Pro-Dex, Inc. Announces Third Quarter Fiscal 2007 Financial Results

SANTA ANA, Calif., May 15 /PRNewswire-FirstCall/ -- PRO-DEX, INC. (NASDAQ: PDEX) a developer and manufacturer of embedded motion control, miniature rotary drive systems and fractional horsepower DC motors, which enables speed-to-market for customers who serve the medical, dental, factory automation, scientific research, aerospace and military markets, today announced financial results for the fiscal third quarter ending March 31, 2007.

Consolidated net sales for the third fiscal quarter were $5.9 million, an increase of 40.4 percent compared to the $4.2 million for the third fiscal quarter of 2006. The topline growth was led by a 90 percent increase in medical product sales and a 45 percent increase in dental revenues. The Company reported net income of $216,000, or $0.02 per basic and fully diluted share (based on 9.8 million shares) compared to net income of $6,000, or $0.00 per basic and fully diluted share (based on 10.0 million shares) last year.

Mark Murphy, the Company's President and Chief Executive Officer, commented, "Strong sales, particularly to our continuing medical and dental customers, contributed to our improved results for the quarter. This continued the recent trend of growing our overall revenue base, primarily by a strong strategic position with our traditional customers. Astromec's sales were also up 8 percent over the third quarter of last year, which was the first full quarter following the acquisition by Pro-Dex. In addition, we booked $2.7 million in new orders from current customers during the quarter and completed the quarter with a backlog of $9.3 million. Strong April bookings allowed us to rebuild our backlog to $10.3 million, down only 12 percent from the backlog at December 31, 2006 despite converting a significant amount of backlog into revenue during the four-month period since then. We continue to have active conversations with several prominent potential customers for additional work and are cautiously optimistic that some of these conversations will result in orders over the next six to 12 months. I'm also pleased with our return to profitability, driven by higher revenues and a sequential and year-over-year increase in our quarterly gross profit margins."

Gross profit for the third fiscal quarter improved to $2.2 million or 36.4 percent of sales, compared with gross profit of $1.5 million, or 34.5 percent of sales, for the third quarter last year and gross profit of $1.7 million, or 29.6 percent of sales in the second quarter of 2007. These improvements in gross profit margin are due to a product sales mix favoring the medical products that reached 42 percent of sales in this quarter and lower warranty costs at $195,000 this quarter compared to $320,000 last quarter and $360,000 in last year's third quarter.

Operating expenses increased by 24.7 percent to $1.8 million compared to $1.4 million in the third fiscal quarter last year due to a 38.3 percent increase in general and administrative expenses driven by the inclusion of $113,000 in FAS 123( R ) related costs, a 17.3 percent increase in research and development expense and a 13.8 percent increase in selling expenses. However, when compared to the higher sales level, operating expenses declined to 30.5 percent of sales in the third fiscal quarter of 2007, a reduction from 34.3 percent of sales in the third fiscal quarter of 2006.

Income from operations for the quarter was $351,000 compared with $8,000 for the prior-year quarter.

Mr. Murphy continued, "In the last eight months, we have seen a significant improvement in the collaborative environment at Pro-Dex, and I commend our associates for their hard work, dedication and commitment to the Company, its customers and shareholders. While we all know there is much work left to do, we have begun to see the shift from past-based recovery to future-based opportunity. Our Engineering resources continue to be invested partially in the improvement of two related designs for a single customer, where such designs are resulting in high warranty expenses for the Company. The remainder of our Engineering resources has now transitioned to scoping and proposing new work. We are working diligently to increase our momentum in this important shift, but only after we are confident that our designs are excellent. Regarding the lingering warranty exposure, we have increased the reserves on our balance sheet to account for this exposure."

For the nine-month period ended March 31, 2007, consolidated sales increased to $15.8 million, up 34.5 percent from the $11.7 million for the nine months ended March 31, 2006. Gross profit for the nine months increased 13.0 percent compared to the same period in the previous year due to the higher sales levels. Gross profit as a percentage of sales decreased to 34.9 percent for the nine months compared to 41.6 percent for the nine months ended March 31, 2006 due to warranty expenses and increased inventory reserve coupled with the expected lower gross margin levels in the Astromec component products. Selling and General and Administrative expenses increased to $3.1 million for the nine months from $2.5 million last year, due to the inclusion of the FAS 123( R ) expenses and the addition of Astromec. Company-funded research and development expenses increased 30.3 percent, to $1.9 million for the nine months from $1.5 million last year due to higher current and new product development cost and the addition of Astromec. Consolidated operating profit for the nine months decreased to $471,000 compared to $912,000 for the same period in the previous year due to the lower gross margin coupled with the higher level of SG&A and engineering expenses. Net income for the nine months was $319,000 or $0.03 per share on a basic and diluted basis (based on 9.8 million shares), as compared to a net income of $596,000 or $0.06 per share on a basic and diluted basis for the nine months ended March 31, 2006 (based on 10.0 million shares).

Pro-Dex completed the first nine months of fiscal year 2007 with cash and cash equivalents of $319,000, compared to cash and cash equivalents of $358,000 on June 30, 2006. The Company generated nearly $300,000 in operating cash during the fiscal year and kept the credit line borrowings even at $1,200,000 during that period, leaving $800,000 of its credit line available at the end of the quarter. Total working capital was $6.5 million as of March 31, 2007 compared to $6.1 million on June 30, 2006. Shareholders' equity increased 4.5 percent to $12.6 million from $12.1 million as of June 30, 2006.

Teleconference Information:

Investors and all others are invited to listen to a conference call discussing the third quarter 2007 results today at 4:30 p.m. Eastern Time. The call is scheduled to be broadcast live over the Internet on Tuesday, May 15, 2007 at 4:30 p.m. Eastern Time and may be accessed by visiting the Company's website at http://www.pro-dex.com/. Mark Murphy, Chief Executive Officer and Jeff Ritchey, Chief Financial Officer, plan to host the call. If you would like to join the call, dial (866) 323-3543 U.S. and (706) 679-0672 International, conference I.D. 4620329. You may identify the call as the Pro-Dex Third Quarter Earnings Call.

Pro-Dex Inc., with operations in Santa Ana, California, Beaverton, Oregon and Carson City, Nevada, specializes in bringing speed to market in the development and manufacture of technology-based solutions that incorporate embedded motion control, miniature rotary drive systems and fractional horsepower DC motors, serving the medical, dental, semi-conductor, scientific research and aerospace markets. Pro-Dex's products are found in hospitals, dental offices, medical engineering labs, scientific research facilities, commercial and military aircraft, and high tech manufacturing operations globally.

For more information, visit the Company's website at http://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

                                            March 31, 2007     June 30, 2006
                                              (unaudited)        (audited)
  ASSETS
  Current assets:
       Cash and cash equivalents                $319,000          $358,000
       Accounts receivable, net of
        allowance for doubtful
        accounts of $135,000 at
        March 31 and $40,000 at
        June 30                                3,525,000         3,841,000
       Inventories, net                        4,735,000         3,980,000
       Prepaid expenses                          311,000            91,000
       Income tax receivable                     354,000           222,000
       Deferred income taxes                     958,000           766,000
           Total current assets               10,202,000         9,258,000

  Property, plant, equipment and
   leasehold improvements, net                 3,732,000         3,726,000
  Other assets:
       Goodwill                                2,997,000         2,931,000
       Intangibles - Patents, net              1,345,000         1,417,000
       Deferred income taxes                     183,000           378,000
       Other                                      37,000            44,000
           Total other assets                  4,562,000         4,770,000

  Total assets                               $18,496,000       $17,754,000

  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
       Credit Line                            $1,200,000          $900,000
       Accounts payable                        1,178,000           952,000
       Accrued expenses                          928,000           971,000
       Current portion of term note              250,000           250,000
       Current portion of real estate
        loan                                      28,000            27,000
       Current portion of "patent"
        deferred payable                          82,000            71,000
           Total current liabilities           3,666,000         3,171,000

  Long-term liabilities
       Term note                                 458,000           646,000
       Real estate loan                        1,598,000         1,619,000
       Patent deferred payable                   158,000           245,000
           Total long-term liabilities         2,214,000         2,510,000

  Total liabilities                            5,880,000         5,681,000

  Commitments and contingencies
  Shareholders' equity:
       Common shares; no par value;
        50,000,000 shares authorized;
        9,551,550 shares issued and
        outstanding December 31, 2006,
        9,539,792 shares issued and
        outstanding June 30, 2006,            16,268,000        16,066,000
       Accumulated deficit                    (3,652,000)       (3,993,000)

       Total shareholders' equity             12,616,000        12,073,000

       Total liabilities and
        shareholders' equity                 $18,496,000       $17,754,000



                       PRO-DEX, INC. and SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                   Three months ended March 31 (unaudited)

                                                 2007              2006

  Net sales                                   $5,916,000        $4,214,000

  Cost of sales                                3,760,000         2,759,000
  Gross profit                                 2,156,000         1,455,000

  Operating expenses:
       Selling                                   361,000           317,000
       General and administrative                780,000           564,000
       Research and development                  664,000           566,000
  Total operating expenses                     1,805,000         1,447,000

  Income from operations                         351,000             8,000

  Other income (expense):
       Other (expense), net                       (4,000)               --
       Royalty income                              5,000             5,000
       Interest (expense)                        (66,000)          (13,000)
  Total                                          (65,000)           (8,000)

  Income before provision for income
   taxes                                         286,000                --

  (Benefit) provision for income taxes            70,000            (6,000)
  Net income                                    $216,000            $6,000

  Net Income per share:
       Basic                                       $0.02             $0.00
       Diluted                                     $0.02             $0.00

  Weighted average shares outstanding -
   basic                                       9,556,272         9,523,212
  Weighted average shares outstanding -
   diluted                                     9,765,033         9,998,691



                       PRO-DEX, INC. and SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    Nine months ended March 31 (unaudited)

                                                 2007              2006

  Net sales                                  $15,780,000       $11,728,000

  Cost of sales                               10,274,000         6,854,000
  Gross profit                                 5,506,000         4,874,000

  Operating expenses:
       Selling                                 1,039,000           827,000
       General and administrative              2,106,000         1,684,000
       Research and development                1,890,000         1,451,000
  Total operating expenses                     5,035,000         3,962,000

  Income from operations                         471,000           912,000

  Other income (expense):
       Other (expense), net                        7,000            (7,000)
       Royalty income                             30,000            42,000
       Interest income (expense)                (179,000)           31,000
  Total                                         (142,000)           66,000

  Income before provision for income
   taxes                                         329,000           978,000

  Provision for income taxes                      10,000           382,000
  Net income                                    $319,000          $596,000

  Net Income per share:
       Basic                                       $0.03             $0.06
       Diluted                                     $0.03             $0.06

  Weighted average shares outstanding -
   basic                                       9,549,211         9,490,317
  Weighted average shares outstanding -
   diluted                                     9,768,277        10,020,766



                       PRO-DEX, INC. and SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Nine months ended March 31 (unaudited)

                                                 2007               2006
  Cash Flows from Operating Activities:
  Net Income                                   $319,000           $596,000
       Adjustments to reconcile net
        income to net cash used in
        operating activities:
            Depreciation and
             amortization                       355,000            302,000
            Loss on disposal                      5,000              7,000
            (Recovery of) Provision for
              doubtful accounts                  95,000            (60,000)
            Reserve for obsolete
             inventory                          195,000            267,000
            Stock based compensation            199,000                 --
            Deferred taxes                        2,000           (103,000)
              Changes in:
                    Decrease in
                     accounts
                     receivable                 220,000            683,000
                    (Increase) in
                     inventories               (951,000)        (1,724,000)
                    (Increase) in
                     prepaid expenses          (220,000)          (107,000)
                    Decrease (Increase)
                     in other assets              7,000            (19,000)
                    Increase (Decrease)
                     in accounts
                     payable and
                     accrued expenses           182,000            (79,000)
                    Increase (Decrease)
                     in income taxes
                     payable                   (110,000)            83,000
  Net Cash (used in) provided by
   Operating Activities                         298,000           (154,000)

  Cash Flows From Investing Activities:
       Acquisition of Astromec, net of
        assets acquired                              --         (2,359,000)
       Proceeds from equipment sale                  --              1,000
       Purchase of equipment and
        leasehold improvements                 (286,000)          (588,000)
       Purchase of Intangible Assets -
        Patents related to Interflow            (68,000)        (1,165,000)

  Net Cash (used in) Investing
   Activities                                  (354,000)        (4,111,000)

  Cash Flows from Financing Activities:
       Principal payments on long-term
        shareholder borrowings                  (96,000)                --
       Borrowing on Line of Credit              300,000          1,000,000
       Borrowing on Term Note                        --          1,000,000
       Principal payment on Term Note          (187,000)           (42,000)
       Proceeds from option and warrant
        exercise                                     --            132,000

  Net Cash provided by Financing
   Activities                                    17,000          2,090,000

  Net (decrease) in Cash and Cash
   Equivalents                                  (39,000)        (2,175,000)
  Cash and Cash Equivalents, beginning
   of period                                    358,000          2,584,000

  Cash and Cash Equivalents, end of
   period                                      $319,000           $409,000

              Supplemental Information
  Cash payments for interest                   $180,000            $18,000

  Cash payments for income taxes               $137,000           $385,000

       Non-Cash Disclosure of Investing and
             Financing Activities
  Long term payable incurred in
   acquisition of intangible assets                 $--           $316,000
  Acquisition of building and land -
   Real Estate Loan                                 $--         $1,650,000
  Intravantage Deferred Payable                     $--           $317,000