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Pro-Dex, Inc. Announces Fiscal Third Quarter And Nine-Month Results

     Pro-Dex, Inc. Announces Fiscal Third Quarter And Nine-Month Results

Company Enters Into Agreement To Sell Its Carson City, Nevada Property

PR Newswire

IRVINE, Calif., May 13, 2013

IRVINE, Calif., May 13, 2013 /PRNewswire/ -- PRO-DEX, INC. (NasdaqCM: PDEX)
today announced financial results for its fiscal third quarter and nine months
ended March 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20111025/LA93174LOGO-c)

Quarter Ended March 31, 2013

Sales for the quarter ended March 31, 2013 decreased 33% to $3.1 million from
$4.5 million for the corresponding quarter in 2012. This decrease was
primarily the result of previously disclosed reductions in purchases of the
Company's powered surgical instrument products by its former largest customer,
partially offset by increases in surgical instrument sales to other
customers. Excluding sales to the Company's former largest customer, which
represented a reduction of $1.7 million in the quarter ended March 31, 2013
from the corresponding quarter in 2012, surgical instrument sales increased
$310,000, or 19%, in the quarter ended March 31, 2013 compared to the same
quarter in 2012, nearly all of which arose from increased sales to the
Company's current largest customer.

Gross profit for the quarter ended March 31, 2013 was $883,000, or 29%,
compared to gross profit of $1.2 million, or 27%, for the year-ago period.
This increase in gross profit as a percentage of sales was due primarily to
improvements in manufacturing efficiencies, partially offset by increased
warranty accruals related to product mix.

Operating expenses (which include selling, general and administrative, and
research and development expenses) for the quarter ended March 31, 2013
decreased 13% to $1.7 million from $1.9 million in the prior year's
corresponding quarter. Included in operating expenses for the quarter ended
March 31, 2013 were (a) $167,000 of payments made to our former Chief
Executive Officer in connection with his separation of employment from the
Company during the quarter, and (b) $135,000 of costs associated with the
contested election of directors that culminated during the quarter. Included
in operating expenses for the 2012 quarter were separation costs related to a
previous Chief Executive Officer's resignation amounting to $339,000.

Loss from continuing operations for the quarter ended March 31, 2013 was
$765,000, compared to a loss from continuing operations of $547,000 in the
corresponding quarter in 2012. Net loss for the quarter ended March 31, 2013
was $747,000, or $0.22 per diluted share, compared to a net loss of $487,000,
or $0.15 per diluted share, for the corresponding quarter in 2012.

During the quarter ended March 31, 2013, the Company used $490,000 of cash in
operating activities. This use of cash reflects primarily the aforementioned
separation payments and the proxy contest costs.

Nine Months Ended March 31, 2013

Sales for the nine months ended March 31, 2013 decreased 30% to $9.5 million
from $13.6 million in the corresponding nine-month period in 2012. Excluding
sales to the Company's former largest customer, which represented a reduction
of $5.5 million in the nine months ended March 31, 2013 from the corresponding
period in 2012, sales of surgical instruments increased $1.3 million, or 30%,
in the nine months ended March 31, 2013 when compared to the 2012 period, 62%
of which arose from increased sales to the Company's current largest customer.

For the nine months ended March 31, 2013, gross profit was $3.2 million, or
33%, compared to $4.6 million and 34%, respectively, for the corresponding
period in 2012. This decrease in gross profit as a percentage of sales
resulted primarily from unfavorable changes in product mix, partially offset
by a reduction in warranty costs.

Operating expenses for the nine months ended March 31, 2013 decreased 17% to
$4.4 million, from $5.2 million in the corresponding nine-month period of
2012. Comprising this decrease were planned, Company-wide expense reductions
of $538,000, compensation reductions of $187,000, lower separation costs in
2013, relative to 2012, of $172,000, and $155,000 attributable to the
utilization of engineering resources in contractual revenue-producing
activities in 2013. Partially offsetting these expense decreases were costs of
$177,000 incurred during the nine months ended March 31, 2013 that were
associated with the contested election of directors.

For the nine months ended March 31, 2013, loss from continuing operations was
$1.2 million, compared to a loss from continuing operations of $529,000 for
the corresponding period in 2012. Net loss for the 2013 nine-month period was
$1.1 million, or $0.34 per diluted share, as compared to a net loss of
$332,000, or $0.10 per diluted share, for the corresponding period in 2012.

During the nine months ended March 31, 2013, the Company used $1.3 million of
cash in operating activities. This use of cash reflects primarily a build-up
of inventory, amounting to $955,000, to fulfill firm customer purchase orders
and build stock in order to shorten lead times, combined with the payments of
(a) $167,000 to our former Chief Executive Officer in connection with his
separation of employment from the Company and (b) $177,000 of costs in
connection with the contested election of directors. In addition, as announced
previously, in September 2012 the Company repaid the entire outstanding
balance on its term loan from Union Bank amounting to $685,000. As a result
of the foregoing, cash on hand at March 31, 2013 was $2.0 million, compared to
$4.1million at June 30, 2012.

CEO Comments

Harold A. ("Hal") Hurwitz, the Company's President and Chief Executive
Officer, commented, "The results of the quarter and nine months ended March
31, 2013 require a look beneath the surface to understand our continued
progress in key strategic areas. The first of these areas is cost
management. The unusual costs we incurred in connection with the contested
election of directors and the separation of employment from the Company of our
former Chief Executive Officer aggregated 40% of our net loss for the three
months, and 31% of our net loss for the nine months, ended March 31, 2013.

"Without consideration of these unusual costs," Mr. Hurwitz continued, "we
reduced operating expenses by $218,000, or 14%, in the three months ended
March 31, 2013 from the corresponding quarter in 2012, and by $875,000, or
18%, in the nine months ended March 31, 2013 from the 2012 nine-month period.
Looking forward, we continue to identify cost reduction opportunities. The
combination of my position as Chief Financial Officer with my new position as
Chief Executive Officer reduces annualized compensation costs to the Company
of approximately $260,000; the voluntary reduction of cash and equity-based
compensation by members of our Board, after giving effect to an amended
non-employee Board member compensation policy approved by our Board earlier
this month, is expected to result in an estimated annualized expense reduction
of approximately $140,000 when compared to what the Company's Board
compensation expense would have been under the Board composition and
compensation policies of one year ago; and the recently announced promotion of
Rick Van Kirk to Chief Operating Officer provides Pro-Dex with an
operationally experienced senior leader ideally positioned to direct our
continued cost reduction program.

"Our gross margins improved to 29% in the quarter ended March 31, 2013,
compared to 27% in last year's corresponding quarter. For the nine-month
period ended March 31, 2013, gross margin was relatively unchanged at 33%,
compared to 34% in the year-earlier period. I believe these results are
noteworthy in light of the significantly reduced revenue from our former
largest customer, and attest to our efforts in right-sizing our manufacturing
cost structure as we work on rebuilding our revenue base.

"Our efforts in increasing our presence in target markets are showing
results. We are working on several new projects, currently in the
non-recurring engineering phase, that derive from our Pro-Driver™ platform and
represent our entry into the next-generation platform for powered surgical
instruments. In addition, we are in either discussions or the proposal phase
for additional next-generation projects. It is not unusual for our sales
cycle, even when successful, to span a twelve to eighteen month period, and
the initial engineering phases for new projects may consume an equally lengthy
period. As a result, it is likely we will not see meaningful manufacturing
revenues from our current projects until late in the current calendar year, or
in early 2014. That said, we are enjoying year-over-year increases in sales
of our surgical instruments to existing customers and, while unable to assure
successful results, are working hard to maintain this trend."

Agreement to Sell the Carson City, Nevada Property

On April 22, 2013, the Company entered into a Purchase Agreement with
Aesthetic and Reconstructive Technologies, Inc., which provides for
Aesthetic's purchase of the land and building owned by the Company in Carson
City, Nevada for a purchase price of $980,000. This property formerly housed
the Company's fractional horsepower motor product line doing business as
Pro-Dex Astromec, which was sold to SL Montevideo Technology, Inc. in February
2012. Under the terms of the Purchase Agreement, completion of the sale must
take place by July 8, 2013, and is contingent on the following conditions, the
satisfaction of which cannot be assured: (a) completion by the buyer of its
due diligence review of the property, as defined in the Purchase Agreement, by
June 21, 2013, and (b) the buyer's ability to obtain financing from a loan
guaranteed by the U.S. Small Business Administration.

Board Chairman Comments

Nick Swenson, the Company's Chairman, commented, "The culmination of the proxy
contest, which changed a majority of the board on January 22, 2013, led to the
immediate reduction of board member compensation, the appointment of Hal
Hurwitz in the dual role of CEO/CFO on February 25, 2013, and the
implementation of a plan to make Pro-Dex better and stronger.

"While the former board chose to engage us in a proxy contest rather than to
make changes we considered necessary for the good of Pro-Dex, and we believe
that Pro-Dex's shareholders are better off with today's board, we very much
regret the $177,000 that the then-incumbent board spent on the proxy contest.
The shareholder-nominated slate won two votes for every one vote won by the
former board. We believe this result was obvious very early in the contest,
yet spending by that former board did not slow.

"We believe that the recently announced promotion of Rick Van Kirk to Chief
Operating Officer will result in the sensible application of productivity
measurement disciplines (common in manufacturing) into other areas of the
Pro-Dex cost structure. We are trying hard to increase the efficiency of the
cost structure and lower the Company's working capital requirements.

"A key addition to the management team in March 2013 was Siddharth Desai, Vice
President of Engineering. Sid's leadership, energy and know-how have already
begun a transition of our research and development efforts into a
high-performance zone.

"The sale of the Carson City property is a priority for the Board, and we look
forward to the anticipated completion of this transaction at a sales price
above our carrying value for the property.

"Recently, the board formed a committee focused on capital allocation to
create a framework that helps the Board determine the excess capital available
to Pro-Dex, evaluate possible internal and external re-investment
opportunities, and direct that excess capital to what the committee will
evaluate to be projects that have an acceptable risk/return relationship. We
believe that the excess capital investment function, often poorly developed at
companies, is one of the keys to long-term corporate health and, therefore,
stock performance."

Teleconference Information:

Investors and analysts are invited to listen to a broadcast review of the
Company's fiscal 2013 third quarter and nine-month financial results today at
4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) that may be accessed by
visiting the Company's website at www.pro-dex.com. The conference call may
also be accessed at www.InvestorCalendar.com. Investors and analysts who would
like to participate in the conference call may do so via telephone at (877)
407-8033, or at (201) 689-8033 if calling from outside the U.S. or Canada.

For those who cannot access the live broadcast, a replay will be available
approximately two hours after the completion of the call until midnight
(Eastern Time) on May 27, 2013 by calling (877) 660-6853, or (201) 612-7415 if
calling from outside the U.S. or Canada, and then entering conference I.D.
number 414434. An online archive of the broadcast will be available on the
Company's website www.pro-dex.com for a period of 365 days.

About Pro-Dex, Inc.:

Pro-Dex, Inc., with operations in California and Oregon, specializes in the
design, development and manufacture of powered rotary drive surgical and
dental instruments used primarily in the orthopedic, spine, maxocranial facial
and dental markets. Its OMS division designs and manufactures embedded motion
control systems serving the medical, dental, semi-conductor and scientific
research markets. Pro-Dex's products are found in hospitals, dental offices,
medical engineering labs, scientific research facilities and high tech
manufacturing operations around the world. For more information, visit the
Company's website at www.pro-dex.com.

Statements herein concerning the Company's plans, growth and strategies may
include 'forward-looking statements' within the context of the federal
securities laws. Statements regarding the Company's future events,
developments and future performance, as well as management's expectations,
beliefs, plans, estimates or projections relating to the future, are
forward-looking statements within the meaning of these laws. The Company's
actual results may differ materially from those suggested as a result of
various factors. Interested parties should refer to the disclosure concerning
the operational and business concerns of the Company set forth in the
Company's filings with the Securities and Exchange Commission.

(tables follow)



PRO-DEX, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)
                                          March31,2013       June30,2012
ASSETS
Current assets:
Cash                                      $     2,039,000  $  4,112,000
Accounts receivable, net of allowance for
doubtful accounts of $21,000 at March31, 1,577,000            1,581,000
2013 and $16,000 at June30, 2012
Other current receivables                 36,000               123,000
Inventories                               3,746,000            2,791,000
Prepaid expenses                          207,000              172,000
Income taxes receivable                   564,000              609,000
Deferred income taxes                     109,000              109,000
Total current assets                      8,278,000            9,497,000
Property, plant, equipment and leasehold  2,187,000            2,539,000
improvements, net
Real estate held for sale                 733,000              733,000
Other assets                              53,000               53,000
Total assets                              $    11,251,000   $ 12,822,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                          $      981,000 $    633,000
Accrued expenses                          1,218,000            1,425,000
Income taxes payable                      48,000               47,000
Bank term loan                            —                    774,000
Capital leases                            5,000                —
Total current liabilities                 2,252,000            2,879,000
Non-current liabilities:
Deferred income taxes                     109,000              109,000
Deferred rent                             277,000              284,000
Capital leases                            17,000               —
Total non-current liabilities             403,000              393,000
Total liabilities                         2,655,000            3,272,000
Commitments and contingencies
Shareholders' equity:
Common shares; no par value; 50,000,000
shares authorized; 3,340,684 and
3,272,350 shares issued and outstanding   17,004,000           16,846,000
at March31, 2013 and June30, 2012,
respectively
Accumulated deficit                       (8,408,000)          (7,296,000)
Total shareholders' equity                8,596,000            9,550,000
Total liabilities and shareholders'       $    11,251,000   $ 12,822,000
equity



PRO-DEX, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)
                                ForTheThreeMonthsEndedMarch31,
                                2013                   2012
Net sales                       $     3,060,000    $   4,539,000
Cost of sales                   2,177,000              3,336,000
Gross profit                    883,000                1,203,000
Operating expenses:
Selling expenses                311,000                450,000
General and administrative      853,000                973,000
expenses
Research and development costs  490,000                486,000
Total operating expenses        1,654,000              1,909,000
Loss from continuing operations (771,000)              (706,000)
before items below
Other expense:
Interest expense                (2,000)                (8,000)
Total other expense             (2,000)                (8,000)
Loss from continuing operations
before benefit from income      (773,000)              (714,000)
taxes
Benefit from income taxes       (8,000)                (167,000)
Loss from continuing operations (765,000)              (547,000)
Income from discontinued
operations, net of provision
for income taxes of $14,000 in  18,000                 60,000
2013 and benefit from income
taxes of $269,000 in 2012
Net loss                        $     (747,000)   $    (487,000)
Per share data (basic and
diluted):
Loss from continuing operations $               $       (0.17)
                                (0.23)
Income from discontinued        $         0.01 $        0.02
operations
Net loss                        $               $       (0.15)
                                (0.22)
Weighted average shares         3,340,684              3,272,350
outstanding



PRO-DEX, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)
                                    ForTheNineMonthsEndedMarch31,
                                    2013                  2012
Net sales                           $   9,527,000      $  13,601,000
Cost of sales                       6,376,000             9,043,000
Gross profit                        3,151,000             4,558,000
Operating expenses:
Selling expenses                    907,000               1,192,000
General and administrative expenses 2,087,000             2,477,000
Research and development costs      1,360,000             1,555,000
Total operating expenses            4,354,000             5,224,000
Loss from continuing operations     (1,203,000)           (666,000)
before items below
Other expense:
Interest expense                    (8,000)               (28,000)
Total other expense                 (8,000)               (28,000)
Loss from continuing operations
before benefit from                 (1,211,000)           (694,000)

income taxes
Benefit from income taxes           (27,000)              (165,000)
Loss from continuing operations     (1,184,000)           (529,000)
Income from discontinued
operations, net of provision for
income taxes of $39,000 in 2013 and 72,000                197,000
benefit from income taxes of
$269,000 in 2012
Net loss                            $   (1,112,000)     $   (332,000)
Per share data (basic and diluted):
Loss from continuing operations     $       (0.36) $      (0.16)
Income from discontinued operations $        0.02  $        0.06
Net loss                            $       (0.34) $      (0.10)
Weighted average shares outstanding 3,312,946             3,272,350



PRO-DEX, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
                                      ForTheNineMonthsEndedMarch31,
                                      2013                 2012
Cash flows from operating activities:
Net loss                              $   (1,112,000)   $    (332,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization         443,000              493,000
Allowance for doubtful accounts       5,000                7,000
Share-based compensation              107,000              73,000
Changes in:
Accounts receivable and other current 86,000               817,000
receivables
Inventories                           (955,000)            644,000
Prepaid expenses                      (35,000)             (48,000)
Other assets                          —                    8,000
Accounts payable and accrued expenses 134,000              (555,000)
Income taxes receivable and payable   46,000               (486,000)
Net cash provided by (used in)        (1,281,000)          621,000
operating activities
Cash flows from investing activities:
Purchases of equipment                (68,000)             (246,000)
Proceeds from sale of equipment       —                    83,000
Net cash used in investing activities (68,000)             (163,000)
Cash flows from financing activities:
Proceeds from exercise of stock       50,000               —
options
Principal payments on term loan       (774,000)            (268,000)
Net cash used in financing activities (724,000)            (268,000)
Net increase (decrease) in cash       (2,073,000)          190,000
Cash, beginning of period             4,112,000            4,689,000
Cash, end of period                   $    2,039,000    $    4,879,000
Supplemental Information
Cash payments for interest            $      10,000  $      25,000
Cash payments for income taxes        $       5,000 $      54,000
Supplemental Non-Cash Information
In February 2013 the Company entered into a capital lease agreement for the
acquisition of equipment having a cost of $22,000.



SOURCE Pro-Dex, Inc.

Website: http://www.pro-dex.com
Contact: Harold A. Hurwitz, Chief Executive Officer, (949) 769-3200
 
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