<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended: September 30, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to ______.
Commission file number: 0-13280
PCC GROUP, INC.
(Exact name of registrant as specified in its charter)
California 95-3815164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
163 University Parkway
Pomona, California 91768
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 869-6133
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
------------------------------
Title of Each class registered
------------------- ----------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [X] No []
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not 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-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on December 19, 1996 based on the average bid
and asked prices reported by NASDAQ on such date was approximately $6,450,016.
Registrant's Common Stock outstanding at December 19, 1996 was 2,633,339
shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's proxy
statement for its Annual Meeting of Shareholders to be held February 14, 1997
are incorporated by reference into Part III as set forth herein.
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<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Since its inception in 1983, PCC Group, Inc. ("PCCG" or the "Company")
has been a wholesale distributor of microcomputer products. It has also
manufactured and marketed PC Craft brand microcomputers. The Company serves a
select client base which includes value-added resellers, system integrators and
dealers. In 1993, the Company began efforts to reposition itself in the
environmental resources industry. The Company was originally formed by the
merger, in September 1989 of PC Craft, Inc., a Delaware corporation, with and
into WMD Micro Distributors, Inc. ("WMD"), a California corporation organized in
1983. Concurrently, WMD changed its name to PCC Group, Inc.
RECENT CHAIN OF EVENTS
In June 1993, the Company established a plan of corporate
restructuring. The plan, which seeks to gradually increase the Company's profit
margins and resultant net income is comprised of the following key elements:
Downsizing. During 1993 and 1994 the Company closed or sold six
----------
regional branches located in Chantilly, Virginia, Des Plaines, Illinois,
Fremont, California, Piscataway, New Jersey, Redmond, Washington and Richardson,
Texas. In May 1994, PCCG closed its corporate office and main warehouse facility
located in Brea, California and centralized its operations in Pomona,
California. Downsizing enabled the Company to reduce substantially operating
costs. In June 1993, the Company formed PC Craft Distribution, Inc. ("PCCD")
with the purpose of having this new entity handle all activities related to the
distribution of microcomputer products. The actual transfer of assets and
liabilities from PCCG to PCCD occurred on October 1, 1995.
Diversification. Beginning in August 1993, PCCG started to seek to
---------------
reposition itself as a business in the environmental resources industry. In
connection therewith, the Company obtained an exclusive license to use
proprietary pyrolysis technology in seven Pacific Rim countries, including
China. (For description of this license, see Note 1 to the Company's
Consolidated Financial Statements). Pyrolysis is a process of thermal
decomposition of tires in an oxygen deprived environment. The Company plans to
build and operate several scrap-tire recycling plants. The plants will process
scrap tires into recycled industrial products such as carbon black, oil fuel,
scrap steel and synthetic gas. The Company's first recycling plant currently
being built in the port city of Dalian, Liao Lin Province, Peoples Republic of
China, was expected to commence operations in early 1996, but has experienced
delays as described below. When opened, this facility will be operated by
Dalian Green Resources Corporation ("Dalian Green"), a joint venture in which
the Company holds a fifty-five percent interest and China Dalian Materials
Development Corporation, a Chinese entity, holds a forty-five percent interest.
(For a description of the financing of the Company's investment in Dalian and
its proposed sale of plant machinery and equipment to Dalian Green, See Note 1
to the Company's Consolidated Financial Statements). Production output is
expected to be sold in both the local and international markets.
American Tire Collection, Inc. ("ATC"), a wholly-owned Delaware
corporation, will be the sole U.S. provider of scrap tires to Dalian Green. It
will mainly collect scrap tires from California and other Western States, and
proceed to ship them, via ocean freight, to the port of Dalian.
Latest Developments
-------------------
Distribution - The Company plans to reenergize its microcomputer
products distribution activities, which is motivated by the following
circumstances: (a) significantly better operating margins attained in fiscal
1996; (b) a positive cash flow structure and (c) the growing demand for
microcomputer components. Therefore, the Company presently intends to open,
during fiscal 1997, regional distribution centers that would be located in the
Orlando, Miami, Dallas and Atlanta metropolitan areas. The Company also intends
to expand its product line to include a wide array of peripheral products such
as modems, printers and keyboards.
1
<PAGE>
Recycling Plant - The opening of the Dalian Green recycling plant has
suffered delays due to (a) availability of funding from the Chinese government,
(b) equipment design and installation problems and (c) incorporation of an
additional conversion process. Since August, 1994, the Chinese government has
severely restricted the availability of equity funding and loan financing which
in turn has affected project funding flow and facility construction plans. The
Company identified certain equipment design flaws within the original
specifications of its licensed technology. These flaws required significant
redesigning which was conceived by Company personnel and independent experts. A
substantial amount of time was spent applying and testing the Company's new
pyrolysis technology. The decision to incorporate a secondary process that
converts carbon black into activated carbon presented a new challenge to plan
operations. At the outset, the plant was engineered to produce carbon black,
fuel oil, scrap steel and gas. The Company additionally decided to incorporate
activated carbon production capabilities. This secondary transformation, if
accomplished, will substantially increase the value of the Dalian Green
facility's production stream. Upon completion of the secondary process
installation and subsequent production test runs, the Company currently plans to
open this facility in early 1997 (see Note 1 to the Company's Consolidated
Financial Statements).
Hainan Project - On April 23, 1996, the Company announced the signing
of an agreement to establish Hainan Shenhai Energy Resources & Chemical Industry
Co., Ltd. ("Hainan Shenhai"), a joint venture company to be located in Hainan
Province, PRC. Hainan Shenhai would be owned by China Hainan Shenhai Group
(45%), China Hainan Yung Tzuo Enterprise Co. (10%), China Dalian Green Resources
Corp. (5%), and PCCG (40%). The purpose of the joint venture is to build a
facility substantially identical to the Dalian Green project. PCCG will provide
the technology, valued at $1.375 million and make an $825,000 equity
contribution in cash. The Chinese investors are currently in the process of
securing local and international project funding (see Note 1 to the Company's
Consolidated Financial Statements).
Southern California Facility - PCCG intends to build its first
domestic recycling plant in the Southern California area. This prototype
facility will use the Company's advanced pyrolysis technology and will have the
capacity to process 2.5 million scrap tires annually. The Company is currently
searching for an appropriate site located within state designated recycling
zones, as well as evaluating project funding options available through the
California Waste Management Board.
Funding - With the advice of an investment banking firm, the Company
has been exploring various alternatives intended to facilitate both its growth
objectives and funding needs. For the reasons described above, the Company has
determined not to proceed with its previously announced plan to divest its
microcomputer product distribution business. However, the Company is continuing
to explore both acquisition and financing alternatives. Opportunistic business
considerations and appropriate due diligence efforts will ultimately dictate the
most viable course of action for the Company.
The remainder of this Item addresses the current status of the
Company's existing business of distributing and manufacturing microcomputer
products, mainly, in the domestic market.
Distribution
------------
The Company provides manufacturers with access to a select client base
while reducing the inventory, credit, marketing and overhead costs associated
with maintenance of direct relationships with these resellers. Hardware
products offered include add-on boards, CD-ROM drives, hard disk drives,
monitors, controller cards, motherboards, keyboards and power supplies. The
Company offers leading microcomputer hardware products manufactured by companies
such as Western Digital Corporation, Toshiba, NEC Technologies, TEAC and
Adaptec.
PCCG generally enters into written agreements with its suppliers. As
is customary in the industry, these agreements usually provide non-exclusive
distribution rights and for cancellation on short notice by the supplier, for
failure to satisfy minimum purchase requirements or otherwise. While the Company
believes that alternative sources of supply exist for most of the products that
it distributes, the loss of the right to distribute certain products might
materially and adversely impact its operations. On the other hand, these
agreements generally provide stock balancing and price protection provisions
which in part reduce the Company's risk of loss due to slow-moving inventory,
vendor price reductions, product updates or obsolescence.
Although the Company stocks approximately 50 products and accessories
supplied by more than 40 vendors, more than 83% of the Company's sales in fiscal
1996 were derived from products supplied by one vendor,
2
<PAGE>
Western Digital Corporation. The loss of the ability to distribute a
particularly popular product could result in sales losses related to that
product which could in turn have a materially adverse impact on the Company's
business and financial results.
Customers
---------
PCCD regularly sells to approximately 260 select customers including
VARs, systems integrators and dealers. Computer Management Corporation, a
company owned by a related party and shareholder of PCCG, and MA Laboratories, a
computer distributor, accounted for 9% and 7%, respectively, of net sales in
fiscal 1996. No other customer accounted for more than 6.7% of the Company's net
sales in fiscal 1996. The Company believes that its success in attracting
customers is attributable in large measure to its competitive pricing and
immediate product availability.
Many of the Company's customers do not have the resources to establish
a large number of direct purchasing relationships or stock significant product
inventories. Consequently, they tend to purchase a high percentage of their
products from distributors. Large resellers, on the other hand, often establish
direct relationships with manufacturers for their more popular products, but
utilize distributors for slower-moving products and for fill-in orders of fast-
moving products which may not be available on a timely basis from manufacturers.
Sales and Distribution
----------------------
The Company's sales force is comprised of 3 sales representatives.
Customer orders are entered into the Company's on-line computer system. Using a
centralized database, sales representatives immediately obtain descriptive
information regarding products, check inventory status, determine customer
credit availability and obtain pricing and promotional information.
Upon placement of an order, the order is processed and, if the
customer meets applicable credit require ments, the order is printed at the
warehouse. The order is printed in the form of an invoice, which is then used to
identify and assemble the products covered by the order for packing.
The Company warrants parts and labor on its products for 12 months
after shipment. The Company will, in exchange for a defective product returned
by a customer within the warranty period, ship to the customer either a pre-
tested equivalent or a new product, in most instances, within 24 to 48 hours.
Defective products are returned to vendors for repair and, in most cases, are
repaired and returned within three weeks. Repairs made by vendors after
expiration of the warranty period are charged back to the customer.
Competition
-----------
Competition in the microcomputer component distribution business is
fierce and characterized by intense pricing pressures and rapid product
improvement and technological change resulting in relatively short product lives
and early product obsolescence. Competition is driven by price, product
availability and customer service. Competitors of the Company include national
distributors, regional distributors and manufacturers' direct sales
organizations, many of which have substantially greater technical, financial and
marketing resources than the Company. Major competitors include Merisel, Inc.,
Ingram Micro, Inc., Tech Data Corporation, Gates F/A Distributing, Inc., and
Liuski International, Inc.
Employees
---------
On December 19, 1996, the Company had 19 full-time employees. None of
the Company's employees is represented by a labor union. The Company considers
its relations with its employees to be good.
ITEM 2. PROPERTIES.
The Company's corporate office and main warehouse facility is located
in Pomona, California. The following summarizes certain information with respect
to this facility:
3
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<TABLE>
<CAPTION>
Location of Square Annual Lease Expiration
Facility Function Footage Rent Date
- -------------------- ----------------------- ------- -------- ----------------
<S> <C> <C> <C> <C>
Pomona, California Corporate Headquarters, 18,721 $86,400 5/3/97
Sales, Service and
Distribution
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings, other than
various routine claims and lawsuits arising from the normal course of its
business. The Company does not believe that such claims and lawsuits, either
individually or in the aggregate, will have an adverse effect on its operations
or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended September 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, $.01 par value per share, has been traded
over-the-counter on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System under the trading symbol PCCG since August 31, 1992.
Prior thereto, the common stock was sporadically traded over-the-counter in what
is commonly referred to as the "Bulletin Board." Trading in the common stock has
remained sporadic since its listing on NASDAQ, and there can be no assurance
that an active market will develop.
The following table sets forth the high and low closing bid quotations
for the Company's common stock in each of the fiscal quarters indicated. Such
quotations have been obtained from NASDAQ, and reflect inter-dealer prices, do
not include mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year 1995 High Low
---------------- ---- ---
<S> <C> <C>
First Quarter $1.25 $1.00
Second Quarter $ .75 $ .75
Third Quarter $1.00 $1.00
Fourth Quarter $1.50 $1.50
Fiscal Year 1996 High Low
---------------- ---- ---
First Quarter $1.50 $1.50
Second Quarter $2.50 $2.50
Third Quarter $4.50 $4.50
Fourth Quarter $4.75 $4.44
</TABLE>
On December 19, 1996, the closing bid for the common stock as reported
by NASDAQ was $3.25.
As of December 19, 1996, there were approximately 2,248 holders of
record of the Company's common stock.
The Company has not paid any dividends on its common stock and does
not intend to pay dividends in the foreseeable future. The Board of Directors
currently intends to retain any future earnings to finance the development of
its business.
4
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The table below sets forth certain financial data of the Company for
each of its fiscal years during the five-year period ended September 30, 1996.
This information should be read in conjunction with the financial statements and
related notes thereto included elsewhere in this report and Item 7 hereof,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Statement of Operations Data
----------------------------
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $91,770 $75,088 $51,361 $40,473 $40,645
Gross Profit 8,526 6,340 3,205 1,513 1,892
Net Income 1,407 137 200 25 643
Income (Loss)
Per Share:
Net Income .64 .06 .09 .01 .26
Dividends Applicable to
Preferred Stock (.11) (.05) (.07) (.07) (.06)
Net Income (Loss) Applicable .53 .01 .02 (.06) .20
to Common Shares
Dividends Declared -- -- -- -- --
Per Common Share
</TABLE>
Balance Sheet Data
------------------
(in thousands)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Working Capital $ 1,672 $ 1,641 $1,582 $1,540 $2,195
Total Assets 14,532 14,306 7,874 6,016 8,421
Long-Term Debt 365 367 10 2 ---
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30,
1995
Net Sales increased slightly from $40.5 million in fiscal 1995 to
$40.6 million in fiscal 1996. Product mix and unit volume for fiscal 1996
remained basically unchanged in comparison to prior year's billings.
Gross profit increased 25.1% from $1.5 million in fiscal 1995 to $1.9
million in fiscal 1996 as a result of a product line mix which offered better
mark ups. Gross profit as a percentage of net sales increased from 3.7% to 4.7%,
principally due to the sale of certain popular hard disk products which carried
higher profit margins.
Selling, general and administrative expenses decreased 23.9% from $2.1
million in fiscal 1995 to $1.6 million in fiscal 1996, and decreased as a
percentage of net sales from 5.3% to 4%. This decline was primarily due to the
enforcement of strict cost controls. The decrease was principally attributable
to the reduction of the
5
<PAGE>
following items in the following amounts: accrual doubtful receivables,
$181,912; salaries, $155,051; and professional fees, $140,796.
Income (loss) from operations increased 139% from ($644,348) in 1995
to $249,711 in 1996, as a result of higher gross margins and lower selling,
general and administrative expenses.
Other income decreased 42.3% from $688,426 in fiscal 1995 to $396,927
in fiscal 1996. This decline principally resulted from short term corporate
securities investment gains of $205,536 and a gain on sale of equipment of
$426,802 to Dalian Green being recorded in 1995. In 1996, the Company recorded
short term investment losses of $56,684 which were offset by a reversal of an
accrued liability of $233,731.
At the end of fiscal 1996, the Company had net operating loss
carryforwards available to offset future taxable income of approximately $3.0
million. The income tax accrual for fiscal year 1995 principally reflects a
state tax provision. The income tax receivable for fiscal 1996 pertains to
overpayment of state income taxes. It is not possible at this time to determine
that the realization of the net deferred tax asset as of September 30, 1996 is
more likely than not; accordingly, a 100% valuation allowance has been
established.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30,
1994
Net sales decreased 21.2% from $51.4 million in fiscal year 1994 to
$40.5 million in fiscal year 1995. This decrease was due to the combined
effects, on volume, of a smaller product line which principally featured hard
disk drives and, on pricing, by intense competition within the microcomputer
parts distribution industry. The Company intends to increase net sales for 1996
by introducing new product lines such as network components, and multimedia
software and hardware products.
Gross profits decreased 52.8% from $3.2 million in the prior fiscal
year to $1.5 million in fiscal year 1995, reflecting the decrease in net sales
in fiscal 1995. Gross profit as a percentage of net sales decreased from 6.2% in
fiscal 1994 to 3.7% in fiscal 1995, due to competitive pressures on pricing as
well as the sale of lower profit margin products. The Company believes that new
product offerings, scheduled to be launched early next year, will significantly
augment gross profit margins in fiscal 1996.
Selling, general and administrative expenses decreased 32.3%, from
$3.2 million in fiscal 1994 to $2.2 million in fiscal 1995, and decreased as a
percentage of sales from 6.2% in fiscal 1994 to 5.3% in fiscal 1995. The
absolute dollar decrease in selling, general and administrative expenses was
principally attributable to the continued downsizing by the Company. The
percentage decrease in selling, general and administrative expenses was the
result of lower costs associated with the decrease in net sales. The decrease
was principally attributable to the reduction of the following items in the
following amounts: salaries and fringe benefits - $607,000; professional
services -$126,000; rent - $113,000; utilities - $75,000.
Income from operations decreased $663,291, from $18,943 in fiscal 1994
to a loss of $644,348 in fiscal 1995, as a result of diminished net sales and a
lower gross profit margin.
Other income increased 168% from $186,890 in fiscal 1994 to $688,426
in fiscal 1995, and increased as a percentage of net sales from .4% in fiscal
1994 to 1.7% in fiscal 1995. This increase is primarily due to a gain on sale of
equipment to a joint venture corporation, and to a $205,536 gain on the sale of
securities.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
The Company has historically experienced variability in its net sales
and operating margins on a quarterly basis and expects these patterns to
continue in the future. Management believes that the facts which influence
quarterly trends include (i) seasonal growth in the microcomputer industry and
(ii) vendor scheduled introduction of new products or updates of existing
products.
The Company's net sales in the first quarter of each year have been
higher than in its other three quarters. Management believes that historical
trends reflect customer buying patterns relating to calendar year-end business
purchases and holiday period purchases.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to May, 1994, the Company had historically financed its growth
and cash needs primarily through cash generated from operations and from
receivables and inventory-based borrowings. Since then, asset-based financing
has been eliminated and replaced with vendor lines of credit.
Net cash provided by operating activities in 1996 was ($873,509), as
compared to $239,606 in 1995, mainly reflecting the Company's purchase of
corporate securities in 1996.
Net cash provided by (used in) investing activities in 1996 was
($958,684), as compared to $366,073 in 1995 and principally reflects the net
effect of the following activities: (a) equipment purchased for Dalian Green,
$819,315 in 1996 and (b) proceeds from the sale of tire recycling equipment of
$3.2 million in 1995.
Net cash provided by (used in) financing activities in 1996 was
$1,528,855, as compared to ($499,934) in fiscal 1995 mainly reflecting the
issuance of common shares and the use of a securities margin credit facility.
During fiscal 1996, the Company issued common stock in two Regulation S
offerings in the aggregate of $762,500 ($290,000 for the Offering completed on
July 26, 1996 and $472,500 for the Offering completed on August 22, 1996).
Subsequently, the Company issued common stock in a third Regulation S offering
completed November 4, 1996 for $230,500. The Company will primarily use
Regulation S proceeds to fund its tire recycling projects and for working
capital allocations.
The Company believes that it can fund the growth of its core business
with internally generated cash flow, vendor credit lines and asset-based
financing. As of September 30, 1996, the Company had made cash contributions to
Dalian Green of $1,550,000 and is committed to making an additional contribution
of $110,000. The Company, functioning as a technology provider, has made plant
machinery and equipment purchases and, subsequently, billed such purchases to
Dalian Green at cost plus a commission. The bulk of Dalian Green's contemplated
equipment needs has been delivered to date. The outstanding balance as of
September 30, 1996 in the amount of $2,871,574 represents part of the gain on
sale of scrap tire recycling equipment. For a description of the financing of
the Company's investment in Dalian and its role as technology provider, see Note
1 to the Company's Consolidated Financial Statements. The Company has been
pursuing various alternatives intended to facilitate its entry into the
environmental resources industry. To this end, it will continue to explore the
development of new recycling projects and acquisitions along with viable funding
schemes.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company does not expect adoption to have a material effect on
its financial position or results of operations.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material effect on
its net sales and results of operations.
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PCC Group, Inc. and Subsidiaries
---------------
Report on Audited Consolidated Financial Statements
For the Years Ended September 30, 1994, 1995 and 1996
---------------
-8-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders of
PCC Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of PCC
Group, Inc. (a California corporation) and subsidiaries as of September 30, 1995
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1996. We have also audited the schedule listed in Item 14(a)(2) of this
Form 10-K. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits. We did not audit the financial statements of one foreign joint venture,
which the Company's investments in and advances to joint venture amounted to
$1,920,517 and $2,995,248 as of September 30, 1995 and 1996. Those statements
were audited by other auditors whose reports have been furnished to us, and in
our opinion, insofar as it relates to the amounts included for such joint
ventures, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
and schedules are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements and schedules. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements and schedules. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of the other
auditor, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of PCC Group, Inc. and
subsidiaries as of September 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material
respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Los Angeles, California
December 11, 1996
-9-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
=========================================
<TABLE>
<CAPTION>
September 30,
----------------------
ASSETS 1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS :
Cash and cash equivalents $ 811,111 $ 507,719
Securities and other negotiable assets 82,875 1,005,509
Accounts receivable, less allowances for
possible losses of $264,000 and $99,000 1,657,608 1,872,497
Receivable from related parties (Note 6) 891,974 576,282
Notes receivable - related parties (Note 6) 100,000 100,000
Income taxes receivable - 18,152
Inventory, less reserves for obsolescence
of $341,000 and $371,000 198,659 1,057,247
Prepaids and other current assets 26,505 62,533
---------- ----------
TOTAL CURRENT ASSETS 3,768,732 5,199,939
PROPERTY AND EQUIPMENT, net (Note 2) 270,420 145,303
INVESTMENT IN AND ADVANCES TO
JOINT VENTURES (Note 1) 1,920,517 2,995,248
OTHER ASSETS 63,570 80,703
---------- ----------
TOTAL ASSETS $6,023,239 $8,421,193
========== ==========
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-10-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONCLUDED)
=========================================
<TABLE>
<CAPTION>
September 30,
-----------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY 1995 1996
-------------------- ---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,694,603 $2,262,026
Current portion of long-term debt (Note 5) 7,809 1,414
Accrued liabilities 424,199 127,498
Income taxes payable 19,337 -
Securities margin liability 7,455 551,455
---------- ----------
TOTAL CURRENT LIABILITIES 2,153,403 2,942,393
DEFERRED GAIN ON SALE OF EQUIPMENT (Note 1) 958,733 933,063
LONG-TERM DEBT, less current portion (Note 5) 1,750 -
---------- ----------
3,113,886 3,875,456
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
Non-convertible, Cumulative, New Series A preferred
stock ($1,200,000 liquidation preference) -
$4.80 stated value, shares authorized, issued
and outstanding - 250,000 1,200,000 1,200,000
Common stock, $.01 stated value; shares authorized -
10,000,000; shares issued and outstanding -
2,285,375 and 2,528,117 22,854 25,281
Contributed capital in excess of stated value 587,066 1,347,085
Stock subscribed (Note 7) - 230,500
Retained earnings 1,099,433 1,742,871
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 2,909,353 4,545,737
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,023,239 $8,421,193
========== ==========
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-11-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
=======================================
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
NET SALES (Note 6) $51,360,658 $40,473,158 $40,644,767
COST OF SALES (Note 6) 48,155,581 38,959,851 38,752,351
----------- ----------- -----------
Gross profit 3,205,077 1,513,307 1,892,416
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 6) 3,186,134 2,157,655 1,642,705
----------- ----------- -----------
Income (loss) from operations 18,943 (644,348) 249,711
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest (expense) income, net (231,893) 25,788 6,305
Settlement with insurance companies (Note 4) 638,279 - -
Write-down on unimproved land (Note 5) (66,000) - -
Gain on sale of equipment to related party (Note 1) - 426,802 135,000
Gain (loss) on sale of investments - 205,536 (56,684)
Gain on reversal of accrued liability - - 233,731
Other - net (153,496) 30,300 78,575
----------- ----------- -----------
186,890 688,426 396,927
----------- ----------- -----------
Income before income taxes 205,833 44,078 646,638
INCOME TAXES (Note 3) (5,600) (19,337) (3,200)
----------- ----------- -----------
NET INCOME 200,233 24,741 643,438
Dividends applicable to preferred stock (160,000) (160,000) (160,000)
----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ 40,233 $ (135,259) $ 483,438
=========== =========== ===========
INCOME PER SHARE:
Net income $ 0.09 $ 0.01 $ 0.26
Dividends applicable to preferred stock (0.07) (0.07) $ (0.06)
----------- ----------- -----------
Net income (loss) applicable to
common shares $ 0.02 $ (0.06) $ 0.20
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON EQUIVALENTS 2,245,101 2,285,375 2,466,816
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-12-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
================================================================================
<TABLE>
<CAPTION>
Contributed
Capital in
Preferred Stock Common Stock Excess of Stock Retained
-------------------- ---------------------
Shares Amount Shares Amount Stated Value Subscription Earnings Total
------- ----------- ---------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1993 250,000 1,200,000 2,235,375 22,354 552,566 - 874,459 2,649,379
Issuance of common stock - - 50,000 500 34,500 - - 35,000
Net income - - - - - - 200,233 200,233
------- ----------- --------- ------- ---------- ------------ ---------- ----------
BALANCE, September 30, 1994 250,000 1,200,000 2,285,375 22,854 587,066 - 1,074,692 2,884,612
Net income - - - - - - 24,741 24,741
------- ----------- --------- ------- ---------- ------------ ---------- ----------
BALANCE, September 30, 1995 250,000 1,200,000 2,285,375 22,854 587,066 - 1,099,433 2,909,353
Issuance of common stock - - 248,142 2,481 760,019 - - 762,500
Cancellation of common stock - - (5,400) (54) - - - (54)
Stock subscribed - - - - - 230,500 - 230,500
Net income - - - - - - 643,438 643,438
------- ----------- --------- ------- ---------- ------------ ---------- ----------
BALANCE, September 30, 1996 250,000 $1,200,000 2,528,117 $25,281 $1,347,085 $230,500 $1,742,871 $4,545,737
======= =========== ========= ======= ========== ============ ========== ==========
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-13-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 200,233 $ 24,741 $ 643,438
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 214,546 130,655 124,902
Provision for bad debts 30,000 228,000 46,000
Loss (gain) on sale of fixed assets - 1,086 (6,502)
Write-down on unimproved land 66,000 - -
Gain on sale of equipment - (426,802) (135,000)
(Gain) loss on sale of investments - (205,536) 56,684
Increase (decrease) from changes in:
Purchases of investments held for trading - (3,654,041) (12,568,358)
Proceeds on sales of investments
held for trading - 3,776,702 11,589,040
Accounts receivable 1,918,251 (23,036) (260,889)
Receivable from related parties (501,474) 401,880 315,692
Insurance company receivable 1,806,450 - -
Income taxes receivable (130,000) 130,000 (18,152)
Inventory 2,496,922 1,781,781 (858,588)
Prepaids and other assets 351,733 24,763 (53,161)
Accounts payable and accrued
liabilities (2,900,357) (1,969,924) 270,722
Income taxes payable - 19,337 (19,337)
----------- ----------- ------------
Net cash provided by
operating activities 3,552,304 239,606 (873,509)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,398) (20,803) (72,170)
Purchase of tire recycling equipment - (2,251,552) (819,315)
Proceeds on sale of tire recycling equipment - 3,200,000 300,000
Additions to notes receivable -
related parties (12,659) - -
Proceeds on sale of fixed assets - 1,500 11,587
Principal payments on notes receivable -
related parties 96,000 65,358 -
Net advances (to) from joint venture 430,000 (430,000) -
Capital contributions/advances to joint venture (1,250,000) (198,430) (378,786)
----------- ----------- ------------
Net cash provided by (used in)
investing activities (745,057) 366,073 (958,684)
----------- ----------- ------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-14-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
=====================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1994 1995 1996
------------ ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (4,244,311) - -
Net change - restricted cash 380,935 - -
Due to related party 500,000 (500,000) -
Proceeds from common stock issuance - - 993,000
Cancellation of common stock - - (54)
Change in margin liability - 7,455 544,000
Principal payments on long-term debt (22,179) (7,389) (8,145)
----------- --------- ----------
Net cash provided by (used
in) financing activities (3,385,555) (499,934) 1,528,801
----------- --------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (578,308) 105,745 (303,392)
CASH AND CASH EQUIVALENTS,
beginning of year 1,283,674 705,366 811,111
----------- --------- ----------
CASH AND CASH EQUIVALENTS,
end of year $ 705,366 $ 811,111 $ 507,719
=========== ========= ==========
Cash paid during the year for:
Interest $ 234,693 $ 4,758 $ 2,700
Income taxes $ 141,243 $ 15,050 $ 3,200
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-15-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
=====================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
During fiscal 1996, the Company sold additional tire-recycling equipment to a
related party (Note 1). As a result, the following non-cash transaction
occurred:
Increase (decrease) in assets and (increase) decrease in liabilities from:
<TABLE>
<CAPTION>
<S> <C>
Sale of equipment:
Receivable from sale of equipment $1,062,270
Non-cash portion of intercompany profit elimination (133,625)
Deferred gain on sale of equipment (109,330)
</TABLE>
During fiscal 1995, the Company sold tire-recycling equipment to a related
party (Note 1). In addition, the Company defaulted on a note payable and the
creditor has commenced foreclosure proceedings on the property (Note 5). As
a result, the following non-cash transactions occurred:
Increase (decrease) in assets and (increase) decrease in liabilities from:
<TABLE>
<CAPTION>
<S> <C>
Sale of equipment:
Receivable from sale of equipment $ 2,130,518
Non-cash portion of intercompany profit elimination (1,171,785)
Deferred gain on sale of equipment (958,733)
Default on note payable and foreclosure on land:
Unimproved land $ (384,000)
Current portion of long-term debt 350,000
Accrued liabilities 34,000
</TABLE>
During fiscal 1994, the Company issued 50,000 shares of stock in exchange for
the rights to use recycling technology in its joint venture (Note 1).
See accompanying summary of accounting policies
and notes to consolidated financial statements.
-16-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
==================================
ORGANIZATION
PCC Group, Inc., a California corporation, and subsidiaries (the
"Company") are primarily engaged in the business of distributing microcomputer
components. The Company has also entered into a new venture to focus on the
development and commercialization of certain environment-related products which
will be marketed principally in the Pacific Rim markets. See Note 1. The
Company is located in California and has two wholly-owned subsidiaries. The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Company grants uncollateralized credit to its customers who are
located in various geographical areas. The Company maintains its cash accounts
in high-quality financial institutions. At September 30, 1995 and 1996, the
Company had bank balances, including cash, cash equivalents and short-term
investments, of approximately $811,111 and $507,719, which exceeded federally
insured limits.
INVENTORIES
Inventories consist principally of microcomputer component parts and
are stated at the lower of weighted average cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated cost. Depreciation and amortization
are computed using the straight-line method over an estimated useful life of
five years.
Maintenance, repairs and minor renewals are charged directly to
expense as incurred. Additions and betterments to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any resulting gain or
loss is included in operations.
INVESTMENT IN JOINT VENTURE
The investment in joint venture is accounted for on the equity method
of accounting. This investment has not been consolidated into these financial
statements due to significant doubt about the Company's ability to control the
joint venture since the tire recycling plant is in China and is subject to close
government supervision.
REVENUE RECOGNITION
The Company recognizes revenue when the risk of loss for the product
sold passes to the customer which is generally when goods are shipped.
-17-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
=================================
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each fiscal year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
CASH AND CASH EQUIVALENTS
For purposes of these statements, cash equivalents include investments
with original maturities of three months or less.
INCOME PER COMMON SHARE
Income per common share has been determined by dividing net earnings
(after deducting annual cumulative preferred stock dividends for the respective
fiscal year; $160,000, $160,000 and $160,000 for the years ended September 30,
1994, 1995 and 1996) by the weighted average number of common and common
equivalent shares outstanding. Weighted average shares are computed using the
treasury stock method, under which common equivalent shares include exercisable
stock options reduced by the number of shares which could be purchased from the
proceeds. Stock options are not included for the 1995 calculation since their
effect would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, investments, receivables, and payables approximate their fair value
due to the relatively short maturity of these instruments.
INVESTMENTS
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" expands the
use of fair value accounting but retains the use of amortized cost for those
debt securities where there is a positive intent and ability to hold such debt
securities to maturity. At acquisition, the Company is required to classify its
investments in debt and equity securities into three categories: held-to-
maturity, available-for-sale, or trading. Held-to-maturity investments are
valued at amortized cost. Available-for-sale investments are valued at fair
value with net unrealized gains or losses shown as a separate component of
shareholders' equity until realized. Trading investments are also valued at fair
value but net unrealized gains or losses are included in earnings. The Company
has classified its investments in debt and equity securities into the trading
category. The Company had gains and (losses) of $0, $205,536 and $(56,684) for
the years ended September 30, 1994, 1995 and 1996.
-18-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(CONCLUDED)
==================================
ACCOUNTING 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.
RECLASSIFICATION
Certain reclassifications have been made to conform the prior year's
amounts to the current year's presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company does not expect adoption to have a material effect on
its financial position or results of operations.
Statements of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125) issued by the Financial Accounting Standards Board (FASB) is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive applications is not permitted. The new standard provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company does not expect adoption
to have a material effect on its financial position or results of operations.
-19-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES
DALIAN GREEN RESOURCES JOINT VENTURE
The Company entered into a joint venture agreement ("Agreement") with
a corporation in Dalian, China, to build a facility which recycle tires by
utilizing innovative technology and converts the tires into saleable solids,
liquids and gases. This facility is expected to be completed in early 1997.
Under the Agreement, the Company has agreed to purchase up to 55% of the equity
of Dalian Green Resources Corporation ("DGR") for $1,660,000 and the
contribution by the Company of tire recycling technology. Through September 30,
1996, the joint venture had no operations and the Company had contributed tire
recycling technology and made cash equity contributions of $1,550,000. Under the
terms of the Agreement, the owners of DGR will share in the profits of the
venture according to their relative equity ownership. During the years ended
September 30, 1995 and 1996, the Company made equity contributions of $300,000
and $378,786. The Company is required to make an equity contribution amounting
to $110,000 in fiscal 1997.
The Company entered into a licensing agreement with an inventor of
tire recycling technology to utilize his recycling process. Under the terms of
the licensing agreement, the Company has the exclusive right to use this
technology in seven Pacific Rim countries, including China. In return, the
Company issued 50,000 shares of the Company's unregistered stock valued at
$35,000 and will issue an additional 50,000 shares of stock when the tire
recycling plant is operational. The Company has also agreed to repurchase these
shares for $3.00 per share, after the DGR plant is completed if the stock can
not be sold to unrelated parties for at least that price. In addition, the
inventor will receive an annual payment of 20% of the Company's share of the net
profits from the venture. The Company has guaranteed that this annual payment to
the inventor will not be less than $100,000. In addition, the inventor has the
option, at all times for the duration of the agreement, to purchase unregistered
common shares of the Company at one-third of its market value at the time of
purchase.
The Company also entered into an agreement with DGR to purchase
equipment on DGR's behalf for the tire recycling plant. The Company acquired
and resold this equipment to DGR during fiscal 1995 and 1996. The Company
recognized gain on the sale to the extent of their nonownership interest (45%)
in DGR and cash received from DGR. A gain of $426,802 and $135,000 were
recognized during the years ended September 30, 1995 and 1996 (see Note 6). The
Company had a receivable of $2,130,517 and $2,871,574 due from DGR as of
September 30, 1995 and 1996 which is included in the investment in and advances
to joint venture balance.
-20-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 1 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES (Continued)
<TABLE>
<CAPTION>
Summarized financial data of DGR consists of:
September 30,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Current assets $ 486,000 $ 650,000
Non-current assets 9,106,000 11,862,000
Total assets 9,592,000 12,512,000
Current liabilities 3,349,000 3,934,000
Non-current liabilities 3,085,000 5,113,000
Equity 3,158,000 3,465,000
</TABLE>
To date, there have been no operations at DGR.
HAINAN JOINT VENTURE
On April 23, 1996, the Company entered into a new joint venture with the Hainan
Shenhai Energy Resources and Chemical Industry Co. Ltd., China Hainan Yung Tzuo
Enterprise Co., and DGR for construction and operation of a second tire
recycling plant in China. Capital contributions have yet to be made by any
partners. The Company will have a 40% interest and will provide the technology
and equipment worth $1.375 million along with an equity contribution of
$825,000.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Furniture, fixtures and equipment $ 805,355 $ 810,225
Vehicles 52,820 35,872
Leasehold improvements 6,900 6,900
--------- ---------
865,075 852,997
Accumulated depreciation and amortization (594,655) (707,694)
--------- ---------
Property and equipment, net $ 270,420 $ 145,303
========= =========
</TABLE>
NOTE 3 - INCOME TAXES
Income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal $ 68,000 $ 68,340 $ 234,672
Utilization of loss carryforwards (68,000) (68,340) (234,672)
State 5,600 19,377 3,200
--------- --------- ---------
$ 5,600 $ 19,377 $ 3,200
========= ========= =========
</TABLE>
-21-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 3 - INCOME TAXES (Continued)
The components of the net deferred tax asset and liability are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax asset $ 1,417,781 $ 1,238,308
Deferred tax liability (43,600) (98,428)
Valuation allowance (1,374,181) (1,139,881)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the net
deferred tax asset and liability, and their approximate tax effects, are as
follows:
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Writedown of software $ 21,895 $ -
Excess tax depreciation over book (43,600) (45,507)
Inventory and bad debt reserves 262,072 203,222
Accrued vacation 4,673 2,814
State taxes 6,575 1,088
Installment sales - (52,248)
Other - 3,008
Net operating loss carryforwards 1,122,566 1,027,504
Valuation allowance (1,374,181) (1,139,881)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
Management is unable to determine whether the realization of the net
deferred tax asset is more likely than not and a 100% valuation allowance has
been established.
The difference between the effective tax rate and that computed under
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Change in valuation allowance (3) (9) (19)
Net operating loss carryforwards (34) (34) (15)
State taxes 3 9 -
---- ---- ----
-% -% -%
==== ==== ====
</TABLE>
-22-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 3 - INCOME TAXES (Continued)
As of September 30, 1996, for federal income tax purposes, the Company
had approximately $3.0 million in net operating loss carryforwards expiring
through 2002. The annual utilization of the operating loss carryforward may be
significantly limited due to the adverse resolution, if any, with respect to the
loss carryover provisions of Internal Revenue Code section 382 in connection
with the acquisition of WMD and subsequent stock ownership changes by the
Company.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases a building and equipment under noncancelable
operating leases expiring at various dates through 2001. Future minimum rental
payments required under operating leases that have an initial or a remaining
noncancelable lease term in excess of one year at September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Year ending
September 30,
-------------
<S> <C>
1997 $116,000
1998 48,000
1999 27,000
2000 9,000
2001 9,000
--------
Total $209,000
========
</TABLE>
Rental expense for the years ended September 30, 1994, 1995 and 1996
was approximately $259,000, $146,000 and $148,000.
ECONOMIC DEPENDENCY
A majority of the Company's fiscal 1994, 1995, and 1996 sales were
derived from products supplied by one vendor. While the Company believes that
alternative sources of supply exist, the loss of the right to distribute
products from this vendor might materially and adversely impact its operations.
LAWSUITS
The Company is, from time to time, involved in various lawsuits
generally incidental to its business operations, consisting primarily of
collection actions and vendor disputes. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Company.
During fiscal 1994, the Company received a settlement of $2,445,000
from insurance companies relating to a robbery claim, including $638,000,
representing the business interruption portion of the claim, and is reported as
other income in the accompanying consolidated statements of income.
-23-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Notes payable - other $ 9,559 $ 1,414
Current portion (7,809) (1,414)
------- -------
$ 1,750 $ -
======= =======
</TABLE>
During fiscal 1995, the Company defaulted on a $350,000 mortgage on
land held for investment purposes by not paying required principal and interest
payments. During fiscal 1994 the value of the land was written down to the
carrying value of the mortgage.
NOTE 6 - RELATED-PARTY TRANSACTIONS
The Company conducts business with certain companies that are owned
wholly or in part by certain shareholders of the Company. On the accompanying
consolidated balance sheets, receivables from related parties consist of trade
accounts receivable of $891,974 and $576,282 as of September 30, 1995 and 1996.
During fiscal 1996, the Company utilized the services of one of its related
parties based in China to help assist in the assembly and maintenance of
equipment which was sold to DGR. A consulting fee of $300,000 was charged
against the 1996 sale of equipment to DGR (see Note 1) for the services of this
related party.
Included in the accompanying consolidated statements of income are
sales to related parties of $4,812,224, $4,221,767 and $3,640,732 for the years
ended September 30, 1994, 1995, and 1996 and purchases from related parties of
$103,844 and $49,880 for the years ended September 30, 1994 and 1995. No
purchases from related parties were made for the year ended September 30, 1996.
During 1992, the Company sold its 51% interest in an apparel company
to a related shareholder for $408,000, which consisted of $204,000 in cash and a
note receivable in the amount of $204,000. In connection with the sale, the
Company entered into a management agreement to provide certain management,
accounting and administrative support services to this corporation. The note
receivable, which is collateralized by the shares of this corporation, bears
interest at 8% per annum with the principal balance and any unpaid accrued
interest due June 30, 1997. As of September 30, 1995 and 1996, the outstanding
balance on this note receivable was $100,000.
-24-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
==========================================
NOTE 7 - PREFERRED AND COMMON STOCK
During the year ended September 30, 1992, the Company's articles of
incorporation were amended and a $15,000,000 note was cancelled in exchange for
250,000 shares of Series A non-voting, non-convertible preferred stock. The
preferred stock accumulated dividends at the rate of $1 per share per year and
is redeemable, at the Company's option, for $60 per share. No dividends were
declared by the Company during fiscal 1992. The preferred stock was given a
$15,000,000 ($60 per share) liquidation preference value.
On December 31, 1992, in order to more accurately reflect the
financial condition of the Company and to provide a more appealing situation to
potential equity investors, the Company issued 250,000 shares of a new series of
preferred stock, designated New Series A preferred stock in exchange for the
250,000 shares of outstanding Series A preferred stock. The non-voting, non-
convertible New Series A preferred stock accumulates dividends at the rate of
$0.64 per share per year. No dividends were declared during fiscal 1994, 1995 or
1996.
The New Series A preferred stock was given a liquidation preference
value and a redemption price of $4.80 per share ($1,200,000 total liquidation
preference) plus cumulative unpaid dividends which totalled $600,000 at
September 30, 1996. The New Series A preferred stock is redeemable, at the
Company's option, at any time.
During fiscal year 1996, the Company had three private placement
offerings. For the first two private placement offerings, 248,142 shares were
issued at approximately $3.40 a share. Net proceeds received were $762,500 and
expenses associated with the offerings were $80,000 which was charged to
contributed capital in excess of par. As of September 30, 1996, no stock was
issued for the third private placement offering. Accordingly, the net proceeds
of $230,500 from the third private placement are reflected on the financial
statements as Stock Subscriptions. In November 1996, 51,222 shares were issued
for the third private placement offering.
NOTE 8 - EMPLOYEE BENEFIT PLANS
1992 OPTION PLAN
The 1992 Incentive Stock Option Plan (the "1992 Option Plan")
authorizes the granting of options to purchase up to an aggregate maximum of
500,000 shares of common stock, with an exercise price at least equal to the
fair market value of the shares at the date of grant, to designated employees
and executive officers of the Company. Each option is exercisable over a period
of up to 10 years in full or in cumulative or noncumulative installments, and
each option is exercisable from the date of grant or any later date specified
therein, all as determined by the Compensation Committee of the Board of
Directors. The 1992 Option Plan terminates in the year 2002.
-25-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
==========================================
The Company granted 300,000 and 95,000 options to officers and key
employees during fiscal 1995 and 1996. These options were fully vested on the
date of grant and were granted at 100-110% of the market price of the Company's
Common Stock on the date of grant. The options are immediately exercisable and
expire five to six years from the date of grant.
Additional information with respect to options issued under this plan
is as follows:
<TABLE>
<CAPTION>
Number of Option Price
-----------------------
Shares Per Share Total
--------- ------------- --------
<S> <C> <C> <C>
Outstanding at October 1, 1994 - - -
Granted 300,000 $1.25 - 1.375 $384,088
------- --------
Outstanding at September 30, 1995 300,000 $384,088
Granted 55,000 $1.50 82,500
Granted 20,000 $2.00 40,000
Granted 20,000 $3.50 70,000
------- --------
Outstanding at September 30, 1996 395,000 $1.25 - $3.50 $576,588
======= ========
</TABLE>
1992 STOCK BONUS PLAN
The PCC Group, Inc. 1992 Stock Bonus Plan (the "Plan") provides for
the issuance of up to 200,000 shares of common stock to designated employees and
executive officers of the Company. No shares have been granted to date.
-26-
<PAGE>
PCC GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
=====================================================
<TABLE>
<CAPTION>
Amount
Beginning charged Ending
Description balance to expense Deductions balance
- ------------------------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Fiscal 1994 $245,000 $ 30,000 $179,000 $ 96,000
Fiscal 1995 $ 96,000 $228,000 $ 60,000 $264,000
Fiscal 1996 $264,000 $ 46,000 $211,000 $ 99,000
Reserve for inventory
obsolescence:
Fiscal 1994 $163,000 $ 75,000 $ 54,000 $184,000
Fiscal 1995 $184,000 $157,000 $ - $341,000
Fiscal 1996 $341,000 $ 30,000 $ - $371,000
</TABLE>
-27-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Information required by this item is contained in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders scheduled
to be held on February 14, 1997, and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is contained in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders scheduled
to be held on February 14, 1997, and such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is contained in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders scheduled
to be held on February 14, 1997, and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Company's
definitive proxy statement for its 1997 Annual Meeting of Shareholders scheduled
to be held on February 14, 1997, and such information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
--------------------
The following consolidated financial statements of the Company
and its subsidiaries are included in Part II, Item 8 of this report.
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Certified Public Accountants 9
Consolidated Balance Sheets as of
September 30, 1995 and 1996 10-11
Consolidated Statements of Income for the
years ended September 30, 1994, 1995 and 1996 12
Consolidated Statements of Shareholders' Equity
(Deficit) for the years ended September 30,
1994, 1995 and 1996 13
Consolidated Statements for Cash Flows for the
years ended September 30, 1994, 1995 and 1996 14-16
Summary of Accounting Policies 17-19
Notes to Consolidated Financial Statements 20-26
(a)(2) Schedules to Financial Statements.
---------------------------------
Schedule II - Valuation and Qualifying Accounts 27
</TABLE>
28
<PAGE>
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1996.
(c) Exhibits.
--------
The following exhibits are filed as part of this report:
3.1.1 Articles of Incorporation of Western Micro Distributors, Inc. dated
February 24, 1983, and filed on February 28, 1983. (1)
3.1.2 Certificate of Amendment of Articles of Incorporation of Western Micro
Distributors, Inc. dated August 9, 1983, and filed on August 30, 1983.
(2)
3.1.3 Certificate of Amendment of Articles of Western Micro Distributors, Inc.
dated September 23, 1983, and filed on September 28, 1983. (1)
3.1.4 Certificate of Amendment of Articles of Incorporation of Western Micro
Distributors, Inc. dated October 3, 1983, and filed on October 6, 1983.
(1)
3.1.5 Certificate of Amendment of Articles of Incorporation of Western Micro
Distributors, Inc. dated March 24, 1984, and filed on April 5, 1984. (1)
3.1.6 Certificate of Amendment of Articles of Incorporation of WMD Micro
Distributors, Inc. filed on November 2, 1984. (1)
3.1.7 Certificate of Correction of Certificate of Amendment of WMD Micro
Distributors, Inc. filed on approximately November 21, 1984. (1)
3.1.8 Certificate of Amendment of Articles of Incorporation of WMD Micro
Distributors, Inc. dated September 29, 1989 and filed on October 3,
1989. (1)
3.1.9 Agreement of Merger between WMD Micro Distributors, Inc. and the Company
dated September 30, 1989 and filed October 25, 1989. (1)
3.1.10 Certificate of Determination of Rights, Privileges and Restrictions of
Series A Preferred Stock of PCC Group, Inc. dated July 13, 1990 and
filed July 16, 1990. (2)
3.1.11 Certificate of Amendment of Certificate of Determination of PCC Group,
Inc. dated February 14, 1992 and filed March 19, 1992. (2)
3.1.12 Certificate of Amendment of Articles of Incorporation of PCC Group, Inc.
dated February 14, 1992 and filed March 19, 1992. (2)
3.2.1 Bylaws of WMD Micro Distributors, Inc. dated March 15, 1983 (1).
3.2.2 Amendment to Bylaws of WMD Micro Distributors, Inc. dated March 24, 1984
(1).
4.1 Specimen of the Company's Common Stock Certificate. (1)
4.2 Specimen of the Company's Series A Preferred Stock Certificate. (2)
10.1.1 Standard Industrial/Commercial Single-Tenant-Lease-Gross, dated May 2,
1994 between Robert C. Chiu and Cindy C. Chiu and the Company. (4)
10.1.2 Extension of Standard Industrial/Commercial Single-Tenant-Lease-Gross
dated May 31, 1996.
10.3.1 The Company's Employee Stock Bonus Plan ("ESOP") dated October 1, 1988.
(2)+
29
<PAGE>
10.3.2 The Company's Incentive Stock Option Plan dated December 15, 1992. (2)+
10.3.3 The Company's Stock Bonus Plan dated December 15, 1992. (2)+
10.3.4 The Company's request dated September 29, 1995 for determination letter
from the Internal Revenue Service for termination of the Company's ESOP.
(5)+
10.3.5 Internal Revenue Service letter of November 14, 1996 providing favorable
determination of termination of the Company's ESOP.+
10.4.1 Dalian Green Resources Corporation Contract dated August 27, 1993
between China Dalian Materials Development Corporation and the Company.
(3)
10.4.2 Agreement dated March 25, 1994 between the Company and Virgil Flanigan
regarding recycling technology together with related documents. (5)
10.5 Joint Venture Agreement dated March 6, 1996 by and between, among
others, the Company and Hainan Shenhai Group.
21 List of Subsidiaries.
27 Financial Data Schedule
______________________
(1) Previously filed in the Exhibits to the Company's Annual Report on Form
10-K dated September 30, 1989 and hereby incorporated herein by
reference.
(2) Previously filed in the Exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992 and hereby
incorporated herein by reference.
(3) Previously filed in the Exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993 and hereby
incorporated herein by reference.
(4) Previously filed in the Exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994 and hereby
incorporated herein by reference.
(5) Previously filed in the Exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1995 and hereby
incorporated herein by reference.
+ Management contract, compensatory plan or arrangement.
30
<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.
PCC GROUP, INC.
Date: December 20, 1996 By:/s/Jack Wen
---------------------------------
Jack Wen
Chairman of the Board, Chief
Executive Officer and President
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
registrant and in the capacities and on the dates indicated.
Date: December 20, 1996 /s/Jack Wen
------------------------------------
Jack Wen, Chairman of the Board,
Chief Executive Officer and President
Date: December 20, 1996 /s/J. Lauro Valdovinos
------------------------------------
J. Lauro Valdovinos, Vice President -
Finance and Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
Date: December 20, 1996 /s/Gary Blum
------------------------------------
Gary Blum, Director
Date: December 20, 1996 /s/Leon C. Lai
------------------------------------
Leon C. Lai, Director
Date: December 20, 1996 /s/George Rodda, Jr.
------------------------------------
George Rodda, Jr., Director
31
<PAGE>
EXHIBIT INDEX
Included
Exhibit No. Description in Filing
- ----------- ----------- ---------
3.1.1 Articles of Incorporation of Western Micro Distributors,
Inc. dated February 24, 1983, and filed on February 28,
1983. (1)
3.1.2 Certificate of Amendment of Articles of Incorporation of
Western Micro Distributors, Inc. dated August 9, 1983,
and filed on August 30, 1983. (2)
3.1.3 Certificate of Amendment of Articles of Western Micro
Distributors, Inc. dated September 23, 1983, and filed
on September 28, 1983. (1)
3.1.4 Certificate of Amendment of Articles of Incorporation of
Western Micro Distributors, Inc. dated October 3, 1983,
and filed on October 6, 1983. (1)
3.1.5 Certificate of Amendment of Articles of Incorporation of
Western Micro Distributors, Inc. dated March 24, 1984,
and filed on April 5, 1984. (1)
3.1.6 Certificate of Amendment of Articles of Incorporation of
WMD Micro Distributors, Inc. filed on November 2, 1984.
(1)
3.1.7 Certificate of Correction of Certificate of Amendment of
WMD Micro Distributors, Inc. filed on approximately
November 21, 1984. (1)
3.1.8 Certificate of Amendment of Articles of Incorporation of
WMD Micro Distributors, Inc. dated September 29, 1989
and filed on October 3, 1989. (1)
3.1.9 Agreement of Merger between WMD Micro Distributors, Inc.
and the Company dated September 30, 1989 and filed
October 25, 1989. (1)
3.1.10 Certificate of Determination of Rights, Privileges and
Restrictions of Series A Preferred Stock of PCC Group,
Inc. dated July 13, 1990 and filed July 16, 1990. (2)
3.1.11 Certificate of Amendment of Certificate of Determination
of PCC Group, Inc. dated February 14, 1992 and filed
March 19, 1992. (2)
3.1.12 Certificate of Amendment of Articles of Incorporation of
PCC Group, Inc. dated February 14, 1992 and filed March
19, 1992. (2)
3.2.1 Bylaws of WMD Micro Distributors, Inc. dated March 15, 1983 (1).
3.2.2 Amendment to Bylaws of WMD Micro Distributors, Inc.
dated March 24, 1984 (1).
4.1 Specimen of the Company's Common Stock Certificate. (1)
4.2 Specimen of the Company's Series A Preferred Stock Certificate. (2)
10.1.1 Standard Industrial/Commercial Single-Tenant-Lease-Gross,
dated May 2, 1994 between Robert C. Chiu and Cindy C.
Chiu and the Company. (4)
10.1.2 Extension of Standard Industrial/Commercial Single-
Tenant-Lease-Gross dated May 31, 1996.
32
<PAGE>
Included
Exhibit No. Description in Filing
- ----------- ----------- ---------
10.3.1 The Company's Employee Stock Bonus Plan ("ESOP") dated
October 1, 1988. (2)+
10.3.2 The Company's Incentive Stock Option Plan dated December
15, 1992. (2)+
10.3.3 The Company's Stock Bonus Plan dated December 15, 1992.
(2)+
10.3.4 The Company's request dated September 29, 1995 for
determination letter from the Internal Revenue Service
for termination of the Company's ESOP. (5)+
10.3.5 Internal Revenue Service letter of November 14, 1996 *
providing favorable determination of termination of the
Company's ESOP.+
10.4.1 Dalian Green Resources Corporation Contract dated August
27, 1993 between China Dalian Materials Development
Corporation and the Company. (3)
10.4.2 Agreement dated March 25, 1994 between the Company and
Virgil Flanigan regarding recycling technology together
with related documents. (5)
10.5 Joint Venture Agreement dated March 6, 1996 by and *
between, among others, the Company and Hainan Shenhai Group.
21 List of Subsidiaries. *
27 Financial Data Schedule. *
______________________
(1) Previously filed in the Exhibits to the Company's Annual Report on Form 10-
K dated September 30, 1989 and hereby incorporated herein by reference.
(2) Previously filed in the Exhibits to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1992 and hereby incorporated
herein by reference.
(3) Previously filed in the Exhibits to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1993 and hereby incorporated
herein by reference.
(4) Previously filed in the Exhibits to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1994 and hereby incorporated
herein by reference.
(5) Previously filed in the Exhibits to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1995 and hereby incorporated
herein by reference.
+ Management contract, compensatory plan or arrangement.
33
<PAGE>
ULTIMATE SOUND
_____________________________________________________________________________
138 University Parkway, Pomona, CA 91768 (909) 594-2604 FAX (909) 594-0191
EXTENSION OF STANDARD INDUSTRIAL/COMMERCIAL
-------------------------------------------
SINGLE-TENANT LEASE-GROSS
-------------------------
DATED: May 31, 1996
RE: Lease of Building located at 163 University Parkway, Pomona, CA 91768
LESSEE: PC Craft, PCC Group, Inc., A California Corporation
LESSOR: Robert C. Chiu and Cindy C. Chiu
In extending the Standard Industrial/Commercial Single-Tenant Lease, the
following parties agree to extend the lease effective 06/01/96 through 05/31/97.
All other terms and conditions remain the same as the lease contract dated May
2, 1994.
LESSOR:/s/ Robert C. Chiu LESSEE: PC Group, Inc.,
------------------------
Robert C. Chiu A California Corp.
LESSOR:/s/ Cindy C. Chiu LESSEE:/s/ Tina Wen
------------------------ --------------------
Cindy C. Chiu Tina Wen
DATE: 5/31/96 DATE: 5/31/96
--------------------------- ----------------------
EXHIBIT 10.1.2
<PAGE>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
450 GOLDEN GATE AVENUE, MS 7-4-01
SAN FRANCISCO, CA 94102-7406
Employer Identification Number:
Date: NOV 14, 1996 95-3815164
File Folder Number:
951015366
PCC GROUP, INC Person to Contact:
153 UNIVERSITY PARKWAY LINDA L HOH
POMONA, CA 91768 Contact Telephone Number:
(415) 522-6071
Plan Name:
PCC GROUP, INC
EMPLOYEE STOCK OWNERSHIP PLAN
Plan Number: 001
Dear Applicant:
We considered the information you sent us and have determined that your
termination of this plan does not adversely affect its qualification for federal
tax purposes. Please note that this is not a determination regarding the effect
of other federal or local statutes.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
Even though you have terminated this plan, we would like to remind you of
certain filing obligations. The related tax-exempt trust, custodial account, or
other payers who are responsible for making payments may be required to file
information returns on Form 1099R, with Form 1096, for amounts paid or made
available to any individual or beneficiary.
In addition, you must continue to file a Form 5500 series return annually
until all plan assets are distributed. The last return required is the one filed
for the year in which distribution is completed. Be sure to write "Final Return"
across the top of this return.
This determination applies to the proposed termination date of September 1,
1995.
This determination also applies to the proposed amendments dated September
25, 1996.
This plan satisfies the nondiscrimination in amount requirement of section
1.401(a) (4)-1(b)(2) of the regulations on the basis of a design-based safe
harbor described in the regulations.
This letter is issued under Rev. Proc. 93-39 and considers the amendments
required by the Tax Reform Act of 1986 except as otherwise specified in this
letter.
This plan satisfies the nondiscriminatory current availability requirements
of section 1.401(a) (4)-4(b) of the regulations with respect to those
Letter 1132 (DO/CG)
EXHIBIT 10.3.5
<PAGE>
-2-
PCC GROUP, INC
benefits, rights, and features that are currently available to all employees in
the plan's coverage group. For this purpose, the plan's coverage group consists
of those employees treated as currently benefiting for purposes of demonstrating
that the plan satisfies the minimum coverage requirements of section 410(b) of
the Code.
The information on the enclosed addendum is an integral part of this
determination. Please be sure to read and keep it with this letter.
We have sent a copy of this letter to your representative as indicated in
the Power of Attorney.
Please keep this letter in your permanent records. If you have any
questions concerning this matter, please contact the person whose name and
telephone number are shown above.
Sincerely yours,
/s/ Steven A. Jensen
Steven A. Jensen
District Director
Enclosure(s):
Publication 794
Addendum
Letter 1132 (DO/CG)
<PAGE>
-3-
PCC GROUP, INC
This determination letter is applicable for the amendment(s) adopted on
September 26, 1995.
Letter 1132 (DO/CG)
<PAGE>
Joint Venture Contract
China Hainan Shenhai Group, China Heinan Yung Tzuo Enterprise Co., China Dalian
Green Source Co. And PCC Group Inc. Based on equality and mutual benefits, have
decided to establish a joint venture according to International Joint Venture
Business Management Law of People's Republic of China. This contracts is made
between them.
Article 1 Parties of Joint Venture
1.1 China Hainan Shenhai Group (hereafter referred to as Party A), registered
corporation in Heinan. Legal address: F.11, No. 73, Haifu Road, Haikou City,
Hainan Province, China.
Legal Representative -
Name: Ming-Shan Ding
Position: General Manager
Nationality: China
1.2 China Hainan Yung Tzuo Enterprise Co. (Hereinafter referred to as Party B),
a register corporation in Hainan Province. Legal address: Rm.4502, Jing New
Village, Haishao Road, Haikou City, Hainan Province, China.
Legal Representative -
Name: Ray-Jung Lin
Position: General Manager
Nationality: China
1.3 China Dalian Green Source Corp (hereinafter referred to as Party C) a
register corporation in Dalian, China. Legal address: Cheng Pung Industry,
Dalian Investment Area.
Legal Representative -
Name: Tian-Quan Sun
Position: President
Nationality: China
1.4 PCC Group Inc. (hereinafter referred to as Party d) a register corporation
in USA with registered no.A415655. Legal address: 640 Puente Street, Brea.
California 92621
Legal Representative -
Name: Zheng-Nan Wen
Position: President
Nationality: USA
Exhibit 10.5
1
<PAGE>
Article II Establishment of Joint Venture
2.1 Each parties according to International Joint Venture Business Management
Law of People's Republic of China agree to establish joint venture business
corp in Hainan Province, China.
2.2 Chinese name of the Joint Venture: (Chinese characters appear here)
2.3 English name of the Joint Venture: Hainan Shenhai Energy Resources &
Chemical Industry Co., Ltd.
2.4 Legal address of the Joint Venture: Quei Lin Young Economic Technology
Development Zone, Hainan Province, China.
2.5 The Joint Venture is a Chinese corporation. All of its activities must
comply with the Chinese law, decree and related regulations.
2.6 The Joint Venture is organized as a liability limited company. The Joint
Venture parties' responsibility is limited to the amount of each of their
investment in the registered capital. Each party will share the profits, losses
and risks of the Joint Venture based on the amount of investment each party put
in.
2.7 The managing department of the Joint Venture: People's Government Economic
Bureau, Hainan, People's Republic of China.
Article III Business Purpose, Scope and Scale
3.1 The purpose of the Joint Venture: To establish an international-level
business with patented and most advanced equipment based on the aspiration to
enhance business cooperation and technical exchange; To utilize recycled
resources to manufacture industrial raw materials and products; To obtain
satisfactory economic benefits through scientific operation and management.
3.2 Business Scope: Vacuum distillation of old rubbers, deeply process coconut
shell and research & develop new products.
3.3 Production Scale: Old rubber material process 6000 tons a year. Coconut
shell process 15,000 tons a year.
2
<PAGE>
Article VI Total Investment and Registered Capital
4.1 Total Investment of the Joint Venture: 18 millions US dollars.
4.2 Registered Capital: 5.5 millions US dollars, in which:
2.475 million US dollars come from Party A's investment, 45% of the
registered capital;
0.55 million US dollars come from Party B's investment, 10% of the
registered capital;
0.275 million US dollars come from Party C's investment, 5% of the
registered capital;
2.2 million US dollars come from Party D's investment, 40% of the
registered capital;
4.3 The Joint Venture parties will put in their investment in the following
forms:
Party A Property & cash
Party B 0.55 millions US dollars in cash
Party C 0.275 millions US dollars in cash
Party D Patented technology and cash in US dollars. (In which: the
patented technology is 1.375 million US dollars and cash is 0.825 million US
dollars.)
4.4 Payment for registered capital of the Joint Venture: Four parties shall
pay off their investment in installments within 120 days starting on the day the
corporation is issued. After each party has paid off its investment, a
certificate of investment will be issued by a Chinese CPA after the inspection
as acknowledge for the receipt of the investment. If the investment is overdue
and unpaid, the unpaid party will be charged 5% of the unpaid amount each month
as late payment interest to the party who keeps its words. If any loss occurs
due to one party's delinquency in payment, the delinquent party shall be
responsible for the loss.
4.5 The Joint Venture will apply for bank loan to make up the difference
between the total investment and registered capital. The interest of the loan
will be accounted for as the cost. The risk of bank loan will shared by all
Parties as invest ratio.
4.6 Approval from the other Joint Venture party and the original evaluation
is required if one Joint Venture wishes to transfer all or part of its
investment to a third party. Also, any change in the investment shall be
registered with the Business Administration Bureau.
3
<PAGE>
4.7 When one Joint Venture party wishes to transfer all or part of its
investment, the other Joint Venture party has the purchase priority.
4.8 During the period of Joint Venture, the Joint Venture can not reduce the
total registered capital. Any increase in the registered capital or change in
investment proportion must be resolved in the Board of Directors, and shall be
filed with the original evaluation agency for approval. The change shall also be
registered at the original registration agency.
4.9 China Hainan Shenhai Group is responsible for all the necessary cost to
establish the Joint Venture Company, and all the other parties agree that this
cost is shared by the Joint Venture Company.
Article V Reponsibility of Each Joint Venture Parties
5.1 Both Joint Venture parties shall do their best to effectively and
economically accomplish the business principle and goal of the company.
5.2 Party A is obligated to complete the followings:
5.2.1 To obtain approval for the establishment of the Joint Venture
from the related Chinese government agency; to obtain and receive certificate
and to register and receive business license and etc;
5.2.2 To pay its share of investment according to the contract;
5.2.3 To take care of all formalities for requisition of land in the
Development Zone for the Joint Venture;
5.2.4 To coordinate the designing and construction of the workshop and
othe facilities in the Joint Venture;
5.2.5 To assist the Joint Venture in the implementation of water,
electricity, transportation, communication and other fundamental facilities;
5.2.6 To assist the Joint Venture in the recruitment of management
staff, technical staff, workers and other staff;
5.2.7 To assist the Joint Venture to purchase processing equipment,
materials, appliances, transportation tools, communication equipment and etc. In
China;
5.2.8 To assist the Joint Venture to take care of custom formalities
for the equipment, raw materials imported, and take care some of the formalities
for the products exported;
5.2.9 To assist foreign workers to take care of visa, work, living and
travel procedures;
5.2.10 To assist the Joint Venture to take care of related loan,
insurance and etc;
5.2.11 Responsible for domestic sales of all diesel oil, natural gas,
old steel wire products;
4
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5.2.12 To assist the Joint Venture to apply for tax reduction and
exemption and other favorable treatment based on related law in China;
5.2.13 To take care of other matters entrusted by the Joint Venture.
5.3 Party B obligated to complete the following:
5.3.1 To pay its share of investment according to the contract;
5.3.2 To take care of other matters entrusted by the Joint Venture
5.4 Party C obligated to complete the following:
5.4.1 To pay its share of investment according to the contract;
5.4.2 To provide the Joint Venture with related international market
product information for the products manufactured by the Joint Venture;
5.4.3 To take care of other matters entrusted by the Joint Venture.
5.5 Party D obligated to complete the following;
5.5.1 To pay its share of investment according to the contract;
5.5.2 Responsible for the quotation inquiry of the equipment's, cars
and accessories needed to be imported, and to order the selected products and
take care of related formalities for their shipment to Haikou Port.
5.5.3 Responsible for import old rubber material to port Haikou, if the
material is insufficient in domestic market and after the Joint Venture Company
apply the temporary import permission from the Environment Control Department.
5.5.4 Responsible for the sales of charcoal products in International
market, if the domestic market has sales difficulty.
5.5.5 To provide the Joint Venture with related international market
product information for the products manufactured by the Joint Venture;
5.5.6 responsible for the purchase of other imported materials required
by the Joint Venture;
5.5.7 To take care of other matters entrusted by the Joint Venture.
5.5.8 To ensure the completeness, reliability and suitability of the
vacuum distillation technology, technical procedures, equipment design, testing
and inspection provided to the Joint Venture. To ensure stable production,
product quality and designed capability of the equipment.
5.5.9 To guarantee to provide the Joint Venture with processing
technology, design, manufacture and packaging technology and its related
information. To provide the Joint Venture with related information and technical
information, and improvement of the technology and deep processing technology
for free;
5.5.10 To guarantee the technician and production workers of the Joint
Venture will master the related technology during the training period according
to the training contract. The technical training fee and etc. Expenses will be
responsible by Party C;
5.5.11 Responsible for providing the necessary equipment installation,
tuning and trial production technical staff and technical inspection staff.
5
<PAGE>
Article VI Board of Directors & Management Organization
6.1 The Board of Directors is established on the date the approval
certificate of the Joint Venture is issued.
6.2 The Board of Directors is constituted by 7 directors in which 3
directors are appointed by Party A and 1 director is appointed by Party B, 1
director is appointed by Party C; 2 directors are appointed by Party D. One
president is appointed by Party A and one vice president is appointed by Party
D. The term of the president is 4 years, can be re-appointed if agreed by the
appointing party. During the appointment, If not qualified replacement is
required for some reason, a written notice shall be sent to the other Joint
Venture party one month in advance. However, the appointing party has the
replacement power.
6.3 The Board of Directors has the highest authority in the Joint Venture.
It is the decision maker for all important matters in the Joint Venture.
I Amendment of the corporation articles;
II Extension, termination, dissolution of the Joint Venture;
III Increase and/or transfer of the registered capital;
IV Merge with other business organization;
Other matters shall be passed by 2/3 o the attending directors in the Board of
Directors' Meeting (including directors from all parties). Any resolution
conveyed through written documentation shall be passed and signed by all
directors. The efficacy of the written resolutions the same as unanimous
resolution by the directors in the Board of Directors' Meeting.
6.4 The president is the legal representative of the Joint Venture. If the
president can not carry out his duty for some reason, he can authorize the vice
president or other director to act on his behalf.
6.5 The Board of Directors' Meeting shall be held at least once an year. The
meeting will be convened and directed by the President. If motioned by 1/3 of
the directors, the President can convince a temporary Board of Directors'
Meeting. The minutes of meeting shall be kept in file until the expiration of
the Joint Venture.
6.6 The president and vice president each has only one vote.
6.7 The Joint Venture implements general manager responsibility system under
the leadership of the Board of Directors. The managing organization has one
general manager, and two deputy general managers. The first general manager is
recommended by Party B, and two deputy general managers are recommended by Party
A. There are also one chief engineer, chief economist, and chief accountant, and
they are recommended by both parties after negotiation. The general manager,
deputy general managers and other senior
6
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officers must be appointed by the Board of Directors. Their term is four years.
They can be re-appointed by the Board of Directors.
6.8 The duties of the general manager are to execute all resolutions of the
Board of Directors, to organize and direct daily management operation of the
Joint Venture. The deputy general managers shall assist the general manager.
6.9 If the general manager, deputy general managers or other senior officers
have engaged in any malpractice or have seriously neglected their duty, they can
be discharged and replaced at any time with the resolution in the Board of
Directors' Meeting.
Article VII Preparation Construction
7.1 The Joint Venture take full responsible for preparation construction.
7.2 The preparation center is specifically responsible for examining the
construction design, signing construction contract, organizing pertinent
equipment setup and processing, purchasing related materials and its inspection
upon delivery, formulating construction schedule, and safekeeping and
organizing the documents, pictures, files, and information during construction.
7.3 Prepare the name list, salary and expenses of the staff in the
preparation center, and enter the expenditures into the budget. However, these
expenditures shall be examined and approved by the Board of Directors.
7.4 The Joint Venture starts operation after the Board of Directors is
established. The completion of preparation and construction transfer to the
Joint Venture Company after approved by the Board of Directors.
7.5 The equipment and materials necessary for the Joint Venture Company
should be purchased in domestic if it's in same condition and price as
international market.
7.6 When entrusted by Joint Venture to purchase equipment from
international market, other parties should be invited to involve the process.
7.7 Party A,B,C and D designates technicians to form a technical group
under the instruction of the Board of Directors to review, test, examine,
acceptance material and imported equipment.
7.8 The products of the Joint Venture will be sold in the domestic and
overseas markets. Party A will be responsible for selling the diesel oil,
natural gas and old materials in the domestic market, and party B will be
responsible for
7
<PAGE>
selling the charcoal in the overseas market. The price for the products sold in
domestic and overseas markets will be determined by the general manager based on
better price has priority.
Article VIII Labor Management
8.1 The Joint Venture Company staff's recruit, dismiss, salary insurance,
benefit should be according to "International Joint Venture Business Management
Law of People's Republic of China" and the Board of Directors compiled policy,
sign a work contract between Joint Venture Company and it's staff and report it
to local government's labor department.
8.2 A,B,C and D four parties recommended high level management personnel's
salary, insurance, benefit, travel expense should be approved by the Board of
Directors.
Article IX Profit Distribution and Sharing of Responsibility for Loss
9.1 The Joint Venture shall pay income tax for its total profit to China Hainan
Economic Zone. It will also withdraw 10% of the "three funds" and loan payment
from the profit after tax. All the parties have negotiated and decided to return
the loan principle and depreciation in five years. The withdrawal ratio of the
other two funds can be adjusted by the Board of directors under the premise of
return the loan principle and depreciation in five years. Then, the remaining
profit will be shared by all Joint Venture parties once a year according to
their investment ratio in the registered capital.
9.2 The profit can not be distributed before making up for the loss of the
Joint Venture in the previous year. The undistributed before making up for the
loss of the Joint Venture in the previous year. The undistributed profit from
the previous year can be distributed along with the current year profit.
9.3 The profit of the Joint Venture, with approval of the Board of Directors
and evaluation agency, does not have to be distributed. It can be added to the
capital investment to expand the production.
9.4 If the Joint Venture encounters loss, both Joint Venture parties shall bear
the loss according their share in the registered capital, and each of their
liability is limited to the amount of their investment.
8
<PAGE>
Article X Tax, Finance and Auditing]
10.1 The Join Venture and its employees shall pay the required taxes
according to the related regulations of People's Republic of China.
10.2 All foreign exchange related matters of the Joint Venture shall be
executed according to Foreign Exchange Provisional Regulations of People's
Republic of China and its related management regulations. If the condition
changes and the foreign exchange appears to be unbalanced, the foreign exchange
loan shall be paid in priority according to the proportion. If the profit
distributed for the payment of the foreign exchange loan is insufficient, it
shall be made up in the subsequent year until it is paid off.
10.3 The Joint Venture shall set up an accounting system based on Foreign
Investment Business Accounting System of People's Republic of China.
10.4 The accounting year of the Joint Venture starts on October 1 and ends on
September 30, next year. All vouchers, receipts, reports, account books shall be
written in Chinese.
10.5 The Joint Venture shall hire a CPA registered in China to investigate
and audit the accounts, and the results shall be reported to the Board of
Directors and the general manager. Both Joint Venture parties have the right to
inspect the accounts of the Joint Venture, and the inspecting party is
responsible for the expenses incurred.
Article XI Insurance
10.6 The general manager shall formulate a balance sheet, income statement
and profit distribution plan for the previous accounting year within the first
three months of each accounting year, and shall present these reports to the
Board of directors for examination and resolution.
11.1 All insurance of the Joint Venture shall be purchased from insurance
companies in China.
11.2 Insurance category value, and insured period will be determined by he
Board of Directors according to the regulations of the Chinese insurance
company.
9
<PAGE>
Article XII Term of Joint Venture
12.1 The term of the Joint Venture is 12 years starting on the date the
corporation license of the Joint Venture is issued.
12.2 If motioned by one party and unanimously passed in the Board of
Directors' Meeting, an application for extension can be filed with the original
evaluation agency six months before the Joint Venture contract expires.
Article XIII Amendment and Cancellation of the Contract
13.1 The amendment of this contract and the appendix must be signed by both
Joint Venture parties, and shall be reported to the original evaluation agency
in order to become effective.
13.2 If one party is not able to fulfil the obligations stipulated in the
contract and corporation articles, or has seriously violated the stipulations
in the contract and corporation articles, and has impeded the Joint Venture
from operating normally or has caused the Joint Venture to be unable to
accomplish the goal of the Joint Venture, the party in violation is treated as
terminating the contract by itself. The other party does not only has the right
to claim indemnity from the party in violation, but also has right to file and
application for termination of contract through legal proceedings with the
original evaluation agency. If both parties agree to continue the business
operation, the party in violation must first pay for the business loss of the
Joint Venture.
13.3 If any party is not able to fulfill the contract, or has seriously
violated the stipulations in the contract and corporation articles, and has
impeded the Joint Venture from operating normally or has caused the Joint
Venture to be unable to accomplish the goal of the Joint Venture, the party in
violation is treated as terminating the contract by itself. The other party does
not only has the right to claim indemnity from the party in violation, but also
has right to file and application for termination of contract through legal
proceedings with the original evaluation agency. If each parties agree to
continued business, the party in violation must first pay for the loss of the
Joint Venture.
13.4 The Joint Venture is dissolved under the following circumstances.
13.4.1 Upon expiration of the Joint Venture;
13.4.2 When the Joint Venture encounters serious loss and can not
continue its operation;
13.4.3 When one Joint Venture party violates the contract and causes
the company to be unable to continue its operation;
13.4.4 Due to natural disasters, wars and other force mature;
10
<PAGE>
13.5 When the Joint Venture announces dissolution, the Board of Directors
shall determine the liquidation procedures, principles, and candidates of the
liquidation committee, and shall report the decision to the managing department
for examination and supervision.
13.6 After the liquidation works of the Joint Venture are completed, the
liquidation committee shall furnish a liquidation report and shall present it in
the Board of Directors' Meeting for approval. It shall also be filed with the
original evaluation agency. The dissolution of the Joint Venture shall be
registered with the original registering Business Administration Bureau and the
business license shall be returned to be canceled,
13.7 The properties remaining after the liquidation shall be distributed to
the Joint Venture parties on their share of investment in the registered
capital. After distribution, one party has the priority to purchase the assets
distributed to the other party.
13.8 When the Joint Venture dissolves, the net assets and the appreciation of
the registered capital are treated as profit and income tax shall be paid
according to the law.
13.9 After the Joint Venture dissolves, all account books and documentation
shall be kept by Party A.
Article XIV Responsibility for Breaching of Contract
14.1 If this contract or its appendix is not able to be carried out partially
or completely due to one party's negligence, the negligent party shall bear the
responsibility for breaching the contract. If this contract can not be carried
out attributable to all parties' faults, all Joint Venture parties are
accountable to their respective responsibilities.
14.2 If any party in the Joint Venture is not comply with the article IV of
this contract to pay the capital in time, for each delayed month, the delayed
party should pay 5% of its capital amount as penalty fine to other parties. If
delayed over three months, the other parties has right to suspend this contract
and ask for compensation.
11
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Article XV Settlement of Disputes
15.1 All disputes related to or arisen from the execution of this contract
shall be negotiated and amicably resolved by both parties. If the dispute can
not be resolved through negotiation, it shall be presented to China
International Economics and Trade Arbitration Council. The dispute will be
arbitrated by the Council through arbitration procedures of the Council. The
ruling of the arbitration is final and binding to all three parties.
15.2 During the arbitration proceedings, the Joint Venture parties shall
continue to carry out the stipulations in the contract and corporation articles.
Article XVI Applicable Law & Language
16.1 The formulation, efficacy, interpretation, implementation of this contract
agreement and the resolution of disputes are all under the jurisdiction of the
law of People's Republic of China.
16.2 This contract shall be written in Chinese. It is made eight originals and
eight copies.
Article XVII Efficacy of Contract and Others
17.1 The appendix of this contract; after signed by both parties, is a
constituent of this contract. The supplementary articles signed by both parties
are a constituent of this contract. They have the same efficacy as the contract
after approved by the original evaluation agency.
17.2 This contract and its appendix must be reported to the related department
for approval. It becomes effective on the date the approval certificate is
issued.
17.3 When both parties issue notice, for any matter relating to the authority,
obligation of both parties, a written notice shall be issued immediately
afterwards. The legal addresses listed in Article I are the mailing addresses
of both parties. If there is any change in the address, the Party shall inform
the Board of Directors within thirty days. Otherwise, the Party shall be
responsible for any error its negligence incurred.
12
<PAGE>
17.4 This contract is signed by the authorized representatives of the Joint
Venture parties on March 6, 1996 at Haikou City, Hainan, China
Party A China Hainan Shenhai Group Corp.
Authorized Representative:
Party B China Yung Tzuo Enterprise Corp.
Authorized Representative:
Party C China Dalian Hsing Yuan Chemical Corp.
Authorized Representative
Party D PCC Group Inc.
Authorized Representative: Zheng-Nan Wen
[NOTARY SEAL APPEARS HERE]
STATE OF CALIFORNIA )
County of Los Angeles )
---------------
[NOTARY SEAL APPEARS HERE]
On 12-17-96, before me, the undersigned notary public, personally appeared _____
--------
TINA WEN___________________
- --------------------------------------------------------------------------------
X personally known to me -OR- ____ Proved to me on the basis of satisfactory
- ---
evidence to be the person(s) whose
name(s) is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on
the instrument the person(s), or the
entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ David Kuan
-------------------------------------
Signature of Notary
<PAGE>
PCC GROUP, INC.
List of Subsidiaries
Name State of Incorporation
- ---- ----------------------
PC Craft Distribution, Inc. Delaware
American Tire Collection, Inc. Delaware
Each of the above entities is 100% owned by the Registrant, PCC Group, Inc.
Additionally, Registrant owns a 55% interest in Dalian Green Resources
Corporation, a Chinese corporation, the other 45% of which is owned by a Chinese
-------
corporation, China Dalian Materials Development Corporation.
EXHIBIT 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 508
<SECURITIES> 1,006
<RECEIVABLES> 1,971
<ALLOWANCES> 99
<INVENTORY> 1,057
<CURRENT-ASSETS> 5,200
<PP&E> 853
<DEPRECIATION> 708
<TOTAL-ASSETS> 8,421
<CURRENT-LIABILITIES> 2,942
<BONDS> 0
1,200
0
<COMMON> 25
<OTHER-SE> 3,321
<TOTAL-LIABILITY-AND-EQUITY> 8,421
<SALES> 40,645
<TOTAL-REVENUES> 40,645
<CGS> 38,752
<TOTAL-COSTS> 1,597
<OTHER-EXPENSES> (397)
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 646
<INCOME-TAX> 3
<INCOME-CONTINUING> 643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643
<EPS-PRIMARY> .26
<EPS-DILUTED> .20
</TABLE>
