Full Press Release Details
Contact: Harold A. Hurwitz, Chief Executive
PRO-DEX, INC. ANNOUNCES FISCAL THIRD QUARTER
AND NINE-MONTH RESULTS
Company Enters Into Agreement To Sell Its
Carson City, Nevada Property
CA, May 13, 2013 - PRO-DEX, INC. (NasdaqCM: PDEX) today announced financial results for its
fiscal third quarter and nine months ended March 31, 2013.
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.
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.
(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.
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
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
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.
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.
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.
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."
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
Agreement to Sell the Carson City, Nevada
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 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."
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 incumbent
We believe this result was obvious very early in the contest, yet spending by the incumbent board did not slow."