UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
March 31, 1995.
Commission file number 0-8864
PACER TECHNOLOGY
(Exact name of small business issuer as specified in its charter)
California 77-0080305
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9420 Santa Anita Avenue
Rancho Cucamonga, California 91730-6117
(Address of principal executive offices) (Zip Code)
909-987-0550
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, shares outstanding as of March 31, 1995 was
14,217,475.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
March 31, June 30,
1995 1994
<S> <C> <C>
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 154,017 223,674
Trade receivables, less allowance for
doubtful accounts of $370,590
and $339,000 respectively 4,713,487 5,028,959
Other receivables 236,318 90,204
Inventories (Note 2) 5,595,655 4,501,339
Prepaid expenses 346,993 231,826
Deferred income taxes 390,065 390,065
Total Current Assets 11,436,535 10,466,067
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 4,922,377 4,571,894
Accumulated depreciation & amortization 3,252,351 (2,905,642)
Total Equipment & Leasehold
Improvements 1,670,026 1,666,252
Deferred income taxes 29,735 29,735
Cost in excess of net assets of business
acquired, net (Note 5) 2,069,805 2,196,115
Other Assets 143,128 72,945
Total Assets $15,349,229 14,431,114
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Bank borrowings (Note 3) $ 4,170,000 3,515,000
Accounts payable 2,589,850 2,699,668
Accrued payroll and related expenses 275,085 263,559
Other accrued expenses 583,735 944,598
Current installments of long-term debt 225,276 175,276
(Note 3)
Current installments of obligations
under capital lease - 5,400
Total Current Liabilities 7,843,946 7,603,501
Long-term debt, excluding current 789,741 720,019
installments (Note 3)
Obligations under capital lease, excluding
current installments - -
Total Current Liabilities 8,633,687 8,323,520
STOCKHOLDERS' EQUITY:
Notes Receivable (Note 4) (484,500) -
Common stock, no par value. Authorized
50,000,000; issued and
outstanding 14,217,475 shares 7,775,983 6,977,941
Accumulated deficit (575,941) (870,347)
Total Stockholders' Equity 6,715,542 6,107,594
TOTAL Liabilities & Stockholders' Equity $15,349,229 14,431,114
<FN>
Note:The balance sheet at June 30, 1994 has been taken from the audited
financial statements at that date.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three-Months Ended Nine-Months Ended
March 31, March 31,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $6,022,002 5,186,399 16,335,390 13,742,584
COST OF SALES 4,097,623 3,597,893 10,872,337 9,086,211
Gross Profit 1,924,379 1,588,506 5,463,053 4,656,373
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,603,525 1,901,497 4,666,759 4,576,812
Operating Income (Loss) 320,854 (312,991) 796,294 79,561
OTHER (INCOME) EXPENSE:
Share of joint venture
losses - - - -
Interest expense 115,128 106,497 353,492 216,979
Other, net 11,338 (20,829) 53,971 (45,069)
Income (Loss) from continuing
operations before income
taxes and extraordinary
item 194,388 (398,659) 388,831 (92,349)
Income Taxes (Benefit) 42,925 (28,400) 94,425 10,047
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 151,463 (370,259) 294,406 (102,396)
EXTRAORDINARY ITEM -
REDUCTION OF FEDERAL INCOME
TAX RESULTING FROM
UTILIZATION OF NET OPERATING
LOSS CARRYFORWARDS
NET INCOME (LOSS) $ 151,463 (370,259) 294,406 (102,396)
NET INCOME (LOSS) PER
COMMON SHARE AND COMMON
SHARE EQUIVALENT
(ROUNDED TO $0.01) $ 0.01 (0.02) 0.02 (0.01)
Weighted average common
shares and common share
equivalents outstanding: 15,971,927 15,903,261 15,971,927 15,903,261
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Ended
March 31,
<CAPTION>
1995 1994
Unaudited) (Unaudited)
<S> <C> <C>
NET INCOME (LOSS) $294,406 (102,396)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 355,113 221,992
Amortization of other assets 142,210 101,447
(Gain) on sale or disposition
of property and equipment (1,127) (5,673)
Provision for doubtful accounts 31,590 157,956
Decrease (Increase) in trade accounts
receivable 283,882 (283,610)
(Increase) in other receivables (50,873) (198,111)
(Increase) in inventories (1,094,316) (628,865)
(Increase) in prepaid expenses (115,167) (9,976)
(Increase) Decrease in other assets (86,084) 26,466
(Decrease) in accounts payable (109,818) (439,736)
Increase in accrued payroll and
related expenses 11,527 54,477
(Decrease) Increase in accrued expenses
and other liabilities (360,862) 403,816
NET CASH (USED) OPERATING ACTIVITIES (699,519) (702,213)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 1,157 6,578
Capital expenditures (358,917) (300,692)
Investment in Super Glue - (2,209,634)
NET CASH (USED) IN INVESTING ACTIVITIES (357,760) (2,503,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 250,000 1,000,000
Principal payments on long-term debt (130,279) (132,721)
Principal payments on obligations under
capital lease (5,400) (117,135)
Increase in notes payable to bank 655,000 2,414,000
Issuance of common stock 313,542 100,046
NET CASH PROVIDED IN FINANCING ACTIVITIES 1,082,863 3,264,190
Net increase in cash 25,584 58,229
Cash at beginning of year 223,674 118,934
CASH AT END OF NINE-MONTH PERIOD $249,258 177,163
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements for the nine-months ended March 31,
1995 and 1994 have been prepared by the Company without audit. In the
opinion of Management, adjustments necessary to present fairly the
consolidated financial position at March 31, 1995 and the results of
operation for the period then ended have been made. All such adjustments
are of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report to shareholders. The results of operations for
the period ended March 31, 1995 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES:
Inventories consisted of the following:
March 31, 1995 June 30, 1994
Finished goods $2,143,562 1,446,757
Work in process 383,699 551,030
Raw materials 3,068,394 2,503,552
$5,595,655 4,501,339
3. NOTES PAYABLE TO BANK:
On August 1, 1994, Pacer revised its line of credit agreement to increase
the maximum borrowings to $5,250,000. The revised line of credit bears
interest at prime plus 1% and is payable on demand. In connection with
this revision, Pacer also entered into a promissory note agreement whereby
Pacer can borrow up to an aggregate of $250,000 through July 1, 1995. The
promissory note bears interest at prime plus 2% and is payable in monthly
installments of principal and interest. The principal outstanding on this
note was $245,833 at March 31, 1995.
Total borrowings on the line of credit amounted to $4,170,000 at March 31,
1995. Pacer also has a term loan agreement providing for maximum
borrowings of $1,000,000 bearing interest at a rate of prime plus 2.0%.
Total principal outstanding on this credit facility was $769,184 as of
March 31, 1995. All borrowings are secured by certain assets of Pacer.
<PAGE>
4. NOTES RECEIVABLE:
On September 27, 1994, three Directors exercised options to purchase
100,000 shares each (300,000 total) of Pacer Technology common stock.
Each Director signed a secured promissory note for the principal sum of
$58,437.50 ($175,312.50 total) plus simple interest of 7.8% per annum
payable to Pacer Technology. Principal and all accrued interest will be
due and payable in one lump sum on September 27, 1998; subject to the
provisions regarding prepayment noted below.
Each Note is secured by 100,000 shares of the Company's common stock as
provided in a Security Agreement between the Company and each Director.
Each Director may prepay this Note at any time for a part or for all of
the shares without premium or penalty. The amount of each prepayment
shall be applied as follows:
(a) first, to interest accrued on this Note with respect to the shares
sold, to the date of sale;
(b) second, to the outstanding principal on this Note in the amount of
$0.584375 per share sold; and
(c) third, to the seller or his designee.
If all principal and accrued interest on this Note shall not have been
paid in full on or before September 27, 1998, the Company shall be
entitled to exercise any and all remedies available to it under the
California Commercial Code, with full recourse to the personal assets of
the undersigned.
On October 19, 1994, a Director exercised options to purchase 485,000
shares of Pacer Technology common stock. This director signed a secured
promissory note for the principal sum of $309,187.50, plus simple interest
of 7.89% per annum payable to Pacer Technology. Principal and all accrued
interest will be due and payable in one lump sum on October 19, 1998 ;
subject to the provisions regarding prepayment noted below.
The Note is secured by 485,000 shares of the Company's common stock as
provided in a Security Agreement between the Company and the Director
The Director may prepay this Note at any time for a part or for all of the
shares without premium or penalty. The amount of each prepayment shall be
applied as follows:
(a) first, to interest accrued on this Note with respect to the shares
sold, to the date of sale;
(b) second, to the outstanding principal on this Note in the amount of
$0.6375 per share sold; and
(c) third, to the seller or his designee.
If all principal and accrued interest on this Note shall not have been
paid in full on or before October 19, 1998, the Company shall be entitled
to exercise any and all remedies available to it under the California
Commercial Code, with full recourse to the personal assets of the
undersigned.
<PAGE>
5. ACQUISITION:
On April 30, 1993 Pacer's proposal to purchase the assets of Mexlonic
Corporation (formerly Super Glue Corporation based in Hollis, New York and
referred to hereafter as Super Glue) a manufacturer and packager of
adhesive products was approved. This proposal allowed Pacer to assume
full managerial, operational and financial control over Super Glue's
operations until the bankruptcy court approved the agreement. The
agreement was confirmed and the transaction was completed on October 15,
1993.
Pursuant to the agreement, Pacer acquired certain assets and assumed
certain liabilities of Super Glue. The purchase price totaled $3,582,350
and consists of the following amounts incurred by Pacer.
Cash $2,073,859
Pacer common stock 1,195,505
Transaction costs 312,986
$3,582,350
The acquisition has been accounted for as a purchase and accordingly, the
results of Super Glue's operations for the nine months ended March 31,
1995 are included in Pacer's consolidated statements of income for the
quarter then ended. The excess of cost over the fair market value of the
net assets acquired was $1,866,960 and is being amortized on a straight-
line basis over 14 years. Amortization expense charged to operations
during the nine months ended March 31, 1995 was $96,526.
Supplementary information related to the acquisition of Super Glue for the
March 31, 1995 consolidated statement of cash flows is as follows:
Assets acquired $4,254,032
Liabilities assumed (984,668)
Common stock issued (1,195,505)
Cash paid to sellers 2,073,859
Fees and expenses 207,207
Less cash acquired (115,646)
Net cash paid $2,165,420
The following represents the unaudited pro forma results of operations as
if the acquisition of Super Glue had occurred at July 1, 1993 after
consideration for certain adjustments including the amortization of cost
in excess of net assets acquired and interest expense.
Nine-Months Ended Nine-Months Ended
March 31, March 31,
1995 1994
Net Sales $16,335,390 14,733,000
Income before
extraordinary item $ 294,406 (275,000)
Net Income $ 294,406 (275,000)
Earnings per share $ 0.02 (0.02)
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1995 increased by $835,603, or 16%
over the comparable quarter in fiscal year 1994. This growth was primarily due
to increased PRO SEAL and Super Glue product sales, partially offset by reduced
demand for most other product lines as customers balanced inventories in
response to continued uncertainty among consumers.
<PAGE>
Net sales for the nine-month period ended March 31, 1995 increased by
$2,592,806, or 19% over the comparable period in fiscal year 1994. This
increase was primarily due to revenue generated by the acquisition of Super
Glue during the second quarter of fiscal year 1994.
Cost of sales for the quarter were $4,097,623, or 68% of sales. This represents
an increase of $499,730, or 14% over the comparable quarter in fiscal year
1994. For the nine-month period ended March 31, 1995, cost of sales were
$10,872,337, or 67% of sales. This represents an increase of $1,786,126, or
20% over the comparable period in fiscal year 1994. This rise was due to
increased volume compounded by substantial raw material cost increases from
suppliers and by demand for a less favorable product mix. The increase in raw
material costs was partially offset by reduced operating expenses resulting
from the phase-out and relocation of the Super Glue Hollis, New York facility
to Rancho Cucamonga, California during the third quarter of fiscal year 1994.
Selling, General & Administrative expenses for the quarter ended March 31, 1995
were $1,603,525, or 27% of sales. This represents a decrease of $297,972, or
16% over the comparable quarter in the prior year, as 1994 operations included
costs related to the relocation of Super Glue. Selling, General, &
Administrative expenses for the nine months ended March 31, 1995 were
$4,666,759 or 29% of sales. This represents an increase of $89,947, or 2% over
the comparable period in the prior year. This rise in expenditures was
attributed primarily to operating costs associated with Super Glue, partially
offset by relocation costs incurred during fiscal year 1994. Additionally,
Selling, General & Administrative costs were negatively impacted by charges
incurred during the first quarter of fiscal year 1995 for the redesign of
packaging, labels and brochures for the Super Glue and PRO SEAL product lines.
Other expenses for the quarter ended March 31, 1995 were $126,466, or 2% of
sales. This represents an increase of $40,798, or 48% over the comparable
quarter in the prior year. For the nine-month period ended March 31, 1995,
other expenses were $407,463, or 2% of sales. This represents an increase of
$235,553, or 137% over the comparable period in fiscal year 1994. This rise
was primarily attributed to interest expense associated with the further
utilization of the Company's credit facility to support higher working capital
requirements and capital equipment purchases.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash generated by all activities during the first nine months of fiscal
year 1995 was $25,584 compared to cash generated of $58,229 during the
comparable period in fiscal year 1994.
Cash consumed by operating activities during the first nine months of fiscal
year 1995 was $699,519 versus $702,213 during the comparable period in fiscal
year 1994. Higher net income and a decrease in trade receivables were offset
by increased inventory levels prompted by customer shipping demands during the
early part of fiscal year 1995 and by a decrease in accrued liabilities at
March 31, 1995. Accrued expenses at March 31, 1994 included charges related to
the relocation of the Super Glue facility. The increase in trade receivables
during fiscal year 1994 resulted from the acquisition of Super Glue. Increased
inventory balances were offset by a decline in trade receivables and by an
increase in non-cash expenditures for depreciation and goodwill amortization
related to the acquisition of Super Glue included in net income.
Cash used in investing activities during the first nine months of fiscal year
1995 was $357,760 compared to $2,503,748 during the comparable period in fiscal
year 1994. This decrease was primarily due to the acquisition of the assets of
Super Glue during the second quarter of fiscal year 1994, partially offset by
increased expenditures for capital equipment during fiscal year 1995.
Cash generated by financing activities during the first nine months of fiscal
year 1995 was $1,082,863 versus $3,264,190 in fiscal year 1994. This change
was primarily due to borrowings required to finance the acquisition of Super
Glue during the second quarter of fiscal year 1994. In fiscal year 1995, the
Company used its credit facilities primarily to finance additional working
capital requirements and capital equipment purchases.
<PAGE>
Although the integration of the Super Glue acquisition has been completed, the
Company still anticipates continued utilization of its line of credit primarily
to finance working capital requirements throughout fiscal year 1995.
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.
PACER TECHNOLOGY
May 12, 1995 /s/James T. Munn
James T. Munn
President/Chief Executive Officer
May 12, 1995 /s/Roberto J. Cavazos, Jr.
Roberto J. Cavazos, Jr.
Chief Financial Officer
