PRO DEX INC — Interim / Quarterly Report 1995

Nov 3, 1995

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, 1995 [ ] 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 September 22, 1995 was 8,630,300. PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: None. Table of Contents -----------------

PAGE 1 of 11 Pages 1 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- Part I Item 1. FINANCIAL STATEMENTS. PRO-DEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS

2 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND SHAREHOLDERS' EQUITY

3 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS

4 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS

5 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED

6 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 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 instructions 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, 1995 are not necessarily indicative of the results that may be expected for the year ended June 30, 1996. 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, 1995. 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 since their inclusion would be anti-dilutive. NOTE 3 - 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 OMS stock, the Company acquired two letters patent for the design of multi-axis motion control circuit boards. The total acquisition cost was $6,550,000. The excess of the total acquisition cost over the fair value of the net assets acquired of $2,734,000 was allocated to the patents and is being amortized over seven (7) years by the straight line method. Also on July 26, 1995, Micro Motors, Inc., a manufacturer of patented miniature pneumatic (air) motors, and dental handpieces was acquired in exchange for 3,350,000 shares of the Company's stock. The amount assigned to the shares of the Company stock was $2.75 per share making the total acquisition price $9,212,500. The excess of the total acquisition cost of Micro Motors, Inc. over the fair value of the net assets acquired of $8,113,063 is being amortized over 20 years by the straight line method. 7 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three months ended September 30, 1995 NOTE 3 - (Continued) Both acquisitions have been accounted for as a purchase and the results of operations of Oregon Micro Systems, Inc. and Micro Motors, Inc. since the date of acquisition are included in the consolidated financial statements. Unaudited pro forma consolidated results of operations for the quarters ended September 30, 1995, and 1994 as though OMS and Micro Motors had been acquired as of July 1, 1994, follow:

The above amounts reflect adjustments for amortization of patents and goodwill, additional depreciation on revalued purchased assets, interest expense on acquisition indebtedness, and elimination of non-recurring income and expense items. Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Total revenues for the quarter ended September 30, 1995 were $4,773,165 as compared to $2,135,837 for the same quarter in the previous year. On July 26, 1995 the Company acquired all the issued and outstanding stock of Oregon Micro Systems, Inc., an Oregon corporation (OMS) from L. Wayne Hunter, the sole shareholder of OMS. In addition the Company acquired from Mr. Hunter related assets identified as two letters patent for the design of Multi-axis, motion control circuit boards. The total purchase price paid for OMS stock and related assets including acquisition costs was approximately $6,550,000. The cost of the OMS stock and related patents was allocated as follows:

8 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- To finance a portion of the acquisition price the Company obtained a five (5) year term loan from FINOVA Capital Corporation for $3,500,000. The interest rate of the loan is prime plus 3 1/2 percent plus an annual 5% profit participation fee calculated on the outstanding loan balance at the beginning of each year. In addition the Company also borrowed $500,000 with interest only payable for two years at a rate of 2% over the prime rate. Also on July 26, 1995 pursuant to a statutory merger into a wholly owned subsidiary of the Company, the company acquired all of the outstanding stock of Micro Motors, Inc., a California corporation (MMI), by issuing 3,350,000 shares of its stock at $2.75 per share in exchange for all of the outstanding shares of Micro Motors, Inc. MMI manufactures patented miniature pneumatic (air) motors for both industrial and dental applications, as well as a line of dental handpieces. Management believes the acquisition of these two new subsidiaries will provide significant synergistic advantages to the Company's business. On a pro forma basis revenues for the quarter ended September 30, 1995 were $5,567,000 as compared to $4,795,000 for the same quarter in the previous year, an increase of 16.1%. The Company is also reporting on a pro forma basis profits for the quarter ended September 30, 1995 of $410,000 compared to $238,000 for the same quarter in the previous year. Actual profits for the quarter ending September 30, 1995 were $347,164 which results in $.04 earnings per share. This compares to $112,631 or $.02 per share for the quarter ended September 30, 1994. Earnings for September 30, 1994 were restated to correct an error in prior year's accounts and reduce the first quarter's earnings by $54,000. The error resulted from the omission of bad debt write-offs and the inclusion of profits in inventories on hand from intercompany purchases. Liquidity and Capital Resources The Company's working capital on September 30, 1995 was $4,528,000 (a 1.9:1 ratio), compared to $3,724,470 on September 30, 1994. Since the acquisition of OMS and Micro Motors, Inc. the Company's working capital ratio will change dramatically, since the two acquired companies are predominantly manufacturing operations. The Company was able to increase its bank lines of credit to continue to finance its growth in operations. 9 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- Part II Item 1. Legal Proceedings. There are no reportable legal proceedings commenced or terminated with respect to Registrant during the quarter ending September 30, 1995. Item 2. Changes in Securities. There have been no changes in securities of Registrant during the quarter ending September 30, 1995. Item 3. Defaults Upon Senior Securities. There have been no defaults upon senior securities of Registrant during the quarter ending September 30, 1995. Item 4. Submission of Matters to Vote of Security Holders. No matters have been submitted to vote of security holders during the quarter ending September 30, 1995. Item 5. Other Information. The Company has appointed McGladrey & Pullen LLP to serve as the Company's independent certifying accountants for the year ending June 30, 1996. There were no disagreements on any matter of accounting principles or practices or financial statement disclosure with the Company's former independent certifying accountant. Item 6. Exhibits and Reports on Form 8-K. A report on Form 8-K dated July 26, 1995 was filed with the Securities and Exchange Commission on August 7, 1995, and the Financial Supplement thereto was filed on October 10, 1995, with Registrant's Form 10-KSB for the year ending June 30, 1995. The Form 8-K reported the following items: (1) the merger of Micro Motors, Inc. with and into the Company's wholly owned subsidiary, Micro Systems Acquisition Corporation; (2) the acquisition of Oregon Micro Systems, Inc by the Company; and (3) borrowing related to the foregoing acquisition of Oregon Micro Systems, Inc. The report of the Registrant on its Form 8-K dated July 26, 1995, including the Financial Supplement thereto filed with Registrant's Form 10-KSB for the year ending June 30, 1995 is incorporated herein by reference. 10 PRO-DEX, INC. AND SUBSIDIARIES - - ------------------------------------------------------------------------------- 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: October 31, 1995 /s/ Kent E. Searl --------------------------------- Kent E. Searl, Chairman Date: October 31, 1995 /s/ George J. Isaac --------------------------------- George J. Isaac, Chief Financial Officer 11