<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
March 31, 1997 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 March 31, 1997, the registrant had outstanding 2,579,339 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>
March 31, September 30,
ASSETS 1997 1996
----------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $870 $508
Securities and other negotiable assets 624 1,006
Accounts receivable, less allowances for
possible losses of $158,553 and $264,000 4,375 1,872
Receivable from related parties 54 576
Notes receivable - related parties 100 100
Income tax receivable 18 18
Inventory, less reserves for obsolescence
of $371,000 and $371,000 1,474 1,057
Prepaids and other current assets 467 63
--------------------------
TOTAL CURRENT ASSETS 7,982 5,200
PROPERTY AND EQUIPMENT, Net 91 145
INVESTMENTS IN AND ADVANCES TO JOINT
VENTURES 3,384 2,995
OTHER ASSETS 16 81
-------------------------
TOTAL ASSETS $11,473 $8,421
=========================
</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 March 31, September 30,
SHAREHOLDERS EQUITY 1997 1996
--------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $5,304 $2,262
Current portion of long term debt 1 1
Accrued liabilities 104 128
Securities margin liability 441 551
-------------------------
TOTAL CURRENT LIABILITIES 5,850 2,942
DEFERRED GAIN ON SALE OF EQUIPMENT 933 933
-------------------------
6,783 3,875
SHAREHOLDERS' EQUITY
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 1,200
Common stock, $.01 stated value; shares
authorized - 10,000,000; shares issued
and outstanding - 2,579,339 and 2,528,117 25 25
Contributed capital in excess of stated value 1,538 1,347
Stock subscribed 231
Retained earnings 1,927 1,743
--------------------------
TOTAL SHAREHOLDERS' EQUITY 4,690 4,546
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,473 $8,421
</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 Six Months Ended
March 31, March 31,
1997 1996 1997 1996
------------------ -----------------
<S> <C> <C> <C> <C>
Net sales $13,610 $9,773 $27,289 $22,345
Cost of sales 12,848 9,240 25,875 21,175
------------------ ------------------
Gross profit 762 533 1,414 1,170
Selling, general and administrative
expenses 514 472 911 930
----------------- ----------------
Income from operations 248 61 503 240
Other income (expense)
Gain (loss) on sale of investments (229) (18) (286) (30)
Gain on sale of equipment to
related party 165
Other 1 (13)
---------------- ----------------
(228) 147 (299) 135
Net income before income taxes 20 208 204 375
Income taxes 2 19 20 34
---------------- ----------------
Net income $18 $189 $184 $341
================= ===============
Income per share
Net income $0.01 $0.08 $0.07 $0.07
Dividends applicable to
preferred stock (0.02) (0.02) (0.03) (0.02)
----------------- ----------------
Net income (loss) applicable
to common shares ($0.01) $0.06 $0.04 $0.05
================= ===============
Average weighted number of shares 2,579,339 2,285,375 2,562,265 2,466,816
==========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1997 1996
-----------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY
Net income $184 $341
Depreciation and amortization 69 84
Provision for bad debts 60 30
Increase (decrease) from changes in:
Investments in securities 382 (143)
Accounts receivable (2,503) 26
Receivables from related parties 522 332
Inventory (417) (179)
Prepaids and other assets (339) (789)
Fixed assets write-offs 100
Accounts payable and accrued
liabilities 3,018 286
Income tax payable 10
-------- ------
Net cash provided by (used in)
operating activities 876 (2)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (15) (1)
Net investments in and advances
to joint venture (389) (135)
-------- -----
Net cash provided by (used in)
investing activities (404) (136)
CASH FLOW FROM FINANCING ACTIVITIES:
Change in margin liability (110)
-------- -----
Net cash provided by (used in)
financing activities (110)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 362 (138)
CASH AND CASH EQUIVALENTS,
beginning of year 508 811
------- ------
CASH AND CASH EQUIVALENTS,
end of quarter $870 $673
======== ======
Cash paid during the year for:
Interest $15 $3
Income taxes $0 $3
</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 establish an environmental resources
division. In connection therewith, the Company is in the process of
completing its first scrap tire recycling plant located in Dalian Peoples
Republic of China. 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. Using
proprietary technology the plant will recycle scrap tires into industrial
products such as carbon black, fuel oil, scrap steel and synthetic gas. The
Company'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 six month period ended March 31, 1997, are not necessarily indicative of
the results that may be expected for the year ending September 30, 1997. 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, 1996.
Note 2 - Income Taxes
As of September 30, 1996, for federal income tax purposes, the Company had
approximately $3 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 certain stock issuances by the Company.
<PAGE> 7
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Three Months Ended March 31, 1997, as Compared to the Three Months Ended
March 31, 1996
Net sales of $13.6 million for the three months ended March 31, 1997
increased by $3.8 million (39.3%) over net sales of $9.8 million for the
similar 1996 period. This increase in net sales was due to the combined
effects, on volume, due to an increase in hard disk sales and new product
offerings (video cards, monitors, CD ROM drives, and controller cards), and,
on pricing, of continued competitive pricing.
Gross profit increased 43% from $533,000 in the first quarter of 1996 to
$762,000 in the comparable fiscal 1997 quarter, reflecting both an increase
in quarterly unit sales and slightly higher profit margins. Gross profit as
a percentage of net sales increased from 5.5% in the first quarter of 1996 to
5.6% in the first quarter of 1997, mainly due to higher margin product sales.
Selling, general and administrative expenses increased in absolute dollars to
$514,000 in the second quarter of fiscal 1997 compared to $472,000 for the
comparable fiscal 1996 period. The absolute increase in SG&A expenses was
due to sales related expenses. As a percentage of revenue, SG&A expenses
decreased from 4.8% in 1996 to $3.8% in 1997 as a result of tight cost
controls.
Income from operations increased from $61,000 in the second quarter of
fiscal 1996 to $248,000 in the first quarter of 1997. As a percentage of net
sales, operating income increased from .6% in 1996 to 1.8% in the second
quarter of 1997 mainly as a the result of lower selling, general and
administrative expenses.
Other expenses increased 255% from $147,000 in 1996 to $(228,000) in 1997.
This increase was mainly attributable to losses on the sale of investments
held for trading amounting $(229,000) during the second quarter of 1997,
offset by a gain on sale of equipment to Dalian in the amount of $165,000
posted in the similar 1996 period.
Provision for income taxes decreased to $2,000 for the second quarter of 1997
in comparison to $19,000 for the comparable fiscal 1996 period. The income
tax provision for the quarter only reflects an accrual for state income
taxes, since the Company benefited from the application of net operating
loss carryforwards from prior years.
Net income decreased 90.5% to $18,000, or $(0.01) per share (after preferred
stock deduction) in the second quarter of fiscal 1997 compared to $189,000,
or $0.06 per share (after preferred stock deduction) for the same fiscal
1996 quarter.
Six Months Ended March 31, 1997 as Compared to the Six Months Ended March 31,
1996
Net sales increased 22.1% from $22.3 million in 1996 to $27.3 million in
1997. This increase was mainly due to volume increases in hard disk drives
along with the introduction of new product offerings (video cards, monitors,
CD ROM's and controller cards).
Gross profit increased 20.9% from $1.2 million in the six month period ended
on March 31, 1996 to $1.4 million in the comparable fiscal 1997 period
principally due to sales volume growth. Gross profit as a percentage of net
<Page 8>
sales remained unchanged (5.2%) during the comparable 1996 and 1997 six
months periods reflecting competitive pricing pressures.
Selling, general and administrative expenses decreased by $19,000 (2%) during
the 1997 first six month period compared to the $930,000 for the comparable
fiscal 1996 period. This decrease was due to strict cost controls. As a
percentage of revenue, SG&A expenses decreased from 4.2% in 1996 to 3.3% in
1997.
Other income (expense) increased by $(434,000) when compared to $135,000 for
the comparable fiscal 1996 period. Other income (expense) for the 1997
period mainly reflects losses on investments held for trading. As a
percentage of revenue, this caption increased from .6% in 1 996 to 1.1%
in 1997.
Net income decreased to $184,000, or $0.04 per share (after preferred stock
dividend) in the six months period ended March 31, 1997, compared to
$341,000, or $0.11 per share (after preferred stock dividend) for the same
fiscal 1996 period.
Liquidity and Capital Resources
Net cash provided (used in) by operating activities during the six months
ended on March 31, 1997 was $976,000 as compared to $(2,000) in the
comparable prior year period. Cash provided by accounts payable and accrued
liabilities in the amount of $2,503,000, and investments in securities in
the amount of $382,000, offset by a accounts receivable in the amount of
$(2,503,000) largely substantiates the differences between periods.
Net cash provided by (used in) investing activities in 1997 was $(404,000),
as compared to $(136,000) in 1996 principally reflects the net effects of
net investments in and advances to joint venture.
Net cash provided by (used in) financing activities in 1997 was $(110,000)
in comparison to nil activity in 1996 mainly reflects the use of a securities
margin facility.
Since May 1994, the Company has primarily operated with internally generated
cash flow and vendor lines of credit. The Company plans to fund the growth
of its distribution business with internally generated funds, vendor credit
lines and prospective asset-based financing. The Company plans to obtain an
accounts receivables/inventory facility during the third quarter of fiscal
1997. 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. There can be no assurances
that it will be successful in satisfying its diversification objectives.
For a description of the Company's investment in Dalian Green and its role
as a technology provider, see Note 1 to the Company's Consolidated Financial
Statements for the year ended on September 30, 1996.
<Page 9>
New Accounting Standards
On March 3, 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, Earnings per Share (SFAS 128). This pronouncement provides a
different method of calculating earnings per share than is currently used in
accordance with APB 15, Earnings per Share. SFAS 128 provides the
calculation of Basic and Diluted earnings per share. Basic earnings per
share include no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for period. Diluted earning per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. This pronouncement is effective for
fiscal years is effective for fiscal years and interim periods ending after
December 15, 1997; early adoption is not permitted. The Company has not
determined the effect, if any, of adoption on its EPS computation(s).
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: May 13, 1997 /s/ Jack Wen
-----------------------
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: May 13, 1997 /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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 870
<SECURITIES> 624
<RECEIVABLES> 4534
<ALLOWANCES> 158
<INVENTORY> 1474
<CURRENT-ASSETS> 7982
<PP&E> 760
<DEPRECIATION> 669
<TOTAL-ASSETS> 11473
<CURRENT-LIABILITIES> 5850
<BONDS> 0
1200
0
<COMMON> 25
<OTHER-SE> 3465
<TOTAL-LIABILITY-AND-EQUITY> 11473
<SALES> 27289
<TOTAL-REVENUES> 27289
<CGS> 25875
<TOTAL-COSTS> 85
<OTHER-EXPENSES> (299)
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 204
<INCOME-TAX> 20
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> .07
<EPS-DILUTED> .04
</TABLE>
