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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
March 29, 1999
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(Date of Report, Date of Earliest Event Reported)
Pacific Research & Engineering Corporation
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(Exact name of registrant as specified in its charter)
California
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(State or other jurisdiction of incorporation)
001-11773 95-2638420
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(Commission File Number) (IRS Employer Identification No.)
2070 Las Palmas Drive, Carlsbad, California 92008
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(address of principal executive offices) (Zip Code)
(760) 438-3911
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
(a) Restatement of Earnings.
The information set forth in the press release attached hereto as
Exhibit 99.1 is incorporated herein by reference in its entirety.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The Company's press release dated March 29, 1999 is attached hereto as
Exhibit 99.1 and is incorporated herein by reference in its entirety.
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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 hereunto duly authorized.
PACIFIC RESEARCH &
ENGINEERING CORPORATION
Date: April 5, 1999 By: /s/ Blake Clark
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Blake Clark
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
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<S> <C>
99.1 Press Release, dated March 29, 1999.
</TABLE>
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EXHIBIT 99.1
Pacific Research & Engineering Reports
Fourth Quarter Loss, Restates Results for Prior Periods
CARLSBAD, Calif., Mar. 29, 1999 / Pacific Research & Engineering (AMEX:
PXE) today reported a net loss of $2.3 million in the fourth quarter ended
December 31, 1998 and a net loss of $4.0 million for the twelve months ended
December 31, 1998.
The Company also announced that it will restate its previously reported
financial results for the fiscal years ended 1996 and 1997 and the subsequent
quarterly periods in 1998. The Company's Audit Committee has engaged Arthur
Andersen LLP as advisors on matters related to the restatements. The Company's
previously issued 1996 and 1997 annual financial statements and applicable
auditors reports, as well as the related interim financial statements for
1996-1998, should not be relied upon.
1998 RESULTS
Net sales for the three months ended December 31, 1998 were $2.7
million, down from net sales of $3.2 million for the comparable period of 1997.
For the three months ended December 31, 1998, the Company reported a net loss of
$2.3 million, or $0.99 loss per share (basic and diluted), compared with a net
loss of $97,000, or $0.04 loss per share (basic and diluted) in the same three
month period one year ago as restated.
Net sales for the twelve months ended December 31, 1998 were $14.0
million, as compared to net sales of $12.3 million for the previous year, an
increase of 14%. For the twelve months ended December 31, 1998, the Company
reported a net loss of $4.0 million, or $1.73 loss per share (basic and
diluted), compared with a net loss of $276,000, or $0.12 loss per share (basic
and diluted) in the same twelve month period one year ago as restated.
The decline in sales and the increase in net losses for the fourth
quarter of 1998 compared to the restated fourth quarter of 1997 were
attributable primarily to delays in customer requirements for the timing of
product shipments at the end of 1998, reduced gross margins due to manufacturing
inefficiencies and an increase in financial accounting reserves for warranty
costs and excess inventory as well as generally higher sales, marketing and
administrative expenses. Additionally, as part of the Company's year-end
physical inventory, the Company reduced the carrying value of certain of its
inventory by approximately $650,000.
The increase in sales for the twelve months of 1998 compared to 1997 was
the result of increased unit sales and a broader customer base. The increase in
net losses for 1998 compared to restated 1997 was, to a significant degree, the
result of the fourth quarter factors as described above. Additional factors
included, one-time costs to terminate a build-to-suit property lease, the
recognition of additional costs of goods sold related to labor and production
overhead as well as higher sales costs associated with increased marketing
efforts and higher administrative costs associated with head-count increases.
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Based upon the 1998 loss and the cumulative effect of the restatements,
which are described in detail below, the Company will report an accumulated
deficit of $4.4 million and a total shareholders' deficit of $281,000 as of
December 31, 1998. The Company is in violation of the financial covenants under
its bank line of credit and term loan agreement. As of March 25, 1999,
borrowings outstanding under the line of credit and term loan are $2,175,000 and
$574,000 respectively. The Company is working with its bank to achieve an
accommodation, although there is no assurance that such accommodation will be
achieved. In addition, based upon these financial results, the Company has
fallen below the continued listing guidelines of the American Stock Exchange.
There can be no assurance that the Company will be able to maintain its listing.
CHANGES IN ACCOUNTING DEPARTMENT
The Company also announced today that it has hired a new Chief Financial
Officer and a new Controller.
Blake Clark, Vice President and Chief Financial Officer, formerly CFO of
McHenry Metals Golf Corp. and NuWorld Marketing Limited, brings over fourteen
years of senior management experience in accounting and finance, public
offerings, and mergers and acquisitions for publicly listed companies in the
high tech industry. Mr. Clark holds a BA in Economics from Claremont Men's
College with emphasis in Accounting.
Kim Best, Controller, graduated from Ohio State University with a BS in
Accounting. Her previous experience includes over eight years with ZD Market
Intelligence as Controller. She worked as International Financial Analyst with
IMED and was three years with Cardinal Industries in Ohio.
President and COO, Donald C. Naab stated, "With the additions of Blake
Clark and Kim Best, the Company has significantly strengthened the financial
reporting staff. We have also implemented improved procedures which will better
insure that the Company's future financial results are accurately reported to
our investors."
CHANGES IN OPERATIONS
"We have to focus on returning the company to profitability," stated
Naab. "We have begun taking steps to reduce expenses, improve margins, improve
cash flow, reduce inventory, and expand the product line and services to a
broader market segment. The market is there for our products and services. I
believe PR&E has a solid future with the steps we have taken and the improved
financial controls which we have implemented."
The addition of Clark and Best are the latest of the staff changes made
by Naab. In addition to the previously announced changes in the positions of
Vice President of Operations, Manufacturing Manager, Purchasing Manager,
Marketing Manager and Director of Human Resources, the Company has also hired a
new Sales Manager, Shirley Thom, whose extensive sales experience within the
radio industry spans more than twenty years.
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The engineering staff, which has been the core of the company, did not
require staff changes. PR&E founder and Chairman, Jack Williams, continues his
role as technical adviser working closely with the engineering team to design
and develop new high-quality products and services which meet the rapidly
changing broadcast marketplace. Williams stated "PR&E has now put together an
excellent professional team to build the business and continue to set standards
of excellence in the broadcast industry. I have a great deal of confidence in
the new management structure."
"When Don joined PR&E mid-year" continued Williams, "the focus was on
putting together a strategic plan which would allow PR&E to increase its sales
levels by supporting its client base with an expanded offering of products and
services. With the continuing consolidation in the domestic radio market and the
growth in the international radio markets, we now have clients who need a
broader range of products, as well as our traditional base of network and
station clients located in the major broadcast markets. To meet this change in
industry dynamics, the company has expanded its product line and is finding
increased acceptance by customers in this broadened marketplace."
RESTATEMENT
The Company's restatement of its previously reported financial results
will reduce reported net income by approximately $641,000, or $0.34 per share
(basic and diluted) for the fiscal year ended December 31, 1996 by approximately
$575,000, or $0.25 per share (basic and diluted) for the fiscal year ended
December 31, 1997 and by approximately $1.7 million, or $0.72 per share (basic
and diluted) for the nine months ended September 30, 1998. The Company
anticipates the net effect of these adjustments will result in net losses of
$630,000 and $276,000 for fiscal 1996 and 1997 financial results, respectively,
and result in net losses for each of the first three quarters of the current
fiscal year.
This restatement is the result of a review of the Company's accounting
policies and related financial reporting conducted by the Company, its new Chief
Financial Officer and new Controller, and its independent accountants Harlan &
Boettger LLP. Additionally, Arthur Andersen, LLP was engaged by the Audit
Committee of the Board of Directors as advisors to the Committee on matters
related to the restatements.
During the review certain facts became known that required a change be
made in the recording of capitalized software development costs over the
1996-1998 period and in the recording of revenue in the first quarter of 1998.
In addition, certain expenses will be adjusted and re-allocated throughout the
1998 quarterly periods.
As part of the restatement, the Company will expense previously
capitalized software development costs of approximately $1.1 million over the
1996-1998 period. Additionally, the Company will reduce revenues previously
reported for the first quarter of 1998 by $410,000. Furthermore, the Company
will report additional costs of goods sold in the first and second quarters of
1998 related to labor and overhead production costs of approximately $400,000;
report one-time expenses of approximately $507,000 related to the termination of
a build-to-suit property lease and to write off costs associated with a
potential acquisition in the third quarter of
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1998 and re-allocate certain operating expenses throughout the first three
quarterly periods of the current fiscal year.
PR&E manufactures high quality broadcast studio products and provides
turnkey studio design/integration services to the worldwide broadcasting
industry. Products include on-air and production mixing consoles, studio
technical cabinetry and integrated systems technologies. PR&E's clients include
NBC, ABC, CBS, Jacor Communications, Chancellor Media, Emmis Broadcasting and
Cox Communications. For more information, visit the Company's Web site at ERROR!
BOOKMARK NOT DEFINED. or call 760-438-3911.
This release, other than historical information, includes
forward-looking statements with respect to achieving corporate objectives,
implementing corporate strategies, reducing costs, improving operations,
increasing sales, building the business, the company's future operation and
financial results and certain other matters. These statements are made under the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
and involve risks and uncertainties which could cause actual results to differ
materially from those in the forward-looking statements, including but not
limited to the following: the difficulties and uncertainties in successfully
developing and introducing new products, the ability to manage successfully the
cost reduction and margin improvement programs discussed above, the impact of
changing economic conditions, business conditions in the radio broadcast
industry, the impact of market peers and their products as well as the risks
concerning further technology and others identified in the Company's Annual
Report on Forms 10-K, Quarterly Reports on Forms 10-Q and other Securities and
Exchange Commission filings. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date hereof. The
company undertakes no obligation to republish revised forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
(Financial Statements On Following Two Pages)
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Pacific Research & Engineering
Statements of Income
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
December 31, December 31,
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1998 1997 1998 1997 1996
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(restated) (restated) (restated)
<S> <C> <C> <C> <C> <C>
Net sales $ 2,742 $ 3,169 $ 14,052 $ 12,288 $ 7,696
Cost of goods sold 2,749 1,912 10,600 7,013 4,547
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Gross profit (7) 1,257 3,452 5,275 3,149
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Operating expenses:
General and administrative 950 480 2,977 1,764 1,331
Selling and marketing 633 492 2,533 1,841 1,079
Research & development 367 363 1,278 1,693 1,228
Depreciation and amortization 191 112 489 296 188
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Total Operating Expenses 2,141 1,447 7,277 5,594 3,826
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Loss from operations (2,148) (190) (3,825) (319) (677)
Other income (expense) (54) (6) (116) 5 68
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Loss Before Income Taxes (2,202) (196) (3,941) (314) (609)
Income tax benefit (expense) (71) 99 (45) 38 (21)
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Net Loss $ (2,273) $ (97) $ (3,986) $ (276) $ (630)
=========== =========== =========== =========== ===========
(Loss) per common share:
Basic $ (0.99) $ (0.04) $ (1.73) $ (0.12) $ (0.33)
Diluted $ (0.99) $ (0.04) $ (1.73) $ (0.12) $ (0.33)
Common equivalent shares:
Basic 2,305,500 2,305,500 2,305,500 2,305,500 1,888,833
Diluted 2,305,500 2,305,500 2,305,500 2,305,500 1,888,833
</TABLE>
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Pacific Research & Engineering
Condensed Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
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1998 1997 1996
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(restated) (restated)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 321 $ -- $ 611
Investment in securities -- 185 1,003
Accounts receivable, net 1,008 844 621
Inventories, net 2,614 3,014 1,747
Other current assets 34 987 411
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Total Current Assets 3,977 5,030 4,393
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Property, plant & equipment, net 1,164 1,353 902
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Intangibles, net 850 720 386
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Deposits and other 143 240 102
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$ 6,134 $ 7,343 $ 5,783
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses $ 2,431 $ 1,211 $ 789
Revolving line of credit 2,109 1,300 500
Bank note payable - current portion 130 -- --
Customer advances 1,249 860 272
Other current liabilities 19 176 34
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Total Current Liabilities 5,938 3,547 1,595
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Bank note, net of current portion 477 -- --
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Long-term liabilities -- 75 136
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Shareholders' equity (281) 3,721 4,052
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$ 6,134 $ 7,343 $ 5,783
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</TABLE>
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FOR FURTHER INFORMATION:
Pacific Research & Engineering Corporation
2070 Las Palmas Drive
Carlsbad, CA 92009
Phone: 760-438-3911
Fax: 760-438-9277
Contact: Don Naab, President & COO
Blake Clark, CFO
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