<PAGE>1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
______________________ to _______________________
Commission File Number 33-3442-LA
PCT HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0431483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
434 Olds Station Road, Wenatchee, Washington 98801
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (509) 664-8000
Verazzana Ventures, Ltd., 2716 Beaver Creek Court #201, Las Vegas, Nevada 89117
January 31
-------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No _____
-----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 15, 1995, 5,332,008
shares of the Company's Common Stock, par value $.001 per share, were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes______ No X
-----
<PAGE>2
PART 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - February 28, 1995 and May 31, 1994
Consolidated Statements of Income - Third Quarter and Nine Months Ended
February 28, 1995 and 1994
Consolidated Statements of Cash Flow - Third Quarter and Nine Months
Ended February 28, 1995 and 1994
Management's Statement and Notes to Consolidated Financial Statements
Also included herein: Independent Auditor's Report and
Consolidated Financial Statements of PCT Holdings, Inc. and
Subsidiaries, at and for the Nine Months Ended February 28, 1995 and
the Year Ended May 31, 1994.
<PAGE>3
PCT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet, February 28, 1995 and May 31, 1994
<TABLE>
<CAPTION>
February 28, 1995 May 31,1994
(Audited) (Audited)
----------------- -----------
<S> <C> <C>
Assets
Current Assets
Cash $ 565,998 $ 27,208
Receivables 1,349,450 923,894
Inventory 4,087,597 3,459,969
Prepaid Expense 140,409 62,242
Other 23,200 23,000
---------- -----------
Total Current Assets 6,166,654 4,496,313
---------- -----------
Property, Plant & 2,794,153 2,307,564
Equipment, net
Patents, net 485,929 46,781
Other Assets 123,298 90,666
Note Receivable, net 934,800 952,207
Excess of Cost over NBV 470,529 ---
----------- -----------
Total Assets $10,975,363 $ 7,893,531
=========== ===========
Liabilities and Shareholders'
Equity
Current Liabilities
Notes Payable $ 625,090 $1,388,779
Accounts Payable 1,455,467 958,850
Accrued Liabilities 552,071 371,417
Current Portion - LTD 2,535,000 1,008,000
Current Portion - C/L 48,000 88,000
Current Portion - N/P 513,000 1,917,838
Current Portion - Non- 35,000 ---
Compete
----------- -----------
Total Current Liabilities 5,763,628 5,732,884
----------- -----------
Long Term Debt, net 771,249 415,329
Capital Leases, net 129,532 73,407
Notes Payable, net 469,825 160,000
Non-compete Agreement, net 65,000 ---
Deferred Income Tax 15,000 241,000
Deferred Rent 110,710 45,000
----------- -----------
Total Long Term Debt 1,561,316 934,736
----------- -----------
Total Liabilities 7,324,944 6,667,620
----------- -----------
Shareholders' Equity
Common Stock 8,227,759 5,379,432
Accumulated Deficit (4,577,340) (4,153,521)
----------- -----------
Total Shareholders' Equity 3,650,419 1,225,911
----------- -----------
Total Liabilities &
Shareholder's Equity $10,975,363 $ 7,893,531
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>4
PCT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Third Quarter and Nine Months Ended February 28, 1995 and 1994
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------- -----------------
February 28 February 28 February 28 February 28
1995 1994 1995 1994
Unaudited Unaudited Audited Unaudited
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $2,443,897 $887,105 $8,087,549 $1,908,419
COST OF SALES 1,934,315 646,030 6,390,925 1,883,944
--------- --------- ---------- ----------
GROSS PROFIT 509,582 241,075 1,696,624 24,475
OPERATING EXPENSES 702,462 231,572 1,751,074 739,060
--------- --------- ---------- ----------
INCOME (LOSS) OPERATIONS (192,880) 9,503 (54,450) (714,585)
--------- --------- ---------- ----------
OTHER INCOME AND EXPENSE
Interest Income 38,171 770 57,257 2,310
Interest Expense (97,162) (47,733) (282,951) (140,426)
Other (33,655) (5,414) (3,787) (38,826)
--------- --------- ---------- ----------
(92,646) (52,377) (229,481) (176,942)
--------- --------- ---------- ----------
LOSS BEFORE MERGER AND
EQUITY CAPITAL COSTS (285,526) (42,874) (283,931) (891,527)
MERGER AND EQUITY
CAPITAL COSTS (365,888) (365,888)
--------- --------- ---------- ----------
NET LOSS BEFORE FEDERAL
INCOME TAX (651,414) (42,874) (649,819) (891,527)
FEDERAL INCOME TAX BENEFIT 226,000 226,000
--------- --------- ---------- ----------
NET LOSS FOR THE PERIOD ($425,414) ($42,874) ($423,819) ($891,527)
========= ========= ========== =========
PER SHARE OF COMMON STOCK ($0.14) ($0.03) ($0.14) ($0.63)
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>5
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
THIRD QUARTER AND NINE MONTHS ENDED FEBRUARY 28, 1995 AND 1994
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------------ ----------------------------
February 28 February 28 February 28 February 28
1995 1994 1995 1994
Unaudited Unaudited Audited Unaudited
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $ 300,913 $ (102,317) $ 359,053 $ (810,784)
---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (129,566) (31,089) (376,948) (997,453)
Proceeds from sale of property and equipment 23,070
Purchase of patents (450,000)
Payments received on note receivable 5,736 17,207
---------- ---------- ---------- ----------
Net cash from investing activities (123,830) (31,089) (809,741) (74,383)
CASH FLOW FROM FINANCING ACTIVITIES
Net change in note payable (625,090) 68,470 (763,689) 85,000
Proceeds from notes payable to stockholders 50,000 319,685
Payments on notes payable to stockholders (126,975) (1,644,813)
Proceeds from long-term debt 2,129,336 98,500
Payments on long term debt and cap leases (235,437) (36,499) (544,567) (140,242)
Sales of common stock 728,009 249,888 1,763,211 700,000
---------- ---------- ---------- ----------
Net cash from financing activities (259,493) 281,859 989,478 1,062,943
NET CHANGE IN CASH (82,410) 148,453 538,790 177,776
Cash, beginning of period 648,408 69,789 27,208 40,466
---------- ---------- ---------- ----------
Cash, end of period $ 565,998 $ 218,242 $ 565,998 $ 218,242
========== ========== ========== ==========
Supplemental Schedule of Non Cash Financing
Activities
Acquisition of Subsidiaries involved the
following:
Fair value of assets acquired, other than
cash $1,749,374
Liabilities Assumed (370,346)
Note Payable issued (600,000)
---------- ---------- ---------- ----------
$ $ $ 779,028 $
========== ========== ========== ==========
Payment of dividend - issuance of pf stk $45,960
Payment of interest - issuance of pf stk $69,742
Payment of note - issuance of stock $ 100,200
Seller Financed purchase of equipment $105,000 $ 105,000
Equipment purchased - capital leases $ 151,074
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>6
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Statement
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and, in the opinion of
management, contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of February 28, 1995 and May 31, 1994, the consolidated results
of operations for the three and nine month periods ended February 28, 1995
and 1994, and the consolidated statements of cash flow for the three and
nine month periods ended February 28, 1995 and 1994. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's Annual Report(s) on Form 10-KSB.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The financial statements should be read in
conjunction with the Independent Auditor's Report and Consolidated Financial
Statements of PCT Holdings, Inc. and Subsidiaries at and for the Nine Months
Ended February 28, 1995 and the Year Ended May 31, 1994, which have been
attached hereto and are incorporated herein by reference.
The results of operations for the three and nine month periods ended February
28, 1995 and 1994 are not necessarily indicative of the results to be expected
for the full year. Also, certain reclassifications have been made to the May 31,
1994 balance sheet and the February 28, 1994 statements of operations and cash
flow to conform to the 1995 presentations.
Computations of Loss per Share
Loss per common and common equivalent share are computed using the weighted
average number of common and common equivalent shares outstanding during each
period reflected in these financial statements. Common equivalent shares consist
of stock options, which are excluded from the computation if antidilutive. Fully
diluted loss per share did not differ significantly from primary loss per share
in any period being reported.
<PAGE>7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview:
The Company's revenues for the three and nine month periods ended February 28,
1995 were derived from its two operating subsidiaries involved in the
manufacture and sale of electrical connectors and instrument packages (Pacific
Coast Technologies, Inc. ("PCTI")); and high quality machined aluminum and metal
parts (Cashmere Manufacturing Co., Inc. ("CMC")). Both PCTI and CMC are wholly
owned subsidiaries of PCT Holdings, Inc., a Washington corporation and wholly
owned subsidiary, which was formed in February 1995 for the purpose of merging
with the former parent of PCTI and CMC (the "Merger"). The Merger became
effective on February 17, 1995. A third operating subsidiary, Ceramic Devices,
Inc. ("CDI"), was consolidated for balance sheet purposes at February 28, 1995.
CDI's operations will be included in the future revenue reports. Revenues for
the three and nine month periods ended February 28, 1994 were derived from the
operations of PCTI only, as the acquisition of CMC was not effected until May
31, 1994.
Results of Operations:
Gross revenues for the quarter ended February 28, 1994 versus February 28, 1995
increased from $887,105 to $2,443,897, an increase of $1,556,792. $1,704,281 in
revenues was contributed by CMC for the quarter. The decline in revenue for PCTI
for the comparative quarter was the result of a slowing of order activity upon
completion of a large order in November of 1994 and re-building of backlog in
subsequent months. Revenues for the same quarter in the previous year were
strong because of completion of the Company's production facility in October
1993 and the surge of orders which followed, some of which had been delayed by
the construction. On a comparative basis, gross margins declined from 27 percent
to 21 percent for the periods, reflecting a lower margin in the machining
segment (CMC) of the operations. Operating expenses, including interest expense,
also increased due to the addition of the CMC segment. During the quarter ended
February 28, 1995, merger and equity capital costs were incurred in conjunction
with the Merger (legal and accounting costs), exercise of warrants and options
as a part of the Merger transaction, and direct costs of consultants in
connection with arranging for the Merger. The federal income tax benefit
represents the reversal of timing differences (primarily from the financial
statement basis versus the tax basis of depreciable assets) calculated at the
combination of CMC and PCTI in May 1994.
Gross revenues for the nine months ended February 28, 1995 versus 1994 increased
from $1,908,419 in 1994 to $8,087,549, an increase of $6,179,130. $5,234,566 of
the increase was due to the addition of the CMC subsidiary, leaving a balance of
$944,564 attributable to the PCTI operation. PCTI relocated from Roseburg,
Oregon in mid 1993 to its current location in Wenatchee, Washington. The move
caused a significant disruption in revenue flow during fiscal 1994, most of
which was incurred in the first six months of the fiscal year. The improvement
in realized gross margins through February 28, 1995 versus February 28, 1994 is
primarily a result of the addition of CMC, and the more consistent monthly
revenue of PCTI. Interest expense, merger and equity capital costs, and federal
income tax benefits were referred to above in analysis for the third quarter
period. Net loss for the comparative periods was $423,819, or $0.14 per share,
through February 28, 1995 versus $891,527, or $0.63 per share, through
February 28, 1994.
<PAGE>8
Liquidity:
At February 28, 1995, total current assets were $6,166,654, and total
current liabilities were $5,763,628, resulting in net working capital of
$403,026. Comparable amounts at May 31, 1994 were $4,496,313 of current assets
and $5,732,884 in current liabilities, resulting in a net working capital
deficit of $1,236,571. The resultant increase from period to period of nearly
$1.64 million in working capital is a result of a combination of the acquisition
of CMC at May 31, 1994, which brought approximately $200,000 in net working
capital, $1,000,000 in equity raised in the Fall of 1994 in a private placement
of stock, and nearly $900,000 in proceeds of a Regulation S offering begun in
February 1995, offset by funding of operating losses, debt service and down
payments on the purchase of operating assets, as reflected in the statement of
cash flow. Although the Company continues to experience operating losses
requiring working capital and cash, the Company has operational plans to bring
each operating subsidiary to some level of profitability during the upcoming
fiscal year 1996. The Company is also in discussions with a technology-based
bank to provide a working capital line and capital equipment line to allow
programmed increases in productive plant and equipment to support operations.
Capital Resources:
At February 28, 1995, the Company had no material purchase commitments for
capital equipment. Additions and/or replacements of plant and equipment are
generally provided through working capital or a trade-in for down payment
resources, and a capital lease of long-term purchase note secured by the related
equipment purchased.
Inflation:
Inflation has not had a significant impact on the Company's operations in
the past two years, and is not expected to have a significant impact in the
foreseeable future.
<PAGE>9
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
PCT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of PCT Holdings,
Inc. and Subsidiaries (the Company) as of February 28, 1995, and May 31, 1994,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flow for the periods then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PCT Holdings, Inc.
and Subsidiaries as of February 28, 1995 and May 31, 1994, and the results of
their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles.
MOSS ADAMS LLP
Everett, Washington
April 12, 1995, except for Note 12,
as to which the date is April 26, 1995
<PAGE>10
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
------------ --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 565,998 $ 27,208
Accounts receivable, net of allowances for
doubtful accounts and returns of $51,180 and
$29,587 (Notes 6 and 7) 1,349,450 923,894
Inventory (Notes 3 and 6) 4,087,597 3,459,969
Prepaid expenses and other (Note 5) 140,409 62,242
Current portion of note receivable 23,200 23,000
----------- -----------
Total current assets 6,166,654 4,496,313
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net (Notes 4, 8 and 9) 2,794,153 2,307,564
----------- -----------
OTHER ASSETS
Note receivable from stockholder, net of
current portion (Note 5) 934,800 952,207
Patents, net of accumulated amortization of
$14,041 and $3,219 (Note 7) 485,929 46,781
Costs in excess of net book value of acquired
subsidiary (Note 1) 470,529
Non-compete agreement (Note 1) 100,000
Other 23,298 90,666
----------- -----------
2,014,556 1,089,654
----------- -----------
$10,975,363 $ 7,893,531
=========== ===========
</TABLE>
(continued)
<PAGE>11
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
------------ -------
<S> <C> <C>
CURRENT LIABILITIES
Note payable (Note 6) $ 625,090 $ 1,388,779
Accounts payable 1,455,467 958,850
Accrued liabilities 552,071 371,417
Current portion of long-term debt 2,535,000 1,008,000
Current portion of capital lease obligations 48,000 88,000
Current portion of notes payable to stockholders 513,000 1,917,838
Current portion of non-compete agreement payable 35,000
------------ ------------
Total current liabilities 5,763,628 5,732,884
LONG-TERM LIABILITIES
Long-term debt, net of current portion (Note 8) 771,249 415,329
Capital lease obligations, net of current portion
(Note 9) 129,532 73,407
Notes payable to stockholders, net of current
portion (Note 7) 469,825 160,000
Non-compete agreement payable, net of current
portion (Note 1) 65,000
Deferred income tax (Note 10) 15,000 241,000
Deferred rent (Note 9) 110,710 45,000
------------ ------------
1,561,316 934,736
------------ ------------
COMMITMENTS (Notes 9 and 11)
STOCKHOLDERS' EQUITY (Note 11)
Common Stock 8,227,759 5,379,432
Accumulated deficit (4,577,340) (4,153,521)
------------ ------------
3,650,419 1,225,911
------------ ------------
$ 10,975,363 $ 7,893,531
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>12
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED
FEBRUARY 28, MAY 31,
1995 1994
------------ ---------
<S> <C> <C>
NET SALES $ 8,087,549 $ 2,940,019
COST OF SALES 6,390,925 2,859,791
----------- -----------
GROSS PROFIT 1,696,624 80,228
OPERATING EXPENSES 1,751,074 963,811
---------- -----------
LOSS FROM OPERATIONS (54,450) (883,583)
----------- -----------
OTHER INCOME AND EXPENSE
Interest income 57,257 4,008
Interest expense (282,951) (207,205)
Other (3,787) (11,227)
----------- -----------
(229,481) (214,424)
LOSS BEFORE MERGER AND EQUITY
CAPITAL COSTS (283,931) (1,098,007)
MERGER AND EQUITY CAPITAL COSTS
(Notes 1 and 11) (365,888)
----------- -----------
NET LOSS BEFORE FEDERAL
INCOME TAX (649,819) (1,098,007)
FEDERAL INCOME TAX BENEFIT (Note 10) 226,000
----------- -----------
$ (423,819) $(1,098,007)
=========== ===========
PER SHARE OF COMMON STOCK $ (0.14) $ (0.60)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>13
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1995 AND YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------------- ----------------------- Accumulated
Shares Amount Shares Amount Deficit
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1993
As previously reported, retroactively
adjusted for effects of stock
splits (Note 11) 1,092,592 $ 1,505,000 383,000 $478,750 $(2,790,554)
Pooling of interest with:
Pacific Coast Technologies, Inc.
(Note 1)
Verazzana Ventures, Ltd. (Note 1) 187,500 219,000 (219,000)
--------- ----------- -------- -------- -----------
Balance, as restated 1,280,092 1,724,000 383,000 478,750 (3,009,554)
Common stock issued 442,968 1,204,741
Dividend paid through issuance of
preferred stock 45,960 45,960 (45,960)
Exchange of preferred stock for
common stock 250,226 524,710 (428,960) (524,710)
Acquisition of Cashmere
Manufacturing Co., Inc. (Note 1) 791,666 1,925,981
Net loss (1,098,007)
--------- ----------- -------- -------- -----------
BALANCE, May 31, 1994 2,764,952 5,379,432 -- -- (4,153,521)
Common stock issued 1,610,680 1,927,444
Stock options and warrants exercised 160,043 280,883
Acquisition of Ceramic Devices, Inc. 133,333 640,000
(Note 1)
Net Loss (423,819)
--------- ----------- -------- -------- -----------
BALANCE, February 28, 1995 4,669,008 $ 8,227,759 -- $ -- $(4,577,340)
========= =========== ======== ======== ===========
The Company has 100,000,000 shares of common stock authorized, and 5,000,000
shares of preferred stock authorized.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>14
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
</TABLE>
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED
FEBRUARY 28, MAY 31,
1995 1994
------------ ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 7,916,394 $ 2,636,024
Cash paid to suppliers and employees (7,340,571) (3,791,763)
Interest paid (274,027) (122,930)
Interest received 57,257 4,008
------------ -----------
Net cash from operating activities 359,053 (1,274,661)
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (376,948) (81,189)
Proceeds from sale of property and equipment 100,030
Purchase of patents (450,000)
Payments received on note receivable 17,207
------------ -----------
Net cash from investing activities (809,741) 18,841
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES
Net change in note payable (763,689) (287,344)
Proceeds from notes payable to stockholders 50,000 616,838
Payments on notes payable to stockholders (1,644,813)
Proceeds from long-term debt 2,129,336 88,571
Payments on long-term debt and capital
lease obligations (544,567) (322,709)
Sale of common stock 1,763,211 1,147,206
------------ -----------
Net cash from financing activities 989,478 1,242,562
------------ -----------
NET CHANGE IN CASH 538,790 (13,258)
CASH, beginning of period 27,208 40,466
------------ -----------
CASH, end of period $ 565,998 $ 27,208
============ ===========
</TABLE>
(continued)
<PAGE>15
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW (continued)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED
FEBRUARY 28, MAY 31,
1995 1994
------------ -----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
FROM OPERATING ACTIVITIES
Net loss $ (423,819) $(1,098,007)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 271,172 144,655
Loss on sale of property and equipment 15,526
Merger and equity capital costs 365,888
Federal income tax benefit (226,000)
Changes in operating assets and liabilities
Accounts receivable (171,155) (303,995)
Inventory 71,890 (190,136)
Prepaid expenses and other 3,423 (2,248)
Accounts payable and accrued liabilities 467,654 159,544
---------- -----------
NET CASH FROM OPERATING ACTIVITIES $ 359,053 $(1,274,661)
========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Acquisition of Subsidiaries involved the
following (Note 1):
Fair value of assets acquired,
other than cash $1,749,374 $5,442,433
Liabilities assumed (370,346) (3,528,659)
Notes payable issued (Note 7) (600,000)
---------- -----------
Common stock issued $ 779,028 $ 1,913,774
========== ===========
Payment of dividend through
issuance of preferred stock $ 45,960
Payment of interest through
issuance of common stock $ 69,742
Payment of note payable through
issuance of stock $ 100,200
Seller financed purchase of property
and equipment $ 105,000
Equipment purchased through capital leases $ 151,074
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>16
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 1 - FORMATION AND ACQUISITIONS
On February 15, 1995, PCT Holdings, Inc. (formerly Verazzana Ventures,
Ltd.), a Nevada corporation (the Company) entered into a written Agreement and
Plan of Merger (the Agreement) for the merger of PCT Merger Corporation, a
wholly-owned subsidiary corporation of the Company (the Surviving Corporation)
with PCT Holdings, Inc., a Washington corporation (the Merging Corporation). The
business previously conducted by the Merging Corporation and its operating
subsidiaries is owned and operated following the exchange of shares by the
Surviving Corporation, as a wholly-owned subsidiary of the Company. The merger
was accounted for as a pooling of interest. Concurrently with the merger, the
Company changed its name from Verazzana Ventures, Ltd. to PCT Holdings, Inc.
The merger became effective on February 17, 1995, and was accomplished
by an exchange of 2,963,675 shares of the Company's authorized, but previously
unissued, common stock for all shares of the Merging Corporation issued and
outstanding as of the date of the merger. Prior to the exchange of shares there
had been no relationship between the Company or any of its affiliates and the
Merging Corporation or any of its affiliates. The Company conducted only limited
business operations, which consisted primarily of investigating and evaluating
acquisition opportunities. The Merging Corporation conducted separate operations
unrelated to the Company prior to the merger. The consolidated financial
statements report results of operations as if the Merging Corporation and the
Company were combined as of the beginning of the year ended May 31, 1994. A
finders and consulting fee related to the merger was paid to a consultant
consisting of $50,000 cash and 212,500 shares of the Company's common stock.
Included in merger and equity capital costs during the nine months ended
February 28, 1995 is $155,000 related to the cash payment and the fair market
value of the stock issued.
The Merging Corporation was organized on May 31, 1994, to acquire the
outstanding stock of Pacific Coast Technologies, Inc. (PCTI) and Cashmere
Manufacturing Co., Inc. (CMC). The stockholders of PCTI and CMC became the
stockholders of the Merging Corporation. PCTI and CMC are wholly-owned
subsidiaries. The acquisition of PCTI was accounted for as a pooling of interest
whereby the assets and liabilities of both companies were combined at historical
cost. In addition, the consolidated financial statements report results of
operations as if PCTI and the Merging Corporation were combined as of the
beginning of the year ended May 31, 1994.
The purchase method of accounting was used to account for the
acquisition of CMC. Management established the value of the stock issued as
equivalent to CMC's net book value of $1,925,981 (equity). Since CMC was
acquired on May 31, 1994, its sales, costs and expenses were not included in
operating results for the year then ended.
<PAGE>17
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 1 - FORMATION AND ACQUISITIONS (continued)
On February 28, 1995, the Company acquired the outstanding stock of
Ceramic Devices, Inc. (CDI) for $1,240,000 consisting of 133,333 shares of the
Company's common stock at $4.80 per share or $640,000 and notes payable totaling
$600,000 (Note 7). The acquisition was accounted for using the purchase method
of accounting and resulted in costs in excess of net book value of CDI of
$470,529, which is being amortized over 15 years. Since CDI was acquired on
February 28, 1995, its sales, costs and expenses were not included in operating
results for the nine months then ended.
Concurrently with the purchase of CDI, the Company entered into a
non-compete agreement with the president of CDI for $100,000, payable in annual
installments of $35,000 in February 1996 and 1997, and $30,000 in February 1998.
The non-compete agreement covers the three year period following the termination
of the CDI president's employment and is being amortized over 6 years, which
management has estimated to be the life of the agreement.
The following summary, prepared on a pro forma basis, combines the
consolidated condensed balance sheets and results of operations as if CMC and
CDI had been acquired as of the beginning of the year ended May 31, 1993. There
are no material adjustments which impact the summary.
<TABLE>
<CAPTION>
MAY 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Inventories $ 4,139,000 $ 4,285,000
Other current assets 1,370,000 1,203,000
Property and equipment 2,457,000 3,764,000
Other non-current assets 1,699,000 1,012,000
----------- -----------
$ 9,665,000 $10,264,000
=========== ===========
Current liabilities $ 6,522,000 $ 5,441,000
Long-term liabilities 1,117,000 1,993,000
Stockholders' equity 2,026,000 2,830,000
----------- -----------
$ 9,665,000 $10,264,000
=========== ===========
</TABLE>
<PAGE>18
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 1 - FORMATION AND ACQUISITIONS (continued)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED MAY 31,
FEBRUARY 28, ------------------------------
1995 1994 1993
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $9,319,000 $ 9,217,000 $11,596,000
Loss from operations $ (200,000) $(1,174,000) $(1,235,000)
Net loss $ (561,000) $(1,486,000) $(1,501,000)
Loss per common share $ (0.19) $ (0.51) $ (0.53)
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Operations - The Company's fiscal year end is May 31. The period
ended February 28, 1995 represents a nine month interim period of operations for
the Company. The results for interim periods are not necessarily indicative of
the results for the entire year.
PCTI, located in Wenatchee, Washington, is engaged in the manufacture
and distribution of hermetically sealed connectors and components for the
medical, energy, aerospace and general electronics industries. PCTI's customers
are located throughout the United States and Europe.
CMC, located in Cashmere, Washington, manufactures machined aluminum
parts and sub-assemblies primarily for the aerospace industry. The majority of
CMC's customers are located in the Puget Sound region of Western Washington.
Included in accounts receivable is $203,000 and $180,000 at February 28, 1995
and May 31, 1994, respectively, which is due from the Boeing Company. Sales to
Boeing were approximately $3.8 million in the nine months ended February 28,
1995.
CDI, located in San Diego, California, is engaged in the design,
manufacture and distribution of ceramic capacitors and filters for the medical,
space and defense industries which reduce to tolerable levels electromagnetic
interference in sensitive electronic systems. CDI's customers are located
throughout the United States.
<PAGE>19
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, PCTI, CMC
and CDI. All material intercompany transactions have been eliminated.
(c) Inventory - Inventory is generally stated at the lower of cost
(first-in, first-out method) or market.
(d) Depreciation - Property and equipment is depreciated for financial
reporting purposes using the straight-line method over the estimated useful
lives of the assets. For federal income tax purposes, accelerated methods are
used over statutory lives.
(e) Patents - Patents are recorded at cost less accumulated
amortization which is calculated on the straight-line basis over the estimated
useful lives of the patents of 15 to 17 years.
(f) Federal income tax - In 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in a company's financial statement and tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. The effect of adopting SFAS No. 109 was
not material to the consolidated financial statements.
(g) Retirement plan - The Company maintains a 401(k) plan that covers
all eligible employees who meet service requirements as provided in the plan.
Company contributions to the profit sharing plan are determined annually by the
Board of Directors. No contributions were made to the plan for the nine months
ended February 28, 1995, and year ended May 31, 1994.
(h) Per share information - Loss per share of common stock is based
upon the weighted average number of shares of common stock outstanding during
the period, retroactively adjusted for stock splits. The weighted average number
of shares outstanding was 2,941,339 and 1,826,423 during the period ended
February 28, 1995 and the year ended May 31, 1994, respectively.
(i) Reclassifications - Certain 1994 amounts have been reclassified to
conform with the 1995 presentation.
<PAGE>20
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 3 - INVENTORY
FEBRUARY 28, MAY 31,
1995 1994
------------ -------
Raw materials $1,395,667 $1,526,768
Work in progress 1,026,805 651,528
Purchased and manufactured components
and finished goods 1,665,125 1,281,673
---------- ----------
$4,087,597 $3,459,969
========== ==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including assets under capital leases, consists
of the following major components:
<TABLE>
<CAPTION>
Estimated
Useful FEBRUARY 28, MAY 31,
Life in Years 1995 1994
------------- ------------ -------
<S> <C> <C> <C>
Machinery and equipment 5 - 20 $4,911,792 $3,295,096
Furniture and fixtures 5 - 10 599,097 380,915
Leasehold improvements 7 117,840 12,475
---------- ----------
5,628,729 3,688,486
Less accumulated depreciation
and amortization 2,834,576 1,380,922
---------- ----------
$2,794,153 $2,307,564
========== ==========
</TABLE>
Machinery and equipment, and furniture and fixtures includes $323,867 and
$345,628 at February 28, 1995 and May 31, 1994, respectively, of assets acquired
under capital lease arrangements. Accumulated amortization related to these
assets is $35,988 and $151,481, respectively.
The Company recognized $241,406 and $90,948 in depreciation of its property
and equipment during the nine months ended February 28, 1995 and the year ended
May 31, 1994, respectively. The Company recognized $18,914 and $50,571 in
amortization of capital leases during the nine months ended February 28, 1995
and year ended May 31, 1994, respectively.
<PAGE>21
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 5 - NOTE RECEIVABLE FROM STOCKHOLDER AND SUBSEQUENT EVENTS
During May 1994, CMC sold the land and buildings which house its
manufacturing facilities to a stockholder for $975,207. CMC received a note for
the sales price, payable in monthly installments of $7,600 through May 2014,
including interest at 7 percent. The note is collateralized by the land and
buildings, behind a bank and an individual. No gain or loss resulted from this
transaction. The Company has entered into an agreement to lease the facilities
from the majority stockholder (Note 9).
In February 1995, the Company and the stockholder reached a tentative
agreement for CMC to repurchase a portion of the building. The repurchase would
be paid through forbearance of a portion of the note receivable. The remaining
note receivable balance would be forgiven in exchange for the majority
shareholder assuming debt related to the building which is included on the
Company's balance sheet at February 28, 1995.
In addition, the Company and the stockholder have reached an agreement
to cancel the lease related to the remaining building effective on the
completion of the new CMC facility (Note 9) in exchange for $108,000. The
$108,000 was paid in February 1995 and is included in other current assets at
February 28, 1995. This amount will be amortized over the remaining period in
which the Company benefits from the leased property.
NOTE 6 - NOTE PAYABLE
CMC has an operating line of credit with a bank, whereby up to
$1,200,000 may be borrowed through April 1995. Interest is paid monthly at the
bank's prime rate (8.5 percent at February 28, 1995) plus 2 percent. Total
borrowings are limited to a variable collateral base consisting of 80 percent of
eligible trade accounts receivable and 50 percent of eligible inventory of CMC.
On April 26, 1995, the note payable with the bank was paid in full and
an agreement was entered into with a new bank (Note 12).
<PAGE>22
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 7 - NOTES PAYABLE TO STOCKHOLDERS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
----------- --------
<S> <C> <C>
Note payable to stockholders in November 1995,
bearing interest at 8 percent. Collateralized
by assets of CDI. $400,000
Note payable to stockholders in installments of $50,000
in February 1996 and $75,000 in February 1997 and
1998, plus interest at 8 percent. Collateralized
by assets of CDI. 200,000
Note payable to a stockholder due in monthly installments
of $8,300, including interest at 10.25 percent, plus
a balloon payment of $181,000 due February 1, 1998.
Collateralized by patents and accounts receivable
of PCTI. 382,825 $ 560,000
Notes payable to various stockholders which were
paid in full in June 1994. 1,517,838
-------- ----------
982,825 2,077,838
Current portion 513,000 1,917,838
-------- ----------
Long-term portion $469,825 $ 160,000
======== ==========
</TABLE>
Notes payable to stockholders matures as follows:
PERIOD ENDING
FEBRUARY 28,
--------------
1996 $ 513,000
1997 145,000
1998 324,825
---------
$ 982,825
=========
<PAGE>23
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
---- ----
<S> <C> <C>
Chelan County, State of Washington
Principal amount is payable in June 1997,
however, the holder may demand payment at
any time. Interest is payable quarterly at
3 percent. Collateralized by all assets
of PCTI, a $2,000,000 letter of credit and
guarantees of certain stockholders. $2,000,000
Bank
Note payable in monthly installments of
$30,700, including interest at 9.5 percent.
Collateralized by equipment. Note was paid
in full on April 26, 1995 (Note 12). 682,902 $ 900,310
Bank
Note payable in monthly installments of $5,900,
including interest at 8.75 percent, to March
1996, at which time the balance of $242,710
will be due. Collateralized by the real
property described in Note 5. 290,302 323,207
Various
Notes payable in installments, plus interest at
6 percent to 17.5 percent. Collateralized by
certain assets of PCTI and guarantees of certain
stockholders. 333,045 199,812
---------- ----------
3,306,249 1,423,329
Current portion 2,535,000 1,008,000
---------- ----------
Long-term portion $ 771,249 $ 415,329
========== ==========
</TABLE>
<PAGE>24
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 8 - LONG-TERM DEBT (continued)
Long-term debt matures as follows:
PERIOD ENDING
FEBRUARY 28, AMOUNT
------------- ------
1996 $2,535,000
1997 691,000
1998 57,000
1999 19,000
2000 4,249
----------
$3,306,249
==========
NOTE 9 - LEASING ARRANGEMENTS AND COMMITMENTS
(a) Capital lease obligations - The Company is obligated under several
capital lease arrangements to finance the acquisition of machinery and office
equipment. Assets under capital leases are capitalized using interest rates
appropriate at the inception of the lease.
Minimum lease payments under the capital leases and the present value of
the minimum lease payments are as follows:
PERIOD ENDING
FEBRUARY 28, AMOUNT
------------- --------
1996 $ 76,000
1997 73,000
1998 55,000
1999 19,000
2000 7,000
-------
Total minimum lease payments 230,000
Less: Amount representing interest 52,468
-------
Present value of minimum lease payments 177,532
Current portion 48,000
-------
Long-term portion $129,532
========
<PAGE>25
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 9 - LEASING ARRANGEMENTS AND COMMITMENTS (continued)
(b) Operating facility leases - On May 31, 1994, the Company entered
into an agreement to lease the manufacturing facility in which CMC is located
from the majority stockholder for a three year period at $9,000 per month. In
March 1995, the Company committed to lease new space for the CMC manufacturing
operations from the Port of Chelan County. The scheduled completion date of the
building and anticipated beginning of the lease term is September 1995. The
Company and the shareholder have agreed to cancel the existing lease for the CMC
facility upon completion of the building (Note 5).
During 1994, the Company entered into a lease agreement for the
manufacturing facility in which PCTI is located from the Port of Chelan County
through July 2003. The rent payments over the first five years are based on a
percentage of the base rent resulting in a deferred rent liability. Rental
expense is recorded ratably over the term of the lease. Total rental expense
related to this lease was $81,000 and $80,000 for the nine months ended February
28, 1995 and the year ended May 31, 1994.
In addition, the Company leases the manufacturing facilities in which
CDI is located under two leases. Monthly payments on the leases are $6,700. The
leases expire in April 1997.
Minimum lease payments under these leases are as follows:
AMOUNT
------
Three months ending May 31, 1995 $ 69,100
Year ending May 31, 1996 327,400
1997 391,700
1998 231,000
1999 202,000
2000 164,000
Thereafter 620,300
----------
$2,005,500
==========
(c) Employment agreements - The Company has entered into employment
agreements with certain officers and key employees. The agreements generally run
for three year terms and are cancelable for cause. Compensation under the
agreements includes base compensation plus incentives based on the Company's
performance.
<PAGE>26
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 10 - FEDERAL INCOME TAX
The federal income tax benefit is based on the estimated effective
annual tax rate for the fiscal year. The benefit includes the tax effect of
anticipated differences between the financial reporting and tax basis of assets
and liabilities, and the expected utilization of net operating loss (NOL)
carryforwards. The benefit of $226,000 in the period ended February 28, 1995
represents a deferred tax benefit.
The Company has NOL carryforwards of approximately $4.8 million
available for federal income tax purposes through 2010. As a result of the
greater than 50 percent change in ownership in the consolidated companies during
the year, the NOL's from the subsidiaries existing prior to the respective
acquisitions are limited to use by the subsidiary which originally generated the
NOL. These NOL's are further limited by the amount which can be utilized in any
one fiscal year. Approximately $4.1 million of the NOL's are limited to
offsetting future PCTI federal taxable income. The amount which can be utilized
each year is approximately $400,000.
The Company has recognized certain expenses for financial statement
purposes in different periods than they were allowed for tax purposes. These
temporary differences relate primarily to depreciable assets and inventory.
These cumulative differences have resulted in recognizing $660,000 more of
expense for tax purposes than for financial reporting purposes. The deferred tax
liabilities resulting from the temporary differences of PCTI are fully offset by
the available NOL carryforwards. The NOL carryforwards partially offset the
differences related to CMC, resulting in a deferred tax liability of $15,000.
SFAS No. 109 requires that the Company record a valuation allowance when
it is "more likely than not that some portion or all of the deferred tax assets
will not be realized." Management believes that some or all of the excess of NOL
carryforwards over temporary differences may be utilized in future periods.
However, due to the uncertainty of future federal taxable income, a valuation
allowance for the full amount of the deferred tax asset of $1,400,000 has been
recorded.
The Company will file a consolidated tax return for the year ending
May 31, 1995.
<PAGE>27
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 11 - CAPITAL STOCK
On July 18, 1994, the Company's Board of Directors approved a
one-for-three reverse split of the Company's common stock. This split resulted
in a decrease of 10,309,834 shares of common stock outstanding. In addition, on
January 26, 1995, the Company's Board of Directors approved a one-for-two
reverse split of the Company's common stock. This split resulted in a decrease
of 2,963,675 shares of common stock outstanding. All share and per share amounts
have been restated to retroactively reflect the stock splits.
On January 12, 1995, the Company granted stock options for 125,000
shares of the Company's common stock to certain management employees exercisable
at $2.00 per share. These shares are fully vested and exercisable. The stock
options expire in February 2005.
During the period ended February 28, 1995, the Board of Directors gave
all option and warrant holders the choice of exercising options and warrants at
half the original exercise price or exercise the options at no price and receive
one share of common stock for every four shares of options or warrants. Options
and warrants totaling 94,444 and 292,965, respectively, were exercised with
proceeds resulting in the amount of $30,000 and $54,995, respectively. The
holders of the options and warrants received 48,610 and 111,433 shares of common
stock, respectively. The fair market value of the Company's common stock at the
date of exercise was $1.98 per share. Included in merger and equity capital
costs during the period ended February 28, 1995 is $195,888 related to the
repricing of the options. No options were exercised during the year ended
May 31, 1994.
The Company has entered into an agreement with a Swiss company to find
suitable and qualified investors for the purchase of up to $4,000,000 of the
Company's common stock, at a price of not less than $5.00 per share for up to
800,000 shares in an offering qualifying under Regulation S promulgated under
the Securities Act of 1933. The Swiss company receives a minimum commission of 5
percent of the gross proceeds, plus reimbursement of out-of-pocket costs and
1,000,000 shares of the Company's common stock, which according to the
agreement, were earned prior to February 28, 1995, and are reflected as issued
and outstanding. The Company is awaiting instructions from the Swiss company as
to the actual preparation of the stock certificate(s) for the 1,000,000 shares
and will accommodate actual issuance within the scope of the agreement and
securities regulations for qualification under Regulation S.
<PAGE>28
PCT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995 AND MAY 31, 1994
NOTE 11 - CAPITAL STOCK (continued)
During the period ended February 28, 1995, 172,000 shares of stock were
sold under the Swiss company agreement with net proceeds to the Company of
$881,923, or $5.13 per share. Additional stock has been sold under this
agreement subsequent to February 28, 1995 (Note 12).
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to February 28, 1995, in conjunction with the Company's
agreement with a Swiss company, 496,000 shares of stock were sold with net
proceeds after commissions and out-of-pocket costs of approximately $2,550,000
or $5.14 per share (Note 11). Using proceeds from the stock sales, the Company
paid off its existing line of credit (Note 6) and the term loan collateralized
by equipment (Note 8).
On April 26, 1995, the Company entered into a new lending arrangement
with its bank, Silicon Valley Bank, to provide an operating line of credit of
$1,500,000 and a capital equipment line of credit of $250,000. The new agreement
provides for total borrowings under the line of credit limited to a variable
collateral base consisting of (1) 75 percent of eligible accounts receivable and
(2) 40 percent of the book value of the Company's inventories. Borrowings
against inventories are limited to a maximum of $1,000,000. The capital
equipment line of credit extends until September 30, 1995, at which time any
balance will be amortized and paid over a three year period. The agreement
contains restrictive covenants related to tangible net worth, debt to tangible
net worth ratio, current ratio, debt service coverage, minimum quarterly
profitability levels and approvals of acquisition transactions above certain
dollar and net worth levels.
<PAGE>29
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In July 1992, Balo Precision Parts, Inc. ("Balo") informed PCTI that Balo
believed that PCTI's hermetic connectors infringed Balo's U.S. Patent No.
5,110,307. Balo and PCTI were unable to resolve this matter and, on May 17,
1993, PCTI requested the U.S. Patent and Trademark Office to reexamine Balo's
patent. The next day Balo filed a patent infringement action against PCTI in the
U.S. District Court for the District of New Jersey. Balo's lawsuit was stayed
pending the outcome of the Patent Office's reexamination of Balo's patent. The
reexamination of Balo's patent has been concluded, and the New Jersey lawsuit
has resumed. PCTI has answered Balo's complaint and has pursued discovery.
The Company believes, and has been advised by its patent counsel, that PCTI has
meritorious defenses to Balo's claims and that Balo infringes PCTI's patents.
However, such opinions are not binding on a court, and it is not possible to
predict the outcome of any litigation with certainty. If PCTI is not successful
in this litigation, it could suffer a serious, material adverse impact on its
financial condition and its operations, particularly its hermetic connector
business.
Item 2. Changes in Securities
There were no changes in the instruments defining the rights of holders of any
class of registered securities during the quarter.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
This Form 10-QSB is being filed with the Commission in order to have a complete
file of reports for reference by the Commission and other interested parties.
Although this report is being filed later than 45 days after the quarter end to
which it pertains, the Company has relied upon application of the transition
rules in Rule 13a-10 and has filed within the appropriate time frame two
transition quarterly reports with the Commission, one for the four-month period
ended May 31, 1995 and another for the quarter ended May 31, 1995. Since the
period reported within this Form 10-QSB is the earliest quarter end after the
merger transaction reported in our March 1, 1995 Form 8-K, the Company, through
consultation with its legal counsel and public accountants, has determined that
more complete alternate disclosure would be best served by the filing of this
Form 10-QSB.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits required to be filed with this Report:
<PAGE>30
11 - Statement re Computation of Per Share Earnings
23 - Consent of Moss Adams LLP
27 - Financial Data Schedule
b. Reports on Form 8-K.
During the period covered by this Report, no reports on Form 8-K were filed.
During the period being reported, transactions and occurrences transpired which
were reported subsequently on Form 8-K, as follows:
On March 1, 1995, the Company filed a Form 8-K report of the change in
control of the registrant, Verazzana Ventures, Ltd (Commission File #33-3442-LA)
to be subsequently renamed PCT Holdings, Inc. The 8-K filing includes the
Agreement and Plan of Merger and audited financial statements of PCTH for the
fiscal years ended May 31, 1994, 1993 and 1992. That Form 8-K was subsequently
amended on March 16, 1995 to revise the schedule of beneficial ownership
reported under Item 1. On April 29, 1995, the Form 8-K report was again amended
to include the pro forma unaudited financial statements of the registrant that
reflected the Merger. The pro forma financial statements consisted of balance
sheets as of February 28, 1995, May 31, 1994 and 1993, and income statements for
the nine months ended February 28, 1995 and years ended May 31, 1994 and 1993.
On May 10, 1995, the Company filed a Form 8-K report of the Agreement and Plan
of Merger with Ceramic Devices, Inc. The merger constitutes the
acquisition of a significant amount of assets otherwise than in the ordinary
course of business. Financial statements of the merged corporation for the years
ended June 30, 1994, 1993 and 1992 were included in the filing. On July 21,
1995, the Form 8-K report was amended to include financial statements at and for
the eight-month period ended February 28, 1995, including a balance sheet,
income statement and cash flow statement.
On June 9, 1995, the Company filed a Form 8-K report in which, under Item 4, it
reported the change of accountant and, under Item 8, the change of fiscal year
from January 31 to May 31.
<PAGE>31
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PCT HOLDINGS, INC.
Date August 25, 1995 By:/s/ DONALD A. WRIGHT
----------------- ---------------------------------
Donald A. Wright, President & CEO
(Principal Executive Officer)
Date August 25, 1995 By:/s/ NICK A. GERDE
----------------- ---------------------------------
Nick A. Gerde, Vice President
Finance/CFO
(Principal Accounting Officer)
<PAGE>32
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
----------- ----------- ----------
11 Statement re Computation of Per Share Earnings
23 Consent of Moss Adams LLP
27 Financial Data Schedule
EXHIBIT 11
PCT HOLDINGS, INC. AND SUBSIDIARIES
CALCULATION OF LOSS PER SHARE
NINE MONTHS
ENDED
FEBRUARY 28,
1995 1994
---- ----
NET LOSS $(423,819) $(891,527)
NET LOSS PER SHARE $ (0.14) $ (0.63)
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,941,339 1,405,515
QUARTER
ENDED
FEBRUARY 28,
1995 1994
---- ----
NET LOSS $(425,414) $ (42,874)
NET LOSS PER SHARE $ (0.14) $ (0.03)
--------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,941,339 1,405,515
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Quarterly Report of PCT Holdings, Inc., on Form
10-QSB of our report dated April 12, 1995 (April 26, 1995 as to Note 12),
incorporated by reference and included as part of this Quarterly Report.
MOSS ADAMS LLP
Everett, Washington
August 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS OF PCT HOLDINGS, INC. AND ITS SUBSIDIARIES
FOR THE NINE-MONTH PERIOD ENDED FEBRUARY 28, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> FEB-28-1995
<CASH> 565,998
<SECURITIES> 0
<RECEIVABLES> 1,349,450
<ALLOWANCES> 51,180
<INVENTORY> 4,087,597
<CURRENT-ASSETS> 6,166,654
<PP&E> 5,628,729
<DEPRECIATION> 2,834,576
<TOTAL-ASSETS> 10,975,363
<CURRENT-LIABILITIES> 5,763,628
<BONDS> 4,466,606
<COMMON> 8,227,759
0
0
<OTHER-SE> (4,577,340)
<TOTAL-LIABILITY-AND-EQUITY> 10,975,363
<SALES> 8,087,549
<TOTAL-REVENUES> 8,087,549
<CGS> 6,390,925
<TOTAL-COSTS> 8,141,999
<OTHER-EXPENSES> 595,369
<LOSS-PROVISION> 21,594
<INTEREST-EXPENSE> 282,951
<INCOME-PRETAX> (54,450)
<INCOME-TAX> (226,000)
<INCOME-CONTINUING> (649,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (423,819)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
