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
September 30, 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 [XXX] 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 September 30, 1995 were
14,633,975.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1995 1995
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 212,796 119,233
Trade receivables, less allowance for doubtful
accounts of $396,402 and $399,801 respectively
(note 2) 4,435,523 3,845,991
Other receivables 176,215 125,365
Notes receivable - Current (note 2) 238,153 232,655
Inventories (note 3) 4,522,273 5,508,129
Prepaid expenses 183,307 138,016
Deferred income taxes 825,366 825,366
Total current assets 10,593,633 10,794,755
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 4,881,455 4,855,790
Accumulated depreciation & amortization (3,352,317) (3,240,021)
Total Equipment & Leasehold
Improvements 1,529,138 1,615,769
Notes Receivable - Long-term 57,556 100,039
Deferred income taxes 38,634 38,634
Cost in excess of net assets of businesses
acquired, net 1,985,599 2,027,702
Other Assets 46,444 51,744
Total Assets $14,251,005 14,628,643
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings (Note 4) $ 3,438,000 4,157,000
Current installments of long-term debt 225,672 225,672
Accounts payable 1,840,971 1,767,102
Accrued payroll and related expenses 255,281 256,239
Other accrued expenses 1,218,044 1,197,635
Total Current Liabilities 6,977,968 7,603,648
Long-term debt, excluding current
installments (Note 4) 679,554 735,025
Total Current Liabilities 7,657,522 8,338,673
STOCKHOLDERS' EQUITY:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 14,633,975 shares
at Sept 30, 1995; 14,403,975 shares at June 30,
1995. 7,896,182 7,844,535
Accumulated deficit (818,200) (1,070,065)
Notes receivable from directors (note 4) (484,500) (484,500)
Total stockholders' equity 6,593,483 6,289,970
$14,251,005 14,628,643
Note:The balance sheet at June 30, 1995 has been taken from the audited
financial statements at that date.
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended
September 30,
1995 1994
(Unaudited) (Unaudited)
NET SALES 5,975,028 5,752,302
COST OF SALES 4,087,428 3,633,308
Gross Profit 1,887,600 2,118,994
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 1,415,042 1,708,988
Operating Income 472,559 410,006
OTHER (INCOME) EXPENSE:
Interest expense 112,237 118,052
Other, net 1,455 23,858
Income from continuing operations before
income taxes and extraordinary item 358,866 268,096
Income Taxes 107,000 68,375
INCOME BEFORE EXTRAORDINARY ITEM 251,866 199,721
EXTRAORDINARY ITEM - REDUCTION OF FEDERAL
INCOME TAX RESULTING FROM UTILIZATION
OF NET OPERATING LOSS CARRYFORWARDS - -
NET INCOME $ 251,866 199,721
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENT (ROUNDED TO $0.01) $ 0.02 0.01
Weighted average common shares
and common share equivalents outstanding: 14,854,118 15,800,912
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended
September 30,
1995 1994
(Unaudited) (Unaudited)
NET INCOME (LOSS) $251,866 199,721
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 115,552 115,842
Amortization of other assets 47,402 47,403
(Gain) loss on sale or disposition
of property and equipment 1,410 (1,000)
Increase (decrease) provision for
doubtful accounts (3,399) 5,453
Increase in trade accounts receivable (586,133) (116,395)
Increase in other receivables (50,850) (118,683)
Decrease in notes receivables 36,985 -
(Increase) decrease in inventories 985,856 (1,007,529)
Increase in prepaid expenses and
other assets (45,291) (224,056)
Increase in accounts payable 73,869 279,537
Decrease in accrued payroll and related
expenses (958) (11,632)
Increase (decrease) in accrued expenses
and other liabilities 20,409 (228,374)
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES 846,718 (1,059,713)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment - 1,000
Capital expenditures (30,331) (141,999)
NET CASH USED IN INVESTING ACTIVITIES (30,331) (140,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (55,471) (42,119)
Increase (decrease) in notes payable
to bank (719,000) 1,066,000
Issuance of common stock 51,647 4,773
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (722,824) 1,028,654
Net increase (decrease) in cash 93,563 (172,058)
Cash at beginning of year 119,233 223,674
CASH AT END OF THREE-MONTH PERIOD $212,796 51,616
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements for the three-months ended September
30, 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 September 30, 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 September 30, 1995 are not necessarily indicative of the
operating results for the full year.
2. NOTES RECEIVABLE:
During fiscal year 1995, the Company permitted two customers to convert
trade receivable balances to term notes. Both notes are payable in
monthly installments of principal and interest and mature on July 26, 1996
and August 15, 1997, respectively. The notes bear interest at a rate
higher than the rate of interest charged to Pacer for its borrowing of
funds from its predominant bank.
3. INVENTORIES:
Inventories consisted of the following:
September 30, 1995 June 30, 1995
Finished goods $1,796,734 2,480,679
Work in process 431,004 417,064
Raw materials 2,294,535 2,610,386
$4,522,273 5,508,129
4. 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. 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
$220,833 at September 30, 1995.
Total borrowings on the line of credit amounted to $3,438,000 at September
30, 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 $684,393 as of
September 30, 1995. All borrowings are secured by certain assets of
Pacer.
5. NOTES RECEIVABLE FROM DIRECTORS:
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. 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 September 27, 1998 and October 19, 1998, respectively;
subject to the provisions regarding prepayment noted below.
Each Note is secured by 100,000 and 485,000 shares, respectively, of the
Company's common stock as provided in a Security Agreement between the
Company and each Director.
Each Director may sell the shares securing the Note in whole or in part,
without penalty, provided that the proceeds of sale are applied to pre-pay
the Note. The amount of each prepayment shall be applied as follows:
(a) first, to interest accrued on the Note with respect to the shares
sold, to the date of sale;
(b) second, to the outstanding principal on the Note in the amount of
$0.584375 and $0.6375 per share sold, respectively; and
(c) third, to the seller or his designee.
If all principal and accrued interest on the Note is not paid in full on
or before September 27, 1998 and October 19, 1998, respectively, 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 Director.
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1995 increased by $222,726, or 4%
over the comparable quarter in fiscal year 1995. Domestic sales of the
Company's cosmetic/nail care products and a surge in sales in the U.S. and
abroad of PRO SEAL adhesives and sealants for the automotive aftermarket were
primarily responsible for the increased revenue.
Cost of sales for the quarter were $4,087,428, or 68% of sales. This represents
an increase of $454,120, or 13% over the comparable quarter in fiscal year 1995.
This rise was due to increased demand for a less favorable product mix,
compounded by substantial raw material cost increases from suppliers. The
increase in raw material costs was partially offset by reduced operating
expenses resulting from the corporate realignment and product rationalization
program undertaken by the Company during the fourth quarter of fiscal year 1995.
Selling, General & Administrative expenses for the quarter ended September 30,
1995 were $1,415,042, or 24% of sales. This represents a decrease of $293,946,
or 17% over the comparable quarter in the prior year. The drop in expenditures
was attributed to reduced spending in most areas including the effect of the
corporate realignment implemented during the fourth quarter of fiscal year 1995.
The decline in Selling, General & Administrative costs was further enhanced as
the first quarter of fiscal year 1995 included significant charges for the
redesign of packaging, labels and brochures for the Super Glue and PRO SEAL
product lines.
Goodwill related to the Super Glue acquisition is being amortized over 14 years.
Amortization costs of approximately $33,338 were recorded during the first
quarter of fiscal year 1996. Management believes that the economies of scale to
be realized from the consolidation of Super Glue's Hollis, New York facility
into the Company's headquarters in California will enable the Super Glue product
line to generate profits that will significantly exceed the goodwill
amortization.
Other expenses for the quarter ended September 30, 1995 were $113,692, or 2% of
sales. This represents a decrease of $28,218, or 20% over the comparable
quarter in the prior year. This change was primarily due to a decline in early
payment discounts as more customers elected to utilize net payment terms.
The Company's effective tax rate for financial reporting purposes was
approximately 30% for the first quarter of fiscal year 1996 as tax deferred
assets were utilized to offset income tax liability.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
Net cash generated by all activities during the first quarter of fiscal year
1996 was $93,563 compared to cash used of $172,058 during the comparable period
in fiscal year 1995.
Cash provided by operating activities during the first quarter of fiscal year
1996 was $846,718 versus cash consumed of $1,059,713 during the comparable
period in fiscal year 1995. Higher net income and a reduction in working
capital levels were the main contributors to this change. An increase in
accounts receivable prompted by higher volume was offset by a planned reduction
in inventory stocking levels.
The increase in prepaid expenses during the first quarter of fiscal year
1996 was lower since prepayments to suppliers for capital equipment purchases
were higher during the comparable period in the prior fiscal year. Accounts
payable increased at a significantly lower rate than the same quarter of the
prior fiscal year due to the inventory reduction program. A moderate increase
in accrued expenses during the first quarter of fiscal year 1996 compared to a
significant decrease in the same quarter last year due to a reduction in accrued
selling expenses and income taxes payable.
Cash used in investing activities during the first quarter of fiscal year 1996
was $30,331 compared to $140,999 during the comparable period in fiscal year
1995. This decrease was primarily due to reduced capital expenditures during
the first quarter of fiscal year 1996.
Cash consumed by financing activities during the first quarter of fiscal year
1996 was $722,824 versus cash provided of $1,028,654 in fiscal year 1995. This
change was primarily due to lower borrowings resulting primarily from the
Company's inventory reduction program and net income from operations.
The Company anticipates continued utilization of its line of credit primarily to
finance working capital requirements throughout fiscal year 1996.<PAGE>
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
November 14, 1995 /s/James T. Munn
James T. Munn
President/Chief Executive Officer
November 14, 1995 /s/Roberto J. Cavazos, Jr.
Roberto J. Cavazos, Jr.
Chief Financial Officer
<PAGE>
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
November 14, 1995 JAMES T. MUNN
By: James T. Munn
President/Chief Executive Officer
November 14, 1995 ROBERTO J. CAVAZOS, JR.
By: Roberto J. Cavazos, Jr.
Chief Financial Officer
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