 $ 1,415 Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. As of June 30, 2026, our deferred 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 not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate. We have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2026. As of June 30, 2026, we have accrued $ 103,000 of unrecognized tax benefits related to federal and state income tax matters that would reduce our income tax expense if recognized. If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced. Any adjustment to our uncertain tax positions would result in a cash outlay. 46 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information with respect to our accrual for unrecognized tax benefits is as follows (in thousands): Schedule of accrual unrecognized tax benefits June 30, 2026 2025 Unrecognized tax benefits: Beginning balance $ 159 $ 262 Additions based on federal tax positions related to the current year 10 11 Additions based on state tax positions related to the current year 8 11 Reductions for tax positions of prior years ( 24 ) ( 10 ) Reductions due to lapses in statutes of limitation ( 50 ) ( 115 ) Ending balance $ 103 $ 159 Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examinations, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next twelve months. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense when applicable. As of June 30, 2026, $ 20,000 of interest applicable to our unrecognized tax benefits has been accrued. We are subject to U.S. federal income tax, as well as income tax of California, 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 June 30, 2026 2025 Income tax payments (refunds): Federal $ 3,460 $ 3,030 Colorado ( 50 ) — California 2 1,427 Florida 570 — Indiana 130 — Total cash payments $ 4,112 $ 4,457 47 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. 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. 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 June 30, 2026 June 30, 2025 Notes Payable: Term Loan A $ 1,716 $ 2,795 Term Loan B 255 416 Term Loan C 3,167 4,167 Term Loan D 6,317 — Property Loan 4,136 4,347 APM Subordinated Loan 1,922 — Amended Revolving Loan — 3,706 Total notes payable $ 17,513 $ 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 . As of June 30, 2026, we have $ 11.0 million, or 100 % , of the Amended Revolving Loan available to us. 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”). 48 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 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. Scheduled 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): Schedule of maturities of term loan for future fiscal years Term Loan Principal Payments Fiscal Year: 2027 $ 4,164 2028 3,591 2029 2,947 2030 2,154 2031 4,657 Total principal payments $ 17,513 10. LEASES Our operating lease ROU asset and long-term liability are presented separately on our consolidated balance sheet. 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 s Operating Leves Finance Leases Fiscal Year: 2027 $ 567 $ 330 2028 143 223 2029 — 175 2030 — 58 Total lease payments 710 786 Less imputed interest ( 26 ) ( 65 ) Total $ 684 $ 721 As of June 30, 2026 and 2025, 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%. Cash paid for amounts included in the lease liability for the fiscal years ended June 30, 2026 and 2025 was $ 713,000 and $ 535,000 , respectively. 11. COMMITMENTS AND CONTINGENCIES Leases 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 2026. Additionally, beginning in fiscal 2025 we began renting on a month-to-month basis some parking spaces at a neighboring location near our Franklin Property. In fiscal 2026 and 2025, we incurred rent expense in the amount of $ 36,000 and $ 23,000 , respectively, for parking. 49 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Compensation Arrangements Retirement Savings 401(k) Plan The Pro-Dex, Inc. Retirement Savings 401(k) Plan (the “401(k) Plan”) is a defined contribution plan we administer that covers substantially all our employees and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Employees are eligible to participate in the 401(k) Plan when they have attained 19 years of age and then can enter into the 401(k) Plan on the first of the month following 60 days of service. The 401(k) Plan was amended effective February 9, 2026, to allow employees of Advanced Precision Machining, LLC to participate. 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 We may be involved in legal proceedings arising either in the ordinary course of our business or incidental to our business. There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material or adverse. 12. SHARE-BASED COMPENSATION Stock Option Plans Our 2016 Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards. As of June 30, 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 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 stock. 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 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. 50 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-Qualified Stock Options In December 2020, the Compensation Committee of our Board of Directors granted non-qualified stock options for 310,000 shares of our common stock to our directors and certain employees under the 2016 Equity Incentive Plan. Whether any stock options vest, and the amount that does vest, is tied to the completion of service periods that range from 18 months to 10.5 years at inception and the achievement of our common stock trading at certain pre-determined prices. We recorded compensation expense of $ 416,000 for both fiscal years ended June 30, 2026 and 2025 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, 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 option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2026 and 2025: Schedule of summary of stock option activity 2026 2025 Number of Shares Weighted-Average Exercise Price Number of Shares Weighted-Average Exercise Price Outstanding at July 1, 237,250 $ 42.38 267,750 $ 42.11 Options granted — — — — Options exercised — — ( 4,250 ) 27.50 Options forfeited/expired — — ( 26,250 ) 42.00 Outstanding at June 30 237,250 $ 42.38 237,250 $ 42.38 Stock Options Exercisable at June 30, 79,750 $ 32.27 79,750 $ 32.27 The aggregate intrinsic value of options, which represents the cumulative difference between the fair market value of the underlying common stock and the option exercise prices, exercised was $ 82,000 in fiscal 2025. 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 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 fiscal year ended June 30, 2026, we recorded $ 58,000 of compensation expense related to these restricted shares. As of June 30, 2026, there was approximately $ 399,000 of unrecognized compensation 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. 51 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 2026 2025 Number of Shares Weighted-Average Stock Price Number of Shares Weighted-Average Stock Price Outstanding at July 1, 18,000 $ 43.64 — $ — Shares granted 15,500 30.83 18,000 47.63 Shares vested ( 2,728 ) 30.83 — — Shares forfeited ( 1,622 ) 40.15 — — Outstanding at June 30 29,150 $ 59.55 18,000 $ 43.64 Employee Stock Purchase Plan In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our 2014 Annual Meeting. The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period. Our Board of Directors also approved that 704,715 shares be reserved for issuance pursuant to the ESPP. An amendment to the ESPP to extend its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual Meeting. 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 June 30, 2026 and 2025, shares totaling 2,262 and 1,593 , respectively, were purchased pursuant to the ESPP and allocated to participating employees based upon their contributions at weighted- average prices of $ 37.75 and $ 26.42 , respectively. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 39,357 shares. During the fiscal years ended June 30, 2026 and 2025, we recorded stock compensation expense in the amount of $ 15,000 and $ 7,000 , respectively, relating to the ESPP. 13. MAJOR CUSTOMERS & SUPPLIERS Customers that accounted for more than 10% of our total sales in either of fiscal year 2026 or 2025, is as follows (in thousands, except percentages): Schedule of sales by major customers Years Ended June 30, 2026 2025 Amount Percent of Total Amount Percent of Total Net sales $ 77,548 100 % $ 66,593 100 % Customer concentration: Customer 1 $ 60,742 78 % $ 49,930 75 % Customer 2 6,387 8 % 8,271 12 % Total $ 67,129 86 % $ 58,201 87 % 52 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information with respect to accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either June 30, 2026 or June 30, 2025 is as follows (in thousands, except percentages): Schedule of accounts receivable June 30, 2026 June 30, 2025 Total gross accounts receivable $ 21,554 100 % $ 16,433 100 % Customer concentration: Customer 1 $ 17,403 81 % $ 11,895 72 % Customer 2 1,974 9 % 2,768 17 % Total. $ 19,377 90 % $ 14,663 89 % 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 June 30, 2026 June 30, 2025 Total inventory purchases $ 28,327 100 % $ 32,556 100 % Supplier concentration: Supplier 1 $ 5,797 20 % $ 7,018 22 % Supplier 2 3,661 13 % 4,554 14 % Total $ 9,458 33 % $ 11,572 36 % 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 June 30, 2026 June 30, 2025 Total accounts payable $ 4,262 100 % $ 4,614 100 % Supplier concentration: Supplier 1 $ 1,920 45 % $ 735 16 % Supplier 2 141 3 % 1,016 22 % Total $ 2,061 48 % $ 1,751 38 % 53 PRO-DEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. NET INCOME PER SHARE We calculate basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the effects of potentially dilutive securities based upon the treasury stock method for in-the-money stock options and the fully diluted shares outstanding method for restricted stock and performance awards. The summary of the basic and diluted earnings per share calculations for the years ended June 30, 2026 and 2025 is as follows (in thousands, except per share data): Schedule of net income per share Years Ended June 30, 2026 2025 Basic: Net income $ 13,662 $ 8,978 Weighted-average shares outstanding 3,226 3,288 Basic earnings per share $ 4.24 $ 2.73 Diluted: Net income $ 13,662 $ 8,978 Weighted-average shares outstanding 3,226 3,288 Effect of dilutive securities – stock options & performance awards 91 73 Weighted-average shares used in calculation of diluted earnings per share 3,317 3,361 Diluted earnings per share $ 4.12 $ 2.67 15. COMMON STOCK – Share Repurchase Program In December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to one million shares of our common stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion. In accordance with, and as part of, these shares repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”). During the fiscal year ended June 30, 2026, we repurchased 79,898 shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.4 million. During the fiscal year ended June 30, 2025, we repurchased 130,148 shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5 million. On a cumulative basis, since 2013 we have repurchased a total of 1,591,395 shares under the share repurchase programs at an aggregate cost, inclusive of fees under the Plan, of $ 27.6 million. All repurchases under the 10b5-1 Plans were administered through an independent broker. 16. SUBSEQUENT EVENTS We have evaluated subsequent events through the date of this filing. 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. 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.