Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
ý | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2001
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________.
Commission file number 0-16257
Pace Medical, Inc. |
(Exact name of small business issuer as specified in its charter) |
Massachusetts | 04-2867416 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer identification No.) |
391 Totten Pond Road, Waltham, Massachusetts | 02451 |
(Address of principal executive offices) | (Zip Code) |
(781) 890-5656 | |
(Issuer's telephone number including area code) |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 11, 2001.
3,354,870 shares of Common Stock, par value $.01 per share
PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements.
a) Condensed Consolidated Balance Sheets
b) Condensed Consolidated Statements of Operations
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 | DECEMBER 31, 2000 | |||||||
(Unaudited) | (See note below) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,147,388 | $ | 1,252,352 | ||||
Accounts receivable | 410,045 | 264,873 | ||||||
Inventories: | ||||||||
Raw materials | 314,467 | 242,965 | ||||||
Work-in-process | 129,617 | 147,547 | ||||||
Finished goods | 72,916 | 214,966 | ||||||
517,000 | 605,478 | |||||||
Other current assets | 23,017 | 23,820 | ||||||
Total current assets | 2,097,450 | 2,146,523 | ||||||
Plant and equipment, net | 42,944 | 50,652 | ||||||
Other assets | 144,800 | 121,051 | ||||||
TOTAL ASSETS | $ | 2,285,194 | $ | 2,318,226 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 145,827 | $ | 117,304 | ||||
Accrued expenses | 28,892 | 65,397 | ||||||
Total current liabilities | 174,719 | 182,701 | ||||||
Shareholders' equity: | ||||||||
Common stock, $.01 par value | 34,009 | 34,009 | ||||||
Additional paid-in capital | 3,147,151 | �� | 3,147,151 | |||||
Cumulative translation adjustment | 29,226 | 32,725 | ||||||
Accumulated deficit | (1,034,155 | ) | (1,046,613 | ) | ||||
2,142,222 | 2,167,272 | |||||||
Less Treasury Stock, at Cost | (31,747 | ) | (31,747 | ) | ||||
Total Shareholders' Equity | 2,110,475 | 2,135,525 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 2,285,194 | $ | 2,318,226 | ||||
Note: The balance sheet at December 31, 2000 has been taken from the audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended June 30 | For the six months ended June 30 | ||||||||||||
2000 | 2001 | 2000 | 2001 | ||||||||||
Net Sales | $ | 383,084 | $ | 248,263 | $ | 777,555 | $ | 688,471 | |||||
Cost of sales | 206,335 | 103,881 | 401,564 | 283,356 | |||||||||
176,749 | 144,382 | 375,991 | 405,115 | ||||||||||
Other operating expenses | 214,141 | 211,555 | 391,339 | 402,135 | |||||||||
Income (loss) from operations | (37,392 | ) | (67,173 | ) | (15,348 | ) | 2,980 | ||||||
Other income | 14,574 | 14,848 | 27,806 | 29,682 | |||||||||
Net income (loss) | $ | (22,818 | ) | $ | (52,325 | ) | $ | 12,458 | $ | 32,662 | |||
Net income (loss) per share: | |||||||||||||
Basic | $ | (.01 | ) | $ | (.02 | ) | $ | .00 | $ | .01 | |||
Diluted | $ | (.01 | ) | $ | (.02 | ) | $ | .00 | $ | .01 | |||
See accompanying notes to condensed consolidated financial statements.
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED | ||||||||
JUNE 30 | ||||||||
2001 | 2000 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | $ | 12,458 | $ | 32,662 | ||||
Net income | ||||||||
Adjustments to reconcile net income to net cash | ||||||||
(Used in) provided by operating activities: | ||||||||
Depreciation and amortization | 10,245 | 15,563 | ||||||
Change in assets and liabilities, net: | (125,130 | ) | (83,649 | ) | ||||
Net cash (used in) provided by operating activities | (102,427 | ) | (35,424 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (2,537 | ) | (5,089 | ) | ||||
NET (DECREASE) IN CASH AND CASH EQUIVALENTS | (104,964 | ) | (40,513 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | $ | 1,252,352 | $ | 1,513,514 | ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 1,147,388 | $ | 1,473,001 | ||||
See accompanying notes to condensed consolidated financial statements.
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements and these notes have been condensed and do not contain all disclosures required by generally accepted accounting principles. See notes to audited consolidated financial statements contained in the Company's annual report.
2. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments, all of which are normal and recurring, necessary to present fairly the financial position of the Company and its wholly-owned subsidiary as of June 30, 2001 and the results of their operations for the three and six months ended June 30, 2001 and June 30, 2000 and their cash flows for the six months ended June 30, 2001 and June 30, 2000.
3. The Company prepares its financial information using the same accounting principles as for its annual financial statements except that no physical inventories were taken during either of the periods ended June 30, 2001 or 2000. Cost of sales for such periods was calculated primarily using standard cost methods.
4. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year.
5. The denominator used to determine basic net income per share includes the weighted average common shares outstanding during the quarter. The denominator used to determine diluted net income per share includes the shares used in the calculation of basic net income per share plus the weighted average options outstanding during the period using the treasury-stock method.
For the three months ended June 30, 2001 | ||||||||
Income (loss) | Shares | Per Share | ||||||
(Numerator) | (Denominator) | Amount | ||||||
Net Income (loss) | $ | (22,818 | ) | |||||
Weighted-average shares outstanding | - | 3,354,870 | ||||||
Basic net income (loss) per share | $ | (22,818 | ) | 3,354,870 | $ | (0.01 | ) | |
Effect of dilutive securities | - | - | ||||||
Diluted net income (loss) per share | $ | (22,818 | ) | 3,354,870 | $ | (0.01 | ) | |
For the three months ended June 30, 2000 | ||||||||
Income (loss) | Shares | Per Share | ||||||
(Numerator) | (Denominator) | Amount | ||||||
Net Income (loss) | $ | (52,325 | ) | |||||
Weighted-average shares outstanding | - | 3,375,870 | ||||||
Basic net income per share | $ | (52,325 | ) | 3,375,870 | $ | (0.02 | ) | |
Effect of dilutive securities | - | |||||||
Diluted net income (loss) per share | $ | (52,325 | ) | 3,375,870 | $ | (0.02 | ) | |
For the six months ended June 30, 2001 | ||||||||
Income | Shares | Per Share | ||||||
(Numerator) | (Denominator) | Amount | ||||||
Net Income | $ | 12,458 | ||||||
Weighted-average shares outstanding | - | 3,354,870 | ||||||
Basic net income per share | $ | 12,458 | 3,354,870 | $ | 0.00 | |||
Effect of dilutive securities | - | 13,815 | ||||||
Diluted net income per share | $ | 12,458 | 3,368,685 | $ | 0.00 | |||
For the six months ended June 30, 2000 | ||||||||
Income | Shares | Per Share | ||||||
(Numerator) | (Denominator) | Amount | ||||||
Net Income | $ | 32,662 | ||||||
Weighted-average shares outstanding | - | 3,354,870 | ||||||
Basic net income per share | $ | 32,662 | 3,375,870 | $ | 0.01 | |||
Effect of dilutive securities | - | 103,245 | ||||||
Diluted net income per share | $ | 32,662 | 3,479,115 | $ | 0.01 | |||
6. The Company has adopted the provisions of SFAS No. 130," Reporting Comprehensive Income". Comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments. Comprehensive income (loss) for the three and six months ended June 30, 2001 and 2000 is as follows:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2001 | 2000 | 2001 | 2000 | ||||||||||
Net Income (loss) | $ | (22,818 | ) | $ | (52,325 | ) | $ | 12,458 | $ | 32,662 | |||
Currency Translation Adjustment | 36,667 | (33,786 | ) | (3,499 | ) | (44,065 | ) | ||||||
Total | $ | 13,849 | $ | (86,111 | ) | $ | 8,959 | $ | (11,403 | ) | |||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
As of June 30, 2001, the Company had cash and cash equivalents of $1,147,388 and working capital of $1,922,731. Working capital decreased $41,091 since December 31, 2000 owing to an increase in product development expenditures. The Company's cash flows have historically tracked its operational results.
The Company expects to maintain a sound financial base for the balance of fiscal 2001. Management continues to believe that the current level of working capital, coupled with the flexibility of the Company's cost structure, should suffice to ensure that on-going operations are financed adequately.
Financial Results - Three Months ended June 30, 2001 versus Three Months ended June 30, 2000
Sales in the second quarter of 2001 increased 54% from the sales posted in the second quarter of 2000. The increase in sales was caused by higher volume of products shipped to an international distributor.
The Company's margins in the second quarter were lower than those attained in 2000 (from 58% in 2000 to 46% in 2001). This occurred due to higher than average international sales. It should be noted that pricing is continuing to remain firm on all products.
Operating expenses were slightly higher in the three months ended June 30, 2001 versus the three months ended June 30, 2000. Management anticipates some increase in its operating expenditures during the balance of 2001.
No tax benefit was recorded for the three months ended June 30, 2001 owing to uncertainty regarding the Company's ability to use net operating loss carryforwards in both the U.S. and U.K.
Net loss for the quarter was $22,818 or $.01 per share, representing a decrease in the loss of $29,507 from the comparable quarter in 2000.
Financial Results - Six Months ended June 30, 2001 versus Six Months ended June 30, 2000
Sales in the six months ended June 30, 2001 increased from the amount posted in the six months ended in June 30, 2000. The increase in sales was primarily attributed to increased shipment of products to our international distributor.
The Company's margins for the year-to-date period were lower than those achieved in the first half of 2000 (from 59% in 2000 to 48% in 2001). This occurred due to higher than average international sales. It should be noted that pricing continued to remain firm on all products.
Operating expenses were lower for the six months ended June 30, 2001 versus the six months ended June 30, 2000. Management anticipates some increase in its operating expenditures during the balance of 2001.
No tax provision was recorded for the six months ended June 30, 2001 owing to the Company's ability to use net operating loss carryforwards in both the U.S. and U.K.
Net income for the six months was $12,458 or $.00 per share, representing a decrease of $20,224 from the comparable period in 2000.
Factors That May Affect Future Results
From time to time, information provided by the Company or statements made by its employees may contain "forward-looking" information which involves risks and uncertainties. In particular, statements contained in this report which are not historical facts (including but not limited to the Company's expectations regarding business strategy, pricing, anticipated operating results, operating expenses and anticipated working capital) may be "forward-looking" statements. The Company's actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, risks associated with the introduction of new products, development of markets for new products offered by the Company, the Company's relationships with distributors and OEM's, the economic health of such OEM's, government regulation, competition and general economic conditions.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on June 8, 2001, the following members were elected to the Board of Directors:
Votes | Votes | |||
For | Withheld | |||
Ralph E. Hanson | 2,585,455 | 0 | ||
George F. Harrington | 2,585,455 | 0 | ||
Derrick Ebden | 2,585,455 | 0 |
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1. Employment Agreement with Ralph Hanson
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PACE MEDICAL, INC. | |
(Registrant) | |
Date: August 14, 2001 | /s/ Ralph E. Hanson |
Ralph E. Hanson, President | |
and Chief Executive Officer | |
(principal executive officer) | |
Date: August 14, 2001 | /s/ Ralph E. Hanson |
Ralph E. Hanson, Chief | |
Financial Officer | |
(principal financial officer) | |