Pro-Dex, Inc. Announces Fiscal 2013 Fourth Quarter And Full-Year Results

   Pro-Dex, Inc. Announces Fiscal 2013 Fourth Quarter And Full-Year Results

Company Announces Share Repurchase Program

PR Newswire

IRVINE, Calif., Sept. 25, 2013

IRVINE, Calif., Sept. 25, 2013 /PRNewswire/ --PRO-DEX, INC. (NasdaqCM: PDEX)
today announced financial results for its fiscal 2013 fourth quarter and
full-year ended June 30, 2013.

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

Quarter Ended June 30, 2013

Sales for the quarter ended June 30, 2013 decreased 26% to $2.7 million from
$3.7 million for the corresponding quarter in 2012. This decrease was due
primarily to the previously disclosed reductions in purchases by the Company's
former largest customer and to a deferral in the timing of product orders from
the Company's current largest powered surgical instrument customer, both of
which were partially offset by increases in surgical instrument sales to other
customers.

Gross profit for the quarter ended June 30, 2013 decreased to $565,000,
compared to gross profit of $858,000 for the year-ago period, primarily as a
result of the sales volume decrease between periods and the accrual in 2013 of
anticipated losses from the development portion of certain contracts. Gross
profit as a percentage of sales was 21% for the quarter ended June 30, 2013,
as compared to 23% for the corresponding quarter in 2012. This decrease was
due primarily to the effects of the accrual for estimated contract losses and
to unfavorable variances consistent with the lower sales and manufacturing
volume, partially offset by the effects of improved cost performance and lower
warranty costs in 2013, relative to 2012. 

Operating expenses (which include selling, general and administrative, and
research and development expenses) for the quarter ended June 30, 2013
decreased 24% to $1.3 million from $1.7 million in the prior year's
corresponding quarter. Included in operating expenses for the quarter ended
June 30, 2013 were severance costs amounting to $173,000, as compared to
$36,000 of such costs in the corresponding 2012 quarter.

Loss from continuing operations for the quarter ended June 30, 2013 was
$680,000, compared to a loss from continuing operations of $430,000 in the
corresponding quarter in 2012. Net loss for the quarter ended June 30, 2013
was $673,000, or $0.20 per diluted share, compared to a net loss of $544,000,
or $0.17 per diluted share, for the corresponding quarter in 2012. Of note is
that the fiscal 2012 fourth quarter results reflect a $276,000 benefit from
the carry back of tax-basis net operating losses that offset taxable income
from prior years. Because the 2012 carry back fully offset such prior years'
taxable income, a comparable benefit was not available in 2013.

Year Ended June 30, 2013

Sales for the year ended June 30, 2013 decreased 29% to $12.2 million from
$17.3 million in fiscal year 2012. Excluding product sales and repair
services to the Company's former largest customer, which represented a
reduction of $6.0 million in fiscal 2013 from fiscal 2012, sales and repair
services of surgical instruments increased $1.4 million, or 16%, in fiscal
2013 when compared to fiscal 2012.

For the year ended June 30, 2013, gross profit was $3.7 million, compared to
$5.4 million in fiscal 2012. This decrease resulted primarily from the reduced
sales and manufacturing volume in fiscal 2013, and from the accrual in fiscal
2013 of anticipated losses from the development portion of certain contracts,
partially offset by a decrease in warranty costs from fiscal 2012 to fiscal
2013. As a percentage of sales, gross margin was 30% for the year ended June
30, 2013, as compared to 31% in fiscal 2012. This decrease was due primarily
to the accrual in fiscal 2013 of the anticipated contract losses, partially
offset by favorable changes in warranty costs.

Operating expenses for the year ended June 30, 2013 decreased 17% to $5.6
million, from $6.8 million in fiscal 2012. Comprising this decrease were
planned, Company-wide expense reductions, and the deployment of engineering
resources, normally charged to research and development expense, to support
revenue-producing development contracts with customers, the costs of which
will be recorded as costs of sales when the development projects are
completed. Partially offsetting these expense decreases were costs of $190,000
incurred in fiscal 2013 that were associated with the contested election of
directors at our January 2013 annual meeting of shareholders.

For the year ended June 30, 2013, loss from continuing operations was $1.9
million, compared to a loss from continuing operations of $960,000 in fiscal
2012. Net loss for the year ended June 30, 2013 was $1.8 million, or $0.54
per diluted share, as compared to a net loss of $876,000, or $0.27 per diluted
share, for fiscal 2012. As described above, the fiscal 2012 results reflect a
$276,000 tax benefit not available in fiscal 2013.

During the year ended June 30, 2013, the Company used $1.3 million of cash in
operating activities. This use of cash reflects primarily an increase in
inventories, amounting to $1.0 million, resulting largely from a build-up of
the Company's stock of components with the objective of shortening lead times
with respect to certain of the Company's products. In the fourth quarter of
fiscal 2013, the Company's largest customer began deferring the timing of its
product orders, thus prolonging the effect of this inventory build-up with
respect to inventory unique to that customer's products.

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, and in June 2013 the Company made its first investments, amounting
to $365,000, as part of its program to direct excess capital into
opportunities identified by a capital allocation committee established by the
Company's Board of Directors.

As a result of the foregoing, cash on hand at June 30, 2013 was $1.7 million,
compared to $4.1 million at June 30, 2012.

Share Repurchase Program

The Company also announced today that its Board of Directors has approved a
share repurchase program authorizing the Company to repurchase up to 750,000
shares of its common stock. The share repurchase program has no stated
expiration date.

CEO Comments

Harold A. ("Hal") Hurwitz, the Company's President and Chief Executive
Officer, commented,"Pro-Dex's plan for fiscal year 2013 had a clear and
challenging agenda -- to rebuild our revenue base and right-size our cost
footprint. A look beneath the surface of our reported results allows for an
understanding of our progress in both areas."

"In fiscal 2013, we commenced engineering work on projects in which we are
developing a next-generation platform for powered surgical instruments, which,
if our work is successful, are expected to begin generating manufacturing
revenues from our customers in fiscal 2014 or 2015. In addition, we started
development efforts on a contract manufacturing project related to a device to
be used in a potentially disruptive new surgical system being developed by one
of our customers, also with the expectation of generating manufacturing
revenues commencing in fiscal 2014 or 2015. These projects arose from
business development efforts through which we initiated contact with these
customers two years ago. And we currently are in either discussions or the
proposal phase for additional next-generation or contract manufacturing
projects as a result of our continuing business development efforts. Our hard
work to rebuild our revenue base is starting to show results."

"One note with respect to our reported revenues:The close of fiscal 2013
marks the end of the year-over-year comparisons that have been affected by the
loss of our former largest customer. This disclosure has cast a shadow over
our results since fiscal 2010. We are happy to close this chapter, and look
forward to focusing our comments on the revenue rebuilding effort, which we
believe is the true measure of our revenue performance."

"As pleased as we are with a 17% year-over-year reduction in operating
expenses, this comparison does not fully reflect our progress in right-sizing
our expense footprint. During fiscal 2013 we reduced the composition of our
senior management team from six to four members, and our headcount from 74 to
67. As a result, our annualized base compensation was reduced from $4.6
million at June 30, 2012 to $3.7 million at June 30, 2013, a 20% decrease. In
addition, we have renegotiated the rental rate for the remainder of the lease
term for our facility in Irvine, California that will result in a reduction of
annualized expense of approximately $51,000, and annualized compensation for
non-employee members of our Board of Directors has been reduced by
approximately $140,000 compared to recent years based on a new compensation
plan approved by our Board in May 2013. We enjoyed but a portion of the
benefits of these, among many other, cost savings measures in fiscal 2013, and
we are looking forward to realizing the full-year effect of our efforts in the
current fiscal year 2014."

"During fiscal 2013, we invested $1.0 million in inventory growth, principally
to accommodate delivery commitments to our largest customer based on its
anticipated delivery requirements. In the fiscal 2013 fourth quarter, we
learned from this customer of its need to schedule deliveries for later dates
than originally anticipated. As a result, conversion to cash of the inventory
related to this customer will likely be weighted toward the second half of the
current fiscal year 2014 and possibly the first half of fiscal year 2015."

"Even with this unanticipated prolonged investment in inventory, we continue
to maintain liquidity in excess of our anticipated short-term requirements.
As a result, as of June 30, 2013, we had invested $365,000 in marketable
equity securities under the investment framework approved by our Board, as we
have previously described."

"Obviously, we are not satisfied with the direction and magnitude of our
fiscal 2013 loss from continuing operations and cash used in operations.
While proxy contest and severance costs, aggregating $560,000, constituted 30%
of the loss and 44% of the cash usage, the point remains that our goal is to
restore Pro-Dex to profitability and positive cash flow from operations.
Accomplishing this goal is neither easy nor assured. Nonetheless, the
examples of rebuilding the revenue base and right-sizing our cost footprint
discussed herein are evidence of our best efforts to accomplish this goal in
the context of our new operating structure."

Board Chairman Comments

"To begin, we want to thank the Pro-Dex team for their hard work and
engagement. Tough circumstances required Hal and the new board to make
difficult decisions after assuming leadership earlier this year. It wasn't
easy."

"As is obvious from the fiscal 2013 financial results, making a commitment to
properly size the Pro-Dex staff resulted in an unavoidable drain on cash,
given the change in control agreements former leadership created that will
expire in July 2014. We hope that reducing the fixed cost embedded in the
former, top-heavy staff structure will result in greater profitability in
future quarters."

"Notably, we are seeing evidence that reducing over-staffing allows the
Company's talented and motivated team members to maximize their capabilities.
As they have stepped up, we are hearing evidence that Pro-Dex is running more
smoothly and efficiently with fewer people."

"Hal and Rick Van Kirk, the Company's Chief Operating Officer, are leading an
important cultural shift toward thoughtful frugality. Intra-company
communications, goals and intentions are now more closely aligned with
productivity and the efficient use of resources. We are thankful that this
shift is being embraced because we believe it is necessary to provide for the
Company's financial health and stability. We believe the internal reforms at
Pro-Dex, however difficult, are extremely important and energizing."

"Hal and his team also have sights set on external goals and objectives. First
and foremost they are working diligently to be exemplary and invaluable
partners to Pro-Dex customers. On any given day this might mean solving tough
engineering problems, delivering flawless customer service or increasing the
incremental reliability of long-term products."

"Pro-Dex's team is also intently focused on its new business prospects. While
these are unpredictable by their nature, they are more attainable if we
continue to pursue pleasing all of our customers all of the time. And, while
longer-horizon development projects advance, we are seeking to return to
profitability at our current revenue run rate."

"The obvious and dramatic changes are likely behind us. As we move forward, we
believe the health of the Company will flow from a steady, intelligent pace.
The team at Pro-Dex is focused on every-day results while developing
opportunities and deploying company resources wisely."

Teleconference Information:

Investors and analysts are invited to listen to a broadcast review of the
Company's fiscal 2013 fourth quarter and full-year 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 October 9, 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 100319. 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
                                            June30,2013     June30,2012
ASSETS
Current assets:
Cash and cash equivalents                   $1,680,000        $  4,112,000
 Accounts receivable, net of allowance for
doubtful accounts of $24,000 and $16,000 at 1,339,000         1,581,000
June 30, 2013 and 2012, respectively
 Unbilled receivables                      244,000           —
Other current receivables                   32,000            123,000
Inventories                                 3,834,000         2,791,000
Prepaid expenses                            157,000           172,000
Income taxes receivable                     2,000             609,000
Deferred income taxes                       59,000            109,000
 Total current assets                      7, 347,000        9,497,000
Investments                                 370,000           —
Property, plant, equipment and leasehold    2,065,000         2,539,000
improvements, net
Real estate held for sale                   733,000           733,000
Other assets                                80,000            53,000
Total assets                                $10,595,000       $ 12,822,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                            $     844,000 $    633,000
Accrued expenses                            1,276,000         1,405,000
Deferred revenue                            141,000           20,000
Income taxes payable                        48,000            47,000
Bank term loan                              —                 774,000
Capital lease obligations                   5,000             —
 Total current liabilities                 2,314,000         2,879,000
Non-current liabilities:
Deferred income taxes                       59,000            109,000
Deferred rent                               270,000           284,000
Capital lease obligations                   15,000            —
 Total non-current liabilities             344,000           393,000
Total liabilities                           2,658,000         3,272,000
Commitments and contingencies
Shareholders' equity:
Common shares; no par value; 50,000,000
shares authorized; 3,348,184 and 3,272,350  17,012,000        16,846,000
shares issued and outstanding at June30,
2013 and 2012, respectively
Accumulated other comprehensive income      5,000             —
Accumulated deficit                         (9,080,000)       (7,296,000)
 Total shareholders' equity                7,937,000         9,550,000
Total liabilities and shareholders' equity  $10,595,000       $ 12,822,000



PRO-DEX, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                       For The Years Ended June30,
                                       2013                2012
Net sales                              $ 12,249,000       $ 17,257,000
Cost of sales                          8,533,000           11,841,000
Gross profit                           3,716,000           5,416,000
Operating expenses:
Selling expenses                       1,255,000           1,531,000
General and administrative expenses    2,566,000           3,182,000
Research and development costs         1,790,000           2,068,000
Total operating expenses               5,611,000           6,781,000
Loss from continuing operations before (1,895,000)         (1,365,000)
items below
Other income (expense):
Interest income                        3,000               —
Interest expense                       (11,000)            36,000
Total other expense                    (8,000)             (36,000)
Loss from continuing operations before (1,903,000)         (1,401,000)
provision for income taxes
Benefit from income taxes              (39,000)            (441,000)
Loss from continuing operations        (1,864,000)         (960,000)
Income from discontinued operations,
net of income taxes of $51,000 in 2013 80,000              84,000
andnet of benefit for income taxes of
$146,000 in 2012
Net loss                               $  (1,784,000)     $   (876,000)
Other comprehensive income, net of tax
Unrealized gain from marketable equity 5,000               —
investments
 Total other comprehensive income     5,000               —
Comprehensive loss                     $  (1,779,000)     $   (876,000)
Per share data (basic and diluted):
Loss from continuing operations        $      (0.56) $      (0.29)
Income from discontinued operations    $       0.02  $       0.02
Net loss                               $      (0.54) $      (0.27)
Weighted average shares outstanding    3,321,732           3,272,350



PRO-DEX, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended June 30, 2013 and 2012
                  Common Shares
                  Numberof             Accumulated   Accumulated
                            Amount      Other                      Total
                  Shares                Comprehensive Deficit
                                        Income
Balances,         3,272,350 $           —             $            $
June30, 2011               16,744,000               (6,420,000) 10,324,000
Repurchase of     —         (6,000)     —             —            (6,000)
stock options
Stock-based
compensation plan —         108,000     —             —            108,000
activity
Net loss          —         —           —             (876,000)    (876,000)
Balances,         3,272,350 16,846,000  —             $            $9,550,000
June30, 2012                                         (7,296,000)
Exercise of stock 43,334    66,000      —             —            66,000
options
Stock-based
compensation plan 32,500    100,000     —             —            100,000
activity
Net loss          —         —           —             (1,784,000)  (1,784,000)
Unrealized gain
from marketable   —         —           $5,000        —            5,000
equity
investments
Balances,         3,348,184 $17,012,000 $5,000        $(9,080,000) $7,937,000
June30, 2013



PRO-DEX, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           For The Years Ended June30,
                                           2013               2012
Cash flows from operating activities:
Net loss                                   $ (1,784,000)     $   (876,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization              582,000            647,000
Allowance for doubtful accounts            8,000              9,000
Share-based compensation                   100,000            108,000
Changes in:
  Accounts receivable and other          325,000            1,428,000
receivables
 Unbilled receivables                   (244,000)          —
 Inventories                            (1,043,000)        912,000
 Prepaid expenses                       14,000             (26,000)
 Other assets                           (27,000)           7,000
 Accounts payable, accrued expenses and 69,000             (1,503,000)
deferred rent
 Deferred revenue                       121,000            20,000
 Income taxes receivable and payable    608,000            (641,000)
Net cash provided by (used in) operating   (1,271,000)        45,000
activities
Cash flows from investing activities:
Purchase of equipment                      (86,000)           (341,000)
Proceeds from sale of equipment            —                  82,000
Purchase in investments                    (366,000)          —
Net cash used in investing activities      (452,000)          (259,000)
Cash flows from financing activities:
Principal payments on bank term loan       (775,000)          (357,000)
Repurchase of stock options                —                  (6,000)
Proceeds from exercise of stock options    66,000             —
Net cash used in financing activities      (709,000)          (363,000)
Net decrease in cash                       (2,432,000)        (577,000)
Cash, beginning of year                    4,112,000          4,689,000
Cash and cash equivalents, end of year     $1,680,000         $  4,112,000
Supplemental Information
Cash paid for interest                     —                  $    37,000
Cash paid for income taxes                 $     9,000   $    56,000
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, +1-949-769-3200
 
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