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, 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 December 31, 1999, the registrant had outstanding 3,005,339 shares of
its Common Stock, $.01 par value per share.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited)
December 31, September30,
ASSETS 1999 1999
CURRENT ASSETS:
Cash and cash equivalents $1,058 $817
Securities and other negotiable assets
Accounts receivable, less allowances for
possible losses of $208,188, & $208,188 3,524 3,003
Receivable from related parties 109 125
Notes receivable - related parties
Inventory, less reserves for
obsolescence of $67,032& $67,032 669 1,064
Prepaids and other current assets 457 185
Advances to Vendors 603 643
TOTAL CURRENT ASSETS 6,420 5,837
PROPERTY AND EQUIPMENT, Net 251 264
INVESTMENTS IN AND ADVANCES TO
JOINT VENTURES 1,791 1,573
OTHER ASSETS 84 125
TOTAL ASSETS $8,546 $7,799
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
(Unaudited) (Concluded)
LIABILITIES AND December 31, September 30,
SHAREHOLDER'S EQUITY 1999 1999
CURRENT LIABILITIES:
Accounts payable $1,420 $1,957
Line of credit 1,990 600
Accrued liabilities 118 103
TOTAL CURRENT LIABILITIES 3,528 2,660
LONG TERM DEBT 777 714
Total Liabilities $4,305 $3,374
SHAREHOLDERS' EQUITY
Convertible, Cumulative, Series B
preferred stock($795,000 liquidation
preference) 1,000 stated value,
1600 shares authorized, 750
issued and outstanding 750 750
Non-convertible cumulative series C
preferred stock($1,063,866 liquidation
preference in 1999) $1,053stated value,
1,000 shares issued and outstanding 1,053 1,053
Common stock, $.01 stated value; shares
authorized -10,000,000; shares issued and
outstanding - 2,647,839and 3,005,339 30 30
Contributed capital in excess of
stated value 3,088 3,088
Retained earnings (475) (391)
Treasury stock, 99,000 shares
purchased at cost (205) (105)
TOTAL SHAREHOLDERS' EQUITY 4,241 4,425
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,546 $7,799
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share data
(Unaudited)
Three Months Ended
December 31,
1999 1998
Net sales $14,787 $27,794
Cost of sales 14,441 26,546
Gross profit 346 1,248
Selling, general and administrative
expenses 583 589
Loss/Income from operations (237) 659
Other income (expense)
Gain (loss) on sale of investments
Interest (expense) income, net 40 (81)
Other (8)
(32) (81)
Net loss/income before income taxes (269) 578
Income taxes 59
Net loss/income $ (269) $ 519
loss/Income per share
Net income $(0.09) $0.18
Dividends applicable to preferred stock (0.01) (0.02)
Net loss/income applicable to common $(0.10) $0.16
shares
Average weighted number of shares 2,759,002 2,731,839
The accompanying notes are an integral part of these consolidated
financial statements.
PCC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, (Unaudited)
Three Months Ended
December 31,
1999 1998
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
Net income $ (269) $ 519
Depreciation and amortization 13 4
Provision for bad debts 60
Increase (decrease) from changes in:
Investment in Securities
Accounts receivable (505) (689)
Receivables from related parties
Inventory 395
Prepaids and other assets(excluding
I Net Partners reclassification) (107) (174)
Accounts payable and accrued Liabilities (522) (528)
Net cash (used in)
Operating activities (995) (808)
CASH FLOW FROM INVESTING ACTIVITIES:
Capital purchases (34)
Net investments in and advances to joint venture (117) (18)
Net cash provided by (used in) investing
activities (117) (52)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 30
Change in line of credit 1,453 100
Purchase treasury stock (100)
Net cash provided by
Financing activities 1,353 130
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 241 (730)
CASH AND CASH EQUIVALENTS,
Beginning of year 817 2,467
CASH AND CASH EQUIVALENTS,
end of quarter $ 1,058 $ 1,737
Cash paid during the year for:
Interest $40 $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
(Unaudited)
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 months period ended December 31, 1999, 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 of 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 and approximately $800,000 of state net
operating loss carryforwards expiring through 2004. In addition, the
Company has approximately $600,000 and $300,000 of capital loss
carryforwards for federal and state purposes. The annual utilization of
the net operating loss carryforward may be limited due to the provisions of
Internal Revenue Code section 382 and subsequent stock ownership changes by
the Company.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for historical information contained herein, the matters setforth 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 December 31, 1999 as Compared to the Three Months Ended
December 31, 1998
Net sales of $14.8 million for the quarter ended December 31, 1999 decreased
by $13 million (47%) over net sales of $27.8 million for the similar 1998
period. This decrease was due to the competitive pressures in the marketplace.
New internet companies have caused softness in the wholesale market.
Gross profit for the first quarter of 1999 was $346,000 an 72% decrease,
when compared to $1.2 million during the prior year's comparable period,
reflecting a reduction in unit sales along with lower profit margins. Gross
profit as a percentage of net sales decreased from 4.5% in the first quarter
of 1999 to 2.3% in the first quarter of 1999 due to market oversupply
pricing pressures.
Selling, general and administrative expenses decreased to $583,000 in the
first quarter of fiscal 1999 compared to $589,000 for the comparable fiscal
1998 period. As a percentage of revenue, SG&A expenses increased from 2.1%
in 1998 to 3.9% in 1999.
Income from operations decreased to $(237,000) in the first quarter of
fiscal 1999 from $659,000 in the comparable fiscal 1998 period, principally
reflecting lower sales, lower margins.
Other income/expense decreased to ($32,000) in 1999 when compared to $(81,000)
for the comparable fiscal 1998 period. The variance was mainly attributable
to losses on sale of investments in 1998.
Net income decreased to $(269,000), or $(0.10) per share (after preferred
stock dividend deduction), in the first quarter of fiscal 1999 compared to
$518,000, or $0.18 per share (after preferred stock dividend deduction) for
the same fiscal 1998 quarter.
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
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 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 are expected to be significant, the Company believes
that it will have sufficient financial resources to maintain its new
businesses as well as continue its primary wholesale business. 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 in the quarter ended December 31,1999
was $(995,000) as compared to $(808,000) in the first quarter ended December
31,1998 mainly reflects the net effects of cash provided by a reduction in
inventory, offset by an increase in Accounts Receivable, an increase in
Prepaids and other assets, an decrease in accounts payable, and a net
operating loss.
Net cash used in investing activities in the quarter ended December 31,
1999 was ($117,000), as compared to ($52,000) in the quarter ended December
31,1998, and reflects Investment in I Net Partners.
Net cash provided by financing activities in the quarter ended
December 31,1999 was ($1,353,000) as compared to $130,000 in the quarter
ended December 31, 1998. The increase in cash from financing activities is
a result of the increased borrowing from the Company's credit facilities
to finance its operations, offset by the purchase of treasury stock
The Company believes that its internally generated cash flow, vendor credit
lines and its currently available lines of credit will be sufficient to fund
the Company's working capital needs for at least the next twelve months.
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 11.2000 /s/ JACK WEN
Jack Wen
Chairman of the Board, President and
Chief Executive Officer
Date: February 11,2000 _______/s/ Donald Johnson ___
Donald Johnson
Vice President - Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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