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, 2000 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 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, 2000, the registrant had outstanding 3,158,839 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 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $445 $817
Accounts receivable, less allowances for
Possible losses of $208,188 &208,188 5,954 1,320
Accounts Receivables, Related Parties 909 1,684
Notes Receivable from related parties 141 125
Inventory, less reserves for
Obsolescence of $67,032 & $ 67,032 527 1,063
Prepaids and other current assets 165 185
Advances to Vendors 656 643
TOTAL CURRENT ASSETS 8,797 5,837
PROPERTY AND EQUIPMENT, Net 285 264
Notes Receivable, less allowances For
possible losses of $522,000 & $522,000 1,593 1,572
Investment in Joint Venture 198 -
OTHER ASSETS 657 126
TOTAL ASSETS $11,530 $7,799
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
LIABILITIES AND June 30, September 30,
SHAREHOLDERS EQUITY 2000 1999
CURRENT LIABILITIES:
Accounts Payable $4,139 $1,562
Accounts payable-Related Parties 138 395
Line of credit 3,245 200
Accrued liabilities 198 103
Current Portion of Long Term Debt - 400
TOTAL CURRENT LIABILITIES 7,720 2,660
LONG TERM DEBT 130 714
Total Liabilities 7,850 3,374
SHAREHOLDERS' EQUITY
Non-convertible, Cumulative, Series C
preferred stock($1,110,866 liquidation
preference in 2000) - $1,053 value,Shares
authorized, issued and outstanding - 1,000 1,053 1,053
Convertible Cumulative Preferred Stock.
($595,000 Liquidation preference in 2000)
$1,000 stated value 1,600 shares authorized,
550 & 750 isssued and outstanding. 550 750
Common stock, $.01 stated value; shares
authorized -10,000,000; shares outstanding
3,158,839 at June 30,2000, and 2,917,589 at
September 30,1999 32 30
Additional Paid in capital 3,769 3,088
Accumulated Deficit (1,523) (391)
Treasury stock, 82,500 & 87,550 shares
purchased at cost (201) (105)
TOTAL SHAREHOLDERS' EQUITY 3,680 4,425
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,530 $7,799
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,
2000 1999 2000 1999
Net sales $22,454 $12,206 $48,475 $57,444
Cost of sales 21,697 12,049 47,165 55,327
Gross profit 757 157 1,310 2,117
Selling, general and
administrative Expenses 841 740 2,249 2,102
Income from operations (84) (583) (939) 15
Other income (expense)
Gain (loss) on sale of
investments - 296 - 680
Interest(expense)income (83) (48) (213) (200)
Other 15 77 20 93
Total Other (68) 325 (193) 573
Net income before income
taxes (152) (258) (1,132) 588
Income taxes - (23) - 10
Net income ($152) ($235) $ (1,132) $ 578
Income per share
Net income ($.05) ($.08) ($0.38) $0.21
Dividends applicable
to preferred stock (.01) (.02) (0.03) (0.02)
Net income (loss)
applicable to common ($.06) ($.10) (.041) $ 0.19
Shares
Average weighted
number of shares 3,036,531 2,792,099 2,989,151 2,749,599
Diluted Income per
Share (.06) (.10) (.041) .17
Average number of
diluted shares of Common
stock outstanding 3,036,531 2,792,099 2,989,151 3,036,045
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Nine Months Ended
June 30,
2000 1999
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net income (1,132) $ 578
Depreciation and amortization 18 34
Common stock issued for services 55 -
Provision for bad debts - 174
Increase (decrease) from changes in:
Accounts receivable (4,634) (4,081)
Receivables from related parties 759 1,557
Inventory 536 (645)
Prepaids and other assets (743) 2,586
Accounts payable and accrued
Liabilities 2,415 (2,313)
Net cash provided by (used in)
Operating activities (2,726) (2,110)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed assets (40) -
Net cash used in investing activities (40) -
CASH FLOW FROM FINANCING ACTIVITIES
Sale of preferred stock - 750
Sale of common stock 429 311
Change in line of credit 3,045 (140)
Principal payments of long term term debt (984) -
Purchase of treasury stock ( 96) (9)
Net cash provided by (used in)
Financing activities 2,394 912
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (372) (1,198)
CASH AND CASH EQUIVALENTS,
Beginning of year 817 2,467
CASH AND CASH EQUIVALENTS,
End of quarter $ 445 $ 1,269
Cash paid during the year for:
Interest $83 $200
Income taxes $0 $10
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 nine month period ended June 30 2000, are not necessarily
indicative of the results that may be expected for the year ending
September 30, 2000. 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, 1999.
Note 2 - Income Taxes
As of September 30, 1999, for federal income tax purposes, the Company had
approximately $3,200,000 of federal income tax net operating
loss carryforwards, expiring through 2019. In, addition the Company has
approximately $600,000 and $300,000 of the net capital loss carryforwards for
federal and state purposes.The annual utilization of the net 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.
Three Months Ended June 30, 2000 as Compared to the Three Months Ended
June 30, 1999
Net sales for the quarter ended June 30, 2000 increased by $10.3
million, 84% over net sales of $12.2 million for the similar 1999 fiscal
quarter. This increase was due to a increase in PC hardware sales in June .
Gross profit for the third quarter of 2000 was 757 thousand a 382% increase
over the third quarter of 1999. The increase in gross profit was the result
of higher gross margins in a improved market in PC hardware. Gross profit
as a percentage of net sales increased from 1.3% in the third quarter of
1999 to 3.4% in the third quarter of 2000. The increase was due to the
improved market for PC hardware in June 2000, reversing a
trend in the market place that has existed for the last year.
Selling, general and administrative expenses increased from $740,000
in the third quarter of fiscal 1999 compared to $841,000 for the
comparable fiscal 2000 period. As a percentage of revenue, SG&A expenses
decreased from 6.1% in 1999 to 3.7% in 2000. The decrease in SG&A
percentage was due to the increased sales associated with the resurgence of
the wholesale computer
market.
Loss from operations decreased from $583,000 in the third quarter
of fiscal 1999 to $84,000 in the comparable fiscal 2000 period. The
increase in income from operations was due to the improved wholesale
computer market, offset by the overhead associated with the start-up of
the company's new internet businesses.
Other income/(expense) decreased from $325,000 in 1999 when compared to
($68,000) for the comparable fiscal 2000 period. The decrease was
attributable primarily to a gain on sale of a stock portfolio in 1999.
Net loss decreased to $152,000, or $0.06 per share (after preferred
stock dividend deduction), in the third quarter of fiscal 2000 compared to
$235,000, or $.10 per share (after preferred stock dividend deduction)
for the same fiscal 1999 quarter. The decrease in net loss is the result
of an improved market in PC hardware, offset by the overhead associated
with the new internet business.
Nine Months ended June 30, 2000 as compared to the Nine Months ended
June 30,1999
Net sales for the nine months ended June 30, 2000 decreased by $9 million
(16%) over net sales of $57.4 million for the similar 1999 period. This
decrease primarily reflects the fluctuations in the hard disk drive market,
and competition from the internet market. Gross profit for the first nine
months of 2000 was $1,310,000 a (38%) decrease from the nine months of
1999. The decrease in gross profit was the result of pricing pressures.
Gross profit as a percentage of net sales decreased from 3.7% in the
first nine months of 1999 to 2.7% in the first nine months of 2000. The
reduction was due to market oversupply of certain products which
resulted in pricing pressures that required the Company to reduce its gross
margin, and competitive pricing from internet market.
Selling, general and administrative expenses increased to $2,249,000 in
the first nine months of fiscal 2000 compared to $2,102,000 for the
comparable fiscal 1999 period. As a percentage of revenue, SG&A expenses
increased from 3.7% in 1999 to 4.6% in 2000. The increase in SG&A was due to
start up costs associated with the Company's new internet division.
Loss from operations increased to $939,000 in the first nine months
of fiscal 2000 from $15,000 in the comparable fiscal 1999 period. The
increase in loss from operations is due to two factors, the soft
market in PC hardware, the start-up cost associated with a new division.
Other income/expense decreased to ($193,000) in 2000 when compared to
$573,000 for the comparable fiscal 1999 period. The variance was mainly
attributable to a gain from a stock portfolio sale in 1999.
Net loss increased to $1,132,000, or $.41 per share (after preferred
stock dividend deduction), in the first nine months of fiscal 2000 compared
to income of $578,000, or $.19 per share (after preferred stock dividend
deduction) for the same fiscal 1999 quarter. The increase in net loss is
the result of decreased sales, lower gross margin, and costs associated
with new internet startups, and, offset by the effect of the securities
transactions gain experienced in 1999 which adversely affected last year's
net income.
Liquidity and Capital Resources
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 $6.5 million. The $5,000,000 credit facility, which expires on
September 30, 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 million 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 its 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 by the end of the fiscal
year. In addition the company has a $2 million revolving line of credit. The
line is used to issue and finance letters of credit. The company is not in
compliance with certain of the financial covenants required by its principal
lender, however the company is currently in discussions with this lender
and expects to receive a letter waiving these covenants shortly.
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 and software
parts and products for sale to retail customers, during fiscal 1999 the Company
launched a new auto sales website and incurred substantial costs to establish
an Internet broker-dealer business Because the cost of funding all three of
these operations was significant, the Company recently disposed of the
Internet automobile sales business to a third party buyer in exchange for a 29%
equity interest in the buyer. As a result, the Company will no longer be
required to fund the start-up costs of this business, leaving the Company with
additional funds with which it can develop its remaining new businesses. The
Company expects to fund the additional costs associated with the new Internet
businesses through internal cash flow, and possibly additional debt or equity
financing. Although the initial start-up expenses of the web-sites have
been significant, the Company believes that it will have sufficient financial
resources to maintain its new businesses as well as continue its primary
wholesale business. The Company 's internet retail computer business, was
approximately break even in May and June 2000, the sales in July 2000
indicate that this division will be profitable in July 2000. The success of
123cdc.com, along with the improving wholesale market should ease cashflow
pressures on the Company. The Company launched its Broker Dealer business in
March 2000, and believes that this division has now begun developing revenues.
However, the Company has not had any prior experience in operating any
Internet businesses or in operating a broker-dealer business and cannot
therefore accurately predict the amount of costs it will have to incur in
the operation of these and other future E commerce operations. Accordingly,
if the Company's estimates of revenues and expenses are not correct, the
Company may not have sufficient financing to fund all of the expenses it
expects to incur, and any such shortfall may have a material adverse effect on
the Company's liquidity and its financial results from operations. In
addition, no assurance can be given that the new Internet operations will
generate significant revenues in the future or that they will ever be
profitable.
Net cash used in operating activities during the fiscal quarter ended
June 30, 2000 was $(2,726,000), as compared to $2,110,000 for the same
quarter in 1999. The change mainly reflects the net effects of
operating loss, augmented by increases in accounts receivable, an increase
in prepaids offset by a decrease in inventory, and an increase in accounts
payable and other liabilities.
Net cash used in investing activities in the current quarter
was $40,000 compared to $0 for the similar 1999 period, and
reflects purchase of property and equipment.
Net cash provided by financing activities in the current quarter
was $2,394,000 as compared to $912,000 in last year's period, and
mainly reflects a increase in the borrowing against asset-based line of
credit.
Item 2. Changes in Securities and use of Proceeds
In January 1999, the Company sold $750,000 of its new 8% Convertible
Preferred Stock (the "Preferred Stock") to two institutional investors
register. The holders of the Preferred Stock are entitled to receive
dividends in cash at a rate of 8% per annum, compounded annually and
payable semi-annually on the first day of July and January of each year,
commencing on July 1, 1999. The Preferred Stock is convertible into shares
of the Company's common stock at a conversion price equal to stated value of
the Preferred Stock multiplied by the lower of (a) 125% of the closing sales
price of the common stock on the date that the registration statement is
declared effective, or (b) the average of the three lowest closing sales
prices of the common stock for the 22 consecutive trading days immediately
preceding the conversion date. The holders of the Preferred Stock may not
convert any shares of the Preferred Stock until May 19, 1999,and thereafter,
the holders can only convert 20% of the Preferred Stock during any
subsequent 30-day period. The holders also may not convert the Preferred
Stock if such conversion would result in any of the holders being deemed
to be the beneficial owner of more than 5% of the then outstanding shares of
common stock of the Company or if the shares of common stock, when added to
the number of shares of common stock previously issued by the Company upon
conversion of the Preferred Stock would equal or exceed 20% of the number of
shares of common stock that were issued and outstanding on the date of
the original issuance of the Preferred Stock. The Preferred Stock has non
voting rights, other than as may be required pursuant to the laws of the
State of California. In January, 2000 the holders of the preferred stock
exercised their conversion rights, and converted 200 shares of preferred
stock into 96,000 shares of the Company's common stock.
Item 3. Exhibits and Reports on Form 8-K
(a) Ex 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the fiscal
quarter ended June 30, 2000.
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 10, 2000 /s/ JACK WEN
Jack Wen Chairman of the Board, President
and Chief Executive Officer
Date: August 10, 2000 /s/ DONALD JOHNSON
Donald Johnson Vice President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
