<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, 1997
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 5, 1997.
3,409,870 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 Income
c) Consolidated Condensed Statements of Cash Flows
d) Notes to Consolidated Condensed Financial Statements
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<PAGE> 3
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(Unaudited) (See note below)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,154,743 $1,029,666
Accounts receivable 411,415 421,769
Inventories:
Raw materials 273,763 254,238
Work-in-process 73,985 175,003
Finished goods 112,825 151,300
---------- ----------
460,573 580,541
Other current assets 52,409 48,418
---------- ----------
Total current assets 2,079,140 2,080,394
Plant and equipment, net 64,608 29,413
Other assets 5,810 48,987
---------- ----------
TOTAL ASSETS $2,149,558 $2,158,794
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 133,227 $ 167,602
Due to officer - 6,872
Accrued expenses 40,156 48,712
Accrued royalties - 193,932
---------- ----------
Total current liabilities 173,383 417,118
Shareholders' equity:
Common stock 34,009 34,009
Additional paid-in capital 3,147,151 3,147,151
Cumulative translation
adjustment 93,342 108,625
Accumulated deficit (1,298,327) (1,548,109)
---------- ----------
1,976,175 1,741,676
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,149,558 $2,158,794
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1996 has been taken from the audited
financial statements at that date.
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30 ended June 30
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 683,373 $ 519,698 $ 1,145,214 $ 1,116,779
Cost of sales 329,238 257,812 568,363 566,410
----------- ----------- ----------- -----------
354,135 261,886 576,851 550,369
Other operating expenses 191,183 198,467 347,123 363,929
----------- ----------- ----------- -----------
Income from
operations 162,952 63,419 229,728 186,440
Other income (10,338) (7,762) (20,054) (15,766)
----------- ----------- ----------- -----------
Net income before taxes 173,290 71,181 249,782 202,206
Provision for income taxes 0 0 0 0
----------- ----------- ----------- -----------
Net income $ 173,290 $ 71,181 $ 249,782 $ 202,206
=========== =========== =========== ===========
Net income per
common and common
equivalent share $ .05 $ .02 $ .07 $ .06
=========== =========== =========== ===========
Average number
of common shares and
common equivalent
shares outstanding 3,561,465 3,647,389 3,568,193 3,598,141
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30
-------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 249,782 $ 202,206
Adjustments to reconcile
net income to net cash
used in operations:
Depreciation and amortization 53 (1,643)
Change in assets and
liabilities, net: (89,511) 66,906
----------- -----------
Net cash provided by
operating activities 160,324 267,469
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property
and equipment (35,247) (43,361)
----------- -----------
Net cash used in
investing activities (35,247) (43,361)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants - 4,999
----------- -----------
Net cash provided by financing activities - 4,999
NET INCREASE IN CASH 125,077 229,107
----------- -----------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,029,666 772,006
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,154,743 $ 1,001,113
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
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, 1997 and the results of their operations
for the three and six months ended June 30, 1997 and June 30, 1996 and their
cash flows for the six months ended June 30, 1997 and June 30, 1996.
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 June 30, 1997 or 1996.
Cost of sales for such periods was calculated primarily using standard cost
methods.
4. In February, 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which the Company will adopt in the fourth quarter of 1997. Had SFAS
No. 128 been effective for the quarters ended June 30, 1997 and June 30, 1996,
basic and diluted earnings per share under SFAS 128 would have been
approximately the same as the reported income per share.
5. The results of operations for the three and six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full year.
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<PAGE> 7
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, 1997, the Company had cash and cash equivalents of $1,154,743 and
working capital of $1,905,757. Working capital has increased since December 31,
1996 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, 1996 because of these profitable operations.
The Company expects to maintain a sound financial base for the balance of fiscal
1997. 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, 1997 VERSUS THREE MONTHS ENDED
JUNE 30, 1996
Sales in the second quarter of 1997 increased 32% over the sales posted in the
second quarter of 1996. The 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 increased over those seen in 1996
(from 50% in 1996 to 52% in 1997). This occurred due to a change in the product
mix. It should be noted that pricing is continuing to remain firm on all
products.
Operating expenses were slightly lower in the three months ended June 30, 1997
versus the three months ended June 30, 1996. Management does not anticipate any
significant increases in its operating expenditures during the balance of 1997.
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 June 30, 1997 owing to
the Company's ability to use net operating loss carryforwards in both the U.S.
and U.K.
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<PAGE> 8
Net income for the quarter was $173,290 or $.05 per share. This is substantially
greater than that seen in the second quarter of 1996 and reflects the continued
demand for the Company's products.
FINANCIAL RESULTS - SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE
30, 1996
Sales in the six months ended June 30, 1997 increased slightly over those seen
in the six months ended in June 30, 1996. This increase is attributable to the
Company being able to maintain a consistent level of sales in 1997.
The Company's margins for the year-to-date period are slightly more than those
of last year. This occurred due to a change in the product mix.
Operating expenses were slightly lower for the six months ended June 30, 1997
versus the six months ended June 30, 1996. Management also does not anticipate
any significant increases in its operating expenditures during the balance of
1997. 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, 1997 owing to
the Company's ability to use net operating loss carryforwards in both the U.S.
and U.K.
Net income for the six months was $249,782 or $.07 per share, representing an
increase of 24% over the 1996 period. This is a substantial improvement over the
first six months of 1996 and is attributable to the factors described above.
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, government regulation,
competition and general economic conditions.
-8-
<PAGE> 9
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which
the Company will adopt in the fourth quarter of 1997. Had SFAS No. 128 been
effective for the quarters ended March 31, 1997 and March 31, 1996, basic and
diluted earnings per share under SFAS 128 would have been the same as the
reported income per share.
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<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 22, 1997,
the following members were elected to the Board of Directors:
- --------------------------------------------------------------------------------
Votes Votes
For Withheld
- --------------------------------------------------------------------------------
Ralph E. Hanson 2,851,191 4,000
George F. Harrington 2,851,191 4,000
Derrick Ebden 2,851,191 4,000
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
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<PAGE> 11
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 13, 1997 RALPH E. HANSON
----------------- -------------------------------
Ralph E. Hanson, President
and Chief Executive Officer
(principal executive officer)
Date: August 13, 1997 RALPH E. HANSON
----------------- -------------------------------
Ralph E. Hanson, Chief
Financial Officer
(principal financial officer)
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<PAGE> 1
EXHIBIT 11
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CALCULATION OF PRIMARY EARNINGS
PER SHARE
Net Income $ 173,290 $ 71,181 $ 249,782 $ 202,206
---------- ---------- ---------- ----------
Number of shares:
Weighted average shares
outstanding 3,400,850 3,394,183 3,400,850 3,390,850
Incremental shares for
outstanding stock options
and warrants 160,615 253,206 167,343 207,291
---------- ---------- ---------- ----------
Total shares outstanding for
purpose of earnings per share
computation 3,561,465 3,647,389 3,568,193 3,598,141
---------- ---------- ---------- ----------
Income per share as calculated $ .05 $ .02 $ .07 $ .06
---------- ---------- ---------- ----------
CALCULATION OF FULLY DILUTED
EARNINGS PER SHARE
Net Income $ 173,290 $ 71,181 $ 249,782 $ 202,206
---------- ---------- ---------- ----------
Number of shares:
Weighted average shares
outstanding 3,400,850 3,394,183 3,400,850 3,390,850
Incremental shares for
outstanding stock options
and warrants 160,615 253,206 167,343 207,291
---------- ---------- ---------- ----------
Total shares outstanding for
purpose of earnings per share
computation 3,561,465 3,647,389 3,568,193 3,598,141
---------- ---------- ---------- ----------
Income per share as calculated $ .05 $ .02 $ .07 $ .06
---------- ---------- ---------- ----------
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,154,743
<SECURITIES> 0
<RECEIVABLES> 411,415
<ALLOWANCES> 0
<INVENTORY> 460,573
<CURRENT-ASSETS> 2,079,140
<PP&E> 64,608
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,149,558
<CURRENT-LIABILITIES> 173,383
<BONDS> 0
0
0
<COMMON> 1,976,175
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,149,558
<SALES> 1,145,214
<TOTAL-REVENUES> 1,145,214
<CGS> 568,363
<TOTAL-COSTS> 568,363
<OTHER-EXPENSES> 347,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 249,782
<INCOME-TAX> 0
<INCOME-CONTINUING> 249,782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249,782
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
