February 08, 1996
Securities & Exchange Commission
Judicial Plaza
450 Fifth Street, N.W.
Washington DC 20549
Attention: 1934 Act filing desk
Reference: Form 10-QSB for the period ended
December 31, 1995
Commission File No. 0-8864
Pursuant to the requirements of the Securities and Exchange Act of 1934, we
are transmitting herewith Form 10-QSB for Pacer Technology for period
ended December 31, 1995.
Sincerely,
PACER TECHNOLOGY
/s/Roberto J. Cavazos, Jr.
Roberto J. Cavazos, Jr.
Chief Financial Officer
RJC/HK
encls.
<PAGE>
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
December 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 [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 December 31, 1995 were
15,203,975.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1995 1995
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 108,057 119,233
Trade receivables, less allowance for doubtful
accounts of $384,861 and $399,801 respectively
(note 2) 4,112,062 3,845,991
Other receivables 178,139 125,365
Notes receivable - Current (note 2) 218,515 232,655
Inventories (note 3) 3,997,142 5,508,129
Prepaid expenses 140,092 138,016
Deferred income taxes 825,366 825,366
Total current assets 9,579,372 10,794,755
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 4,895,368 4,855,790
Accumulated depreciation & amortization (3,464,394) (3,240,021)
Equipment & Leasehold Improvements-net 1,430,974 1,615,769
Notes Receivable - Long-term (note 2) 44,149 100,039
Deferred income taxes 38,634 38,634
Cost in excess of net assets of businesses
acquired, net 1,943,496 2,027,702
Other Assets 41,144 51,744
Total Assets $13,077,769 14,628,643
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings (note 4) $ 2,590,000 4,157,000
Current installments of long-term debt 225,672 225,672
Accounts payable 1,419,556 1,767,102
Accrued payroll and related expenses 368,941 256,239
Other accrued expenses 1,095,432 1,197,635
Total Current Liabilities 5,699,602 7,603,648
Long-term debt, excluding current
installments (note 4) 622,901 735,025
Total Current Liabilities 6,322,503 8,338,673
STOCKHOLDERS' EQUITY:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 15,203,975 shares
at Dec 31, 1995; 14,403,975 shares at June 30,
1995. 8,100,840 7,844,535
Accumulated deficit (716,106) (1,070,065)
Notes receivable from directors (note 5) (629,468) (484,500)
Total stockholders' equity 6,755,266 6,289,970
Total Liabilities & Stockholder's Equity $13,077,769 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>
<TABLE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended Six-Months Ended
December 31, December 31,
<S> <C> <C> <C> <C>
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited (Unaudited)
NET SALES $ 5,007,074 4,561,086 10,982,102 10,313,388
COST OF SALES 3,346,312 3,141,406 7,433,740 6,774,714
Gross Profit 1,660,762 1,419,680 3,548,362 3,538,674
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,430,245 1,354,246 2,845,287 3,063,234
Operating Income 230,517 65,434 703,075 475,440
OTHER (INCOME) EXPENSE:
Interest expense 91,391 120,312 203,628 238,364
Other, net 14,133 18,775 15,588 42,633
Income (loss) from continuing
operations before income
taxes and extraordinary
item 124,993 (73,653) 483,859 194,443
Income Taxes 22,900 (16,875) 129,900 51,500
NET INCOME (LOSS) $ 102,093 (56,778) 353,959 142,943
NET INCOME PER COMMON
SHARE AND COMMON SHARE
EQUIVALENT (ROUNDED TO $0.01) $ 0.01 - .02 .01
Weighted average common
shares and common share
equivalents outstanding: 16,206,496 16,301,253 16,206,496 16,301,253
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended
December 31,
1995 1994
(Unaudited) (Unaudited)
NET INCOME (LOSS) $353,959 142,943
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 233,109 228,540
Amortization of other assets 94,806 94,806
(Gain) loss on sale or disposition
of property and equipment 1,360 (1,157)
Increase (decrease) provision for
doubtful accounts (14,940) 35,097
(Increase) decrease in trade accounts
receivable (251,131) 1,261,935
Increase in other receivables (52,774) (50,336)
Decrease in notes receivables 70,030 -
(Increase) decrease in inventories 1,510,987 (1,091,712)
Increase in prepaid expenses and
other assets (2,076) (237,522)
Decrease in accounts payable (347,546) (745,854)
Increase in accrued payroll and related
expenses 112,702 57,838
Decrease in accrued expenses and other
liabilities (102,203) (421,075)
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES 1,606,285 (726,497)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment (50) 1,157
Capital expenditures (49,624) (271,382)
NET CASH USED IN INVESTING ACTIVITIES (49,674) (270,225)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (112,124) (84,254)
Principal payments on obligations under
capital lease - (5,400)
Increase (decrease) in notes payable
to bank (1,567,000) 793,487
Issuance of common stock 111,337 242,273
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,567,787) 946,106
Net decrease in cash (11,176) (50,616)
Cash at beginning of year 119,233 223,674
CASH AT END OF SIX-MONTH PERIOD $ 108,057 173,058
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 six-months ended December
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 December 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 December 31, 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:
December 31, 1995 June 30, 1995
Finished goods $1,649,996 2,480,679
Work in process 316,449 417,064
Raw materials 2,030,697 2,610,386
$3,997,142 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
$208,334 at December 31, 1995.
Total borrowings on the line of credit amounted to $2,590,000 at December
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 $640,239 as of
December 31, 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.
On September 11, 1995, one Director exercised options to purchase 100,000
shares of Pacer Technology common stock. The Director signed a secured
promissory note for the principal sum of $24,000 plus simple interest of
7.015% per annum payable to Pacer Technology. On November 20, 1995, a
Director exercised warrants to purchase 381,000 shares of Pacer Technology
common stock. This director signed a secured promissory note for the
principal sum of $120,967.50, plus simple interest of 6.6939% per annum
payable to Pacer Technology. Principal and all accrued interest will be
due and payable in one lump sum on September 11, 1999 and November 20,
1999, respectively; subject to the provisions regarding prepayment noted
below.
Each Note is secured by 100,000 and 381,000 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
$0.24 and $0.3175 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 11, 1999 and November 20, 1999, 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 December 31, 1995 increased by $445,988, or 10%
over the comparable quarter in fiscal year 1995. A substantial rise in Super
Glue sales primarily contributed to this increase.
Net sales for the six-month period ended December 31, 1995 increased by
$668,714, or 6% over the comparable period in the prior year. A surge in U.S.
sales and abroad of PRO SEAL adhesives and sealants for the automotive
aftermarket and a rise in Super Glue sales were primarily responsible for the
increased revenue.
Cost of sales for the quarter was $3,346,312, or 67% of sales. This represents
an increase of $204,906, or 7% over the comparable quarter in fiscal year 1995.
Cost of sales for the six-month period ended December 31, 1995 was $7,433,740,
or 68% of sales. This represents an increase of $659,026, or 10% over the same
period in the prior year. This rise was due to increased volume compounded by
demand for a more unfavorable product mix. The increase in cost of sales 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 December 31,
1995 were $1,430,245, or 29% of sales. This represents an increase of $75,999,
or 6% over the comparable quarter in the prior year. The growth in expenditures
was attributed primarily to spending incurred to support increased sales.
Selling, General & Administrative expenses for the six-month period ended
December 31, 1995 were $2,845,287, or 26% of sales. This represents a decrease
of $217,947, or 7% below the comparable period in fiscal year 1995. This
decline in expenditures was mainly attributed to reduced spending in most areas
resulting from the corporate realignment and product rationalization program
implemented during the fourth quarter of fiscal year 1995. These reductions
were partially offset by higher expenses to support increased sales volume.
Goodwill related to the Super Glue acquisition is being amortized over 14 years.
Amortization costs of approximately $66,676 were recorded during the first six
months 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 December 31, 1995 were $105,524, or 2% of
sales. This represents a decrease of $33,563, or 24% below the comparable
quarter in the prior year. This change was primarily due to a drop in interest
expense resulting from both a reduction in long-term debt and reduced
utilization of the Company's line of credit. The decline in bank borrowings was
primarily attributed to a planned reduction in inventory levels.
The Company's effective tax rate for financial reporting purposes was
approximately 27% for the first six months of fiscal year 1996, as it is
anticipated tax deferred assets will be utilized to offset income tax liability
for the fiscal year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
Net cash consumed by all activities during the first six months of fiscal year
1996 was $11,176 compared to $50,616 during the comparable period in fiscal year
1995.
Cash provided by operating activities during the first half of fiscal year 1996
was $1,606,285 versus cash consumed of $726,497 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 six months
of fiscal year 1996 was lower since prepayments to suppliers for capital
equipment purchases were below the level of prepayments during the comparable
period in the prior fiscal year. Accounts payable decreased due to reduced
spending resulting from the inventory reduction program implemented in the
fourth quarter of fiscal year 1995. Accrued expenses decreased at a lower rate
during the first six months of fiscal year 1996 compared to the same quarter
last year primarily due to the timing of certain selling, general and
administrative expenses.
Cash used in investing activities during the first six months of fiscal year
1996 was $49,674 compared to $270,225 during the comparable period in fiscal
year 1995. This decrease was primarily due to reduced capital expenditures
during fiscal year 1996.
Cash consumed by financing activities during the first half of fiscal year 1996
was $1,567,787 versus cash provided of $946,106 in fiscal year 1995. This
change was primarily attributed to debt repayment on the Company's line of
credit.
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
February 08, 1996 /s/James T. Munn
James T. Munn
President/Chief Executive Officer
February 08, 1996 /s/Roberto J. Cavazos, Jr.
Roberto J. Cavazos, Jr.
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 108
<SECURITIES> 0
<RECEIVABLES> 4331
<ALLOWANCES> 385
<INVENTORY> 3997
<CURRENT-ASSETS> 9579
<PP&E> 4895
<DEPRECIATION> 3464
<TOTAL-ASSETS> 13078
<CURRENT-LIABILITIES> 5700
<BONDS> 0
<COMMON> 8101
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13078
<SALES> 10982
<TOTAL-REVENUES> 10982
<CGS> 7434
<TOTAL-COSTS> 7434
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> 484
<INCOME-TAX> 130
<INCOME-CONTINUING> 354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
