<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-14942
PRO-DEX, INC.
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(name of small business issuer in its charter)
Colorado 84-1261240
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(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
1401 Walnut St., Ste., 540, Boulder, Colorado 80302
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(Address of principal executive offices)
Issuer's telephone number: (303) 443-6136
--------------
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
---------------------
Title of each class on which registered
- - ------------------- ---------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
--------------------------
(Title of class)
The number of shares of the Registrant's no par value common stock
outstanding as of September 22, 1995 was 8,630,300.
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PRO-DEX, INC. AND SUBSIDIARIES
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DOCUMENTS INCORPORATED BY REFERENCE: None.
Table of Contents
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<TABLE>
<CAPTION>
Page No.
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<C> <S> <C>
PART I Financial Information
Item 1. Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Operations 4
Consolidated Statement of Cash Flow 5
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II Other Information 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBITS NONE
</TABLE>
PAGE 1 of 11 Pages
1
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PRO-DEX, INC. AND SUBSIDIARIES
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Part I
Item 1. FINANCIAL STATEMENTS.
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
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<S> <C> <C>
Current assets:
Cash $ 586,312 $ 384,968
Accounts receivable, net of allowance
for doubtful accounts of $204,300
and $173,551 4,356,096 2,608,701
Inventories, at cost 4,156,668 767,893
Dental supplies, at cost 457,307 468,216
Prepaid expenses 133,010 549,698
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Total current assets 9,689,393 4,779,476
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Property and equipment, at cost:
Land 61,776 61,776
Buildings 308,505 307,010
Equipment, furniture and fixtures 6,178,511 2,068,397
Leasehold improvements 488,528 39,877
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7,037,320 2,477,060
Less accumulated depreciation 3,864,356 1,608,613
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Net property and equipment 3,172,964 868,447
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Other assets:
Note receivable 300,000 -
Intangible assets 11,159,408 68,791
Other 174,061 6,466
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Total other assets 11,633,469 75,257
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Total assets $24,495,826 $5,723,180
=========== ==========
</TABLE>
2
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
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<S> <C> <C>
Current liabilities:
Notes payable $ 1,469,692 $ 374,180
Accounts payable 1,259,361 505,586
Accrued expenses 1,365,188 184,745
Income taxes payable 128,062 10,064
Deferred revenue 162,378 155,074
Current portion of long-term debt 776,712 104,000
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Total current liabilities 5,161,393 1,333,649
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Long-term debt, net of current portion 5,811,232 416,010
Deferred gain 29,982 39,966
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Total liabilities 11,002,607 1,789,625
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Shareholders' equity:
Series A preferred stock, no par value;
2,000,000 share authorized; 78,129
shares issued and outstanding 282,990 282,990
Common stock, no par value; 10,000,000
shares authorized; 8,630,300 and
5,280,300 shares issued and outstanding 14,559,945 5,347,445
Additional paid in capital 10,000 10,000
Accumulated deficit (1,359,716) (1,706,880)
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Total shareholders' equity 13,493,219 3,933,555
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Total liabilities and shareholders' equity $24,495,826 $ 5,723,180
=========== ===========
</TABLE>
3
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter ended September 30,
1995 1994
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(as restated)
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<S> <C> <C>
Revenues:
Net sales $4,136,636 $1,450,449
Professional fees 636,529 685,388
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Total revenue 4,773,165 2,135,837
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Cost of sales:
Cost of goods sold 1,595,827 647,700
Direct expenses related to fee revenue 559,069 514,833
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Total cost of sales 2,154,896 1,162,533
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Gross profit 2,618,269 973,304
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Operating expenses:
Selling 757,529 478,893
Engineering 132,646 -
General and administrative 937,221 421,000
Amortization expense 152,201 -
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Total operating expenses 1,979,597 899,893
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Operating income 638,672 73,411
Nonoperating income (expense) (147,508) 44,490
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Income before taxes 491,164 117,901
Income taxes 144,000 5,270
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Net income $ 347,164 $ 112,631
========== ==========
Net income per share $ 0.04 $ 0.02
========== ==========
</TABLE>
4
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter ended September 30,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 347,164 $ 112,631
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 269,383 27,229
Gain on sale of property and equipment (9,984) (9,984)
Change in working capital components net of
effects from purchase of Oregon Micro
Systems, Inc. and Micro Motors, Inc.
(Increase) decrease in accounts receivable (345,689) (138,856)
(Increase) decrease in inventories (303,131) 73,974
(Increase) decrease in prepaid expenses 420,688 (78,430)
Increase (decrease) in accounts payable
and accrued expenses 340,606 (23,317)
Increase (decrease) in deferred revenue 7,304 -
Increase (decrease) in income taxes payable 175,801 -
----------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 902,142 (36,753)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (38,804) (48,155)
Refund in deposit - 970
Purchase of Oregon Micro Systems, Inc. net
of cash and cash equivalents (4,143,224) -
Purchase of Micro Motors, Inc. net of
cash and cash equivalents (595,576) -
----------- ---------
NET CASH FLOWS USED BY INVESTING
ACTIVITIES (4,777,604) (47,185)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on revolving credit agreement 215,077 -
Proceeds from long-term borrowing 4,000,000 -
Principal payments on long-term borrowing (138,271) (21,943)
Issuance of common stock - 5,000
----------- ---------
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 4,076,806 (16,943)
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INCREASE IN CASH 201,344 (100,881)
CASH, BEGINNING OF PERIOD 384,968 657,093
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CASH, END OF PERIOD $ 586,312 $ 556,212
=========== =========
</TABLE>
5
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarter ended September 30,
1995 1994
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<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash payments for:
Interest $ 171,500 $ 23,185
ACQUISITION OF OREGON MICRO
SYSTEMS, INC.
Working capital acquired, net of cash and
cash equivalents 1,347,631 -
Fair value of other assets acquired - patents 2,795,593 -
-----------
4,143,224 -
ACQUISITION OF MICRO MOTORS, INC.
Working capital acquired, net of cash and
cash equivalents 1,108,907 -
Fair value of other assets acquired -
property and equipment 2,344,135 -
goodwill 7,244,441 -
Long-term debt assumed (889,407) -
Issuance of 3,350,000 shares at $2.75
per share (9,212,500) -
-----------
595,576 -
</TABLE>
6
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PRO-DEX, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1995
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1995.
NOTE 2 - INCOME PER SHARE
Income per share is based on the weighted average number of common shares
outstanding during each year. Shares issuable upon the conversion of preferred
stock and stock warrants are not included in the calculation since their
inclusion would be anti-dilutive.
NOTE 3 -
On July 26, 1995, the Company acquired for cash all of the outstanding shares of
Oregon Micro Systems, Inc., a manufacturer of multi-axis motion control circuit
boards. In addition to the OMS stock, the Company acquired two letters patent
for the design of multi-axis motion control circuit boards. The total
acquisition cost was $6,550,000. The excess of the total acquisition cost over
the fair value of the net assets acquired of $2,734,000 was allocated to the
patents and is being amortized over seven (7) years by the straight line method.
Also on July 26, 1995, Micro Motors, Inc., a manufacturer of patented miniature
pneumatic (air) motors, and dental handpieces was acquired in exchange for
3,350,000 shares of the Company's stock. The amount assigned to the shares of
the Company stock was $2.75 per share making the total acquisition price
$9,212,500. The excess of the total acquisition cost of Micro Motors, Inc. over
the fair value of the net assets acquired of $8,113,063 is being amortized over
20 years by the straight line method.
7
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PRO-DEX, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 1995
NOTE 3 - (Continued)
Both acquisitions have been accounted for as a purchase and the results of
operations of Oregon Micro Systems, Inc. and Micro Motors, Inc. since the date
of acquisition are included in the consolidated financial statements.
Unaudited pro forma consolidated results of operations for the quarters ended
September 30, 1995, and 1994 as though OMS and Micro Motors had been acquired as
of July 1, 1994, follow:
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Sales 5,567,000 4,795,000
Net Income 410,000 238,000
Earnings Per Share .05 .03
</TABLE>
The above amounts reflect adjustments for amortization of patents and goodwill,
additional depreciation on revalued purchased assets, interest expense on
acquisition indebtedness, and elimination of non-recurring income and expense
items.
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Total revenues for the quarter ended September 30, 1995 were $4,773,165 as
compared to $2,135,837 for the same quarter in the previous year. On July 26,
1995 the Company acquired all the issued and outstanding stock of Oregon Micro
Systems, Inc., an Oregon corporation (OMS) from L. Wayne Hunter, the sole
shareholder of OMS. In addition the Company acquired from Mr. Hunter related
assets identified as two letters patent for the design of Multi-axis, motion
control circuit boards. The total purchase price paid for OMS stock and related
assets including acquisition costs was approximately $6,550,000. The cost of
the OMS stock and related patents was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $2,450,000
Accounts receivable 582,000
Inventories 800,000
Net property and equipment 27,000
Patents 2,734,000
Less: accounts payable (43,000)
Total $6,550,000
</TABLE>
8
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PRO-DEX, INC. AND SUBSIDIARIES
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To finance a portion of the acquisition price the Company obtained a five (5)
year term loan from FINOVA Capital Corporation for $3,500,000. The interest
rate of the loan is prime plus 3 1/2 percent plus an annual 5% profit
participation fee calculated on the outstanding loan balance at the beginning of
each year. In addition the Company also borrowed $500,000 with interest only
payable for two years at a rate of 2% over the prime rate.
Also on July 26, 1995 pursuant to a statutory merger into a wholly owned
subsidiary of the Company, the company acquired all of the outstanding stock of
Micro Motors, Inc., a California corporation (MMI), by issuing 3,350,000 shares
of its stock at $2.75 per share in exchange for all of the outstanding shares of
Micro Motors, Inc. MMI manufactures patented miniature pneumatic (air) motors
for both industrial and dental applications, as well as a line of dental
handpieces. Management believes the acquisition of these two new subsidiaries
will provide significant synergistic advantages to the Company's business.
On a pro forma basis revenues for the quarter ended September 30, 1995 were
$5,567,000 as compared to $4,795,000 for the same quarter in the previous year,
an increase of 16.1%. The Company is also reporting on a pro forma basis
profits for the quarter ended September 30, 1995 of $410,000 compared to
$238,000 for the same quarter in the previous year.
Actual profits for the quarter ending September 30, 1995 were $347,164 which
results in $.04 earnings per share. This compares to $112,631 or $.02 per share
for the quarter ended September 30, 1994. Earnings for September 30, 1994 were
restated to correct an error in prior year's accounts and reduce the first
quarter's earnings by $54,000. The error resulted from the omission of bad debt
write-offs and the inclusion of profits in inventories on hand from intercompany
purchases.
Liquidity and Capital Resources
The Company's working capital on September 30, 1995 was $4,528,000 (a 1.9:1
ratio), compared to $3,724,470 on September 30, 1994. Since the acquisition of
OMS and Micro Motors, Inc. the Company's working capital ratio will change
dramatically, since the two acquired companies are predominantly manufacturing
operations. The Company was able to increase its bank lines of credit to
continue to finance its growth in operations.
9
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
- - -------------------------------------------------------------------------------
Part II
Item 1. Legal Proceedings. There are no reportable legal proceedings
commenced or terminated with respect to Registrant during the quarter ending
September 30, 1995.
Item 2. Changes in Securities. There have been no changes in securities
of Registrant during the quarter ending September 30, 1995.
Item 3. Defaults Upon Senior Securities. There have been no defaults
upon senior securities of Registrant during the quarter ending September 30,
1995.
Item 4. Submission of Matters to Vote of Security Holders. No matters
have been submitted to vote of security holders during the quarter ending
September 30, 1995.
Item 5. Other Information. The Company has appointed McGladrey & Pullen
LLP to serve as the Company's independent certifying accountants for the year
ending June 30, 1996. There were no disagreements on any matter of accounting
principles or practices or financial statement disclosure with the Company's
former independent certifying accountant.
Item 6. Exhibits and Reports on Form 8-K. A report on Form 8-K dated
July 26, 1995 was filed with the Securities and Exchange Commission on August 7,
1995, and the Financial Supplement thereto was filed on October 10, 1995, with
Registrant's Form 10-KSB for the year ending June 30, 1995. The Form 8-K
reported the following items: (1) the merger of Micro Motors, Inc. with and into
the Company's wholly owned subsidiary, Micro Systems Acquisition Corporation;
(2) the acquisition of Oregon Micro Systems, Inc by the Company; and (3)
borrowing related to the foregoing acquisition of Oregon Micro Systems, Inc. The
report of the Registrant on its Form 8-K dated July 26, 1995, including the
Financial Supplement thereto filed with Registrant's Form 10-KSB for the year
ending June 30, 1995 is incorporated herein by reference.
10
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PRO-DEX, INC. AND SUBSIDIARIES
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In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 31, 1995 /s/ Kent E. Searl
---------------------------------
Kent E. Searl, Chairman
Date: October 31, 1995 /s/ George J. Isaac
---------------------------------
George J. Isaac, Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 586,312
<SECURITIES> 0
<RECEIVABLES> 4,560,396
<ALLOWANCES> 204,300
<INVENTORY> 4,156,668
<CURRENT-ASSETS> 590,317
<PP&E> 3,172,964
<DEPRECIATION> 106,273
<TOTAL-ASSETS> 24,495,826
<CURRENT-LIABILITIES> 5,161,393
<BONDS> 0
<COMMON> 14,559,945
0
282,990
<OTHER-SE> (1,349,760)
<TOTAL-LIABILITY-AND-EQUITY> 24,495,826
<SALES> 4,773,165
<TOTAL-REVENUES> 4,773,165
<CGS> 2,154,896
<TOTAL-COSTS> 2,154,896
<OTHER-EXPENSES> 1,979,597
<LOSS-PROVISION> 32,300
<INTEREST-EXPENSE> 171,500
<INCOME-PRETAX> 491,164
<INCOME-TAX> 144,000
<INCOME-CONTINUING> 347,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347,164
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
