What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-09-05 compared with 2023-10-13 · 436 added, 765 removed, 647 unchanged (65% of the section changed)

5 unchanged sentences

Financial Statements:

Consolidated Balance Sheets, June 30, 2023 and 2022 (Restated)

Consolidated Income Statements, Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

Consolidated Statements of Shareholders’ Equity, Years Ended June

30, 2023, 2022 (Restated) and 2021 (Restated)

Consolidated Statements of Cash Flows, Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

Consolidated Balance Sheets, June 30, 2024 and 2023

Consolidated Income Statements, Years Ended June 30, 2024 and 2023

Consolidated Statements of Shareholders’ Equity, Years Ended June 30, 2024 and 2023

Consolidated Statements of Cash Flows, Years Ended June 30, 2024 and 2023

Notes to Consolidated Financial Statements

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Pro-Dex,

(the “Company”) as of June 30, 2023 and 2022, the related consolidated income statements, shareholders’ equity,

(the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of income, shareholders’ equity,

and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of

the Company as of June 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three

years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Restatement of Previously Issued Financial Statements

As described in Note 2, the Company has restated its consolidated

financial statements as of June 30, 2022, and for the years ended June 30, 2022 and 2021, for the correction of errors.

the Company as of June 30, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended,

in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

3 unchanged sentences

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules

and regulations of the Securities and Exchange Commission and the PCAOB.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

12 unchanged sentences

the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from

the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee

and that (1) relates to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially

challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the

consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate

opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Warrant Valuation

As described in Notes 2 and Note 5 to the consolidated financial statements,

the Company holds a warrant to purchase common stock of a publicly traded company, which has an estimated fair value of $6,160,000 at

June 30, 2023 and resulted in an unrealized gain of $3,856,000 during the year ended June 30, 2023.

The warrant was determined to

be a derivative financial instrument that is subject to remeasurement at each balance sheet date with changes in fair value recognized

We identified the valuation of the warrant

as a critical audit matter.

See also the “Restatement of Previously Issued Financial Statements” section of our report.

estimated fair value of the warrant was determined using a Black Scholes Option Pricing (“BSOP”) model.

The principal considerations

for our determination that auditing the estimated fair value of the warrant is a critical audit matter are (i) the judgment required

by management in the determination of the significant assumptions used, including the underlying stock price, strike price of the warrant,

volatility, risk-free rate, discount for lack of marketability and time-to-maturity (ii) a high degree of auditor judgment, subjectivity,

and effort in performing procedures and evaluating audit evidence related to the significant assumptions used in the BSOP model;

(iii) the use of professionals with specialized skill and knowledge.

The primary procedures we performed to address this critical audit

matter included:

reading the agreements and evaluating management’s

process for determining the estimated fair value of the warrant.

testing management’s process included (i)

evaluating the method used by management to determine the estimated fair value of the warrant;

(ii) testing the mathematical accuracy

of management’s model;

(iii) evaluating the reasonableness of the significant assumptions used in the model and (iv) testing the

completeness and accuracy of the data used.

professionals with specialized skill and knowledge

were used to assist in evaluating the appropriateness of the BSOP model used by management to determine the estimated fair value of the

warrant, and evaluating whether the significant assumptions used in the BSOP model were reasonable.

We believe that our audits provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters

arising from the current period audit of the consolidated financial statements that were

communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to

the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no

critical audit matters.

/s/ Moss Adams LLP

Irvine, California

October 13, 2023

September 5, 2024

We have served as the Company’s auditor since 2003.

5 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts

of $ 0 at June 30, 2023 and 2022

Accounts receivable

Deferred costs

20 unchanged sentences

Total liabilities

Commitments and Contingencies:

Commitments and Contingencies (Note 9):

Shareholders’ equity:

14 unchanged sentences

General and administrative expenses

Loss on disposal of equipment

Research and development costs

3 unchanged sentences

Interest and dividend income

Unrealized gain on investments

Unrealized gain (loss) on marketable equity investments

Gain on sale of investments

Interest expense

Total other income

Total other income (expense)

Income before income taxes

8 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For The Years Ended June 30, 2023, 2022

(Restated) and 2021 (Restated)

For The Years Ended June 30, 2024 and 2023

(In thousands, except share data)

Balance at June 30, 2022

Cumulative effect of restatement (1)

Net income, restated

ESPP shares issued

5 unchanged sentences

Balance at June 30, 2023

Net income, restated

ESPP shares issued

Exercise of stock options (3)

Share-based compensation

1 unchanged sentence

Balance at June 30, 2024

ESPP shares issued

Shares issued in connection with performance award vesting

Shares withheld from common stock issued to pay employee payroll taxes

Exercise of stock options

Share-based compensation

Share repurchases

Balance at June 30, 2023

is the estimated fair value of the Monogram Warrant as of June 30, 2020.

Excludes 112 shares forfeited to affect a cashless exercise.

Excludes 1,855 shares forfeited to affect a cashless exercise.

See notes to consolidated

6 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Depreciation and amortization

Unrealized gain on investments

Gain on sale of investments

Impairment of long-lived assets

Non-cash lease expense (recovery)

Loss on sale or disposal of equipment

Amortization of loan fees

Share-based compensation

Deferred income taxes

Bad debt expense (recovery)

Changes in operating assets and liabilities:

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

and amortization

(gain) loss on marketable equity investments

of investments

Non-cash lease

of loan fees, net

Deferred income

operating assets and liabilities:

Accounts receivable

1 unchanged sentence

Prepaid expenses

Accounts payable and accrued expenses

Accounts payable

and accrued expenses

Deferred revenue

Income taxes payable

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of equipment and improvements

Purchase of land and building

Proceeds from sale of investments

Increase in intangibles

Purchase of investments

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

Borrowing from revolving loan, net of loan origination fees

Repurchases of common stock

Payments of employee taxes on net issuance of common stock

Proceeds from exercise of stock options and ESPP contributions

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

taxes payable

cash provided by operating activities

FROM INVESTING ACTIVITIES:

equipment and improvements

Proceeds from

sale of investments

cash used in investing activities

FROM FINANCING ACTIVITIES:

Principal payments

on notes payable

Borrowing from

Minnesota Bank & Trust, net of loan origination fees

of common stock

employee taxes on net issuance of common stock

from exercise of stock options and ESPP contributions

cash used in financing activities

(decrease) in cash and cash equivalents

and cash equivalents, beginning of year

and cash equivalents, end of year

See notes to consolidated financial statements .

4 unchanged sentences

Ended June 30,

Supplemental disclosures of cash flow information:

Non-cash investing and financing activity:

Cashless stock option exercise

disclosures of cash flow information:

Cash paid during the period for:

18 unchanged sentences

This subsidiary has no separate operations.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its

consolidated financial statements as of and for the years ended June 30, 2022 and 2021 and as of and for the first three quarters of

fiscal 2021, 2022 and 2023.

The restatement corrects the error related to the fair value of the Monogram Warrant which had been

understated (See Note 5).

The restatement records the investment at its estimated fair value for all restated periods, records the

unrealized gain on investments for each restated period, and records the deferred income tax expense associated with the

corresponding unrealized gain on investments.

The restatement does not impact previously reported revenues, operating income, cash

or cash flows for any previous periods.

Presented below are the changes

to each financial statement line item which changed as a result of the restatement.

June 30, 2022 Balance Sheet

Schedule of changes

to each financial statement line item which changed as a result of restatement

As Previously

Deferred income taxes, net

$ ( 541 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram

(b) This amount represents the estimated fair value of the Monogram Warrant at June 30, 2022.

Fiscal 2022 Income Statement

As Previously

Unrealized gain (loss) on investments

Total other income (loss)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the fiscal

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the fiscal year 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal 2021 Income Statement

As Previously

Unrealized gain on investments

Total other income

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the fiscal

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for the fiscal year 2021.

2023 Unaudited Quarterly Periods

September 30,

Net income, as previously reported

Adjustments to net income:

Unrealized gain on investments (a)

Income tax expense (b)

Net income, as restated

Basic & Diluted income per share as previously reported:

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated:

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 Unaudited Quarterly Periods

September 30,

Net income as previously reported

Adjustments to net income:

Unrealized gain on investments (a)

Income tax expense (b)

Net income as restated

Basic & Diluted income per share as previously reported

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

2021 Unaudited Quarterly Periods

September 30,

Net income as previously reported

Adjustments to net income:

Unrealized loss on investments (a)

Income tax (benefit) expense (b)

Net income as restated

Basic & Diluted income per share as previously reported

Basic net income per share

Diluted net income per share

Basic & Diluted income per share as restated

Basic net income per share

Diluted net income per share

Weighted-average common shares outstanding:

amount represents the unrealized gain on the Monogram Warrant.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 Unaudited Balance Sheet

(First Quarter Fiscal 2021)

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax benefit associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2020.

First Quarter Fiscal 2021 Unaudited Income Statement – Three

months ended September 30, 2020

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized loss on the Monogram Warrant for the three months ended September 30, 2020.

(b) This amount represents the income tax benefit related to the unrealized loss on the Monogram Warrant for

the three months ended September 30, 2020.

December 31, 2020 Unaudited Balance Sheet

(Second Quarter Fiscal 2021)

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax benefit associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2020.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2020

Unaudited Income Statement (Second Quarter Fiscal 2021)

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2020.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2020.

March 31, 2021 Unaudited Balance Sheet (Third Quarter Fiscal

As Previously

Deferred income taxes, net

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2021.

Three months ended March 31, 2021 Unaudited

Income Statement (Third Quarter Fiscal 2021)

As Previously

Unrealized gain (loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March 31, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2021.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 Unaudited Balance Sheet

(First Quarter Fiscal 2022)

As Previously

Deferred income taxes, net

$ ( 276 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2021.

First Quarter Fiscal 2022 Unaudited Income Statement – Three

months ended September 30, 2021

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended September 30, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended September 30, 2021.

December 31, 2021 Unaudited Balance Sheet

(Second Quarter Fiscal 2022)

As Previously

Deferred income taxes, net

$ ( 335 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2021.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2021

Unaudited Income Statement (Second Quarter Fiscal 2022)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2021.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2021.

March 31, 2022 Unaudited Balance Sheet (Third Quarter Fiscal

As Previously

Deferred income taxes, net

$ ( 378 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2022.

Three months ended March 31, 2022 Unaudited

Income Statement (Third Quarter Fiscal 2022)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March, 31, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022 Unaudited Balance Sheet

(First Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 589 ) (a)

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at September 30, 2022.

First Quarter Fiscal 2023 Unaudited Income

Statement – Three months ended September 30, 2022

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended September 30, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended September 30, 2022.

December 31, 2022 Unaudited Balance Sheet

(Second Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 764 ) (a)

Deferred income taxes

Total liabilities

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at December 31, 2022.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended December 31, 2022

Unaudited Income Statement (Second Quarter Fiscal 2023)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended December 31, 2022.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended December 31, 2022.

March 31, 2023 Unaudited Balance Sheet (Third

Quarter Fiscal 2023)

As Previously

Deferred income taxes, net

$ ( 764 ) (a)

Deferred income taxes

Total liabilities

Retained earnings

Total liabilities and shareholders’ equity

(a) This amount represents

the income tax expense associated with the Monogram Warrant.

(b) This amount represents the estimated fair value of the Monogram Warrant at March 31, 2023.

Three months ended March 31, 2023 Unaudited

Income Statement (Third Quarter Fiscal 2023)

As Previously

Unrealized gain(loss) on investments

Total other income (expense)

Income before income taxes

Income tax expense

Basic income per share

Diluted income per share

(a) This amount represents the unrealized gain on the Monogram Warrant for the three months ended March 31, 2023.

(b) This amount represents the income tax expense related to the unrealized gain on the Monogram Warrant for

the three months ended March 31, 2023.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting

policies presented below is designed to assist the reader in understanding our consolidated financial statements.

Such consolidated financial

statements and related notes are the representations of management, who is responsible for their integrity and objectivity.

In the opinion

of management, these accounting policies conform to accounting principles generally accepted in the United States of America (“U.S.

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

Net sales consists of the sale of products

and services, as well as shipping and handling costs billed to our customers and is net of volume rebates and discounts and excludes

of significant accounting policies presented below is designed to assist the reader in understanding our consolidated financial statements.

Such consolidated financial statements and related notes are the representations of management, who is responsible for their integrity

and objectivity.

In the opinion of management, these accounting policies conform to accounting principles generally accepted in the United

States of America (“U.S.

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

consolidated financial statements.

Net sales consists of the

sale of products and services, as well as shipping and handling billed to our customers and is net of volume rebates and discounts and

excludes sales tax.

Revenue Recognition

Revenue from product sales is

recognized as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”)

2014-09, Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract

have been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as)

we satisfy each performance obligation, generally upon shipment.

from services, typically non-recurring engineering services related to the design or customization of a medical device, is typically recognized

The customer funding for costs incurred for non-recurring engineering services is deferred and subsequently recognized as revenue

as under-lying products or services are delivered to the customers.

Additionally, expenses incurred, up to the customer agreed funding

amount, are deferred as an asset and recognized as cost of sales when the under-lying products or services are delivered to the customer.

The deferred customer funding and costs result in recognition of deferred costs (asset) and deferred revenue (liability) on our consolidated

balance sheets.

Revenue from product sales is recognized

as promulgated by the Financial Accounting Standards Board (“FASB”) in Accounting Standards Update (“ASU”) 2014-09,

Revenue from Contracts with Customers once our contract(s) with a customer and the performance obligations in the contract have

been identified, and the transaction price has been allocated to the performance obligations and revenue is recorded when (or as) we satisfy

each performance obligation, generally upon shipment.

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

is typically recognized over time.

The customer funding for costs incurred for NRE services is deferred and subsequently recognized as

revenue as under-lying products or services are delivered to the customers.

Additionally, expenses incurred, up to the customer agreed

funding amount, are deferred as an asset and recognized as cost of sales when the under-lying products or services are delivered to the

The deferred customer funding and costs result in recognition of deferred costs (asset) and deferred revenue (liability) on

our consolidated balance sheets.

One of our customer contracts

1 unchanged sentence

We estimate variable consideration at the most likely amount we will receive

from our customer.

from this customer.

Our estimates of variable consideration are based on an assessment of our anticipated performance and all information

4 unchanged sentences

Cost of Sales

Cost of sales consists primarily of the purchase price

of goods and cost of services rendered including freight costs.

Cost of sales also includes production labor and overhead costs for all

of our manufacturing and assembly operations, which overhead includes all indirect labor and expenses associated with our inspection,

warehousing, material planning and quality departments.

Cost of sales consists primarily

of the purchase price of goods and cost of services rendered including freight costs.

Cost of sales also includes production labor and

overhead costs for all of our manufacturing and assembly operations, which overhead includes all indirect labor and expenses associated

with our inspection, warehousing, material planning and quality departments.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated Losses on Product Development Services

9 unchanged sentences

availability of materials, performance of subcontractors, and expected costs for specific regulatory approvals.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain of our products

are sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after

Certain of our products are

sold with a warranty that provides for repairs or replacement of any defective parts for a period, generally one to two years, after the

At the time of the sale, we accrue an estimate of the cost of providing the warranty based on prior experience with such factors

as return rates and repair costs, which factors are reviewed quarterly.

The warranty accrual is

based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in

the accompanying balance sheets.

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

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.

The warranty accrual is based

on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued expenses in the

accompanying consolidated balance sheets.

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

of operations.

Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding

repair costs and warranty return rates and are included in current period warranty expense.

Cash and Cash Equivalents

5 unchanged sentences

Trade receivables are stated

at their original invoice amounts, less an allowance for doubtful portions of such accounts.

Management determines the allowance for doubtful

accounts based on facts and circumstances related to specific accounts and the age of accounts.

Trade receivables are written off when

deemed uncollectible.

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

at their original invoice amounts, less an allowance for doubtful portions of such accounts represented by expected credit losses.

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

receivables are written off when deemed uncollectible.

Recoveries of trade receivables previously reserved are offset against the allowance

when received.

Our operating lease consists solely of our corporate headquarters located

in Irvine, California.

We do not have any leases classified as financing leases.

We classify arrangements meeting the definition of a

lease as operating or financing leases, and leases are recorded on the consolidated balance sheets as both a right-of-use asset (“ROU”)

and lease liability, calculated by discounting the fixed lease payments over the term of the lease term at the rate implicit in the lease

or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each period, and

the ROU asset is amortized over the lease term.

For operating leases, interest on the lease liability and the amortization of the ROU

asset result in straight-line rent expense over the lease term.

Operating lease assets and liabilities are recognized at commencement

date based on the present value of lease payments over the lease term.

Variable lease expenses are recorded when incurred.

short-term leases having an initial term of 12 month or less as an accounting policy election, and instead recognize rent expense on a

straight-line basis over the term of the lease.

We assess the impairment of ROU

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

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

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

fair value is recognized.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Costs

Deferred costs reflect

costs incurred related to non-recurring engineering services under the terms of the related development and/or supply contracts.

costs get recorded to cost of sales in the period that the revenue is recognized.

Deferred costs reflect costs

incurred related to NRE services under the terms of the related development and/or supply contracts.

These costs get recorded to cost

of sales in the period that the revenue is recognized.

Inventories are stated at

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Reductions to estimated market value are recorded and charged to cost of sales, when indicated

based on a formula that compares on-hand quantities to both historical usage and estimated demand over the ensuing 12 months from the

measurement date.

On an ongoing basis, we evaluate inventory for obsolescence and slow-moving items.

This evaluation includes analysis

of historical sales and usage, existing demand, as well as specific factors known to management.

As of June 30, 2023 and 2022, there was

approximately $ 637,000 and $ 177,000 , respectively, of inventory in-transit from suppliers.

based on a formula that compares on-hand quantities to both historical usage and estimated demand as of the measurement date.

On an ongoing

basis, we evaluate inventory for obsolescence and slow-moving items.

This evaluation includes analysis of historical sales and usage,

existing demand, as well as specific factors known to management.

As of June 30, 2024 and 2023, there was approximately $ 275,000 and $ 637,000 ,

respectively, of inventory in-transit from suppliers.

Investments at June 30,

30, 2023 and 2022, consist of marketable equity securities of publicly held companies as well as a warrant to purchase common stock of

a company whose common stock first became publicly traded in May 2023.

2024 and 2023, consist of marketable equity securities of publicly held companies.

Investments at June 30, 2023 also included a warrant

(the “Monogram Warrant”) to purchase common stock of a company whose common stock first became publicly traded in May 2023,

which we exercised in the second quarter of fiscal 2024 (See Note 4).

The investments were made to realize a reasonable return, although

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gains and losses presented separately within other income and expense on the consolidated income statement.

Certain investments consist

of common stocks of public companies that are thinly traded.

These investments were subject to a valuation analysis as of June 30, 2023

All of our investments consist

of common stocks of public companies that are either thinly traded or we hold a significant (in excess of 5%) interest in.

These investments

were subject to a valuation analysis as of June 30, 2024 and 2023.

Long-lived Assets

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

Our building, equipment

and improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:

Our building, equipment and

improvements are recorded at historical cost and depreciation is provided using the straight-line method over the following periods:

Schedule of building, equipment and improvements

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

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consist of legal fees incurred in connection

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accrued expenses, and inventories.

Our fiscal 2023 deferred tax assets also includes capitalization of our research expenditures as prescribed

by the Tax Cuts and Jobs Act.

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

the Tax Cuts and Jobs Act.

Significant management judgment

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respectively, in the period such determination is made.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Uncertain Tax Positions

We record uncertain tax

positions in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1)

we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position,

and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit

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

We record uncertain tax positions

in accordance with Accounting Standards Codification (“ASC”) 740 on the basis of a two-step process whereby (1) we determine

whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and

(2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that

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

Shipping and Handling

Payments from customers

for shipping and handling are included in net sales .

Payments from customers for

shipping and handling are included in net sales .

Shipping expenses, consisting primarily of payments made to freight companies,

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not collateralized, we evaluate their collectability based on several factors including customers’ payment histories.

Segment Reporting

We have identified one business segment which management also considers

to be one reporting unit as our Chief Executive Officer (“CEO”) allocates resources, assesses performance, and manages our

business as one segment.

We have reached this conclusion because 99% of our business relates to designing, manufacturing, and repairing

medical devices.

We primarily design, sell, and repair handheld medical devices and accessories.

We provide medical devices, NRE and proto-type

services, as well as repairs to all our customers and we utilize one machine shop and purchasing team to procure and manufacture all the

products that we sell.

Our CEO utilizes consolidated operating income to analyze our business operations.

Compensation Plans

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basis over the requisite service period.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

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Our operations are affected

by numerous factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, effects

from the COVID-19 pandemic, government regulations, and policies.

We cannot predict what impact, if any, the occurrence of these or other

events might have on our operations.

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

recognition, share-based compensation, the allowance for doubtful accounts, accrued warranty expense, investments, inventory valuation,

the carrying value of long-lived assets, and the recoverability/extinguishment of deferred income tax assets and liabilities.

by numerous factors including market acceptance of our products, supply chain disruptions, changes in technologies, and new laws, government

regulations, and policies.

We cannot predict what impact, if any, the occurrence of these or other events might have on our operations.

Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, share-based compensation,

the allowance for credit losses, accrued warranty expense, investments, inventory valuation, the carrying value of long-lived assets,

and the recoverability/extinguishment of deferred income tax assets and liabilities.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic and Diluted Per Share Information

Basic per share amounts

are computed on the basis of the weighted-average number of common shares outstanding during each period presented.

Diluted per share

amounts assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards

as discussed in Note 13, unless the effect of such exercise is to increase income, or decrease loss, per common share.

Basic per share amounts are

computed on the basis of the weighted-average number of common shares outstanding during each period presented.

Diluted per share amounts

assume the issuance of all potential common stock equivalents, consisting of outstanding stock options and performance awards as discussed

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

Fair Value Measurements

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

consist of marketable equity securities of publicly held companies as well as a warrant to purchase outstanding stock of a publicly traded

Due to the thinly traded nature of these stocks and the lack of an active market for the warrant, all of our investments are

classified within Level 2 of the valuation hierarchy.

The estimated fair value of the warrant is measured using pricing models with no

observable inputs and is therefore considered a Level 3 measurement within the valuation hierarchy.

The fair value of all of our investments

at June 30, 2023 and 2022 was based upon a valuation analysis.

consist of marketable equity securities of publicly held companies as well as, at June 30, 2023, a warrant (the Monogram Warrant) to purchase

outstanding stock of a publicly traded company.

Due to either the thinly traded nature of these stocks or our significant ownership percentage,

in excess of 5% of shares outstanding, all of our investments are classified within Level 2 of the valuation hierarchy as of June 30,

Due to the lack of an active market for the Monogram Warrant, the estimated fair value of the warrant was measured using pricing

models with no observable inputs and was therefore considered a Level 3 measurement within the valuation hierarchy.

The fair value of

all of our investments at June 30, 2024 and 2023 was based upon a valuation analysis.

Although the methods above

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June 30, 2024 and 2023, respectively.

Recently Issued and Not Yet Adopted Accounting Standards

June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

Financial Instruments—Credit Losses (Topic 326).

ASU 2016-13 revises the impairment model to utilize an expected loss methodology

in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments,

including, but not limited to, available for sale debt securities and accounts receivable.

The guidance is effective for the Company’s

annual reporting period beginning after December 15, 2022 and interim reporting periods within that annual reporting period.

does not expect the adoption of this ASU to have a material impact on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In March 2022, the FASB issued ASU

No 2022-02 (Topic 326) Financial Instruments – Credit Losses to create a new model for credit losses that reflects current

expected credit losses (“CECL”) over the lifetime of the underlying accounts receivable.

The CECL methodology is applicable

to our trade accounts receivable and our deferred costs.

We adopted ASU 2022-02 effective July 1, 2023, and the adoption did not have

a material impact on our financial statements.

Recently Issued and Not Yet Adopted Accounting Pronouncements

December 2023, the FASB issued ASU No.

2023-09, Income Taxes:

Improvements to Income Tas Disclosures (Topic 740) .

ASU 2023-09 expands

the existing rules on income tax disclosures.

This update requires entities to disclose specific categories in the tax rate reconciliation,

provide additional information for reconciling items that meet a quantitative threshold and disclose additional information about income

taxes paid on an annual basis.

The new disclosure requirements are effective for fiscal years beginning after December 15, 2024.

adoption is permitted.

We are currently evaluating these new expanded disclosure requirements.

November 2023, the FASB issued ASU 2023-07, Segment Reporting:

Improvements to Reportable Segment Disclosures (Topic280) which

expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to or easily

computed from information regularly provided to the chief operating decision maker.

This update also requires all annual disclosures currently

required by Topic 280 to be disclosed in interim periods.

The new disclosure requirements are effective for fiscal years beginning after

December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

business, as currently operated, has only one segment, we are evaluating the new disclosure requirements to ensure compliance.

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Schedule of disaggregation of net sales

ended June 30,

Over-time revenue recognition

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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 fiscal years ended June 30, 2023 and 2022, we recorded $ 1 .0

million and $ 98,000 , respectively, of revenue that had been included in deferred revenue in the prior year.

The revenue recognized from

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

of NRE and prototype services and typically relates to NRE services related to the evaluation, design or customization of a medical device

and is typically recognized over time utilizing an input measure of progress based on costs incurred compared to the estimated total costs

upon completion.

During the fiscal years ended June 30, 2024 and 2023, we recorded $ 0 and $ 1 .0 million, respectively, of revenue that

had been included in deferred revenue in the prior year.

The revenue recognized from the contract liabilities consisted of satisfying

our performance obligations during the normal course of business.

The following tables summarize

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PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Marketable equity securities – short-term

Monogram Warrant

Marketable equity securities – long-term

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that are thinly traded.

We classified certain investments as long term in nature because even if we decide to sell the stocks we may not

be able to sell our position within one year.

At June 30, 2023, the investments included net unrealized losses of $ 219,000 (gross unrealized

losses of $ 286,000 offset by gross unrealized gains of $ 67,000 ).

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 ).

We classified certain investments as long term in nature because even if we decide to sell the stocks, we may

not be able to sell our position within one year.

At June 30, 2024, the investments included net unrealized gains of $ 1.8 million (gross

unrealized gains of $ 2.1 million offset by gross unrealized losses of $ 261,000 ).

At June 30, 2023, the investments, excluding the Monogram

Warrant, included net unrealized losses of $ 219,000 (gross unrealized losses of $ 286,000 offset by gross unrealized gains of $ 67,000 ).

marketable equity securities at June 30, 2024 and 2023, $ 987,000 and $ 1,134,000 , respectively, represent an investment in the common stock

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

warrant represents our right to purchase up to 5% of the outstanding stock of Monogram Orthopaedics Inc.

which we were granted on December 18, 2018.

By way of background, we invested in Monogram, a medical device start-up specializing in

precision, patient specific implants in fiscal 2017, by making an $ 800,000

loan to Monogram pursuant to a promissory note in the same amount.

At that time, our Chief Executive Officer, Mr.

Van Kirk, was

appointed to Monogram’s board of directors, a position he has held through the date of this filing.

We impaired our entire $ 800,000

investment in the fourth quarter of fiscal 2018 due to indications that Monogram had exhausted its cash and had been unable to

obtain additional financing to enable continued research to commercialize their technology.

In fiscal 2019, we modified the

promissory note to allow Monogram more time to re-pay the note and, concurrently, we were issued the warrant, with an exercise price

of $ 1,250,000 ,

which at the time we deemed of de minimis value.

During the fourth quarter of fiscal 2020, Monogram repaid the promissory note with

interest, but at that time and through the end of the third quarter of fiscal 2023, we considered the warrant to be of little value

and therefore did not record it as an investment on our consolidated balance sheet.

In May of 2023, Monogram raised funds through a

Regulation A+ offering filed with the Securities and Exchange Commission and contemporaneously converted all of its outstanding

preferred stock to common shares and publicly listed its common shares on the NASDAQ under the ticker symbol MGRM.

The valuation of

the warrant for all prior periods is the subject of the restatement of our previous financial statements because the value of $0 we

had ascribed to the Monogram Warrant in previous periods want not based on its estimated fair value (See Note 2).

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2023 and 2022, the warrant was exercisable into a total of 1,823,058 and 783,386 shares of Monogram’s outstanding stock.

The estimated

fair value of the warrant at June 30, 2023 and 2022 was $ 6,160,000 and $ 2,304,000 , respectively, using a Black-Scholes valuation model

with the following assumptions:

On October 6,

2023, in conjunction with the execution of a supply agreement with Monogram Technologies Inc., formerly Monogram Orthopaedics Inc.

(“Monogram”),

we exercised the Monogram Warrant in full in cash totaling $ 1,250,000 and received 1,828,551 shares of Monogram common stock (NasdaqCM:

On the date of exercise our unrealized loss on the investment was approximately $ 38,000 .

The fair value of the Monogram common

stock of $ 3.2 million, is reflected in marketable equity securities – short term in the table above as of June 30, 2024.

Executive Officer, Richard Van Kirk (“Rick”), is also a Monogram board member.

At June 30, 2023,

the Monogram Warrant was exercisable into a total of 1,823,058 shares of Monogram’s outstanding stock.

The estimated fair value

of the Monogram Warrant at June 30, 2023 was $ 6,160,000 , using a Black-Scholes valuation model with the following assumptions:

Schedule of assumptions used

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Risk-free interest rate

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

Van Kirk, and two

non-management directors, Mr.

We invest surplus

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

Van Kirk, and two non-management

directors, Mr.

Cabillot and Mr.

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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.

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.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equipment and Improvements

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expense for the years ended June 30, 2024 and 2023 amounted to $ 1,038,000 and $ 727,000 , respectively.

During fiscal 2023, fully depreciated

assets in the amount of $ 760,000 were retired.

During fiscal 2022, $ 87,000 of assets were retired either due to physical disposal or major

part replacement with a net book value of $ 35,000 recorded as a loss on disposal of equipment in our consolidated income statement.

During fiscal 2024 and 2023, fully

depreciated assets in the amount of $ 85,000 and $ 760,000 , respectively, were retired.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consist of the following (in thousands):

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the issuance of the patent.

During fiscal 2022, we impaired $ 84,000 of previously capitalized legal fees due to uncertainty relating to

future benefit.

This impairment expense was included in research and development costs in our consolidated income statement.

Future amortization

expense is estimated to be no more than $ 30,000 per year and all remaining costs are expected to be fully amortized within three years.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future amortization expense is estimated to be no more than $ 30,000 per year and all remaining costs are expected

to be fully amortized within two years.

Accrued Liabilities

Accrued liabilities consist

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Accrued customer rebate

Total accrued expenses

WARRANTY ACCRUAL

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Balance at end of year

Warranty expense relating to new product sales and

changes to estimates was $ 52,000 and $ 231,000 , respectively, for the fiscal years ended June 30, 2023 and 2022.

The provision

for income taxes consists of the following amounts (in thousands):

Warranty expense relating to new product sales and changes

to estimates was $ 267,000 and $ 52,000 , respectively, for the fiscal years ended June 30, 2024 and 2023.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for

income taxes consists of the following amounts (in thousands):

Schedule of provision for income taxes

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Income tax expense

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective income tax rate

from income from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table

below (in thousands, except percentages).

The effective income tax rate from income from continuing

operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except

percentages).

Schedule of reconciliation federal statutory income tax rates

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Income tax expense

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net effects of loss

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Stock based compensation

Unrealized losses

Section 174 capitalization

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As of June 30, 2024, our deferred

tax asset valuation allowance primarily consists and the state net operating loss carryforwards

for states in which we have filed a final return.

For the fiscal year ended June 30, 2023, we recorded a net decrease to our valuation

allowance of $ 7,000 on the basis of management’s reassessment of the amount of our deferred tax assets that are more likely than

not to be realized.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2023, we

did not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate.

We have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2023.

tax asset valuation allowance primarily consists of state net operating loss carryforwards for states in which we have filed a final return.

For the fiscal years ended June 30, 2024 and 2023, we recorded a net decrease to our valuation allowance of $ 1,000 and $ 7,000 , respectively,

on the basis of management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized.

As of June 30, 2024, we did

not have any net operating losses for federal and state income tax purposes for state jurisdictions in which we currently operate.

have no federal or state research and development and alternative minimum tax credit carry forwards at June 30, 2024.

As of June 30, 2024,

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If we are eventually able to recognize our uncertain tax positions, our effective tax rate would be reduced.

adjustment to our uncertain tax positions would result in an adjustment of our tax credit carryforwards rather than resulting in a cash

adjustment to our uncertain tax positions would result in a cash outlay.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect to our accrual for unrecognized

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by the Internal Revenue Service for the years ended June 30, 2021, and later.

However, because of our prior net operating losses

and research credit carryovers, our tax years from June 30, 2008, are open to audit.

However, because of our prior net operating

losses and research credit carryovers, our tax years from June 30, 2013, are open to audit.

NOTES PAYABLE AND FINANCING TRANSACTIONS

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PRO-DEX, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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providing for a $ 7,525,000 amended and restated term loan (the “Term Loan A”), a $ 1,000,000 term loan (the “Term Loan

B”), and a $ 2,000,000 amended and restated revolving loan (the “Revolving Loan” and, together with the Term Loan A and

the Term Loan B, collectively, the “Loans”), evidenced by an Amended and Restated Term Note A (“Term Note A”),

B”), and a $ 2,000,000 amended and restated revolving loan, evidenced by an Amended and Restated Term Note A (“Term Note A”),

a Term Note B, and an Amended and Restated Revolving Credit Note (the “Revolving Note”) made by us in favor of MBT.

are secured by substantially all of the Company’s assets pursuant to a Security Agreement entered into on September 6, 2018 between

the Company and MBT.

The Term Note A had an outstanding principal balance of $ 3,770,331 as of the Closing Date and could be borrowed against

through May 30, 2021 (the “Commitment Period”).

During the third quarter ended March 31, 2021, we borrowed an additional $ 3,000,000

against Term Note A for the purpose of repurchasing our common stock as described in Note 13.

The Term Note B had a zero balance as of

the Closing Date and we borrowed the full $ 1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements

to the Franklin property described in Note 4.

Note A had an outstanding principal balance of $ 3,770,331 as of the Closing Date and could be borrowed against through May 30, 2021 (the

“Commitment Period”).

During the third quarter ended March 31, 2021, we borrowed an additional $ 3,000,000 against Term Note

A for the purpose of repurchasing our common stock as described in Note 13.

The Term Note B had a zero balance as of the Closing Date

and we borrowed the full $ 1,000,000 during the third quarter ended March 31, 2021, for the purpose of making improvements to the Franklin

property described in Note 4.

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

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

thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan A of approximately $ 97,000

plus any additional accrued and unpaid interest through the date of payment.

The balance owed on Term Loan A as of June 30, 2023, is $ 4,832,000 .

thereafter until the maturity date, we are required to make payments of principal and interest on Term Loan

A of approximately $ 97,000 plus any additional accrued and unpaid interest through the date of payment.

The balance owed on Term Loan

A as of June 30, 2024, is $ 3,834,000 .

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

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B and the balance outstanding on Term Note B was $ 571,000 on June 30, 2024.

On December 29, 2022 (the “Amendment

Date”), we entered into Amendment No.

2 to Amended and Restated Credit Agreement (the “Amendment”) with MBT, which amends

the Amended Credit Agreement and provides for a supplemental line of credit in the amount of $ 3,000,000 (the “Supplemental Loan”).

The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental Note”) made by us in favor of

The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of our common stock.

The Supplemental

Loan may be borrowed against from time to time through its maturity date of December 29, 2024 , on the terms set forth in the Amended Credit

On December 29, 2022

(the “Second Amendment Date”), we entered into Amendment No.

2 to Amended and Restated Credit Agreement (the “Second

Amendment”) with MBT, which amends the Amended Credit Agreement and provides for a supplemental line of credit in the amount of

$ 3,000,000 (the “Supplemental Loan”).

The Supplemental Loan is evidenced by a Supplemental Revolving Credit Note (the “Supplemental

Note”) made by us in favor of MBT.

The purpose of the Supplemental Loan is for financing acquisitions and repurchasing shares of

our common stock.

The Supplemental Loan may be borrowed against from time to time through its maturity date of December 29, 2024 , on the

terms set forth in the Amended Credit Agreement.

As of June 30, 2024, no amounts have been drawn against the Supplemental Loan.

The Revolving Loan was also amended

(the “Amended Revolving Loan”) in connection with the Amendment to extend the maturity date from November 5, 2023 to December

29, 2024 , to increase the Revolving Loan facility from $ 2,000,000 to $ 7,000,000 , and to increase the interest rate on the Revolving Loan

(as described below), evidenced by an Amended and Restated Revolving Credit Note (the “Amended Revolving Note”) made by us

in favor of MBT.

The Amended Revolving Loan may be borrowed against from time to time by us through its maturity date on the terms set

forth in the Amended Credit Agreement.

The Revolving Loan

was also amended (the “Amended Revolving Loan”) in connection with the Second Amendment to extend the maturity date from November

5, 2023 to December 29, 2024 , to increase the Revolving Loan facility from $ 2,000,000 to $ 7,000,000 , and to increase the interest rate

on the Revolving Loan (as described below), evidenced by an Amended and Restated Revolving Credit Note (the “Amended Revolving Note”)

made by us in favor of MBT.

The Amended Revolving Loan may be borrowed against from time to time by us through its maturity date on the

terms set forth in the Amended Credit Agreement.

As of June 30, 2024, we had drawn $ 3,000,000 against the Amended Revolving Loan.

Loan origination

fees in the amount of $ 16,000 were paid to MBT in conjunction with the Amended Revolving Loan and the Supplemental Loan.

The Amended Revolving Loan and

Supplemental Loan bear interest at an annual rate equal to the greater of (a) 5.0 % or (b) SOFR for a one-month period from the website

of the CME Group Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”).

Commencing on the first day of

each month after we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity,

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

Any principal on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on

the maturity date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan).

origination fees in the amount of $ 16,000 were paid to MBT in conjunction with the Amended Revolving Loan and the Supplemental Loan.

The Amended Revolving Loan and Supplemental

Loan bear interest at an annual rate equal to the greater of (a) 5.0 % or (b) SOFR for a one-month period from the website of the CME Group

Benchmark Administration Limited plus 2.5% (the “Adjusted Term SOFR Rate”).

Commencing on the first day of each month after

we initially borrow against the Amended Revolving Loan and/or the Supplemental Loan and each month thereafter until maturity, we are required

to pay all accrued and unpaid interest on the Amended Revolving Loan and Supplemental Loan through the date of payment.

Any principal

on the Amended Revolving Loan and/or Supplemental Loan that is not previously prepaid shall be due and payable in full on the maturity

date (or earlier termination of the Amended Revolving Loan and/or Supplemental Loan).

December 29, 2023, we entered into Amendment No.

3 to Amended and Restated Credit Agreement, which extended the maturity date of the Amended

Revolving Loan and the Supplemental Loan from December 29, 2024, to December 29, 2025.

PRO-DEX, INC.

AND SUBSIDIARIES

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

declare all of the Loans immediately due and payable in full.

Amended Credit Agreement, Amended Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations

The Loans are secured by substantially all of our assets pursuant to a Security

Agreement entered into between us and MBT on September 6, 2018.

Amended Credit Agreement, Security Agreement, Term Note A, Term Note B, Amended Revolving Note and Supplemental Note contain representations

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

2 unchanged sentences

Scheduled principal

maturities of our loans, assuming repayment of our revolver in full next fiscal year and exclusive of unamortized loan origination fees

in the amount of $ 59,000 , for future fiscal years ending June 30 are as follows (in thousands):

maturities of our loans, assuming repayment of the Amended Revolving Loan in full next fiscal year and exclusive of unamortized loan origination

fees in the amount of $ 46,000 , for future fiscal years ending June 30 are as follows (in thousands):

Schedule of maturities of term loan for future fiscal years

2 unchanged sentences

Our operating lease ROU

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

The current portion of our operating lease liability, exclusive

of imputed interest, as of June 30, 2023, in the amount of $ 416,000 , is presented within accrued expenses on the balance sheet.

June 30, 2023, the maturity of our lease liability is as follows:

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

The current portion of our operating lease liability,

exclusive of imputed interest, as of June 30, 2024, in the amount of $ 455,000 , is presented within accrued expenses on the consolidated

balance sheet.

As of June 30, 2024, the maturity of our lease liability is as follows:

Schedule of maturities of lease liabilities

Operating Lease

Total lease payments

Less imputed interest:

As of June 30, 2023, our

operating lease has a remaining lease term of four years and three months and an imputed interest rate of 5.3 %.

Cash paid for amounts

included in the lease liability for the fiscal years ended June 30, 2023 and 2022 was $ 504,000 and $ 489,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2024 and 2023,

our operating lease has a remaining lease term of 3.25 years and 4.25 years, respectively, and an imputed interest rate of 5.3 %.

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

842 to determine the present value of future lease payments.

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

ended June 30, 2024 and 2023 was $ 519,000 and $ 504,000 , respectively.

COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

and 2023 was $ 559,000 and $ 563,000 , respectively.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Compensation Arrangements

24 unchanged sentences

Stock Option Plan were terminated in June 2014 and December 2014, respectively.

No options were granted under the Former Stock Option

Plans during the fiscal years ended June 30, 2024 and 2023 and all remaining outstanding stock options were exercised during fiscal 2023.

In September 2016, our Board

2 unchanged sentences

stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards.

Former Stock Option Plans

No options were granted

under the Former Stock Option Plans during the fiscal years ended June 30, 2023 and 2022.

30, 2023, there was no unrecognized compensation cost under the Former Stock Option Plans and all remaining outstanding stock options

were exercised during fiscal 2023 .

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a

summary of stock option activity under the Former Stock Option Plans for the fiscal years ended June 30, 2023 and 2022:

Schedule of summary of stock option activity

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

Performance Awards

16 unchanged sentences

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 $ 106,000 and $ 194,000 for the fiscal years ended June 30, 2023 and 2022, respectively, related to these performance

On June 30, 2023, there was approximately $ 98,000 of unrecognized compensation cost related to these non-vested performance awards

expected to be expensed over the weighted-average period of 2.0 years.

On July 1, 2022, it was

determined by the Compensation Committee of our Board of Directors that the vesting of performance awards for 37,500 shares of common

stock had been achieved.

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.

In October 2023,

the Compensation Committee reallocated an additional 15,200 previously forfeited awards, having the same remaining terms and conditions,

to other employees.

The weighted average fair value of the performance awards reallocated in 2023 was $ 10.04 , calculated using the weighted

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

We recorded share-based compensation expense of $ 106,000 in

each of the fiscal years ended June 30, 2024 and 2023, respectively, related to these performance awards.

We recognize forfeitures for

our performance awards as they occur.

On June 30, 2024, there was approximately $ 55,000 of unrecognized compensation cost related to these

non-vested performance awards expected to be expensed over the weighted-average period of 1.0 years.

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 1, 2022, it was determined

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.

The following is a summary

6 unchanged sentences

Outstanding at July 1,

Outstanding at end of period

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outstanding at June 30

Non-Qualified Stock Options

6 unchanged sentences

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

As of June 30,

2023, there was approximately $ 2.4 million of unrecognized compensation cost related to these non-vested non-qualified stock options.

forfeitures for our non-qualified stock options as they occur.

As of June 30, 2024, there was approximately $ 1.6 million of unrecognized

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

In February 2021, the Compensation

10 unchanged sentences

of our Board of Directors granted 5,000 previously forfeited non-qualified stock options to another employee.

The following is a summary of

non-qualified stock option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2023 and 2022:

The following is a summary of non-qualified

stock option activity under the 2016 Equity Incentive Plan for the fiscal year ended June 30, 2024 and 2023:

Schedule of summary of stock option activity

7 unchanged sentences

Options forfeited

Outstanding at end of period

Stock Options Exercisable at

Outstanding at June 30

Stock Options Exercisable at June 30,

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Stock Purchase

11 unchanged sentences

ESPP under the Securities Act of 1933.

During the fiscal years

ended June 30, 2023 and 2022, shares totaling 5,459 and 2,576 , respectively, were purchased pursuant to the ESPP and allocated to participating

In October 2023, our Board

approved an amendment to the ESPP (the “ESPP Amendment”), which extended the term of the ESPP for an additional ten years

from January 2025 to January 2035.

The ESPP Amendment was approved by our shareholders at our 2023 Annual Meeting.

During the fiscal years ended

June 30, 2024 and 2023, shares totaling 3,004 and 5,459 , respectively, were purchased pursuant to the ESPP and allocated to participating

employees based upon their contributions at weighted- average prices of $ 16.64 and $ 14.21 , respectively.

3 unchanged sentences

recorded stock compensation expense in the amount of $ 9,000 and $ 14,000 , respectively, relating to the ESPP.

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAJOR CUSTOMERS & SUPPLIERS

2 unchanged sentences

Schedule of sales by major customers

Years Ended June 30,

Percent of Total

Ended June 30,

Customer concentration:

3 unchanged sentences

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

June 30, 2023

June 30, 2022

Total gross accounts receivable

Customer concentration:

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 2024 and 2023,

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

June 30, 2023

June 30, 2022

we had three and four suppliers, respectively, that accounted for more than 10% of total inventory purchases, as follows (in thousands,

except percentages):

Total inventory purchases

Supplier concentration:

PRO-DEX, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information with respect

to accounts payable due to those suppliers who comprised more than 10% of our accounts payable at either June 30, 2023 or June 30, 2022

is as follows (in thousands, except percentages):

Information with respect to accounts payable due to our

top three suppliers at June 30, 2024 or June 30, 2023 is as follows (in thousands, except percentages):

Total accounts payable

1 unchanged sentence

NET INCOME PER SHARE

We calculate basic earnings

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

Diluted earnings

per share reflects the effects of potentially dilutive securities.

The summary of the basic and diluted earnings per share calculations

for the years ended June 30, 2023 and 2022 is as follows (in thousands, except per share data):

calculate basic earnings per share by dividing net income by the weighted-average number of common shares outstanding during the reporting

Diluted earnings per share reflects the effects of potentially dilutive securities.

The summary of the basic and diluted earnings

per share calculations for the years ended June 30, 2024 and 2023 is as follows (in thousands, except per share data):

Schedule of net income per share

6 unchanged sentences

Diluted earnings per share

PRO-DEX, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMON STOCK – Share Repurchase Program

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

stock, as the prior repurchase plan authorized by our Board in 2013 was nearing completion.

In accordance with, and as part of, these

shares repurchase programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the

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

During the fiscal year ended June 30, 2023, we repurchased 86,422 shares at an aggregate cost, inclusive of fees under the Plan, of $ 1.5

During the fiscal year ended June 30, 2022, we repurchased 75,250 shares at an aggregate cost, inclusive of fees under the Plan,

of $ 1.6 million.

On a cumulative basis, we have repurchased a total of 1,197,168 shares under the share repurchase programs at an aggregate

cost, inclusive of fess under the Plan, of $ 17.2 million.

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

In December 2019, our Board

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

plan authorized by our Board in 2013 was nearing completion.

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

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

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

During the fiscal year ended

June 30, 2024, we repurchased 184,901

shares at an aggregate cost, inclusive of fees under the Plan, of $ 3.5

During the fiscal year ended June 30, 2023, we repurchased 86,422

shares at an aggregate cost, inclusive of fees under the Plan, of $ 1.5

On a cumulative basis, since 2013 we have repurchased a total of 1,381,349

shares under the share repurchase programs at an aggregate cost, inclusive of fess under the Plan, of $ 20.7

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

SUBSEQUENT EVENTS

On October 6, 2023, in

conjunction with the execution of a supply agreement, we exercised our Monogram Warrant in full in cash totaling $ 1,250,000

and have received 1,828,551

shares of Monogram common stock (NasdaqCM:

The closing price of Monogram stock on October 6, 2023, was $ 2.67 per

On July 31, 2024 (the

“Fourth Amendment Date”), we entered into Amendment No.

4 to our Amended and Restated Credit Agreement (the “Fourth

Amendment”) with MBT which amends the Company’s Amended Credit Agreement.

The Fourth Amendment (i) provides for a new term

loan, Term Loan C, in the amount of $ 5,000,000 , (ii) uses the proceeds from Term Loan C to repay the entire $ 3,000,000 balance that was

outstanding on the Fourth Amendment Date under the Amended Revolving Loan, and (iii) terminates the Supplemental Loan, under which

no amounts had been drawn.

Loan origination fees in the amount of $ 10,000 were paid to MBT in conjunction with Term Loan C.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data