<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1996.
OR
- ---- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition period from
to ---------
--------
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 March 31, 1996 were
15,213,475.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1996 1995
(Unaudited) (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 81,217 119,233
Trade receivables, less allowance for doubtful
accounts of $423,515 and $399,801 respectively
(note 2) 3,979,091 3,845,991
Other receivables 204,530 125,365
Notes receivable - Current (note 2) 179,976 232,655
Inventories (note 3) 3,819,854 5,508,129
Prepaid expenses 257,766 138,016
Deferred income taxes 825,366 825,366
---------- ----------
Total current assets 9,347,801 10,794,755
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 4,965,177 4,855,790
Accumulated depreciation & amortization (3,569,258) (3,240,021)
---------- ----------
Equipment & Leasehold Improvements-net 1,395,919 1,615,769
Notes Receivable - Long-term (note 2) 39,600 100,039
Deferred income taxes 38,634 38,634
Cost in excess of net assets of businesses
acquired, net 1,901,393 2,027,702
Other Assets 35,844 51,744
---------- ----------
Total Assets $12,759,191 14,628,643
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings (note 4) $ 1,624,000 4,157,000
Current installments of long-term debt 225,672 225,672
Accounts payable 1,792,191 1,767,102
Accrued payroll and related expenses 346,710 256,239
Other accrued expenses 1,162,286 1,197,635
---------- ----------
Total Current Liabilities 5,150,859 7,603,648
Long-term debt, excluding current
installments (note 4) 564,823 735,025
---------- ----------
Total Liabilities 5,715,682 8,338,673
STOCKHOLDERS' EQUITY:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 15,213,475 shares
at Mar 31, 1996; 14,403,975 shares at June 30,
1995. 8,107,455 7,844,535
Accumulated deficit (434,478) (1,070,065)
Notes receivable from directors (note 5) (629,468) (484,500)
---------- ----------
Total stockholders' equity 7,043,509 6,289,970
---------- ----------
Total Liabilities & Stockholder's Equity $12,759,191 14,628,643
========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
Three-Months Ended Nine-Months Ended
March 31, March 31,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 5,490,031 6,022,002 16,472,133 16,335,390
COST OF SALES 3,679,908 4,097,623 11,113,648 10,872,337
---------- ---------- ---------- ----------
Gross Profit 1,810,124 1,924,379 5,358,485 5,463,053
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,361,315 1,603,525 4,206,602 4,666,759
---------- ---------- ---------- ----------
Operating Income 448,809 320,854 1,151,884 796,294
OTHER (INCOME) EXPENSE:
Interest expense 62,470 115,128 266,098 353,492
Other, net 7,111 11,338 22,699 53,971
---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes and extraordinary
item 379,228 194,388 863,087 388,831
Income Taxes 97,600 42,925 227,500 94,425
---------- ---------- ---------- ----------
NET INCOME $ 281,628 151,463 635,587 294,406
========== ========== ========== ==========
NET INCOME PER COMMON
SHARE AND COMMON SHARE
EQUIVALENT (ROUNDED
TO $0.01) $ 0.02 0.01 0.04 0.02
========== ========== ========== ==========
Weighted average common
shares and common share
equivalents outstanding: 16,037,002 15,971,927 16,037,002 15,971,927
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine-MonthsEnded
March 31,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
NET INCOME (LOSS) $635,587 294,406
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 349,588 355,113
Amortization of other assets 142,209 142,210
(Gain) loss on sale or disposition
of property and equipment 1,360 (1,127)
Increase provision for doubtful
accounts 23,714 31,590
(Increase) decrease in trade accounts
receivable (156,815) 283,882
Increase in other receivables (79,165) (50,873)
Decrease in notes receivables 113,118 -
(Increase) decrease in inventories 1,688,275 (1,094,316)
Increase in prepaid expenses and
other assets (119,750) (201,251)
Increase (decrease) in accounts payable 25,089 (109,818)
Increase in accrued payroll and related
expenses 90,471 11,527
Decrease in accrued expenses and other
liabilities (35,349) (360,862)
---------- ----------
NET CASH (USED) PROVIDED BY OPERATING
ACTIVITIES 2,678,332 (699,519)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment (50) 1,157
Capital expenditures (131,048) (358,917)
NET CASH USED IN INVESTING ACTIVITIES (131,098) (357,760)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 250,000
Principal payments on long-term debt (170,202) (130,279)
Principal payments on obligations under
capital lease - (5,400)
Increase (decrease) in notes payable
to bank (2,533,000) 655,000
Issuance of common stock 117,952 313,542
---------- ----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (2,585,250) 1,082,863
---------- ----------
Net increase (decrease) in cash (38,016) 25,584
Cash at beginning of year 119,233 223,674
---------- ----------
CASH AT END OF NINE-MONTH PERIOD $ 81,217 249,258
========== ==========
</TABLE>
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 nine-months ended March 31,
1996 and 1995 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, 1996 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, 1996 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:
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Finished goods $2,141,963 2,480,679
Work in process 312,518 417,064
Raw materials 1,365,373 2,610,386
---------- ----------
$3,819,854 5,508,129
---------- ----------
</TABLE>
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
$195,833 at March 31, 1996.
Total borrowings on the line of credit amounted to $1,624,000 at March 31,
1996. 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 $594,661 as of
March 31, 1996. All borrowings are secured by certain assets of Pacer.
<PAGE>
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.
<PAGE>
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 March 31, 1996 decreased by $531,971, or 9%
below the comparable quarter in fiscal year 1995. This dip in revenues was
mainly attributed to severe winter weather, inventory adjustments by retailers
and continued softness in consumer spending.
Net sales for the nine month period ended March 31, 1996 increased by $136,743,
or 1% over the comparable period in the prior year. Sales grew only slightly
over the nine month period as continued softness in consumer spending compounded
by severe weather conditions during the third quarter offset the sales increases
experienced in the first half of the fiscal year.
Cost of sales for the quarter was $3,679,908, or 67% of sales. This represents
a decrease of $417,715, or 10% below the comparable quarter in fiscal year 1995.
Cost of sales for the nine month period ended March 31, 1996 was $11,113,648, or
67% of sales. This represents an increase of $241,311, or 2% over the same
period in the prior year. The fluctuations in cost of sales for both periods
were primarily attributed to changes in volume and mix.
Selling, General & Administrative expenses for the quarter ended March 31, 1996
were $1,361,315, or 25% of sales. This represents a decrease of $242,210, or
15% below the comparable quarter in the prior year. Selling, General &
Administrative expenses for the nine month period ended March 31, 1996 were
$4,206,602, or 26% of sales. This represents a decrease of $460,157, or 10%
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.
Goodwill related to the Super Glue acquisition is being amortized over 14 years.
Amortization costs of approximately $100,015 were recorded during the first nine
months of fiscal year 1996. Management believes that the economies of scale
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 March 31, 1996 were $69,581, or 1% of
sales. This represents a decrease of $56,885, or 45% 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 augmented by
cost containment measures implemented in the latter part of fiscal year 1995.
The Company's effective tax rate for financial reporting purposes was
approximately 26% for the first nine 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 nine months of fiscal year
1996 was $38,016 compared to cash provided of $25,584 during the comparable
period in fiscal year 1995.
Cash provided by operating activities during the first nine months of fiscal
year 1996 was $2,678,332 versus cash consumed of $699,519 during the comparable
period in fiscal year 1995. Higher net income and a significant drop in
inventory levels were the main contributors to this change. Trade accounts
receivable increased during the first nine months of fiscal year 1996 compared
to the same period in the prior year due to volume. This increase in trade
accounts receivable was partially offset by payments received on notes
receivable. Accounts payable increased slightly due to the timing of inventory
purchases, offset by reduced spending in most other areas. Accrued expenses
decreased at a lower rate during the first nine months of fiscal year 1996
compared to the same period last year primarily due to the timing of certain
selling, general and administrative expenses.
Cash used in investing activities during the first nine months of fiscal year
1996 was $131,098 compared to $357,760 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 nine months of fiscal
year 1996 was $2,585,250 versus cash provided of $1,082,863 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
April 30, 1996 /s/James T. Munn
---------------------------------
James T. Munn
President/Chief Executive Officer
April 30, 1996 /s/Roberto J. Cavazos, Jr.
---------------------------------
Roberto J. Cavazos, Jr.
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 81
<SECURITIES> 0
<RECEIVABLES> 4403
<ALLOWANCES> 424
<INVENTORY> 3820
<CURRENT-ASSETS> 9348
<PP&E> 4965
<DEPRECIATION> 3569
<TOTAL-ASSETS> 12759
<CURRENT-LIABILITIES> 5151
<BONDS> 0
<COMMON> 8107
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12759
<SALES> 16472
<TOTAL-REVENUES> 16472
<CGS> 11114
<TOTAL-COSTS> 11114
<OTHER-EXPENSES> 23
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 863
<INCOME-TAX> 228
<INCOME-CONTINUING> 863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
