<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31, 1996.
[ ] 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
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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 March 31, 1996 was 8,657,300.
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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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PART I Financial Information
<S> <C> <C>
Item 1. Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 8
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 9
SIGNATURES 10
</TABLE>
EXHIBITS NONE
PAGE 1 of 10 Pages
1
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
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<S> <C> <C>
Current assets:
Cash $ 653,250 $ 384,968
Accounts receivable, net of allowance
for doubtful accounts of $219,174
and $173,551 5,115,971 2,608,701
Inventories, at cost 4,357,051 767,893
Dental supplies, at cost 461,242 468,216
Prepaid expenses 364,570 549,698
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Total current assets 10,952,084 4,779,476
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Property and equipment, at cost: 7,203,651 2,477,060
Less accumulated depreciation 4,168,159 1,608,613
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Net property and equipment 3,035,492 868,447
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Other assets:
Note receivable 350,000 -
Intangible assets 10,806,919 68,791
Other 120,910 6,466
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Total other assets 11,277,829 75,257
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Total Assets 25,265,405 $5,723,180
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</TABLE>
2
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
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Current liabilities:
<S> <C> <C>
Notes payable 1,979,669 374,180
Accounts payable 1,202,335 505,586
Accrued expenses 1,391,632 184,745
Income taxes payable 480,441 10,064
Deferred revenue 180,330 155,074
Current portion of long-term debt 907,389 104,000
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Total current liabilities 6,141,796 1,333,649
Long-term debt, net of current portion 4,962,946 416,010
Deferred gain 39,966
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Total liabilities 11,104,742 1,789,625
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Shareholders' equity:
Series A preferred stock, no par value;
10,000,000 shares authorized; 78,129
shares issued and outstanding 282,990 282,990
Common stock, no par value; 50,000,000
shares authorized; 8,657,300 and
5,260,300 shares issued and outstanding 14,624,944 5,347,445
Additional paid in capital 10,000 10,000
Accumulated deficit (757,271) (1,706,880)
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Total shareholders' equity 14,160,663 3,933,555
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Total Liabilities and Shareholders' Equity $25,265,405 $ 5,723,180
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</TABLE>
3
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter ended March 31,
1996 1995
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<S> <C> <C>
Revenues:
Net sales $ 5,902,581 $ 1,685,985
Professional fees 587,289 711,866
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Total revenues 6,489,870 2,397,851
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Cost of sales:
Cost of goods sold 2,378,677 868,112
Direct expenses related to fee revenue 454,546 648,409
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Total cost of sales 2,833,223 1,516,521
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Gross profit 3,656,647 881,330
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Operating expenses:
Selling 1,216,197 478,176
Engineering 153,924 19,804
General and administrative 1,289,949 355,409
Amortization expense 213,301 __
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Total operating expenses 2,873,371 853,389
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Operating income 783,276 27,941
Nonoperating income (expense) (194,309) (4,931)
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Income before taxes 588,967 23,010
Income taxes 176,690 1,200
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Net income $ 412,277 $ 21,810
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Net income per share $0.05 $0.00
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</TABLE>
4
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months ended March 31,
1996 1995
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(Restated)
<S> <C> <C>
Revenues:
Net sales $15,220,185 $5,114,364
Professional fees 1,763,554 1,940,103
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Total revenues 16,983,739 7,054,467
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Cost of sales:
Cost of good sold 6,115,376 2,266,699
Direct expenses related to fee revenue 1,471,163 1,664,947
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Total cost of sales 7,586,539 3,931,646
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Gross profit 9,397,200 3,122,821
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Operating expenses:
Selling 2,900,883 1,551,261
Engineering 397,976 50,626
General and administrative 3,599,159 1,269,253
Amortization expense 568,803
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Total operating expenses 7,466,821 2,871,140
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Operating income 1,930,379 251,681
Nonoperating income (expense) (573,364) 39,852
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Income before taxes 1,357,015 291,533
Income taxes 407,104 55,700
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Net income $ 949,911 $ 235,833
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Net income per share $0.11 $0.04
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</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOW
Nine Months ended March 31,
1996 1995
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 949,911 $ 235,833
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 992,840 132,156
Gain on sale of property and equipment (19,968) (29,952)
Change in working capital components net of
effects from purchase of Oregon Micro
Systems, Inc. and Micro Motors, Inc.
(Increase) decrease in accounts receivable (1,105,564) (480,636)
(Increase) decrease in inventories (507,449) 13,089
(Increase) decrease in prepaids 189,128 (115,464)
Increase (decrease) in accounts payable
and accrued expenses 310,024 119,361
Increase (decrease) in deferred revenue 25,256
Increase (decrease) in income taxes payabl e 528,180
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,362,358 (125,613)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (205,134) (135,314)
Other (81,615) (80)
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)
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NET CASH FLOWS USED BY INVESTING
ACTIVITIES (5,025,549) (135,394)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on revolving credit agreement 725,054
Proceeds from long-term borrowing 4,000,000
Principal payments on long-term borrowing (508,581) (67,666)
Issuance of common stock 65,000 5,000
Advances - other (350,000)
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NET CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES 3,931,473 (62,666)
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INCREASE (DECREASE) IN CASH 268,282 (323,673)
CASH, BEGINNING OF PERIOD $ 384,968 $ 657,093
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CASH, END OF PERIOD $ 653,250 $ 333,420
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</TABLE>
6
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOW - CONTINUED
<TABLE>
<CAPTION>
Nine Months ended March 31,
1996 1995
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
<S> <C> <C>
Cash payments for
Interest $ 681,289 69,804
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
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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 $2.75
per share (9,212,500)
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$ 595,576
</TABLE>
7
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1996
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-QSB 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 nine months ended March 31, 1996 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-KSB 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 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 $7,244,441 is being amortized over
20 years by the straight line method.
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 nine months ended
March 31, 1996, and 1995 as though OMS and Micro Motors had been acquired as of
July 1, 1994, follow:
8
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PRO-DEX, INC. AND SUBSIDIARIES
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1996 1995
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Sales $17,777,140 $15,042,000
Net Income $ 1,044,534 $ 512,043
Earnings Per Share $ .12 $ .06
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 March 31, 1996 were $6,489,870 as compared
to $2,397,851 for the same quarter in the previous year. Total revenues for the
nine months ended March 31, 1996 were $16,983,739 as compared to $7,054,467 for
the same nine months 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:
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)
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Total $6,550,000
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.
9
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PRO-DEX, INC. AND SUBSIDIARIES
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On a pro forma basis, revenues for the nine months ended March 31, 1996 were
$17,777,140 as compared to $7,054,467 for the same nine months in the previous
year, an increase of 152%. The Company is also reporting profits on a pro forma
basis for the nine months ended March 31, 1996 of $1,044,534 as compared to
$235,833 for the same nine months in the previous year.
Actual profits for the quarter ending March 31, 1996 were $412,277 which results
in $.05 earnings per share. This compares to $21,810 or $.00 per share for the
quarter ended March 31, 1995. Earnings for the quarter ended March 31, 1995
were restated to correct an error in prior year's accounts and reduce the
quarter's earnings by $76,414. The error resulted from the omission of bad debt
write-offs and the inclusion of profits in inventories on hand from intercompany
purchases.
Actual profits for the nine months ended March 31, 1996 were $949,911, or $.11
per share as compared to $235,833, or $.04 per share for the nine months ended
March 31, 1995. Earnings for the nine months ended March 31, 1995 were restated
to correct an error from the prior year reducing earnings by $229,242. The
error resulted in the omission of bad debt write-offs and the inclusion of
profits in inventories on hand from intercompany purchases.
During the nine months ended March 31, 1996, operations at one of the Company's
Dental Centers were suspended for one month due to renovations. Estimated lost
revenues and gross profit for the period were $45,000 and $15,000 respectively.
Liquidity and Capital Resources
The Company's working capital on March 31, 1996 was $4,810,288 (a 1.8:1 ratio),
compared to $3,924,633 on March 31, 1995. The acquisition of OMS and Micro
Motors, Inc. has caused the Company's working capital ratio to 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.
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: April 30, 1996 /s/ Kent E. Searl
-----------------------
Kent E. Searl, Chairman
Date: April 30, 1996 /s/ George J. Isaac
------------------------
George J. Isaac,
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 653,250
<SECURITIES> 0
<RECEIVABLES> 5,835,145
<ALLOWANCES> 219,174
<INVENTORY> 4,357,051
<CURRENT-ASSETS> 10,952,084
<PP&E> 3,035,492
<DEPRECIATION> 145,212
<TOTAL-ASSETS> 25,205,405
<CURRENT-LIABILITIES> 2,141,796
<BONDS> 0
14,024,944
0
<COMMON> 282,990
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,205,405
<SALES> 6,459,870
<TOTAL-REVENUES> 6,459,870
<CGS> 2,833,223
<TOTAL-COSTS> 2,833,223
<OTHER-EXPENSES> 2,814,792
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 242,888
<INCOME-PRETAX> 588,967
<INCOME-TAX> 176,630
<INCOME-CONTINUING> 412,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412,277
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
