10QSB 1 j2120_10qsb.htm 10QSB Prepared by MERRILL CORPORATION

 

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

 

For the quarterly period ended  September 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

 

4-2867416

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

identification No.)

 

 

 

391 Totten Pond Road, Waltham, Massachusetts 02451

(Address of principal executive offices)

 

 

 

(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 equity, as of November 13, 2001.

 

3,375,870 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

 

 

 

 

c)

Condensed Consolidated Statements of Cash Flows

 

 

 

 

d)

Notes to Condensed Consolidated Financial Statements

 

PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

SEPTEMBER 30, 2001

 

DECEMBER 31, 2000

 

 

 

(Unaudited)

 

(See note below)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

1,234,464

 

$

1,252,352

 

Accounts receivable

 

424,762

 

264,873

 

Inventories:

 

 

 

 

 

Raw materials

 

283,863

 

242,965

 

Work-in-process

 

97,021

 

147,547

 

Finished goods

 

64,808

 

214,966

 

 

 

445,692

 

605,478

 

Other current assets

 

17,482

 

23,820

 

Total current assets

 

2,122,400

 

2,146,523

 

Plant and equipment, net

 

44,226

 

50,652

 

Other assets

 

145,235

 

121,051

 

TOTAL ASSETS

 

$

2,311,861

 

$

2,318,226

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

79,811

 

$

117,304

 

Accrued expenses

 

41,264

 

65,397

 

Total current liabilities

 

121,075

 

182,701

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

Common stock

 

34,009

 

34,009

 

Additional paid-in capital

 

3,147,151

 

3,147,151

 

Cumulative translation adjustment

 

32,161

 

32,725

 

Accumulated deficit

 

(990,788

)

(1,046,613

)

 

 

2,222,533

 

2,167,272

 

Less Treasury Stock, at Cost

 

(31,747

)

(31,747

)

Total Shareholders' Equity

 

2,190,786

 

2,135,525

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

2,311,861

 

$

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.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

For the Three Months

 

For the Nine Months

 

 

 

Ended September 30 

 

Ended September 30 

 

 

 

2001

 

2000

 

2001

 

2000

 

Net Sales

 

$

437,617

 

$

233,007

 

$

1,215,172

 

$

921,478

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

206,722

 

121,759

 

608,286

 

405,115

 

 

 

 

 

 

 

 

 

 

 

 

 

230,895

 

111,248

 

606,886

 

516,363

 

 

 

 

 

 

 

 

 

 

 

Other operating expenses

 

198,140

 

184,430

 

589,479

 

586,565

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

32,755

 

(73,182

)

17,407

 

(70,202

)

 

 

 

 

 

 

 

 

 

 

Other income

 

10,612

 

10,196

 

38,418

 

39,878

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

43,367

 

$

(62,986

)

$

55,825

 

$

(30,324

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.01

 

$

(.02

)

$

.02

 

$

(.01

)

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

.01

 

$

(.02

)

$

.02

 

$

(.01

)

 

See accompanying notes to condensed consolidated financial statements.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

NINE MONTHS ENDED

 

 

 

SEPTEMBER 30

 

 

 

2001

 

2000

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

55,825

 

$

(30,324

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

14,555

 

12,922

 

Change in assets and liabilities, net:

 

(79,680

)

(137,516

)

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

(9,300

)

(154,918

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(8,588

)

(18,681

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(17,888

)

(173,599

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

1,252,352

 

1,513,514

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

1,234,464

 

$

1,339,915

 

 

See accompanying notes to condensed consolidated financial statements.

 

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, 2001 and the results of their operations for the three and nine months ended September 30, 2001 and September 30, 2000 and their cash flows for the nine months ended September 30, 2001 and September 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 September 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 nine months ended September 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 (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.

 

 

 
For the three months ended September 30, 2001

 

 

 

Income (loss)

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Net Income (loss)

 

$

43,367

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

-

 

3,354,870

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

43,367

 

3,354,870

 

$

0.01

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

-

 

2,669

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share

 

$

43,367

 

3,357,539

 

$

0.01

 

 

 

 

 

For the three months ended September 30, 2000

 

 

 

Income (loss)

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Net Income (loss)

 

$

(62,986)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

-

 

3,375,870

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

(62,986)

 

3,375,870

 

$

(0.02)

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share

 

$

(62,986)

 

3,375,870

 

$

(0.02)

 

 

 

 

For the nine months ended September 30, 2001

 

 

 

Income

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Net Income

 

$

55,825

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

-

 

3,375,870

 

 

 

 

 

 

 

 

 

 

 

Basic net income per shar

 

55,825

 

3,375,870

 

$

0.02

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

-

 

10,109

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

55,825

 

3,385,979

 

$

0.02

 

 

 

 

For the nine months ended September 30, 2000

 

 

 

Income

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

Net Income

 

$

(30,324)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

-

 

3,375,870

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

(30,324)

 

3,375,870

 

$

0.01

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

(30,324)

 

3,375,870

 

$

0.01

 

 

6.                 The Company has adopted the provisions of SFAS No. 130,  “Reporting Comprehensive Income".  Comprehensive income includes net income (loss)  and foreign currency translation adjustments.  Comprehensive income for the three and nine months ended September 30, 2001 and 2000 is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30,

 

 

 

2001

 

2000

 

2001

 

2000

 

Net Income (loss)

 

$

43,367

 

$

(62,986

)

$

55,825

 

$

(30,324

)

 

 

 

 

 

 

 

 

 

 

Currency Translation Adjustment

 

36,944

 

(13,464

)

(564

)

(57,529

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

80,311

 

$

(76,450

)

$

55,261

 

$

(87,853

)

 

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 September 30, 2001, the Company had cash and cash equivalents of $1,234,464 and working capital of $2,001,325.  Working capital has increased slightly since December 31, 2000 owing to the Company’s slight net income over the first nine months of the year.

 

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 September 30, 2001 versus Three Months ended September 30, 2000

 

Sales in the third quarter of 2001 increased 88% from the sales posted in the third quarter of 2000.  The increase in sales was due to an increase in our international business and favorable foreign exchange conversion rates.

 

The Company's margins in the third quarter increased from those seen in 2000 (from 46% in 2000 to 53% in 2001).  This occurred due to a change in the product mix and favorable production variances.  It should be noted that pricing is continuing to remain firm on all products.

 

Operating expenses were higher in the three months ended September 30, 2001 versus the three months ended September 30, 2000 due to increased administration and marketing related expenses.  Management anticipates some increase in its operating expenditures during the balance of 2001.  This level will also suffice to maintain the Company's research and development efforts in developing new products in the temporary pacing field.

 

No tax provision was recorded for the three months ended September 30, 2001 owing to the Company's ability to use net operating loss carry forwards in both the U.S. and United Kingdom.

 

Net income for the quarter was $43,367 or $.01 per share.  This represents a substantial increase in profitability over the results achieved in the third quarter of 2000.

 

Financial Results - Nine Months ended September 30, 2001 versus Nine Months ended September 30, 2000

 

Sales in the nine months ended September 30, 2001 increased 32% from the amount posted in the nine months ended in September 30, 2000.  This increase is due to an increase in our international business and favorable foreign exchange conversion rates.  The Company's margins for the year-to-date period decreased 6% from those of last year (from 56% in 2000 to 50% in 2001).  This occurred due to a change in the product mix and unfavorable production variances.

 

Operating expenses were flat  for the nine months ended September 30, 2001 versus the nine months ended September 30, 2000.  Management anticipates some increase in its operating expenditures during the balance of 2001.  This level will also suffice to maintain the Company's research and development efforts in developing new products in the temporary pacing field.

 

No tax provision was recorded for the nine months ended September 30, 2001 owing to the Company's ability to use net operating loss carry forwards in both the U.S. and U.K.

 

Net income for the nine months was $55,825 or $.02 per share, versus a net loss of $(30,324) or $(.01) per share for 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 6.

 

Exhibits and Reports on Form 8-K

 

 

 

 

 

 

(a)

Exhibits:   None

 

 

 

 

 

(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:

November 13, 2001

 

/s/  Ralph E. Hanson

 

 

 

Ralph E. Hanson, President

 

 

 

 and Chief Executive Officer

 

 

 

 (principal executive officer)

 

 

 

 

Date:

November 13, 2001

 

/s/  Ralph E. Hanson

 

 

 

Ralph E. Hanson, Chief

 

 

 

 Financial Officer

 

 

 

 (principal financial officer)