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
August 31, 1996
[ ] 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 0-26088
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
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 September 10, 1996,
9,728,309 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>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - August 31 and May 31, 1996
Consolidated Statements of Income - First Quarters Ended August 31,
1996 and 1995
Consolidated Statements of Cash Flow - First Quarters Ended August 31,
1996 and 1995
Management's Statement and Notes to Unaudited Consolidated Financial
Statements
2
<PAGE>
<TABLE>
<CAPTION>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FORM 10-QSB
AUGUST 31, 1996 AND MAY 31, 1996
August 31, 1996 May 31, 1996
ASSETS (Unaudited) (Audited)
----------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash $ 2,893,000 $ 725,000
Restricted cash 1,000,000 1,000,000
Stock subscriptions receivable 1,030,000
Accounts receivables 3,809,000 3,359,000
Inventory 7,176,000 6,699,000
Current portion of note receivable from related party 52,000 52,000
Prepaid expenses and other 81,000 144,000
----------- -----------
Total current assets 15,011,000 13,009,000
----------- -----------
PROPERTY AND EQUIPMENT, NET 10,669,000 10,656,000
----------- -----------
OTHER ASSETS
Note receivable from related party, net of current portion 166,000 183,000
Costs in excess of net book value of acquired subsidiaries 1,906,000 1,938,000
Patents 1,361,000 1,387,000
Non-compete agreement 75,000 79,000
Other 85,000 397,000
----------- -----------
Total other assets 3,593,000 3,984,000
----------- -----------
TOTAL ASSETS $29,273,000 $27,649,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 200,000 $ 2,438,000
Bank line of credit 474,000 1,224,000
Accounts payable 2,486,000 3,142,000
Accrued liabilities 840,000 840,000
Current portion - long-term debt 2,674,000 4,290,000
Current portion - capital lease obligations 34,000 53,000
Current portion - non-compete agreement payable 35,000 70,000
----------- -----------
Total current liabilities 6,743,000 12,057,000
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion 3,066,000 1,809,000
Capital lease obligations, net of current portion 100,000 152,000
Non-compete agreement payable, net of current portion 30,000 30,000
Deferred income tax 592,000 592,000
Deferred rent and other 511,000 470,000
----------- -----------
Total liabilities 11,042,000 15,110,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 24,568,000 19,102,000
Accumulated deficit (6,337,000) (6,563,000)
----------- -----------
Total stockholders' equity 18,231,000 12,539,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $29,273,000 $27,649,000
=========== ===========
EQUITY
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FORM 10-QSB
FIRST QUARTERS ENDED AUGUST 31, 1996 AND 1995
Quarters Ended
-----------------------------------------
August 31, 1996 August 31, 1995
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
NET SALES $ 7,445,000 $ 3,456,000
COST OF SALES 5,500,000 2,795,000
----------- -----------
GROSS PROFIT 1,945,000 661,000
OPERATING EXPENSES 1,576,000 808,000
----------- -----------
INCOME (LOSS) FROM OPERATIONS 369,000 (147,000)
----------- -----------
OTHER INCOME AND EXPENSE
Interest income 14,000
Interest expense (174,000) (45,000)
Other 22,000
----------- -----------
(138,000) (45,000)
----------- -----------
NET INCOME (LOSS) BEFORE FEDERAL 231,000 (192,000)
INCOME TAX
PROVISION FOR FEDERAL INCOME TAXES (5,000)
----------- -----------
NET INCOME (LOSS) $ 226,000 $ (192,000)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE $ 0.03 $ (0.04)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,603,000 5,275,000
=========== ===========
The accompanying notes are an integral part of the consolidated inancial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PCT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FORM 10-QSB
FIRST QUARTERS ENDED AUGUST 31, 1996 AND 1995
Quarters Ended
-----------------------------------------
August 31, 1996 August 31, 1995
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash from operating activities $(1,042,000) $ (742,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (241,000) (294,000)
Reduction in note receivable from related party 17,000
Other changes, net (18,000) (74,000)
----------- -----------
Net cash from investing activities (242,000) (368,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments on note payable (2,088,000)
Payments on notes payable to stockholders (150,000)
Proceeds from long-term debt 86,000
Payments on long term-debt and capital lease obligations (442,000) (72,000)
Reduction in stock subscriptions receivable 1,030,000
Sale of units 7,031,000 493,000
Payment of unit issuance costs (1,187,000)
Net change in bank line of credit (750,000)
Other changes, net 8,000
----------- -----------
Net cash from financing activities 3,452,000 507,000
----------- -----------
NET CHANGE IN CASH 2,168,000 (603,000)
CASH, beginning of period 725,000 1,079,000
----------- -----------
CASH, end of period $ 2,893,000 $ 476,000
=========== ===========
Supplemental Schedule of Non Cash Financing
Activities:
None during these periods
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
<PAGE>
PCT HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT AND NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-QSB
AUGUST 31, 1996
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 August 31, 1996, and May 31, 1996, the consolidated results
of operations for the three-month periods ended August 31, 1996 and 1995,
and the consolidated statements of cash flow for the three-month periods
ended August 31, 1996 and 1995. All significant intercompany transactions
have been eliminated in the consolidation process. 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 and quarterly reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Certain information and footnote disclosures normally included in
audited financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted, as allowed
in accordance with applicable SEC disclosure guidelines. The financial
statements should be read in conjunction with the audited financial
statements and notes thereto for the years ended May 31, 1996 and 1995.
The results of operations for the three-month periods ended August 31,
1996 and 1995 are not necessarily indicative of the results to be expected
or anticipated for the full fiscal year. Also, certain reclassifications
have been made to the August 31, 1995 statement of income and statement of
cash flow to conform to the 1996 presentations.
SIGNIFICANT EVENTS AND TRANSACTIONS
The Company completed a public offering of Units consisting of Common
Stock and common stock purchase warrants ("Warrants") during the quarter
ended August 31, 1996, resulting in net proceeds after fees and expenses of
approximately $5,450,000. A portion of the net proceeds was used during the
first quarter of fiscal 1997 to pay off debt of approximately $1,800,000
and certain interest and fees associated with such debt. The remainder is
expected to be used for further reductions of debt, acquisition of
manufacturing equipment, facilities expansion, potential acquisitions and
working capital.
During the first quarter of fiscal 1997, the Company obtained a
modification and renewal of its lending arrangements with its primary
lender. The Company's arrangements with that lender provide for a working
capital line of credit, collateralized by accounts receivable and
6
<PAGE>
inventories, and a letter of credit required to support a loan from another
lender. The Company believes that it is in compliance with all loan
provisions at August 31, 1996.
COMPUTATIONS OF EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent shares are computed
using the weighted average number of common and common equivalent shares
outstanding during each reported period. Common equivalent shares consist
of stock options and warrants, which are excluded from the computation if
antidilutive. Fully diluted earnings (loss) per common share did not differ
significantly from primary earnings (loss) per common share in any period
reported.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth in this Item 2 includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Exchange Act, and is subject to
the safe harbor created by those sections.
OVERVIEW
The Company's net sales for the three months ended August 31, 1996
were derived from its five operating subsidiaries, which are divided into
two operational and marketing groups. The Company's aerospace group
consists of Cashmere Manufacturing Co., Inc. ("Cashmere"), which
manufactures high quality machined aluminum parts and components, Seismic
Safety Products, Inc. ("Seismic"), which markets seismic safety gas shutoff
valves manufactured by Cashmere, and Morel Industries, Inc. ("Morel"),
which manufactures cast aluminum parts and assemblies. The Company's
electronics group consists of Pacific Coast Technologies, Inc. ("Pacific
Coast"), which manufactures and sells electrical connectors and instrument
packages, and Ceramic Devices, Inc. ("Ceramic Devices"), which manufactures
ceramic capacitors, filters and feedthroughs.
The Company's electronic products business is characterized by
relatively low volumes and high margins, as compared with its aerospace
(metal products) business, where volumes have historically been higher and
margins lower than in the electronic products business. The Company
believes that margins will generally remain higher in its electronics group
than in its aerospace group, although products incorporating both
electronic and metal parts are expected to generate margins closer to
electronic product margins. As a result of margin differences, changes in
product mix between electronic and metal products can be expected to affect
overall margins for the Company.
The Company's financial condition and results of operations have been
substantially affected by acquisitions. In November 1995, the Company
formed Seismic, which acquired substantially all of the assets of a Florida
corporation of the same name and acquired certain patents from affiliates
of the Florida corporation. Most recently, the Company acquired Morel in
December 1995 (effective for accounting purposes as of November 30, 1995).
The Company's net sales for the three-month period ended August 31, 1995
were derived from the three operating subsidiaries then owned by the
Company: Pacific Coast, Cashmere and Ceramic Devices. A portion of the
changes in the Company's results of operations from the first quarter of
fiscal 1996 to the first quarter of fiscal 1997 are attributable to the
addition of Morel and Seismic.
8
<PAGE>
RESULTS OF OPERATIONS
Net sales for the quarter ended August 31, 1996 versus August 31, 1995
increased to $7,445,000 from $3,456,000, an increase of $3,989,000. In the
aerospace group, the operations of new subsidiaries contributed $2,848,000
of the increase, consisting of $2,814,000 from Morel and $34,000 from
Seismic, and Cashmere's net sales increased $32,000, or 1.7%, between the
two periods. Within the electronics group, net sales of Pacific Coast
increased by $1,187,000, or 101.1%, primarily as a result of increases in
customers, order sizes and products incorporating the Company's patented
technologies, and Ceramic Devices's net sales decreased by $78,000, or
17.5%, primarily as a result of moving Ceramic Devices' operations from San
Diego to Wenatchee, and the related production interruptions.
Gross profit for the quarter ended August 31, 1996 versus August 31,
1995 increased to $1,945,000 from $661,000, an increase of $1,284,000. The
Company's overall gross profit percentage increased to 26.1% from 19.1% of
net sales between the two periods. In the aerospace group, operations of
new subsidiaries contributed $321,000 of the increase, consisting of
$315,000 from Morel and $6,000 from Seismic. In addition, Cashmere's gross
profit increased $185,000, or 56.4%, between the two periods, due primarily
to renegotiation of Cashmere's contract with Boeing and increases in sales
to Boeing of additional products. Within the electronics group, Pacific
Coast's gross profit increased $851,000, or 389%, between the two periods,
due in part to the doubling of net sales and the production efficiencies
gained with that increase in sales activities. Ceramic Devices' gross
profit declined $73,000 between the two periods primarily as a result of
production factors surrounding the move from San Diego to Wenatchee.
Operating expenses for the quarter ended August 31, 1996 versus August
31, 1995 increased to $1,576,000 from $808,000, an increase of $768,000.
The operations of new subsidiaries accounted for $553,000 of the increase,
consisting of $449,000 from Morel and $104,000 from Seismic. Cashmere's
operating expenses increased $74,000, primarily from increased facility
costs (rent and utilities). Cashmere's operations were moved from Cashmere,
Washington to a new facility in Wenatchee in October 1995, providing more
production and office space. Pacific Coast's operating expenses increased
$173,000, or 52%, in response to the 101% increase in net sales. Ceramic
Devices's operating expenses decreased $32,000, due in part to the
comparative reduction in revenues and the difference in facility costs
created by the move to the Wenatchee production facilities. Interest
expense increased from $45,000 to $174,000, primarily from obligations
related to the new operating subsidiaries: Seismic $1,000, and Morel
$79,000.
Net income improved from a net loss of $192,000, or ($.04) per share,
in the quarter ended August 31, 1995, to net income of $226,000, or $.03
per share, in the quarter ended August 31, 1996.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, total current assets were $15,011,000, and total
current liabilities were $6,743,000, resulting in net working capital of
$8,268,000 and a current ratio of 2.23 to 1.0. Comparable amounts at May
31, 1996 were $13,009,000 of current assets and $12,057,000 of current
liabilities, resulting in net working capital of $952,000, and a current
ratio of 1.08 to 1.0.
On July 19, 1996, the Company closed an underwritten public offering
of 2,250,000 Units, with each Unit consisting of one share of Common Stock
and one Warrant, at a price of $3.125 per Unit (the "July 1996 public
offering"). The offering resulted in net proceeds to the Company, after
fees and expenses, of approximately $5,450,000. A portion of the net
proceeds was used during the first quarter of fiscal 1997 to pay off
approximately $1,800,000 of short-term debt and certain interest and fees
associated with such debt. The remainder is expected to be used for further
reductions of debt, acquisition of manufacturing equipment, facilities
expansion, potential acquisitions and working capital.
During the first quarter of fiscal 1997, the Company obtained a
modification and renewal of its lending arrangements with its primary
lender. The Company's lending arrangements with that lender provide for a
working capital line of credit, collateralized by accounts receivable and
inventories, and a letter of credit required to support a loan from another
lender. The Company believes that it is in compliance with all loan
provisions at August 31, 1996.
The Company believes that the net proceeds from the July 1996 public
offering, together with its existing credit facilities, will be sufficient
to meet its budgeted working capital requirements for at least the next 12
months. However, there is no assurance that the Company's working capital
requirements will not exceed those currently budgeted, or that additional
financing will be available to the Company, if and when needed.
CAPITAL RESOURCES
At August 31, 1996, the Company had no material purchase commitments
for capital equipment. Additions and replacements of plant and equipment
are generally funded through working capital or trade-in credits for the
replaced equipment, or capital leases or long-term notes secured by the
equipment being acquired.
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.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K.
During the quarterly period ended August 31, 1996, the
Company filed no Current Reports on Form 8-K with the
Commission.
11
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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: September 30, 1996 DONALD A. WRIGHT
------------------------------------------
Donald A. Wright
President, Chief Executive Officer, and
Chairman of the Board
(Principal Executive Officer)
Date: September 30, 1996 NICK A. GERDE
------------------------------------------
Nick A. Gerde
Vice President Finance, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
13
<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 three-month period ended August 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 2,893,000
<SECURITIES> 0
<RECEIVABLES> 3,897,000
<ALLOWANCES> (88,000)
<INVENTORY> 7,176,000
<CURRENT-ASSETS> 15,011,000
<PP&E> 13,128,000
<DEPRECIATION> (2,459,000)
<TOTAL-ASSETS> 29,273,000
<CURRENT-LIABILITIES> 6,743,000
<BONDS> 3,166,000
0
0
<COMMON> 24,568,000
<OTHER-SE> (6,337,000)
<TOTAL-LIABILITY-AND-EQUITY> 29,273,000
<SALES> 7,445,000
<TOTAL-REVENUES> 7,445,000
<CGS> 5,500,000
<TOTAL-COSTS> 5,500,000
<OTHER-EXPENSES> 22,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,000
<INCOME-PRETAX> 231,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 226,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
