<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 001-11773
PACIFIC RESEARCH & ENGINEERING CORPORATION
(Exact name of small business issuer as specified in its charter)
California 95-2638420
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
2070 Las Palmas Drive, Carlsbad, California, 92009
(Address of principal executive offices and zip code)
(760) 438-3911
(Issuer's telephone number)
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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,305,500 shares of Common
Stock, No Par Value as of May 1, 1999
<PAGE> 2
PACIFIC RESEARCH & ENGINEERING CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1: FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF MARCH 31, 1999 AND
DECEMBER 31, 1998 3
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND 1998 4
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1998 5
NOTES TO CONDENSED FINANCIAL STATEMENTS 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 12
ITEM 2: CHANGES IN SECURITIES 12
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5: OTHER INFORMATION 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACIFIC RESEARCH & ENGINEERING CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 9,425 $ 320,656
Accounts receivable, net of allowance
for doubtful accounts of $75,000 in 1999
and $65,000 in 1998 1,371,276 1,008,392
Inventories 2,291,898 2,614,447
Prepaid expenses 52,664 34,144
----------- -----------
Total Current Assets 3,725,263 3,977,639
----------- -----------
Property and equipment, net 1,107,932 1,164,343
Capitalized software development costs, net 819,183 849,481
Deposits and other assets 221,252 142,856
----------- -----------
$ 5,873,630 $ 6,134,319
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses $ 2,479,962 $ 2,450,457
Customer advances 846,427 1,249,290
Line of credit 2,175,000 2,109,247
Bank term loan payable 563,312 606,645
----------- -----------
Total Current Liabilities 6,064,701 6,415,639
----------- -----------
Commitments and Contingencies (Note 2)
Shareholders' Deficit:
Common Stock, no par value, 25,000,000 authorized;
2,305,500 issued and outstanding 4,126,392 4,126,392
Additional paid-in capital 52,325 52,325
Accumulated deficit (4,369,788) (4,460,037)
----------- -----------
Total Shareholders' Deficit (191,071) (281,320)
----------- -----------
$ 5,873,630 $ 6,134,319
=========== ===========
</TABLE>
The accompanying notes are integral part of these condensed financial statements
3
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PACIFIC RESEARCH & ENGINEERING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 4,232,654 $ 3,987,781
Cost of sales 2,507,587 2,843,603
----------- -----------
Gross profit 1,725,067 1,144,178
----------- -----------
Operating expenses:
General and administrative 573,798 422,997
Selling and marketing 570,449 650,235
Research and development 306,398 297,779
Depreciation and amortization 106,947 98,864
----------- -----------
Total operating expenses 1,557,592 1,469,875
----------- -----------
Operating income (loss) 167,475 (325,697)
----------- -----------
Other expense:
Interest expense (76,413) (28,420)
Other expense, net (813) (26,327)
----------- -----------
(77,226) (54,747)
----------- -----------
Income (loss) before income tax expense 90,249 (380,444)
Income tax expense -- (800)
----------- -----------
Net income (loss) $ 90,249 $ (381,244)
=========== ===========
Net income (loss) per common share:
Basic $ 0.04 $ (0.16)
Diluted $ 0.04 $ (0.16)
Weighted average common shares:
Basic 2,305,500 2,305,500
Diluted 2,305,500 2,305,500
</TABLE>
The accompanying notes are integral part of these condensed financial statements
4
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PACIFIC RESEARCH & ENGINEERING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 90,249 $(381,244)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 106,947 98,864
Change in unrealized loss on sale of
investment in securities -- (16,362)
Changes in operating assets and liabilities:
Accounts receivable (362,884) (699,888)
Costs and estimated earnings in excess of
billings on uncompleted contracts -- 456,139
Inventories 322,549 (4,843)
Prepaid expenses (18,520) 123,256
Deposits and other assets (78,095) (131,237)
Accounts payable and accrued expenses 29,505 496,301
Customer advances (402,863) (80,510)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (313,112) (139,524)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (20,539) (111,348)
Proceeds from sale of investments in securities -- 183,175
Increase in capitalized software -- (233,023)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (20,539) (161,196)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft -- (28,658)
Net borrowings (repayments) on line of credit 65,753 (410,000)
Borrowings under bank term loan -- 750,000
Payments on bank term loan (43,333) (10,122)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,420 301,220
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (311,231) 500
Cash and Cash Equivalents, Beginning of Period 320,656 --
--------- ---------
Cash and Cash Equivalents, End of Period $ 9,425 $ 500
========= =========
</TABLE>
The accompanying notes are integral part of these condensed financial statements
5
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PACIFIC RESEARCH & ENGINEERING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed interim financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. These condensed interim financial statements should be read
in conjunction with the Company's audited financial statements and notes
thereto included in its Annual Report on Form 10-KSB for the year ended
December 31, 1998. In the opinion of management, these interim condensed
financial statements contain all adjustments (consisting of normal
recurring entries) which are necessary for a fair and accurate
presentation of financial position at March 31, 1999 and the results of
operations and cash flows for the three month period then ended. Interim
results are not necessarily indicative of those to be expected for the
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. COMMITMENTS AND CONTINGENCIES
The Company has incurred net losses and negative cash flows from
operations for each of the last three fiscal years ended December 31,
1998, 1997 and 1996. As of March 31, 1999, the Company has a working
capital deficit of $2,339,000 and a shareholders' deficit of $191,000.
Additionally, the Company has been notified that it is in default of
certain financial covenants under its line of credit and term loan
agreements and the Company's bank has elected to freeze the line of
credit at $2,175,000 total outstanding principal. Furthermore, due to
the covenant violations, the loans under both the agreements are
potentially callable by the bank. As such, the entire outstanding
balances of both the line of credit and the term loan are reflected in
current liabilities.
In this regard, management is currently working with its bank to
obtain a covenant waiver or forbearance agreement, and to renegotiate
covenants and terms for its line of credit and term loan agreements.
Management anticipates that its bank will make a determination by the
end of the second fiscal quarter of 1999. Although management believes
that the covenant violations can be resolved on terms acceptable to the
Company, there is no assurance that such resolution will occur. During
this period, the Company will be solely dependent upon cash flows from
operations for its working capital requirements. Management currently
expects, and is operating under the assumption that its cash flows from
operations will be sufficient to allow the Company to meet its
obligations in the normal course of business. Management also believes
that it may be necessary to seek additional debt or equity financing in
addition to resolving the covenant violations with its bank. The Company
is currently investigating other forms of additional debt or equity
financing. The sale of additional equity or convertible debt securities
could result in dilution to existing shareholders. There can be no
assurance that cash flows from operations will be sufficient or that
additional financing will be available on terms acceptable to the
Company, if at all.
The Company's current financial condition and uncertainties as
described above, raise doubt about the Company's ability to continue as
a going concern. The accompanying financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
The Company currently has a commitment to purchase an aircraft at an
estimated cost of $1,600,000, payable upon delivery in 2001.
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3. LINE OF CREDIT AND BANK TERM LOAN
Borrowings outstanding under the line of credit and bank term loan
bear interest at the bank's prime lending rate plus .25% (8.5% at March
31, 1999) and are secured by substantially all of the Company's assets.
The line of credit expires in October 1999. The term loan is payable in
consecutive monthly installments of $10,833 plus interest. As of
December 31, 1998 and March 31, 1999, the Company was in violation of
certain of the financial covenants under these loan agreements, and the
amount available under the line has been frozen by the bank at the
amount outstanding as of March 31, 1999. Management is currently in
discussions with its bank to reach an accommodation. However, there is
no assurance that such accommodation will be reached. As a result of the
covenant violations, the entire balance of the term loan is reflected in
current liabilities.
4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Raw materials $1,145,438 $1,005,585
Work-in-process 413,321 352,171
Finished goods 733,139 1,256,691
---------- ----------
$2,291,898 $2,614,447
========== ==========
</TABLE>
5. NET INCOME (LOSS) PER COMMON SHARE
The computation of basic net income (loss) per common share is based
on the weighted average number of common shares outstanding for the
period. Diluted earnings per share includes any dilutive effects of
outstanding stock options and warrants. For the three months ended March
31, 1999, there were no dilutive stock options or warrants outstanding
to include in the calculations of diluted earnings per share. Due to the
net loss reported for the three months ended March 31, 1998, the effect
of stock options and warrants outstanding has been excluded from the
diluted earnings per share calculation as their inclusion would be
anti-dilutive.
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Cash paid for:
Interest $79,597 $29,777
Income taxes $ 800 $40,000
</TABLE>
7. SEGMENT INFORMATION
The Company operates in one industry segment: the design,
manufacture, marketing and support of high quality broadcast products
for use in radio broadcast studios. The Company has no operations or
assets located outside of the United States and export sales represented
less than 10% of net sales in the three month periods ending March 31,
1999 and 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking Information - General
The following discussion should be read in conjunction with the condensed
financial statements and related condensed notes included elsewhere herein. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future.
Statements used in this discussion that relate to future plans, events,
financial results or performance are forward-looking statements as defined under
the Private Securities Litigation Reform Act of 1995. These statements include
the words "anticipates," "believe," "expect," "intends," "future," "may,"
"planned," and similar expressions including statements regarding future
personnel levels, investment in product development, potential sources of
liquidity, and sufficiency of cash flows from operations to meet obligations.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
those anticipated including those set forth under "Factors That May Affect
Future Results" included in the Management's Discussion and Analysis of
Financial Condition and Results of Operations. Readers are cautioned not to
place undue reliance on the forward-looking statements contained herein, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements or to reflect events or
circumstances that may arise after the date hereof.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
certain items in the Company's condensed statements of operations for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
---------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 59.3% 71.3%
----- -----
Gross profit 40.7% 28.7%
Expenses:
General and
administrative 13.6% 10.6%
Selling and marketing 13.5% 16.3%
Research and
development 7.2% 7.5%
Depreciation and
amortization 2.5% 2.5%
----- -----
Total operating
expenses 36.8% 36.9%
Income (loss) from
operations 3.9% (8.2)%
----- -----
Other expenses:
Interest expense (1.8)% (0.7)%
Other expense, net -- (0.7)%
----- -----
Total other expense,
net (1.8)% (1.4)%
Income (loss)before
income taxes 2.1% (9.6)%
Provision for income
taxes -- --
----- -----
Net income (loss) 2.1% (9.6)%
</TABLE>
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<PAGE> 9
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Net sales for the three months ended March 31, 1999 were $4.2 million, an
increase of 6.1% over net sales of $4.0 million for the three months ended March
31, 1998. The increase in net sales resulted primarily from higher unit sales as
the Company benefited from demand for turnkey studio design and integration
projects, which incorporate the Company's audio products, technical studio
cabinetry and specialized facilities engineering services. Net sales to
customers within the United States for the first quarter of 1999 compared to the
first quarter of 1998 were approximately 94% and 93%, respectively.
Gross margin was 40.7% and 28.7% for the three months ended March 31, 1999 and
1998, respectively. The increase in gross margin for the three months ended
March 31, 1999 was primarily due to higher margins achieved from improved
manufacturing efficiency as compared to the previous year's first quarter. The
gross margin for the first quarter of 1998 reflected higher labor costs
associated with production inefficiencies on certain large systems contracts.
General and administrative expenses increased 35.6% to $574,000 for the first
three months of 1999 from $423,000 for the first three months of 1998. This
increase is primarily due to salary and benefit related costs for added
personnel as well as higher costs incurred for recruitment, legal and accounting
services. In addition to the hiring of a new President in June 1998, during the
first quarter of 1999, the Company added a director of human resources and a
controller, two positions that did not exist one year ago. Although management
believes that the majority of its hiring in the general and administrative area
is complete, these expenses as a percentage of sales may vary in future periods.
Selling and marketing expenses decreased 12.2% to $570,000 for the first three
months of 1999 from $650,000 for the first three months of 1998. This decrease
is primarily due to a reduction in media relations and marketing expenses,
partially offset by higher salary and benefit related costs due to sales staff
additions. Management anticipates that additional sales and sales support
personnel may be required to manage the activities associated with the Company's
increased focus on systems integration and the increased number of value-added
distributors, end-user customers and new products. In addition, although the
timing and amount of spending for marketing activities may vary throughout the
year, a significant portion of these expenses are recognized in the second and
third fiscal quarters of the year due to attendance at industry trade shows.
Research and development expenses increased 2.9% to $306,000 for the first three
months of 1999 from $298,000 for the first three months of 1998. In the first
quarter of 1999, there were no software development costs incurred which were
required to be capitalized in accordance with SFAS 86. In the first quarter of
1998, the Company capitalized $233,000 in software development costs. Management
believes that continued investment in product development is critical to
attaining its strategic objectives, and as a result, expects product development
expenses to increase in absolute dollars.
Interest expense increased by $48,000 to $76,000 for the first three months of
1999 compared to $28,000 for the first three months of 1998. This increase is
the result of higher average borrowings outstanding under the Company's bank
line of credit and term loan agreements.
Due to the factors as described above, the Company reported net income of
$90,000 for the first three months of 1999 compared to a net loss of $381,000
for the first three months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's recent working capital and capital expenditure requirements have
been financed using the bank credit facility and term loan financing. Since the
initial public offering in 1996, the Company has incurred significant product
development costs and has hired personnel to support the Company's operations.
Additionally, the Company has substantially increased its sales and customer
support staff in order to broaden its domestic market presence and gain entry
into foreign markets. As a result of these factors, the Company's internally
generated cash flow has not been sufficient to finance operations.
As of March 31, 1999 and December 31, 1998, the Company was in violation of
certain financial covenants with respect to the bank line of credit and term
loan agreement. Specifically, due to net losses incurred, the Company's tangible
net worth is below the minimum requirement of $2,400,000. Additionally, the
Company does not meet certain financial
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ratios including a leverage ratio of not more than 2.5:1; a debt service
coverage ratio of not less than 1.25:1; and a trading ratio of not less than
1.15:1. As a result of the covenant violations, the bank has notified the
Company that it is in default of the loan agreements and elected to freeze the
line of credit at $2,175,000 total outstanding principal. Furthermore, the
entire balance of the bank term loan is reflected as a current liability.
As of March 31, 1999, the Company's principal source of liquidity is its planned
cash flows from operations. Borrowings outstanding under the line of credit were
$2,175,000 as of March 31, 1999, representing the maximum available borrowings
against the line. The Company has a working capital deficit of $2,339,000 as of
March 31, 1999 compared to a working capital deficit of $2,438,000 as of
December 31, 1998.
Cash used in investing activities of $20,000 for the three months ended March
31, 1999 related to expenditures for capital equipment. The Company currently
has no significant capital commitments to support its operating requirements for
the next twelve months other than commitments under facilities and other
operating leases.
As a result of the Company's past operating losses and liquidity pressures there
is a risk that the Company may not have the ability to maintain its operations
at its current levels or expand its market presence. If cash generated from
operations is insufficient to satisfy the Company's liquidity requirements, the
Company may seek to sell additional equity or debt securities to satisfy its
business plan. In this regard, management is currently working with its bank to
obtain a covenant waiver or forbearance agreement, and to renegotiate covenants
and terms for its line of credit and term loan agreements. Management
anticipates that its bank will make a determination by the end of the Company's
second fiscal quarter of 1999. Although management believes that the covenant
violations can be resolved on terms acceptable to the Company, there is no
assurance that such resolution will occur. During this period, the Company will
be solely dependent upon cash flows from operations for its working capital
requirements. Management currently expects, and is operating under the
assumption that its cash flows from operations will be sufficient to allow the
Company to meet its obligations in the normal course of business. Management
also believes that it may be necessary to seek additional debt or equity
financing in addition to resolving the covenant violations with its bank
agreements. The Company is currently investigating other forms of additional
debt or equity financing. The sale of additional equity or convertible debt
securities could result in dilution to existing shareholders. There can be no
assurance that such financing will be available on terms acceptable to the
Company, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has experienced net losses in each of the last three fiscal years.
There can be no assurance that the Company will be able to operate profitably on
a quarterly or annual basis in the future or sustain such profitability when
achieved. As of March 31, 1999 the Company had a working capital deficit of
$2,339,000 and a shareholders' deficit of $191,000. As a result of net losses
and the shareholders' deficit, the Company has been notified by its bank that it
is in default for the failure to meet and maintain the financial covenants with
respect to its bank line of credit and term loan agreements. In addition, based
upon these financial results, the Company has fallen below the continued listing
requirements of the American Stock Exchange. There can be no assurance that the
Company will be able to maintain its listing.
The radio broadcast equipment market is competitive, and as such, the Company's
growth is dependent upon its ability to develop a market presence with middle
and small market broadcasters, broaden its product offerings, enhance its
existing products and introduce new products on a timely basis. There can be no
assurance that the Company will successfully expand its market presence and
develop and bring new products to the market in a timely manner or that such
products will be desired by the market. The Company's ability to pursue its
business plan is dependent on its ability to maintain adequate financing.
The Company anticipates that it will continue efforts to expand into third party
or indirect distribution channels. Sales from these channels generally result in
lower gross margins.
The Company typically operates with a relatively small backlog. Customers
generally order on an "as needed" basis and the Company normally ships products
within a relatively short period of time after receipt of order. However, delays
in shipment may occur due to customer-driven changes to specifications and
delivery dates which are outside of the control of the Company. As a result,
quarterly sales and operating results generally depend on the volume, timing and
ability to
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<PAGE> 11
fulfill orders received within the quarter, which are difficult to forecast.
Additionally, quarterly sales and operating results may vary depending on the
proportion of sales represented by large studio integration projects as a
percentage of total sales in a quarterly period. Also, the Company is attempting
to expand its sales into international markets, through third-party distributors
and integrators. Accordingly, the Company is dependent on the efforts of these
independent organizations to sell the Company's products. The results of
operations for any quarter are not necessarily indicative of the results to be
expected for any future period. A significant portion of the Company's operating
expenses are relatively fixed, and planned expenditures are based primarily on
sales forecasts. As a result, if sales generated in the quarterly period do not
meet the Company's forecast, operating results may be materially adversely
affected.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have time sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in miscalculations or failures in
the information systems and/or manufacturing equipment. Such instances could
cause disruption of normal business activities. The Company has completed a
review of its own products and believes they are Year 2000 compliant. These
products are used in connection with other software programs, operating systems
or hardware which may contain Year 2000 issues and disrupt the use of the
Company's products. There can be no assurance that such disruption would not
negatively impact costs and sales in future years.
The Company has completed a review and assessment of its major internal
management information systems and believes they are Year 2000 compliant. The
Company is in communication with its significant suppliers and customers to
determine the extent to which the Company is vulnerable to any third party's
failure to remedy their own Year 2000 issues. To date, the Company is not aware
of any such suppliers or customers with a Year 2000 issue that could have a
material adverse effect on the Company's business, financial condition and
operating results. The Company could be adversely affected if its significant
suppliers or customers are unable to complete their Year 2000 resolution in a
timely fashion. The ultimate effect of non-compliance by these parties is not
determinable. To date, costs related to Year 2000 issues have not been material.
11
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits listed on the accompanying index immediately
following the signature page are filed as part of this report.
(b) Reports on Form 8-K - Other Events, restatement of earnings,
filed March 29, 1999
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PACIFIC RESEARCH & ENGINEERING CORP.
By /s/ Blake F. Clark
-----------------------------------------
Blake F. Clark
Chief Financial Officer and
Principal Accounting Officer
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EXHIBIT INDEX
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Warrant Agreement(1)
4.2 Warrant Certificate(1)
4.3 Stock Certificate(1)
4.4 Unit Certificate(1)
10.1 Lease Agreement dated May 9, 1995(1)
10.2 Sublease Agreement dated May 9, 1995 by and between the Registrant and
Pacific Metal Fabricators(1)
10.3 Employment Contract by and between the Registrant and Jack Williams
(1)(5)
10.6 Employment Contract by and between the Registrant and David Pollard
(1)(5)
10.7 1996 Omnibus Stock Plan and form of Stock Option Agreement thereunder
(1)(5)
10.8 Asset Purchase Agreement between the Registrant and Pacific Metal
Fabricators, Inc.(1)
10.9 Employment Contract by and between the Registrant and Susan Dingethal
(2)(5)
10.10 Employment Contract by and between the Registrant and Donald Naab(3)(5)
10.11 Lease Agreement dated December 19, 1997(3)
10.12 Line of Credit Facility by and between the Registrant and Union Bank
dated March 11, 1998(3)
10.13 Line of Credit and Note Payable between the Registrant and Imperial Bank
dated October 5, 1998(4)
27.1 Financial Data Schedule
- ----------------------------
(1) Previously filed as an exhibit to the Company's Form SB-2, file no.
333-858-LA, and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Form 10-QSB, September
30, 1997, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Form 10-QSB, June 30,
1998, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Form 10-QSB, September
30, 1998, and incorporated herein by reference.
(5) Executive Compensation Plans and Agreements.
13
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