<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File
June 30, 1996 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 No.)
163 University Parkway 91768
Pomona, California (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (909) 869-6133
Indicate by check mark, whether the registrant 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 report), and has been subject to such filing
requirements for the past 90 days.
Yes X No.
---- ----
As of June 30, 1996, the registrant had outstanding 2,285,375 shares of its
Common Stock, $.01 par value per share.
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1996 1995
------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 733 $ 811
Investments in securities 304
Accounts receivable, less allowances
for possible losses of $112,000 and $264,000 1,750 1,658
Receivables from related parties 537 892
Notes receivable related parties 100 100
Inventory, less reserves for
$341,000 1,740 199
Other current assets 556 27
----------------------------
TOTAL CURRENT ASSETS 5,720 3,687
PROPERTY AND EQUIPMENT 147 270
INVESTMENT IN AND ADVANCES TO
JOINT VENTURE 1,921 1,921
OTHER ASSETS 29 139
----------------------------
TOTAL ASSETS $7,817 $6,017
============================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 3
PCC GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited) (Concluded)
<TABLE>
<CAPTION>
LIABILITIES AND June 30, September 30,
SHAREHOLDERS' EQUITY 1996 1995
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $2,853 $1,696
Regulation S offering 450
Current portion of long-term debt 2 8
Accrued liabilities 315 424
Income taxes payable 19 19
------------------------------
TOTAL CURRENT LIABILITIES 3,639 2,147
DEFERRED GAIN ON SALE OF EQUIPMENT 794 959
LONG-TERM DEBT, less current portion 2 2
------------------------------
4,435 3,108
------------------------------
SHAREHOLDERS' EQUITY
Non-convertible, New Series A preferred
stock ($1,200,000 liquidation preference)
$4.80 stated value, shares authorized,
issued and outstanding - 200,000 1,200 1,200
Common stock, $.01 stated value; shares
authorized- 10,000,000; shares issued and
Contributed capital in excess of stated
value 587 587
Retained earnings 1,572 1,099
------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,382 2,909
TOTAL LIABILITIES AND SHAREHOLDERS' $7,817 $6,017
EQUITY ==============================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 4
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In Thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Net sales $8,911 $9,191 $31,256 $33,538
Cost of sales 8,447 8,779 29,623 32,086
---------------------------------------------------
Gross profit 464 412 1,633 1,452
Selling, general
and administrative expenses 454 445 1,384 1,550
---------------------------------------------------
Income from operations 10 (33) 249 (98)
Other income (expense)
Gain (loss) on sale of investments 19 119 (11) 231
Interest income 17 17
Other 100 100
Gain on sale of equipment to related
party 165
---------------------------------------------------
136 119 271 231
Net income before income taxes 146 86 520 133
Income taxes (14) (4) (55) (12)
---------------------------------------------------
Net income $132 $82 $465 $ 121
Dividend on preferred stock (40) (40) (120) (120)
---------------------------------------------------
Net income applicable to common shares $92 $42 $345 $1
====================================================
Income per share
Net income $0.06 $0.04 $0.20 $0.05
Dividend on preferred stock 0.02 0.02 0.05 0.05
---------------------------------------------------
Net income applicable to common shares $0.04 $0.02 $0.15 $0.00
Average weighted number of common shares 2,285,375 2,285,375 2,285,375 2,285,375
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 5
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
In thousands (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY
Net income $465 $121
Depreciation and amortization 125 118
Provision for bad debts 60
Increase (decrease) from changes in:
Accounts receivable (92) 337
Receivables from related parties 355 (36)
Inventories (1,541) 1,644
Other assets (529) (2,465)
Accounts payable and accrued liabilities 1,068 213
Income taxes payable 30
-------------------------
Net cash provided by (used in)
Operating activities (89) (38)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in securities (304) (69)
Regulation S offering 450
Purchase of property and equipment (7)
Related party note receivable (10)
Net advances from joint venture 165
Capital contributions to joint venture (300)
-------------------------
Net cash provided by (used in)
Investing activities 11 (86)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (78) (124)
CASH AND CASH EQUIVALENTS
beginning of year 811 705
-------------------------
CASH AND CASH EQUIVALENTS
end of quarter $733 $581
=========================
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest
Income taxes
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 6
PCC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PCC Group, Inc. ("PCCG" or the "Company") is principally a wholesale
distributor of microcomputer products. The Company serves a select client base
which includes value added resellers ("VAR's"), system integrators and dealers.
Since 1993, PCCG begun 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 the Peoples Republic of China. Pyrolysis is a process of thermal
decompositon of tires in an oxygen deprived environment. The Company's first
recycling plant located in Dalian, Peoples Republic of China, will transform
scrap tires into recycled by products such as carbon black, fuel oil, scrap
steel and gas. 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. PCCG's corporate office
and warehouse is located in Pomona, California.
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included. Operating results for the nine months period
ended June 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended September 30,
1995.
Note 2 - Regulation S Offerings
During the three month period ended on June 30, 1996, the Company issued two
Regulation S Offerings for the purpose of completing the Company's tire
recycling plants and for general corporate purposes. The first Offering
Circular consisting of 116,000 of common stock valued at $3.00 per share
terminated on May 30, 1996 raised $290,000, net of placement fees. Shares of
this offering were issued on July 26, 1996. The second Offering Circular
comprising the issuance of 132,142 shares of common stock valued at $4.00 per
share terminated on June 30, 1996 and raised $472,500, net of placement fees.
<PAGE> 7
In addition, the Company has received, as of this date, $65,000 from a third
Regulation S Offering for up to 100,000 shares of common stock valued at $5.00
per share. This offering is scheduled to terminate on August 30, 1996.
Note 3 - Income Taxes
As of September 30, 1995, for federal income tax purposes, the Company had
approximately $3.3 million in net operating loss carryforwards expiring through
2001. 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 certain stock issuances by the Company.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A synopsis of latest business development events follows:
1. Dalian Project - The opening of this recycling plant has suffered several
delays attributable to the following causes: a) Since August 1994 the Chinese
Government has severely restricted the availability of equity funding and loan
financing which affected Dalian Green's funding projections and facility
construction plans; b) Plant equipment design flaws and installation
glitches that required substantial time to correct; c) Decision to incorporate
a secondary process that converts carbon black into activated carbon. At the
outset, the plant was engineered to solely produce the previously mentioned
by-products. However, when the original equipment installation was about to be
finalized, the Company decided to add the activated carbon process due to
product pricing considerations. Furthermore, activated carbon equipment design
was drawn by local Chinese professionals lacking the technical wherewithal to
develop an advanced installation, thus, causing additional delays, and; d)
Inexperience. The Company acknowledges that it is venturing into a new
industry and, that such endeavors are obviously linked to a learning curb
process. The Dalian project has provided the Company with invaluable
experience that will be fully applied to future projects. Upon the completion
of final equipment assembly tasks and subsequent production test runs, the
Company intends to open the Dalian facility by December of 1996.
2. Hai Nan Project - On April 23, 1996, the Company announced the signing of a
joint venture agreement with the Hai Nan Sen Hai Chen Group for construction
and operation of a second tire recycling plant in China. The Hai Nan Island
facility, similar to the Dalian plant, will be 60% owned by the previously
mentioned investor group and 40% by the Company. PCCG will provide the
technology and equipment along with a $1 million equity contribution and will
be in charge of construction and management of the plant. The Hai Nan Group
has submitted a loan application package to a Japanese export lender, and plans
to commence development efforts once project funding has been secured.
<PAGE> 8
3. European Plants - The Company has retained a German environment industry
consultant that will assist PCCG in developing its European business
development program. This study will include site selection, tire collection
and energy distribution routes and a profile of European environmental
regulations along with a marketing plan and financial projections. Feasibility
study results will allow the Company to evaluate the viability of establishing
recycling plants in Germany and other European countries.
4. Southern California Plant - PCCG intends to build a prototype recycling
plant in the Southern California area. This prospective facility will process
up to 10,000 scrap tires per day. Project feasibility studies are currently
being conducted with the purpose of assessing the regulatory and financial
viability of such a plant.
Three Months Ended June 30, 1996 as Compared to the Three Months Ended June 30,
1995
Net sales of $8.9 million for the quarter ended June 30, 1996 decreased by
$280,000 (3%) over net sales of $9.2 million for the similar 1995 period. This
decrease was principally due to industry wide sales contraction impacting both
unit prices and volume. The Company mainly offers hard disk drive products.
Gross profit for the second quarter of 1996 was $464,000, a 12.6% increase,
when compared to $412,000 during the prior year's comparable period reflecting
a decrease in unit sales along with lower product costs. Gross profit as a
percentage of net sales increased from 4.5% in the second quarter of 1995 to
5.2% in the second quarter of 1996 due to higher margin product offerings
Selling, general and administrative expenses increased 2% to $454,000 in the
second quarter of fiscal 1996 compared to $445,000 for the comparable fiscal
1995 period. The absolute dollar increase in SG&A expenses was primarily
attributable to business development expenses. As a percentage of revenue,
SG&A expenses increased from 4.8% in 1995 to 5.1% in 1996.
Income from operations increased from ($33,000) in the second quarter of fiscal
1996 to $10,000 in the comparable fiscal 1996 period, principally reflecting
better gross margins. Operating income as a percentage of net sales was .1% in
1996 and (.4%) in the comparable 1995 quarter.
Other income of $136,000 increased by $17,000 when compared to $119,000 for the
comparable fiscal 1995 period. A $100,000 NOL accrual adjustment and
diminished gains on sale of investments determined the difference between
periods.
Net income increased to $132,000, or $0.04 per share (after preferred stock
dividend deduction), in the third quarter of fiscal 1996 compared to $82,000,
or $0.02 per share (after preferred stock dividend deduction) for the same
fiscal 1995 quarter.
<PAGE> 9
Nine Months Ended June 30, 1996 as Compared to the Nine Months Ended June 30,
1995
Net sales decreased 6.8% from $33.5 million in 1995 to $31.3 million in 1996.
Revenue shortfall was largely due to a declining sales trend which affected the
computer industry during the first quarter of 1996. This downward trend
impacted the Company's product unit prices and volume.
Gross profits increased 12.5% from $1.5 million in the nine month period ended
on June 30, 1996 to $1.6 million in the comparable fiscal 1996 period,
principally due to a better product mix. Gross profit as a percentage of net
sales increased form 4.3% in 1995 to 5.2% in the similar 1996 nine month period
due to better product mark-ups.
Selling, general and administrative expenses decreased by $166,000 (10.7%)
during the 1996 first nine month period compared to $1,550,000 for the
comparable fiscal 1995 period. This decrease was mainly due to the
implementation of strict cost controls. As a percentage of revenue, SG&A
slightly decreased from 4.6% in 1995 to 4.4% in 1996.
Other income of $271,000 increased by $40,000 when compared to $231,000 for the
comparable fiscal 1995 period. Other income for the 1996 period basically
reflects a gain on sale of equipment to Dalian Green and an adjustment to NOL
accruals in comparison to gains on sale of investments reported in the same
1995 period.
Net income increased to $465,000, or $0.15 per share (after preferred stock
dividend deduction), in the nine months ended June 30, 1996 compared to
$121,000 for the same fiscal 1995 period. Net income for 1995 was offset by a
$120,000 preferred dividend deduction.
Liquidity and Capital Resources
Net cash provided by operating activities during the nine months ended on June
30, 1996 was $465,000, as compared to $121,000 in the comparable prior year
period. The primary use of cash during the period resulted from a $1,541,000
increase in inventories largely offset by an increase in Accounts Payable
along with certain equipment purchases for Dalian Green amounting $426,000
classified under Other Assets.
Net cash provided by investing activities in the amount of $11,000 reflects the
net effect of the following transactions: a $304,000 investment in corporate
securities; proceeds from two Regulation S offerings amounting $450,000
($290,000 for the Offering which terminated on May 31, 1996 and $160,000 for
the Offering which terminated on June 30, 1996); a $165,000 payment received
from Dalian Green and a $300,000 capital contribution to Dalian Green.
Since May 1994, the Company has operated with internally generated cash flow
and vendor lines of credit. The Company expects to have sufficient liquidity
to sustain its core business with internally generated cash flow and vendor
lines of credit. During the months of May, June and July of 1996, the Company
<PAGE> 10
issued three Regulation S Offerings which are fully described in Note 2 of Item
I.
As of June 30, 1996 the Company had made cash contributions to Dalian Green of
$1,850,000, and was committed to making additional cash contributions of
$110,000 during fiscal 1996. The Company is exploring, with the assistance of
an investment banker, both financing and other alternatives, including
disposition of its microcomputer product distribution business, to raise funds
for development and expansion of the tire recycling venture. There can be no
assurances that the Company will be successful in satisfying its prospective
joint venture equity contribution commitments and/or in securing additional
financing needed to complete the Dalian Green plant or to develop other
projects and, thus able to realize its diversification objectives. For a
description of the Company's investment in and advance to Dalian Green see Note
1 of the Company's fiscal 1995 Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PCC GROUP, INC.
(Registrant)
Date: August 15 1996 /s/ JACK WEN
----------------------------------------
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: August 15, 1996 /s/ J. LAURO VALDOVINOS
----------------------------------------
J. Lauro Valdovinos
Vice President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 733
<SECURITIES> 304
<RECEIVABLES> 1862
<ALLOWANCES> 112
<INVENTORY> 1740
<CURRENT-ASSETS> 5720
<PP&E> 866
<DEPRECIATION> 719
<TOTAL-ASSETS> 7817
<CURRENT-LIABILITIES> 3639
<BONDS> 0
1200
0
<COMMON> 23
<OTHER-SE> 2159
<TOTAL-LIABILITY-AND-EQUITY> 7817
<SALES> 31256
<TOTAL-REVENUES> 31256
<CGS> 29623
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<OTHER-EXPENSES> 271
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<EPS-PRIMARY> .20
<EPS-DILUTED> .15
</TABLE>
