FORM 10-QSB
Securities and Exchange Commission
Washington, D. C. 20549
(Mark One) | ||
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| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE |
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For the quarterly period ended September 30, 2003 | ||
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| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF |
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For the transition period from to . | ||
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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 |
| (I.R.S. Employer |
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391 Totten Pond Road, Waltham, Massachusetts 02451 | ||
(Address of principal executive offices) | ||
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(781) 890-5656 | ||
(Issuer’s telephone number, |
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of November 14, 2003.
3,354,870 shares of Common Stock, par value $.01 per share
PART I - FINANCIAL INFORMATION |
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Item 1. |
| Financial Statements. |
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2
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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| SEPTEMBER 30, 2003 |
| DECEMBER 31, 2002 |
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| (Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 857,973 |
| $ | 1,115,690 |
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Accounts receivable |
| 353,436 |
| 353,629 |
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Inventories: |
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Raw materials |
| 271,641 |
| 290,266 |
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Work-in-process |
| 158,370 |
| 146,180 |
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Finished goods |
| 79,108 |
| 90,261 |
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| 509,119 |
| 526,707 |
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Other current assets |
| 20,127 |
| 25,792 |
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Total current assets |
| 1,740,655 |
| 2,021,818 |
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Plant and equipment, net |
| 24,344 |
| 35,394 |
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Other assets |
| 244,568 |
| 239,461 |
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TOTAL ASSETS |
| $ | 2,009,567 |
| $ | 2,296,673 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 73,356 |
| $ | 219,506 |
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Accrued expenses |
| 42,645 |
| 90,656 |
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Total current liabilities |
| 116,001 |
| 310,162 |
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Shareholders’ equity: |
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Common stock |
| 34,009 |
| 34,009 |
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Additional paid-in capital |
| 3,147,151 |
| 3,147,151 |
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Cumulative translation adjustment |
| 157,558 |
| 119,114 |
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Accumulated deficit |
| (1,413,405 | ) | (1,282,016 | ) | ||
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| 1,925,313 |
| 2,112,433 |
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Less Treasury Stock, at Cost |
| (31,747 | ) | (31,747 | ) | ||
Total Shareholders’ Equity |
| 1,893,566 |
| 1,986,511 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 2,009,567 |
| $ | 2,296,673 |
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Note: The balance sheet at December 31, 2002 has been taken from the audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
3
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| For the Three Months |
| For the Nine Months |
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| 2003 |
| 2002 |
| 2003 |
| 2002 |
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Net Sales |
| $ | 316,125 |
| $ | 377,627 |
| $ | 987,473 |
| $ | 852,147 |
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Cost of sales |
| 161,378 |
| 189,450 |
| 545,776 |
| 418,790 |
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| 154,747 |
| 188,177 |
| 441,697 |
| 433,357 |
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Operating expenses |
| 194,388 |
| 171,614 |
| 598,255 |
| 534,221 |
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Income (loss) from operations |
| (39,641 | ) | 16,563 |
| (156,558 | ) | (100,864 | ) | ||||
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Other income |
| 4,896 |
| 6,857 |
| 16,968 |
| 22,238 |
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Net income (loss) |
| $ | (34,745 | ) | $ | 23,420 |
| $ | (139,590 | ) | $ | (78,536 | ) |
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Net income (loss) per share: |
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Basic |
| $ | (.01 | ) | $ | .01 |
| $ | (.04 | ) | $ | (.02 | ) |
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Diluted |
| $ | (.01 | ) | $ | .01 |
| $ | (.04 | ) | $ | (.02 | ) |
See accompanying notes to condensed consolidated financial statements.
4
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| NINE MONTHS ENDED |
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| 2003 |
| 2002 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | (139,590 | ) | $ | (78,536 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
| 11,050 |
| 12,664 |
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Change in assets and liabilities, net: |
| (129,177 | ) | (251,416 | ) | ||
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Net cash used in operating activities |
| (257,717 | ) | (317,288 | ) | ||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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| (5,684 | ) | ||
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
| (257,717 | ) | (322,972 | ) | ||
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 1,115,690 |
| 1,436,366 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 857,973 |
| $ | 1,113,394 |
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See accompanying notes to condensed consolidated financial statements.
5
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 September 30, 2003 and the results of their operations for the three and nine months ended September 30, 2003 and September 30, 2002 and their cash flows for the nine months ended September 30, 2003 and September 30, 2002.
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 September 30, 2003 or 2002. Cost of sales for such periods was calculated primarily using standard cost methods.
4. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year.
5. The denominator used to determine basic net income (loss) 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.
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| For the three months ended September 30, 2003 |
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| Income (Loss) |
| Shares |
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Net Income (Loss) |
| $ | (34,745 | ) |
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Weighted-average shares outstanding |
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| 3,354,870 |
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Basic net income (loss) per share |
| (34,745 | ) | 3,354,870 |
| $ | (0.01 | ) | |
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Effect of dilutive securities |
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Diluted net income (loss) per share |
| $ | (34,745 | ) | 3,354,870 |
| $ | (0.01 | ) |
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| For the three months ended September 30, 2002 |
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| Income (Loss) |
| Shares |
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Net Income (Loss) |
| $ | 23,420 |
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Weighted-average shares outstanding |
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| 3,354,870 |
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Basic net income (loss) per share |
| 23,420 |
| 3,354,870 |
| $ | 0.01 |
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Effect of dilutive securities |
| — |
| 9,242 |
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Diluted net income (loss) per share |
| $ | 23,420 |
| 3,364,112 |
| $ | 0.01 |
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| For the nine months ended September 30, 2003 |
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| Income (Loss) |
| Shares |
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Net Income (Loss) |
| $ | (139,590 | ) |
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Weighted-average shares outstanding |
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| 3,354,870 |
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Basic net income (loss) per share |
| (139,590 | ) | 3,354,870 |
| $ | (0.04 | ) | |
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Effect of dilutive securities |
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Diluted net income (loss) per share |
| $ | (139,590 | ) | 3,354,870 |
| $ | (0.04 | ) |
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| For the nine months ended September 30, 2002 |
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| Income (Loss) |
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Net Income (Loss) |
| $ | (78,536 | ) |
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Weighted-average shares outstanding |
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| 3,354,870 |
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Basic net income (loss) per share |
| (78,536 | ) | 3,354,870 |
| $ | (0.02 | ) | |
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Effect of dilutive securities |
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Diluted net income (loss) per share |
| $ | (78,536 | ) | 3,354,870 |
| $ | (0.02 | ) |
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6. Comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments. Comprehensive income (loss) for the three and nine months ended September 30, 2003 and 2002 are as follows:
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| Three Months Ended |
| Nine Months Ended |
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| 2003 |
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| 2003 |
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Net Income (Loss) |
| $ | (34,745 | ) | $ | 23,420 |
| $ | (139,590 | ) | $ | (78,536 | ) |
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Currency Translation Adjustment |
| 13,482 |
| 34,136 |
| 38,444 |
| 79,748 |
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Total |
| $ | (21,263 | ) | $ | 57,556 |
| $ | (101,146 | ) | $ | 1,212 |
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Item 2. Management’s Discussion and Analysis or Plan of Operation.
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
As of September 30, 2003, the Company had cash and cash equivalents of $857,973 and working capital of $1,624,654. Working capital decreased $87,002 since December 31, 2002 owing to the use of cash in operations. 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 2003. 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 September 30, 2003 versus Three Months ended September 30, 2002
Sales in the third quarter of 2003 decreased 16% from the sales posted in the third quarter of 2002. The decrease in sales was due to the Company’s inability to obtain raw materials. While the Company has had some success in addressing the component shortages, there can be no assurance that the Company will not encounter component shortages in future quarters.
The Company’s margins in the third quarter were lower than those attained in 2002 (from 50% in 2002 to 49% in 2003). This occurred due to a change in product mix. It should be noted that pricing has remained firm on all products.
Operating expenses were higher in the three months ended September 30, 2003 versus the three months ended September 30, 2002, mostly due to changes in currency exchange rates. Management anticipates some increase in its operating expenditures during the balance of 2003.
No tax benefit was recorded for the three months ended September 30, 2003 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 $34,745 or $0.01 per share, verses a net income of $23,420 in the comparable quarter in 2002.
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Financial Results - Nine Months ended September 30, 2003 versus Nine Months ended September 30, 2002
Sales in the nine months ended September 30, 2003 increased 16% from the amount posted in the nine months ended in September 30, 2002. The increase in sales was primarily due to changes in currency exchange rates.
The Company’s margins for the year-to-date period were lower than those achieved in the first half of 2002 (from 51% in 2002 to 45% in 2003). This occurred due to a change in product mix. It should be noted that pricing has remained firm on all products.
Operating expenses were higher for the nine months ended September 30, 2003 versus the nine months ended September 30, 2002, mostly due to changes in currency exchange rates. Management anticipates some increase in its operating expenditures during the balance of 2003.
No tax benefit was recorded for the nine months ended September 30, 2003 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 first nine months of 2003 was $139,590 or $0.04 per share, versus a net loss of $78,536, or $0.02 per share, for the comparable period in 2002.
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, new product availability, pricing, anticipated operating results, market share, the rate which backlog of orders can be fulfilled, 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 including supplier performance, risks associated with the manufacture of existing products including supplier performance, development of markets for new and existing products offered by the Company, personnel requirements, the Company’s relationships with distributors and OEM’s, the economic health of such OEM’s, government regulation, competition and general economic conditions.
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Item 3. Controls and Procedures
The Company’s President and Chief Executive Officer has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the President and Chief Executive Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to him in a timely fashion.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
31 Certification pursuant to Rules 13a -14 and 15d -14 promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None
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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. |
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| (Registrant) |
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Date: | November 14, 2003 |
| /s/ Ralph E. Hanson |
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| Ralph E. Hanson, President | ||||
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Date: | November 14, 2003 |
| /s/ Ralph E. Hanson |
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| Ralph E. Hanson, Chief | ||||
12
PACE MEDICAL, INC.
FORM 10-QSB
September 30, 2003
EXHIBIT INDEX
Exhibit No. |
| Description |
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31 |
| Certification pursuant to Rules 13a -14 and 15d -14 promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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