SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-KA AMENDMENT TO FORM 8-K (Initial Report Date March 04, 1998) AMENDMENT TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Amended Report: May 12, 1998 PACER TECHNOLOGY - - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California - - -------------------------------------------------------------------------- (State or other jurisdiction of Incorporation or Organization) 0-8864 77-0080305 - - ----------------------- ------------------------- Commission File No. IRS Employer Identification No. 9420 Santa Anita Avenue, Rancho Cucamonga, California 91730 - - -------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) 909-987-0550 - - -------------------------------------------------------------------------- (Registrant's telephone number, including area code) The following items supersede previously submitted information to the extent such is inconsistent therewith. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired Independent Auditors' Report Audited Balance Sheet as of February 28, 1998 Audited Statement of Operations and Accumulated Deficit for the eleven months ended February 28, 1998 Audited Statement of Cash Flows for the eleven months ended February 28, 1998 Notes to Financial Statements for the eleven months ended February 28, 1998 (b) Pro Forma Financial Information Unaudited Pro Forma Combined Balance Financial Information Unaudited Pro Forma Combined Balance Sheet of Pacer Technology and Subsidiaries at December 31, 1997 Unaudited Pro Forma Combined Statement of Income of Pacer Technology and Subsidiaries for the six months ended December 31, 1997 Unaudited Pro Forma Combined Statement of Income of Pacer Technology and Subsidiaries for the year ended June 30, 1997 Notes to Unaudited Pro Forma Combined Financial Data as of December 31, 1997 and June 30, 1997 (c) Exhibits: None COOK BATES (A Division of London International Group, Inc.) Financial Statements February 28, 1998 (With Independent Auditors' Report Thereon) INDEPENDENT AUDITORS' REPORT The Board of Directors Cook Bates: We have audited the accompanying balance sheet of Cook Bates (a division of London International Group, Inc.) as of February 28, 1998 and the related statements of operations and accumulated deficit and cash flows for the eleven-month period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cook Bates as of February 28, 1998, and the results of its operations and its cash flows for the eleven-month period then ended in conformity with generally accepted accounting principles. Los Angeles, California April 17, 1998 COOK BATES (A Division of London International Group, Inc.) Balance Sheet February 28, 1998 Assets Current Assets: Cash $ 700 Accounts receivable,net of allowance for doubtful accounts of $33,377 2,464,395 Inventories (note 2) 5,628,753 Prepaid Expenses 78,910 ----------- Total Current Assets $ 8,172,758 Property and equipment at cost, net (note 3) 189,017 ----------- Total Assets $ 8,361,775 ========== Liabilities and Divisional Deficit Current liabilities: Accounts Payable $ 650,985 Accrued Payroll 13,689 Accrued Liabilities 1,399,019 Due to parent (note 4) 8,633,538 ----------- Total current liabilities $10,697,231 Divisional deficit - accumulated deficit $(2,335,456) Commitments and contingencies (note 5) Subsequent event (note 7) ------------ $ 8,361,775 ========== See accompanying notes to financial statements. COOK BATES (A Division of London International Group, Inc.) Statement of Operations and Accumulated Deficit Eleven months ended February 28, 1998 Net sales $19,262,778 Cost of sales 13,890,625 ----------- Gross profit 5,372,153 Selling, general and administrative expenses 5,701,055 ---------- Loss from operations (328,902) Other income (expense): Interest expense (665,440) Gain on exchange rate 58,215 Other income (expense),net (958) --------- 608,183 --------- Loss before income taxes (937,085) Provision for income taxes (note 6) - ---------- Net loss (937,085) Accumulated deficit at beginning of period (1,398,371) ------------- Accumulated deficit at end of period $(2,335,456) ========== See accompanying notes to financial statements. COOK BATES (A Division of London International Group, Inc.) Statement of Cash Flows Eleven months ended February 28, 1998 Cash flows from operating activities: Net loss $ (937,085) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 108,674 Loss on disposal of fixed assets 11,406 Provision for doubtful accounts 3,119 Changes in assets and liabilities: Accounts receivable (554,089) Inventories 1,835,220 Prepaid expenses 2,048 Accounts payable (219,961) Accrued payroll 9,751 Accrued liabilities 552,418 ----------- Net cash provided by operating activities 811,501 ---------- Net cash used in investing activities - acquisitions of property and equipment ( 32,359) Net cash used in financing activities - net repayments of debt to parent (793,587) ----------- Net decrease in cash (14,445) Cash at beginning of period 15,145 ---------- Cash at end of period $ 700 ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ - Income taxes - ========== See accompanying notes to financial statements. COOK BATES (A Division of London International Group, Inc.) Notes to Financial Statements February 28, 1998 (1) Description of Business and Summary of Significant Accounting ------------------------------------------------------------- Policies -------- Description of Business ------------------------ Cook Bates is a division of London International Group, Inc. ("LIG"), a developer of latex and thin film barrier technologies. Cook Bates, is a Florida-based manufacturer and marketer of nail clippers, emery boards, and other related manicure implements. The Cook Bates production facility is located in Spartanburg, South Carolina, and its distribution center is located in Anderson, South Carolina. Inventories ----------- Inventories are stated at the lower of cost or market using the first-in, first-out method. Property and Equipment ---------------------- Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally five to ten years. Leasehold improvements are amortized on the straight-line method over the estimated useful lives or the term of the lease, whichever is shorter. Revenue Recognition ------------------- Net sales are generally recognized when products are shipped. The Division has established programs which, under specified conditions, enable customers to return product. The Division establishes liabilities for estimated returns and allowances at the time of shipment Concentration of Credit Risk ----------------------------- For the eleven months ended February 28, 1998, three customers accounted for 45% of net sales. At February 28, 1998, the Company had two customers who represented approximately 53% of total accounts receivable. Income Taxes ------------ Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Impairment of Long-Lived Assets and Long-Lived Assets to Be ----------------------------------------------------------- Disposed Of ----------- Cook Bates has adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,". 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 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 Division's financial position, results of operations or liquidity. Fair Value of Financial Instruments ----------------------------------- The carrying value of cash, accounts receivables, accounts payable and other liabilities are measured at cost which approximates their fair value. Use of Estimates ---------------- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. (2) Inventories ------------ Inventories consist of the following: Raw materials $ 3,217,580 Work in process 472,983 Finished goods 1,938,190 $ 5,628,753 ========= (3) Property and Equipment ---------------------- Property and equipment, at cost, are summarized as follows: Machinery and equipment $ 747,855 Computer equipment 257,814 Tool and dyes 193,602 Office furniture and fixtures 115,696 Leasehold improvements 4,000 1,318,967 Less accumulated depreciation and amortization (1,129,950) $ 189,017 =========== (4) Due to Parent -------------- Due to parent consists of intercompany loans made and expenses incurred by LIG on behalf of Cook Bates. Cook Bates incures interest at 6% per annum on all outstanding intercompany balances. The liability is eliminated during consolidation with LIG and no specific payment terms exist. (5) Commitments and Contigencies ---------------------------- Operating leases: ---------------- Cook Bates leases office space, warehouse space and equipment under noncancelable operating leases expiring in various years through 2003. The lease expense for operating leases amounted to $312,389 for the eleven months ended February 28, 1998. Future minimum lease payments as of February 28, 1998 are as follows: Operating leases ------------ 1999 $ 260,529 2000 95,953 2001 95,953 2002 76,693 Thereafter 5,674 ------------ Total minimum lease payments $ 534,802 ============= Litigation: ---------- Cook Bates is involved in certain legal matters which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Cook Bates' financial position, results of operations or liquidity. (6) Income Taxes ------------ Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance has been provided to fully offset the net deferred tax asset at February 28, 1998, because there can be no assurance that Cook Bates will generate any specific level of continuing earnings in future years. The principal items that give rise to deferred tax assets are inventory obsolescence and net operating loss carryforwards. (7) Subsequent Event (Unaudited) --------------------------- On March 04, 1998, Pacer Technology acquired a majority of the assets of Cook Bates. The assets purchased primarily consisted of inventories and property and equipment. The total cash purchase price was approximately $4,800,000. UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION - - -------------------------------------------------- The following unaudited pro forma combined financial information presents the unaudited pro forma combined Balance Sheet as of December 31, 1997 giving effect to the acquisition of certain assets of Cook Bates as if the transaction had been consummated on that date. Also presented is the unaudited pro forma combined statements of operations for fiscal year ended June 30, 1997 and the six months ended December 31, 1997, giving effect to the acquisition of Cook Bates as if it had been consummated as of the beginning of the earliest period presented. Pacer Technology's fiscal year ends on June 30 and Cook Bates' fiscal year ends on March 31. The pro forma combined balance sheet combines Pacer Technology's balance sheet as of December 31, 1997 with Cook Bates' balance sheet as of February 28, 1998. The pro forma combined statement of operations for the year ended June 30, 1997 combines the results of Pacer Technology for such year with the results of Cook Bates for the twelve-month period ended June 30, 1997. The pro forma combined statement of operations for the six months ended December 31, 1997 combines the results of Pacer Technology for such six-month period with the results of Cook Bates for the six-month period ended February 28, 1998. The pro forma data is based on the historical combined statements of Pacer Technology and Cook Bates, giving effect to such acquisition under the purchase method of accounting and the assumptions and adjustments (which the Company believes to be reasonable) described in the accompanying notes to unaudited pro forma combined financial data. The pro forma data is provided for illustrative purposes only. It does not purport to be indicative of the results that actually would have occurred if the acquisition of Cook Bates had been consummated on the date indicated or that may be obtained in the future. The unaudited pro forma combined financial information should be read in conjunction with the notes thereto. PACER TECHNOLOGY AND SUBSIDIARIES Unaudited Pro Forma Combined Balance Sheet December 31, 1997 Historical Pro Forma ------------------------ ------------------------------- Pacer Cook Adjust. Technology Bates Inc.(Dec.) Notes Combined ------------- --------- ---------- -------- -------- ASSETS Current Assets: Cash $ 385,673 700 (700) a(i) $ 385,673 Trade Receivables 5,307,145 2,464,395 (2,464,395) a(i) 5,307,145 Other Receivables 167,387 - - 167,387 Notes Receivables 221,144 - - 221,144 Inventories 4,627,436 5,628,753 (747,955) a(ii) 9,508,234 Prepaid Expenses 798,569 78,910 ( 29,952) a(ii) 847,527 Deferred Income Taxes 621,804 - - 621,804 ---------- ---------- ---------- ---------- Total Current Assets 12,129,157 8,172,758 (3,243,002) 17,058,913 Equipment and Leasehold Improve- ments, Net: 1,539,690 189,017 185,983 a(ii) 1,914,690 Deferred Income Taxes 60,222 - - 60,222 Cost in Excess of Net Assets Acquired 3,830,625 - - 3,830,625 Other Assets 7,078 - 25,000 a(ii) 32,078 ----------- ---------- ----------- ---------- Total Assets $ 17,566,772 $ 8,361,775 $(3,032,019) $ 22,896,528 =========== ======== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable 1,779,309 650,985 (650,985) a(i) 1,779,309 Accrued Payroll 459,748 13,689 (13,689) a(i) 459,748 Accrued Liabilities 1,464,893 1,399,019 (887,330) a(i&iv) 1,976,582 Due to LIG and affiliates - 8,633,538 (8,633,538) a(i) - --------- ---------- ------------ ---------- Total Current Liabilities 3,703,950 10,697,231 (10,185,542) 4,215,639 Long-Term Liabilities: Long-Term Debt 4,103,000 - 4,818,067 a(iii) 8,921,067 ---------- --------- ---------- ---------- Total Liabilities 7,806,950 10,697,231 (5,367,475) 13,136,706 Stockholders' Equity: Notes Receivable from Directores (300,074) - - (300,074) Common Stock 8,260,973 - - 8,260,973 Retained Earnings 1,798,923 (2,335,456) 2,335,456 a(v) 1,798,923 ---------- ---------- ---------- --------- Total Stockholders' Equity 9,759,822 (2,335,456) 2,335,456 9,759,822 Total Liabilities and Stock- holders' Equity $ 17,566,772 $ 8,361,775 $ (3,032,019) $ 22,896,528 =========== ========== ========== =========== PACER TECHNOLOGY & SUBSIDIARIES Unaudited Pro Forma Combined Statement of Income Six Months ended December 31, 1997 Historical Pro Forma ----------------------------- ----------------------------------- Pacer Cook Adjust. Technology Bates Inc. (Dec.) Notes Combined --------------- ----------- ------------ --------- --------- Net Sales $ 13,648,651 11,233,876 - $ 24,882,527 Cost of Sales 8,662,349 7,685,360 30,000 b(i) 16,377,709 ----------- ----------- ---------- ----------- Gross Profit 4,986,302 3,548,516 (30,000) 8,504,818 Selling, General and Administrative Expenses 3,504,746 2,934,252 8,393 b(i) 6,447,391 ---------- ---------- --------- ---------- Operating Income 1,481,556 614,264 (38,393) 2,057,427 Interest Expense & Other 183,339 499,826 (42,193) b(ii&iii) 640,972 ---------- --------- ---------- --------- Income(loss) Before Taxes 1,298,217 114,438 3,800 1,416,455 Income Taxes 571,698 - 41,383 b(iv) 613,081 ---------- -------- --------- --------- Net Income $ 726,519 114,438 (37,583) $ 803,374 ========== ======== ======== ========== PACER TECHNOLOGY & SUBSIDIARIES Unaudited Pro Forma Combined Statement of Income For Year Ended June 30, 1997 Historical Pro Forma ----------------------------- ------------------------------------ Pacer Cook Adjust. Technology Bates Inc. (Dec.) Notes Combined --------------- ----------- ----------- --------- ---------- Net Sales $ 25,677,840 23,658,457 - $ 49,336,297 Cost of Sales 16,520,294 16,978,440 60,000 c(i) 33,558,734 ---------- ---------- --------- ----------- Gross Profit 9,157,546 6,680,017 (60,000) 15,777,563 Selling, General and Administrative Expenses 6,595,513 6,419,169 16,786 c(i) 13,031,468 ---------- ---------- --------- ---------- Operating Income 2,562,033 260,848 (76,786) 2,746,095 Interest Expense & Other 75,752 1,051,233 (84,386) c(ii&iii) 1,042,599 ---------- ---------- --------- --------- Income(loss) Before Taxes 2,486,281 (790,385) 7,600 1,703,496 Income Taxes 1,268,879 - (273,975) c(iv) 994,904 ------------ ---------- ----------- ------------ Net Income $ 1,217,402 (790,385) 281,575 $ 708,592 ========== ======== ======== ========== PACER TECHNOLOGY AND SUBSIDIARIES Notes to Unaudited Pro Forma Combined Financial Data December 31, 1997 a. The unaudited pro forma combined balance sheet has been prepared to reflect the acquisition of certain assets of Cook Bates under the purchase method of accounting. The cash purchase price was approximately $4,818,067. The purchase price has been allocated to the net assets purchased based upon the fair values on the date of acquisition, as follows: Inventory $ 4,880,798 Property and equipment 375,000 Other assets 25,000 Prepaids 48,958 Other liabilities (511,689) ------------ Cash purchase price $ 4,818,067 =========== The pro forma combined balance sheet has been adjusted to reflect the above as follows: (i) To eliminate assets and liabilities not acquired or assumed. (ii) To adjust inventories, prepaid expenses, equipment and leasehold improvements, and other asset balances to reflect the actual amounts paid. (iii) To record the indebtedness related to bank borrowings, with effective interest rate of 9%, utilized to finance the acquisition and to pay certain related costs. (iv) To record the recognition of liabilities related to plant closings, relocation costs, and transaction costs. (v) To eliminate the deficit of Cook Bates. b. The unaudited pro forma combined statement of operations for the six months ended December 31, 1997 combines the results of Pacer Technology for such six-month period and the results of Cook Bates for their six months ended February 28, 1998. The unaudited pro forma combined statements of operations give effect to the following adjustments: (i) To record six months of incremental depreciation and amortization expense for allocated value of fixed assets and other assets acquired. (ii) To record six months of interest expense related to the indebtedness of $4,818,067 utilized to finance the acquisition. (iii) To adjust (reduce) interest expense Cook Bates incurred on parent company's debt of approximately $8.6 million at the rate of 6%. Pacer Technology did not assume this debt. (iv) To adjust the provision for income taxes to reflect the combined result of operations assuming a statutory tax rate of 35% on Cook Bates and pro forma adjustment. PACER TECHNOLOGY AND SUBSIDIARIES Notes to Unaudited Pro Forma Combined Financial Data June 30, 1997 c. The unaudited pro forma combined statement of operations for the fiscal year ended June 30, 1997 combines the results of Pacer Technology for such fiscal year and the results of Cook Bates for the twelve-month period ended June 30, 1997. The unaudited pro forma combined statements of operations give effect to the following adjustments: (i) To record the annual incremental depreciation and amortization expense for allocated value of fixed assets and other assets acquired. (ii) To record the annual interest expense related to the indebtedness of $4,818,067 utilized to finance the acquisition. (iii) To adjust (reduce) interest expense Cook Bates incurred on parent company's debt of approximately $8.6 million at the rate of 6%. Pacer Technology did not assume this debt. (iv) To adjust the provision for income taxes to reflect the combined result of operations assuming a statutory tax rate of 35% on Cook Bates and pro forma adjustment. SIGNATURE 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 hereunto duly authorized. PACER TECHNOLOGY /s/Roberto J. Cavazos, Jr. --------------------------- Roberto J. Cavazos, Jr. Chief Financial Officer Date: May 12, 1998