<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 March 31, 1998
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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
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PACE MEDICAL, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2867416
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
391 Totten Pond Road, Waltham, Massachusetts 02154
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(Address of principal executive offices )
(781) 890-5656
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(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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 12, 1998.
3,390,870 shares of Common Stock, par value $.01 per share
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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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PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(Unaudited) (See note below)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,389,879 $ 1,318,652
Accounts receivable 262,511 416,897
Inventories:
Raw materials 280,857 235,464
Work-in-process 109,379 77,061
Finished goods 131,683 117,815
----------- -----------
521,919 430,340
Other current assets 63,314 43,208
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Total current assets 2,237,623 2,209,097
Plant and equipment, net 45,386 41,681
Other assets 40,203 41,080
----------- -----------
TOTAL ASSETS $ 2,323,312 $ 2,291,858
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 151,734 $ 129,509
Due to officer 0 7,110
Accrued expenses 40,942 26,619
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Total current liabilities 192,676 163,238
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Shareholders' equity:
Common stock 34,009 34,009
Additional paid-in capital 3,147,151 3,147,151
Cumulative translation
adjustment 110,554 102,899
Accumulated deficit (1,151,491) (1,155,439)
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2,140,223 2,128,620
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Less Treasury Stock, at Cost (9,687) 0
----------- -----------
Total Shareholders' Equity 2,130,536 2,128,620
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,323,212 $ 2,291,858
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1997 has been taken from the audited
financial statements at that date.
See accompanying notes to consolidated condensed financial statements.
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PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31
----------------------------
1998 1997
-------- --------
Net Sales $279,928 $461,841
Cost of sales 107,816 239,125
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172,112 222,716
Other operating expenses 179,341 155,940
-------- --------
Income from operations (7,229) 66,776
Other income 11,177 9,716
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Net income before taxes 3,948 76,492
Provision for income taxes 0 0
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Net income $ 3,948 $ 76,492
======== ========
Net Income per Share:
Basic $ .00 $ .02
======== ========
Diluted $ .00 $ .02
======== ========
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)
THREE MONTHS ENDED
----------------------------
MARCH 31
----------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,948 $ 76,492
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 6,138 (5,207)
Change in assets and
liabilities, net: 79,794 21,507
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Net cash provided by
operating activities 89,880 92,792
CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to property and equipment (8,966) (32,878)
CASH FLOW FROM FINANCING ACTIVITIES -
Purchase of treasury stock (9,687) 0
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NET INCREASE IN CASH $ 71,227 $ 59,914
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $1,318,652 $1,029,666
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $1,389,879 $1,089,580
========== ==========
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY
MARCH 31, 1998
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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. The accompanying unaudited consolidated
financial statements should be read in conjunction with the 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, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
and its wholly-owned subsidiary as of March 31, 1998 and December 31, 1997, and
the results of their operations for the three months ended March 31, 1998 and
March 31, 1997, and their cash flows for the three months ended March 31, 1998
and March 31, 1997.
3. The Company prepares its financial information using the same accounting
principles as those used in its annual financial statements, except that no
physical inventories were taken during the periods ended March 31, 1998 or 1997.
Cost of sales for such periods was calculated primarily using standard cost
methods.
4. The results of operations for the three months ended March 31, 1998 and 1997
are not necessarily indicative of the results to be expected for the full year.
5. The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" for purposes of presenting basic and diluted net
income per share and has restated all periods presented to conform to the new
presentation. The denominator used to determine basic net income per share
includes the weighted average common shares outstanding during the quarter. The
denominator used to determine diluted net income per share includes the shares
used in the calculation of basic net income per share plus dilutive weighted
average options outstanding during the period using the treasury-stock method.
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<PAGE> 7
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net Income $3,948
Weighted-average shares outstanding - 3,400,183
------ ---------
Basic net income per share $3,948 3,400,183 $0.00
=====
Effect of dilutive securities - 85,621
------ ---------
Diluted net income per share $3,948 3,485,804 $0.00
====== ========= =====
<CAPTION>
For the three months ended March 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net Income $76,492
Weighted-average shares outstanding - 3,400,850
------- ---------
Basic net income per share $76,492 3,400,850 $0.02
=====
Effect of dilutive securities - 188,819
------- ---------
Diluted net income per share $76,492 3,589,669 $0.02
======= ========= =====
</TABLE>
6. The Company has adopted the provisions of SFAS No. 130," Reporting
Comprehensive Income". Comprehensive Income includes net income and foreign
currency translation adjustments, which were $7,655 and ($23,775) for the three
months ended March 31, 1998 and 1997, respectively. Accordingly, comprehensive
income was $11,603 and $52,717, for the three months ended March 31, 1998 and
1997, respectively.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
As of March 31, 1998, the Company had cash and cash equivalents of $1,389,879
and working capital of $2,044,947. The essentially flat amount of $2,044,947 in
working capital from the position at December 31, 1997 is attributable entirely
to the break-even/slight profit from operations of $3,948. The Company's cash
flows have historically tracked its operational results.
The Company expects to maintain a sound financial base for the balance of 1998.
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 MARCH 31, 1998 VERSUS THE THREE MONTHS
ENDED MARCH 31, 1997.
Sales in the first quarter of 1998 decreased approximately 39% from sales posted
in the first quarter of 1997. The decrease in sales reflects a decrease in sales
by the Company to its OEM accounts. In addition, late delivery of components
from vendors delayed the Company's ability to produce those devices scheduled
for first quarter delivery. The Company expects this situation to improve during
the second quarter.
The Company's margins in the first quarter were higher than those achieved in
the first quarter of 1997 (from 48% in 1997 to 62% in 1998). This occurred due
to a change in product mix. It should be noted that pricing continued to remain
firm on all products.
Operating expenses increased during the first quarter of 1998 due to ISO-9001
approval requirements along with additional marketing costs. Management
anticipates some increases in its operating expenditures over 1997 amounts
during the balance of 1998.
No tax provision was recorded for the three months ended March 31, 1998 owing to
the Company's ability to use net operating loss carryforwards in both the U.S.
and U.K.
Net income for the quarter was $3,948 or $.00 per share in contrast to $76,492
or $.02 per share in the first quarter of 1997.
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<PAGE> 9
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27. Financial Data Schedule
(b) Reports on Form 8-K: None
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<PAGE> 10
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: May 14, 1998 RALPH E. HANSON
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Ralph E. Hanson, President
and Principal Executive Officer
Date: May 14, 1998 RALPH E. HANSON
------------ ---------------------------------
Ralph E. Hanson, Principal
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,389,879
<SECURITIES> 0
<RECEIVABLES> 262,511
<ALLOWANCES> 0
<INVENTORY> 521,919
<CURRENT-ASSETS> 2,237,623
<PP&E> 293,397
<DEPRECIATION> 248,011
<TOTAL-ASSETS> 2,323,212
<CURRENT-LIABILITIES> 192,676
<BONDS> 0
0
0
<COMMON> 34,009
<OTHER-SE> 3,147,151
<TOTAL-LIABILITY-AND-EQUITY> 2,323,212
<SALES> 279,928
<TOTAL-REVENUES> 279,928
<CGS> 107,816
<TOTAL-COSTS> 107,816
<OTHER-EXPENSES> 179,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,948
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,948
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>