DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE

9 Months Ended

Mar. 31, 2013

Discontinued Operations And Real Estate Held For Sale

DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE

NOTE 6. DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE

Sale of Product Line

On February 27, 2012 (the “Closing Date”), we completed the sale of our fractional horsepower motor product line, operating under the name Pro-Dex Astromec (“Astromec”) and located in Carson City, Nevada, to SL Montevideo Technology, Inc. (“MTI”), a wholly owned subsidiary of SL Industries, Inc., pursuant to an Asset Purchase Agreement (the “APA”).

Under the terms of the APA, we sold substantially all the assets of Astromec, consisting primarily of inventory, equipment and intangibles, and excluding cash, accounts receivable and the Carson City facility. We retained substantially all of Astromec’s liabilities except for those liabilities associated with certain contracts and unfilled purchase orders assumed by MTI.

Upon closing of the sale and finalization of other items required by the APA, such as a physical inventory count, we recorded proceeds from the sale of $756,000, equal to the net book value of the assets sold as of the Closing Date, summarized as follows:

Inventories	$	664,000
Equipment		82,000
Other		10,000
Total	$	756,000

Under the terms of the APA, we may also receive earnout payments based on revenues generated from the sale of (i) Astromec products and (ii) MTI products to Astromec prospects (defined in the APA) (collectively, the “Earnout Sales Base”). Such earnout payments, if and when earned, will be paid by MTI to us within 30 days following the end of each of our fiscal quarters during the three years subsequent to the Closing Date, and will amount to 6%, 4% and 2% of the Earnout Sales Base in the first, second and third such years, respectively. The earnout payments will be recognized in the quarter in which we become entitled to receive them. For the three and nine months ended March 31, 2013, we recognized income from earnout payments of $43,000 and $135,000, respectively, of which $43,000 was included in accounts receivables in the accompanying March 31, 2013 consolidated balance sheet and was received in April 2013. An aggregate of $200,000 in income from earnout payments has been recognized during the period from the Closing Date through March 31, 2013.

Also on the Closing Date, we entered into a Transition Production Agreement (the “TPA”) with MTI, under which we provided MTI with manufacturing and certain administrative support services. MTI paid us for all our costs in providing the manufacturing services, and a fixed monthly amount for the administrative support services. In conformity with its terms, the TPA was terminated effective May 10, 2012.

Based on the foregoing, and in conformity with applicable accounting guidance, the Astromec product line qualifies as a discontinued operation. Accordingly, financial results of Astromec have been reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented. Information regarding revenue and operating results of Astromec included in discontinued operations is as follows:

	Three Months Ended March 31,
	2013		2012
Revenues	$	43,000	$	513,000
Income (loss) before provision for (benefit from) income taxes	$	33,000	$	(209,000	)

	Nine Months Ended March 31,
	2013		2012
Revenues	$	135,000	$	2,389,000
Income (loss) before provision for (benefit from) income taxes	$	111,000	$	(72,000	)

Information regarding Astromec assets and liabilities included in the accompanying consolidated balance sheets is as follows:

	March 31, 2013		June 30, 2012
Accounts receivable	$	43,000	$	45,000
Other assets	$	10,000	$	—
Accounts payable	$	26,000	$	3,000
Accrued expenses	$	5,000	$	25,000

Real Estate Held For Sale

In addition, as a result of the sale of the Astromec product line, we listed for sale the land and building constituting the facility we own in Carson City, Nevada, which are presented as real estate held for sale in the accompanying March 31, 2013 and June 30, 2012 consolidated balance sheets with an aggregate carrying amount of $733,000. We have evaluated the aggregate carrying amount of the land and building in relation to their aggregate estimated fair value less cost to sell, and have determined that an adjustment to such carrying amount was not required.

On April 22, 2013, we entered into a Purchase Agreement (the “Agreement”) with Aesthetic and Reconstructive Technologies, Inc., a Nevada corporation (“AART”), whereby we have agreed to sell the Carson City facility described above.

The purchase price for the Carson City facility is $980,000, of which $15,000 has been funded by AART into escrow as an initial deposit, with an additional $80,000 deposit payable by AART into escrow prior to the expiration of AART’s 60-day due diligence period (described below).  The balance of the purchase price, in the amount of $885,000, is payable by AART at closing.

The Agreement affords AART a 60-day due diligence period (ending on June 21, 2013) with respect to the Carson City facility.  If AART does not terminate the Agreement during its due diligence period, its $15,000 and $80,000 deposits become nonrefundable unless the Agreement does not close due to AART’s failure to obtain financing, a breach by us or a failure of one of the closing conditions.

The Agreement contains customary representations, warranties and covenants by AART and us, and is subject to customary closing conditions, including completion of due diligence to the satisfaction of AART. Subject to the foregoing, the Agreement provides for the closing to occur on or before July 8, 2013. Until the consummation of the closing, there can be no assurance that the Carson City facility will be sold.