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 December 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.
(name of small business issuer in its charter)
Colorado 84-1261240
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
1401 Walnut St., Ste., 540, Boulder, Colorado 80302
(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 February 10, 1997, was
9,080,783.
PRO-DEX, INC. AND SUBSIDIARIES
DOCUMENTS INCORPORATED BY REFERENCE: None.
Table of Contents
Page No.
PART I Financial Information
Item 1.
Financial Statements
Consolidated Balance Sheets F-1 & F-2
Consolidated Statements of Income F-3 & F-4
Consolidated Statements of Cash Flow F-5
Notes to Consolidated Financial Statements 6
Item 2.
Management Discussion and Analysis of
Financial Condition and Results of
Operations 8
SIGNATURES 10
EXHIBITS NONE
Page 1 of 10 Pages
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, June 30,
1996 1996
(unaudited)
Current assets:
Cash & cash equivalents $ 367,514 $ 407,722
Accounts receivable, net 5,192,806 5,069,942
Inventories, at cost 5,053,725 4,699,567
Deferred taxes 599,100 398,300
Prepaid expenses 601,166 257,898
11,814,311 10,833,429
Property and equipment 5,854,044 5,505,127
Less accumulated depreciation 2,502,608 2,186,233
Net property and equipment 3,351,436 3,318,894
Other assets:
Deferred taxes 404,000 387,000
Other 393,922 133,761
Intangibles 13,161,387 13,654,404
Total other assets 13,959,309 14,175,165
Total assets $ 29,125,056 $ 28,327,488
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES & STOCKHOLDERS' EQUITY
December 31, June 30,
1996 1996
(unaudited)
Current liabilities:
Notes payable $ 1,252,062 $ 1,162,465
Current portion of long-term debt 1,140,393 1,236,570
Accounts payable 1,135,776 1,039,706
Accrued expenses 1,058,359 1,330,450
Income taxes payable 547,007
Deferred revenue 211,821 208,485
Total current liabilities 4,798,411 5,524,683
Long-term debt, net of current portion 7,400,952 5,371,264
Total liabilities 12,199,363 10,895,947
Commitments and contingencies
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; 9,080,783 shares
issued and outstanding 16,705,161 16,697,660
Additional paid in capital 1,004,541 1,004,541
Accumulated deficit (1,040,887) (532,350)
16,951,805 17,452,841
Receivable from employee stock
ownership plan (ESOP) (26,112) (21,300)
Total stockholders' equity 16,925,693 17,431,541
Total liabilities and
stockholders' equity $ 29,125,056 $ 28,327,488
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended December 31,
1996 1995
(unaudited) (unaudited)
Net sales (net of sales from discontinued
operation of $507,172 and $539,735) $ 4,776,596 $ 5,180,969
Cost of Sales 1,941,397 2,125,336
Gross Profits 2,835,199 3,055,633
Operating expenses:
Selling 978,940 926,812
General and administrative 1,180,253 1,265,640
Research and development 225,572 111,406
Amortization 215,692 203,301
Total operating expenses 2,600,457 2,507,159
Income (loss) from operations 234,742 548,474
Other income (expense):
Interest expense (306,515) (231,547)
Other income, net 13,050
Total (293,465) (231,547)
Income (loss) before income taxes
(benefit) and loss from discontinued
operation (58,723) 316,927
Income taxes (benefit) (30,900) 84,800
Income (loss) before loss from
discontinued operation (27,823) 232,127
(Loss) from discontinued operation (net
of tax benefit) (140,664) (4,162)
Net income $ (168,487) $ 227,965
Earnings per common and common equivalent
share:
Income (loss) from continuing
operations $ (0.00) $ 0.03
(Loss) from discontinued operation (0.02)
Net income (loss) per share $ (0.02) $ 0.03
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months ended December 31,
1996 1995
(unaudited) (unaudited)
Net sales (net of sales from
discontinued operation
of $1,111,777 and $1,176,264) $ 9,208,722 $ 9,665,567
Cost of Sales 3,745,913 4,069,125
Gross Profits 5,462,809 5,596,442
Operating expenses:
Selling 2,007,822 1,684,341
General and administrative 2,376,020 2,103,293
Research and development 419,807 244,052
Amortization 457,082 355,502
Total operating expenses 5,260,731 4,387,188
Income (loss) from operations 202,078 1,209,254
Other income (expense):
Interest expense (559,174) (387,661)
Other income, net 27,227 20,852
Total (531,947) (366,809)
Income (loss) before income taxes
(benefit) and loss from
discontinued operation (329,869) 842,445
Income taxes (benefit) (98,900) 239,800
Income (loss) before loss from
discontinued operation (230,969) 602,645
(Loss) from discontinued operation
(net of tax benefit) (277,564) (27,515)
Net income $ (508,533) $ 575,130
Earnings per common and common
equivalent share:
Income (loss) from continuing
operations $ (0.03) $ 0.07
(Loss) from discontinued
operations (0.03)
Net income (loss) per share $ (0.06) $ 0.07
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31,
1996 1995
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (508,533) $ 575,130
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 809,392 637,525
Provision for doubtful accounts 69,480 (19,968)
Loss (gain) on sale of property and
equipment
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 (197,156) (301,975)
receivable
(Increase) decrease in inventories (354,158) (295,031)
(Increase) decrease in deferred
taxes (217,800)
(Increase) decrease in prepaids (343,268)
(Increase) decrease in other assets (260,161)
Increase (decrease)in accounts
payable and accrued expense (154,426) 382,419
Increase (decrease) in deferred
revenue 3,336 5,121
Increase (decrease) in income
taxes payable (568,602) 305,330
Net cash provided by (used in)
operating activities (1,721,896) 1,288,551
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (4,738,800)
Proceeds from sale of property and
equipment
Purchase of property and equipment (348,923) (84,652)
Net cash flows (used in) investing
activities (348,923) (4,823,452)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on revolving credit
agreements 89,597 95,098
Proceeds from long-term borrowing 2,120,362 4,000,000
Principal payments on long-term
borrowing (186,849) (345,527)
Issuance of common stock 7,501
Net cash flows provided by financing
activities 2,030,611 3,749,571
INCREASE (DECREASE) IN CASH (40,208) (214,670)
CASH, beginning of period 407,722 384,968
CASH, end of period $ 367,514 $ 599,638
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash payments for interest $ 559,174 $ 379,055
Cash payments for income taxes $ 699,545 $
PRO-DEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six months ended December 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
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 six months ended December 31, 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 the period. 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 December 31, 1995 as though OMS, Micro Motors, and
Pnu-Light had been acquired as of July, 1, 1995, follows:
Sales $10,459,000
Net Income 560,000
Earnings per share 0.06
NOTE 4 - DISCONTINUED OPERATIONS
On June 24, 1996, the Company decided to report the operations of
its subsidiary, Pro-Dex Dental Management (PDM), on a
discontinued basis and expects to sell that line of business.
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 $1,090,000 for the six months
ended December 31, 1996, and $1,180,000 for the six months ended
December 31, 1995. Operating expenses for the same periods were
$1,160,000 and $1,240,000 respectively. These amounts are
presented in the statement of operations as discontinued
operations, net of applicable income tax benefits of
approximately ($67,000) and ($28,000) for the six months ended
December 31, 1996, and 1995.
At December 31, 1996, the net assets of PDM consists of the
following:
Receivables $2,004,681
Inventories 273,000
Depreciated cost of equipment 522,000
Current liabilities (280,000)
Deferred revenue (212,000)
In January of 1997, the Company decided to report the operations
of its subsidiary, Pnu-Light, Inc. on a discontinued basis, and
in accordance with the unwind provisions of the acquisition
agreement, return the assets of Pnu-Light to its former owners in
exchange for 368,483 shares of the Company's stock. Other
details of the transaction are not available at this time. The
Company does not expect to incur any future operating losses as
a result of its decision to dispose of the Pnu-Light subsidiary.
Sales of Pnu-Light for the six months ended December 31, 1996
were $23,000. Operating expenses for Pnu-Light for the same
period were approximately $330,000. These amounts are presented
in the statement of operations as a loss from discontinued
operations, net of applicable income tax benefits of
approximately ($210,000) for the six months ended December 31,
1996.
PRO-DEX, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of December 31, 1996, Pro-Dex, Inc. (the "Company") was the
parent of six subsidiaries, Biotrol International, Inc.
("Biotrol"), Challenge Products, Inc. ("Challenge"), Pro-Dex
Management, Inc. ("PDM"), Micro Motors, Inc. ("Micro"), Oregon
Micro Systems, Inc. ("OMS"), and Pnu-Light Acquisition
Corporation, ("Pnu-Light"). Biotrol manufactures and distributes
infection control products for the dental industry. Challenge
manufactures fluoride and related products for preventive
dentistry. PDM is a dental management company, operating six
dental centers located in Sears stores in northern California.
Micro is a manufacturer of miniature pneumatic motors used in
dental, medical and industrial devices. In addition, Micro
manufactures and distributes a complete line of dental hand-
pieces for the dentist and hygienist. OMS designs and
manufactures multi-axis circuit boards to control the motion of
motors used predominantly in medical testing equipment and
computer chip manufacturing machinery. Pnu-Light has developed a
patented pneumatic light system for air driven hand tools
predominantly used in industrial applications.
During the second quarter, the Company signed a letter of intent
to sell its dental center operations. Accordingly, the Company's
financial statements have been restated to reflect the accounting
treatment for discontinued operations of the dental centers. In
January, the Company decided to exercise its option under the
acquisition agreement and unwind the Pnu-Light transaction. As a
result, the Company's financial statements have been restated to
reflect the operating results of the Pnu-Light subsidiary as
discontinued operations. In accordance with the terms of the
unwind provision, the Company will receive 368,483 shares of its
stock in exchange for returning the assets of Pnu-Light. Other
details of the transaction are unavailable at this time.
Quarter Ended December 31, 1996 compared to quarter ended
December 31, 1995
In the quarter ended December 31, 1996 the Company's net sales
decreased $404,373, or 7.8% to $4,776,596 million from $5,180,969
in the same period of 1995.
Gross profit decreased $220,434, or 7.2% to $2,835,199 from
$3,055,633 in the second quarter of 1995 as a result of lower
sales. As a percentage of sales, gross profit increased from
59.0% to 59.4% primarily due to a more favorable sales mix.
Operating expenses increased 3.7% from $2,507,159 to $2,600,457
in the quarter.
Income from continuing operations before taxes decreased $313,732
or 57.2% to $234,742 from $548,474 in the same quarter in 1995.
Income (loss) before discontinued operations decreased 112% to
($27,823) from $232,127 for the same period in 1995. In the
quarter the Company absorbed a pre-payment penalty of $91,000 due
to the refinancing of the FINOVA debt with more favorable terms
from the Harris Bank of Chicago. In addition, continued softness
in the semiconductor industry compared to the same quarter in
1995 slowed deliveries at Oregon Micro Systems resulting in lower
revenues and profits for the quarter. Biotrol continued to
achieve better than expected revenue from the sale of its
infection control and preventive dental products. Loss from
discontinued operations (net of tax benefit) for the quarter
ended December 31, 1996 consists of Pro-Dex Management of
approximately ($63,000) and Pnu-Light of approximately ($78,000).
Loss from discontinued operations (net of tax benefit) for the
quarter ended December 31, 1995 is approximately ($4,000) from
the PDM subsidiary.
Six Months Ended December 31, 1996 Compared To Six Months Ended
December 31, 1995
Net sales decreased $456,845 or 4.7% to $9,208,722 for the six
months ended December 31, 1996 from $9,665,567 for the six
months ended December 31, 1995. On a proforma basis revenues for
the six months ended December 31, 1995 were $10,459,000, compared
to $9,208,722 for the six months ended December 31, 1996, a
decrease of 12%.
Gross profit margin increased to 59.3% for the six months ended
December 31, 1996 compared to 57.9% for the six months ended
December 31, 1995. The increase in gross profit percentage was
due primarily to a more favorable sales mix.
Operating income (loss) from continuing operations decreased
83.3% to $202,078 for the current period from $1,209,254 for the
prior period. The decrease in operating income for the six
months is mainly attributed to the slowness in the semiconductor
industry at Oregon Micro Systems. Income from operations for the
six month period at OMS for the current period is $352,000
compared to $856,000 for the five month period ending December
31, 1995.
Interest expense increased $171,500 to $559,174 for the current
period compared to $387,661 in the prior period mainly due to the
absorption of a pre-payment penalty for the refinancing of the
FINOVA debt with more favorable terms from the Harris Bank.
Losses from discontinued operations (net of tax benefits) for the
six months ended December 31, 1996 and 1995 are as follows:
1996 1995
Pro-Dex Management ($67,000) ($28,000)
Pnu-Light, Inc. ($210,000) 0
Total ($277,000) ($28,000)
Quarter Ended December 31, 1996 Compared To Quarter Ended
September 30, 1996
Revenue from continuing operations increased $344,470 to
$4,776,596 for the second quarter ended December 31, 1996
compared to $4,136,636 for the first quarter ended September 30,
1996, an increase of 8.3%. The increase was primarily due to
sales of infection control and preventive dental products at
Biotrol.
Income (loss) from continuing operations increased from a loss of
($32,664) in the quarter ended September 30, 1996 to income of
$234,742 for the quarter ended December 31, 1996, an increase of
$267,406. This increase was primarily due to an increase in
sales of infection control and preventive dental care products at
Biotrol, and a gradual increase in sales of motion control boards
to the semiconductor industry at OMS.
Liquidity and Capital Resources
The Company's working capital on December 31, 1996 was $7,015,900
(a 2.46:1 ratio), compared to $4,331,732 (a 1.8:1 ratio) on
December 31, 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: December 31, 1996 /s/ Kent E. Searl
Kent E. Searl, Chairman
Date: December 31, 1996 /s/ George J. Isaac
George J. Isaac, Chief Financial
Officer
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