UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2025
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number: 0-14942

PRO-DEX, INC.

(Exact name of registrant as specified in its charter)

———————

colorado	84-1261240
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2361 McGaw Avenue, Irvine, California 92614

(Address of principal executive offices and zip code)

(949) 769-3200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	PDEX	NASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock outstanding as of the latest practicable date: 3,205,985 shares of common stock, no par value, as of January 27, 2026.

PRO-DEX, INC. AND SUBSIDIARY

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2025

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)	1

Condensed Consolidated Balance Sheets as of December 31, 2025 and June 30, 2025	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2025 and 2024	2
Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended December 31, 2025 and 2024	3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2025 and 2024	4
Notes to Condensed Consolidated Financial Statements	6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4. CONTROLS AND PROCEDURES	23

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	24

ITEM 1A. RISK FACTORS	24

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24

ITEM 5. OTHER INFORMATION	25

ITEM 6. EXHIBITS	25

SIGNATURES	26

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share amounts)


	December 31, 2025		June 30, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	7,953	$	419
Investments		864		6,740
Accounts receivable, net of allowance for expected credit losses of $19 and $0 at December 31, 2025 and at June 30, 2025, respectively		17,883		16,433
Deferred costs		174		24
Inventory		21,710		22,213
Income tax receivable		266		1,056
Prepaid expenses and other current assets		336		410
Total current assets		49,186		47,295

Land and building, net		6,015		6,061
Equipment and leasehold improvements, net		4,757		5,153
Right-of-use asset, net		830		1,050
Intangibles, net		12		26
Deferred income taxes, net		1,277		1,415
Investments		135		148
Other assets		44		44
Total assets	$	62,256	$	61,192

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,111	$	4,614
Accrued liabilities		4,258		3,479
Income taxes payable		1,200		186
Deferred revenue		163		202
Notes payable		2,469		6,148
Total current liabilities		12,201		14,629
Lease liability, net of current portion		419		685
Notes payable, net of current portion		8,005		9,246
Total non-current liabilities		8,424		9,931
Total liabilities		20,625		24,560
Shareholders’ equity:
Common stock; no par value; 50,000,000 shares authorized; 3,209,732 and 3,261,043 shares issued and outstanding at December 31, 2025 and June 30, 2025, respectively		—		704
Retained earnings		41,631		35,928
Total shareholders’ equity		41,631		36,632
Total liabilities and shareholders’ equity	$	62,256	$	61,192

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended December 31,						Six Months Ended December 31,
	2025			2024			2025			2024

Net sales	$	18,663		$	16,793		$	37,194		$	31,686
Cost of sales		12,920			11,721			26,083			21,464
Gross profit		5,743			5,072			11,111			10,222

Operating expenses:
Selling, general and administrative expenses		1,750			1,438			3,241			2,733
Research and development costs		734			942			1,502			1,784
Total operating expenses		2,484			2,380			4,743			4,517
Operating income		3,259			2,692			6,368			5,705

Other income (expense), net
Interest expense		(141	)		(204	)		(341	)		(357	)
Gain (loss) on marketable equity investments, net		(250	)		77			3,049			510
Interest and other income		60			21			74			46
Total other income (expense)		(331	)		(106	)		2,782			199

Income before income taxes		2,928			2,586			9,150			5,904
Provision for income taxes		741			546			2,283			1,398
Net income	$	2,187		$	2,040		$	6,867		$	4,506

Basic and diluted net income per share:
Basic net income per share	$	0.67		$	0.63		$	2.11		$	1.36
Diluted net income per share	$	0.66		$	0.61		$	2.07		$	1.33


Weighted-average common shares outstanding:
Basic		3,249,260			3,261,145			3,255,507			3,314,207
Diluted		3,304,042			3,337,337			3,317,777			3,378,862
Common shares outstanding		3,209,732			3,260,390			3,209,732			3,260,390

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)


	Three Months Ended December 31,						Six Months Ended December 31,
	2025			2024			2025			2024
Common stock:
Balance, beginning of period	$	905		$	1,461		$	704		$	3,917
Share-based compensation expense		165			130			325			243
Share repurchases		(2,207	)		(1,192	)		(2,207	)		(3,504	)
Shares withheld from common stock issued to employees to pay employee payroll taxes		(27	)		(33	)		(27	)		(305	)
ESPP shares issued		—			—			41			15
Reclassification of excess share repurchases⁽¹⁾		1,164			—			1,164			—
Balance, end of period		—			366			—			366

Retained earnings:
Balance, beginning of period		40,608			29,416			35,928			26,950
Net income		2,187			2,040			6,867			4,506
Shareholder distribution		(1,164	)		—			(1,164	)		—
Balance, end of period		41,631			31,456			41,631			31,456

Balance, beginning of period		41,513			30,877			36,632			30,867
Net income		2,187			2,040			6,867			4,506
Total shareholders’ equity	$	41,631		$	31,822		$	41,631		$	31,822

⁽¹⁾

During the three months ended December 31, 2025, our stock repurchases exceeded the value of cumulative common stock, and the excess has been reflected as a shareholder distribution, reducing our consolidated retained earnings.

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended December 31,
	2025			2024

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,867		$	4,506
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		625			615
Share-based compensation		325			243
Gain on marketable equity investments		(3,049	)		(510	)
Non-cash lease recovery		(23	)		(14	)
Deferred income taxes		138			—
Amortization of loan fees, net		5			13
Credit loss expense		19			27
Changes in operating assets and liabilities:
Accounts receivable		(1,469	)		(4,606	)
Deferred costs		(150	)		109
Inventory		503			(4,342	)
Prepaid expenses and other assets		73			(991	)
Accounts payable and accrued expenses		254			3,030
Deferred revenue		(39	)		(14	)
Income taxes		1,803			(329	)
Net cash provided by (used in) operating activities		5,882			(2,263	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments		8,938			—
Purchases of equipment and improvements		(168	)		(973	)
Net cash provided by (used in) investing activities		8,770			(973	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(2,207	)		(3,504	)
Proceeds from ESPP contributions		41			15
Payment of employee payroll taxes on net issuance of common stock		(27	)		(305	)
Proceeds from notes payable and revolving loan		14,901			8,490
Principal payments on notes payable and revolving loan		(19,826	)		(4,025	)
Net cash provided by (used in) financing activities		(7,118	)		671

Net increase (decrease) in cash and cash equivalents		7,534			(2,565	)
Cash and cash equivalents, beginning of period		419			2,631
Cash and cash equivalents, end of period	$	7,953		$	66

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Unaudited)

(In thousands)


	Six Months Ended December 31,
	2025		2024
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	363	$	338
Cash paid during the period for income taxes by jurisdiction:
Federal income tax payments	$	150	$	1,570
California income tax payments		—		1,100
Indiana income tax payments		20		—
Florida income tax payments		170		—
Total income tax payments	$	340	$	2,670

Non-cash investing and financing activity:
Cashless stock option exercise	$	—	$	117

The accompanying notes are an integral part of these condensed consolidated financial statements.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Pro-Dex, Inc. (“we,” “us,” “our,” “Pro-Dex,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and applicable provisions of Regulation S-K. Accordingly, they do not include all of the information and footnotes required by U.S. 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, 2025. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2025.

Recently Adopted Accounting Standards

In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606), which clarifies the application of derivative accounting to certain contracts and updates the guidance for share-based noncash consideration received from a customer in exchange for goods and services. Specifically, this ASU introduces a scope exception for contracts that are not exchange-traded and whose underlying is tied to operations or activities specific to one of the parties to the contract. It also clarifies the guidance for share-based consideration from a customer. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted and the option to apply on a prospective or modified retrospective basis. The Company early adopted this ASU on a prospective basis as of July 1, 2025. The Company expects this ASU to reduce the cost and complexity associated with analyzing and applying the derivative guidance to contracts with underlyings based on operations or activities specific to one of the parties of the contract, such as the contingent consideration received in exchange for the Company’s shares of common stock in Monogram Technologies, Inc. (“Monogram”) described more fully in Note 4.

Recently Issued and Not Yet Adopted Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (“DISE”). The ASU’s purpose is to improve disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling, general and administrative, and research and development). This ASU is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating these new expanded disclosure requirements, but this standard will not impact our results of operations or financial position.

In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic270): Narrow-scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11.

No other new accounting pronouncements issued or effective during the fiscal year have, or are expected to have, a material impact on our condensed consolidated financial statements.

Segment Reporting

As of December 31, 2025, we have identified one reportable segment, as our chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, allocates resources, assesses performance, and manages our business as one segment. As our operations are managed at the consolidated level, there are no differences between the measurement of the reportable segment’s profit or loss and our condensed consolidated statement of operations.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Reclassifications

The Company’s selling expenses have been reclassified and combined with its general and administrative expenses in its consolidated statement of operations to conform to the current period presentation. Historically the Company has had only one employee in its sales department. Currently we have no employees in our sales department but in advance of the expanded disclosures required by DISE we are combining selling, general and administrative expenses to avoid potential disclosure of confidential compensation of one employee.

NOTE 2. DESCRIPTION OF BUSINESS

We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial markets. We have patented adaptive torque-limiting software and proprietary sealing solutions that appeal to our customers, primarily medical device distributors. Additionally, we provide engineering, quality and regulatory consulting services to our customers. We also manufacture and sell rotary air motors to a wide range of industries; however, these motors comprise a de minimis portion of our business.

In August 2020, we formed a wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued growth of our business. The condensed consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant inter-company accounts and transactions have been eliminated. This subsidiary has no separate operations.

NOTE 3. NET SALES

The following table presents the disaggregation of net sales by revenue recognition model (in thousands):


	Three Months Ended December 31,				Six Months Ended December 31,
	2025		2024		2025		2024
Net Sales:
Over-time revenue recognition	$	149	$	41	$	625	$	89
Point-in-time revenue recognition		18,514		16,752		36,569		31,597
Total net sales	$	18,663	$	16,793	$	37,194	$	31,686

The timing of revenue recognition, billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed consolidated balance sheets), and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets), where applicable. Amounts are generally billed as work progresses in accordance with agreed upon milestones. The over-time revenue recognition model consists of 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 and six months ended December 31, 2025, we recorded $0 and $80,000, respectively, of revenue that had been included in deferred revenue in the prior year. During the three and six months ended December 31, 2024, we recorded $0 and $14,000, respectively, of revenue that had been included in deferred revenue in the prior year. The revenue recognized from contract liabilities consisted of satisfying our performance obligations during the normal course of business. As of December 31, 2025 and 2024, we had deferred revenue of $163,000 and $0, respectively.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables summarize our contract assets and liability balances (in thousands):


	As of and for the Three Months Ended December 31,						As of and for the Six Months Ended December 31,
	2025			2024			2025			2024
Contract assets beginning balance	$	32		$	211		$	24		$	262
Expenses incurred during the year		146			40			230			97
Amounts reclassified to cost of sales		(4	)		(99	)		(80	)		(201	)
Amounts allocated to discounts for standalone selling price		—			—			—			(6	)
Contract assets ending balance	$	174		$	152		$	174		$	152


	As of and for the Three Months Ended December 31,				As of and for the Six Months Ended December 31,
	2025		2024		2025			2024
Contract liabilities beginning balance	$	122	$	—	$	202		$	14
Payments received from customers		41		—		41			—
Amounts reclassified to revenue		—		—		(80	)		(14	)
Contract liabilities ending balance	$	163	$	—	$	163		$	—

NOTE 4. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income, and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

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

Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our money market accounts, which are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities.

Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by observable market data. At December 31, 2025 and June 30, 2025, we categorized our investments in marketable equity securities as Level 2 assets.

Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities at December 31, 2025 or June 30, 2025.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables summarize the fair value measurements within the fair value hierarchy of our financial instruments (in thousands):


	Fair Value Measurement at December 31, 2025
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents	$	5,273		—	$	—		5,273
Marketable equity securities – short-term		—		864		—		864
Marketable equity securities – long-term		—		135		—		135
Total	$	5,273		999	$	—		6,272


	Fair Value Measurement at June 30, 2025
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents	$	33		—	$	—		33
Marketable equity securities – short-term		—		6,740		—		6,740
Marketable equity securities – long-term		—		148		—		148
Total	$	33		6,888	$	—		6,921

Investments at December 31, 2025 and June 30, 2025 had an aggregate cost basis of $1.4 million and $3.5 million, respectively. Both short-term and long-term marketable equity securities include equity securities of public companies that are thinly traded. We classified certain investments as long-term in nature because if we decide to sell these securities, we may not be able to sell our position within one year. At December 31, 2025, the investments included unrealized losses of $402,000. At June 30, 2025, the investments included net unrealized gains of $3.3 million (gross unrealized gains of $3.5 million offset by gross unrealized losses of $213,000).

Of the total marketable equity securities at December 31, 2025 and June 30, 2025, $864,000 and $1,040,000, respectively, represent an investment in the common stock of Air T, Inc. Two of our Board members are also board members of Air T, Inc. and both either individually or through affiliates, own an equity interest in Air T, Inc. Our Chairman, one of the two Board members aforementioned, also serves as the Chief Executive Officer and Chairman of Air T, Inc. Another of our Board members is employed by Air T, Inc. as its Chief of Staff. The shares were purchased through 10b5-1 Plans, that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc.

On October 7, 2025, Zimmer Biomet Holdings, Inc. (“Zimmer Biomet”) announced that it had completed its acquisition of Monogram and soon after the announcement we received $4.04 per share in cash for each of the 2,212,378 common shares we owned of Monogram prior to the close of the acquisition, for total proceeds of $8.9 million. Accordingly, in our second quarter of fiscal 2026, we recorded a realized gain in the amount of $6.8 million. In addition, we received 2,212,378 non-tradeable contingent value rights (“CVR’s”) payable in cash to us if Monogram completes five milestones related to proof-of concept, FDA 510(k) approval, and specific revenue milestones. The CVR payments, if earned, will range in value from $1.04 to $3.43 per CVR for a total amount of $12.37 should all milestones be attained. There is no guarantee or assurance that any milestones will be achieved.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

We will record an additional gain upon receipt of CVR payments, if made. As disclosed previously, in conjunction with making our original investment in Monogram during fiscal 2017, we were granted the exclusive right to develop, engineer, manufacture and supply certain products on its behalf. Those rights were transferred in connection with Zimmer Biomet’s acquisition of Monogram and remain in effect post-acquisition. We made this investment in the hope that it could generate meaningful additional revenue which has yet to occur but may be more likely to occur in the future because Zimmer Biomet has more financial resources to assist with commercialization of Monogram’s products. However, there is no guarantee or assurance as to the amount of revenue, if any, that we may ultimately recognize from our exclusive right to develop, engineer, manufacture and supply certain products for Monogram.

We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director, Mr. Van Kirk, and two non-management directors, Mr. Cabillot and Mr. Swenson, who chairs the committee. Both Messrs. Cabillot and Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for 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.

NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

Inventory

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

Schedule of investments
	December 31, 2025		June 30, 2025
Raw materials/purchased components	$	10,184	$	10,397
Work in process		6,810		7,422
Sub-assemblies/finished components		3,901		2,874
Finished goods		815		1,520
Total inventory	$	21,710	$	22,213

Intangibles

Intangibles consist of the following (in thousands):

Schedule of intangibles
	December 31, 2025			June 30, 2025
Patent-related costs	$	208		$	208
Less: accumulated amortization		(196	)		(182	)
	$	12		$	26

Patent-related costs consist of legal fees incurred in connection with both patent applications and a patent issuance and will be amortized over the estimated life of the product(s) that is or will be utilizing the technology, or expensed immediately in the event the patent office denies the issuance of the patent. These intangible assets are expected to be fully expensed this fiscal year.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6. WARRANTY

Our warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in accrued liabilities in the accompanying condensed consolidated balance sheets. As of December 31, 2025 and June 30, 2025, the warranty reserve amounted to $370,000 and $357,000, respectively. Warranty expenses are included in cost of sales in the accompanying condensed consolidated statements of income. Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and warranty return rates and are included in current period warranty expense.

Information regarding the accrual for warranty costs for the three and six months ended December 31, 2025 and 2024, are as follows (in thousands):

Schedule of accrual warranty costs
	As of and for the Three Months Ended December 31,						As of and for the Six Months Ended December 31,
	2025			2024			2025			2024
Beginning balance	$	379		$	300		$	357		$	277
Accruals during the period		54		$	48		$	139		$	138
Changes in estimates of prior period warranty accruals		(9	)		(7	)		(38	)		(25	)
Warranty amortization		(54	)		(29	)		(88	)		(78	)
Ending balance	$	370		$	312		$	370		$	312

NOTE 7. NET INCOME PER SHARE

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 of outstanding stock options, restricted shares and performance awards.

The following table presents reconciliations of the numerators and denominators of the basic and diluted earnings per share computations. In the tables below, net income amounts represent the numerator, and weighted average shares outstanding amounts represent the denominator (in thousands, except per share amounts):

Schedule of net income per share
	Three Months Ended December 31,				Six Months Ended December 31,
	2025		2024		2025		2024
Basic:
Net income	$	2,187	$	2,040	$	6,867	$	4,506
Weighted average shares outstanding		3,249		3,261		3,256		3,314
Basic income per share	$	0.67	$	0.63	$	2.11	$	1.36
Diluted:
Net income	$	2,187	$	2,040	$	6,867	$	4,506
Weighted average shares outstanding		3,249		3,261		3,256		3,314
Effect of dilutive securities		55		76		62		65
Weighted average shares used in calculation of diluted earnings per share		3,304		3,337		3,318		3,379
Diluted income per share	$	0.66	$	0.61	$	2.07	$	1.33

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8. INCOME TAXES

Deferred income taxes are provided on a liability method whereby deferred tax assets and liabilities are recognized for temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Significant management judgment is required in determining our provision for income taxes and the recoverability of our 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. Our deferred tax asset is net of a valuation allowance in the gross amount of $90,000 as of December 31, 2025 and June 30, 2025.

We recognize accrued interest and penalties related to unrecognized tax benefits when applicable. The effective tax rate for the three months ended December 31, 2025, and 2024 was 25% and 21%, respectively. The effective tax rate for the six months ended December 31, 2025, and 2024 was 25% and 24%, respectively. The effective tax rate in fiscal 2026 is slightly higher than the prior fiscal year due to a prior year windfall related to vesting of employee performance awards that did not recur in fiscal 2026.

We are subject to U.S. federal income tax, as well as various state jurisdictions. Our U.S. federal income taxes are currently open to audit under the statute of limitations by the Internal Revenue Service for the fiscal years ended June 30, 2022 and later. However, because of our prior net operating losses and research credit carryovers, our tax years from June 30, 2020 and after are open to audit. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

Additionally, the One Big Beautiful Bill Act of 2025, or the 2025 Act, enacted on July 4, 2025, makes changes to U.S. corporate income taxes including reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025, and immediate expensing of research and development costs, with retroactive application for tax years starting after December 31, 2025. We are continuing our evaluation of the impact the adoption of the 2025 Act will have on our financial statements for the fiscal year ended June 30, 2026.

NOTE 9. SHARE-BASED COMPENSATION

Our 2016 Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards. As of December 31, 2025, performance awards for 200,000 shares of common stock, non-qualified stock options for 372,000 shares of common stock, and 33,500 restricted shares of common stock have been granted under the 2016 Equity Incentive Plan.

Performance Awards

During both the three months ended December 31, 2025, and 2024, we recorded share-based compensation expense of $7,000 related to outstanding performance awards. During both the six months ended December 31, 2025, and 2024, we recorded share-based compensation expense of $14,000 related to outstanding performance awards. On December 31, 2025, there was approximately $14,000 of unrecognized compensation cost related to non-vested performance awards, which is expected to be expensed over a weighted-average period of six 6 months.

On July 1, 2024, it was determined by the Compensation Committee that the vesting of performance awards for 40,000 shares of common stock had been achieved. Each participant elected a net issuance to cover their individual withholding taxes and, therefore, we issued participants 25,134 shares of common stock and paid $273,000 of participant-related payroll tax liabilities.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Non-Qualified Stock Options

In December 2020, the Compensation Committee granted non-qualified stock options for 310,000 shares of common stock 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 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 in fiscal 2021 was $16.72, calculated using a Monte Carlo simulation. During both the three months ended December 31, 2025 and 2024, we recorded compensation expense of $104,000 related to these options. During both the six months ended December 31, 2025 and 2024, we recorded compensation expense of $208,000 related to these options. As of December 31, 2025, 26,250 of these stock options have vested, 126,250 have been forfeited either due to termination or our stock price not attaining the pre-determined price, and 157,500 remain outstanding and unvested and there was approximately $937,000 of unrecognized compensation cost related to the non-vested stock options.

Restricted Shares

In November 2024, the Compensation Committee awarded 18,000 restricted shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The shares vest ratably over five years from the date of grant. The fair value of the restricted shares on the date of grant was $857,000, based upon the closing price of our common stock on the date of grant. During the second quarter of fiscal 2026, 3,600 shares were vested and 872 shares were forfeited by employees to pay their individual withholding taxes and therefore we issued 2,728 shares of common stock and paid $27,000 of participant-related payroll tax liabilities.

In November 2025, the Compensation Committee awarded 15,500 restricted shares of common stock to our directors and certain employees under the 2016 Equity Incentive Plan. The shares vest ratably over five years from the date of grant. The fair value of the restricted shares on the date of grant was $478,000, based upon the closing price of our common stock on the date of grant.

During the three months ended December 31, 2025 and 2024, we recorded compensation expense of $53,000 and $19,000, respectively, related to these restricted shares. During the six months ended December 31, 2025 and 2024, we recorded compensation expense of $96,000 and $19,000, respectively, related to these restricted shares. As of December 31, 2025, there was approximately $1.1 million of unrecognized compensation cost related to these restricted shares.

Employee Stock Purchase Plan

In September 2014, our Board approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) and reserved 704,715 shares of our common stock for issuance pursuant to 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 either the beginning or the end of the purchase period, whichever is lower. The ESPP was approved by our shareholders at our 2014 Annual Meeting. An amendment to the ESPP to extend its term for an additional ten years (through 2035) was approved by our Board in October 2023 and by our shareholders at our 2023 Annual Meeting.

During the three months ended December 31, 2025 and 2024, we did not record any share-based compensation expense relating to the ESPP, due to the fact that no six-month offering period ended during either quarter. During the six months ended December 31, 2025 and 2024, 961 and 940 shares of our common stock were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $42.34 and $16.22, respectively, per share. On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 38,056 shares of our common stock. During the six months ended December 31, 2025 and 2024, we recorded share-based compensation expense in the amount of $7,000 and $3,000, respectively, relating to the ESPP.

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10. MAJOR CUSTOMERS AND SUPPLIERS

Information with respect to customers that accounted for sales in excess of 10% of our total sales in either of the three-month or the six-month periods ended December 31, 2025 and 2024, is as follows (in thousands, except percentages):

Schedule of sales by major customers
	Three Months Ended December 31,
	2025					2024
	Amount		Percent of Total			Amount		Percent of Total

Net sales	$	18,663		100	%	$	16,793		100	%

Customer concentration:
Customer 1	$	14,759		79	%	$	13,515		80	%
Customer 2		1,686		9	%		1,784		11	%
Total	$	16,445		88	%	$	15,299		91	%


	Six Months Ended December 31,
	2025					2024
	Amount		Percent of Total			Amount		Percent of Total

Net sales	$	37,194		100	%	$	31,686		100	%

Customer concentration:
Customer 1		29,259		79	%		24,892		79	%
Customer 2		3,521		9	%		3,621		11	%
Total	$	32,780		88	%	$	28,513		90	%

Information with respect to accounts receivable from those customers that comprised more than 10% of our gross accounts receivable at either December 31, 2025 or June 30, 2025, is as follows (in thousands, except percentages):

Schedule of gross accounts receivable
	December 31, 2025				June 30, 2025
Total gross accounts receivable	$	17,902	100	%	$	16,433	100	%

Customer concentration:
Customer 1	$	14,632	82	%	$	11,895	72	%
Customer 2		1,989	11	%		2,768	17	%
Total.	$	16,621	93	%	$	14,663	89	%

PRO-DEX, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the three and six months ended December 31, 2025 and 2024, we had three suppliers that accounted for 10% or more of total inventory purchases. Information with respect to suppliers that accounted for in excess of 10% of our inventory purchases in either of the three-month or the six-month periods ended December 31, 2025 and 2024, is as follows (in thousands, except percentages):

Schedule of inventory purchases
	Three Months Ended December 31,
	2025					2024
	Amount		Percent of Total			Amount		Percent of Total

Total Inventory purchases	$	6,918		100	%	$	7,319		100	%

Supplier concentration:
Supplier 1	$	1,395		20	%	$	1,797		25	%
Supplier 2		1,144		16	%		875		12	%
Supplier 3		868		13	%		992		13	%
Total	$	3,407		49	%	$	3,664		50	%


	Six Months Ended December 31,
	2025					2024
	Amount		Percent of Total			Amount		Percent of Total

Total inventory purchases	$	13,297		100	%	$	13,064		100	%

Supplier concentration:
Supplier 1		1,836		14	%		3,189		24	%
Supplier 2		2,045		15	%		1,424		11	%
Supplier 3		2,027		15	%		1,715		13	%
Total	$	5,908		44	%	$	6,328		48	%

Information with respect to accounts payable due to those suppliers that comprised more than 10% of our inventory purchases at either December 31, 2025 or June 30, 2025, is as follows (in thousands, except percentages):

Schedule of accounts payable
	December 31, 2025				June 30, 2025
Total accounts payable	$	4,111	100	%	$	4,614	100	%

Supplier concentration:
Supplier 1	$	1,650	40	%	$	735	16	%
Supplier 2		501	12	%		1,016	22	%
Supplier 3		92	2	%		298	6	%
Total.	$	2,243	54	%	$	2,049	44	%

SEC Form 10-Q filed by Pro-Dex Inc.