Harold A. Hurwitz – Chief Executive Officer, President and Chief Financial Officer.

Greetings and welcome to the Pro-Dex Fiscal 2014 First Quarter Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Hal Hurwitz, Chief Executive Officer and Chief Financial Officer. Thank you, Mr. Hurwitz. You may begin..

Thank you Latonya and thank you all for joining us to review the results for the fiscal 2014 first quarter ended September 30, 2013. On today’s call I will provide a synopsis of our operating results as well as some comments. Then as Latonya mentioned we will open up the call for your questions.

Before beginning however, I ask our participants and listeners to note that the comments made on this call may include statements that are forward-looking within the meaning of securities laws.

These forward-looking statements may include, without limitation, statements related to anticipated industry trends and the company’s plans, products, perspectives and strategies, both preliminary and projected. Actual results or trends could differ materially.

We undertake no obligation to revise or publicly revise the results of any revision to the forward-looking statements in light of new information or future events. For more information, please refer to the risk factors discussed in the company’s Form 10-K for the year ended June 30, 2013, which has been filed with the SEC.

The Form 10-Q for the quarter-ended September 30, 2013 filed with the SEC today and the Form 8-K filed with the SEC today, along with the attached press release issued today, all of which can be obtained from the SEC or by visiting our website at www.pro-dex.com. And now let’s cover the first quarter’s results.

Sales for the quarter ended September 30, 2013 decreased 26% to $2.6 million from $3.5 million for the corresponding quarter in 2012.

This decrease was due primarily to a deferral in the timing of product orders from our current largest powered surgical instrument customer, partially offset by increases in surgical instrument sales to other customers and to a decrease in motion control product sales.

Gross profit for the quarter ended September 30, 2013 decreased to $945,000, compared to gross profit of $1.2 million for the year ago period, primarily as a result of the sales volume decrease between periods, partially offset by a decrease in product warranty cost.

Gross profit as a percentage of sales was 37% for the quarter ended September 30, 2013, as compared to 36% for the corresponding quarter in 2012, resulting primarily from improvement in production efficiency.

Operating expenses, which includes selling, general and administrative, and research and development expenses for the quarter ended September 30, 2013 decreased 28% to $924,000 from $1.3 million in the prior year’s corresponding quarter, reflecting the effect of our cost reduction program.

The income from continuing operations for the quarter ended September 30, 2013 was $18,000 compared to a loss from continuing operations of $59,000 in the corresponding quarter in 2012.

Net income for the quarter ended September 30, 2013 was $212,000 or $0.06 per diluted share compared to a net loss of $17,000 or $0.01 per diluted share for the corresponding quarter in 2012.

The 2013 quarter reflects a $167,000 gain from the previously announced sale in July 2013 of our facility in Carson City, Nevada, that had housed our former Astromec fractional horsepower motor business, which we account for as a discontinued operation. During the quarter ended September 30, 2013, we used $512,000 of cash in operating activities.

This use of cash primarily reflects payments we made during the quarter and satisfaction of inventory purchases we made during the year ended June 30, 2013. As we have previously discussed, the inventory was built-up during fiscal 2013 with the objective of shortening lead times for many of our products.

In the fourth quarter of fiscal 2013, the company’s largest customer began deferring the timing of its product orders. This deferral has continued into the current fiscal year, that’s prolonging the effect of the inventory build-up much of which is represented by components unique to that customer’s product.

Our customer and we are in discussion with the objective of arriving at a mutually acceptable timetable for the customers’ fulfillment of its orders under the terms of its frame contract with us.

During the quarter, we invested an additional $228,000 in our portfolio of public company equity securities bringing the total amount we have invested to $593,000 at September 30, 2013.

The market value of these investments at September 30, 2013 was $654,000 representing accumulated unrealized gains of $61,000, since we commenced investing in June 2013. Also during the quarter, we received net proceeds of $900,000 from the sale of our former facility in Carson City, Nevada.

As a result of the foregoing, cash on hand at September 30, 2013 was $1.8 million compared to $1.7 million at June 30, 2013. Now for some brief commentary; as I stated in today’s press release, it is good to report profitable operating results again. Of course, one quarter does not create or imply a trend.

Even so the operating results for the quarter ended September 30, 2013 reflects the long, painful and now rewarding process of right-sizing our cost footprint to our current revenue base. Without questions, achieving the goal of a rebuilt revenue base is still ahead of us, and we maintain our focus on that goal.

During the quarter ended September 30, 2013, we continue to make significant progress on engineering projects with a goal to deliver to our customers in late fiscal 2014 or early fiscal 2015 a next generation platform for powered surgical instruments in which we will retain significant intellectual property rights.

Also during the quarter, we continued engineering work in collaboration with an existing customer on a contract manufacturing project related to a new surgical system, the development phase of which is also expected to culminate in the late fiscal 2014 or early fiscal 2015 time frame.

As we have previously discussed, our sales cycle typically ranges from 18 months to two years from initial discussions through proposal submissions to project commencement, not an unusual time frame given the next generation nature of our projects.

This next generation aspects with its attendant technological challenges also well explains to typical 18 months to two year duration of the development phase of those projects that we have undertaken.

The combined time span of the sales cycle and the development cycle thus accounts with deliberate manner in which we believe the rebuilding of a diversified revenue base is taking shape.

On the front end of the sales cycle, we continue to actively pursue both our prospective customer contact base and the number of substantive meetings we have had with those perspective customers.

Granted there is no assurance that our efforts on this front end of the sales cycle will translate into customer contract and purchase orders but we are pleased with the opportunities that are before us in our proposal pipeline.

With respect to the right sizing of our cost footprint, we have of course have greater control that has allowed us to realize the results of our efforts more quickly. Fiscal 2014 marks the first year in which the full effect of our cost reduction efforts of the past year will be reflected in our results.

This said, our efforts in cost reduction and control are not yet complete.

Nonetheless, year-over-year stability of gross margins despite lower sales volumes together with year-over-year decreases of 66% in selling expenses, 25% in general and administrative expenses and 8% in research and development expenses we believe clearly demonstrates how far we have come.

I am now happy to invite any questions you might have with regard to the quarter or our business operations. With that, I’ll turn the call back over to Latonya for Q&A..

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Mr Harold, there are no questions in queue at this time.

Do you have any closing comments for the group?.

Yes, thank you Latonya and my thanks to all of you for joining me today. All of us at Pro-Dex appreciate your interest, your time, and your support to the company and we look forward to speaking with you in February 2014, when we report our fiscal 2014 second quarter and first half financial results. Thank you..

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation..