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
December 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 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 December 31, 1996 were
15,713,475.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1996 1996
(Unaudited) (Unaudited)
---------- ----------
CURRENT ASSETS:
Cash $ 235,911 207,995
Trade receivables, less allowance for doubtful
accounts of $455,851 and $388,525 respectively
(note 2) 4,486,178 4,515,127
Other receivables 248,716 188,737
Notes receivable - Current (note 2) 130,087 218,165
Inventories (note 3) 4,094,312 3,954,045
Prepaid expenses 252,245 340,748
Deferred income taxes 534,369 534,369
---------- ----------
Total current assets 9,981,818 9,959,186
EQUIPMENT & LEASEHOLD IMPROVEMENTS:
Cost 5,310,354 5,048,375
Accumulated depreciation & amortization (3,801,617)(3,652,989)
---------- ----------
Total Equipment & Leasehold Improvements 1,508,737 1,395,386
Deferred income taxes 36,110 36,110
Cost in excess of net assets of businesses
acquired, net 1,775,084 1,859,290
Other Assets 19,944 30,544
---------- ----------
Total Assets $13,321,693 13,280,516
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings (note 4) $ 1,300,000 1,675,000
Current installments of long-term debt 225,672 225,672
Accounts payable 1,881,930 2,382,718
Accrued payroll and related expenses 526,210 298,006
Other accrued expenses 1,096,413 862,779
--------- ---------
Total Current Liabilities 5,030,225 5,444,175
Long-term debt, excluding current
installments (note 4) 384,334 505,692
---------- ----------
Total Liabilities 5,414,559 5,949,867
STOCKHOLDERS' EQUITY:
Common stock, no par value. Authorized 50,000,000
shares; issued and outstanding 15,713,475 shares
at Dec 31, 1996 and 15,213,475 at
June 30, 1996. 8,198,865 8,105,115
Accumulated deficit 337,737 (144,998)
Notes receivable from directors (note 5) (629,468) (629,468)
---------- ---------
Total stockholders' equity 7,907,134 7,330,649
---------- ---------
Total Liabilities & Stockholders' Equity $13,321,693 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.<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended Six-Months Ended
December 31, December 31,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ---------- ---------- ---------
NET SALES $ 5,898,868 5,007,074 12,572,462 10,982,102
COST OF SALES 3,808,690 3,346,312 8,062,973 7,433,740
---------- ---------- ---------- -----------
Gross Profit 2,090,178 1,660,762 4,509,489 3,548,362
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,567,257 1,430,245 3,284,265 2,845,287
---------- ---------- ---------- -----------
Operation Income 522,921 230,517 1,225,224 703,075
OTHER (INCOME) EXPENSE:
Interest expense, net 18,739 91,391 84,322 203,628
Other, net (67,944) 14,133 (51,624) 15,588
---------- ---------- ---------- -----------
Income before income taxes 572,126 124,993 1,192,526 483,859
Income tax expense 431,210 22,900 709,791 129,900
---------- ---------- ---------- -----------
NET INCOME $ 140,916 102,093 482,735 353,959
========== =========== ========== ===========
Income per common
share and common share
equivalent
Primary:
Net income $ 0.01 0.01 0.03 0.02
========== =========== ========== ==========
Weight average common share
and common share
equivalents outstanding 16,772,226 16,206,496 16,772,226 16,206,496
========== =========== ========== ==========
See accompanying notes to consolidated financial statements.<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-MonthsEnded
December 31,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
NET INCOME (LOSS) $482,735 353,959
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 235,085 233,109
Amortization of other assets 94,806 94,806
(Gain) loss on sale or disposition
of property and equipment (76,000) 1,360
Increase (decrease) provision for doubtful
accounts 67,326 (14,940)
(Increase) decrease in trade accounts
receivable (38,377) (251,131)
(Increase) decrease in other receivables (59,979) (52,774)
(Increase) decrease in notes receivables 88,078 70,030
(Increase) decrease in inventories (140,267) 1,510,987
decrease in prepaid expenses
and other assets 88,503 (2,076)
Increase (decrease) in accounts payable (500,789) (347,546)
Increase (decrease) in accrued payroll
and related expenses 228,204 112,702
Increase (decrease) in accrued expenses
and other liabilities 233,636 (102,203)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 702,961 1,606,285
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 76,000 (50)
Capital expenditures (348,437) (49,624)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (272,437) (49,674)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - -
Principal payments on long-term debt (121,358) (112,124)
Principal payments on obligations under
capital lease - -
Decrease in notes payable
to bank (375,000) (1,567,000)
Issuance of common stock 93,750 111,337
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES (402,608) (1,567,787)
Net increase (decrease) in cash 27,916 (11,176)
Cash at beginning of year 207,995 119,233
---------- ----------
CASH AT END OF SIX-MONTH PERIOD $ 235,911 108,057
========== ==========
See accompanying notes to consolidated financial statements.<PAGE>
PACER TECHNOLOGY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements for the six-monthsended December
31, 1996 and 1995 have been prepared by the Company withoutaudit. In the
opinion of Management, adjustments necessary to present fairly the
consolidated financial position at December 31, 1996 and theresults of
operation for the period then ended have been made. All suchadjustments
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 there to included in the
Company's Annual Report to shareholders. The results ofoperations for
the period ended December 31, 1996 are not necessarily indicative of the
operating results for the full year.
2. NOTES RECEIVABLE:
During fiscal year 1996, 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:
December 31, 1996 June 30, 1996
----------------- -------------
Finished goods $1,720,003 1,724,468
Work in process 339,421 307,763
Raw materials 2,034,888 1,921,814
$4,094,312 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 December 31, 1996) plus
.5% and is payable on demand. Total borrowing on the line of credit
amounted to $1,300,000 at December 31, 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
December 31, 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 $158,333 at December
31, 1996.
Additionally, the company 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 $451,672 as of
December 31, 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) plus simple interest of 7.8% per annum
payable to Pacer Technology. On October 19, 1994, a Director exercised
options to purchase 485,000 shares of Pacer Technology common stock. This
director signed a secured promissory note for the principal sum of
$309,187.50, plus simple interest of 7.89% per annum payable to Pacer
Technology. Principal and all accrued interest will be due and payable in
one lump sum on September 27, 1998 and October 19, 1998, respectively;
subject to the provisions regarding prepayment noted below.
Each Note is secured by 100,000 and 485,000 shares, respectively, of the
Company's common stock as provided in a Security Agreement between the
Company and each Director.
Each Director may sell the shares securing the Note in whole or in part,
without penalty, provided that the proceeds of sale are applied to pre-pay
the Note. The amount of each prepayment shall be applied as follows:
(a) first, to interest accrued on the Note with respect to the shares
sold, to the date of sale;
(b) second, to the outstanding principal on the Note in the amount of
$0.584375 and $0.6375 per share sold, respectively; and
(c) third, to the seller or his designee.
If all principal and accrued interest on the Note is not paid in full on
or before September 27, 1998 and October 19, 1998, respectively, the
Company shall be entitled to exercise any and all remedies available to it
under the California Commercial Code, with full recourse to the personal
assets of the Director.
On September 11, 1995, one Director exercised options to purchase 100,000
shares of Pacer Technology common stock. The Director signed a secured
promissory note for the principal sum of $24,000 plus simple interest of
7.015% per annum payable to Pacer Technology. On November 20, 1995, a
Director exercised warrants to purchase 381,000 shares of Pacer Technology
common stock. This director signed a secured promissory note for the
principal sum of $120,967.50, plus simple interest of 6.6939% per annum
payable to Pacer Technology. Principal and all accrued interest will be
due and payable in one lump sum on September 11, 1999 and November 20,
1999, respectively; subject to the provisions regarding prepayment noted
below.
Each Note is secured by 100,000 and 381,000 shares, respectively, of the
Company's common stock as provided in a Security Agreement between the
Company and each Director.
Each Director may sell the shares securing the Note in whole or in part,
without penalty, provided that the proceeds of sale are applied to pre-pay
the Note. The amount of each prepayment shall be applied as follows:
(a) first, to interest accrued on the Note with respect to the shares
sold, to the date of sale;
(b) second, to the outstanding principal on the Note in the amount of
$0.24 and $0.3175 per share sold, respectively; and
(c) third, to the seller or his designee.
If all principal and accrued interest on the Note is not paid in full on
or before September 11, 1999 and November 20, 1999, respectively, the
Company shall be entitled to exercise any and all remedies available to it
under the California Commercial Code, with full recourse to the personal
assets of the Director.
<PAGE>
RESULTS OF OPERATIONS
- ----------------------
Net sales for the second quarter ended December 31, 1996 increased by 18% to
$5,898,868 from $5,007,074 for the same quarter last year. Net sales for the
six month period ended December 31, 1996 increased by 14% to $12,572,462 from
$10,982,102 during the same period in the prior year. Domestic sales increased
by 14% for the second quarter to represent 82% of total revenue in fiscal year
1997. For the six month period, domestic sales improved by 13% to represent 84%
of Pacer's total revenues. These increases were driven primarily by Pacer's
Super Glue and cosmetic private label product sales to existing accounts. Sales
to customers outside the United States increased by 37% for the second quarter
to represent 18% of total revenues in fiscal year 1997. For the six month
period, international sales increased by 21% and represented 16% of the Pacer's
total revenues. The international increases were attributed to increased demand
for the Company's private label consumer and cosmetic private label products.
Cost of sales for the quarter was $3,808,690, or 65% of sales. This represents
an increase of $462,378, or 14% over the comparable period in fiscal year 1996.
This rise was primarily due to increased volume partially offset by demand for
a more favorable product mix. For the six month period ended December 31, 1996,
cost of sales was $8,062,973, or 64% of sales. This increase of $629,233, or 8%
over the same period in the prior year was attributed to higher volume,
partially offset by demand for a more favorable product mix.
Selling, general & administrative expenses for the quarter ended
December 31, 1996 were $1,567,257 or 27% of sales. This represented an increase
of $137,012 or 10% over the comparable quarter in the prior year. For the six
month period ended December 31, 1996, Selling, General and Administrative
expenses were $3,284,265, or 26% of sales. This resulted in an increase of
$439,578, or 15% over the same period in the prior year. The increase for both
periods was attributed to volume related marketing expenses, promotion and
advertising costs and expenses pertaining to a proposed acquisition that did not
materialize.
Goodwill related to the Super Glue acquisition is being amortized
over 14 years. Amortization costs of $33,339 and $66,678 were recorded during
the second quarter and six month period ended December 31, 1996 respectively.
Management believes the Super Glue product line will continue to generate
profits that will significantly exceed the goodwill amortization.
Interest expense for the quarter ended December 31, 1996 was
$18,739 compared to $91,391 for the same period in fiscal year 1996. For the
six month period ended December 31,1996, interest expense was $84,322 versus
$203,628 during the same period in the prior year. These expense reductions
were attributed primarily to lower utilization of the Company's banks line of
credit.
Other income for the quarter ended December 31, 1996 was $67,944.
This was mainly attributed to a one time gain of $76,000 from the
disposition of surplus equipment, partially offset by early payment discounts
granted to customers. For the six month period ended December 31, 1996, other
income was $51,624, primarily due to the one time gain from the disposition of
surplus equipment recorded during the second quarter of 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 of this audit have
not been concluded, the company has recorded a one time income tax charge of
$160,000 for a potential liability pertaining to transfer pricing during
fiscal 1994 and 1995 between the U.S. parent company and its wholly owned
subsidiary Pacer Tech LTD. Excluding this one time charge, the company's
effective tax rate was 47% and 46%, respectively for the second quarter and six
month period ended December 31,1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Net cash provided by all activities during the first six months of fiscal year
1997 was $27,916 compared to cash consumed of $11,176 during the comparable
period in fiscal year 1996.
Cash provided by operating activities during the first half of fiscal year 1997
was $702,961 versus $1,606,285 during the comparable period in fiscal year 1996.
This change was mainly attributed to an inventory reduction plan implemented in
June 1995 that ultimately resulted in the most significant generator of
operating cash flow during the first six months of fiscal year 1996. Cash flow
from operations during the first six months of fiscal year 1997 was positively
impacted by an improvement in net income, an increase in accrued liabilities and
a decrease in prepaid expenses compared to the same period in the prior year.
The increase in accrued liabilities was attributed primarily to income taxes
payable related to a potential income tax liability pertaining to the I.R.S.
audit for fiscal years 1994 and 1995. The decrease in prepaid expenses was
attributed to a reduction in prepayments to suppliers. Increases in inventory
coupled with a decrease in accounts payable negatively impacted cash flow for
the six month period ended December 31,1996. The increase in inventory was
volume related, while the decrease in accounts payable was primarily attributed
to the timing of purchases for certain raw materials.
Cash used in investing activities during the six month period ended December 31,
1996 was $272,437 compared to $49,674 during the comparable period in the prior
year. This change was due to increased purchases for capital equipment to
improve the company's manufacturing efficiency and productivity.
Cash consumed by the company's financing activities was $402,608 during the
first six months of fiscal year 1997 versus $1,567,787 during the same period
in fiscal year 1996. This change was attributed primarily to the significant
reduction of bank borrowings during fiscal year 1996 from cash generated by the
Company's inventory reduction program.
The Company anticipates that cash generated from operations coupled with
continued utilization of its line of credit will provide the necessary funding
to meet its capital equipment needs and working capital requirements during the
balance of 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
February 14, 1997 /s/James T. Munn
---------------------------------
James T. Munn
President/Chief Executive Officer
February 14, 1997 /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
February 14, 1997 _____________________________________
By: James T. Munn
President/Chief Executive Officer
February 14, 1997 _____________________________________
By: Roberto J. Cavazos, Jr.
Chief Financial Officer
<PAGE>
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] JUN-30-1997
[PERIOD-START] JUL-01-1996
[PERIOD-END] DEC-31-1996
[CASH] 236
[SECURITIES] 0
[RECEIVABLES] 4486
[ALLOWANCES] 456
[INVENTORY] 4094
[CURRENT-ASSETS] 9982
[PP&E] 5310
[DEPRECIATION] 3802
[TOTAL-ASSETS] 13322
[CURRENT-LIABILITIES] 5030
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 8199
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 13322
[SALES] 12572
[TOTAL-REVENUES] 12572
[CGS] 8063
[TOTAL-COSTS] 11347
[OTHER-EXPENSES] (52)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 84
[INCOME-PRETAX] 1193
[INCOME-TAX] 710
[INCOME-CONTINUING] 1193
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 483
[EPS-PRIMARY] .03
[EPS-DILUTED] .03
</TABLE>
