-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HOmXT8WnKZ5Gwwgge0EbtVFRnfzuV0XrzRQ1moGzV55sLUr8ojiSkKRu4h3AcNn5 H6DkBbxaONh9J+hcM+jbVw== 0000756972-98-000023.txt : 19980916 0000756972-98-000023.hdr.sgml : 19980916 ACCESSION NUMBER: 0000756972-98-000023 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980915 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCC GROUP INC CENTRAL INDEX KEY: 0000756972 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 953815164 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-13280 FILM NUMBER: 98709612 BUSINESS ADDRESS: STREET 1: 163 UNIVERSITY PARKWAY CITY: POMONA STATE: CA ZIP: 91768 BUSINESS PHONE: 9098696133 MAIL ADDRESS: STREET 1: 163 UNIVERSITY PARKWAY CITY: POMONA STATE: CA ZIP: 91768 FORMER COMPANY: FORMER CONFORMED NAME: WMD MICRO DISTRIBUTORS INC DATE OF NAME CHANGE: 19891022 10-K/A 1 -19- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended September 30, 1997. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to ______________ _. Commission file number 0-13280 PCC GROUP, INC. (Exact name of registrant as specified in its charter) California 95-3815164 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 163 University Parkway, Pomona, California 91768 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (909) 869-61 33 Name of each exchange Securities registered pursuant to Section 12(b) of the Act: Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) 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 reports), and (2) has been subject to filing requirements for the past 90 days. YES X NO Check mark indicates that disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on January 12, 1998 based on the average bid and asked prices reported by NASDAQ on such date was approximately $9,103,270.00. Registrant's Common Stock outstanding at January 12, 1998 was 2,647,839 shares. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's proxy statement for its Annual Meeting of Shareholders to be held March 3, 1998 are incorporated by reference into Part III as set forth herein. PCC Group, Inc. and Subsidiaries Report on Audited Consolidated Financial Statements For the Years Ended September 30, 1995, 1996 and 1997 Report of Independent Certified Public Accountants The Shareholders of PCC Group, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of PCC Group, Inc. (a California corporation) and subsidiaries as of September 30, 1996 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1997. We have also audited the schedule listed in Item 14(a)(2) of this Form 10k. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We did not audit the financial statements of one foreign joint venture, which the Company's investments in and advances to joint venture amounted to $2,995,248 and $3,004,367 as of September 30, 1996 and 1997. Those statements were audited by other auditors whose reports have been furnished to us, and in our opinion, insofar as it relates to the amounts included for such joint ventures, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PCC Group, Inc. and subsidiaries as of September 30, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. BDO SEIDMAN, LLP Los Angeles, California December 5, 1997 PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 1996 1997 ASSETS CURRENT ASSETS: Cash and cash equivalents $507,719 $1,057,269 Securities and other negotiable assets 1,005,509 1,016,625 Accounts receivable, less allowances for possible losses of $99,000 and $34,447 1,872,497 3,958,535 Receivable from related parties (Note 7) 576,282 367,654 Notes receivable - related parties(Note 7) 100,000 100,000 Inventory, less reserves for obsolescence of $371,000 and $225,082 1,057,247 734,673 Prepaids and other current assets 80,685 230,044 TOTAL CURRENT ASSETS 5,199,939 7,464,800 PROPERTY AND EQUIPMENT, net (Note 2) 145,303 99,706 INVESTMENT IN AND ADVANCES TO JOINT VENTURE (Note 1) 2,995,248 3,004,367 OTHER ASSETS 80,703 23,391 TOTAL ASSETS $ 8,421,19 $10,592,264 See accompanying summary of accounting policies and notes to consolidated financial statements. PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Concluded) September 30, 1996 1997 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $2,262,026 $4,113,545 Current portion of long-term debt (Note 6) 1,414 - Accrued liabilities 127,498 176,788 Securities margin liability (Note 3) 551,455 427,658 Line of credit (Note 6) - 140,000 TOTAL CURRENT LIABILITIES 2,942,393 4,857,991 DEFERRED GAIN ON SALE OF EQUIPMENT (Note 1) 933,063 933,063 LONG-TERM DEBT, (Note 6) - 17,793 3,875,456 5,808,847 COMMITMENTS AND CONTINGENCIES (Notes 1 and 5) SHAREHOLDERS' EQUITY (Notes 8 and 9): Non-convertible, Cumulative, New Series A preferred stock ($1,800,000 and $1,960,000 liquidation preference in 1996 and 1997) - $4.80 stated value, shares authorized,issued and outstanding 250,000 1,200,000 1,200,000 Common stock, $.01 stated value; shares authorized -10,000,000; shares issued and outstanding, 2,528,117 and 2,647,83 25,281 26,478 Contributed capital in excess of stated value 1,347,085 1,610,638 Stock subscribed (Note 8) 230,500 - Retained earnings 1,742,871 2,093,246 Treasury stock, 99,000 shares purchased at cost - (146,945) TOTAL SHAREHOLDERS' EQUITY 4,545,737 4,783,417 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $8,421,193 $10,592,264 See accompanying summary of accounting policies and notes to consolidated financial statements. PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year ended September 30, 1995 1996 1997 NET SALES (Note 7) $40,473,158 $40,644,767 $63,643,054 COST OF SALES (Note 7) 38,959,851 38,752,351 60,823,433 Gross profit 1,513,307 1,892,416 2,819,621 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,157,655 1,642,705 2,413,986 Income(loss)from operations (644,348) 249,711 405,635 OTHER INCOME (EXPENSE): Interest(expense)income, net 25,788 6,305 (42,259) Gain on sale of equipment to related party (Note 1) 426,802 135,000 - Gain(los on sale of investments 205,536 (56,684) (13,306) Gain on reversal of accrued liability - 233,731 - Other - net 30,300 78,575 15,305 688,426 396,927 (40,260) Income before income taxes 44,078 646,638 365,375 INCOME TAXES (Note 4) (19,337) (3,200) (15,000) NET INCOME 24,741 643,438 350,375 Dividends applicable to preferred stock (160,000) (160,000 (160,000) NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $(135,259) $ 483,438 $ 190,375 INCOME PER SHARE: Net income (loss) applicable to common shares $(0.06) $0.20 $ 07 WEIGHTED AVERAGE NUMBER OF COMMON SHARES & COMMON EQUIVALENTS 2,285,375 2,466,816 2,566,144 See accompanying summary of accounting policies and notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Year ended September 30, 1995 1996 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $24,741 $643,438 $ 350,375 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 130,655 124,902 113,407 Provision for bad debts 228,000 46,000 152,115 Loss(gain)on sale of assets 1,086 (6,502) - Gain on sale of equipment (426,802) (135,000) - (Gain) loss on sale of investments (205,536) 56,684 13,306 Increase (decrease) from changes in: Purchases of investments held for Trading (3,654,041) (12,568,358)(12,015,949) Proceeds on sales of investments held for trading 3,776,702 11,589,040 11,991,527 Accounts receivable (23,036) (260,889) (2,238,154) Receivable from related parties 401,880 315,69 208,628 Income taxes receivable 130,000 - - Inventory 1,781,781 (858,588) 322,574 Prepaids and other assets 24,763 (71,313) (92,045) Accounts payable and accrued liabilities (1,969,924) 270,722 1,898,759 Income taxes payable 19,337 (19,337) 2,050 Net cash provided by (used in) operating activities 239,606 (873,509) 706,593 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (20,803) (72,170) (67,810) Purchase of tire recycling equipment (2,251,552) (819,315) - Proceeds on sale of tire recycling equipment 3,200,000 300,000 - Proceeds on sale of assets 1,500 11,587 - Principal payments on notes receivable - related parties 65,358 - - Net advances(to) from joint venture (430,000) - - Capital contributions/advances to joint venture (198,430) (378,786) (9,119) Net cash provided by (used in) investing activities 366,073 (958,684) (76,929) See accompanying summary of accounting policies and notes to consolidated financial statements. PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Increase (Decrease) in Cash and Cash Equivalents Year ended September 30, 1995 1996 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit - borrowing - - 1,400,500 Line of credit - repayments - - (1,260,500) Due to related party (500,000) - - Proceeds from common stock issuance - 993,000 - Cancellation of common stock - (54) - Change in margin liability 7,455 544,000 (123,797) Principal payments on long-term debt (7,389) (8,145) (1,413) Borrowing of long-term debt - - 17,791 Purchase of treasury stock - - (112,695) Net cash provided by (used in) financing activities (499,934) 1,528,801 (80,114) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 105,745 (303,392) 549,550 CASH AND CASH EQUIVALENTS, beginning of year 705,366 811,111 507,719 CASH AND CASH EQUIVALENTS, end of year $811,111 $507,719 $1,057,269 Cash paid during the year for: Interest $ 4,758 $ 2,700 $19,512 Income taxes $ 15,050 $ 3,200 $12,950 See accompanying summary of accounting policies and notes to consolidated financial statements. PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded) Increase (Decrease) in Cash and Cash Equivalents SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: During fiscal 1997, the Company did not have non-cash transactions. During fiscal 1996, the Company sold additional tire-recycling equipment to a related party (Note 1). As a result, the following non-cash transaction occurred: Increase (decrease) in assets and (increase) decrease in liabilities from: Sale of equipment: Receivable from sale of equipment $1,062,270 Non-cash portion of intercompany profit elimination (133,625) Deferred gain on sale of equipment (109,330) During fiscal 1995, the Company sold tire-recycling equipment to a related party (Note 1). In addition, the Company defaulted on a note payable and the creditor has commenced foreclosure proceedings on the property (Note 5). As a result, the following non-cash transactions occurred: Increase (decrease) in assets and (increase) decrease in liabilities from: Sale of equipment: Receivable from sale of equipment $2,130,518 Non-cash portion of intercompany profit elimination (1,171,785) Deferred gain on sale of equipment (958,733) Default on note payable and foreclosure on land: Unimproved land $(384,000) Current portion of long-term debt 350,000 Accrued liabilities 34,000 See accompanying summary of accounting policies and notes to consolidated financial statements. PCC GROUP, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES ORGANIZATION PCC Group, Inc., a California corporation, and subsidiaries (the "Company") are primarily engaged in the business of distributing microcomputer components. The Company has also entered into a new venture to focus on the development and commercialization of certain environment-related products which will be marketed principally in the Pacific Rim markets. See Note 1. The Company is located in California and has four wholly-owned subsidiaries. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK The Company grants uncollateralized credit to its customers who are located in various geographical areas. The Company maintains its cash accounts in high-quality financial institutions. At September 30, 1996 and 1997, the Company had bank balances, including cash, cash equivalents and short-term investments, of approximately $507,719 and $1,057,269, which exceeded federally insured limits. INVENTORIES Inventories consist principally of microcomputer component parts and are stated at the lower of weighted average cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over an estimated useful life of five years. Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in operations. INVESTMENT IN JOINT VENTURE The investment in joint venture is accounted for, based on the equity method of accounting. This investment has not been consolidated into these financial statements due to significant doubt about the Company's ability to control the joint venture since the tire recycling plant is in China and is subject to close government supervision. REVENUE RECOGNITION The Company recognizes revenue when the risk of loss for the product sold passes to the customer which is generally when goods are shipped. PCC GROUP, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES (Continued) INCOME TAXES Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each fiscal year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. CASH AND CASH EQUIVALENTS For the purpose of these statements, cash equivalents include investments with original maturities of three months or less. INCOME (LOSS) PER COMMON SHARE Income (loss) per common share has been determined by dividing net earnings (loss) (after deducting annual cumulative preferred stock dividends for the respective fiscal year; $160,000, $160,000 and $160,000 for the years ended September 30, 1995, 1996 and 1997) by the weighted average number of common and common equivalent shares outstanding. Weighted average shares are computed using the treasury stock method, under which common equivalent shares include exercisable stock options reduced by the number of shares which could be purchased from the proceeds. Stock options are not included for the 1995 calculation since their effect would be anti-dilutive. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of financial instruments including cash and cash equivalents, investments, receivables, and payables approximate their fair value due to the relatively short maturity of these instruments. INVESTMENTS Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" expands the use of fair value accounting but retains the use of amortized cost for those debt securities where there is a positive intent and ability to hold such debt securities to maturity. The Company has classified its investments in debt and equity securities into the trading category. The Company had gains (losses) on sale of investments of $205,536, $(56,684) and $(13,306) for the years ended September 30, 1995, 1996 and 1997. PCC GROUP, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES (Continued) STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" SFAS 123, establishes a fair value method of accounting for stock-based compensation plans and for transactions in which a company acquires goods or services from non-employees in exchange for equity instruments. The Company adopted this accounting standard on October 1, 1996. SFAS 123 also gives the option to account for stock-based employee compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock issued to Employees," or SFAS 123. The Company elected to follow APB 25 which measures compensation cost for employee stock options as the excess, if any, of the fair market price of the Company's stock at the measurement date over the amount an employee must pay to acquire stock. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION Certain reclassifications have been made to conform the prior year's amounts to the current year's presentation. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard No. 128, (SFAS No. 128), "Earnings Per Share," issued by the Financial Accounting Standards Board is effective for financial statements issued for the periods ending after December 15, 1997, including interim periods. The SFAS 128 requires restatement of all periods EPS data presented. The new standard also requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company has not determined the effect on its EPS calculation from the adoption of this statement. Statement of Financial Accounting Standard No. 129 (SFAS No. 129), "Disclosure of Information about Capital Structure," issued by the Financial Accounting Standards Board is effective for financial statements issued ending after December 15, 1997. The new standard reinstates various securities SUMMARY OF ACCOUNTING POLICIES (Continued) disclosure requirements previously in effect under Accounting Principles Board Opinion No. 15, which has been superseded by SFAS No. 129. The Company does not expect adoption of SFAS No. 129 to have a material effect, if any, on its financial position or results of operations. Statement of Financial Accounting Standard No. 130 (SFAS No. 130), "Reporting Comprehensive Income," issued by the Financial Accounting Standards Board is effective for financial statements with fiscal years beginning after December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company has not determined the effect on its financial position or results of operations, if any, from the adoption of this statement. Statement of Financial Accounting Standard No. 131 (SFAS No. 131), "Disclosure about Segments of an Enterprise and Related Information," issued by the Financial Accounting Standards Board is effective for financial statements with fiscal years beginning after December 15, 1997. The new standard requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprises and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate and their major customers. The Company has not determined the effect on its financial position or results of operations, if any, from the adoption of this statement. PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES Dalian Green Resources Joint Venture The Company entered into a joint venture agreement ("Agreement") with a corporation in Dalian, China, to build a facility which recycles tires by utilizing innovative technology and converts the tires into saleable solids, liquids and gases. This facility is expected to be completed in early 1998. Under the Agreement, the Company has agreed to purchase up to 55% of the equity of Dalian Green Resources Corporation ("DGR") for $1,660,000 and the contribution by the Company of tire recycling technology. Through September 30, 1997, the joint venture had no operations and the Company had contributed tire recycling technology and made cash equity contributions of $1,550,000. Under the terms of the Agreement, the owners of DGR will share in the profits of the venture according to their relative equity ownership. During the years ended September 30, 1996 and 1997, the Company made equity contributions of $378,786 and $0. The Company is required to make an equity contribution amounting to $110,000 in fiscal 1998. The Company entered into a licensing agreement with an inventor of tire recycling technology to utilize his recycling process. Under the terms of the licensing agreement, the Company has the exclusive right to use this technology in seven Pacific Rim countries, including China. In return, the Company issued 50,000 shares of the Company's unregistered stock valued at $35,000 and will issue an additional 50,000 shares of stock when the tire recycling plant is operational. The Company has also agreed to repurchase these shares for $3.00 per share, after the DGR plant is completed if the stock can not be sold to unrelated parties for at least that price. In addition, the inventor will receive an annual payment of 20% of the Company's share of the net profits from the venture. The Company has guaranteed that this annual payment to the inventor will not be less than $100,000. In addition, the inventor has the option, at all times for the duration of the agreement, to purchase unregistered common shares of the Company at one-third of its market value at the time of purchase. During fiscal 1997, the Company's relationship with the inventor deteriorated after the technology failed to perform. The Company has filed action against the inventor for breach of contract. The Company also entered into an agreement with DGR to purchase equipment on DGR's behalf for the tire recycling plant. The Company acquired and resold this equipment to DGR during fiscal 1995 and 1996. The Company recognized gain on the sale to the extent of their nonownership interest (45%) in DGR and cash received from DGR. A gain of $426,802, $135,000 and $0 were recognized during the years ended September 30, 1995, 1996 and 1997 (see Note 7). The Company deferred $933,063 of gain from sale of equipment which will be recognized when the equipment is sold to a third party. The Company had a receivable of $2,871,574 and $2,880,692 due from DGR as of September 30, 1996 and 1997 which is included in the investment in and advances to joint venture balance. PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES (Continued) Summarized financial data of DGR consists of: September 30, 1996 1997 Current assets $ 650,000 $ 81,000 Non-current assets 11,862,000 14,253,000 Total assets 12,512,000 14,334,000 Current liabilities 3,934,000 3,940,000 Non-current liabilities 5,113,000 7,057,000 Equity 3,465,000 3,337,000 To date, there have been no operations at DGR. Hainan Joint Venture On April 23, 1996, the Company entered into a new joint venture with the Hainan Shenhai Energy Resource and Chemical Industry Co. Ltd., China Hainan Yung Tzuo Enterprise Co., and DGR for construction and operation of a second tire recycling plant in China. Capital contributions have yet to be made by any partners. The Company will have a 40% interest and will provide the technology and equipment worth $1.375 million along with an equity contribution of $825,000. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of: September 30, 1996 1997 Furniture, fixtures and equipment $810,225 $743,398 Vehicles 35,872 61,966 Leasehold improvements 6,900 8,457 852,997 813,821 Accumulated depreciation and Amortization (707,694) (714,115) Property and equipment, net $145,303 $99,706 NOTE 3 - MARGIN LIABILITY The Company invests excess cash in various securities on a short term margin basis. The investments are made for trading purposes which involve varying degrees of market risk in excess of amounts recognized in the balance sheet. In a margin transaction, brokers extend credit to customers, subject to various regulatory margin requirements, which allow customers to purchase securities in excess of the PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) underlying collateral. Margin requirements may not be sufficient to fully cover losses which customers may incur. Such transactions may expose the Company to significant risk in the event that the value of the securities decline. As of September 30, 1996 and 1997, the Company had securities margin liability of $551,455 and $427,658. The notional value of the securities owned by the Company as of September 30,1997 was $1,090,592 NOTE 4 - INCOME TAXES Income taxes are as follows: Year ended September 30, 1994 1995 1996 Current Federal $ - $ - $ - State 19,377 3,200 15,000 $19,377 $3,200 $15,000 The components of the net deferred tax asset and liability are as follows: September 30, 1996 1997 Deferred tax asset $1,238,307 $1,034,539 Deferred tax liability (98,428) (78,571) Valuation allowance (1,139,881) (955,968) $ - $ - The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the net deferred tax asset and liability, and their approximate tax effects, are as follows: Year ended September 30, 1996 1997 Excess tax depreciation over book $ (45,507) $(23,338) Inventory and bad debt reserves 203,222 77,881 Accrued vacation 2,814 3,585 State taxes 1,088 1,621 Installment sales (52,248) (52,248) Other 3,008 - Net operating loss carryforwards 1,027,504 948,467 Valuation allowance (1,139,881) (955,968) $ - $ - PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4 - INCOME TAXES (Continued) Management is unable to determine whether the realization of the net deferred tax asset is more likely than not and a 100% valuation allowance has been established. The difference between the effective tax rate and that computed under the federal statutory rate is as follows: 1995 1996 1997 Federal statutory rate 34% 34% 34% Federal utilization of net operating loss carryforward (34) (34) (34) State taxes, net of federal benefit - - 4.1 -% -% 4.1% During fiscal 1997, the Company utilized tax benefit of $350,375 from the net operating loss carryforward. As of September 30, 1997, for federal income tax purposes, the Company had approximately $2.7 million in net operating loss carryforwards expiring through 2001. The annual utilization of the operating loss carryforward may be significantly limited due to the adverse resolution, if any, with respect to the loss carryover provisions of Internal Revenue Code section 382 in connection with the acquisition of WMD and subsequent stock ownership changes by the Company. NOTE 5 - COMMITMENTS AND CONTINGENCIES Commitments The Company leases a building and equipment under noncancelable operating leases expiring at various dates through 2001. Future minimum rental payments required under operating leases that have an initial or a remaining noncancelable lease term in excess of one year at September 30, 1997 are as follows: Year ending September 30, 1998 $ 73,978 1999 31,021 2000 13,018 2001 13,018 2002 3,328 $134,363 Rental expense for the years ended September 30, 1995, 1996 and 1997 was approximately $146,000, $148,000 and $104,950. PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Economic Dependency A majority of the Company's fiscal 1995, 1996, and 1997 sales were derived from products supplied by one vendor. While the Company believes that alternative sources of supply exist, the loss of the right to distribute products from this vendor might materially and adversely impact its operations. NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued) Lawsuits The Company is, from time to time, involved in various lawsuits generally incidental to its business operations, consisting primarily of collection actions and vendor disputes. In the opinion of management, the ultimate resolution of these matters, if any, will not have a significant effect on the financial position, operations or cash flows of the Company. NOTE 6 - DEBT During the year, the Company entered into a line of credit agreement expiring May 19, 1998, which provides for borrowings of up to $3,000,000 which is collateralized by certain inventory and accounts receivable. The balance outstanding under this line of credit at September 30, 1997 was $140,000. The borrowings under this agreement bear interest at the prime rate (8.5% at September 30, 1997) plus 1.25%. The terms of the line of credit agreement contain, among other provisions, requirements for maintaining defined levels of working capital, tangible net worth, annual capital expenditures and a debt-to-equity ratio. The company was in compliance with the financial covenants contained in the line of credit agreement at September 30, 1997. In addition, during September 1997, the Company entered into an equipment loan maturing through 2002. This loan bears interest of 8.9% and is collateralized by certain equipment. NOTE 7 - RELATED-PARTY TRANSACTIONS The Company conducts business with certain companies that are owned wholly or in part by certain shareholders of the Company. On the accompanying consolidated balance sheets, receivables from related parties consist of trade accounts receivable of $576,282 and $367,654 as of September 30, 1996 and 1997. During fiscal 1996, the Company utilized the services of one of its related parties based in China to help assist in the assembly and maintenance of equipment which was sold to DGR. A consulting fee of $300,000 was charged against the 1996 sale of equipment to DGR (see Note 1) for the services of this related party. Included in the accompanying consolidated statements of income are sales to related parties of $4,221,767, $3,640,732 and $2,744,229 for the years ended September 30, 1995, 1996, and 1997 and purchases fr om related parties of $103,844, $49,880 and $179,302 for the years ended September 30, 1995, 1996 and 1997. In additional the Company has an outstanding loan with a related party, as of September 30, 1996 and 1997, in the amount of $0 and $54,017. Consulting fees of $300,000 were paid to a related party during fiscal 1997, for administrating and designing the technology of the tire recycling plant. PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During 1992, the Company sold its 51% interest in an apparel company to a related shareholder for $408,000, which consisted of $204,000 in cash and a note receivable in the amount of $204,000. In connection with the sale, the Company entered into a management agreement to provide certain management, accounting and administrative support services to this corporation. The note receivable, which is collateralized by the shares of this corporation, bears interest at 8% per annum with the principal balance and any unpaid accrued interest due June 30, 1997. As of September 30, 1996 and 1997, the outstanding balance on this note receivable was $100,000. NOTE 8 - PREFERRED AND COMMON STOCK During the year ended September 30, 1992, the Company's articles of incorporation were amended and a $15,000,000 note was cancelled in exchange for 250,000 shares of Series A non-voting, non-convertible preferred stock. The preferred stock accumulated dividends at the rate of $1 per share per year and is redeemable, at the Company's option, for $60 per share. No dividends were declared by the Company during fiscal 1992. The preferred stock was given a $15,000,000 ($60 per share) liquidation preference value. On December 31, 1992, in order to more accurately reflect the financial condition of the Company and to provide a more appealing situation to potential equity investors, the Company issued 250,000 shares of a new series of preferred stock, designated New Series A preferred stock in exchange for the 250,000 shares of outstanding Series A preferred stock. The non- voting, non-convertible New Series A preferred stock accumulates dividends at the rate of $0.64 per share per year. No dividends were declared during fiscal 1995, 1996 or 1997. The New Series A preferred stock was given a liquidation preference value and a redemption price of $4.80 per share ($1,200,000 total liquidation preference) plus cumulative unpaid dividends which totalled $600,000 and $760,000 at September 30, 1996 and 1997. The New Series A preferred stock is redeemable, at the Company's option, at any time. During fiscal year 1996, the Company had three private placement offerings. For the first two private placement offerings, 248,142 shares were issued at approximately $3.40 a share. Net proceeds received were $762,500 and expenses associated with the offerings were $80,000 which was charged to contributed capital in excess of par. As of September 30, 1996, no stock was issued for the third private placement offering. Accordingly, the net proceeds of $230,500 from the third private placement are reflected on the financial statements as Stock Subscriptions. In November 1996, 51,222 shares were issued for the third private placement offering. During fiscal year 1997 the Company was not involved in a private offering. NOTE 9 - TREASURY STOCK From time to time, the Company's Board of Directors has authorized the repurchase of shares of the Company's common stock in the open market. During fiscal year 1997, the Company repurchased 30,500 shares of treasury stock at an average per share cost of $3.50. In prior years the Company purchased 68,500 shares of treasury stock at an average per share cost of $.50. The Company treated the purchase of treasury stock as though the stock was cancelled. During fiscal 1997, it was determined that the treasury stock was not cancelled. Thus the 68,000 shares of common stock were included in treasury stock. The Company holds a total of 99,000 shares of treasury stock which may be used for any corporate purpose. NOTE 10 - STOCK OPTION PLAN The Company provides a non qualified stock options plan and an incentive stock option plan for its employees, officers and directors. The non qualified stock option plan authorizes the granting of options to purchase up to an aggregate maximum of 500,000 shares of common stock, with an exercise price at least equal to the fair market value of the shares at the date of grant, to designated employees, executive officers and directors of the Company. The stock option term is for a period of ten years from the date of grant or such shorter period as is determined by the Board of Directors. Each stock option may provide that it is exercisable in full or in cumulative or noncumulative installments, and each stock option is exercisable from the date of grant or any later date specified therein, all as determined by the Board of Directors. This plan terminates in the year 2002. To date 292,300 shares of stock options were issued to employees, officers and directors under the non qualified stock option plan. During fiscal year 1997, 20,000 shares of stock options were granted to one of the Company's directors. The incentive stock option plan provides for the issuance of up to 200,000 shares of common stock to designated employees and executive officers of the Company. 122,700 shares were granted to the Company's officers. During fiscal year 1997, the Company did not issue additional stock options under the incentive stock option plan. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with FASB No. 123, the Company's net income and earning per share would have been reduced to the pro forma amounts included below: Year ended September 30, 1996 1997 Net income attributable to common stockholders: As reported 643,438 350,374 Pro forma 510,288 205,439 Net income applicable to common shares As reported .02 .07 Pro forma .12 .02 PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded) NOTE 10 - STOCK OPTION PLAN (Continued) The stock option plan summary and changes during each year is presented below: Year ended September 30, 1995 1996 1997 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at beginning of year 300,000 $1.15 300,000 $1.15 395,000 $ 1.52 Options granted - - 95,000 2.70 20,000 2.00 Options cancelled - - - - - - Options exercised - - - - - - Options at end of year 300,000 $1.15 395,000 $1.52 415,000 $ 1.54 Options exercisable at end of year 117,300 1.12 212,300 1.87 292,300 1.47 Weighted-average fair value of options granted during the year $ - $ .52 $ 3.10 The following table summarizes information about the stock options outstanding at September 30, 1997. Options Outstanding Options Exercisable Number Weighted Avg. Weighted Number Weighted Range of Outstanding Remaining Average Exer. Average Exer, Price 9/30/97 Contractual Exer.Price 9/30/97 Exercisable Price $1.12 to 1.50 355,000 5.5 years $ 1.20 232,300 $ 1.21 $2.00 to 3.50 60,000 5.0 years 2.50 60,000 2.50 $1.12 to 3.50 415,000 5.7 years $ 1.90 292,300 $ 1.47 PCC GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded) NOTE 10 - STOCK OPTION PLAN (Continued) Options exercisable at September 30, 1997 have an average exercise price of $1.86. The fair value of the stock options granted during 1997 and 1996 was $62,000 and $50,214, respectively, on the date of grant using the Black Scholes option- pricing model. The weighted-average assumptions used were as follows: Year ended September 30, 1996 1997 Discount rate - bond yield rate 6% 6% Volatilit 75.34% 75.34% Expected life 5 years 5 years Expected dividend yield - - NOTE 11 - SIGNIFICANT CUSTOMER During fiscal 1997, 25% of the Company's net sales were generated from one customer. During fiscal 1995 and 1996 the Company did not have any significant customers. PCC GROUP, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 and 1997 Amount Beginning charged Ending Description balance to expense Deductions balance Allowance for doubtful accounts: Fiscal 1995 $ 96,000 $228,000 $ 60,000 $264,000 Fiscal 1996 $264,000 $ 46,000 $211,000 $ 99,000 Fiscal 1997 $ 99,000 $152,000 $216,000 $ 35,000 Reserve for inventory obsolescence: Fiscal 1995 $184,000 $157,000 $ - $341,000 Fiscal 1996 $341,000 $ 30,000 $ - $371,000 Fiscal 1997 $371,000 $ - $146,000 $225,000 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: September 4, 1998 PCC GROUP, INC. By: /s/ Jack Wen Jack Wen Chairman of the Board, Chief Executive Officer and President Dalian North Certified Public Accountants Office Golden Horse Road, North Accounting Company Building, Dalian Development Zone Telephone: 86-411-765-5664; Fax: 86-411-761-1017 Reference: Enterprise with Foreign Investment (1997) 297 The Board of Directors Dalian Green Resources Co. Ltd. We have audited the accompanying balance sheets and statements of changes in financial position of Dalian Green Resources Co. Ltd. as of September 30, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements. We conducted our audit in accordance with independent audit standards for certified public accountants in China. During the process of audit, we implemented all necessary audit procedures including examining accounting records on a sampling basis. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position and changes in financial position as of September 30, 1996 and 1997 in conformity of with Accounting Standards for Enterprises and Accounting Regulation for Enterprises with Foreign Investment in China on a consistent basis. Dalian North Certified Public Accountants Office Chinese Certified Public Accountants: Zhao Yong and Liu Hongtao November 25, 1997 DALIAN GREEN RESOURCE CO LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION (IN RMB) 09/30/96 09/30/97 09/30/97 BALANCE BALANCE BALANCE RM. RM. US$ ASSETS Cash and cash equivalent 4,916,000 151,000 18,189 Accounts receivable 0 0 0 Other accounts receivable 244,000 129,000 15,539 Inventory 235,000 394,000 47,460 Total current assets 5,395,000 674,000 81,188 Property, plant and equipment 2,009,000 1,800,000 216,823 Accumulated depreciation ( 193,000) (399,000) (48,062) Construction in progress 87,246,000 106,121,000 12,783,044 Intangible assets 6,449,000 6,449,000 776,829 Organizational expenses 2,967,000 4,355,000 524,591 98,478,000 118,326,000 14,253,225 Total Assets 103,873,000 119,000,000 14,334,413 LIABILITIES AND EQUITY Short-tem bank loans 4,630,000 2,679,000 322,705 Current portion of long-term bank loans 0 0 0 Accounts payable 24,262,000 24,301,000 2,927,232 Taxes payable (40,000) (44,000) (5,300) Accrued liabilities 3,811,000 5,777,000 695,882 Total current liabilities 32,663,000 32,713,000 3,940,518 Long-term bank loans 41,821,000 57,867,000 6,970,500 Deferred gain or (loss) of foreign Exhange 621,000 710,000 85,525 42,442,000 58,577,000 7,056,02 Total Liabilities 75,105,000 91,290,000 10,996,543 INVESTORS EQUITY Dalian Materials Devel (US$) 2,520,000 2,520,000 PCC Group, Inc. (US$) 1,550,000 1,550.000 Contributed capital (US$1=RM. 5.7) 23,199,000 23,199,000 Additional paid in capital 5,569,000 4,511,000 Translation adjustments (733,000) Total Investors equity 28,768,000 27,710,000 3,337,000 Total liabilities and equity 103,873,000 119,000,000 14,334,413 DALIAN GREEN RESOURCE CO., LTD. STATEMENT OF CHANGES IN FINANCIAL POSITION ( IN RMB) Year ended September 30, 1996 1997 . Cash flows from operating activities Net income (loss) 0 0 Adjustments to reconcile net income (loss) to net cash provided by (used in ) operating activities Depreciation 150,000 253,000 Loss on disposal of fixed assets 0 162,000 Increase (decrease) from changes in : Other account receivable 47,000 115,000 Inventory (235,000) (159,000) Tax refunds receivable (39,000) (4,000) Accounts payable 6,189,000 39,000 Accrued liabilities 3,213,000 908,000 Net cash provided by operating activities 9,325,000 1,314,000 Cash flows from investing activities Increase in property, plant and equipment (847,000) 0 construction in progress (20,160,000) (18,875,000) intangible assets (363,000) 0 organization expenses (1,502,000) (1,388,000) Net cash flows in investing activities (22,872,000) (20,263,000) Cash flows from financing activities Proceeds of capital injected 2,495,000 0 Repayment of short term bank loans (4,561,000) (1,951,000) Proceeds of long term bank loans 16,677,000 16,046,000 Net cash flows from financing activities 14,611,000 14,095,000 Effect of changes in exchange rates 99,000 89,000 Net decrease in cash and cash equivalents 1,163,000 (4,765,000) Cash and cash equivalents, beg. 3,753,000 4,916,000 Cash and cash equivalents, end 4,916,000 151,000 Noncash transactions : Additional paid in capital (1,058,000) Accrued liabilities 1,058,000 -----END PRIVACY-ENHANCED MESSAGE-----