<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 March 31, 1997
[ ] 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 May 14, 1997, was 8,712,300.
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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 6-7
Item 2.
Management Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
SIGNATURES 9
EXHIBITS NONE
Page 1 of 9 Pages
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, June 30,
1997 1996
(unaudited)
Current assets:
Cash & cash equivalents $ 605,270 $ 407,722
Accounts receivable, net 4,091,936 5,069,942
Inventories, at cost 4,903,648 4,699,567
Deferred taxes 1,002,417 398,300
Prepaid expenses 468,043 257,898
Total current assets 11,071,314 10,833,429
Property and equipment 5,944,150 5,505,127
Less accumulated depreciation 2,673,598 2,186,233
Net property and equipment 3,270,552 3,318,894
Other assets:
Deferred taxes 404,000 387,000
Other 383,054 133,761
Intangibles 12,883,691 13,654,404
Total other assets 13,670,745 14,175,165
Total assets $ 28,012,611 $ 28,327,488
F-1
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET - CONTINUED
LIABILITIES & STOCKHOLDERS' EQUITY
March 31, June 30,
1997 1996
(unaudited)
Current liabilities:
Notes payable $ 62,223 $ 1,162,465
Current portion of long-term debt 1,155,248 1,236,570
Accounts payable 887,020 1,039,706
Accrued expenses 924,049 1,330,450
Income taxes payable 547,007
Deferred revenue 215,466 208,485
Total current liabilities 3,244,006 5,524,683
Long-term debt, net of current portion 9,087,876 5,371,264
Total liabilities 12,331,882 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 (2,252,850) (532,350)
15,739,842 17,452,841
Receivable from employee stock
ownership plan (ESOP) (59,113) (21,300)
Total stockholders' equity 15,680,729 17,431,541
Total liabilities and stockholders'equity $ 28,012,611 $ 28,327,488
F-2
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended March 31,
1997 1996
(unaudited) (unaudited)
Net sales (net of sales from
discontinued operations
of $507,172 and $587,289) $ 4,397,093 $ 5,902,581
Cost of Sales 2,023,105 2,378,677
Gross Profits 2,373,988 3,523,904
Operating expenses:
Selling 1,143,202 1,216,197
General and administrative 1,415,071 1,168,936
Research and development 205,367 153,924
Amortization 236,567 213,301
Total operating expenses 3,000,207 2,752,358
Income (loss) from operations (626,219) 771,546
Other income (expense):
Interest expense 354,920 242,194
Other income, net 11,760 16,482
Total 343,160 225,712
Income (loss) before income taxes (benefit) and
(loss) from discontinued operations (969,379) 545,834
Income taxes (benefit) (246,972) 163,759
Income (loss) before income (loss)
from discontinued operations (722,407) 382,075
Income (loss) from discontinued operations
(net of income tax (benefit)) (489,557) 30,202
Net income (loss) $ (1,211,964) $ 412,277
Earnings per common and common
equivalent share:
Income (loss) from continuing operations $ (0.08) $ 0.05
(Loss) from discontinued operations (0.05) 0.00
Net income (loss) per share $ (0.13) $ 0.05
F-3
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
Nine months ended March 31,
1997 1996
(unaudited) (unaudited)
Net sales (net of sales from
discontinued operations
of $1,714,178 and $1,763,554) $ 13,605,814 $ 15,220,185
Cost of Sales 5,769,020 6,115,376
Gross Profits 7,836,794 9,104,809
Operating expenses:
Selling 3,151,024 2,900,883
General and administrative 3,791,093 3,231,884
Research and development 625,174 397,976
Amortization 693,649 568,803
Total operating expenses 8,260,940 7,099,546
Income (loss) from operations (424,146) 2,005,263
Other income (expense)
Interest expense 914,094 663,089
Other income, net 38,987 33,136
Total 875,107 629,953
Income (loss) before income taxes (benefit)
and (loss) from discontinued operations (1,299,253) 1,375,310
Income taxes (benefit) (345,872) 412,593
Income (loss) before (losses) from
discontinued operations (953,381) 962,717
Income (loss) from discontinued
operations (net of tax benefit) (767,119) (12,806)
Net income (loss) $ (1,720,500) $ 949,911
Earnings per common and common equivalent share:
Income (loss) from continuing operations $ (0.10) $ 0.11
(Loss) from discontinued operations (0.09) 0.00
Net income (loss) per share $ (0.19) $ 0.11
F-4
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PRO-DEX, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended March 31,
1997 1996
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,720,501) $ 949,911
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,258,078 992,840
Provision for doubtful accounts 558,753
Loss (gain) on sale of property
and equipment (19,968)
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 381,440 (1,105,564)
(Increase) decrease in inventories (204,081) (507,449)
(Increase) decrease in deferred taxes (621,117)
(Increase) decrease in prepaids (210,145) 189,128
(Increase) decrease in other assets (249,293) (81,615)
Increase (decrease) in accounts payable
and accrued expense (486,033) 310,024
Increase (decrease) in deferred revenue 6,981 25,256
Increase (decrease) in income taxes payable (620,061) 528,180
Net cash provided by (used in)
operating activities (1,905,979) 1,280,743
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (4,738,800)
Purchase of property and equipment (439,023) (205,134)
Net cash flows (used in) investing activities (439,023) (4,943,934)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing on revolving credit agreements (1,100,242) 375,054
Proceeds from long-term borrowing 3,913,723 4,000,000
Principal payments on long-term borrowing (278,431) (508,581)
Issuance of common stock 7,501 65,000
Net cash flows provided by
financing activites 2,542,551 3,931,473
INCREASE (DECREASE) IN CASH 197,549 268,282
CASH, beginning of period 407,722 384,968
CASH, end of period $ 605,271 $ 653,250
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 914,094 $ 681,289
Cash payments for income taxes $ 620,061
F-5
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For nine months ended March 31, 1997
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 nine months ended March 31, 1997 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
nine months ended March 31, 1996 as though OMS, Micro Motors, and
Pnu-Light had been acquired as of July 1, 1995, as follows:
Sales $16,165,000
Net Income 773,000
Earnings per share 0.09
-6-
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. In
March of 1997, the Company revised its estimate of net realizable
value of the dental center operations. As a result, an after tax
benefit charge of $375,000 was recorded at March 31, 1997. The
charge had no effect on cash flow and increased net loss per
common share for the nine months ended March 31, 1997 by $0.04.
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 $1,640,000 for the nine months
ended March 31, 1997, and $1,760,000 for the nine months ended
March 31, 1996. Operating expenses for the same periods were
$1,763,000 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 ($463,000) and ($18,000) for the nine months ended
March 31, 1997, and 1996.
At March 31, 1997, the net assets of PDM consists of the
following:
Receivables 1,600,000
Inventories 280,000
Depreciated cost of equipment 516,000
Current liabilities (237,000)
Deferred revenue (215,000)
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 nine months ended March 31, 1997 were
$76,000. Operating expenses for Pnu-Light for the same period
were approximately $380,000. These amounts are presented in the
statement of operations as a loss from discontinued operations,
net of applicable income tax benefits of approximately ($275,000)
for the nine months ended March 31, 1997.
NOTE 5 - SUBSEQUENT EVENT
Pursuant to the unwind provisions of the Asset Purchase Agreement
of Pnu-Light Tool Works, Inc., on May 6, 1997, the company
acquired 368,483 shares of its stock in exchange for the
assignment of the patent acquired in May of 1996 held by its
Pnu-Light subsidiary. The shares are now held in treasury.
-7-
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PRO-DEX, INC. AND SUBSIDIARIES
------------------------------
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31,
1996
In the quarter ended March 31, 1997, net sales decreased 25
percent to $4.4 million from $5.9 million in the same quarter in
1996. A significant decline in sales of the Company's endodontic
and implant products to its OEM customers caused by a
consolidation in those specialty dental fields contributed to the
lower sales volume for the quarter. In addition, at its OMS
subsidiary, a decline in sales of motion control boards to the
semiconductor industry compared to the volume a year ago also
contributed to the decrease in sales.
Gross profit decreased $1.1 million to $2.4 million from $3.5
million in the third quarter of fiscal 1996, primarily due to
lower sales. As a percentage of net sales, gross profit
decreased from 59.7 percent for the quarter ended March 31, 1996
to 54.0 percent for the same period in 1997. Lower sales volume
without a proportionate decrease in fixed manufacturing overhead
was the main reason for the decline in gross profit percentage.
(Loss) for the quarter ended March 31, 1997 was ($1,211,000)
compared to income of $412,000 for the same quarter in the
previous year. The decrease in sales and gross profit is only
partly responsible for the decline in income. The Company
incurred nonrecurring and unusual charges in the quarter of
($475,000) which included a $245,000 restructuring charge
reducing the Company's workforce by 13 percent. In addition,
loss from discontinued operations (net of tax benefit) for the
quarter ended March 31, 1997 was ($490,000) compared to net
income from discontinued operations of $30,000 in the same
quarter of the prior year.
Nine Months Ended March 31, 1997 Compared to Nine Months Ended
March 31, 1996.
Sales for the nine months ended March 31, 1997 were $13.6 million
compared to $15.2 million for the nine months ended March 31,
1996, or a 10.6 percent decline. Weak sales to the Company's OEM
dental customers as well as lower sales of motion control boards
to the semiconductor industry compared to the same nine month
period in the prior year were the main reasons for the decrease.
Gross profit decreased 12.4 percent to $7.8 million from $9.1
million in the prior period. As a percentage of sales gross
profit decreased 2.3 percent from 59.9 percent in the prior
period to 57.6 percent in the current period. Lower sales volume
without a proportionate decrease in fixed manufacturing overhead
contributed to the decrease.
-8-
Operating expenses increased from $7.1 million in the nine months
ended March 31, 1996 to $8.3 million for the nine-month period in
the current year. An increase of 57 percent in research and
development expenses to enhance the Company's product lines
contributed to the increase in operating expenses. In addition,
the Company has recently restructured its operations to reduce
operating expenses. During the quarter ended March 31, 1997, the
Company's workforce has been reduced by 13 percent. Also,
salaries for all senior level management personnel have been
reduced by 5 to 10 percent. As a result of the restructuring,
operating expenses for the nine-month period ended March 31, 1997
include nonrecurring and unusual charges of $475,000. In
addition, interest expense has increased for the nine month
period ended March 31, 1997 to $914,000 from $663,000 for the
same period in the prior year. Included in interest expense is a
nonrecurring prepayment penalty of $260,000 due to the
refinancing of the FINOVA debt with more favorable terms from The
Harris Bank of Chicago. Total nonrecurring and unusual charges
for the nine months ended March 31, 1997 were $735,000.
(Loss) from discontinued operations were ($767,000) for the nine
months ended March 31, 1997 compared to ($13,000) for the same
period in the prior year. Net income (loss) for the nine months
ended March 31, 1997 was ($1,720,000) compared to net income of
$950,000 for the nine months ended March 31, 1996.
In spite of the disappointing results, management believes that
the elimination of losses from discontinued operations of
$767,000 and nonrecurring and unusual charges of $735,000,
combined with the reduction of approximately $1,000,000 in
operating expenses as a result of the 13 percent reduction in the
Company's workforce will have a significantly positive effect on
future operating results.
Liquidity and Capital Resources
The Company's working capital on March 31, 1997 was $7.8 million
(a 3.4:1 ratio) compared to $5.3 million on March 31, 1996 (a 2:1
ratio). The Company was able to increase its bank line of credit
in July of 1996 from $5.5 million to $10 million. The Company
believes that its present bank line of credit and projected cash
flow 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: March 31, 1997 /s/ Kent E. Searl
---------------------
Kent E. Searl, Chairman
Date: March 31, 1997 /s/ George J. Isaac
----------------------
George J. Isaac, Chief Financial Officer
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 605,270
<SECURITIES> 0
<RECEIVABLES> 4,866,767
<ALLOWANCES> 774,831
<INVENTORY> 4,903,648
<CURRENT-ASSETS> 11,071,314
<PP&E> 5,944,150
<DEPRECIATION> 2,673,598
<TOTAL-ASSETS> 28,012,611
<CURRENT-LIABILITIES> 3,244,006
<BONDS> 0
0
282,990
<COMMON> 16,705,161
<OTHER-SE> 1,004,541
<TOTAL-LIABILITY-AND-EQUITY> 28,012,611
<SALES> 4,397,093
TOTAL-REVENUES> 4,397,093
<CGS> 2,023,105
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,000,207
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<INTEREST-EXPENSE> 354,920
<INCOME-PRETAX> (969,379)
<INCOME-TAX> (246,972)
<INCOME-CONTINUING> (722,407)
<DISCONTINUED> (489,557)
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<NET-INCOME> (1,211,964)
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