What changed in this filing

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Item 1. Financial Statements

2022-02-03 compared with 2021-11-15 · 371 added, 315 removed, 258 unchanged (73% of the section changed)

4 unchanged sentences

(In thousands, except share amounts)

September 30,

Current Assets:

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 7 and $ 2 at September 30, 2021 and at June 30, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 4 and $ 2 at December 31, 2021 and at June 30, 2021, respectively

Deferred costs

18 unchanged sentences

Shareholders’ Equity:

Common stock;

Common shares;

no par value;

50,000,000 shares authorized;

3,666,319 and 3,645,660 shares issued and outstanding at September 30, 2021 and June 30, 2021, respectively

3,641,983 and 3,645,660 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively

Retained earnings

8 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

Cost of sales

5 unchanged sentences

Operating income

Other income (expense):

Interest and miscellaneous income

Unrealized gain (loss) on marketable equity investments

Interest expense

Total other expense

Income before income taxes

Provision for income taxes

Basic and diluted income per share:

Unrealized gain (loss) on marketable equity investments

Interest and other income

Gain on sale of investments

Income from operations before income taxes

Income tax expense

Basic net income per share:

6 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three and Six Months Ended December 31,

2021 and 2020

(In thousands)

Three Months Ended

September 30,

Six Months Ended

Common stock:

1 unchanged sentence

Share-based compensation expense

Stock option exercise

Share repurchases

Shares withheld from common stock issued to employees to pay employee payroll taxes

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

ESPP shares issued

Balance, end of period

Balance, at end of period

Retained earnings:

9 unchanged sentences

(In thousands)

Three Months Ended

September 30,

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

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

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

Depreciation and amortization

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Gain on sale of investments

Bad debt expense

Impairment of long-lived assets

Bad debt expense (recovery)

Changes in operating assets and liabilities:

Accounts receivable and other receivables

Accounts receivable and other current receivables

Deferred costs

3 unchanged sentences

Income taxes payable

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of equipment and improvements

Purchases of investments

Increase in intangibles

Purchases of equipment and improvements

Proceeds from sale of investments

Net cash provided by (used in) investing activities

Purchase of land and building

Increase in intangibles

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Payment of employee payroll taxes on net issuance of common stock

Proceeds from stock option exercises and ESPP contributions

Repurchases of common stock

Net cash used in financing activities

Proceeds from exercise of options and ESPP contributions

Payment of employee payroll taxes on net issuance of common stock

Proceeds from Minnesota Bank & Trust long-term debt, net of fees

Principal payments on notes payable

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

6 unchanged sentences

(In thousands)

Three Months Ended

September 30,

Six Months Ended

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Non-cash investing and financing activity:

Cashless stock option exercise

Cash paid during the period for:

Income taxes, net of refunds

The accompanying notes are an integral part of

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generally accepted in the United States (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and

Regulation S-K.

Accordingly, they do not include all of the information and footnotes required

GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation

Accordingly, they do not include all of the information and footnotes required by

GAAP for complete financial statements.

These financial statements should be read

in conjunction with the financial statements presented in our Annual Report on Form 10-K

for the fiscal year ended June 30, 2021.

These financial statements should be read in conjunction

with the financial statements presented in our Annual Report on Form 10-K for the fiscal

year ended June 30, 2021.

In the opinion of management, all adjustments considered necessary for a fair

5 unchanged sentences

Adopted Accounting Standards

December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, to remove certain

exceptions related to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences

and requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation

in the interim period that includes the enactment date.

The amendments in this update are effective for us beginning with fiscal year

The adoption of the amendments in this update did not have a material impact as of September 30, 2021 and is also not expected to

have a material impact for the year ending June 30, 2022.

December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2019-12 Income Taxes (Topic

740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions related to the approach for intraperiod tax allocation,

recognition of deferred tax liabilities for outside basis differences and requiring that an entity reflect the effect of an enacted change

in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The amendments

in this update are effective for us beginning with fiscal year 2022.

The adoption of the amendments have not had a material impact.

DESCRIPTION OF BUSINESS

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air motors to a wide range of industries.

August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000

square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order

to allow for the continued growth of our business.

The condensed consolidated financial statements include the accounts of the Company

and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated.

In August 2020, we formed a wholly

owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building

in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued

growth of our business.

The condensed 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.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR CORRECTION OF IMMATERIAL ERRORS

We failed to timely adopt

ASU 2016-01 – Accounting for Financial Instruments – Classification and Measurement, which states in part that changes

in fair value of equity investments must be recognized in net income.

We have completed an evaluation of the quantitative and

qualitative impact of this error in our historical financial statements and concluded that our historical financial statements are

not materially misstated.

Accordingly, the

prior year financial statements have been revised to reflect the impact of ASU 2016-1.

The revised classification and reported

values of our unrealized gains (losses) on marketable equity investments as accounted for under ASU2016-01 are included in the

condensed consolidated financial statements herein.

The impact to net income for the three months ended September 30, 2020 was a

reduction of $107,000 with a corresponding increase in unrealized loss on marketable equity securities of $107,000, previously

presented in other comprehensive income (loss).

The revision resulted in a reduction to both basic and diluted earnings per share of

As of June 30, 2021, the revision reclassified the remaining accumulated other comprehensive loss of $215,000 to retained

PRO-DEX, INC.

SUBSIDIAIRIES

We failed to timely adopt ASU

2016-01 – Accounting for Financial Instruments – Classification and Measurement, which states in part that changes in fair

value of equity investments must be recognized in net income.

We have completed an evaluation of the quantitative and qualitative impact

of this error in our historical financial statements and concluded that our historical financial statements are not materially misstated.

We concluded that our historical financial statements are not materially misstated for several reasons including the fact that the cumulative

three-year error had a negative impact to historical net income in the amount of $ 61,000 , an amount we deem immaterial, as well as the

fact that the amounts did not contain a calculation error but rather amounts were presented on an incorrect line item within the financial

We also considered the fact that this error did not impact cash or operating income for any historical period, which we believe

is important to our investors.

Accordingly, the prior year financial statements have been revised to reflect the impact of ASU 2016-1.

The revised classification and reported values of our unrealized gains (losses) on marketable equity investments as accounted for under

ASU 2016-01 are included in the condensed consolidated financial statements herein.

The impact to net income for the three months ended

December 31, 2020, was an increase of $1.4 million with a corresponding decrease in unrealized gain on marketable equity securities of

$1.4 million, previously presented in other comprehensive income (loss).

The revision resulted in an increase to both basic and diluted

earnings per share for the three months ended December 31, 2020 of $0.36.

The impact to net income for the six months ended December 31,

2020, was an increase of $1.3 million with a corresponding decrease in unrealized gain on marketable equity securities of $1.3 million,

previously presented in other comprehensive income (loss).

The revision resulted in an increase to basic earnings per share of $0.33 and

diluted earnings per share of $0.32 for the six months ended December 31, 2020.

As of June 30, 2021, the revision reclassified the remaining

accumulated other comprehensive loss of $215,000 to retained earnings.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COMPOSITION OF CERTAIN FINANCIAL STATEMENT

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

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):

Schedule of inventory

Raw materials/purchased components

Work in process

Sub-assemblies/finished components

Finished goods

Total inventory

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

Schedule of investments

September 30,

Marketable equity securities - short-term

1 unchanged sentence

Total marketable equity securities

at September 30, 2021 and June 30, 2021 had an aggregate cost basis of $ 3,219,000 and $ 3,204,000 ,

at December 31, 2021 and June 30, 2021, had an aggregate cost basis of $ 3,538,000 and $ 3,204,000 ,

respectively.

1 unchanged sentence

because if we decide to sell these securities we may not be able to sell our position within one year.

At September 30, 2021, the investments

included unrealized losses of $ 66,000 (gross unrealized losses of $ 448,000 offset by gross unrealized

gains of $ 382,000 ) .

At June 30, 2021, the investments included net unrealized losses of $ 215,000

(gross unrealized losses of $ 386,000 offset by gross unrealized gains of $ 171,000 ).

the total marketable equity securities at September 30, 2021 and June 30, 2021, $ 1,420,000 and $ 1,224,000 , respectively, represent an

investment in the common stock of Air T, Inc.

At December 31, 2021, the investments

included net unrealized losses of $ 357,000 (gross unrealized losses of $ 475,000 offset by gross unrealized gains of $ 118,000 ).

30, 2021, the investments included net unrealized losses of $ 215,000 (gross unrealized losses of

$ 386,000 offset by gross unrealized gains of $ 171,000 ).

the total marketable equity securities at December 31, 2021 and June 30, 2021, $ 1,170,000 and $ 1,224,000 , respectively, represent an investment

in the common stock of Air T, Inc.

Two of our Board members are also board members of Air T, Inc.

and both either individually

or through affiliates own an equity interest in Air T, Inc.

Our Chairman, one of the two Board members aforementioned, also serves as

the Chief Executive Officer and Chairman of Air T, Inc.

Another of our Board members is employed by Air T as its Chief of Staff.

were purchased through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions,

were approved by our three Board members that are not affiliated with Air T, Inc.

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,

Cabillot and Mr.

Swenson, who chairs the committee.

and both either individually or through

affiliates own an equity interest in Air T, Inc.

Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive

Officer and Chairman of Air T, Inc.

Another of our Board members is employed by Air T, Inc.

as its Chief of Staff.

The shares were purchased

through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved

by our then three Board members that are not affiliated with Air T, Inc.

We invest surplus cash from time

to time through our Investment Committee, which is comprised of one management director, Richard Van Kirk, and two non-management directors,

Raymond Cabillot and Nicholas Swenson, who chairs the committee.

Cabillot and Mr.

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.

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

September 30,

Raw materials/purchased components

Work in process

Sub-assemblies/finished components

Finished goods

Total inventory

PRO-DEX, INC.

AND SUBSIDIAIRIES

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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

consist of the following (in thousands):

Land and building

Land and building consist of the

following (in thousands):

Schedule of Capital Leased Assets

accumulated depreciation

Land and building

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

and the balance of $ 5.2 we financed through Minnesota Bank & Trust (“MBT”) (See Note 10).

We substantially completed the

build-out of the property in the first quarter of this fiscal year.

Currently, we are actively engaged in various verification and validation

activities so that we can move certain employees and operations into the new building.

We expect that we will begin certain operations

in the new facility this fiscal year.

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

Intangibles consist

of the following (in thousands):

Schedule of intangibles

September 30,

Patent-related costs

6 unchanged sentences

is not predictable.

During the three months ended December 31, 2021, we impaired $ 46,000 in previously capitalized legal fees because

although we were granted the underlying patent, in this case, we currently have no products either in development or sold that utilize

the intellectual property protected by the patent.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 balance sheets.

As of September 30, 2021 and June 30, 2021, the warranty reserve amounted to $ 232,000

and $ 221,000 , respectively.

Warranty expenses are included in cost of sales in the accompanying 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.

Information regarding the

accrual for warranty costs for the three months ended September 30, 2021 and 2020 are as follows (in thousands):

Schedule of accrual warranty costs

As of December 31, and June 30, 2021, the warranty reserve amounted to $ 255,000 and

$ 221,000 , respectively.

Warranty expenses are included in cost of sales in the accompanying condensed consolidated statements of income.

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.

Warranty expense relating to new product sales and changes

to estimates for the three months ended December 31, 2021 and 2020, was $ 44,000 and $ 182,000 , respectively, and for the six months ended

December 31, 2021 and 2020, was $ 68,000 and $ 254,000 , respectively.

Information regarding the accrual

for warranty costs for the three and six months ended December 31, 2021 and 2020, are as follows (in thousands):

Schedule of Product Warranty Liability

As of and for the

Three Months Ended

September 30,

Beginning balance

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Changes in estimates of prior period warranty accruals

Warranty amortization/utilization

Warranty amortization

Ending balance

As of and for the

Six Months Ended

Beginning balance

Accruals during the period

Changes in estimates of prior period warranty accruals

Warranty amortization

Ending balance

NET INCOME PER SHARE

The Company calculates basic net income per share

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

Diluted income per share

reflects the effects of potentially dilutive securities, which consist entirely of outstanding stock options and performance awards.

PRO-DEX, INC.

AND SUBSIDIAIRIES

We calculate basic net income per

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

The weighted-average

number of common shares outstanding reflects the effects of potentially dilutive securities, in income generating periods, which consist

entirely of outstanding stock options and performance awards.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents

reconciliations of the numerators and denominators of the basic and diluted income per share computations.

The following table presents reconciliations

of the numerators and denominators of the basic and diluted earnings per share computations for net income.

In the tables below, income

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Three Months Ended

September 30,

Six Months Ended

Weighted average shares outstanding

Basic earnings per share

Basic income per share

Weighted average shares outstanding

1 unchanged sentence

Weighted average shares used in calculation of diluted earnings per share

Diluted earnings per share

Diluted income per share

income taxes are provided on a liability method whereby deferred tax assets and liabilities

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differences are the differences between the reported amounts of assets and liabilities and

their tax bases.

their tax basis.

Deferred tax assets are reduced by a valuation

allowance when, in the opinion of management, it is more - likely - than

not that some portion or all of the deferred tax assets will not be realized.

allowance when, in the opinion of management, it is more - likely - than - not

that some portion or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and

2 unchanged sentences

deferred tax assets.

Such determination is based primarily on our historical taxable income or loss, with some consideration given to

our estimates of future taxable income or loss

by jurisdictions in which we operate and the period over which our deferred tax assets would be recoverable.

We recognize accrued

interest and penalties related to unrecognized tax benefits when applicable.

As of September

30, 2021, we recognized accrued interest of $ 51,000

related to unrecognized tax benefits.

No interest or penalties were recognized as of June 30, 2021, since we had sufficient tax

attributes available to fully offset any potential assessment of additional tax.

Our effective tax rate for the three months

ended September 30, 2021 and 2020, is 22 %

respectively.

The prior year effective tax rate is less than the current year rate due primarily to a tax benefit recognized as a

result of the common stock awarded to our employees under previously granted performance awards (see Note 8).

are subject to U.S.

federal income tax, as well as income

tax of multiple state tax jurisdictions.

We are currently open to audit

under the statute of limitations by the Internal Revenue Service for the years ended June 30, 2018 and later.

Our state income tax returns

are open to audit under the statute of limitations for the years ended June 30, 2017 and

However, because of research credit carryovers, substantially all of our tax years are subject to audit.

We do not anticipate

a significant change to the total amount of

unrecognized tax benefits within the next 12 months.

Such determination is based primarily on our historical taxable income, with some consideration given to our

estimates of future taxable income by jurisdictions in which we operate and the period over

which our deferred tax assets would be recoverable.

We recognize accrued interest

and penalties related to unrecognized tax benefits when applicable.

As of December 31, 2021, we

recognized accrued interest of $ 61,000 related to unrecognized tax benefits.

No interest or penalties were recognized as of June 30, 2021,

since we had sufficient tax attributes available to fully offset any potential assessment of additional tax.

We are subject to U.S.

income tax, as well as income tax of multiple state tax jurisdictions.

We are currently open to audit under the statute of limitations

by the Internal Revenue Service for the years ended June 30, 2018 and later.

Our state income tax returns are open to audit under the

statute of limitations for the years ended June 30, 2017 and later.

We do not anticipate a significant change to the total amount of unrecognized

tax benefits within the next 12 months.

SHARE-BASED COMPENSATION

Through 2014, we had

Through June 2014, we had

two equity compensation plans, the Second Amended and Restated 2004 Stock Option Plan (the “Employee Stock Option Plan”) and

1 unchanged sentence

the “Former Stock Option Plans”).

The Employee Stock Option Plan and Directors’ Stock Option Plan were terminated in

The Employee Stock Option Plan and Director’s Stock Option Plan were terminated in

June 2014 and December 2014, respectively.

PRO-DEX, INC.

AND SUBSIDIAIRIES

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In September 2016, our Board

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

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

In September 2016, our Board approved

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

The 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 September 30, 2021, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

As of December 31, 2021, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

Former Stock Option Plans

There were no stock options

granted during the three months ended September 30, 2021 and 2020.

As of September

30, 2021, there was no unrecognized compensation cost under our Former Stock Option Plans as all outstanding

stock options under those plans are fully vested.

As of September 30, 2021, there were 6,500 options outstanding under our Former

Stock Option Plans at weighted-average exercise prices of $ 1.82 per share.

These outstanding options had a weighted-average remaining

contractual life of 1.04 years and an intrinsic value of $ 155,000 .

During the first quarter ended September 30, 2021 and 2020, 25,000

and 20,000 options under our Former Stock Option Plans were exercised, at exercise prices of $ 1.80 and $ 1.97 per share, respectively.

were granted under the Former Stock Option Plans during the three or six months ended December 31, 2021 and 2020.

As of December

31, 2021, there was no unrecognized compensation cost under the Former Stock Option Plans, as all outstanding

stock options are fully vested.

As of December 31, 2021, the options outstanding had a weighted average remaining contractual life

of 0.79 years and an intrinsic value of $ 139,000 .

Following is a summary

of stock option activity under the Former Stock Option Plans for the six months ended December 31, 2021 and 2020:

Share-based Payment Arrangement, Option, Activity

Six Months Ended December 31,

Number of Shares

Weighted-Average Exercise Price

Number of Shares

Weighted-Average Exercise Price

Outstanding at July 1,

Options granted

Options exercised

Options forfeited

Outstanding at end of period

Stock Options Exercisable at December 31,

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Performance Awards

In December 2017, the Compensation

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

generally be paid in shares of our common stock.

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

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

Committee of our Board of Directors granted 200,000 performance awards to our employees, which upon vesting will generally be paid in

shares of our common stock.

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

that range from 7 months to 9.5 years from the date of grant and the achievement of our common stock trading at certain pre-determined

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

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

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

The weighted-average fair value of the performance awards

granted in 2020 was $ 16.90 , calculated using the weighted-average fair market value for each award, using a Monte Carlo simulation.

recorded share-based compensation expense of $ 21,000 for each of the three months ended September 30, 2021 and 2020 related to these performance

On September 30, 2021, there was approximately $ 139,000 of unrecognized compensation cost related to these non-vested performance

awards expected to be expensed over the weighted-average period of 2.73 years.

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

The weighted average fair value of the performance

awards reallocated in 2020 was $ 16.90 , calculated using the weighted average fair market value for each award, using a Monte Carlo simulation.

In December 2021, the Compensation Committee reallocated an additional 5,000 previously forfeited awards, having the same remaining terms

and conditions, to another employee.

During each of the three months ended December 31, 2021 and 2020, we recorded share-based compensation

expense of $ 21,000 related to outstanding performance awards.

During each of the six months ended December 31, 2021 and 2020, we recorded

share-based compensation expense of $ 42,000 related to outstanding performance awards.

On December 31, 2021, there was approximately $ 118,000

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

On July 1, 2020, it was determined

by the Compensation Committee of our Board of Directors that the vesting of the second of five tranches of 40,000 performance awards had

been achieved and participants were awarded 40,000 shares of common stock.

Each participant elected a net issuance to cover their individual

withholding taxes and therefore the Company issued 25,629 shares and paid $ 259,000 of participant-related payroll tax liabilities.

by the Compensation Committee of our Board of Directors that the second of five tranches of 40,000 performance awards had been achieved

and participants were awarded 40,000 shares of common stock.

Each participant elected a net issuance to cover their individual withholding

therefore, we issued 25,629 shares and paid $ 259,000 of participant-related payroll tax liabilities.

Non-Qualified Stock Options

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

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

compensation expense of $ 274,000 and $ 0 for the three months ended September 30, 2021 and 2020, 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.

As of September

30, 2021, there was approximately $ 3.9 million of unrecognized compensation cost related to these non-vested non-qualified stock options.

In February 2021, the Compensation

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

Incentive Plan.

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

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

Of these 62,000

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

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

PRO-DEX, INC.

AND SUBSIDIAIRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In December 2021, the Compensation Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining

terms and conditions, to another employee.

During the three months ended December 31, 2021 and 2020, we recorded compensation expense

of $ 254,000 and $ 18,000 , respectively, related to these options.

During the six months ended December 31, 2021 and 2020, we recorded compensation

expense of $ 527,000 and $ 18,000 , 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.

As of December 31, 2021, there was approximately $ 3.6 million of unrecognized compensation

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

Employee Stock Purchase Plan

In September 2014, our Board

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

The ESPP conforms to the provisions of Section

423 of the Internal Revenue Code, has coterminous offering and purchase periods of six months, and bases the pricing 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.

The Board of Directors also approved the provision that shares formerly

reserved for issuance under the Former Stock Option Plans in excess of shares issuable pursuant to outstanding options, aggregating 704,715

shares, be reserved for issuance pursuant to the ESPP.

The ESPP was approved by our shareholders at our 2014 Annual Meeting.

During the first quarters ended

September 30, 2021 and 2020, 1,130 and 1,485 shares were purchased, respectively, under the ESPP and allocated to employees based upon

their contributions at discount prices of $ 26.17 and $ 16.94 , respectively, per share.

On a cumulative basis, since the inception of the

ESPP plan, employees have purchased a total of 25,593 shares.

During each of the three months ended September 30, 2021 and 2020, we recorded

stock compensation expense in the amount of $ 5,000 relating to the ESPP.

MAJOR CUSTOMERS & SUPPLIERS

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

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.

Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares

issuable pursuant to outstanding options under those plans, aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP.

During the three months ended December

31, 2021 and 2020, we did not record any share-based compensation expense relating to the ESPP, due to the fact that no six-month offering

period ended during either quarter.

During the six months ended December 31, 2021 and 2020, 1,130 and 1,485 shares of our common stock

were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $ 26.17 and $ 16.94 ,

respectively, per share.

On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 25,593 shares of

our common stock.

During the six months ended December 31, 2021 and 2020, we recorded share-based compensation expense in the amount of

$ 5,000 and $ 4,000 , respectively, relating to the ESPP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MAJOR CUSTOMERS AND SUPPLIERS

with respect to customers that accounted for sales in excess of 10% of our total sales in

either of the three-month periods ended September 30,

2021 and 2020 is as follows (in thousands, except percentages):

either of the three-month and the six-month periods

ended December 31, 2021 and 2020, is as follows (in thousands, except percentages):

Schedule of sales by major customers

Three Months Ended September 30,

Total revenue

Three Months Ended December 31,

Percent of Total

Customer concentration:

with respect to accounts receivable from those customers that comprised more than 10 % of our gross accounts receivable at either

September 30, 2021 and June 30, 2021 is as follows (in thousands, except percentages):

Six Months Ended December 31,

Percent of Total

Customer concentration:

Information with respect to accounts

receivable from those customers who comprised more than 10% of our gross accounts receivable at either December 31, 2021 or June 30, 2021,

is as follows (in thousands, except percentages):

Schedule of accounts receivable of major customers

September 30, 2021

December 31, 2021

June 30, 2021

1 unchanged sentence

Customer concentration:

During the three months ended

September 30, 2021 and 2020, we had three and two suppliers, respectively, that each accounted for more than 10% of total inventory purchases.

Amounts owed to the fiscal 2022 significant suppliers at September 30, 2021 totaled $233,000, $177,000 and $306,000, respectively, and

at June 30, 2021 totaled $184,000, $206,000 and $225,000, respectively.

PRO-DEX, INC.

AND SUBSIDIAIRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the three and six months

ended December 31, 2021, we had two suppliers accounting for 10 % or more of total inventory purchases.

During the three months ended December

31, 2020, we had three suppliers accounting for 10 % or more of total inventory purchases, and during the six months ended December 31,

2020, we had two suppliers that accounted for more than 10% of our total inventory purchases.

Amounts owed to the fiscal 2022 two most

significant suppliers at December 31, 2021, totaled $365,000 and $71,000, respectively, and at June 30, 2021, totaled $206,000 and $184,000,

respectively.

NOTES PAYABLE AND FINANCING TRANSACTIONS

Minnesota Bank & Trust (“MBT”)

Minnesota Bank & Trust

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

10 unchanged sentences

Accrued interest

is payable monthly beginning on December 1, 2020, and both principal and interest in the amount of approximately $ 30,000 are due and payable

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

a balloon payment in the amount of $ 3.1 million is due.

Any prepayment of the Property Loan (other than monthly scheduled interest and

principal payments), is subject to a prepayment fee equal to 4% of the principal amount prepaid for any prepayment made during the first

or second year, 3% of the principal amount prepaid for any prepayment made during the third or fourth year, 2% of the principal amount

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

the seventh or eighth year.

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

covenants, and events of default that are customary for a loan of this type.

The balance owed on the Property Loan at September 30, 2021

is $5,074,000.

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

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

in the amount of $ 3.1 million is due.

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

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

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

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

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

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

The balance owed on the Property Loan at December 31, 2021 is $5,028,000.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

18 unchanged sentences

The balance owed on Term Loan

A as of September 30, 2021, is $ 6,489,000 .

A as of December 31, 2021, is $ 6,259,000 .

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

Initial payments on the Term Loan B of

interest only are due on December 1, 2020 through June 1, 2021.

interest only were due on December 1, 2020 through June 1, 2021.

Commencing July 1, 2021 and continuing on the first day of each month

2 unchanged sentences

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

B and the balance outstanding on Term Note B was $ 966,000 on September 30, 2021.

PRO-DEX, INC.

AND SUBSIDIAIRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2021 , which has since been extended

(See Note 14), and bears interest at an annual rate equal to the greater of (a) 3.25% or (b) the prime rate as published in the Money

Rates section of the Wall Street Journal.

Commencing on the first day of each month after we initially borrow against the Revolving Loan

and each month thereafter until maturity, we are required to pay all accrued and unpaid interest on the Revolving Loan through the date

Any principal on the Revolving Loan that is not previously prepaid shall be due and payable in full on the maturity date (or

earlier termination of the Revolving Loan).

B and the balance outstanding on Term Note B was $ 932,000 on December 31, 2021.

Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2023 , and bears interest at an annual

rate equal to the greater of (a) 2.75 % or (b) the prime rate minus 0.5% as published in the Money Rates section of the Wall Street Journal.

Commencing on the first day of each month after we initially borrow against the Revolving Loan and each month thereafter until maturity,

we are required to pay all accrued and unpaid interest on the Revolving Loan through the date of payment.

Any principal on the Revolving

Loan that is not previously prepaid shall be due and payable in full on the maturity date (or earlier termination of the Revolving Loan).

No amounts have been drawn against the Revolving Loan.

5 unchanged sentences

Share Repurchase Program

In December 2019, our Board

approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase

plan authorized by our Board in 2013 was nearing completion.

In accordance with, and as part of, these share repurchase programs, our

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

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

During the quarter ended September

30, 2021, we repurchased 3,616 shares at an aggregate cost, inclusive of fees under the plan, of $ 95,000 .

During the quarter ended September

30, 2020, we did not repurchase any shares.

On a cumulative basis, we have repurchased a total of 1,039,112 shares under the share repurchase

programs at an aggregate cost, inclusive of fees, of $ 14.1 million.

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

independent broker.

In December 2019, our Board approved

a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan authorized

by the Board in 2013 was nearing completion.

In accordance with, and as part of, these share repurchase programs, our Board approved the

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

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

During the three and six months ended December 31,

2021, we repurchased 24,336 and 27,952 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 577,000 and $ 672,000 ,

respectively.

During the three and six months ended December 31, 2020, we did not repurchase any shares under the repurchase program.

On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 1,063,448 shares under

the share repurchase program at an aggregate cost, inclusive of fees, of $ 14.7 million.

All repurchases under the 10b5-1 Plans were administered

through an independent broker.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At The Market Offering Agreement

December 2020, our Board approved an ATM Agreement with Ascendiant Capital Markets, LLC (“Ascendiant”).

The ATM Agreement

allows us to sell shares of our common stock in transactions that are deemed to be “at-the-market” equity offerings

as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions,

including on Nasdaq.

In connection with the ATM Agreement, we entered into a prearranged

stock sales plan with Ascendiant, which is intended to qualify for the safe harbor under Rule 10b5-1 under the Exchange Act (“ATM

10b5-1 Plan”).

No sales of common stock have been made under the ATM Agreement as of the date of this report, but future sales may

occur pursuant to the parameters of the ATM 10b5-1 Plan or otherwise at the direction of our Board in accordance with the terms of the

ATM Agreement.

Effective July 1, 2019, we adopted

the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date.

we elected the practical expedient, which allowed us to carry forward the historical lease classification of our sole operating lease

for our corporate office, which includes our manufacturing and research and development facilities.

the new lease accounting standard ASU 2016-02 using the modified retrospective method of applying the new standard at the adoption date.

In addition, we elected the practical expedient that allowed us to carry forward the historical lease classification of our sole operating

lease for our corporate office, which includes our manufacturing and research and development facilities.

Adoption of this standard resulted

in the recording of net operating lease right-of-use (“ROU”) asset and corresponding operating lease liability of $ 3.3 million.

Our operating lease ROU asset

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

The current portion of our operating lease

liability as of September 30, 2021, in the amount of $ 353,000 , is presented within accrued expenses on the condensed consolidated balance

As of September 30, 2021,

our operating lease has a remaining lease term of six 6 years and an imputed interest rate of 5.53 %.

Cash paid for amounts included in the lease liability was $ 120,000

for the three months ended September 30, 2021, excluding $ 12,000 paid for common area maintenance charges.

PRO-DEX, INC.

AND SUBSIDIAIRIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2021, the

maturity of our lease liability is as follows (in thousands):

Our operating lease ROU asset and

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

The current portion of our operating lease liability

as of December 31, 2021, in the amount of $ 361,000 , is presented within accrued expenses on the condensed consolidated balance sheet.

As of December 31, 2021, the maturity

of our lease liability is as follows:

Schedule of Maturities of Lease Liabilities

2 unchanged sentences

Less imputed interest:

As of December 31, 2021, our

operating lease has a remaining lease term of five 5 years and nine months and an imputed interest rate of 5.53 %.

Cash paid for amounts included in the lease liability for the three and six months ended December 31, 2021, totaled $ 123,000 and

$ 243,000 , respectively, and for December 31, 2020, totaled $ 120,000 and $ 236,000 , respectively.

COMMITMENTS AND CONTINGENCIES

Legal Matters

On August 24, 2021, one of our

customers, through its counsel, sent notice that it is seeking indemnification from us regarding a pending complaint filed by a third-party

claiming patent infringement on one of the products that we manufacture for this customer.

Our assessment of the alleged claim is ongoing.

As of the date of this filing, our position is that there is no infringement and/or that the patent at issue is invalid.

In addition to the above matter,

we may be involved in legal proceedings arising either in the ordinary course of our business or incidental to our business.

be no certainty, however, that we may not ultimately incur liability or that such liability will not be material or adverse.

On August 24, 2021, one of our customers,

through its counsel, sent notice that it is seeking indemnification from us regarding a pending complaint filed by a third-party claiming

patent infringement on one of the products that we manufacture for this customer.

As of the date of this filing, our position is that

there is no infringement and/or that the patent at issue is invalid.

We have not accrued any amounts related to this claim and we intend

to defend the claim, which we believe may take two years or more to resolve.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On October 12, 2021, we received

a letter from an attorney representing a former employee, alleging, among other things, wrongful termination, failure to accommodate,

and intentional infliction of emotional distress.

The parties are scheduled for a mediation hearing on February 23, 2022.

If the dispute

does not settle at mediation, we intend to contest all of the claims against us.

In addition to the above matters,

we are from time to time a party to various legal proceedings arising either in the ordinary course of our business or incidental to our

There can be no certainty, however, that we may not ultimately incur liability or that such liability will not be material and

SUBSEQUENT EVENTS

On November 5, 2021, we entered

into Amendment No.

1 to Amended and Restated Credit Agreement (the “Amendment”), which amends our Amended and Restated Credit

Agreement with MBT to extend the maturity date of our existing $ 2,000,000 revolving credit note with MBT from November 5, 2021 to November

5, 2023 and to reduce the annual interest rate to the greater of (a) 2.75% or (b) the prime rate minus 0.5% as published in the

Money Rates section of the Wall Street Journal.

We have evaluated subsequent events

through the date of this filing.

There were no subsequent events that require 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-Q

Item 1. Financial Statements