<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, 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 June 30, 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)
June 30, September 30,
ASSETS 1997 1996
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CURRENT ASSETS:
Cash and cash equivalents $917 $508
Securities and other negotiable assets 663 1,006
Accounts receivable, less allowances for
possible losses of $158,553 and $264,000 1,300 1,872
Receivable from related parties 941 576
Notes receivable - related parties 100 100
Income tax receivable 18 18
Inventory, less reserves for
obsolescence of $371,000 and $371,000 820 1,057
Prepaids and other current assets 229 63
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TOTAL CURRENT ASSETS 4,988 5,200
PROPERTY AND EQUIPMENT, Net 68 145
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 3,005 2,995
OTHER ASSETS 27 81
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TOTAL ASSETS $8,088 $8,421
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------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
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PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited) (Concluded)
June 30, September 30,
1997 1996
----------- --------------
LIABILITIES AND
SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $1,917 $2,262
Bank loan 201 1
Accrued liabilities 87 128
Securities margin liability 371 551
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TOTAL CURRENT LIABILITIES 2,576 2,942
DEFERRED GAIN ON SALE OF EQUIPMENT 933 933
3,509 3,875
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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 1,519 1,347
Stock subscribed 231
Retained earnings 1,835 1,743
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TOTAL SHAREHOLDERS'EQUITY 4,579 4,546
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,088 $8,421
--------- ----------
--------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
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PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share data
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------ -----------------
Net sales $10,951 $8,911 $38,240 $31,256
Cost of sales 10,497 8,447 36,372 29,623
------------------ -----------------
Gross profit 454 464 1,868 1,633
Selling, general and administrative
expenses 569 454 1,480 1,384
----------------- -----------------
Income from operations (115) 10 388 249
Other income (expense)
Gain (loss) on sale of investments (4) 19 (290) (11)
Gain on sale of equipment to
related party 165
Other 27 117 14 117
----------------- ----------------
23 136 (276) 271
Net income before income taxes (92) 146 112 520
Income taxes (14) (20) (55)
----------------- ----------------
Net income (loss) $(92) $132 $92 $465
----------------- ----------------
----------------- ----------------
Income per share
Net income $(0.04) $0.06 $0.04 $0.20
Dividends applicable to preferred stock 0.02 0.02 0.05 0.05
------------------ -----------------
Net income (loss) applicable to common
stock $(0.06) $0.04 $(0.01) $0.15
------------------ -----------------
Average weighted number of shares 2,579,339 2,285,375 2,579,339 2,285,375
The accompanying notes are an integral part of these consolidated financial
statements.
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PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Nine Months Ended
June 30,
1997 1996
------------------
NET CASH PROVIDED (USED) BY
Net income $ 92 $465
Depreciation and amortization 98 125
Provision for bad debts 60 60
Increase (decrease) from changes in:
Investments in securities 343 (304)
Accounts receivable 572 (92)
Receivables from related parties (365) 355
Inventory 237 (1,541)
Prepaids and other assets (112) (529)
Accounts payable and accrued
liabilities (386) 1,068
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Net cash provided by (used in)
operating activities 539 (393)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of common stock (59)
Fixed asset disposal (81)
Net investments in and advances to joint venture (10) (135)
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Net cash provided by (used in) investing activities (150) (135)
CASH FLOW FROM FINANCING ACTIVITIES:
Regulation S offering 450
Change in margin liability (180)
Bank loan 200
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Net cash provided by (used in) financing activities 20 450
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 409 (78)
CASH AND CASH EQUIVALENTS,
beginning of year 508 811
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CASH AND CASH EQUIVALENTS,
end of quarter $917 $733
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----- ------
Cash paid during the year for:
Interest $26,141 $555
Income taxes $6,000
The accompanying notes are an integral part of these consolidated financial
statements.
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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
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 nine month period ended June 30, 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 June 30, 1997, as Compared to the Three Months Ended
June 30, 1996
Net sales of $10.9 million for the three months ended June 30, 1997 increased
by $2 million (22.9%) over net sales of $8.9 million for the similar 1996
period. This increase was attributable to the combined effects, on volume,
to an increase in hard disk sales and new product offerings (video cards,
monitors, CD ROM's, and controller cards), and, on pricing, of continued
competitive pricing.
Gross profit decreased 2% from $464,000 in the third quarter of 1996 to
$454,000 in the comparable fiscal 1997 quarter, reflecting both an increase
in quarterly unit sales and lower product mark ups. Gross profit as a
percentage of net sales decreased from 5.2% in the third quarter of fiscal
1996 to 4.2% in the equivalent quarter of 1997, mainly due to lower profit
margins.
Selling, general and administrative expenses increased 25.3% to $569,000 in
the third quarter of fiscal 1997 compared to $454,000 for the comparable
fiscal 1996 period. The absolute increase in SG%A expenses was due to
business development related expenses. As a percentage of revenue, SG&A
expenses increased from 5.1% in 1996 to 5.2% in 1997 due to growth related
expenses.
Income from operations decreased from $10,000 in the third quarter of fiscal
1996 to $(115,000) in the similar 1997 period. As a percentage of net sales,
operating income decreased from .1% in 1996 to (1)% in the third quarter of
fiscal 1997 reflecting reduced gross profit margins and higher selling,
general and administrative expenses.
Other income (expenses) decreased from $136,000 in 1996 to $23,000 in 1997.
This decrease was mainly attributable to a non-recurring $100,000 NOL accrual
adjustment reported in 1996 along with a $19,000 gain on the sale of
investments.
Net income decreased from 132,000, or $0.04 per share (after preferred stock
deduction) in fiscal 1996 to $(92,000), or $(0.06) per share (after
preferred stock deduction) in the third quarter of fiscal 1997.
Nine Months Ended June 30, 1997 as Compared to the Nine Months Ended June 30,
1996
Net sales increased 22.3% from $31.3 million in 1996 to $38.2 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 14.4% from $1.6 million in the nine month period
ended on June 30, 1996 to $1.9 million in the comparable fiscal 1997 period
principally due to unit sales volume growth. Gross profit as a percentage of
net sales slightly decreased from 5.2% in 1996 to 4.9% in the comparable
1997 period mainly reflecting lower product mark ups in third quarter
fiscal 1997 billings.
<Page 8)
Selling, general and administrative expenses increased by $96,000 (6.9%)
during the 1997 first nine month period compared to the $1.4 million for the
similar fiscal 1996 period. This increase was principally due to higher
business development costs. As a percentage of revenue, SG&A expenses
decreased from 4.4% in 1996 to 3.9% in 1997.
Income from operations increased 55.8% from $249,000 in fiscal 1996 to
$388,000 in fiscal 1997 reflecting a .2% improvement, as a percentage of net
sales, attributable to the net effect of lower profits and reduced SG&A
expenses.
Other income (expense) increased by $(547,000) in 1997 when compared to
$271,000 for the comparable fiscal 1996 period. Other income (expense) for
the 1997 period mainly reflects losses on investments held for trading, in
comparison to certain non-recurring gains which were reported in fiscal 1996.
Net income decreased to $92,000, or $(0.01) per share (after preferred stock
dividend) in the nine months period ended June 30, 1997, when compared to
$465,000, or $0.15 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 nine months
ended on June 30, 1997 was $539,000 as compared to $(393,000) in the
comparable prior year period. Cash provided by investments in securities,
accounts receivable and inventories in the amount of $1,152,000, offset by
the use of cash in receivables from related parties and accounts payable in
the aggregate of $(751,000) largely identifies the net source of funds.
At the end of July 1997, funds were transferred to a related party in Taiwan,
in the net aggregate of $1,290,000, for the purchase of certain inventory
close out products. This order was recently cancelled because the
prospective vendor was unable to comply with the terms of the purchase order.
These funds will be reimbursed to the Company on or before August 25, 1997.
Net cash provided by (used in) investing activities in 1997 was $(150,000),
as compared to $(135,000) in 1996. The 1997 figure principally reflects the
purchase of the Company's common stock and disposal of certain fixed assets.
Net cash provided by (used in) financing activities in 1997 totaled $20,000
in comparison to $450,000 in 1996. The 1997 amount reflects the net effect
of the use of a new credit facility and a decrease in securities margin
liability.
Since May 1994, the Company had primarily operated with internally generated
cash flow and vendor lines of credit. However, in May 21, 1997, the Company
obtained a $3 million asset-based credit facility. This facility will solely
be used to fund the growth of the Company's distribution business. 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.
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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 are computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect 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: August 14, 1997 /s/ Jack Wen
-----------------------
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 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
STATMENTS.
</LEGEND>
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<PERIOD-START> OCT-01-1996
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<SECURITIES> 663
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<ALLOWANCES> 159
<INVENTORY> 820
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<PP&E> 767
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<CURRENT-LIABILITIES> 2576
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<COMMON> 25
<OTHER-SE> 3354
<TOTAL-LIABILITY-AND-EQUITY> 8088
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<CGS> 36372
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</TABLE>
