<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, 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 September 20, 1996, was 9,050,783.
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
DOCUMENTS INCORPORATED BY REFERENCE: None.
Table of Contents
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Page No.
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PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets F-1 & F-2
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flow F-4
Notes to Consolidated Financial Statements 5
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations 6
SIGNATURES 7
EXHIBITS NONE
PAGE 1 of 7 Pages
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, June 30,
1996 1996
---- ----
(unaudited)
Current assets:
Cash & cash equivalents $ 266,037 $ 407,722
Accounts receivable, net 4,930,209 5,069,942
Inventories, at cost 4,797,275 4,699,567
Deferred taxes 495,300 398,300
Prepaid expenses 714,650 257,898
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11,203,471 10,833,429
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Property and equipment 5,546,644 5,505,127
Less accumulated depreciation (2,349,708) (2,186,233)
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Net property and equipment 3,196,936 3,318,894
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Other assets:
Deferred taxes 404,000 387,000
Other 296,744 133,761
Intangibles 13,419,829 13,654,404
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Total other assets 14,120,573 14,175,165
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Total assets $28,520,980 $28,327,488
=========== ===========
See Notes to Financial Statements
F-1
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
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(unaudited)
<S> <C> <C>
Current liabilities:
Notes payable $ 1,263,363 $ 1,162,465
Current portion of long-term debt 1,151,442 1,236,570
Accounts payable 1,197,495 1,039,706
Accrued expenses 1,007,546 1,330,450
Income taxes payable 547,007
Deferred revenue 218,016 208,485
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Total current liabilities 4,837,862 5,524,683
Long-term debt, net of current portion 6,591,626 5,371,264
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Total liabilities 11,429,488 10,895,947
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Commitments and contigencies
Stockholders' equity:
Series A convertible 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; 9,025,783 shares
issued and outstanding shares 16,697,660 16,697,660
Additional paid in capital 1,004,541 1,004,541
Accumulated deficit (872,399) (532,350)
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17,112,792 17,452,841
Receivable from employee stock
ownership plan (ESOP) (21,300) (21,300)
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Total stockholders' equity 17,091,492 17,431,541
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Total liabilities and stockholders'
equity $28,520,980 $28,327,488
=========== ===========
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended September 30,
1996 1995
---- ----
(unaudited) (unaudited)
Net sales (net of sales from discontinued
operation of $594,263 and $636,529) $4,442,268 $4,136,636
Cost of Sales 1,812,085 1,595,827
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Gross Profits 2,630,183 2,540,809
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Operating expenses:
Selling 1,065,791 757,529
General and administrative 1,226,725 807,616
Research and development 242,337 132,646
Amortization 294,356 152,201
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Total operating expenses 2,829,209 1,849,992
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Income (loss) from operations (199,026) 690,817
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Other income (expense):
Interest expense (261,242) (174,503)
Other income, net 10,384 20,852
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Total (250,858) (153,651)
Income (loss) before income taxes (benefit)
and loss from discontinued operation (449,884) 537,166
Income taxes (benefit) 114,000 157,341
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Income (loss) before loss from discontinued
operation (335,884) 379,825
(Loss) from discontinued operation (net of
tax benefit) (4,162) (32,661)
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Net income $ (340,046) 347,164
========== ==========
Earnings per common and common equivalent
share:
Income (loss) from continuing operations $ (0.04) $ 0.04
(Loss) from discontinued operation
---------- ----------
Net income (loss) per share $ (0.04) $ 0.04
========== ==========
See Notes to Financial Statements
F-3
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter ended September 30,
1996 1995
---- ----
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (340,046) $ 347,164
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 398,050 269,383
Provision for doubtful accounts 44,251 --
Loss (gain) on sale of property and equipment -- (9,984)
Change in working capital components net of effects
from purchase of Oregon Micro Systems, Inc.
Micro Motors, Inc., and Pnu-Light Tool Works, Inc.:
(Increase) decrease in accounts receivable 95,481 (345,689)
(Increase) decrease in inventories (97,708) (303,131)
(Increase) decrease in deferred taxes (114,000) --
(Increase) decrease in prepaids (456,752) 420,688
(Increase) decrease in other assets (162,983) --
Increase (decrease) in accounts payable and accrued expense (165,115) 340,606
Increase (decrease) in deferred revenue 9,531 7,304
Increase (decrease) in income taxes payable (547,007) 175,801
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Net cash provided by (used in) operating activities (1,336,298) 902,142
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (4,738,800)
Proceeds from sale of property and equipment -- --
Purchase of property and equipment (41,517) (38,804)
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Net cash flows (used in) investing activities (41,517) (4,777,604)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on revolving credit agreements 100,898 215,077
Proceeds from long-term borrowing 1,220,362 4,000,000
Principal payments on long-term borrowing (85,130) (138,271)
Issuance of common stock
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Net cash flows provided by financing activities 1,236,130 4,076,806
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INCREASE (DECREASE) IN CASH (141,685) 201,344
CASH, beginning of period 407,722 384,968
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CASH, end of period $ 266,037 $ 586,312
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 261,242 $ 171,500
Cash payments for income taxes $ 677,950 $ --
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED SEPTEMBER 30, 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 instruction 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, 1996
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1997. 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, 1996.
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 if their inclusion
would be anti-dilutive.
NOTE 3 - BUSINESS ACQUISITIONS
On July 26, 1995, the Company acquired for cash all the outstanding shares of
Oregon Micro Systems, Inc., a manufacturer of multi-axis motion control circuit
boards. Also, on July 26, 1995, the Company acquired all of the outstanding
stock of Micro Motors, Inc., a manufacturer of patented miniature pneumatic
(air) motors, and dental handpieces. On May 11, 1996, the Company acquired
substantially all of the assets and liabilities of Pnu-Light Tool Works, Inc., a
developer of pneumatic light mechanisms for pneumatic hand tools.
All acquisitions have been accounted for as a purchase and the results of
operations of the three companies are included in the consolidated financial
statements since the dates of acquisition.
Unaudited pro forma consolidated results of operations for the quarter ended
September 30, 1995 as though OMS, Micro Motors, and Pnu-Light had been acquired
as of July, 1, 1995, follows:
Sales $4,930,037
Net Income 256,000
Earnings per share .03
5
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
- -------------
RESULTS OF OPERATIONS
Total revenues for the quarter ended September 30, 1996 were $4,442,268 as
compared to $4,136,636 for the same quarter in the previous year. 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 stock, the Company acquired two letters patent for the design of
multi-axis motion control circuit boards with an approximate value of
$2,925,000. The total acquisition cost was approximately $6,700,000.
Also on July 26, 1995, the Company acquired Micro Motors, Inc., a manufacturer
of patented miniature pneumatic (air) motors, and dental handpieces in exchange
for 3,350,000 shares of the Company's stock. The amount assigned to the shares
of the stock was $2.75 per share making the total acquisition price $9,212,500.
On May 11, 1996, the Company acquired certain assets and liabilities of Pnu-
Light Tool Works, Inc., a developer of pneumatic light mechanisms for hand tools
in exchange for common stock of the Company. The purchase agreement calls for
the final purchase price to be determined based upon a multiple of the Pnu-Light
subsidiary's net income for the year ended June 30, 1999, and also based upon
the then current price of the Company's common stock. The agreement further
states that the minimum value assigned to the net assets purchased is $4,000,000
subject to certain adjustments. The agreement provides that if the computed
value based on the prescribed formula does not exceed $4,000,000, the Company
has the option to rescind the transaction. Management believes that all three
of these acquisitions will provide significant synergistic advantages to the
Company's business.
On a pro forma basis revenues for the quarter ended September 30, 1996 were
$4,442,268 compared to $4,930,037 for the same quarter in the previous year, a
decrease of 9.9%. The Company is also reporting on a pro forma basis a loss for
the quarter ended September 30,1996 of ($340,046) compared to a profit of
$256,000 for the same quarter in the previous year.
The actual loss for the quarter ended September 30, 1996 was ($340,046), or
($.04) per share compared to a profit of $347,164, or $.04 per share for the
same quarter in the previous year. Several factors contributed to the poor
operating results for the first quarter of 1996. The Company absorbed a pre-
payment penalty of $82,000 due to the refinancing of the FINOVA debt with more
favorable terms from the Harris Bank of Chicago. In addition, additional
research and development costs, and the transfer of the manufacturing operation
at Pnu-Light to Micro Motors caused that subsidiary to sustain a pre-tax
operating loss of $260,000 for the quarter. Also, a general softness in the
semiconductor industry during the period slowed deliveries at Oregon Micro
Systems resulting in lower revenues and profits compared to the previous period.
Micro Motors continued to grow with its branded product line and Biotrol and
Challenge Products achieved better than expected revenue from the sale of its
infection control and preventive dental products.
6
<PAGE>
In July, 1996 the Company obtained a $10,000,000 credit facility from Harris
Bank secured by all assets of the Company. The facility requires monthly
interest payments at the prime rate or at a variable interest rate from 1.5% to
2% above the LIBOR rate. The term loan requires annual prepayments equal to 50%
of excess cash flow, as defined beginning in October 1997. A portion of the
proceeds were used to retire existing debt for which the Company incurred a
prepayment penalty of $293,200. The prepayment penalty is being amortized
ratably during the year.
On June 24, 1996, the Company decided to report the operations of PDM, its
dental center business, on a discontinued basis and expects to sell the assets
of that subsidiary. The Company believes that PDM will not incur future
operating losses through its disposition and that the Company will be able to
sell the net assets of this operation for at least equal to their recorded
value. Management's current plans are to sell various assets of PDM and to
provide financing to the buyer of the assets.
Sales of PDM were approximately $594,000 for the quarter ended September 30,
1996 and $636,000 for the quarter ended September 30, 1995. Operating expenses
for the same periods were approximately $598,000 and $682,000 respectively.
These amounts are presented in the statement of operations as discontinued
operations, net of applicable income tax benefits of approximately ($4,000) and
($33,000) for 1996 and 1995.
At September 30,1996, the net assets of PDM consists of the following:
Receivables $1,955,000
Inventories 262,000
Depreciated cost of equipment 309,000
Current liabilities (253,204)
Deferred revenues (218,000)
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital on September 30, 1996 was $6,365,609 (a 2.3:1
ratio), compared to $4,528,000 (a 1.9:1 ratio) on September 30, 1995. The
Company was able to increase its bank line of credit from approximately
$5,500,000 to $10,000,000 in July 1996. The Company believes that its present
bank line of credit and projected cash generated from operations will satisfy
its working capital needs for the foreseeable future.
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: September 30, 1996 /s/ Kent E. Searl
----------------------------------------
Kent E. Searl, Chairman
Date: September 30, 1996 /s/ George J. Isaac
----------------------------------------
George J. Isaac, Chief Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 266,037
<SECURITIES> 0
<RECEIVABLES> 4,930,209
<ALLOWANCES> 0
<INVENTORY> 4,797,275
<CURRENT-ASSETS> 11,203,471
<PP&E> 5,546,644
<DEPRECIATION> 2,349,708
<TOTAL-ASSETS> 28,520,980
<CURRENT-LIABILITIES> 4,837,862
<BONDS> 0
0
282,990
<COMMON> 16,697,600
<OTHER-SE> 1,004,541
<TOTAL-LIABILITY-AND-EQUITY> 28,520,980
<SALES> 4,442,268
<TOTAL-REVENUES> 4,442,268
<CGS> 1,812,085
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,829,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261,242
<INCOME-PRETAX> (449,884)
<INCOME-TAX> (114,000)
<INCOME-CONTINUING> (335,884)
<DISCONTINUED> (4,162)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (340,046)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
