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, 1999 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 August 01, 1999, the registrant had outstanding 2,803,339 shares of its
Common Stock, $.01 par value per share.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
June 30, September 30,
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $1,269 $2,467
Accounts receivable, less allowances for
possible losses of $208,188 & $34,447 7,782 3,872
Receivable from related parties 858 1,548
Notes receivable - related parties 867
Inventory, less reserves for
obsolescence of $167,684 & $276,484 1,348 703
Prepaids and other current assets 252 274
Advances to Vendors 89 3,034
TOTAL CURRENT ASSETS 11,598 12,765
PROPERTY AND EQUIPMENT, Net 162 126
Note Receivable, A M T 1,872 1,872
OTHER ASSETS 320 9
TOTAL ASSETS $13,952 $14,774
.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited) (Concluded)
LIABILITIES AND June 30, September 30,
SHAREHOLDERS EQUITY 1999 1998
CURRENT LIABILITIES:
Accounts payable $3,267 $5,916
Line of credit 3,160 3,300
Accrued liabilities 475 139
TOTAL CURRENT LIABILITIES 6,902 9,354
LONG TERM DEBT 26 35
Total Liabilities 6,928 9,389
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
Convertible Preferred Stock 8 %
(see note for conversionRates)
Common stock, $.01 stated value;
shares authorized -750 10,000,000; shares
issued and outstanding - 2,792,099
and 2,647,839 28 27
Contributed capital in excess of stated value 2,071 1,721
Retained earnings 3,075 2,497
Treasury stock, 99,000 shares purchased
at cost (100) (60)
TOTAL SHAREHOLDERS' EQUITY 7,024 5,385
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,952 $14,774
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,
1999 1998 1999 1998
Net sales $12,206 $17,366 $57,444 $60,845
Cost of sales 12,048 16,572 55,326 57,865
Gross profit 157 794 2,117 2,980
Selling, general and
administrative expenses 740 481 2,102 1,500
Income/(Loss)
from operations (583) 313 15 1,480
Other income (expense)
Gain (loss) on
Services/Investments 296 103 680 (152)
Interest (expense)
income, net (48) (87) (200) (160)
Other 77 (5) 93 (23)
325 11 573 (335)
Net income/(Loss)
before income taxes (258) 324 588 1,145
Income taxes (23) 23 10 106
Net income/(Loss) ($235) $301 $ 578 $ 1,039
Income/(Loss) per share
Net income ($.08) $.11 $0.21 $0.39
Dividends applicable
to preferred stock (.02) (.02) (0.02) (0.04)
Net income (loss)
common stock (.06) $.09 $0.19 $0.35
Average weighted
number of shares 2,792,099 2,680,339 2,749,599 2,2680,339
Diluted Income
per Share .08 .19 .34
Average number of
diluted shares of
Common stock
outstanding 3,078,545 2,852,985 3,036,045 2,852,985
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Nine Months Ended
June 30,
1999 1998
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net income $ 578 $ 1,039
Depreciation and amortization 34 32
Provision for bad debts 174 (79)
Increase (decrease) from changes in:
Investment in Securities 1,017
Accounts receivable (4,081) (433)
Receivables from related parties 1,557 (1,140)
Inventory (645) (2,810)
Prepaids and other assets 2,586 18
Accounts payable and accrued
Liabilities (2,313) (1889)
Net cash provided by (used in)
Operating activities (2,110) (4,245)
CASH FLOW FROM INVESTING ACTIVITIES:
Sales of preferred stock 750 47
Sales of common stock 311
Net cash provided by investing activities 1,061 47
CASH FLOW FROM FINANCING ACTIVITIES:
Change in line of credit (140) 3,860
Long Term Debt (9) 19
Net cash provided by (used in)
Financing activities (149) 3,879
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,198) (319)
CASH AND CASH EQUIVALENTS,
Beginning of year 2,467 1,057
CASH AND CASH EQUIVALENTS,
end of quarter $ 1,269 $ 738
Cash paid during the year for:
Interest $200 $123
Income taxes $10 $106
The accompanying notes are an integral part of these consolidated
consolidated financial statements.
PCC Group, Inc.
Notes to Consolidated Financial Statements
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 June 30, 1999, are not
necessarily indicative of the results that may be expected for the year
ending September 30, 1999. 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, 1998.
Note 2 - Income Taxes
As of September 30, 1998, for federal income tax purposes, the Company had
approximately $1.6 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 Operation..Except for historical information contained
herein, the matters set forth 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 interest or
obligations to update these forward looking statements.
Introduction
During the past 17 years, PCC Group, Inc. (the "Company") has been primarily
engaged in the wholesale distribution of computer hardware products and
components. For the periods reported in this Quarterly Report on Form 10-Q,
substantially all of the Company's revenues were derived from its wholesale
hardware distribution operations. However, based on anticipated increased
competition from traditional wholesale competitors and from new internet
competitors, the Company in 1998 decided to diversify its operations. As a
result, at the end of 1998 the Company decided to establish various new
internet and e-commerce operations.
As its first entry into the e-commerce business market, the Company in
December 1998 introduced a new internet website through which the Company
now offers and sells personal computer parts and products directly to the
retail public. The website, located at www.123cdc.com, is operated through
Computer Discount Center, Inc., a new wholly-owned subsidiary. To date, the
Company has incurred all of the costs normally associated with the
establishment of new operations, including the addition of overhead
expenses. Although revenues from the new internet operations are increasing
monthly, the amount of gross revenues generated by
retail internet sales constituted less than __% of the Company's net sales
during the fiscal quarter ended June 30, 1999. In August 1999, the Company
announced that it would supplement its e-commerce division with a new website to
be launched later in August 1999. The second website, to be known as
www.123ADC.com, will be a new auto purchasing website.
In May 1999, the Company also established a new subsidiary that was formed for
the purpose of engaging in various internet broker-dealer activities. In
connection with the establishment of this subsidiary, the Company hired
additional employees who have experience in the operations of broker-dealer
and clearing house operations, leased new office facilities, and purchased
computer and other equipment that will be required for the operations. The
new subsidiary, known as "ExecuTrade, Inc.," is currently attempting to
obtain the required federal and state licenses and has not yet commenced
operations.
Three Months Ended June 30, 1999 as Compared to the Three Months Ended
June 30, 1998
Net sales for the quarter ended June 30, 1999 decreased by $5.2
million (30%) from net sales of $17.3 million for the similar 1998 fiscal
quarter. This decrease was due to a decrease in PC hardware sales. Gross profit
for the third quarter of 1999 was $157,000, a 506% decrease from the third
quarter of 1998. The decrease in gross profit was the result of a soft
market in PC hardware. Gross profit as a percentage of net sales decreased
from 4.5% in the third quarter of 1999 to 1.2% in the thirdd quarter of
1999. The company believes that the decrease in gross margin was due primarily
to market oversupply of hard disk drives which oversupply resulted in
pricing pressures that required the Company to reduce its gross margins.
Selling, general and administrative expenses increased to $740,000 in the
third quarter of fiscal 1999 compared to $481,000 for the comparable fiscal
1998 period. As a percentage of revenue, SG&A expenses increased from 2.7%
in 1998 to 6.0% in 1999. The increase in SG&A was due primarily to the
increased overhead associated with the start-up of the company's new internet
businesses.
Income from operations decreased to $(583,000) in the third quarter of
fiscal 1999 from $15,000 in the comparable fiscal 1998 period. The decrease
in income from operations was due to decreased net sales and lower margins
resulting from the increasingly competitive market in PC hardware, and the
overhead associated with the start-up of the company's new inter-net business.
Other income/expense increased to $325,000 in 1999 when compared to $573,000
for the comparable fiscal 1998 period. Most of the other income
realized in the third quarter of 1998 resulted from gains made from the sale of
securities held by the Company. Since the Company has disposed of all of its
marketable securities, the Company no longer realizes any profits or losses
from securities transactions. The income in the third fiscal quarter of 1999 is
primarily the result of fees generated by the Company for services rendered
by the Company to a Taiwanese company in purchasing equipment. No such fees
were earned during the 1998 comparable fiscal quarter. The foregoing
services are being provided by the Company pursuant to an agreement entered into
in March 1998.
Net income/(Loss) decreased to ($235,000), or ($0.06) per share
(after preferred stock dividend deduction), in the third quarter of fiscal
1999 compared to $301,000, or $.09 per share (after preferred stock dividend
deduction) for the same fiscal 1998 quarter. The decrease in net income is
the result of a soft market in PC hardware resulting in competitive price
pressures and, the overhead associated with the new internet business offset
by other income.Nine Months ended June 30, 1999 as compared to the Nine
months ended June 30, 1998
Net sales for the nine months ended June 30, 1999 decreased by $3.4
million (5%) from net sales of $60.8 million for the similar 1998 period.
This decrease primarily reflects the fluctuations in the hard disk drive
market. Gross profit for the first nine months of 1999 was $2.1 million,
a 22.% decrease from the nine months of 1998. The decrease in gross
profit was the result of pricing pressures. Gross profit as a percentage of
net sales decreased from 4.9% in the first nine months of 1998 to 3.9% in
the first nine months of 1999. The reduction was due to market oversupply
of certain products which resulted in pricing pressures that
required the Company to reduce its gross margins.
Selling, general and administrative expenses increased to $2,102,000 in the
first nine months of fiscal 1999 compared to $1,500,000 for the comparable
fiscal 1998 period. As a percentage of revenue, SG&A expenses increased
from 2.5% in 1998 to 3.7% in 1999. The increase in SG&A was due to costs
associated with the Company's new internet divisions.
Income from operations decreased to $ 15,000 in the first nine months
of fiscal 1999 from $1,480,000 in the comparable
fiscal 1998 period. The decrease in income from operations is due to
reduced gross profit, and higher selling, general and administrative costs..
Other income/expense increased to $573,000 in 1999 when compared to
($335,000) for the comparable fiscal 1998 period. The variance was mainly
attributable to an approximate gain on the stock portfolio sold by the
Company in 1998, that was recognized in the current period, and services
income. The Company sold its portfolio of securities during the fiscal
year ended September 30, 1998.
Net income decreased to $578,000, or $0.19 per share (after
preferred stock dividend deduction), in the first nine months of fiscal
1999 compared to $1,039,000, or $.26 per share (after preferred stock
dividend deduction) for the same fiscal 1998 period The decrease in net
income is the result of reduced sales, lower margins as a result of the soft
market in hard drives and other components, and costs associated with new
internet divisions the compoany has established during the current nine month
period.
Liquidity and Capital Resources
As of June 30, 1999, the Company had working capital of $4,690,000 and a
current ratio of $_1.68 to 1. On September 30,
1998, the Company had working capital of $3,376,000 and a current ratio of
$1.36 to 1. Historically the Company has primarily operated with internally
generated cash flow and vendor lines of credit to fund its working capital
requirements. During the second quarter of fiscal 1999, the Company entered
into a line of credit agreement with an institutional lender. The credit
facility provides the Company with both accounts receivable and inventory
based borrowings of up to $3 million. The $3,000,000 credit facility, which
expires on March 31, 2000, is secured by a lien on all of the Company's personal
property. In addition to the foregoing credit facility, the Company has
obtained a $1,000,000 term loan from its bank to fund the development expenses
of the Company's new Computer Discount Center e-commerce division. The term
loan requires the Company to make monthly payments of principal and interest
from September 1999 through August 2002, at which time the term loan matures.
In addition to the foregoing two credit facilities, the Company has obtained
a credit facility to fund it purchases of equipment under its existing equipment
purchase contract with a Taiwanese company. This credit facility will not be
available to the Company after the equipment purchases are completed. As of
the date of this report, substantially all of the Company's obligations under
the equipment purchase agreement had been completed, and the Company expects
that the equipment purchase arrangement and the related bank credit facility
will expire during the current fiscal quarter.
Net cash provided by (used in) operating activities in the nine month
period ended June 30, 1999 $(2,110,000), as compared to ($4,245,000) in
the same period in 1998 mainly reflects the net effects of cash provided
by operations, augmented by increases in accounts receivable, decrease in
inventory, related party receivables, prepaids and decreases in accounts
payable Net cash provided (used in) financing activities in the
current period was ($ 149,000) as compared to $3,879,000 in last
year's period, and mainly reflects a reduction in the asset-based line of
credit.
The Company expects to fund the working capital needs of its
distribution business with internally generated funds, vendor lines of
credit and its current asset-based financing facility. Based on the
amount of credit available to the Company, its current cash balances, and
its current operations, the Company believes that it has sufficient capital
to finance its working capital needs for the next 12-month period. In
addition to the web-site through which it is offering computer parts and
components for sale to retail customers. The company launched a new auto
sales website and launched an internet broker-dealer business The Company
expects to fund the additional costs associated with the web-sites through
internal cash flow, and possibly additional debt or equity
financing. Although the initial start-up expenses of the web-site are
expected to be significant, the Company does not believe that
the ongoing operational expenses related to the new web-site will materially
adversely affect the Company's future liquidity and capital resources.
However, the Company has not had any prior experience in operating such
web-sites and cannot therefore
accurately predict the amount of costs it will have to incur in the
operation of the web-sites and other future E commerce operations.
In addition, no assurance can be given that the new web-site operations
will generate cash in the future or be profitable.
.
Item 3. Exhibits and Reports on Form 8-K
(a) 27 Financial Data Schedule
(b) The Company did not file and reports on Form 8-K during the fiscal quarter
ended June 30, 1998.
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 12 1999 /s/ JACK WEN
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: August 12, 1999 _______/s/ DONALD JOHNSON ___
Donald Johnson Vice President - Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,260
<SECURITIES> 0
<RECEIVABLES> 8,640
<ALLOWANCES> 0
<INVENTORY> 1,348
<CURRENT-ASSETS> 11,598
<PP&E> 162
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,952
<CURRENT-LIABILITIES> 6,902
<BONDS> 0
1,200
750
<COMMON> 28
<OTHER-SE> 5,046
<TOTAL-LIABILITY-AND-EQUITY> 13,952
<SALES> 12,206
<TOTAL-REVENUES> 12,206
<CGS> 12,048
<TOTAL-COSTS> 12,788
<OTHER-EXPENSES> 325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (258)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235)
<EPS-BASIC> (.08)
<EPS-DILUTED> (,06)
</TABLE>
