<PAGE> 1
FORM 10-QSB
Securities and Exchange Commission
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
----------------------------
OR
[ ] 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 registrant as specified in its charter)
Massachusetts 04-2867416
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
391 Totten Pond Road, Waltham, Massachusetts 02154
--------------------------------------------------
(Address of principal executive offices)
(617) 890-5656
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (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 X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 14, 1996.
3,401,770 shares of Common Stock, par value $.01 per share
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
a) Consolidated Condensed Balance Sheets
b) Consolidated Condensed Statements of Operations
c) Consolidated Condensed Statements of Cash Flows
d) Notes to Consolidated Condensed Financial Statements
-2-
<PAGE> 3
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited) (See note below)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 976,040 $ 772,006
Accounts receivable 417,683 380,781
Inventories:
Raw materials 327,515 297,247
Work-in-process 120,742 96,782
Finished goods 72,274 114,039
---------- ----------
520,531 508,068
Other current assets 49,572 45,489
---------- ----------
Total current assets 1,963,826 1,706,344
Plant and equipment, net 60,295 25,534
Other assets 6,525 47,832
---------- ----------
TOTAL ASSETS $2,030,646 $1,779,710
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 112,652 $ 149,450
Accrued expenses 57,847 54,634
Accrued royalties 187,641 165,664
---------- ----------
Total current liabilities 358,140 369,748
Excess of acquired net
assets over purchase price 3,666 14,656
</TABLE>
-3-
<PAGE> 4
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited) (See note below)
<S> <C> <C>
Shareholders' equity:
Common stock 33,809 33,809
Additional paid-in capital 3,142,351 3,137,351
Cumulative translation
adjustment 60,212 57,081
Accumulated deficit (1,567,532) (1,832,935)
----------- -----------
1,668,840 1,395,306
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,030,646 $ 1,779,710
=========== ===========
<FN>
Note: The balance sheet at December 31, 1995 has been taken from the audited
financial statements at that date.
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE> 5
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For the three months For the nine months
ended September 30 ended September 30
------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 471,519 $ 441,832 $1,588,298 $1,222,298
Cost of sales 262,920 222,378 829,330 581,783
---------- ---------- ---------- ----------
208,599 219,454 758,968 640,515
Other operating expenses 153,432 162,719 517,361 483,346
---------- ---------- ---------- ----------
Income from operations 55,167 56,735 241,607 157,169
Other income (8,030) (8,560) (23,796) (22,867)
---------- ---------- ---------- ----------
Net income $ 63,197 $ 65,295 $ 265,403 $ 180,036
========== ========== ========== ==========
Net income per
common and common
equivalent share $ .02 $ .02 $ .07 $ .05
========== ========== ========== ==========
Average number of
common and common
equivalent shares
outstanding 3,632,404 3,387,600 3,565,976 3,387,600
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE> 6
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
----------------------
SEPTEMBER 30
----------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $265,403 $ 180,036
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization (2,699) (1,456)
Change in assets and liabilities, net: (21,330) (160,595)
-------- ---------
Net cash provided by operating activities 241,374 17,985
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment 42,340 47,711
-------- ---------
Net cash used in investing activities 42,340 47,711
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options and warrants 5,000 0
-------- ---------
Net cash provided by financing activities 5,000 0
NET INCREASE (DECREASE) IN CASH 204,034 (29,726)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $772,006 $ 781,110
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $976,040 $ 751,384
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-6-
<PAGE> 7
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED 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, 1996, and the results of their
operations for the three and nine months ended September 30, 1996 and 1995, and
their cash flows for the nine months ended September 30, 1996 and 1995.
3. The Company prepares its financial information using the same accounting
principles as for its annual financial statements with the following
modifications:
a. No physical inventories were taken during either of the periods ended
September 30, 1996 or 1995. Cost of sales for such periods was calculated
primarily using standard cost methods.
4. The Company has adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in the current
quarter. This adoption had no impact on the current quarter's financial
statements. The Company has also elected to continue to apply the measurement
provisions of APB 25, "Accounting for Stock Issued to Employees", in lieu of
adopting those described in SFAS 123, "Accounting for Stock-Based Compensation".
5. The results of operations for the three and nine months ended September 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year.
-7-
<PAGE> 8
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, 1996, the Company had cash and cash equivalents of $976,040
and working capital of $1,605,686. The working capital increase from the
position at December 31, 1995 is attributable almost entirely to the nine months
profit from operations of $265,403. The Company's cash flows have historically
tracked its operational results. Accordingly, the Company's working capital
position as of September 30, 1996 shows a marked improvement over that seen as
of December 31, 1995.
The Company still maintains a sound financial base for fiscal 1996.
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, 1996 VERSUS THE THREE
MONTHS ENDED SEPTEMBER 30, 1995
Sales in the third quarter of 1996 increased approximately 7% over sales posted
in the third quarter of 1995. This increase is attributable to the Company's
ability to ship production units of its new dual-chamber pacing analyzer and to
increase its sales in the international marketplace.
The Company's margins in the third quarter are slightly lower than those seen in
1995. They reflect a slight change in product mix which included increased sales
of the Company's newly introduced pacing analyzer. In addition, production costs
are expected to decrease as production efficiencies are realized; and, it should
be noted that pricing is continuing to remain firm on the product.
Operating expenses remained relatively flat between 1996 and 1995. This relative
stability reflects management's commitment to contain costs. Also, management
does not anticipate any significant increases in its operating expenditures
during the balance of 1996. This level will also suffice to maintain the
Company's research and development efforts in developing new products in the
temporary pacing field.
-8-
<PAGE> 9
There are no taxes provided for on the financial statements because of the
presence of net operating loss carryforwards in the U.S. and U.K.
The net profit for the quarter was $63,197 or $.02 per share in contrast to a
net profit of $65,295 or $.02 per share in the third quarter of 1995.
FINANCIAL RESULTS - NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS THE NINE MONTHS
ENDED SEPTEMBER 30, 1995
Sales in the nine months ended September, 1996 increased slightly over those
seen in the nine months ended in September, 1995. This increase is attributable
to the Company increasing sales of its newly introduced pacing analyzer in 1996.
The Company's sales pace for the remainder of 1996 should continue to meet that
seen in the first nine months of the year owing primarily to the increase in
orders for its new dual-chamber pacing analyzer.
The Company's cost of sales margins for the year-to-date are running slightly
lower than those of last year due to increased production start-up costs
concerning the newly introduced pacing analyzer. Increased product volumes
should continue to increase the margins since the Company does have a cost
structure that will reward higher production volumes. It should be noted that
pricing is continuing to remain firm on the products offered by the Company.
Operating expenses remained relatively flat between 1996 and 1995. This relative
stability reflects management's commitment to contain costs. Management also
does not anticipate any significant increases in its operating expenditures
during the balance of 1996. This level will also suffice to maintain the
Company's research and development efforts in developing new products in the
temporary pacing field.
There are no taxes provided for on the financial statements because of the
presence of net operating loss carryforwards in the U.S. and U.K.
The net profit for the year has increased to $.07 per share from a net profit of
$.05 per share in 1995. Management believes that the sales increase has improved
operations significantly.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 11. Statement re: computation of per share earnings
27. Financial Data Schedule
(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 18, 1996 /s/ RALPH E. HANSON
--------------------------
Ralph E. Hanson, President
and Principal Executive Officer
Date: November 18, 1996 /s/ RALPH E. HANSON
--------------------------
Ralph E. Hanson, Principal
Financial and Accounting
Officer
-10-
<PAGE> 1
EXHIBIT 11
<TABLE>
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
For the three For the three For the nine For the nine
months months months months
ended ended ended ended
September 30, September 30, September 30, September 30,
Primary Fully diluted Primary Fully diluted
<S> <C> <C> <C> <C>
Weighted average
shares
outstanding 3,385,805 3,385,805 3,385,805 3,385,805
Dilutive effect of
common stock
equivalents 246,599 246,599 180,171 246,599
Weighted average
common and common
equivalent shares
outstanding 3,632,404 3,632,404 3,565,976 3,632,404
=====================================================================
Net Income $63,197 $63,197 $265,403 $265,403
=====================================================================
Net income per
common share $ 0.02 $ 0.02 $ 0.07 $ 0.07
=====================================================================
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 976,040
<SECURITIES> 0
<RECEIVABLES> 417,683
<ALLOWANCES> 0
<INVENTORY> 520,531
<CURRENT-ASSETS> 1,963,826
<PP&E> 60,295
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,030,646
<CURRENT-LIABILITIES> 358,140
<BONDS> 0
<COMMON> 1,668,840
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,030,646
<SALES> 1,588,298
<TOTAL-REVENUES> 1,588,298
<CGS> 829,330
<TOTAL-COSTS> 829,330
<OTHER-EXPENSES> 517,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 265,403
<INCOME-TAX> 0
<INCOME-CONTINUING> 265,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265,403
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
