SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q /A-2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File
June 30, 1998 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, 1998, the registrant had outstanding 2,680,339 shares of its
Common Stock, $.01 par value per share.
ITEM 1. FINANCIAL STATEMENTS
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)/(Audited)
June 30, September
30
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $738 $1,057
Securities and other negotiable assets 1,017
Accounts receivable, less allowances for
Possible losses of $113,944 and $34,447 4,390 3,958
Receivable from related parties 358 368
Notes receivable - related parties 100
Notes receivable 1,250
Inventory, less reserves for
obsolescence of $207,958 and $225,082 644 735
Prepaids and other current assets 3,112 230
TOTAL CURRENT ASSETS 10,492 7,465
PROPERTY AND EQUIPMENT, Net 132 100
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 3,004 3,004
OTHER ASSETS 24 23
TOTAL ASSETS $13,652 $10,592
The accompanying notes are an integral part of
these consolidated financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)/(Audited)
LIABILITIES AND June 30, September
30,
SHAREHOLDERS EQUITY 1998 1997
CURRENT LIABILITIES:
Accounts payable $2,652 $4,113
Line of credit 4,000 140
Accrued liabilities 166 177
Securities margin liability 428
TOTAL CURRENT LIABILITIES 6,818 4,858
DEFERRED GAIN ON SALE OF EQUIPMENT 933 933
LONG TERM DEBT 37 18
7,788 5,809
SHAREHOLDERS' EQUITY
Non-convertible, Cumulative, New Series A
preferred stock
($1,200,000 liquidation preference) - $4.80 stated
value,
Shares authorized, issued and outstanding - 1,200 1,200
250,000
Common stock, $.01 stated value; shares authorized
- -
10,000,000; shares issued and outstanding -
2,680,339
and 2,647,839 27 26
Contributed capital in excess of stated value 1,652 1,611
Retained earnings 3,132 2,093
Treasury stock, 99,000 shares purchased at cost (147) (147)
TOTAL SHAREHOLDERS' EQUITY 5,864 4,783
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,652 10,592
The accompanying notes are an integral part of
these consolidated financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share data
(Unaudited)/(Audited)
Three Nine Months Ended
Months
Ended
June 30, June 30,
1998 1997 1998 1997
Net sales $17,366 $10,951 $60,845 $38,240
Cost of sales 16,572 10,497 57,865 36,372
Gross profit 794 454 2,980 1,868
Selling, general and administrative
Expenses 481 569 1,500 1,480
Income/(Loss) from operations 313 (115) 1,480 388
Other income (expense)
Gain (loss) on sale of 103 (4) (152) (290)
investments
Interest (expense) income, net (87) (160)
Other (5) 27 (23) 14
11 23 (335) (276)
Net income/(Loss) before income 324 (92) 1,145 520
taxes
Income taxes 23 106 (55)
Net income/(Loss) $ 301 $ (92) $1,039 $ 465
Income per share
Net income/(Loss) $0.11 $(.04) $0.39 $0.18
Dividends applicable to preferred (0.02) (0.02) r(0.04) 0.05
stock
Net income (loss) applicable to $0.09 ($0.06) r($0.35 $0.13
common
Shares
Average weighted number of 2,663,824 2,579,339 2,663,824 2,579,339
shares(Basic)
Diluted income per share $.08 $.31 $.12
Diluted weighted average shares 2,973,177 N/A 2,973,177 2,863,109
The accompanying notes are an integral part of these consolidated
financal statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Nine
Months
Ended
June
30,
1998 1997
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
Net income $1,039 ($ 92)
Depreciation and amortization 32 98
Provision for bad debts (79) 60
Increase (decrease) from changes in:
Investments in securities 1,017 343
Accounts receivable (433) 572
Receivables from related parties (1,140) (365)
Inventory (2,810) 237
Prepaids and other assets 18 (112)
Accounts payable and accrued
Liabilities (1,889) (386)
Net cash provided by (used in)
operating activities (4,245) 539
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of common stock 47 (59)
Fixed Asset disposal (81)
Net investments in and advances to joint (10)
venture
Net cash provided by (used in) investing 47 (150)
activities
CASH FLOW FROM FINANCING ACTIVITIES:
Change in margin liability (180)
Change in line of credit 3,860 200
Borrowings long term debt 19
Net cash provided by (used in)
financing activities 3,879 20
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (319) 409
CASH AND CASH EQUIVALENTS,
beginning of year 1,057 508
CASH AND CASH EQUIVALENTS,
end of quarter $ 738 $ 917
Cash paid during the year for:
Interest $123 $26
Income taxes $106 $6
The accompanying notes are an integral part of
these consolidated consolidated financial
statements.
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. The company also has established an environmental resources
division,and in connection therewith, the Company has established a scrap
tire recycling plant in Dalian Peoples Republic of China. This facility is
owned 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. The company is experiencing difficulty with the
original design and has not received the permits necessary to operate the
plant. The company is working to resolve these problems. 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 months period ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending
September 30, 1998. 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, 1997.
Note 2 - Income Taxes
As of September 30, 1997, for federal income tax purposes, the Company
had approximately $2.7 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.
Except for historical information contained herein, the matters
setforth in this report are forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Act of
1995. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially. The
Company disclaims any obligations to update these forward-looking
statements.
Three Months Ended June 30, 1998 as Compared to the Three Months Ended June
30, 1997
Net sales of $17.4 million for the quarter ended June 30, 1998
increased by $6.5 million (60%) over net sales of $10.9 million for the
similar 1997 period. This increase was due to the combined effects, on
volume, on an increase in hard disk sales, and of continued competitive
pricing pollicies.
Gross profit for the second quarter of 1998 was $794, a 75% increase,
when compared to $454,000 during the prior year's comparable period
reflecting a growth in unit sales. Gross profit as a percentage of net
sales slightly 1ncreased from 4.1% in the second quarter of 1997 to 4.5% in
the third quarter of 1998.
Selling, general and administrative expenses decreased by $88,000 to
$481,000 in the third quarter of fiscal 1998 compared to $569,000 for the
comparable fiscal 1997 period. As a percentage of revenue, SG&A expenses
decreased from 5.2% in 1997 to 2.7% in 1998. The difference is due to
primarily higher sales volume in fiscal 1998 and to a $34,000 reduction in
consulting fees, a $24,000 decrease in depreciation expense, and a
reduction in travel and other expenses. Strict cost controls maintained
SG&A expenses in sync with prior year's levels.
Income from operations increased from ($115,000) in the second quarter
of fiscal 1997 to $313,000 in the comparable fiscal 1998 period,
principally reflecting increased billings and volume related SG&A expense
reductions. Operating income as a percentage of net sales increased from
(1.0)% in 1997 to 2.9% in the comparable 1998 quarter.
Other income decreased by $12,000 in 1998 when compared to the
comparable fiscal 1997 period.
Net income increased to $301,000, or $0.09 per share (after preferred
stock dividend deduction), in the second quarter of fiscal 1998 compared to
($92,000), or $(0.06) per share (after preferred stock dividend deduction)
for the same fiscal 1997 quarter.
Nine Months Ended June 30, 1998, as Compared to the Nine Months Ended June
30, 1997
Net sales increased 59.3% from $38.2 million in 1997 to $60.8 million
in 1998. Revenue growth was primarily driven by a demand for high capacity
hard disks.
Gross profits increased by 60% from $1.9 million in the nine-month
period ended on June 30, 1997 to $3.0 million in the comparable fiscal 1998
period, principally due to new hard disk product offerings. Gross profit
as a percentage of net sales stayed the same at 4.9 %.
Selling, general and administrative expenses increased by $20,000
(1.3%) during the 1998 first six-month period when compared to the
comparable fiscal 1997 period. As a percentage of revenue, SG&A
decreased from 3.9% in 1997 to 2.5% in 1998. Strong cost controls allowed
the Company to operate efficiently without hiring new personnel, or
incurring in additional administrative expenses.
Income from operations increased 281% from $388,00 in 1997 to
$1,480,000 for the comparable fiscal 1998 period. As a percentage of net
sales, operating income increased from 1.0% in 1997, to 2.5% in 1998,
mainly reflecting increased billings and lower administrative expenses.
Other income (loss) for the 1998 period principally reflects continued
losses, in the aggregate of $(152,000), in the sale of corporate
securities. During the comparable 1997 period, the Company reported a
$(290,000) loss mainly attributable to the sale of similar investments.
Net income increased threefold to $1,039,000, or $0.37 per share
(after preferred stock dividend deduction), in the nine months ended June
30, 1998 compared to $465,000 for the same fiscal 1997 period.
At the end of fiscal 1997, the Company had net operating loss
carryforwards available to offset future taxable income of approximately
$2.7 million. It is not possible at this time to determine that the
realization of the net deferred tax asset as of September 30, 1997 is more
likely than not; accordingly, a 100% valuation allowance has been
established.
Liquidity and Capital Resources
Since May 1994, the Company has primarily operated with internally
generated cash flow and vendor lines of credit. During the second quarter
of fiscal 1997, the Company entered into a line of credit agreement, which
provides accounts receivable, and inventory based borrowings of up to $3
million. The company has a short-term bank loan based on receivables and/or
inventory. The maximum available under this facility is $5,000,000
The company had borrowing combined under both lines of $2.6 million
based on available collateral.
To date the company has invested $3 million in the Dalian Green joint
venture. The Dalian Green facility has not commenced operations because of
regulatory difficulties with the Chinese government, and problems with the
original design. The company is working to resolve these problems, however
if the plant is not operating by year-end according to the accounting
regulations the company may have to reserve some portion of the investment.
However the company has determined that it will limit its future expenses
related to the facility, and therefore does not expect that the Chinese
Joint Venture will negatively affect the Company's future liquidity.
Although the plant has now been constructed the operations cannot commence
until certain permits have been received, including in particular a permit
authorizing the importation of used tires. In April 1998 there was a change
in the Chinese government's cabinet. Due to concerns that China could be
used as dumping ground for refuse of other countries, the new cabinet
imposed restrictions on the importation of many used products, including
used tires. Because the plant was designed to process more rubber than is
available in China, the newly imposed restrictions would make the recycling
plant commercially nonviable. Accordingly the joint venture has attempted
to obtain a permit that would exempt recyclable tires from the new import
restrictions. The Company has been informed that the permit application
would be considered in September 1998. If a permit were not granted, the
Company would have to recognize impairment to its joint venture assets.
While the company believes that it will receive them, no assurance can be
given that the joint venture will be able to obtain the required permits.
Net cash provided by (used in) operating activities in 1998 was
($4,245,000), as compared to $539,000 in 1997 mainly the result of the net
effects of cash provided by sale of securities to a related party. This is
offset by a note receivable, offset by increases in investments in
securities, inventory, prepaids and other assets. The cash requirements for
the quarter went to the acquisition of capital equipment for resale, and
the reduction in liabilities.
Net cash provided (used in) investing activities in 1998 was $47,000
for the redemption of stock options, as compared to $(150,000) in 1997
consisting primarily of inter-company activity.
Net cash provided (used in) financing activities in 1998 was
$3,879,000 as compared to $20,000 in 1997 this reflects the acquisition of
equipment for resale and the reduction of liabilities.
In June 1998 the company divested itself of its investment portfolio,
receiving a short-term note of $1,250,000 for the balance of its stock
fund.
The Company plans to fund the growth of its distribution business with
internally generated funds, vendor lines and asset-based financing. The
Company is pursing various alternatives intended to enhance shareholder
value, and recently retained an investment banker. For a description of
the Company's investment in Dalian see Note 1 to the Company's Consolidated
Financial Statements for the year ended on September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PCC GROUP, INC.
(Registrant)
Date: September 04, 1998, /s/ JACK WEN
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: September 04, 1998 _______/s/ Jack Wen ___
Jack Wen
Acting
Vice President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
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