<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
December 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 December 31, 1997, the registrant had outstanding
2,556,144 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>
December 31, September 30,
ASSETS 1997 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,101 $1,057
Securities and other negotiable assets 2,946 1,016
Accounts receivable, less allowances
for possible losses of $64,447 and
$34,447 9,347 3,959
Receivable from related parties 54 368
Notes receivable - related parties 100 100
Inventory, less reserves for
obsolescence of $224,963 and
$225,082 1,262 735
Prepaids and other current assets 228 230
------- -----
TOTAL CURRENT ASSETS 17,038 7,465
PROPERTY AND EQUIPMENT, Net 96 100
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 2,905 3,004
OTHER ASSETS 29 23
----- -----
TOTAL ASSETS $20,068 $10,592
======= =======
</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 December 31, September 30,
SHAREHOLDERS' EQUITY 1997 1997
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $12,138 $4,113
Accrued liabilities 140 177
Line of credit 140
Securities margin liability 1,973 428
------------ -----------
TOTAL CURRENT LIABILITIES 14,251 4,858
DEFERRED GAIN ON SALE OF EQUIPMENT 933 933
LONG TERM DEBT 18 18
---------- ----------
15,202 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 250,000 1,200 1,200
Common stock, $.01 stated value; shares
authorized - 10,000,000; shares issued
and outstanding - 2,647,839 and 2,647,839 26 26
Contributed capital in excess of
stated value 1,611 1,611
Retained earnings 2,176 2,093
Treasury stock (147) (147)
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 4,866 4,783
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $20,068 $10,592
======== =======
</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
December 31,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $23,745 $13,679
Cost of sales 22,630 13,027
---------- ----------
Gross profit 1,115 652
Selling, general and administrative
expenses 540 457
------- ---------
Income from operations 575 195
Other income (expenses)
Interest (expense) income, net (23)
Gain (loss) on sale of investments (483)
Other - net 13 (71)
------- -------
(493) (71)
Net income before income taxes 82 124
Income taxes 8 12
----- -----
Net income $74 $112
====== =====
Income per share
Net income $0.03 $0.04
Dividends applicable to preferred
stock 0.02 0.02
------ -----
Net income (loss) applicable to
common shares $0.01 $0.02
Average weighted number of shares 2,647,839 2,553,728
</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>
Three Months Ended
December 31,
------- --------
<S> <C> <C>
NET CASH PROVIDED (USED) BY
Net income $82 $112
Depreciation and amortization 27 39
Provision for bad debts 42 30
Increase (decrease) from changes in:
Investments in securities (1,930) 204
Accounts receivable (5,388) (355)
Receivables from related parties 314 (214)
Inventory (527) (577)
Prepaids and other assets 2 (98)
Accounts payable and accrued liabilities 8,017 1,670
------ ------
Net cash provided by (used in)
operating activities 639 811
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of company stock (21)
Regulation S stock subscription (231)
------ ------
Net cash provided by (used in)
investing activities) 0 (252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit (140)
Proceeds from common stock issuance 231
Change in margin liability 1,545 (134)
------ -----
Net cash provided by (used in)
financing activities 1,405 97
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,044 656
CASH AND CASH EQUIVALENTS,
beginning of year 1,057 508
------ -----
CASH AND CASH EQUIVALENTS,
end of quarter 3,101 1,176
====== =====
Cash paid during the year for:
Interest $27 $8
Income taxes 0 0
</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 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 three month period ended December 31,
1997, 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.
<PAGE> 7
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Three Months Ended December 31, 1997, as Compared to the Three
Months Ended December 31, 1996
Net Sales increased 73.6% to $23.7 million in the first quarter
of fiscal 1998 compared to $13.7 million in the same fiscal 1997
period. The Company believes that this increase in net sales
was due to the combined effects, on volume, due to an increase in
hard disk sales and new peripheral product offerings (monitors
and modems), and, on pricing, of continued competitive pricing.
Gross profit increased 71% from $652,000 in the first quarter of
1997 to $1.1 million in the comparable fiscal 1998 quarter,
reflecting both an increase in quarterly unit sales and slightly
lower profit margins. Gross profit as a percentage of net sales
decreased from 4.8% in the first quarter of 1997 to 4.7% in the
first quarter of 1998, mainly due to competitive pricing within
the computer parts distribution business.
Selling, general and administrative expenses increased 18.2% from
$457,000 in the first quarter of 1997 to $540,000 in the
comparable fiscal 1998 period. As a percentage of net sales,
SG&A expenses decreased from 3.3% in 1997 to 2.3% in 1998.
Strict cost controls kept SG&A expenses increases well below
revenue growth rate.
Income from operations increased 194.9% from $195,000 in the first
quarter of fiscal 1997 to $575,000 in the first quarter of 1998.
As a percentage of net sales, operating income increased from
1.4% in 1996 to 2.4% in 1997 mainly as a result of tight
administrative cost controls.
Other income (expenses) increased six fold from $(71,000) in
1997 to $(493,000) in 1998. This increase was mainly
attributable to losses on sale of securities investments.
Provision for income taxes decreased to $8,000 for the first
quarter of 1998 in comparison to $12,000 for the comparable
fiscal 1997 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 33.9% to $74,000, or $0.03 per in the first
quarter of fiscal 1997 compared to $112,000, or $0.04 per share
for the same fiscal 1996 quarter.
<PAGE> 8
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.
Net cash provided by operating activities during the three months
ended on December 31, 1997 was $639,000 as compared to $811,000
in the comparable prior year quarter. Cash provided by
investments in securities and accounts recievable, offset by an
increase in accounts payable largely substantiates the
differences between quarterly periods.
Net cash provided by (used in) investing activities in fiscal
1998 was nil, as compared to ($252,000) in 1997.
Net cash provided by (used in) financing activities in 1998 was
$1.4 million in comparison to $97,000 in 1997 mainly reflects a
change in securities margin liability.
The Company plans to fund the growth of its distribution business
with internally generated funds, vendor credit lines and asset-
based financing. 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, 1997.
<PAGE> 9
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: February 13, 1998 /s/ Jack Wen
Jack Wen
Chairman of the Board, President
and Chief Executive Officer
Date: February 13, 1998 /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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3101
<SECURITIES> 2946
<RECEIVABLES> 9411
<ALLOWANCES> 64
<INVENTORY> 1262
<CURRENT-ASSETS> 17038
<PP&E> 819
<DEPRECIATION> 723
<TOTAL-ASSETS> 20068
<CURRENT-LIABILITIES> 14251
<BONDS> 0
1200
0
<COMMON> 26
<OTHER-SE> 3640
<TOTAL-LIABILITY-AND-EQUITY> 20068
<SALES> 23745
<TOTAL-REVENUES> 23745
<CGS> 22630
<TOTAL-COSTS> 513
<OTHER-EXPENSES> 466
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 82
<INCOME-TAX> 8
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74
<EPS-PRIMARY> .03
<EPS-DILUTED> .01
</TABLE>
