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
September 30, 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
incorporation or organization) (IRS Employer Identification No.)
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,
1996 were 15,213,475.<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
1996 1996
(Unaudited) (Unaudited)
------------ -----------
CURRENT ASSETS:
Cash $ 411,629 207,995
Trade receivables, less allowance for doubtful
accounts of $431,884 and $388,525, respectively
(note 2) 4,980,560 4,515,127
Other receivables 203,351 188,737
Notes receivable - Current (note 2) 138,571 218,165
Inventories (note 3) 4,027,149 3,954,045
Prepaid expenses 530,141 340,748
Deferred income taxes 534,369 534,369
----------- ----------
Total current assets 10,825,770 9,959,186
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 5,273,280 5,048,375
Accumulated depreciation & amortization (3,770,364) (3,652,989)
---------- ----------
Total Equipment & Leasehold
Improvements 1,502,916 1,395,386
Deferred income taxes 36,110 36,110
Cost in excess of net assets of businesses
acquired, net 1,817,187 1,859,290
Other assets 25,254 30,544
---------- ----------
Total Assets $14,207,237 13,280,516
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings (note 4) $ 1,995,000 1,675,000
Current installments of long-term debt (note 4) 225,672 225,672
Accounts payable 2,429,159 2,382,718
Accrued payroll and related expenses 338,487 298,006
Other accrued expenses 1,100,878 862,779
---------- ----------
Total current liabilities 6,089,196 5,444,175
Long-term debt, excluding current installments (note 4) 445,573 505,692
---------- ----------
Total liabilities 6,534,769 5,949,867
STOCKHOLDERS' EQUITY:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 15,213,475 shares
at Sept 30, 1996 and June 30, 1996. 8,105,115 8,105,115
Retained earnings (deficit) 196,821 (144,998)
Notes receivable from directors (note 5) (629,468) (629,468)
---------- ----------
Total stockholders' equity 7,672,468 7,330,649
---------- ----------
Total Liabilities & Stockholder's Equity $14,207,237 13,280,516
========== ==========
Note: The balance sheet at June 30, 1996 has been taken from the audited
financial statements at that date.
See accompanying notes to consolidated financial statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended
September 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
Net sales 6,673,594 5,975,028
Cost of sales 4,254,283 4,087,428
---------- ----------
Gross Profit 2,419,311 1,887,600
Selling, general & administrative expenses 1,717,008 1,415,042
---------- ----------
Operating Income 702,303 472,559
Other expense:
Interest expense, net 64,307 112,237
Other, net 17,596 1,455
---------- ----------
Income before income taxes 620,400 358,866
Income tax expense 278,581 107,000
---------- ----------
Net income $ 341,819 251,866
========== ==========
Income per common share and common
share equivalent
Primary:
Net income $ 0.02 0.02
========== ==========
Weighted average common shares
and common share equivalents outstanding: 16,972,280 14,854,118
========== ==========
See accompanying notes to consolidated financial statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended
September 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
NET INCOME (LOSS) $341,819 251,866
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 117,375 115,552
Amortization of other assets 47,392 47,402
(Gain) loss on sale or disposition
of property and equipment - 1,410
Increase (decrease) provision for
doubtful accounts 43,359 (3,399)
Increase in trade accounts receivable (508,792) (586,133)
Increase in other receivables (14,614) (50,850)
Decrease in notes receivables 79,594 36,985
(Increase) decrease in inventories (73,104) 985,856
Increase in prepaid expenses and
other assets (189,393) (45,291)
Increase in accounts payable 46,440 73,869
Increase (decrease) in accrued payroll
and related expenses 40,481 (958)
Increase in accrued expenses
and other liabilities 238,101 20,409
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 168,658 846,718
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (224,905) (30,331)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (224,905) (30,331)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (60,119) (55,471)
Increase (decrease) in notes payable
to bank 320,000 (719,000)
Issuance of common stock - 51,647
---------- ----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 259,881 (722,824)
Net increase in cash 203,634 93,563
Cash at beginning of year 207,995 119,233
---------- ----------
CASH AT END OF THREE-MONTH PERIOD $411,629 212,796
========== ==========
See accompanying notes to consolidated financial statements.
PACER TECHNOLOGY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements for the three-months ended September
30, 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 September 30, 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 September 30, 1996 are not necessarily indicative of the
operating results for the full year.
2. NOTES RECEIVABLE:
During fiscal year 1995, a customer converted a trade receivable balance
to a term note. The note is payable in monthly installments of principal
and interest and matures on June 15, 1997. The note bears 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, 1996 June 30, 1996
------------------ -------------
Finished goods $1,874,281 1,724,468
Work in process 334,122 307,763
Raw materials 1,818,746 1,921,814
---------- ----------
$4,027,149 3,954,045
========== ==========
4. NOTES PAYABLE TO BANK:
Pacer has a line of credit which is cross-collateralized by trade accounts
receivable, inventory, and certain equipment. The current line of credit
bears interest at the bank's prime rate (8.25% at September 30, 1996) plus
.5% and is payable on demand. Total borrowings on the line of credit
amounted to $1,995,000 at September 30, 1996.
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 1.5% and is payable in monthly installments of principal and
interest. The principal outstanding on this note was $170,833 at
September 30, 1996.
The line of credit agreement requires maintenance of certain financial
ratios and contains other restrictive covenants, including a restriction
on all dividends. Pacer was in compliance with all debt covenants at
September 30, 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%. Total principal
outstanding on this credit facility was $500,412 as of September 30, 1996.
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) with 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 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.
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 Notes are not paid in full on
or before the maturity dates 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 Directors.
RESULTS OF OPERATIONS
- ---------------------
Net sales for the quarter ended September 30, 1996 increased $698,566, or 12%
over the comparable quarter in fiscal year 1995. This rise in revenues was
attributed to growth in most product lines resulting from improvements in
worldwide market share.
Cost of sales for the quarter was $4,254,283, or 64% of sales. This represents
an increase of $166,855, or 4% over the comparable period in fiscal year 1995.
This rise was primarily due to increased volume and demand for a more favorable
product mix.
Selling, General & Administrative expenses for the quarter ended September 30,
1996 were $1,717,008, or 26% of sales. This represents an increase of $301,966,
or 21% over the comparable quarter in the prior year. The rise in expenditures
was attributed to volume related marketing expenses, the timing of certain
promotional and advertising costs, and charges incurred in conjunction with a
proposed acquisition that did not materialize.
Goodwill related to the Super Glue acquisition is being amortized over 14 years.
Amortization costs of approximately $33,339 were recorded during the first
quarter of fiscal year 1997. Management believes the Super Glue product line
will continue to generate profits that will significantly exceed the goodwill
amortization.
Other expenses for the quarter ended September 30, 1996 were $81,903, or 1% of
sales. This represents a decrease of $31,789, or 28% over the comparable
quarter in the prior year. This change was primarily due to a drop in interest
expense, partially offset by an increase in early payment discounts as more
customers elected to utilize discounted payment terms.
The Company's effective tax rate for financial reporting purposes was
approximately 45% for the first quarter of fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash generated by all activities during the first quarter of fiscal year
1997 was $203,634 compared to $93,563 during the comparable period in fiscal
year 1996.
Cash provided by operating activities during the first quarter of fiscal year
1997 was $168,658 versus $846,718 during the comparable period in fiscal year
1996. The inventory reduction plan implemented in June 1995 was the main
contributor to this change. The decrease in inventory levels was the highest
generator of cashflow among operating activities in the first quarter of fiscal
year 1996. Cashflow from operations was positively impacted in the first
quarter of fiscal year 1997 by higher net income and volume related accrued
expenses. This was partially offset by an increase in prepayments to suppliers
for capital equipment purchases and by a minor volume related increase in
inventories.
Cash used in investing activities during the first quarter of fiscal year 1997
was $224,905 compared to $30,331 during the comparable period in fiscal year
1996. This change was due to an increase in capital equipment purchases
designed to improve manufacturing efficiency and productivity.
Cash provided by financing activities during the first quarter of fiscal year
1997 was $259,881 versus cash consumed of $722,824 in fiscal year 1996.
Fluctuation in bank borrowings was the main contributor to this change. Bank
borrowings fell in the first quarter of fiscal year 1996 due to cash generated
from the Company's inventory reduction program and net income from operations.
Cashflow was positively impacted in the first quarter of fiscal year 1997 as
bank borrowings were utilized to finance increased capital expenditures and meet
working capital needs.
The Company anticipates continued utilization of its line of credit primarily to
finance working capital requirements throughout fiscal year 1997.<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, 1996 /s/James T. Munn
---------------------------------
James T. Munn
President/Chief Executive Officer
November 14, 1996 /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, 1996 _____________________________________
By: James T. Munn
President/Chief Executive Officer
November 14, 1996 --------------------------------------
By: Roberto J. Cavazos, Jr.
Chief Financial Officer
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