-19-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[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, 1997.
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
163 University Parkway, Pomona, California 91768
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 869-61
33
Name of each
exchange
Securities registered pursuant to Section 12(b) of the Act:
Title of each class on which 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 filing
requirements for the past 90 days. YES X
NO
Check mark indicates that disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K 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 [ ].
The aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant on January
12, 1998 based on the average bid and asked prices reported by
NASDAQ on such date was approximately $9,103,270.00.
Registrant's Common Stock outstanding at January 12, 1998
was 2,647,839 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the
registrant's proxy statement for its Annual Meeting of
Shareholders to be held March 3, 1998 are incorporated by
reference into Part III as set forth herein.
PCC Group, Inc. and Subsidiaries
Report on Audited Consolidated Financial Statements
For the Years Ended September 30, 1995, 1996 and 1997
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, 1996 and 1997, and the related
consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended September
30, 1997. We have also audited the schedule listed in Item
14(a)(2) of this Form 10k. 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 $2,995,248 and $3,004,367 as of
September 30, 1996 and 1997. 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 schedule. 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
schedule. 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,
1996 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended September
30, 1997 in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedule presents fairly, in
all material respects, the information set forth therein.
BDO SEIDMAN,
LLP
Los Angeles, California
December 5, 1997
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
1996 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $507,719 $1,057,269
Securities and other negotiable assets 1,005,509 1,016,625
Accounts receivable, less allowances for
possible losses of $99,000 and $34,447 1,872,497 3,958,535
Receivable from related parties (Note 7) 576,282 367,654
Notes receivable - related parties(Note 7) 100,000 100,000
Inventory, less reserves for obsolescence
of $371,000 and $225,082 1,057,247 734,673
Prepaids and other current assets 80,685 230,044
TOTAL CURRENT ASSETS 5,199,939 7,464,800
PROPERTY AND EQUIPMENT, net (Note 2) 145,303 99,706
INVESTMENT IN AND ADVANCES TO
JOINT VENTURE (Note 1) 2,995,248 3,004,367
OTHER ASSETS 80,703 23,391
TOTAL ASSETS $ 8,421,19 $10,592,264
See accompanying summary of accounting policies
and notes to consolidated financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Concluded)
September 30,
1996 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,262,026 $4,113,545
Current portion of long-term debt (Note 6) 1,414 -
Accrued liabilities 127,498 176,788
Securities margin liability (Note 3) 551,455 427,658
Line of credit (Note 6) - 140,000
TOTAL CURRENT LIABILITIES 2,942,393 4,857,991
DEFERRED GAIN ON SALE OF EQUIPMENT (Note 1) 933,063 933,063
LONG-TERM DEBT, (Note 6) - 17,793
3,875,456 5,808,847
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
SHAREHOLDERS' EQUITY (Notes 8 and 9):
Non-convertible, Cumulative, New Series
A preferred stock ($1,800,000 and
$1,960,000 liquidation preference
in 1996 and 1997) - $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, 2,528,117 and 2,647,83 25,281 26,478
Contributed capital in excess of stated
value 1,347,085 1,610,638
Stock subscribed (Note 8) 230,500 -
Retained earnings 1,742,871 2,093,246
Treasury stock, 99,000 shares
purchased at cost - (146,945)
TOTAL SHAREHOLDERS' EQUITY 4,545,737 4,783,417
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $8,421,193 $10,592,264
See accompanying summary of accounting policies
and notes to consolidated financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended September 30,
1995 1996 1997
NET SALES (Note 7) $40,473,158 $40,644,767 $63,643,054
COST OF SALES (Note 7) 38,959,851 38,752,351 60,823,433
Gross profit 1,513,307 1,892,416 2,819,621
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,157,655 1,642,705 2,413,986
Income(loss)from operations (644,348) 249,711 405,635
OTHER INCOME (EXPENSE):
Interest(expense)income, net 25,788 6,305 (42,259)
Gain on sale of equipment to
related party (Note 1) 426,802 135,000 -
Gain(los on sale of investments 205,536 (56,684) (13,306)
Gain on reversal of
accrued liability - 233,731 -
Other - net 30,300 78,575 15,305
688,426 396,927 (40,260)
Income before income taxes 44,078 646,638 365,375
INCOME TAXES (Note 4) (19,337) (3,200) (15,000)
NET INCOME 24,741 643,438 350,375
Dividends applicable to
preferred stock (160,000) (160,000 (160,000)
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $(135,259) $ 483,438 $ 190,375
INCOME PER SHARE:
Net income (loss) applicable to
common shares $(0.06) $0.20 $ 07
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES & COMMON EQUIVALENTS 2,285,375 2,466,816 2,566,144
See accompanying summary of accounting policies
and notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year ended September 30,
1995 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $24,741 $643,438 $ 350,375
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation and amortization 130,655 124,902 113,407
Provision for bad debts 228,000 46,000 152,115
Loss(gain)on sale of assets 1,086 (6,502) -
Gain on sale of equipment (426,802) (135,000) -
(Gain) loss on sale of
investments (205,536) 56,684 13,306
Increase (decrease) from changes in:
Purchases of investments held for
Trading (3,654,041) (12,568,358)(12,015,949)
Proceeds on sales of investments
held for trading 3,776,702 11,589,040 11,991,527
Accounts receivable (23,036) (260,889) (2,238,154)
Receivable from related
parties 401,880 315,69 208,628
Income taxes receivable 130,000 - -
Inventory 1,781,781 (858,588) 322,574
Prepaids and other assets 24,763 (71,313) (92,045)
Accounts payable and accrued
liabilities (1,969,924) 270,722 1,898,759
Income taxes payable 19,337 (19,337) 2,050
Net cash provided by (used in)
operating activities 239,606 (873,509) 706,593
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,803) (72,170) (67,810)
Purchase of tire recycling
equipment (2,251,552) (819,315) -
Proceeds on sale of
tire recycling equipment 3,200,000 300,000 -
Proceeds on sale of assets 1,500 11,587 -
Principal payments on notes
receivable - related parties 65,358 - -
Net advances(to)
from joint venture (430,000) - -
Capital contributions/advances to
joint venture (198,430) (378,786) (9,119)
Net cash provided by (used in)
investing activities 366,073 (958,684) (76,929)
See accompanying summary of accounting policies
and notes to consolidated financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Increase (Decrease) in Cash and Cash Equivalents
Year ended
September 30,
1995 1996 1997
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit - borrowing - - 1,400,500
Line of credit - repayments - - (1,260,500)
Due to related party (500,000) - -
Proceeds from common stock issuance - 993,000 -
Cancellation of common stock - (54) -
Change in margin liability 7,455 544,000 (123,797)
Principal payments on long-term debt (7,389) (8,145) (1,413)
Borrowing of long-term debt - - 17,791
Purchase of treasury stock - - (112,695)
Net cash provided by (used
in) financing activities (499,934) 1,528,801 (80,114)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 105,745 (303,392) 549,550
CASH AND CASH EQUIVALENTS,
beginning of year 705,366 811,111 507,719
CASH AND CASH EQUIVALENTS,
end of year $811,111 $507,719 $1,057,269
Cash paid during the year for:
Interest $ 4,758 $ 2,700 $19,512
Income taxes $ 15,050 $ 3,200 $12,950
See accompanying summary of accounting policies
and notes to consolidated financial statements.
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 1997, the Company did not have non-cash
transactions.
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:
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)
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:
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
See accompanying summary of accounting policies
and notes to consolidated financial statements.
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 four
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, 1996 and 1997, the Company had
bank balances, including cash, cash equivalents and short-term
investments, of approximately $507,719 and $1,057,269, 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 at 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, based 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.
PCC GROUP, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(Continued)
INCOME TAXES
Deferred income taxes are recognized for 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 the purpose of these statements, cash equivalents
include investments with original maturities of three months or
less.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share has been determined by
dividing net earnings (loss) (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,
1995, 1996 and 1997) 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. The Company has classified its investments in debt and
equity securities into the trading category. The Company had
gains (losses) on sale of investments of $205,536, $(56,684) and
$(13,306) for the years ended September 30, 1995, 1996 and 1997.
PCC GROUP, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
(Continued)
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" SFAS 123, establishes a
fair value method of accounting for stock-based compensation
plans and for transactions in which a company acquires goods or
services from non-employees in exchange for equity instruments.
The Company adopted this accounting standard on October 1, 1996.
SFAS 123 also gives the option to account for stock-based
employee compensation in accordance with Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock issued to
Employees," or SFAS 123. The Company elected to follow APB 25
which measures compensation cost for employee stock options as
the excess, if any, of the fair market price of the Company's
stock at the measurement date over the amount an employee must
pay to acquire stock.
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 Standard No. 128,
(SFAS No. 128), "Earnings Per Share," issued by the Financial
Accounting Standards Board is effective for financial statements
issued for the periods ending after December 15, 1997, including
interim periods. The SFAS 128 requires restatement of all
periods EPS data presented. The new standard also requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The Company has not determined the effect on its
EPS calculation from the adoption of this statement.
Statement of Financial Accounting Standard No. 129 (SFAS No. 129),
"Disclosure of Information about Capital Structure," issued by
the Financial Accounting Standards Board is effective for
financial statements issued ending after December 15, 1997. The
new standard reinstates various securities
SUMMARY OF ACCOUNTING POLICIES
(Continued)
disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by
SFAS No. 129. The Company does not expect adoption of SFAS No.
129 to have a material effect, if any, on its financial position
or results of operations.
Statement of Financial Accounting Standard No. 130 (SFAS
No. 130), "Reporting Comprehensive Income," issued by the
Financial Accounting Standards Board is effective for financial
statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial
statements. The Company has not determined the effect on its
financial position or results of operations, if any, from the
adoption of this statement.
Statement of Financial Accounting Standard No. 131 (SFAS
No. 131), "Disclosure about Segments of an Enterprise and Related
Information," issued by the Financial Accounting Standards Board
is effective for financial statements with fiscal years beginning
after December 15, 1997. The new standard requires that public
business enterprises report certain information about operating
segments in complete sets of financial statements of the
enterprises and in condensed financial statements of interim
periods issued to shareholders. It also requires that public
business enterprises report certain information about their
products and services, the geographic areas in which they operate
and their major customers. The Company has not determined the
effect on its financial position or results of operations, if
any, from the adoption of this statement.
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 recycles tires by utilizing innovative technology
and converts the tires into saleable solids, liquids and gases.
This facility is expected to be completed in early 1998. 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, 1997, 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, 1996 and 1997,
the Company made equity contributions of $378,786 and $0. The
Company is required to make an equity contribution amounting to
$110,000 in fiscal 1998.
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. During fiscal 1997, the Company's
relationship with the inventor deteriorated after the technology
failed to perform. The Company has filed action against the
inventor for breach of contract.
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, $135,000 and $0 were
recognized during the years ended September 30, 1995, 1996 and
1997 (see Note 7). The Company deferred $933,063 of gain from
sale of equipment which will be recognized when the equipment is
sold to a third party. The Company had a receivable of
$2,871,574 and $2,880,692 due from DGR as of September 30, 1996
and 1997 which is included in the investment in and advances to
joint venture balance.
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES (Continued)
Summarized financial data of DGR consists of:
September 30,
1996 1997
Current assets $ 650,000 $ 81,000
Non-current assets 11,862,000 14,253,000
Total assets 12,512,000 14,334,000
Current liabilities 3,934,000 3,940,000
Non-current liabilities 5,113,000 7,057,000
Equity 3,465,000 3,337,000
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 Resource 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:
September 30,
1996 1997
Furniture, fixtures and equipment $810,225 $743,398
Vehicles 35,872 61,966
Leasehold improvements 6,900 8,457
852,997 813,821
Accumulated depreciation and
Amortization (707,694) (714,115)
Property and equipment, net $145,303 $99,706
NOTE 3 - MARGIN LIABILITY
The Company invests excess cash in various securities on
a short term margin basis. The investments are made for trading
purposes which involve varying degrees of market risk in excess
of amounts recognized in the balance sheet. In a margin
transaction, brokers extend credit to customers, subject to
various regulatory margin requirements, which allow customers to
purchase securities in excess of the
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
underlying collateral. Margin requirements may not be sufficient
to fully cover losses which customers may incur. Such
transactions may expose the Company to significant
risk in the event that the value of the securities decline.
As of September 30, 1996 and 1997, the Company had securities
margin liability of $551,455 and $427,658. The notional value of the
securities owned by the Company as of September 30,1997 was $1,090,592
NOTE 4 - INCOME TAXES
Income taxes are as follows:
Year ended September 30,
1994 1995 1996
Current
Federal $ - $ - $ -
State 19,377 3,200 15,000
$19,377 $3,200 $15,000
The components of the net deferred tax asset and
liability are as follows:
September 30,
1996 1997
Deferred tax asset $1,238,307 $1,034,539
Deferred tax liability (98,428) (78,571)
Valuation allowance (1,139,881) (955,968)
$ - $ -
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:
Year ended September 30,
1996 1997
Excess tax depreciation over book $ (45,507) $(23,338)
Inventory and bad debt reserves 203,222 77,881
Accrued vacation 2,814 3,585
State taxes 1,088 1,621
Installment sales (52,248) (52,248)
Other 3,008 -
Net operating loss carryforwards 1,027,504 948,467
Valuation allowance (1,139,881) (955,968)
$ - $ -
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4 - INCOME TAXES (Continued)
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:
1995 1996 1997
Federal statutory rate 34% 34% 34%
Federal utilization of net operating
loss carryforward (34) (34) (34)
State taxes, net of federal benefit - -
4.1
-% -%
4.1%
During fiscal 1997, the Company utilized tax benefit of
$350,375 from the net operating loss carryforward.
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 the acquisition of WMD and
subsequent stock ownership changes by the Company.
NOTE 5 - 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, 1997 are as follows:
Year ending
September 30,
1998 $ 73,978
1999 31,021
2000 13,018
2001 13,018
2002 3,328
$134,363
Rental expense for the years ended September 30, 1995,
1996 and 1997 was approximately $146,000, $148,000 and $104,950.
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Economic Dependency
A majority of the Company's fiscal 1995, 1996, and 1997
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.
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
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, operations or cash flows of the Company.
NOTE 6 - DEBT
During the year, the Company entered into a line of
credit agreement expiring May 19, 1998, which provides for
borrowings of up to $3,000,000 which is collateralized by certain
inventory and accounts receivable. The balance outstanding under
this line of credit at September 30, 1997 was $140,000. The
borrowings under this agreement bear interest at the prime rate
(8.5% at September 30, 1997) plus 1.25%. The terms of the line
of credit agreement contain, among other provisions, requirements
for maintaining defined levels of working capital, tangible net
worth, annual capital expenditures and a debt-to-equity ratio.
The company was in compliance with the financial covenants
contained in the line of credit agreement at September 30, 1997.
In addition, during September 1997, the Company entered
into an equipment loan maturing through 2002. This loan bears
interest of 8.9% and is collateralized by certain equipment.
NOTE 7 - 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 $576,282 and $367,654 as of September 30, 1996 and
1997. 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 $4,221,767, $3,640,732 and $2,744,229 for the
years ended September 30, 1995, 1996, and 1997 and purchases fr
om related parties of $103,844, $49,880 and $179,302 for the
years ended September 30, 1995, 1996 and 1997. In additional the
Company has an outstanding loan with a related party, as of
September 30, 1996 and 1997, in the amount of $0 and $54,017.
Consulting fees of $300,000 were paid to a related party during
fiscal 1997, for administrating and designing the technology of
the tire recycling plant.
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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, 1996 and 1997, the outstanding
balance on this note receivable was $100,000.
NOTE 8 - 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 1995, 1996 or 1997.
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 and $760,000 at September 30,
1996 and 1997. 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.
During fiscal year 1997 the Company was not involved in
a private offering.
NOTE 9 - TREASURY STOCK
From time to time, the Company's Board of Directors has
authorized the repurchase of shares of the Company's common stock
in the open market.
During fiscal year 1997, the Company repurchased 30,500
shares of treasury stock at an average per share cost of $3.50.
In prior years the Company purchased 68,500 shares of treasury
stock at an average per share cost of $.50. The Company treated
the purchase of treasury stock as though the stock was cancelled.
During fiscal 1997, it was determined that the treasury stock was
not cancelled. Thus the 68,000 shares of common stock were
included in treasury stock. The Company holds a total of 99,000
shares of treasury stock which may be used for any corporate purpose.
NOTE 10 - STOCK OPTION PLAN
The Company provides a non qualified stock options plan and an
incentive stock option plan for its employees, officers and
directors.
The non qualified stock 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, executive officers and directors of the
Company. The stock option term is for a period of ten years from
the date of grant or such shorter period as is determined by the
Board of Directors. Each stock option may provide that it is
exercisable in full or in cumulative or noncumulative
installments, and each stock option is exercisable from the date
of grant or any later date specified therein, all as determined
by the Board of Directors. This plan terminates in the year 2002.
To date 292,300 shares of stock options were issued to employees,
officers and directors under the non qualified stock option plan.
During fiscal year 1997, 20,000 shares of stock options were
granted to one of the Company's directors.
The incentive stock option plan provides for the issuance of up
to 200,000 shares of common stock to designated employees and
executive officers of the Company. 122,700 shares were granted
to the Company's officers. During fiscal year 1997, the Company
did not issue additional stock options under the incentive stock
option plan.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost for the Company's
stock option plans been determined consistent with FASB No. 123,
the Company's net income and earning per share would have been
reduced to the pro forma amounts included below:
Year ended September 30,
1996 1997
Net income attributable to common stockholders:
As reported 643,438 350,374
Pro forma 510,288 205,439
Net income applicable to common shares
As reported .02 .07
Pro forma .12 .02
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Concluded)
NOTE 10 - STOCK OPTION PLAN (Continued)
The stock option plan summary and changes during each year is
presented below:
Year ended September 30,
1995 1996 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 300,000 $1.15 300,000 $1.15 395,000 $ 1.52
Options granted - - 95,000 2.70 20,000 2.00
Options cancelled - - - - - -
Options exercised - - - - - -
Options at end of
year 300,000 $1.15 395,000 $1.52 415,000 $ 1.54
Options exercisable
at end of year 117,300 1.12 212,300 1.87 292,300 1.47
Weighted-average fair
value of options
granted during the
year $ - $ .52 $ 3.10
The following table summarizes information about the stock
options outstanding at September 30, 1997.
Options Outstanding Options Exercisable
Number Weighted Avg. Weighted Number Weighted
Range of Outstanding Remaining Average Exer. Average
Exer, Price 9/30/97 Contractual Exer.Price 9/30/97 Exercisable
Price
$1.12 to 1.50 355,000 5.5 years $ 1.20 232,300 $ 1.21
$2.00 to 3.50 60,000 5.0 years 2.50 60,000 2.50
$1.12 to 3.50 415,000 5.7 years $ 1.90 292,300 $ 1.47
PCC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Concluded)
NOTE 10 - STOCK OPTION PLAN (Continued)
Options exercisable at September 30, 1997 have an average
exercise price of $1.86. The fair value of the stock options
granted during 1997 and 1996 was $62,000 and $50,214,
respectively, on the date of grant using the Black Scholes option-
pricing model. The weighted-average assumptions used were as
follows:
Year ended September 30,
1996 1997
Discount rate - bond yield rate 6% 6%
Volatilit 75.34% 75.34%
Expected life 5 years 5 years
Expected dividend yield - -
NOTE 11 - SIGNIFICANT CUSTOMER
During fiscal 1997, 25% of the Company's net sales were generated
from one customer. During fiscal 1995 and 1996 the Company did
not have any significant customers.
PCC GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 and 1997
Amount
Beginning charged Ending
Description balance to expense Deductions balance
Allowance for doubtful
accounts:
Fiscal 1995 $ 96,000 $228,000 $ 60,000 $264,000
Fiscal 1996 $264,000 $ 46,000 $211,000 $ 99,000
Fiscal 1997 $ 99,000 $152,000 $216,000 $ 35,000
Reserve for inventory
obsolescence:
Fiscal 1995 $184,000 $157,000 $ - $341,000
Fiscal 1996 $341,000 $ 30,000 $ - $371,000
Fiscal 1997 $371,000 $ - $146,000 $225,000
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 4, 1998
PCC GROUP, INC.
By: /s/ Jack Wen
Jack Wen
Chairman of the Board,
Chief Executive Officer and
President
Dalian North Certified Public Accountants Office
Golden Horse Road, North Accounting Company Building, Dalian
Development Zone
Telephone: 86-411-765-5664; Fax: 86-411-761-1017
Reference: Enterprise with Foreign Investment (1997) 297
The Board of Directors
Dalian Green Resources Co. Ltd.
We have audited the accompanying balance sheets and
statements of changes in financial position of Dalian Green
Resources Co. Ltd. as of September 30, 1996 and 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements. We conducted our audit in accordance with
independent audit standards for certified public accountants in
China. During the process of audit, we implemented all necessary
audit procedures including examining accounting records on a
sampling basis.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
and changes in financial position as of September 30, 1996 and
1997 in conformity of with Accounting Standards for Enterprises
and Accounting Regulation for Enterprises with Foreign Investment
in China on a consistent basis.
Dalian North Certified Public
Accountants Office
Chinese Certified Public Accountants:
Zhao Yong and Liu Hongtao
November 25, 1997
DALIAN GREEN RESOURCE CO LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION (IN RMB)
09/30/96 09/30/97 09/30/97
BALANCE BALANCE BALANCE
RM. RM. US$
ASSETS
Cash and cash equivalent 4,916,000 151,000 18,189
Accounts receivable 0 0 0
Other accounts receivable 244,000 129,000 15,539
Inventory 235,000 394,000 47,460
Total current assets 5,395,000 674,000 81,188
Property, plant and equipment 2,009,000 1,800,000 216,823
Accumulated depreciation ( 193,000) (399,000) (48,062)
Construction in progress 87,246,000 106,121,000 12,783,044
Intangible assets 6,449,000 6,449,000 776,829
Organizational expenses 2,967,000 4,355,000 524,591
98,478,000 118,326,000 14,253,225
Total Assets 103,873,000 119,000,000 14,334,413
LIABILITIES AND EQUITY
Short-tem bank loans 4,630,000 2,679,000 322,705
Current portion of long-term
bank loans 0 0 0
Accounts payable 24,262,000 24,301,000 2,927,232
Taxes payable (40,000) (44,000) (5,300)
Accrued liabilities 3,811,000 5,777,000 695,882
Total current liabilities 32,663,000 32,713,000 3,940,518
Long-term bank loans 41,821,000 57,867,000 6,970,500
Deferred gain or (loss) of foreign
Exhange 621,000 710,000 85,525
42,442,000 58,577,000 7,056,02
Total Liabilities 75,105,000 91,290,000 10,996,543
INVESTORS EQUITY
Dalian Materials Devel (US$) 2,520,000 2,520,000
PCC Group, Inc. (US$) 1,550,000 1,550.000
Contributed capital
(US$1=RM. 5.7) 23,199,000 23,199,000
Additional paid in capital 5,569,000 4,511,000
Translation adjustments (733,000)
Total Investors equity 28,768,000 27,710,000 3,337,000
Total liabilities and equity 103,873,000 119,000,000 14,334,413
DALIAN GREEN RESOURCE CO., LTD.
STATEMENT OF CHANGES IN FINANCIAL POSITION ( IN RMB)
Year ended September 30, 1996 1997
.
Cash flows from operating activities
Net income (loss) 0 0
Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities
Depreciation 150,000 253,000
Loss on disposal of fixed assets 0 162,000
Increase (decrease) from changes in :
Other account receivable 47,000 115,000
Inventory (235,000) (159,000)
Tax refunds receivable (39,000) (4,000)
Accounts payable 6,189,000 39,000
Accrued liabilities 3,213,000 908,000
Net cash provided by operating
activities 9,325,000 1,314,000
Cash flows from investing activities
Increase in
property, plant and equipment (847,000) 0
construction in progress (20,160,000) (18,875,000)
intangible assets (363,000) 0
organization expenses (1,502,000) (1,388,000)
Net cash flows
in investing activities (22,872,000) (20,263,000)
Cash flows from financing activities
Proceeds of capital injected 2,495,000 0
Repayment of short term
bank loans (4,561,000) (1,951,000)
Proceeds of long term bank loans 16,677,000 16,046,000
Net cash flows from
financing activities 14,611,000 14,095,000
Effect of changes in exchange rates 99,000 89,000
Net decrease in cash and
cash equivalents 1,163,000 (4,765,000)
Cash and cash equivalents, beg. 3,753,000 4,916,000
Cash and cash equivalents, end 4,916,000 151,000
Noncash transactions :
Additional paid in capital (1,058,000)
Accrued liabilities 1,058,000
