<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 June 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 small business issuer 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
--------------------------
(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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 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>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(Unaudited) (See note below)
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,001,113 $ 772,006
Accounts receivable 389,676 380,781
Inventories:
Raw materials 220,219 297,247
Work-in-process 185,297 96,782
Finished goods 84,553 114,039
---------- ----------
490,069 508,068
Other current assets 47,150 45,489
---------- ----------
Total current assets 1,928,008 1,706,344
Plant and equipment, net 63,685 25,534
Other assets 6,764 47,832
---------- ----------
TOTAL ASSETS $1,998,457 $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.
-3-
<PAGE> 4
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(Unaudited) (See note below)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 156,221 $ 149,450
Accrued expenses 42,138 54,634
Accrued royalties 186,660 165,664
----------- -----------
Total current liabilities 385,019 369,748
Excess of acquired net
assets over purchase price 7,330 14,656
Shareholders' equity:
Common stock 33,909 33,809
Additional paid-in capital 3,142,250 3,137,351
Cumulative translation
adjustment 60,678 57,081
Accumulated deficit (1,630,729) (1,832,935)
----------- -----------
1,606,108 1,395,306
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,998,457 $ 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 six months
ended June 30 ended June 30
---------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $519,698 $416,006 $1,116,779 $780,466
Cost of sales 257,812 189,509 566,410 359,405
-------- -------- ---------- --------
261,886 226,497 550,369 421,061
Other operating expenses 198,467 161,009 363,929 320,627
-------- -------- ---------- --------
Income from operations 63,419 65,488 186,440 100,434
Other income (7,762) (7,590) (15,766) (14,307)
-------- -------- ---------- --------
Net income $ 71,181 $ 73,078 $ 202,206 $114,741
======== ======== ========== ========
Net income per
common and common
equivalent share $ .02 $ .02 $ .06 $ .03
======== ======== ========== ========
Average number of
common shares and
common equivalent
shares outstanding 3,647,389 3,387,600 3,598,141 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>
SIX MONTHS ENDED
----------------
JUNE 30
-------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 202,206 $ 114,741
Adjustments to reconcile
net income (loss) to net cash
used in operations:
Depreciation and amortization (1,643) 495
Change in assets and
liabilities, net: 66,906 (149,677)
---------- ---------
Net cash provided by (used in)
operating activities 267,469 (34,441)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property
and equipment 43,361 12,255
---------- ---------
Net cash used in
investing activities 43,361 12,255
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 4,999 --
---------- ---------
Net cash provided by financing activities 4,999 --
NET INCREASE (DECREASE) IN CASH 229,107 (46,696)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $ 772,006 $ 781,110
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $1,001,113 $ 734,414
========== =========
</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 June 30, 1996 and the results of their
operations for the three and six months ended June 30, 1996 and June 30, 1995
and their cash flows for the six months ended June 30, 1996 and June 30, 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
June 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 six months ended June 30, 1996
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 June 30, 1996, the Company had cash and cash equivalents of $1,001,113 and
working capital of $1,542,989. Working capital has increased since December 31,
1995 owing to the profitable operations of the Company over the first half of
the year. The Company's cash position has also increased significantly over
December 31, 1995 because of these profitable operations.
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 JUNE 30, 1996 VERSUS THREE MONTHS ENDED
JUNE 30, 1995
Sales in the second quarter of 1996 increased 25% over the sales posted in the
second quarter of 1995. The continued increase in sales reflects an increase in
market penetration by the Company's distributors and OEM accounts. A broader
base of products and increased customer awareness of the product offerings is
allowing this to happen.
The Company's margins in the second quarter decreased over those seen in 1995
(from 54% in 1995 to 50% in 1996). This occurred due to a change in the product
mix to the more sophisticated Pacing Analyzer, which is in a production
start-up phase. The analyzer margin is expected to increase as production
efficiency improves. It should be noted that pricing is continuing to remain
firm on all products.
Operating expenses were higher in the three months ended June 30, 1996 versus
the three months ended June 30, 1995. 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
No tax provision was recorded for the three months ended June 30, 1996 owing to
the Company's ability to use net operating loss carryforwards for federal, state
and foreign sourced income.
Net income for the quarter was $71,181 or $.02 per share. This is essentially
equivalent to that seen in the second quarter of 1995 and reflects the continued
demand for the Company's products.
FINANCIAL RESULTS - SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE
30, 1995
Sales in the six months ended June 30, 1996 increased 43% over those seen in the
six months ended in June 30, 1995. This increase is attributable to the Company
being able to maintain a consistent level of sales in 1996. In 1995, the Company
experienced a significant sales short-fall in the first three months of the
year.
The Company's margins for the year-to-date period are slightly less than those
of last year. This occurred due to a change in the product mix to the more
sophisticated Pacing Analyzer, which is in a production start-up phase. The
Analyzer margin is expected to increase as production efficiency improves.
Operating expenses were higher for the six months ended June 30, 1996 versus the
six months ended June 30, 1995. 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.
No tax provision was recorded for the six months ended June 30, 1996 owing to
the Company's ability to use net operating loss carryforwards for federal, state
and foreign sourced income.
Net income for the six months was $202,206 or $.06 per share. This is a
substantial improvement over the first six months of 1995 and is attributable to
the factors described above.
-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: August 19, 1996 RALPH E. HANSON
-------------------- ---------------------------------
Ralph E. Hanson, President
and Principal Executive Officer
Date: August 19, 1996 RALPH E. HANSON
-------------------- ---------------------------------
Ralph E. Hanson, Principal
Financial Officer
-10-
<PAGE> 1
Exhibit 11
<TABLE>
Statement re computation
of per share earnings
<CAPTION>
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1996
Primary Fully diluted Primary Fully diluted
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 3,385,805 3,385,805 3,385,805 3,385,805
Dilutive effect of common
stock equivalents 261,584 306,524 212,336 306,524
---------- ---------- ---------- ----------
Weighted average common
and common equivalent
shares outstanding 3,647,389 3,692,329 3,598,141 3,692,329
========== ========== ========== ==========
Net income $ 71,181 $ 71,181 $ 202,206 $ 202,206
========== ========== ========== ==========
Net income per common share $ 0.02 $ 0.02 $ 0.06 $ 0.06
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,011,113
<SECURITIES> 0
<RECEIVABLES> 389,676
<ALLOWANCES> 0
<INVENTORY> 490,069
<CURRENT-ASSETS> 1,928,008
<PP&E> 63,685
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,998,457
<CURRENT-LIABILITIES> 385,019
<BONDS> 0
<COMMON> 1,606,108
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,998,457
<SALES> 1,116,779
<TOTAL-REVENUES> 1,116,779
<CGS> 566,410
<TOTAL-COSTS> 566,410
<OTHER-EXPENSES> 363,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 202,206
<INCOME-TAX> 0
<INCOME-CONTINUING> 202,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,206
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
