<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 December 31, 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 January 22, 1996 was 8,631,300.
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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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<S> <C> <C>
PART I Financial Information
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 11
EXHIBITS NONE
</TABLE>
PAGE 1 of 11 Pages
1
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
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<S> <C> <C>
Current assets:
Cash $ 599,638 $ 384,968
Accounts receivable, net of allowance
for doubtful accounts of $204,300
and $173,551 4,312,382 2,608,701
Inventories, at cost 4,127,659 767,893
Dental supplies, at cost 478,216 468,216
Prepaid expenses 214,825 549,698
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Total current assets 9,732,720 4,779,476
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Property and equipment, at cost: 7,109,133 2,477,060
Less accumulated depreciation 4,030,105 1,608,613
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Net property and equipment 3,079,028 868,447
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Other assets:
Note receivable 350,000 -
Intangible assets 10,985,962 68,791
Other 120,460 6,466
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Total other assets 11,456,422 75,257
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$24,268,170 $5,723,180
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</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>
December 31, June 30,
1995 1995
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<S> <C> <C>
Current Liabilities:
Notes payable $ 1,699,713 $ 374,180
Accounts payable 1,005,386 505,586
Accrued expenses 1,322,103 184,745
Income taxes payable 257,591 10,064
Deferred revenue 160,195 155,074
Current portion of long-term debt 956,000 104,000
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Total current liabilities 5,400,988 1,333,649
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Long-term debt, net of current portion 5,126,000 416,010
Deferred gain 19,998 39,966
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Total liabilities 10,546,986 1,789,625
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Shareholders' equity:
Series A preferred stock, no par value;
10,000,000 share authorized; 78,129
shares issued and outstanding 282,990 282,990
Common stock, no par value; 50,000,000
shares authorized; 8,631,300 and
5,260,300 shares issued and outstanding 14,559,944 5,347,445
Additional paid in capital 10,000 10,000
Accumulated deficit (1,131,750) (1,706,880)
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Total shareholders' equity 13,721,184 3,933,555
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Total liabilities and shareholders' equity $24,268,170 $ 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 December 31,
1995 1994
---------------------------
<S> <C> <C>
Revenues:
Net sales $5,180,969 $1,977,930
Professional fees 539,735 542,849
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Total revenues 5,720,704 2,520,779
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Cost of sales:
Cost of goods sold 2,125,336 750,887
Direct expenses related to fee revenue 457,548 501,705
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Total cost of sales 2,582,884 1,252,592
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Gross profit 3,137,820 1,268,187
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Operating expenses:
Selling 926,812 594,192
Engineering 111,406 30,822
General and administrative 1,351,988 492,844
Amortization expense 203,301 -
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Total operating expenses 2,593,507 1,117,858
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Operating income 544,313 150,329
Nonoperating income (expense) (231,547) 293
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Income before taxes 312,766 150,622
Income taxes 84,800 28,500
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Net income $ 227,966 $ 122,122
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Net income per share $ 0.03 $ 0.02
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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>
Six Months ended December 31,
1995 1994
------------------------------
<S> <C> <C>
Revenues:
Net sales $ 9,665,567 $3,428,379
Professional fees 1,176,264 1,228,237
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Total revenues 10,841,831 4,656,616
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Cost of sales:
Cost of good sold 4,069,125 1,398,587
Direct expenses related to fee revenue 1,016,617 1,016,538
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Total cost of sales 5,085,742 2,415,125
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Gross profit 5,756,089 2,241,491
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Operating expenses:
Selling 1,684,341 1,073,085
Engineering 244,052 30,822
General and administrative 2,289,209 913,844
Amortization expense 355,502 -
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Total operating expenses 4,573,104 2,017,751
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Operating income 1,182,985 223,740
Nonoperating income (expense) (379,055) 44,783
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Income before taxes 803,930 268,523
Income taxes 228,800 54,500
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Net income $ 575,130 $ 214,023
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Net income per share $ 0.07 $ 0.04
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</TABLE>
5
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months ended December 31,
1995 1994
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 575,130 $ 214,023
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 637,525 64,460
Gain on sale of property and
equipment (19,968) (19,968)
Change in working capital components
net of effects from purchase of Oregon
Micro Systems, Inc. and Micro Motors,
Inc.
(Increase) decrease in accounts
receivable (301,975) (507,516)
(Increase) decrease in
inventories (295,031) 90,288
(Increase) decrease in accounts
payable 338,873 (60,129)
Increase (decrease) in accounts
payable and accrued expenses 43,546 63,703
Increase (decrease) in deferred
revenue 5,121
Increase (decrease) in income
taxes payable 305,330
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,288,551 (155,139)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (110,616) (82,988)
Other 25,964 970
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 (4,823,452) (82,018)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on revolving credit
agreement 445,098
Proceeds from long-term borrowing 4,000,000
Principal payments on long-term
borrowing (345,527) (44,968)
Issuance of common stock 5,000
Advances - other (350,000)
-----------
NET CASH FLOWS PROVIDED BY
INVESTING ACTIVITIES 3,749,571 (39,968)
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INCREASE IN CASH 214,670 (277,125)
CASH, BEGINNING OF PERIOD $ 384,968 $ 657,093
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CASH, END OF PERIOD $ 599,638 $ 379,968
=========== =========
</TABLE>
6
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOW - CONTINUED
<TABLE>
<CAPTION>
Six Months ended December 31,
1995 1994
-----------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash payments for
Interest $ 438,401 $41,508
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 $2.75
per share (9,212,500) -
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$ 595,576
</TABLE>
7
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PRO-DEX, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 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-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 six months ended December 31, 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-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 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 $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 six months ended
December 31, 1995, and 1994 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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<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Sales $11,287,27 $9,750,000
Net Income $ 669,753 $ 435,000
Earnings Per Share $ .08 $ .05
</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 December 31, 1995 were $5,720,704 as
compared to $2,520,779 for the same quarter in the previous year. Total
revenues for the six months ended December 31, 1995 were $10,841,831 as compared
to $4,656,616 for the same six 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:
<TABLE>
<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>
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
9
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PRO-DEX, INC. AND SUBSIDIARIES
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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 December 31, 1995 were
$5,720,704 as compared to $4,950,000 for the same quarter in the previous year,
an increase of 15.6%. The Company is also reporting on a pro forma basis
profits for the quarter ended December 31, 1995 of $227,966 compared to $197,643
for the same quarter in the previous year.
On a pro forma basis, revenues for the six months ended December 31, 1995 were
$11,287,270 as compared to $9,750,000 for the same six months in the previous
year, an increase of 15.8%. The Company is also reporting profits on a pro
forma basis for the six months ended December 31, 1995 of $669,753 as compared
to $435,000 for the same six months in the previous year.
Actual profits for the quarter ending December 31, 1995 were $227,966 which
results in $.03 earnings per share. This compares to $122,122 or $.02 per share
for the quarter ended December 31, 1994. Earnings for the quarter ended
December 31, 1994 were restated to correct an error in prior year's accounts and
reduce the quarter's earnings by $98,828. 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 six months ended December 31, 1995 were $575,130, or $.07
per share as compared to $214,023, or $.04 per share for the six months ended
December 31, 1994. Earnings for the six months ended December 31, 1994 were
restated to correct an error from the prior year reducing earnings by $152,828.
The error resulted in the omission of bad debt write-offs and the inclusion of
projects in inventories on hand from intercompany purchases.
During the quarter, operations at one of the Company's Dental Centers were
suspended for one month due to renovations. Estimated revenues and gross profit
lost for the period were $45,000 and $15,000 respectively.
Marketing expenses for the quarter at Micro Motors and Biotrol were high
compared to revenue generated as a result of costs incurred to launch new
product lines. At Micro Motors, start up marketing expenses for its new line of
dental handpieces exceeded sales. The full line of handpieces is expected to be
introduced in February, 1996. A delay in the introduction of the product would
cause a reduction in the planned increase in revenue expected.
Liquidity and Capital Resources
The Company's working capital on December 31, 1995 was $4,331,732 (a 1.8:1
ratio), compared to $3,745,744 on December 31, 1994. 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.
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: January 23, 1996 /s/ Kent E. Searl
--------------------------
Kent E. Searl, Chairman
Date: January 23, 1996 /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> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 599,638
<SECURITIES> 0
<RECEIVABLES> 4,312,382
<ALLOWANCES> 204,300
<INVENTORY> 4,127,659
<CURRENT-ASSETS> 9,732,720
<PP&E> 3,079,028
<DEPRECIATION> 165,749
<TOTAL-ASSETS> 24,268,170
<CURRENT-LIABILITIES> 5,400,988
<BONDS> 0
0
282,990
<COMMON> 14,559,944
<OTHER-SE> (1,121,750)
<TOTAL-LIABILITY-AND-EQUITY> 24,268,170
<SALES> 5,180,969
<TOTAL-REVENUES> 5,720,704
<CGS> 2,125,336
<TOTAL-COSTS> 2,582,884
<OTHER-EXPENSES> 2,593,507
<LOSS-PROVISION> 32,300
<INTEREST-EXPENSE> 266,900
<INCOME-PRETAX> 312,766
<INCOME-TAX> 84,800
<INCOME-CONTINUING> 227,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,966
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
