<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934[Fee Required] for the fiscal year ended June 30, 1997
__ Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] for the transition period from ______ to
__________ Commission file number 0-8864
PACER TECHNOLOGY
-----------------------------------------------
(Name of small business issuer in Its charter)
California 77-0080305
------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9420 Santa Anita Avenue
Rancho Cucamonga, California 91730
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (909) 987-0550
--------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, no par value
----------------------------
(Title of Class)
Check whether the issuer(1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
--- ----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
---
The issuer's revenues for its most recent fiscal year were $25,677,840.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 1, 1997 was $14,265,671 (computed by reference to the
average bid and asked prices of such stock on August 1, 1997, as reported in
the over-the-counter market.)
The number of shares outstanding of the registrant's Common Stock, as of August
1, 1997, was 15,849,975 shares.
Documents incorporated by reference. Pacer Technology's definitive Proxy State-
ment dated September 5, 1997 for the 1997 annual meeting of shareholders-
- -Part III.
Transitional Small Business Disclosure Format: Yes No X
--- ---
This document contains 29 pages;
the index to exhibits is on page 26 .
<PAGE>
PART I
Item 1. Description of Business
Background
- ----------
Pacer Technology (the "Company") is engaged in the business of manufacturing
and marketing high performance adhesives, sealants, and related products. The
Company sells these products worldwide under both private label and proprietary
trademarks to industrial, consumer, automotive aftermarket and hobby markets.
The Company was formed in 1975 as a Wyoming corporation and was reincorporated
in California in 1984.
On August 1, 1992, the Company acquired Novest, Inc., a privately-held corpora-
tion. This product line includes adhesives, sealants and lubricants for engine
and body parts, trim applications and accessories.
On October 15, 1993, Pacer acquired the assets of MEXLONIC (formerly Super Glue
Corporation), a manufacturer and packager of adhesive products and plastic mold-
ed clips for use in automotive, stationery, hardware, home, office and school
applications.
Major Customers And Export Sales
- --------------------------------
Pacer did not have net sales to any one individual customer greater than 10% of
total net
sales in either 1997, 1996 or 1995.
PRINCIPAL MARKETS FOR ADHESIVE PRODUCTS
Industrial
- ----------
The Company's products are sold in the industrial market for use in automotive,
aerospace, electronic, O.E.M. and maintenance repair applications.
Consumer
- -------
The major thrust of Pacer's consumer division consists of products from Super
Glue Corporation. These products include a nationally known brand of adhesives,
sealants, and related products for use in automotive, stationery, hardware,
home, office and school applications. The remaining lines in the division con-
sist primarily of products demanded by customers who have existing product lines
other than adhesives and wish to expand their product base to include adhesive
products. In these cases, the Company packages the product requested in con-
tainers labeled with the customer's private label trademark.
Hobby
- -----
The Company markets several types of adhesives and related products which may
be used for various project and model assembly requirements.
Automotive Aftermarket
- ----------------------
Pacer's automotive aftermarket product line, PRO SEAL, includes adhesives, seal-
ants and lubricants for engine and body parts, trim applications and accessor-
ies.
Marketing
- ---------
Pacer's products are marketed domestically and internationally. Foreign sales
accounted for 18% of total revenues in 1997, and 16% of total revenues in 1996
and 1995. Company products are sold to the industrial market by Pacer sales
personnel and through independent distributors. The Company provides technical
service and sales support using factory trained personnel and sales represent-
atives. Pacer products are sold to dealers and model shops in the hobby market
through a network of master distributors. In the consumer market sector, pro-
ducts are sold by Pacer sales personnel and independent representatives and
distributed through mass merchandising retail outlets. Automotive aftermarket
products are sold by Pacer sales personnel and independent representatives
and distributed through retail automotive, professional repair and installation,
agri-business and heavy duty truck outlets.
Research and Development
- ------------------------
Research and Development expenditures were approximately $348,000, $245,000 and
$365,000 in fiscal years 1997, 1996 and 1995, respectively.
<PAGE>
Source and Availability of Raw Materials
- ----------------------------------------
The Company's primary source of raw material is subject to tariff and quota
controls, fluctuations in the value of the U.S. dollar on foreign currency ex-
changes and related constraints associated with international trade. This
material is readily available from several suppliers. Other raw materials are
also purchased from suppliers for manufacture of the Company's plastic pack-
aging. Supply of these materials is subject to availability of petroleum
by-products.
Competitive Conditions Affecting the Company
- --------------------------------------------
The principal competitive factors affecting the Company's products are tech-
nology, market coverage, price and service. Some of Pacer's competitors are
larger and have substantially greater financial resources. The Company be-
lieves it is on the leading edge of technology and is price competitive.
Subsidiaries
- ------------
The Company has two wholly owned subsidiaries. Pacer Tech Ltd., based in the
United Kingdom, distributes products in the industrial, hobby, consumer, auto-
motive aftermarket and private label markets in the United Kingdom and Europe.
RECAP LTD. was formed in 1992 and is currently inactive.
Government Regulations
- ----------------------
Compliance with federal, state and local provisions regarding the production and
discharge of materials into the environment is expected to have a minimal ad-
verse effect on capital expenditures, earnings and the competitive position of
the Company.
Employees
- ---------
At August 1, 1997, the Company employed 98 people on a regular full-time basis.
Item 2. Description of Property
The Company's executive office, manufacturing facility and research and develop-
ment facility are housed in a 50,000 square foot site in Rancho Cucamonga, Cali-
fornia. This facility is leased under an operating lease expiring in June 2009.
The Company leases a 10,000 square foot facility in Ontario, California to
manufacture certain flammable products. This lease expires April, 1999. The
Company also leases a 14,000 square foot facility in Memphis, Tennessee to ware-
house and distribute products to customers located in the Midwest and Eastern
part of the U.S. This lease expires August 2002.
The Company's subsidiary, Pacer Tech Ltd., maintains its sales and distribution
office at a leased facility in Essex, England. This lease expires December,
1999.
All of the Company's facilities are in good operating condition and are adequate
for the Company's present and anticipated future needs.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Pacer Technology common stock is traded in the over-the-counter market and is
listed on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) under the symbol "PTCH". High and low bid quotations are list-
ed below:
For the year ended June 30,
1997 1996
----------------------------------
HIGH LOW HIGH LOW
First Quarter 1 7/16 7/8 1 7/32 15/16
Second Quarter 1 3/16 27/32 1 3/16 29/32
Third Quarter 1 17/32 25/32 1 25/32
Fourth Quarter 1 5/16 15/16 1 3/8 27/32
The foregoing quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The approximate number of shareholders of record of the Company's common stock
as of August 1, 1997 was 2,267.
Since its incorporation, the Company has not paid any dividends on its common
stock and does not anticipate dividend payments in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Table 1 - Cost of Sales and Gross Margin as a
Percentage of Sales
1997 1996 1995
---- ---- ----
Net Sales 100% 100% 100%
Cost of Sales 64% 66% 68%
Gross Profit 36% 34% 32%
Comparison of 1997 to 1996
- --------------------------
Net sales increased $3,399,343 to $25,677,840, or 15% over the prior year.
Domestic sales increased 13% to $20,988,623, and represented 82% of total
revenues for fiscal year 1997. The domestic revenue growth was attributable
to a substantial increase in sales of Super Glue, rapid growth in the cosmetic
nail care sales to private label customers and steady sales of the ZAP Hobby
line. International sales increased 28% to $4,689,217, and represented 18% of
total revenues for fiscal year 1997. The international revenue growth was at-
tributed to the Company's cosmetic nail care sales to private label customers
in Western Europe and by significant gains in automotive aftermarket Pro Seal
sales to customers in Eastern Europe.
Cost of sales for the year was $16,520,294, or 64% of sales. This represents
an increase of $1,748,579, or 12% over the prior year. This rise was attribut-
ed primarily to increased volume, as the Company experienced nominal increases
in the cost of raw materials during fiscal year 1997. Cost of sales was favor-
ably impacted by a reduction in manufacturing costs driven by continued vertical
integration of the Company's manufacturing operations.
Selling, General & Administrative expenses were $6,595,513, or 26% of sales.
This represents an increase of $932,558, or 16% over the prior year, of which
9% was related to sales and marketing expenses required to support the addition-
al sales volume. The change in administrative expenses was led by a significant
increase of 42% in Research and Development spending, primarily to support the
growth in the Company's cosmetic nail care business. Spending increases for
public relations, legal and accounting fees also contributed to the change in
administrative expenses.
Goodwill related to the Super Glue acquisition is being amortized over 14 years.
Amortization costs of $133,354 were recorded in fiscal year 1997. Management
believes the Super Glue product line will continue to generate profits that will
significantly exceed the goodwill amortization.
<PAGE>
Other expenses for the year were $75,752, or less than 1% of sales. This
represents a decrease of $290,916, or 79% below the prior year. This improve-
ment was primarily attributed to a reduction in interest expense for the util-
ization of the Company's credit facility. A substantial improvement in profit-
ability allowed the Company to reduce its reliance on bank borrowings during
fiscal year 1997. Other income improved due to a one-time gain of approximate-
ly $76,000 from the disposition of surplus equipment during fiscal year 1997.
Pacer Technology is currently undergoing a tax audit by the Internal Revenue
Service for fiscal years 1994 and 1995. While the results have not been con-
cluded, the Company has recorded an additional provision for a potential liabi-
lity related to this audit. The Company's effective tax rate, excluding the
additional provision, was approximately 45% for fiscal year 1997.
Comparison of 1996 to 1995
- --------------------------
Net sales increased $1,694,389 to $22,278,497, or 8% over the prior year. This
growth was primarily due to increased revenue generated by most product lines
during fiscal year 1996.
Cost of sales for the year was $14,771,715, or 66% of sales. This represents
an increase of $809,886, or 6% over the prior year. This rise was primarily
due to increased volume. Cost of sales was, however, favorably impacted by
both a reduction in manufacturing costs and freight charges. These savings
were the result of the Company's reorganization and inventory reduction plans
implemented in the latter part of fiscal year 1995.
Selling, General & Administrative expenses were $5,662,955, or 25% of sales.
These expenses included charges incurred in conjunction with due diligence
activities for a proposed acquisition that did not materialize. This repre-
sents a decrease of $823,480, or 13% below the prior year. This drop in ex-
penditures was primarily attributed to savings realized through the Company's
reorganization plan coupled with reduced spending in most areas. Selling,
General & Administrative expenses were also favorably impacted by reduced
freight charges resulting from the improved utilization of the Company's
Memphis, Tennessee distribution facility.
Goodwill related to the Super Glue acquisition is being amortized over 14
years. Amortization costs of $133,354 were recorded in fiscal year 1996.
Management believes the Super Glue product line will generate profits that
will significantly exceed the goodwill amortization.
Other expenses for the year were $366,668, or 2% of sales. This represents a
decrease of $146,444, or 29% over the prior year. This decline was primarily
attributed to interest expense associated with reduced utilization of the
Company's credit facility. A substantial improvement in profitability and cash-
flow generated from its inventory reduction plan allowed the Company to reduce
its reliance on bank borrowings during fiscal year 1996.
The Company's effective tax rate for fiscal year 1996 after tax credits was 37%.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by all activities in fiscal year 1997 was $86,303 versus
$88,762 in the prior year.
Cash provided by operating activities during 1997 was $1,480,864 compared to
$2,927,498 in fiscal year 1996. The significant rise of 31% in net income in
fiscal year 1997 from fiscal year 1996 was a positive contributor to this
change. The increases in trade accounts receivable and inventory were volume
related, while the decrease in accounts payable was primarily attributed to
the timing of payments for raw material purchases. The increase in prepaid
expenses and other assets during fiscal year 1997 was caused primarily by ad-
vances to suppliers for capital equipment purchases, and prepaid income taxes.
The increase in deferred income taxes during fiscal year 1997 was due to timing
differences pertaining to tax deductible expenses. Accrued expenses and other
liabilities were higher in fiscal year 1997 due to volume related advertising
and promotion expenses, as well as accrued legal and accounting fees. Also
included was a provision for a potential income tax liability related to an
I.R.S. audit for fiscal years 1994 and 1995.
Cash consumed by investing activities in 1997 was $478,560 compared to $243,015
in the prior year. This increase was the result of additional expenditures
for capital equipment to further enhance the vertical integration of Pacer's
manufacturing operations. This cash consumption was partially offset by
proceeds from the sale of surplus equipment.
<PAGE>
Cash consumed by financing activities in 1997 was $916,000, compared to
$2,595,721 in the prior year. The primary uses of cash were the repayment of
line of credit borrowings and long term debt to the Company's predominant bank.
The exercise of certain stock options by employees provided a source of cash
for the Company during fiscal year 1997.
Pacer anticipates continued utilization of the new credit facility with its
predominant bank to supplement cash requirements for working capital, capital
equipment purchases and potential acquisitions during the coming year. Manage-
ment is of the opinion that such sources of cash are sufficient for the ensuing
fiscal year.
Recently issued Accounting Pronouncements
- -----------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share". The new statement is effective for fiscal years
ending after December 15, 1997. The Company does not believe that adoption of
this new standard will have a material effect on the consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income." The new statement is effective for both
interim and annual periods beginning after December 15, 1997. The Company has
not yet determined the impact of adopting this new standard on the consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
new statement is effective for fiscal years beginning after December 15, 1997.
The Company has not yet determined the impact of adopting this new standard
on the consolidated financial statements.
<PAGE>
Item 7. Financial Statements
The following consolidated financial statements are included herein:
Independent Auditors' Report
Consolidated Balance Sheets - June 30, 1997 and 1996.
Consolidated Statements of Operations - Years Ended
June 30, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity - Years
Ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows - Years Ended
June 30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
<PAGE>
Independent Auditors' Report
To the Board of Directors
Pacer Technology:
We have audited the accompanying consolidated balance sheets of Pacer Tech-
nology and subsidiaries as of June 30, 1997 and 1996, and the related consoli-
dated statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial state-
ments based on our audits. We did not audit the financial statements of Pacer
Tech. Limited, a wholly owned subsidiary, which statements reflect total assets
constituting 11 percent and 9 percent and total revenues constituting 9 percent
and 6 percent in 1997 and 1996, respectively, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts for
Pacer Tech. Limited, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pacer Technology and subsidiaries
as of June 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended June 30, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Orange County, California
August 1, 1997
<PAGE>
PACER TECHNOLOGY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and 1996
ASSETS 1997 1996
- ------ -------- -------
Current assets:
Cash $ 294,298 207,995
Trade receivables, less allowance for doubtful
accounts of $383,170 in 1997 and $388,525 in
1996 (notes 2 and 6) 4,719,970 4,515,127
Other receivables 198,855 188,737
Notes receivable - Current (note 2) 248,220 218,165
Inventories (notes 3 and 6) 4,347,497 3,954,045
Prepaid expenses 390,331 340,748
Deferred income taxes (note 9) 621,804 534,369
---------- ---------
Total current assets 10,820,975 9,959,186
========== =========
Equipment and leasehold improvements, net
(notes 4, 6 and 7) 1,444,631 1,395,386
Deferred income taxes (note 9) 60,222 36,110
Cost in excess of net assets of businesses
acquired, net (note 1) 1,690,878 1,859,290
Other assets (note 5) 9,344 30,544
----------- ---------
$14,026,051 13,280,516
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Bank borrowings (note 6) $ 792,000 1,675,000
Current installments of long-term debt (note 6) 262,866 225,672
Accounts payable 2,367,245 2,382,718
Accrued payroll and related expenses 386,952 298,006
Other accrued expenses 1,233,439 862,779
--------- ---------
Total current liabilities 5,042,502 5,444,175
Long-term debt, excluding current installments (note 6) 221,202 505,692
--------- ---------
Total liabilities 5,263,704 5,949,867
Stockholders' equity (notes 10, and 12):
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 15,849,975 shares
in 1997 and 15,213,475 shares in 1996 8,260,973 8,105,115
Accumulated (deficit) earnings 1,072,404 (144,998)
Notes receivable from directors (notes 10 and 12) (571,030) (629,468)
--------- ---------
Total stockholders' equity 8,762,347 7,330,649
Commitments and contingencies (notes 7, 11, 12 and 13)
Subsequent events (note 15)
----------- ---------
$14,026,051 13,280,516
=========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------- ------ -------
Net sales (note 8) $25,677,840 22,278,497 20,584,108
Cost of sales 16,520,294 14,771,715 13,961,829
---------- ---------- ----------
Gross profit 9,157,546 7,506,782 6,622,279
Selling, general and administrative
expenses 6,595,513 5,662,955 6,486,435
--------- --------- ---------
Operating income 2,562,033 1,843,827 135,844
Other (income) expense:
Interest expense, net 161,716 267,338 452,274
Other, net (85,964) 99,330 60,838
--------- --------- --------
Income (loss) before income taxes 2,486,281 1,477,159 (377,268)
Income tax expense (benefit) (note 9) 1,268,879 552,092 (177,550)
---------- -------- ---------
Net income (loss) $ 1,217,402 925,067 (199,718)
========== ======== =========
Income (loss) per common share and common
share equivalent
Primary:
Net income (loss) $ .07 .06 ( .01)
======= ====== ======
Weighted average common shares and common
equivalent shares outstanding 18,126,980 18,347,280 14,927,373
========== ========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1997, 1996 and 1995
Number of Notes
issued and Accumulated Receivable Total
outstanding Common Earnings From Stockholders'
shares Stock (Deficit) Directors Equity
---------- -------- --------- --------- -----------
Balances at
June 30, 1994 12,749,375 $6,977,941 (870,347) - 6,107,594
Net Loss - - (199,718) - (199,718)
Shares issued
upon exercise
of options
(Note 10) 881,700 528,361 - - 528,361
Shares issued
upon exercise
of warrants
(Note 10) 760,900 328,273 - - 328,273
Shares issued
to employees
(Note 10) 12,000 9,960 - - 9,960
Promissory Note
from Directors
(Note 10) - - - (484,500) (484,500)
--------- --------- --------- ---------- ---------
Balances at
June 30, 1995 14,403,975 7,844,535 (1,070,065) (484,500) 6,289,970
Net income - - 925,067 - 925,067
Shares issued
upon exercise
of options
(Note 10) 175,000 55,845 - - 55,845
Shares issued
upon exercise
of warrants
(Note 10) 624,000 198,120 - - 198,120
Shares issued
to employees
(Note 10) 10,500 6,615 - - 6,615
Promissory Note
from Directors
(Note 10) - - - (144,968) (144,968)
--------- ---------- --------- --------- ----------
Balances at
June 30, 1996 15,213,475 8,105,115 (144,998) (629,468) 7,330,649
Net income - - 1,217,402 - 1,217,402
Shares issued
upon exercise
of options
(Note 10) 629,500 150,958 - - 150,958
Shares issued
to employees
(Note 10) 7,000 4,900 - - 4,900
Promissory Note
from Directors
(Note 10) - - - 58,438 58,438
----------- ---------- --------- ---------- -----------
Balances at
June 30, 1997 15,849,975 $8,260,973 1,072,404 (571,030) 8,762,347
========== ========== ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
------ ------ ------
Net income (loss) $1,217,402 925,067 (199,718)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation 505,315 468,142 476,791
Amortization of other assets 189,612 189,612 189,613
(Gain) loss on sale of property and
equipment (76,000) (4,742) 105
Increase (decrease) in provision for
doubtful accounts (5,355) (11,276) 60,801
(Increase) decrease in trade accounts
receivable (199,488) (657,860) 1,122,167
Increase in other receivables (10,118) (63,372) (35,161)
(Increase) decrease in
notes receivables (30,055) 114,529 (332,694)
(Increase) decrease in inventory (393,452) 1,554,084 (1,006,790)
(Increase) decrease in prepaid expenses
and other assets (49,583) (202,732) 93,810
(Increase) decrease in deferred income
taxes (111,547) 293,521 (444,200)
Increase (decrease) in accounts payable (15,473) 615,616 (932,567)
Increase (decrease) in accrued payroll
and related expenses 88,946 41,767 (7,319)
Increase (decrease) in accrued expenses
and other liabilities 370,662 (334,858) 253,039
-------- -------- -------
Net cash provided by (used in)
operating activities 1,480,864 2,927,498 (762,123)
--------- --------- --------
Cash flows from investing activities:
Proceeds from sale of property and
equipment 76,000 3,450 3,787
Capital expenditures (554,560) (246,465) (430,200)
-------- -------- --------
Net cash used in investing
activities (478,560) (243,015) (426,413)
-------- -------- -------
Cash flows from financing activities:
Principal payments on long-term debt (247,296) (229,333) (184,599)
Borrowings of debt - - 250,000
Principal payments on obligations
under capital lease - - (5,400)
Borrowings on line of credit 10,179,500 8,325,000 7,858,000
Payments on line of credit (11,062,500) (10,807,000) (7,216,000)
Notes receivable from directors 58,438 (144,968) (484,500)
Issuance of common stock 155,858 260,580 866,594
----------- --------- --------
Net cash provided by (used in)
financing activities (916,000) (2,595,721) 1,084,095
---------- --------- ---------
Net increase (decrease) in cash 86,303 88,762 (104,441)
Cash at beginning of year 207,995 119,233 223,674
---------- -------- --------
Cash at end of year $ 294,298 207,995 119,233
========== ======== =======
See accompanying notes to consolidated financial statements.
<PAGE>
PACER TECHNOLOGY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended June 30, 1997, 1996 and 1995
(1) The Company and Summary of Significant Accounting Policies
The Company
- -----------
Pacer Technology ("Pacer") is a vertically integrated manufacturer, formulator
and packager of adhesives, sealants and other related products used in hobby,
cosmetic, industrial, automotive aftermarket, consumer and private label ap-
plications. Pacer produces nearly all of the plastic containers used to pack-
age their adhesives and also produces plastic containers for other customers.
Principles of Consolidation
- --------------------------
The consolidated financial statements include the accounts of Pacer and its
subsidiaries, Pacer Tech Limited ("Pacer Tech") and Recap Limited ("Recap").
Pacer Tech was formed in 1986 to conduct business operations as a distributor
of adhesives in the United Kingdom. Recap was formed in 1992 and is currently
inactive.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market (net
realizable value).
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are stated at cost less accumulated dep-
reciation or amortization. Equipment depreciation is calculated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or estimated useful life of the asset.
Cost in Excess of Net Assets of Businesses Acquired
- ---------------------------------------------------
Cost in excess of net assets of businesses acquired is amortized on the
straight-line method over a 14-year life. Pacer assesses the recoverability
of this intangible asset by determining whether the amortization of the asset
balance over its remaining useful life can be recovered through undiscounted
future operating cash flows of the acquired operation.
Income (Loss) Per Common Share and Common Equivalent Share
- ----------------------------------------------------------
Income (loss) per common share and common share equivalent is computed based
on the weighted average number of common shares outstanding and common
equivalent shares from the dilutive effect of outstanding stock options and
warrants. Fully diluted income per share approximates primary income per share
for all periods.
Income Taxes
- ------------
Pacer reports income taxes in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," (FASB 109) which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are deter-
mined based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse (see note 9).
<PAGE>
Foreign Currency Translation
- ----------------------------
Assets and liabilities denominated in foreign functional currency are trans-
lated into U.S. dollars at the current rate of exchange existing at year-end
and revenues and expenses are translated at the average monthly exchange rates.
Translation adjustments are immaterial, as are realized transaction gains and
losses, all of which are included in operations.
Fair Value of Financial Instruments
- -----------------------------------
In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments." SFAS No. 107 requires all entities to disclose the
fair value of financial instruments, both assets and liabilities recognized
and not recognized on the balance sheet, for which it is practicable to est-
imate fair value. SFAS No. 107 defines fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current tran-
saction between willing parties. As of June 30, 1997, the fair value of all
financial instruments approximated carrying value.
Research and Development
- ------------------------
Research and development costs are charged to selling, general and adminis-
trative expenses as incurred and amounted to $347,691, $245,375 and $364,646
in 1997, 1996 and 1995, respectively.
Product Warranties
- ------------------
Pacer provides warranties for some products for periods generally ranging from
6 to 12 months. Estimated warranty costs are recognized at the time of the
sale.
Statement of Cash Flows
- -----------------------
Cash and cash equivalents include cash on hand and cash at banks. Net cash
provided by operating activities includes net interest expense of $161,716
$267,338 and $452,274 for the years ended June 30, 1997, 1996 and 1995,
respectively. Income taxes paid amounted to $1,083,939, $385,250 and $96,250
for the years ended June 30, 1997, 1996 and 1995, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
- -----------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of",
during fiscal year ended June 30, 1997. This Statement requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future
net undiscounted operating cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the Company's financial
position results of operations, or liquidity.
Stock Options
- -------------
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
During fiscal year ended June 30, 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation", which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the pro forma dis-
closure provisions of SFAS No. 123.
(2) Notes Receivable
Several customers have converted trade receivable balances to term notes.
The notes are payable in monthly installments of principal and interest at a
rate higher than the rate of interest charged to Pacer for its borrowing of
funds from its predominant bank.
<PAGE>
(3) Inventories
Inventories are summarized as follows: 1997 1996
-------- --------
Raw materials $1,665,877 1,724,468
Work-in-process 249,646 307,763
Finished goods 2,431,974 1,921,814
---------- ----------
$4,347,497 3,954,045
========== =========
(4) Equipment and Leasehold Improvements
Equipment and leasehold improvements and the useful lives used for computing
depreciation and amortization are summarized as follows:
Lives
in years 1997 1996
-------- -------- ---------
Shop equipment 5-10 $3,891,784 3,482,248
Office furniture and equipment 5-7 526,716 527,946
Leasehold improvements 10 834,012 825,170
Transportation equipment 3 104,865 102,165
Construction in progress - 13,194 110,846
---------- ---------
$5,370,571 5,048,375
Less accumulated depreciation
and amortization (3,925,940) (3,652,989)
---------- ----------
$1,444,631 1,395,386
========== =========
(5) Other Assets
Other assets (net of amortization) consist of the following:
1997 1996
------- ------
Covenant not to compete, net $ 1,666 21,666
Patents and trademarks, net 6,586 7,786
Other 1,092 1,092
------- -------
$ 9,344 30,544
======= ======
(6) Line of Credit and Long-Term Debt
On June 25, 1997, the Company entered into a promissory note agreement with
its primary bank whereby Pacer can borrow up to $8,000,000 to be utilized for
working capital, capital expenditures and acquisitions. This promissory note
is cross-collateralized by trade accounts receivable, inventory and certain
equipment, and bears interest at the bank's prime rate (8.25% at June 30, 1997)
plus 0.50%. The note requires monthly interest payments only and has a
maturity date of July 1, 2000. Prepayments of the principal balance are permit-
ted without penalty.
This new credit facility will be utilized initially to retire in July, 1997,
the Company's line of credit balance ($792,000 at June 30, 1997), and two (2)
term loans ($484,068 total at June 30, 1997).
This credit agreement requires maintenance of certain financial ratios and
contains other restrictive covenants. Pacer was in compliance with all debt
covenants at June 30, 1997.
Long-term debt consists of the following: 1997 1996
---- -----
Note payable at prime plus 2.0%, secured
by certain assets, due in monthly
installments of principal plus interest,
through December 1, 1998. $350,735 548,031
Note payable at prime plus 1.50%, secured
by certain equipment, due in 60 monthly
installments of $4,167 plus interest,
through February 2000. 133,333 183,333
Less current installments (262,866) (225,672)
---------- ---------
$221,202 505,692
======== =======
<PAGE>
Long-term debt of $221,202 existing as of June 30, 1997 will be retired during
fiscal year 1998.
(7) Lease Obligations
Pacer leases two manufacturing facilities under operating leases expiring in
June, 2009 and April 1999. Pacer also leases two distribution facilities and
office equipment under operating lease agreements. Leases for the two
distribution facilities expire in December, 1999 and August 2002. Future mini-
mum lease payments under noncancellable operating leases as of June 30, 1997
are as follows:
Operating
Year ending June 30, Leases
-----------
1998 $ 355,937
1999 340,872
2000 232,056
2001 258,120
Thereafter 1,891,116
----------
Minimum future lease payments $3,078,101
Rent expense was $383,936, $404,107, and $366,797 in 1997, 1996 and 1995,
respectively.
(8) Major Customers and Export Sales
Pacer did not have net sales to any individual customer greater than 10% of
total net sales in either 1997, 1996 or 1995.
Pacer had export sales representing 18% of net sales in 1997 and 16% of net
sales in 1996 and 1995.
(9) Income Taxes
Income tax expense (benefit) consisted of:
1997 1996 1995
----- ---- ----
Federal:
Current $1,139,387 208,331 206,250
Deferred (94,828) 243,296 (383,800)
----------- -------- ---------
1,044,559 451,627 (177,550)
State:
Current 241,039 50,240 60,400
Deferred (16,719) 50,225 (60,400)
----------- ------- --------
$1,268,879 552,092 (177,550)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at June 30, 1997 and 1996 are presented below:
Current deferred tax assets (liabilities): 1997 1996
-------- -------
Allowance for doubtful accounts $153,651 155,799
Inventory 120,102 144,389
Prepaid expenses (68,314) (79,276)
Vacation accruals 59,204 46,739
Warranty accruals 43,946 33,684
Advertising accruals 65,975 49,935
Other accruals 247,240 183,099
-------- -------
Net current deferred tax assets $621,804 534,369
Non-current deferred tax assets:
Depreciation $ 60,222 36,110
========= ======
The Company believes that it is more likely than not that the net deferred tax
assets will be realized. This belief is based on recent and anticipated future
earnings.
<PAGE>
The total income tax expense differs from the "expected" tax expense (computed
by applying the U.S. Federal corporate income tax rate of 34%) for 1997, 1996
and 1995 as follows:
1997 1996 1995
-------- ------- -------
Expected income tax provision (benefit) $ 845,336 502,234 (163,375)
Non-deductible expenses 78,633 83,447 37,000
State income tax, net of
Federal income tax benefit 148,051 63,462 39,000
Effect of foreign operations 19,303 (16,470) 80,225
Change in balance of valuation allowance - - (170,400)
Other 177,556 - -
Reduction of liabilities previously
accrued - (80,581) -
---------- --------- -------
$1,268,879 552,092 (177,550)
========== ======== =======
(10) Stockholders' Equity
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, with-
out 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 Tech-
nology. 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.
<PAGE>
Each Director may sell the shares securing the Note in whole or in part, with-
out 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.
On January 1997, one director retired a promissory note with a principal
balance of $58,437.50, plus interest accrued as of that date.
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.
Common Stock
- ------------
During the year ended June 30, 1994, Pacer adopted a stock incentive plan which
awards shares of stock to employees for years of service. Under this plan,
500 shares of Pacer stock are granted to each employee for every five years of
service. The shares are restricted for one year after the grant date. Pacer
awarded 7,000, 10,500, and 12,000 shares to employees for past service and
recorded compensation expense of $4,900, $6,615, and $9,960 in 1997, 1996 and
1995, respectively.
Stock Option and Incentive Stock Option Plans
- ---------------------------------------------
During the year ended June 30, 1995, Pacer adopted the 1994 Stock Option Plan
to provide key employees and directors an opportunity to purchase the common
stock of the Company pursuant to "non-qualified stock options" at the
discretion of the Board of Directors.
Under the 1994 Stock Option Plan, options to purchase up to 2,000,000 shares
of Pacer Technology common stock can be granted. The purchase price shall be
no less than fair market value on the grant date. The exercise period shall
not exceed ten years from grant date and options vest immediately.
In 1996, under this plan, Pacer granted an option to a director to purchase
100,000 shares of Pacer's common stock at $.88 per share. On the date of grant
the market value of the stock was $.88 per share. There were no stock options
granted during fiscal 1997. The fair value of stock options granted during
fiscal 1996 was $.69 on the date of grant using the Black Scholes option-
pricing model with the following assumptions: volatility rate of 66.03%, risk-
free interest rate of 6.19%, and an expected life of 10 years.
The Company applies APB Opinion No.25 in accounting for its Plan and, according-
ly, no compensation cost has been recognized for its stock options in the
financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No.123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
1997 1996
-------- --------
Net income As reported $1,217,402 $ 925,067
Pro forma 1,217,402 881,469
E.P.S. As reported 0.07 0.06
Pro forma 0.07 0.06
During the year ended June 30, 1995, Pacer adopted the 1994 Incentive Stock
Option Plan that qualifies as "incentive stock options" under Section 422 of
the Internal Revenue Service Code.
Under the 1994 Incentive Stock Option Plan, options to purchase up to an
aggregate of 2,000,000 shares of Pacer Technology common stock can be granted.
The purchase price shall be no less than the fair market value of the common
stock on the grant date. In the event such option is granted to an employee
who, at the time the option is granted,
<PAGE>
owns common stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, the exercise price of the option shall
be no less than 110% of the fair market value. The exercise period for the
options shall not exceed ten years. The option agreement may provide (a) that
the right to exercise the option in whole or in part shall not accrue until a
certain date or the occurrence of an event; (b) that the right to exercise the
option shall accrue over time in accordance with a vesting schedule; or (c) that
such accrual shall be accelerated upon the occurrence of certain specified
event(s).
Pacer had 4,800,000 shares of common stock reserved for non-qualified and
qualified incentive stock options under the Company's 1982 Stock Option Plan
and the 1982 Incentive Stock Option Plan. These Plans expired in 1992, and
no options were granted under these plans thereafter.
Under the 1982 Stock Option Plan, options to purchase up to an aggregate of
1,800,000 shares of common stock could be granted to both directors and key
employees. The purchase price was not normally less than the fair market
value of the shares on the date the option was granted, and in no event was the
purchase price less than 85% of the fair market value of the shares on the date
the option was granted. The exercise period for an option could not exceed
ten years, and options granted vested immediately.
Under the 1982 Incentive Stock Option Plan, options to purchase an aggregate
of 3,000,000 shares of common stock could be granted to key employees of Pacer.
The purchase price was not less than the fair market value of the shares on the
date the option was granted. These options generally expired in ten years and
vested immediately.
A summary of transactions under the stock option plans is as follows:
1982 Stock Option Plan & ISOP
Options Outstanding Options
Available Exercise Aggregate
for Grant Shares Price Value
---------- --------- --------- ---------
Balances at June 30, 1994 - 3,118,200 $0.19-1.06 1,540,383
Options exercised - (881,700) 0.38-0.58 (528,361)
Options expired - (685,000) 0.38-0.64 (374,987)
Options cancelled - - - -
--------- --------- ---------- ---------
Balances at June 30, 1995 - 1,551,500 $0.19-1.06 637,035
Options exercised - (175,000) 0.24-0.47 (55,845)
Options expired - (100,000) 1.06 (106,300)
Options cancelled - - - -
--------- --------- ---------- ---------
Balances at June 30, 1996 - 1,276,500 $0.19-0.55 474,890
Options exercised - (629,500) 0.19-0.55 (150,959)
Options cancelled - - - -
--------- -------- ---------- ---------
Balances at June 30, 1997 - 647,000 $0.19-0.55 323,931
<PAGE>
Other Stock Option Plan
Options Outstanding Options
Available Exercise Aggregate
for Grant Shares Price Value
---------- -------- -------- --------
Balances at June 30, 1994 - 1,000,000 $ 1.00 1,000,000
Options authorized 100,000 - - -
Options granted ( 100,000) 100,000 1.08 107,800
--------- --------- --------- --------
Balances at June 30, 1995 - 1,100,000 $1.00-1.08 1,107,800
Options authorized 100,000 - - -
Options granted (100,000) 100,000 1.06 106,000
Options cancelled - - - -
---------- ---------- -------- ---------
Balances at June 30, 1996 - 1,200,000 $1.00-1.08 1,213,800
Options authorized - - - -
Options granted - - - -
Options cancelled - (100,000) 1.00 (100,000)
---------- ---------- --------- ---------
Balances at June 30, 1997 - 1,100,000 $1.00-1.08 1,113,800
========== ========== ========== =========
1994 SOP & ISOP
Options Outstanding Options
Available Exercise Aggregate
for Grant Shares Price Value
---------- -------- -------- ----------
Balances at June 30, 1994 - - $ - -
Options authorized 4,000,000 - - -
Options granted (3,600,000) 3,600,000 0.72-1.00 3,376,000
Options cancelled - - - -
---------- ----------- ---------- ---------
Balances at June 30, 1995 400,000 3,600,000 $0.72-1.00 3,376,000
Options authorized - - - -
Options granted (100,000) 100,000 0.88 87,500
Options cancelled - - - -
---------- --------- ----------- ---------
Balances at June 30, 1996 300,000 3,700,000 $0.72-1.00 3,463,500
Options granted - - - -
--------- --------- ---------- ---------
Balances at June 30, 1997 300,000 3,700,000 $0.72-1.00 3,463,500
======== ========= ========== =========
Director Warrants
Pacer has issued warrants to Directors for the purchase of common stock as
follows:
Exercise Aggregate
Warrants Price Value
--------- --------- ---------
Balance at June 30, 1994 1,859,900 $0.32-0.50 764,268
Warrants exercised (760,900) 0.32-0.50 (328,273)
Warrants expired (475,000) 0.32-0.50 (237,875)
---------- ---------- ----------
Balance at June 30, 1995 624,000 $ 0.32 198,120
Warrants exercised (624,000) 0.32 (198,120)
--------- --------- ----------
Balance at June 30, 1996 - - -
--------- --------- ---------
Balance at June 30, 1997 - - -
========= ======== =========
<PAGE>
(11) 401(k) Plan
Pacer's 401(k) plan is available to all full-time employees who have completed
a minimum service of one year at January 1 or July 1 of each year.
Employees who elect to participate in the plan may make contributions to the
plan on a pre-tax basis from 2% to 16% of their annual compensation. Pacer
contributions, when made, will match 40% of employee contributions up to 4% of
salaries paid. Pacer contributions are accrued as participant contributions
are withheld, and participants become fully vested in Pacer contributions after
six years of service.
Plan expense for the years ended June 30, 1997, 1996 and 1995 was $35,740,
$28,707 and $21,389, respectively.
(12) Related Party Transactions
The Company has made loans to certain directors which are evidenced by promis-
sory notes and secured by shares of common stock. The loans have maturities
of 4 years. As of June 30, 1997, the outstanding principal amount on the notes
was $571,030 and is included in stockholders' equity. (Note 10)
(13) Commitments and Contingencies
Pacer has entered into sales agreements in the ordinary course of business
which include pricing terms, renewability clauses, and provisions which convey
trademark rights. Each of these agreements is unique and may include one or
more of these features as part of its terms.
Pacer is involved in certain legal actions and claims arising in the ordinary
course of business. It is the opinion of management (based on advice of legal
counsel) that such litigation will be resolved without material effect on
Pacer's financial position or results of operations.
During fiscal year 1995, Pacer extended an employment contract with a member of
management. Among other things, the contract provides for a three month
continuation of salary payments, approximately $65,000, for termination with-
out cause and includes certain agreements not to compete.
(14) Fourth Quarter Adjustment
Pacer took a one time charge against cost of sales of approximately $450,000
during the fourth quarter of fiscal year 1995 for the phaseout of unprofitable
product lines.
(15) Subsequent Events (Unaudited)
On July 15, 1997, the Company acquired the assets of California Chemical Spe-
cialties, Inc. The assets purchased primarily consisted of trade accounts
receivable, inventory, fixed assets and proprietary formulas. In addition,
Pacer assumed the liability for trade accounts payable as of the closing date.
The total purchase price consisted of approximately $2,575,000 cash, and the
assumption of liabilities, including transaction costs. California Chemical
has annual revenues of approximately $2,800,000.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Identification of the directors and executive officers of the Company is
incorporated by reference from the "Election of Directors--Nominees and
executive officers" sections of the Company's definitive Proxy Statement dated
September 5, 1997 to be mailed to shareholders in connection with the 1997
Annual Shareholders Meeting and filed with the Securities and Exchange commis-
sion on or about September 5, 1997 (the "Proxy Statement"), found on pages 4-5
thereof. Information regarding compliance with Section 16(a) of the Exchange
Act is incorporated by reference from the "Section 16(a) Beneficial Ownership
Reporting Compliance" section of the Proxy Statement, found on pages 7-8
thereof.
Item 10. Executive Compensation
Incorporated by reference from the "Election of Directors--Executive Compen-
sation" section of the Proxy Statement, found on pages 5-7 thereof.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the "General Information--Share Ownership of
Management" section of the Proxy Statement, found on pages 2-3 thereof.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference from the "Certain Transactions" section of the Proxy
Statement, found on page 7 thereof.
Item 13. Exhibits and Reports on Form 8-K
(a) Following is a list of the exhibits filed with this Form 10-KSB.
Exhibit 3.1 Articles of Incorporation (4)
Exhibit 3.2 By-laws (4)
Exhibit 10.3 Employment agreement dated November 21,
1989 between the Company and James Munn. (1)
Exhibit 10.4 Warrants issued to directors in fiscal year
ended June 30, 1987. (3)
Exhibit 10.5 Lease Agreement for new facilities in Rancho Cucamonga,
California, dated March 1, 1988. (2)
Exhibit 10.6 Agreement To Extend Term of Executive Employment
Agreement
Exhibit 10.7 Agreement To Extend Term of lease agreement dated March
1, 1988 for facilities in Rancho Cucamonga.
Exhibit 22 Subsidiaries of Registrant
Exhibit 23 Consent of Independent Auditors
(b) Non-Applicable
<PAGE>
- ---------------------------------
1) Incorporated by reference to exhibits to Form 10-K for fiscal year
ended June 30, 1990.
2) Incorporated by reference to exhibits to Form 10-K for fiscal year
ended June 30, 1988.
3) Incorporated by reference to exhibits to Form 10-K for fiscal year
ended June 30, 1987.
4) Incorporated by reference to exhibits to Form 10-K for fiscal year
ended June 30, 1986.
<PAGE>
Signatures
Pursuant to the requirements of section 13 or 15(d) 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
-----------------------
James T. Munn, President
Date: September 03, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regist-
rant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ---------- --------------
_____________ President/ September 03, 1997
James T. Munn Chief Executive
Officer/Director
_____________________ Chief Financial September 03, 1997
Roberto J. Cavazos, Jr. Officer
__________________ Chairman of September 03, 1997
John G. Hockin, II the Board and
Director
______________________ Secretary and September 03, 1997
DeVere W. McGuffin, II Director
_____________ Director September 03, 1997
Joe F. Brock
_____________ Director September 03, 1997
Carl Hathaway
______________ Director September 03, 1997
Larry Reynolds
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ James T. Munn
-----------------------
James T. Munn, President
Date: September 03, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regist-
rant and in the capacities and on the dates indicated.
Signature Title Date
- ----------- -------- ----------
/s/ James T. Munn President/ September 03, 1997
_________________ Chief Executive
James T. Munn Officer/Director
/s/ Roberto J. Cavazos, Jr. Chief Financial September 03, 1997
__________________________ Officer
Robert J. Cavazos,Jr.
/s/ John G. Hockin II Chairman of the September 03, 1997
_____________________ Board and
John G. Hockin II Director
/s/ DeVere W. McGuffin Secretary and September 03, 1997
______________________ Director
DeVere W. McGuffin
_____________________ Director September 03, 1997
Joe F. Brock
____________________ Director September 03, 1997
Carl Hathaway
/s/ Larry K. Reynolds Director September 03, 1997
_____________________
Larry K. Reynolds
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Number Name Page
- ------------ ------------------------------- -----------------
Exhibit 3.1 Articles of Incorporation (4) -
Exhibit 3.2 By-laws (4) -
Exhibit 10.3 Employment agreement dated November 21, 1989
between the Company and James Munn. (1) -
Exhibit 10.4 Warrants issued to directors in fiscal
year ended June 30, 1987. (3) -
Exhibit 10.5 Lease Agreement for new facilities in
Rancho Cucamonga, California, dated
March 1, 1988. (2) -
Exhibit 10.6 Agreement To Extend Term of Executive
Employment Agreement -
Exhibit 10.7 Agreement To Extend Term of lease agreement dated
March 1, 1988 for facilities in Rancho Cucamonga -
Exhibit 22 Subsidiaries of Registrant (27)
Exhibit 23 Consent of Independent Auditors (28)
- -------------------------------
1) Incorporated by reference to exhibits to Form 10-K for fiscal
year ended June 30, 1990.
2) Incorporated by reference to exhibits to Form 10-K for fiscal
year ended June 30, 1988.
3) Incorporated by reference to exhibits to Form 10-K for fiscal
year ended June 30, 1987.
4) Incorporated by reference to exhibits to Form 10-K for fiscal
year ended June 30, 1986.
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF PACER TECHNOLOGY
1. Pacer Tech Ltd.
A United Kingdom Corporation - 100% owned
2. RECAP, LTD.
A California Corporation - 100% owned
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors and Stockholders
Pacer Technology:
We consent to incorporation by reference in the registration statement (No.
33-48090) on Form S-8 of Pacer Technology of our report dated August 1, 1997,
relating to the consolidated balance sheets of Pacer Technology and subsidia-
ries as of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1997 which report appears in the June 30, 1997
annual report on Form 10-KSB of Pacer Technology.
/s/ KPMG Peat Marwick LLP
Orange County, California
September 17, 1997
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