Pro-Dex Inc. reports fiscal 1997 third- quarter and nine-month operating results including significant non-recurring and unusual charges.

BOULDER, Colo.--(BUSINESS WIRE)--May 15, 1997--Kent E. Searl, chairman and chief executive officer of Pro-Dex Inc. (NASDAQ:PDEX) Thursday announced operating results for the third quarter and first nine months ended March 31, 1997, including significant non-recurring and unusual charges.

Revenues for the third quarter were $4,397,093, as compared with fiscal 1996 third quarter revenues of $5,902,581, net of sales from discontinued operations (dental centers and Pnu-Light) of $507,172 in fiscal 1997 and $587,289 in fiscal 1996.

During the third quarter of fiscal 1997, the company experienced a loss of $1,211,964, or 13 cents per share, compared with net income of $412,277 or 5 cents per share in the like period a year ago.

Revenues for the first nine months of fiscal 1997 were $13,605,814, as compared with $15,220,185, net of sales from discontinued operations (dental centers and Pnu-Light) of $1,714,178 in fiscal 1997 and $1,763,554 in fiscal 1996. During the first nine months of fiscal 1997, the company experienced a loss of $1,720,500, or 19 cents per share, compared with net income of $949,911, or 11 cents per share, in fiscal 1996.

In reviewing operations, Searl indicated that several factors impacted the company's fiscal 1997 third-quarter and nine-month operating results including: lower sales levels to the company's OEM dental customers, as well as lower sales of motion control boards to the semiconductor industry.

Operating expenses during the nine-month period increased from $7.1 million in fiscal 1996 to $8.3 million this year, including a 57 percent increase in research and development costs to enhance the company's product lines. In addition, the company restructured its continuing operations to reduce operating expenses, including a 13 percent reduction in its workforce which resulted in non-recurring and unusual charges of $475,000.

Also, interest expense increased to $914,000 from $663,000 for the same period of the prior year, including a non-recurring prepayment penalty of $260,000 related to the refinancing of debt with more favorable terms. Total non-recurring and unusual charges for the nine months ended March 31, 1997, were $735,000. The loss from discontinued operations was $767,000, compared with $13,000 for the same period of the prior year.

Searl further stated: "In spite of the disappointing financial results, we believe that the elimination of losses from discontinued operations of $767,000 and non-recurring and unusual charges of $735,000, coupled with a reduction of approximately $1 million in operating expenses as a result of the 13 percent reduction in the company's workforce, will result in a significant positive effect on future operating results."

Searl concluded: "As a result of strong growth in the semiconductor market and an expanding customer base, the backlog at Oregon Micro Systems has continued to increase substantially during the fourth quarter and this trend is expected to continue for the foreseeable future. Micro Motors continues to increase its revenue from its branded handpiece line as well as its OEM business.

"New products scheduled for introduction during the fourth quarter at Biotrol and Challenge should contribute to both revenue and earnings for the balance of this year and beyond."

Pro-Dex is a Colorado-based holding company with the following wholly owned subsidiaries: Micro Motors Inc., located in Santa Ana, Calif., is the manufacturer of miniature pneumatic (air) motors and handpieces used in dental, medical and industrial applications; Oregon Micro Systems Inc., located in Beaverton, Ore., manufactures motion control circuit boards; Biotrol International Inc., located in Louisville, Colo., is a manufacturer and marketer of a full line of infection control and preventative products specifically designed for the dental care provider; Challenge Products Inc., manufactures preventative care products including a complete line of fluoride gels and polishing pastes that are marketed through Biotrol and other private label distributors; and PDM, which leases, equips and staffs five dental centers in Sacramento-area Sears retail stores.

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Except for the historical information contained herein, the matters discussed in this release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected.

These include the timely development and acceptance of new products, the impact of competitive products and pricing and other risks detailed frequently in Pro-Dex's SEC reports, including the report on Form 10-KSB for the year ended June 30, 1996. -0-

                   Pro-Dex Inc. and Subsidiaries
                 Consolidated Statements of Income

                                             Quarter Ended March 31,
                                                1997          1996
                                            (unaudited)   (unaudited)

Net sales (net of sales from discontinued
 operations of $507,172 and $587,289)       $ 4,397,093   $ 5,902,581

Cost of Sales                                 2,023,105     2,378,677

Gross Profits                                 2,373,988     3,523,904

Operating expenses:
   Selling                                    1,143,202     1,216,197
   General and administrative                 1,415,071     1,168,936
   Research and development                     205,367       153,924
   Amortization                                 236,567       213,301
     Total operating expenses                 3,000,207     2,752,358

Income (loss) from operations                  (626,219)      771,546

Other income (expense):
   Interest expense                             354,920       242,194
   Other income, net                             11,760        16,482
     Total                                      343,160       225,712

Income (loss) before income taxes (benefit)
 and (loss) from discontinued operations       (969,379)      545,834
Income taxes (benefit)                         (246,972)      163,759

Income (loss) before income (loss) from
 discontinued operations                       (722,407)      382,075
Income (loss) from discontinued operations
 (net of income tax (benefit))                 (489,557)       30,202
Net income (loss)                           $(1,211,964)  $   412,277

Earnings per common and common
 equivalent share:
   Income (loss) from continuing operations $     (0.08)  $      0.05
   (Loss) from discontinued operations            (0.05)         0.00
     Net income (loss) per share            $     (0.13)  $      0.05
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                      Pro-Dex Inc. and Subsidiaries
                    Consolidated Statements of Income

                                           Nine months ended March 31,
                                                1997           1996
                                            (unaudited)    (unaudited)

Net sales (net of sales from discontinued
 operations of $1,714,178 and $1,763,554)   $13,605,814    $15,220,185

Cost of Sales                                 5,769,020      6,115,376

Gross Profits                                 7,836,794      9,104,809

Operating expenses:
   Selling                                    3,151,024      2,900,883
   General and administrative                 3,791,093      3,231,884
   Research and development                     625,174        397,976
   Amortization                                 693,649        568,803
     Total operating expenses                 8,260,940      7,099,546

Income (loss) from operations                  (424,146)     2,005,263

Other income (expense)
   Interest expense                             914,094        663,089
   Other income, net                             38,987         33,136
     Total                                      875,107        629,953

Income (loss) before income taxes
 (benefit) and (loss) from
 discontinued operations                     (1,299,253)     1,375,310
Income taxes (benefit)                         (345,872)       412,593

Income (loss) before (losses) from
 discontinued operations                       (953,381)       962,717
Income (loss) from discontinued operations
 (net of tax benefit)                          (767,119)       (12,806)
Net income (loss)                           $(1,720,500)   $   949,911

Earnings per common and common
 equivalent share:
   Income (loss) from continuing operations $     (0.10)   $      0.11
   (Loss) from discontinued operations            (0.09)          0.00
     Net income (loss) per share            $     (0.19)   $      0.11
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                   Pro-Dex Inc. and Subsidiaries
                    Consolidated Balance Sheet

                             Assets

                                          March 31,      June 30,
                                            1997           1996
                                        (unaudited)

Current assets:
   Cash & cash equivalents              $   605,270    $   407,722
   Accounts receivable, net               4,091,936      5,069,942
   Inventories, at cost                   4,903,648      4,699,567
   Deferred taxes                         1,002,417        398,300
   Prepaid expenses                         468,043        257,898

     Total current assets                11,071,314     10,833,429

Property and equipment                    5,944,150      5,505,127
   Less accumulated depreciation          2,673,598      2,186,233
     Net property and equipment           3,270,552      3,318,894

Other assets:
   Deferred taxes                           404,000        387,000
   Other                                    383,054        133,761
   Intangibles                           12,883,691     13,654,404

     Total other assets                  13,670,745     14,175,165

     Total assets                       $28,012,611    $28,327,488


                Liabilities & Stockholders' Equity

Current liabilities:
   Notes payable                        $    62,223    $ 1,162,465
   Current portion of long-term debt      1,155,248      1,236,570
   Accounts payable                         887,020      1,039,706
   Accrued expenses                         924,049      1,330,450
   Income taxes payable                          --        547,007
   Deferred revenue                         215,466        208,485

     Total current liabilities            3,244,006      5,524,683

Long-term debt, net of current portion    9,087,876      5,371,264

     Total liabilities                   12,331,882     10,895,947

Commitments and contingencies

Stockholders' equity:
   Series A convertible preferred
    stock, no par value, 10 million
    shares authorized; 78,129 shares
    issued and outstanding                  282,990        282,990
   Common stock, no par value;
    50 million shares authorized;
    9,080,783 shares issued and
    outstanding                          16,705,161     16,697,660
   Additional paid in capital             1,004,541      1,004,541
   Accumulated deficit                   (2,252,850)      (532,350)
                                         15,739,842     17,452,841

   Receivable from employee stock
    ownership plan (ESOP)                   (59,113)       (21,300)

     Total stockholders' equity          15,680,729     17,431,541

     Total liabilities and
      stockholders' equity              $28,012,611    $28,327,488

CONTACT: Pro-Dex Inc.

George Isaac, 303/443-6136

or

Kehoe, White, Savage & Co. Inc.

James K. White, 310/437-0655