FORM 10-QSB
Securities and Exchange Commission
Washington, D. C. 20549
(Mark One)
ý | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2004 | |
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OR | |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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, including area code) | ||
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 equity, as of November 15, 2004.
3,354,870 shares of Common Stock, par value $.01 per share
Transitional Small Business Disclosure format: Yes o No ý
PART I - FINANCIAL INFORMATION
Item 1. |
| Financial Statements. |
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PACE MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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| SEPTEMBER 30, 2004 |
| DECEMBER 31, 2003 |
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| (Unaudited) |
| (See note below) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 721,357 |
| $ | 1,060,791 |
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Accounts receivable |
| 376,494 |
| 264,818 |
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Inventories: |
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Raw materials |
| 246,667 |
| 257,019 |
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Work-in-process |
| 108,564 |
| 179,766 |
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Finished goods |
| 87,867 |
| 112,804 |
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| 443,098 |
| 549,589 |
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Other current assets |
| 25,533 |
| 41,651 |
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Total current assets |
| 1,566,482 |
| 1,916,849 |
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Plant and equipment, net |
| 20,974 |
| 21,127 |
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Other assets |
| 248,625 |
| 249,097 |
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TOTAL ASSETS |
| $ | 1,836,081 |
| $ | 2,187,073 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
| $ | 121,977 |
| $ | 326,419 |
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Accrued expenses |
| 138,659 |
| 125,852 |
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Total current liabilities |
| 260,636 |
| 452,271 |
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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 |
| 249,313 |
| 244,512 |
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Accumulated deficit |
| (1,823,281 | ) | (1,659,123 | ) | ||
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| 1,607,192 |
| 1,766,549 |
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Less Treasury Stock, at Cost |
| (31,747 | ) | (31,747 | ) | ||
Total Shareholders’ Equity |
| 1,575,445 |
| 1,734,802 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 1,836,081 |
| $ | 2,187,073 |
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Note: The balance sheet at December 31, 2003 has been taken from the audited financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
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PACE MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| For the Three Months |
| For the Nine Months |
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| 2004 |
| 2003 |
| 2004 |
| 2003 |
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Net Sales |
| $ | 398,577 |
| $ | 316,125 |
| $ | 1,008,491 |
| $ | 987,473 |
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Cost of sales |
| 237,691 |
| 161,378 |
| 589,766 |
| 545,776 |
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| 160,886 |
| 154,747 |
| 418,725 |
| 441,697 |
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Operating expenses |
| 196,345 |
| 194,388 |
| 598,128 |
| 598,255 |
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Loss from operations |
| (35,459 | ) | (39,641 | ) | (179,403 | ) | (156,558 | ) | ||||
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Other income |
| 6,953 |
| 4,896 |
| 15,245 |
| 16,968 |
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Net loss |
| $ | (28,506 | ) | $ | (34,745 | ) | $ | (164,158 | ) | $ | (139,590 | ) |
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Basic and Diluted Net loss per share |
| $ | (.01 | ) | $ | (.01 | ) | $ | (.05 | ) | $ | (.04 | ) |
See accompanying notes to condensed consolidated financial statements.
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PACE MEDICAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| NINE MONTHS ENDED |
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| 2004 |
| 2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | (164,158 | ) | $ | (139,590 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
| 1,588 |
| 11,050 |
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Change in assets and liabilities, net: |
| (175,429 | ) | (129,177 | )) | ||
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Net cash used in operating activities |
| (337,999 | ) | (257,717 | ) | ||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
| (1,435 | ) |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
| (339,434 | ) | (257,717 | ) | ||
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
| 1,060,791 |
| 1,115,690 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ | 721,357 |
| $ | 857,973 |
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See accompanying notes to condensed consolidated financial statements.
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PACE MEDICAL, INC. AND 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 subsidiary as of September 30, 2004 and the results of their operations for the three and nine months ended September 30, 2004 and September 30, 2003 and their cash flows for the nine months ended September 30, 2004 and September 30, 2003.
3. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full year.
4. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period, except where the effect would be anti-dilutive. The number of dilutive common equivalent shares outstanding during the period has been determined in accordance with the treasury-stock method. Common equivalent shares consist of common stock issuable upon the exercise of outstanding options.
The number of basic and diluted weighted average common shares outstanding were 3,354,870 for all periods presented. For both the three and nine months ended September 30, 2004 and 2003, options to purchase 360,000 and 380,000 common shares, respectively, were outstanding but not included in the diluted weighted average common share calculation as the effect would have been antidilutive.
5. Comprehensive loss includes net loss and foreign currency translation adjustments. Comprehensive loss for the three and nine months ended September 30, 2004 and 2003 was as follows:
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| Three Months Ended |
| Nine Months Ended |
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| 2003 |
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Net Loss |
| $ | (28,506 | ) | $ | (34,745 | ) | $ | (164,158 | ) | $ | (139,590 | ) |
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Currency Translation Adjustment |
| (14,405 | ) | 13,482 |
| 4,801 |
| 38,444 |
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Total |
| $ | (42,911 | ) | $ | (21,263 | ) | $ | (159,357 | ) | $ | (101,146 | ) |
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Item 2. Management’s Discussion and Analysis or Plan of Operation.
PACE MEDICAL, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
As of September 30, 2004, the Company had cash and cash equivalents of $721,357 and working capital of $1,305,846. Working capital decreased $185,732 since December 31, 2003 owing to the use of cash in operations. The Company’s cash flows have historically tracked its operational results.
Financial Results - Three Months ended September 30, 2004 versus Three Months ended September 30, 2003
Sales in the third quarter of 2004 increased 26% from the sales posted in the third quarter of 2003. The increase in sales was due primarily to increases in volume of products shipped to international customers. 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 2003 (from 49% in 2003 to 40% in 2004). This occurred due to a change in product mix. It should be noted that pricing has remained firm on all products.
Operating expenses were virtually unchanged in the three months ended September 30, 2004, versus the three months ended September 30, 2003. Management anticipates some increase in its operating expenditures during the balance of 2004.
No tax benefit was recorded for the three months ended September 30, 2004 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 $28,506, or $0.01 per share, verses a net loss of $34,745, or $.01 per share, for the comparable quarter in 2003.
Financial Results - Nine Months ended September 30, 2004 versus Nine Months ended September 30, 2003
Sales in the nine months ended September 30, 2004 increased 2% from the amount posted in the nine months ended in September 30, 2003. The increase in sales was primarily due to the higher volumes of products shipped in the third quarter offset by lower volumes in the first two quarters.
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The Company’s margins for the year-to-date period were lower than those achieved in the first half of 2003 (from 45% in 2003 to 42% in 2004). This occurred due to a change in product mix. It should be noted that pricing has remained firm on all products.
Operating expenses were virtually unchanged for the nine months ended September 30, 2004, versus the nine months ended September 30, 2003. Management anticipates some increase in its operating expenditures during the balance of 2004.
No tax benefit was recorded for the nine months ended September 30, 2004 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 2004 was $164,158 or $0.05 per share, versus a net loss of $139,590, or $0.04 per share, for the comparable period in 2003.
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
As of the date of this report, our President and Chief Executive Officer performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring the reporting of material information required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these internal controls over financial reporting subsequent to the date of the most recent evaluation.
PART II - OTHER INFORMATION
Item 6. |
| Exhibits | |
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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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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.
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| PACE MEDICAL, INC. |
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| (Registrant) |
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Date: | November 15, 2004 |
| /s/ Ralph E. Hanson | |
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| Ralph E. Hanson, President | ||
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Date: | November 15, 2004 |
| /s/ Ralph E. Hanson | |
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| Ralph E. Hanson, Chief | ||
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PACE MEDICAL, INC.
FORM 10-QSB
September 30, 2004
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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