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
March 31, 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
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 March 31, 2000, and September 30, 1999 the registrant had outstanding
3,030,339 of its Common Stock, $.01 par value per share.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
March September
31 30,
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $527 $817
Accounts receivable, less allowances for
possible losses of $208,188 &208,188 1,935 1,320
Receivable from related parties 1,645 1,684
Notes receivable - related parties 125
Inventory, less reserves for
obsolescence of $ 67,032 & $ 67,032 1,034 1,063
Prepaids and other current assets 224 185
Advances to Vendors 604 643
TOTAL CURRENT ASSETS 5,969 5,837
PROPERTY AND EQUIPMENT, Net 301 264
Notes Receivables less allowances for
possible losses of $522,000 & $522,000 1,593 1,572
Investment in Joint Ventures 198
OTHER ASSETS 335 126
TOTAL ASSETS $8,396 $7,799
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
LIABILITIES AND March 31, September 30,
SHAREHOLDERS EQUITY 2000 1999
CURRENT LIABILITIES:
Accounts payable $2,131 $1,562
Accounts payable- Related Parties 35 394
Line of credit 1,782 600
Accrued liabilities 96 103
TOTAL CURRENT LIABILITIES 4,044 2,660
LONG TERM DEBT 774 714
Total Liabilities 4,818 3,374
SHAREHOLDERS' EQUITY
Non-convertible, Cumulative, Series C preferred
stock($1,063,866 liquidation preference) -
$1,053 stated value,shares authorized, issued
and outstanding - 1,000 1,053 1,053
Convertible Preferred Stock($595,000)
Liquidation preference in 2000) $1,000
stated value, 1,600 shares authorized, 550
shares issued and outstanding 550 750
Common stock, $.01 stated value; shares authorized -
10,000,000; shares issued and outstanding -
3,112,839 and 3,005,339 at March 31,2000, and
3,005,339 and 2917,589 at September 30,1999 31 30
Additional Paid in capital in excess of
stated value 3,516 3,088
Retained earnings (1,371) (391)
Treasury stock, shares purchased at cost (201) (105)
TOTAL SHAREHOLDERS' EQUITY 3,578 4,425
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,396 $7,799
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share data
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31,
2000 1999 2000 1999
Net sales $11,234 $17,445 $26,021 $45,238
Cost of sales 11,027 16,732 25,468 43,278
Gross profit 207 713 553 1,960
Selling, general and
administrative expenses 825 761 1,408 1,355
Income from operations (618) (48) (855) 605
Other income (expense)
Gain (loss) on sale of
investments 383 383
Interest(expense)income, (90) (71) (130) (152)
Other (3) (5) 6
(93) 312 (125) 237
Net income pre income taxes (711) 264 (980) 842
Income taxes (27) 32
Net income ($711) $291 $ (980) $ 810
Income per share
Net income ($.24) $.11 ($0.33) $0.30
Dividends applicable to
preferred stock (.01) (.02) (0.02) (0.02)
Net income (loss)
applicable to common ($.25) $.09 (.035) $0.28
shares
Average weighted
number of shares 3,004,883 2,742,039 2,973,226 2,727,979
Diluted Income
per Share ($.25) $.08 ($.35) $.27
Average number of
diluted shares of
Common stock
outstanding 3,004,883 2,915,247 2,973,226 2,915,247
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Six Months Ended
March 31,
2000 1999
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
Net income $ (926) $ 810
Depreciation and amortization 18 34
Provision for bad debts (172)
Increase (decrease) from changes in:
Investment in Securities
Accounts receivable (615) 1,233
Receivables from related parties 164 1,644
Inventory 29 259
Prepaids and other assets (209) (938)
Accounts payable and accrued
Liabilities 262 (2,982)
Net cash provided by (used in)
Operating activities (1,331) (112)
CASH FLOW FROM INVESTING ACTIVITIES:
Capital purchases (55)
Net investments in and advances to joint venture (219) (2)
Net cash provided by (used in) investing
activities (274) (2)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 229 990
Change in line of credit 1,182 (2,400)
Changes in treasury stock (96)
Net cash provided by (used in)
Financing activities 1,315 (1,410)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (290) (1,524)
CASH AND CASH EQUIVALENTS,
Beginning of year 817 2,467
CASH AND CASH EQUIVALENTS,
end of quarter $ 527 $ 943
Cash paid during the year for:
Interes t$90 $81
Income taxes $0 $0
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 March 31, 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
During fiscal 1998, the Company utilized $1,593,229 ot the net operating
loss carryforward. 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 additiona the
Company has approximately $600,000 and $300,000 of net capital loss
carryforwards for federal and state purposes.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.
Three Months Ended March 31, 2000 as Compared to the Three Months Ended
March 31, 1999
Net sales for the quarter ended March 31, 2000 decreased by $6.2 million
(36%) over net sales of $17.4 million for the similar 1999 fiscal quarter.
This decrease was due to a decrease in PC hardware sales in March and part of
February. Gross profit for the second quarter of 2000 was $.2 million, a
(71%) decrease from the second quarter of 1999. 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 4.0% in the second quarter of 1999 to 1.8% in
the second quarter of 2000. The reduction was due to market oversupply of
hard disk drives which resulted in pricing pressures that required the
Company to reduce its gross margins, and market pressures created by
competition from internet businesses.
Selling, general and administrative expenses increased from $761,000 in the
second quarter of fiscal 1999 compared to $825,000 for the comparable fiscal
2000 period. As a percentage of revenue, SG&A expenses increased from 4.4%
in 1999 to 9.0% in 2000. The increase in SG&A was due to the increased
overhead associated with the start-up of the company's new internet businesses.
Income from operations decreased from $(48,000) in the second quarter
of fiscal 1999 to ($618,000) in the comparable fiscal 2000 period. The
decrease in income from operations was due to competitive market in PC hardware
, and the overhead associated with the start-up of the company's new
internet busineses. Other income/expense decreased from $312,000 in 1999
when compared to ($93,000) for the comparable fiscal 2000 period.
The decrease was attributable to recognizing a gain on the stock
portfolio in 1999.
Net income decreased to ($711,000), or ($0.25) per share (after preferred
stock dividend deduction), in the second quarter of fiscal 2000 compared to
$291,000, or $.09 per share (after preferred stock dividend deduction) for the
same fiscal 1999 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 the
recognition of gain on the securities portfolio.
Six Months ended March 31, 2000 as compared to the Six months ended
March 31,1999
Net sales for the six months ended March 31, 2000 decreased by $19.2 million
(42%) over net sales of $45.2 million for the similar 1999 period. This
increase primarily reflects the fluctuations in the hard disk drive market,
and competition from the internet market. Gross profit for the first six
months of 2000 was $553,000 a (72%) decrease from the six months of 1999.
The decrease in gross profit was the result of pricing pressures. Gross
profit as a percentage of net sales decreased from 4.3% in the first six
months of 1999 to 2.1% in the first six 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 margins, and
competeitive pricing from internet market..
Selling, general and administrative expenses increased to $1,408,000 in
the first six months of fiscal 2000 compared to $1,355,000 for the
comparable fiscal 1999 period. As a percentage of revenue, SG&A expenses
increased from 3.0% in 1999 to 5.4% in 2000. The increase in SG&A was due
to start up costs associated with the company's new internet divisions.
Income from operations decreased to ($855,000) in the first six months of
fiscal 2000 from $605,000 in the comparable fiscal 1999 period. The
decrease in income 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 ($125,000) in 2000 when compared to
$237,000 for the comparable fiscal 1999 period. The variance was mainly
attributable to the gain on the stock portfolio sold by the Company
in 1999.
Net income decreased to ($980,000), or ($0.35) per share (after
preferred stock dividend deduction), in the first six months of
fiscal 2000 compared to $810,000, or $.28 per share (after preferred stock
dividend deduction) for the same fiscal 1999 quarter. The decrease in net
income 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 during the current fiscal quarter. In addition the company has a $2
million revolving line of credit. The line is 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 has
received a letter from the lender waiving these covenants.
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
launched its Broker Dealer business in March 2000, and believes that
this division will now begin 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 provided by (used in) operating activities in the fiscal quarter
ended March 31, 2000 $(1,331,000), as compared to ($112,000 in the same
quarter is 1999 mainly reflects the net effects of an operating loss in
operations, augmented by increases in accounts receivable , related party
receivables,and an increase in prepaids offset by a decreases in inventory.
and an increase in accounts payable and other liabilitiews.
Net cash provided (used in) investing activities in the current quarter
was $(274,000), principally representing inter-company activity.
Net cash provided (used in) financing activities in the current
quarter was $1,315,000 as compared to ($1,410,000) in last year's period,
and mainly reflects a increase in the borrowing againtst 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
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 not 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 and reports on Form 8-K during the fiscal quarter
ended March 31, 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: May 10, 2000 /s/ JACK WEN
Jack Wen Chairman of the Board, President and
Chief Executive Officer
Date: May 10, 2000 _______ /s/ DONALD JOHNSON ___
Donald Johnson Vice President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
8
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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.
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