What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-05-05 · 315 added, 390 removed, 257 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 $ 0 and $ 2 at March 31, 2022 and at June 30, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 2 and $ 0 at September 30, 2022 and at June 30, 2022, respectively

Deferred costs

9 unchanged sentences

Accounts payable

Accrued expenses

Accrued liabilities

Income taxes payable

Deferred revenue

1 unchanged sentence

Lease liability, net of current portion

Income taxes payable

Notes payable, net of current portion

2 unchanged sentences

Shareholders’ Equity:

Common shares;

Common stock;

no par value;

50,000,000 shares authorized;

3,618,663 and 3,645,660 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively

3,606,422 and 3,596,131 shares issued and outstanding at September 30, 2022 and June 30, 2022, respectively

Retained earnings

6 unchanged sentences

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

(In thousands, except share and per share

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

2 unchanged sentences

General and administrative expenses

Loss on disposal of equipment

Research and development costs

1 unchanged sentence

Operating income

Other income (expense):

Interest and dividend income

Realized gain on sale of marketable equity investments

Unrealized gain on marketable equity investments

Interest expense

Unrealized gain (loss) on marketable equity investments

Interest and other income

Gain on sale of investments

Total other income

Income before income taxes

Income tax expense

Provision for income taxes

Basic and diluted net income per share:

Basic net income per share

9 unchanged sentences

Three Months Ended

Nine Months Ended

Common shares:

September 30,

COMMON STOCK:

Balance, beginning of period

Share-based compensation expense

Stock option exercise

Share repurchases

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

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

ESPP shares issued

Balance, at end of period

Balance, end of period

RETAINED EARNINGS:

9 unchanged sentences

(In thousands)

Nine Months Ended

Three Months Ended

September 30,

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

Amortization of loan fees

Share-based compensation

1 unchanged sentence

Non-cash lease expense

Amortization of loan fees

Gain on sale of investments

Impairment of long-lived assets

Bad debt expense (recovery)

Deferred income taxes

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable and other current receivables

Accounts receivable and other 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 investments

Purchases of equipment and improvements

Proceeds from sale of investments

Purchase of land and building

Purchases of investments

Increase in intangibles

Proceeds from sale of investments

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Proceeds from Minnesota Bank & Trust loans, net of origination fees

Proceeds from stock option exercises and ESPP contributions

Payments of employee taxes on net issuance of common stock

Repurchases of common stock

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 and finance lease

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

5 unchanged sentences

(In thousands)

Nine Months Ended

Three Months Ended

September 30,

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

1 unchanged sentence

PRO-DEX, INC.

AND SUBSIDIAIRIES

NOTES TO CONSDENSED CONSOLIDATED FINANCIAL STATEMENTS

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

3 unchanged sentences

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

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 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 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, 2022.

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

4 unchanged sentences

Report on Form 10-K for the year ended June 30, 2022.

Adopted Accounting Standards

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 has not had a material impact on our consolidated financial statements.

DESCRIPTION OF BUSINESS

specialize in the design, development and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and

shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets.

We have patented adaptive torque-limiting software

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

We also manufacture and sell rotary

air motors to a wide range of industries.

In August 2020, we formed a

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

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

growth of our business.

The consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant

inter-company accounts and transactions have been eliminated.

We specialize in the design, development

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

thoracic, and maxocranial facial markets.

We have patented adaptive torque-limiting software and proprietary sealing solutions which

appeal to our customers, primarily medical device distributors.

We also manufacture and sell rotary 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.

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

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 statements.

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 March 31, 2021, was an increase of $136,000 with a corresponding decrease in unrealized gain on marketable equity securities of

$136,000, 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 March 31, 2021, of $0.04.

The impact to net income for the nine months ended March 31, 2021, 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 basic earnings per share of $0.37 and diluted

earnings per share of $0.36 for the nine months ended March 31, 2021.

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

The following table presents

the disaggregation of net sales by revenue recognition model (in thousands):

The following table presents the

disaggregation of net sales by revenue recognition model (in thousands):

Schedule of disaggregation of net sales

Three months ended

Nine Months Ended

September 30,

Over-time revenue recognition

6 unchanged sentences

Amounts are generally billed as work progresses in accordance with agreed upon milestones.

Our entire deferred revenue

balance of $ 896,000 at March 31, 2022, is currently expected to be recognized in the next 12-month period.

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):

The over-time revenue recognition

model consists of non-recurring engineering (“NRE”) and prototype services and typically relates to NRE services related to

the evaluation, design or customization of a medical device and is typically recognized over time utilizing an input measure of progress

based on costs incurred compared to the estimated total costs upon completion.

During the three months ended September 30, 2022 and 2021,

we recorded $ 551,000 and $ 0 , respectively, of revenue that had been included in deferred revenue in the prior year.

The revenue recognized

from the contract liabilities consisted of satisfying our performance obligations during the normal course of business.

Our entire deferred

revenue balance of $ 851,000 at September 30, 2022, is currently expected to be recognized in the next 12-months.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize our

contract assets and liability balances (in thousands):

Schedule of contract assets and liability

As of and for the

Three Months Ended

September 30,

Contract assets beginning balance

Expenses incurred during the year

Amounts reclassified to cost of sales

Amounts allocated to discounts for standalone selling price

Contract assets ending balance

As of and for the

Three Months Ended

September 30,

Contract liabilities beginning balance

Payments received from customers

Amounts reclassified to revenue

Contract liabilities ending balance

COMPOSITION OF CERTAIN FINANCIAL STATEMENT

are stated at fair 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 March 31, 2022 and June 30, 2021, had an aggregate cost basis of $ 3,538,000 and $ 3,204,000 ,

at September 30, 2022 and June 30, 2022 had an aggregate cost basis of $ 2,714,000 and $ 2,796,000 ,

respectively.

The long-term investments include equity investments of thinly traded securities that we classified as long term in nature

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

At March 31, 2022, the investments

included net unrealized losses of $ 632,000 (gross unrealized losses of $ 646,000 offset by gross unrealized gains of $ 14,000 ).

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 March 31, 2022 and June 30, 2021, $ 1,058,000 and $ 1,244,000 , respectively, represent an investment

We classified certain investments as long-term in nature because if we decide to sell these securities we may not be able

to sell our position within one year.

At September 30, 2022, the investments included unrealized losses of $ 12,000 (gross

unrealized losses of $ 325,000 offset by gross unrealized gains of $ 313,000 ) .

At June 30, 2022, the

investments included net unrealized losses of $ 262,000 (gross unrealized losses of $ 369,000 offset by gross unrealized gains of $ 107,000 ).

the total marketable equity securities at September 30, 2022 and June 30, 2022, $ 813,000 and $ 755,000 , respectively, represent an investment

in the common stock of Air T, Inc.

4 unchanged sentences

Officer and Chairman of Air T, Inc.

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

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

as its Chief of Staff.

The shares were purchased

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We invest surplus cash from

time to time through our Investment Committee, which is comprised of one management director, Mr.

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,

9 unchanged sentences

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

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 11).

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 and we moved certain of our employees into the new building during the third quarter of this fiscal year.

The building is being

amortized on a straight-line basis over a period of 30 years.

consist of the following (in thousands):

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

Intangibles consist

of the following (in thousands):

Schedule of intangibles

September 30,

Patent-related costs

4 unchanged sentences

the issuance of the patent.

Since we do not know when, or if, our patent applications will be issued, the future amortization expense

is not predictable.

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 March 31, 2022 and June 30, 2021, the warranty reserve amounted to

and $ 221,000 ,

respectively.

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

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 March 31, 2022 and 2021, was $ 102,000

and $ 77,000 ,

respectively, and for the nine months ended March 31, 2022 and 2021, was $ 170,000

and $ 330,000 ,

respectively.

Future amortization expense is estimated to be $ 27,000 for the balance of fiscal 2023 and annually through

All remaining costs are expected to be fully amortized within 3 years and nine months.

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, 2022 and June 30, 2022, the warranty reserve amounted to $ 366,000

and $ 340,000 , 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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information regarding

the accrual for warranty costs for the three and nine months ended March 31, 2022 and 2021, are as follows (in thousands):

Schedule of Product Warranty Liability

Information regarding the accrual

for warranty costs for the three months ended September 30, 2022 and 2021 are as follows (in thousands):

Schedule of accrual warranty costs

As of and for the

Three Months Ended

Beginning balance

Accruals during the period

Changes in estimates of prior period warranty accruals

Warranty amortization and utilization

Ending balance

As of and for the

Nine Months Ended

September 30,

Beginning balance

1 unchanged sentence

Changes in estimates of prior period warranty accruals

Warranty amortization and utilization

Warranty amortization/utilization

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.

weighted-average number of common shares outstanding used in the calculation of diluted income per share reflects the effects of potentially

dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.

The following table presents

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

In the tables

below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

Schedule of reconciliations of the numerators and denominators of the basic and diluted earnings (loss) per share computations for net

income (loss)

We calculate basic net income per

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

Diluted income per

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

The following table presents reconciliations

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

In the tables below, income amounts represent

the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

Schedule of weighted average shares outstanding calculation of basic and diluted per share

Three Months Ended

Nine Months Ended

September 30,

Weighted-average shares outstanding

Basic income per share

Basic earnings per share

Weighted-average shares outstanding

1 unchanged sentence

Weighted-average shares used in calculation of diluted earnings per share

Diluted income per share

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Diluted earnings per share

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

1 unchanged sentence

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

their tax basis.

their tax bases.

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, 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 March 31, 2022, we recognized

accrued interest of $ 70,000 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.

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, 2022 and 2021,

we recognized accrued interest of $ 5,000 and $ 51,000 , respectively, related to unrecognized tax benefits.

Our effective tax rate

for the three months ended September 30, 2022 and 2021, is 17 % and 22 %, respectively.

The current year effective tax rate is less than

the prior 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).

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2019 and later.

Our state income tax returns

are open to audit under the statute of limitations for the years ended June 30, 2018 and

However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2007 are open to

We do not anticipate a significant change to the

total amount of unrecognized tax benefits within the next 12 months.

SHARE-BASED COMPENSATION

Through June 2014, we had

Through 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 Director’s Stock Option Plan were terminated in

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

June 2014 and December 2014, respectively.

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 March 31, 2022, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

As of September 30, 2022, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

Former Stock Option Plans

were granted under the Former Stock Option Plans during the three or nine months ended March 31, 2022 and 2021.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022, there was no unrecognized compensation cost under the Former Stock Option Plans, as all outstanding

stock options are fully vested.

As of March 31, 2022, the options outstanding under the Former Stock Option Plans had a weighted

average remaining contractual life of 0.54 years and an intrinsic value of $ 96,000 .

The following

is a summary of stock option activity for the nine months ended March 31, 2022 and 2021:

Share-based Payment Arrangement, Option, Activity

Nine Months Ended March 31,

Weighted-Average

Exercise Price

Weighted-Average

Exercise Price

Outstanding at July 1,

Options granted

Options exercised

Options forfeited

Outstanding at end of period

Stock Options Exercisable at March 31,

There were no stock options granted

during the three months ended September 30, 2022 and 2021.

As of September

30, 2022, 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, 2022, there were 1,500 options outstanding under our Former

Stock Option Plans at a weighted-average exercise price of $ 2.14 per share.

These outstanding options had a weighted-average remaining

contractual life of 0.35 years and an intrinsic value of $ 23,000 .

During the first quarter ended September 30, 2022 and 2021, 5,000 and

25,000 options under our Former Stock Option Plans were exercised, at exercise prices of $ 1.73 and $ 1.80 per share, respectively.

Performance Awards

In December 2017, the Compensation

Committee of our Board of Directors granted 200,000 performance awards to our employees, 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 prices.

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

using a Monte Carlo simulation.

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

2021, the Compensation Committee reallocated an additional 17,500 previously forfeited awards, having the same remaining terms and conditions,

to other employees.

The weighted average fair value of the performance awards reallocated in 2021 was $ 20.34 , calculated using the weighted

average fair market value for each award, using a Monte Carlo simulation.

During the three months ended March 31, 2022 and 2021, we recorded

share-based compensation expense of $ 81,000 and $ 21,000 , respectively, related to outstanding performance awards.

During the nine months

ended March 31, 2022 and 2021, we recorded share-based compensation expense of $ 123,000 and $ 63,000 , respectively, related to outstanding

performance awards.

On March 31, 2022, there was approximately $ 393,000 of unrecognized compensation cost related to non-vested performance

awards expected to be expensed over the weighted-average period of 2.22 years.

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

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

value for each award, using a Monte Carlo simulation.

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

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 17,500 previously forfeited awards, having the same remaining terms

and conditions, to other employees.

The weighted average fair value of the performance awards reallocated in 2021 was $ 20.34 , calculated

using the weighted average fair market value for each award, using a Monte Carlo simulation.

We recorded share-based compensation expense

of $ 30,000 and $ 21,000 for the three months ended September 30, 2022 and 2021, respectively, related to these performance awards.

30, 2022, there was approximately $ 292,000 of unrecognized compensation cost related to these non-vested performance awards, which is

expected to be expensed over the weighted-average period of 2.76 years.

On July 1, 2022, it was determined

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

taxes and, therefore, we 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 vesting of performance awards for 37,500 shares of common stock had been

Each participant elected a net issuance to cover their individual withholding taxes and therefore we issued 23,641 shares and

paid $ 223,000 of participant-related payroll tax liabilities.

AND SUBSIDIARIES

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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 from the date of grant and the achievement of our common stock trading at certain pre-determined prices.

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

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

conditions, to another employee at a weighted average fair value of $6.69 calculated using a Monte Carlo simulation.

During the three

months ended March 31, 2022 and 2021, we recorded compensation expense of $ 271,000 and $ 358,000 , respectively, related to these options.

During the nine months ended March 31, 2022 and 2021, we recorded compensation expense of $ 799,000 and $ 376,000 , respectively, related

to these options.

As of March 31, 2022, none of these non-qualified options have vested and there was approximately $ 3.4 million of unrecognized

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

The vesting of these stock options 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 $ 171,000 and $ 274,000 for the three months ended September 30, 2022 and 2021, 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, 2022, none of

these stock options had vested and there was approximately $ 2.9 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 stock options to our directors and certain employees under the 2016 Equity Incentive

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 stock options, 4,250

were forfeited and the remaining 57,750 vested on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying

We recorded compensation expense of $59,000 for the three and nine months ended March 31, 2021, related to these options.

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

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.

The vesting of these stock options 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 and the required service periods

were already satisfied.

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

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.

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

During the three months ended

March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the amount of $ 5,000 and $ 6,000 , respectively, and 1,446

and 1,192 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $ 21.11 and $ 27.12 ,

respectively, per share.

During the nine months ended March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the

amount of $ 11,000 and $ 10,000 , respectively.

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

of 27,039 shares of our common stock.

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, 2022 and 2021, 2,503 and 1,130 shares were purchased, respectively, under the ESPP and allocated to employees based upon

their contributions at discount prices of $ 13.52 and $ 26.17 , respectively, per share.

On a cumulative basis, since the inception of the

ESPP plan, employees have purchased a total of 29,542 shares.

During the three months ended September 30, 2022 and 2021, we recorded stock

compensation expense in the amount of $ 6,000 and $ 5,000 , respectively, relating to the ESPP.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MAJOR CUSTOMERS AND SUPPLIERS

MAJOR CUSTOMERS & SUPPLIERS

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

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

ended March 31, 2022 and 2021, is as follows (in thousands, except percentages):

either of the three-month periods ended September 30,

2022 and 2021 is as follows (in thousands, except percentages):

Schedule of sales by major customers

Months Ended March 31,

Customer concentration:

Months Ended March 31,

Months Ended September 30,

Total revenue

Customer concentration:

Information with respect to

accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2022 or June

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

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

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

September 30, 2022 and June 30, 2022 is as follows (in thousands, except percentages):

Schedule of accounts receivable of major customers

Total gross accounts receivable

Customer concentration:

During the three and nine

months ended March 31, 2022, we had three and four suppliers, respectively, accounting for 10 % or more of total inventory purchases.

the three and nine months ended March 31, 2021, we had two suppliers that accounted for more than 10 % of our total inventory purchases.

Amounts owed to the significant suppliers who comprised more than 10 % of total account payable at March 31, 2022 and June 30, 2021, is

as follows (in thousands, except percentages).

Total accounts payable

Supplier concentration:

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE AND

FINANCING TRANSACTIONS

Minnesota Bank & Trust

During the three months ended September

30, 2022 and 2021, we had three suppliers that each accounted for more than 10% of total inventory purchases.

Amounts owed to the fiscal

2022 significant suppliers at September 30, 2022 totaled $970,000, $266,000 and $368,000, respectively, and at June 30, 2022 totaled $721,000,

$430,000 and $372,000, respectively.

NOTES PAYABLE AND FINANCING TRANSACTIONS

Minnesota Bank & Trust (“MBT”)

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

8 unchanged sentences

We paid loan origination fees to MBT on the Closing Date in the amount of $ 26,037 .

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property Loan bears interest at a fixed rate of 3.55 % per annum, which is subject to a 3% increase upon an event of default.

Accrued interest

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 March 31, 2022, is $4,981,000.

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, 2022

was $ 4,889,000 .

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 March 31, 2022, is $ 6,026,000 .

A as of September 30, 2022, was $ 5,556,000 .

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

interest only are 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 $ 897,000 on March 31, 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

B and the balance outstanding on Term Note B was $ 827,000 on September 30, 2022.

Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2023 , unless earlier terminated pursuant

to its terms, 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).

The full $ 2,000,000 was drawn and outstanding on the Revolving Loan as of September 30,

payment on 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.

3 unchanged sentences

negative and financial covenants, and events of default that are customary for loans of this type.

Share Repurchase Program

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 approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided

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

During the three

and nine months ended March 31, 2022, we repurchased 24,766 and 52,718 shares, respectively, at an aggregate cost, inclusive of fees under

the Plan, of $ 584,000 and $ 1,255,000 , respectively.

During the three and nine months ended March 31, 2021, we repurchased 161,291 shares

at an aggregate cost, inclusive of fees under the Plan, of $ 4,039,000 .

On a cumulative basis, since implementation of the share

repurchase program in 2013, we have repurchased a total of 1,088,214 shares under the share repurchase program at an aggregate cost of

$ 15.3 million.

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

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, and the ATM 10b5-1

Plan was terminated on February 11, 2021, but future sales may occur 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 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 each in the amount

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 March 31, 2022, in the amount of $ 370,000 , is presented within accrued expenses on the condensed consolidated balance

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2022, the maturity

of our lease liability is as follows:

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, 2022, we repurchased

20,853 shares at an aggregate cost, inclusive of fees under the plan, of $ 354,000 .

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 .

On a cumulative basis since 2013, we have repurchased

a total of 1,131,599 shares under the share repurchase programs at an aggregate cost, inclusive of fees, of $ 16.0 million.

All repurchases

under the 10b5-1 Plans were administered through an independent broker.

Our operating lease right-of-use

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, 2022, in the amount of $ 388,000 , is presented within accrued expenses on the condensed consolidated

balance sheet.

As of September 30, 2022, our operating

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

Cash paid for amounts included in the lease liability

was $ 123,000 for the three months ended September 30, 2022, excluding $ 12,000 paid for common area maintenance charges.

As of September 30, 2022, the maturity

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

Schedule of Maturities of Lease Liabilities

Operating Lease

Total lease payments

Less imputed interest

As of March 31, 2022, our

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

Cash paid for

amounts included in the lease liability for the three and nine months ended March 31, 2022, was $ 123,000 and $ 366,000 , respectively.

Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2021, was $ 120,000 and $ 355,000 ,

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.

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.

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 settled this matter upon the conclusion of a mediation hearing held on February

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

We have evaluated subsequent

events through the date of this filing.

There were no subsequent events that require disclosure.

We may be involved from time to

time 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.

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