May 4, 2004
Pro-Dex, Inc. Announces Continued Strong Sales and Profit Growth in Fiscal 2004 Third Quarter Operating Results
--
Year to Date Sales Increase 28% from Prior
Year
-- Year to Date Earnings Increase
$662,000 from Prior Year and 14% from
Previous Quarter
Pro-Dex, Inc.
PDEX today announced financial results
for the third quarter ended March 31, 2004.
The Company reported net income for the
three months ended March 31, 2004 of
$261,000 or $0.03 per share on a basic and a
diluted basis, as compared to a net income
of $56,000 or $0.01 per share on a basic and
diluted basis, for the three months ended
March 31, 2003. This represents an increase
of $205,000 or 366% over the previous year
and a sequential increase of $61,000 or 14%
over the previous quarter, producing the
seventh consecutive increase in quarterly
net profit. The Company also reported net
income for the nine months ended March 31,
2004 of $683,000 or $0.08 per share on a
basic and $0.07 per share on a diluted
basis, as compared to a net income of
$21,000 or $0.00 per share on a basic and a
diluted basis, for the nine months ended
March 31, 2003. This represents an increase
of $663,000 over the previous year.
Commenting on the Company's financial
results, Pro-Dex's President and CEO,
Patrick Johnson said, "We knew heading into
the third quarter that it was going to be a
challenge to deliver another quarter of
improved financial performance, particularly
given the transition from a revenue stream
to a royalty stream on the Healozone
project. We are now pleased to report that
despite the impact of that transition, we
have delivered another quarter of solid
financial performance including growth in
sales, gross profit, and earnings. Sales
were up over the previous year and gross
margin improved in total dollars and as a
percent of sales both sequentially and year
over year. This combined with significantly
reduced corporate expenses for the quarter
produced increased net income compared to
last year and last quarter."
As reported in January of 2003, the
Company's Micro Motors subsidiary
renegotiated its exclusive manufacturing
agreement with Curozone USA, agreeing to a
long-term royalty agreement in exchange for
its exclusive manufacturing rights. Curozone
USA is the distributor of the innovative
Healozone, a device that painlessly treats
dental caries with the delivery of ozone
gas, eliminating the traditional "drill and
fill" treatment. During the three months
ended March 31, 2004, the Company received
$40,000 in royalty payments from Curozone
USA for sales made during the quarter,
compared to $373,000 in revenue derived from
Healozone sales to Curozone USA in the
previous three month period. As the royalty
payments began during the first quarter of
the year and are paid in arrears, the
royalty payments received represent only two
months of sales activities. Revenue from
royalty payments is reported below the
operating income line as Other income on the
Company's Consolidated Income Statement.
Consolidated net sales increased $223,000
or 7.8% to $3,302,000 for the three months
ended March 31, 2004, compared to the three
months ended March 31, 2003. On a sequential
basis, consolidated sales decreased $402,000
or 11% for the three months ended March 31,
2004 compared to the previous three month
period. When excluding the impact of the
transition of the Healozone project from
sales revenue to a royalty stream,
sequential sales decreased by less than 1%.
This produced the Company's first sequential
decrease in sales in ten straight quarters.
For the nine months ended March 31, 2004,
consolidated net sales increased $2,421,000
or 28% compared to the same period in the
prior year.
Revenue from the Company's Oregon Micro
Systems (OMS) subsidiary increased $167,000
or 25% to $847,000 for the three months
ended March 31, 2004 compared to the same
period in the previous year. OMS's sales
increased $197,000 or 30% for the three
months ended March 31, 2004 compared to the
previous three month period. "Over the
course of the last two years, we have put a
lot of effort into repositioning OMS given
the down-turn in the semi-conductor
industry," stated Mr. Johnson. "This has
included the development of the new MAX
product line of `servo-motor' multi-axis
motion controllers, the planned
diversification of the OMS's sales outside
the semi-conductor industry and the
right-sizing of OMS's operations to current
sales volume. We believe that these efforts
are now paying off in increased bookings and
sales, sales of new products, sales to new
customers outside the semi-conductor market
and strong operating profit. This combined
with the resurgence of the semi-conductor
market has produced accelerated growth in
both sales and profits at OMS." At the
Company's Micro Motors subsidiary, sales
increased $56,000 or 2.3% to $2,456,000 for
the three months ended March 31, 2004,
compared to the same period of the prior
year.
The Company's consolidated gross profit
for the three months ended March 31, 2004
increased 36% or $424,000 compared to the
same three months in the previous year. For
the nine months ended March 31, 2004,
consolidated gross profit increased
$1,263,000 or 35% compared to the same
period in the prior year. Gross profit as a
percentage of sales increased significantly
to 48.5% for the three months ended March
31, 2004 compared to 38.3% for the three
months ended March 31, 2003 and compared
favorably to a gross margin percentage of
46% for the previous quarter. "This gross
profit improvement is coming from increased
sales, an improved product mix, operational
efficiencies and the diligent management of
manufacturing expense," noted Mr. Johnson.
"As both of our operating subsidiaries are
fully absorbing manufacturing overhead at
current production levels, increased levels
of production, which will only require the
addition of direct labor, should result in
continued improvement in gross
profitability."
Total operating expenses increased 12% to
$1,204,000 for the three months ended March
31, 2004 from $1,074,000 for the three
months ended March 31, 2003. This increase
is attributed to increased sales, marketing
and product development activities at both
of the Company's operating subsidiaries. In
addition, on a sequential basis operating
expenses decreased by $110,000 or 16.3%
compared to the previous quarter. This
decrease was primarily due to a sharp
reduction in corporate expenses, related to
the previous quarter's transition cost of
changing auditors and restructuring the
Board of Directors. For the nine months
ended March 31, 2004, operating expense
increased $232,000 or 6.6% compared to the
same nine month period in the prior year.
Addressing the Company's on-going
operations, Mr. Johnson noted, "The Company
remains on track through the first three
quarters of the year, producing increased
sales, increased gross profit and increased
net profit. During the third quarter, we
generated over $1,000,000 in free cash flow
(Cash from Operating Activities (less)/plus
Cash from Financing Activities) and
continued to manage the business
substantially debt-free. Commenting on the
Company's near term prospects," Mr. Johnson
said, "We have really stepped up our product
development efforts at both of our operating
subsidiaries. Currently, Micro Motors is
engaged in nine new product development
projects, including clinical research at a
major U.S. University, with the majority of
those projects being funded by customers
committed to initial purchases once the
projects are completed. As a result of sales
activities at the recent Chicago Dental
Society Mid-Winter meeting, Micro Motors has
made proposals for new business in excess of
$3,000,000, a significant portion of which
it expects to secure in the next 12 months.
At the same time, new order bookings have
remained strong at OMS as we moved into the
fourth quarter, with further large orders
expected from customers both inside and
outside the semi-conductor industry. All in
all, the quarter and the year have gone
according to plan and our focus now is to
finish the year in the same fashion."
Investors and all others are invited to
listen to a conference call discussing the
third quarter and the outlook for the
balance of fiscal 2004, today at 4:30 p.m.
Eastern Time. The call will be broadcast
over the Internet and can be accessed by
visiting the Company's website at
www.pro-dex.com. An online replay will be
available for 30 days. Additionally, a
telephone replay will be available two hours
after the call for 48-hours by dialing (877)
519-4471 for domestic callers and (973)
341-3080 for international callers; enter
conference ID# 4722194.
Pro-Dex, Inc. is a California-based
holding company with the following
wholly-owned operating subsidiaries: Micro
Motors, Inc., located in Santa Ana,
California, manufactures miniature electric,
pneumatic and battery powered rotary drive
systems for use in the high tech medical,
dental and industrial industries; and Oregon
Micro Systems, Inc., located in Beaverton,
Oregon, manufactures motion control products
used in factory automation and the
semiconductor industries.
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.
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
2004 2003
----------- -----------
Net sales $3,302,000 $3,079,000
Cost of sales 1,698,000 1,899,000
----------- -----------
Gross profit 1,604,000 1,180,000
Operating expenses:
Selling 231,000 229,000
General and administrative expenses 501,000 547,000
Research and development costs 472,000 298,000
----------- -----------
Total operating expenses 1,204,000 1,074,000
----------- -----------
Income from operations 400,000 106,000
Other income (expense):
Royalty income 40,000 -
Other income, net 4,000 8,000
Interest (expense) (9,000) (21,000)
----------- -----------
Total 35,000 (13,000)
Income before provision for income taxes
(credits) 435,000 93,000
Provision for income taxes 174,000 37,000
----------- -----------
Net Income 261,000 56,000
=========== ===========
Net Income per share:
Basic $0.03 $0.01
----------- -----------
Diluted $0.03 $0.01
----------- -----------
Weighted average shares outstanding - basic 8,797,325 8,723,700
----------- -----------
Weighted average shares outstanding - diluted 9,398,688 8,910,899
----------- -----------
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
March 31,
2004 2003
------------ -----------
Net sales $10,534,000 $8,678,000
Cost of sales 5,683,000 5,090,000
------------ -----------
Gross profit 4,851,000 3,588,000
Operating expenses:
Selling 629,000 540,000
General and administrative expenses 1,796,000 1,849,000
Research and development costs 1,299,000 1,071,000
Amortization - 32,000
------------ -----------
Total operating expenses 3,724,000 3,492,000
------------ -----------
Income from operations 1,127,000 96,000
Other income (expense):
Royalty income 40,000 -
Other income, net 16,000 4,000
Interest (expense) (44,000) (65,000)
------------ -----------
Total 12,000 (61,000)
Income before provision for income taxes 1,139,000 35,000
Provision for income taxes 456,000 14,000
------------ -----------
Net Income 683,000 21,000
============ ===========
Net Income per share:
Basic $0.08 $0.00
------------ -----------
Diluted $0.07 $0.00
------------ -----------
Weighted average shares outstanding - basic 8,779,913 8,752,374
------------ -----------
Weighted average shares outstanding - diluted 9,288,056 8,892,995
------------ -----------
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2004 2003
(unaudited) (audited)
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $1,306,000 $795,000
Accounts receivable, net of allowance for
doubtful accounts of $40,000 and $30,000 1,888,000 1,620,000
Inventories, net 2,601,000 2,835,000
Prepaid expenses 143,000 81,000
Deferred taxes 750,000 770,000
------------ -----------
Total current assets 6,688,000 6,101,000
Equipment and leasehold improvements, net 1,000,000 1,040,000
------------ -----------
Other assets:
Goodwill 1,110,000 1,110,000
Deferred taxes 833,000 833,000
Other 11,000 20,000
------------ -----------
Total other assets 1,954,000 1,963,000
------------ -----------
Total assets $9,642,000 $9,104,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt to
shareholder $69,000 $65,000
Credit line payable - 432,000
Accounts payable 205,000 642,000
Accrued expenses 576,000 349,000
Income taxes payable 485,000 29,000
------------ -----------
Total current liabilities 1,335,000 1,517,000
Long-term debt to a shareholder, net of
current portion 93,000 145,000
------------ -----------
Total liabilities 1,428,000 1,662,000
------------ -----------
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred shares; no
par value; liquidation
preference of $3.60 per share;
10,000,000 shares authorized;
78,129 shares issued and outstanding 283,000 283,000
Common shares; no par value; 50,000,000
shares authorized;
8,858,600 and 8,711,600 shares issued
and outstanding, respectively 15,069,000 14,999,000
Accumulated deficit (7,106,000) (7,789,000)
------------ -----------
8,245,000 7,493,000
Receivable for stock purchase (32,000) (51,000)
------------ -----------
Total shareholders' equity 8,214,000 7,442,000
------------ -----------
Total liabilities and shareholders' equity $9,642,000 $9,104,000
============ ===========
PRO-DEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2004 2003
----------- ---------
Cash Flows from Operating Activities:
Net Income $683,000 $21,000
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 273,000 285,000
Provision for doubtful accounts 10,000 49,000
Reserve for obsolete inventory (116,000) -
Non-cash compensation 19,000 19,000
Deferred taxes 20,000 -
Changes in:
(Increase) in accounts receivable (278,000) (575,000)
(Increase) decrease in
inventories 350,000 (19,000)
(Increase) in prepaid expenses (29,000) (22,000)
Decrease in other assets 9,000 3,000
(Decrease) in accounts payable
and accrued expense (237,000) (76,000)
Increase in income taxes payable 456,000 15,000
----------- ---------
Net Cash provided by (used in) Operating
Activities 1,160,000 (300,000)
----------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of discontinued
operations - 790,000
Net additions to equipment and leasehold
improvements (233,000) (262,000)
----------- ---------
Net Cash provided by (used in) Investing
Activities (233,000) 528,000
----------- ---------
Cash Flows from Financing Activities:
Principal payments on long-term borrowings (54,000) (97,000)
Net payments on line of credit (432,000) (11,000)
Additional paid in capital 70,000 -
Stock repurchases - (32,000)
----------- ---------
Net Cash (used in) Financing Activities (416,000) (140,000)
----------- ---------
Net Increase in Cash and Cash Equivalents 511,000 88,000
Cash and Cash Equivalents, beginning of period 795,000 236,000
----------- ---------
----------- ---------
Cash and Cash Equivalents, end of period $1,306,000 $324,000
=========== =========
Supplemental Information
Cash payments for interest $42,000 $68,000
Cash payments for income taxes $6,000 $2,000
Contact Information: Pro-Dex, Inc.
Patrick Johnson, (714) 241-4411
or Kehoe, White & Co., Inc. (Investor
Relations) Jim White, (562) 437-0655
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