10-Q/A 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended Commission File March 31, 2000 Number: 0-13280 PCC GROUP, INC. (Exact name of registrant as specified in its charter) California 95-3815164 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 163 University Parkway Pomona, California (Zip Code) (Address of principal executive office) Registrant's telephone number, including area code: (909) 869-6133 Indicate by check mark, whether the registrant has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and has been subject to such filing requirements for the past 90 days. Yes x No.___ As of March 31, 2000, the registrant had outstanding 3,030,339 of its Common Stock, $.01 par value per share. PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS In thousands (Unaudited) March September 31 30, ASSETS 2000 1999 CURRENT ASSETS: Cash and cash equivalents $527 $817 Accounts receivable, less allowances for possible losses of $208,188 &208,188 1,935 1,320 Receivable from related parties 1,645 1,684 Notes receivable - related parties 125 Inventory, less reserves for obsolescence of $ 67,032 & $ 67,032 1,034 1,063 Prepaids and other current assets 224 185 Advances to Vendors 604 643 TOTAL CURRENT ASSETS 5,969 5,837 PROPERTY AND EQUIPMENT, Net 301 264 Notes Receivables less allowances for possible losses of $522,000 & $522,000 1,593 1,572 Investment in Joint Ventures 198 OTHER ASSETS 335 126 TOTAL ASSETS $8,396 $7,799 PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS In thousands (Unaudited) LIABILITIES AND March 31, September 30, SHAREHOLDERS EQUITY 2000 1999 CURRENT LIABILITIES: Accounts payable $2,131 $1,562 Accounts payable- Related Parties 35 394 Line of credit 1,782 600 Accrued liabilities 96 103 TOTAL CURRENT LIABILITIES 4,044 2,660 LONG TERM DEBT 774 714 Total Liabilities 4,818 3,374 SHAREHOLDERS' EQUITY Non-convertible, Cumulative, Series C preferred stock($1,063,866 liquidation preference) - $1,053 stated value,shares authorized, issued and outstanding - 1,000 1,053 1,053 Convertible Preferred Stock($595,000) Liquidation preference in 2000) $1,000 stated value, 1,600 shares authorized, 550 shares issued and outstanding 550 750 Common stock, $.01 stated value; shares authorized - 10,000,000; shares issued and outstanding - 3,112,839 and 3,005,339 at March 31,2000, and 3,005,339 and 2917,589 at September 30,1999 31 30 Additional Paid in capital in excess of stated value 3,516 3,088 Accumulated Deficit (1,371) (391) Treasury stock, shares purchased at cost (201) (105) TOTAL SHAREHOLDERS' EQUITY 3,578 4,425 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,396 $7,799 PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME In thousands, except per share data (Unaudited) Three Months Ended Six Months Ended March 31 March 31, 2000 1999 2000 1999 Net sales $11,234 $17,445 $26,021 $45,238 Cost of sales 11,027 16,732 25,468 43,278 Gross profit 207 713 553 1,960 Selling, general and administrative expenses 825 761 1,408 1,355 Income from operations (618) (48) (855) 605 Other income (expense) Gain (loss) on sale of investments 383 383 Interest(expense)income, (90) (71) (130) (152) Other (3) (5) 6 (93) 312 (125) 237 Net income pre income taxes (711) 264 (980) 842 Income taxes (27) 32 Net income ($711) $291 $ (980) $ 810 Income per share Net income ($.24) $.11 ($0.33) $0.30 Dividends applicable to preferred stock (.01) (.02) (0.02) (0.02) Net income (loss) applicable to common ($.25) $.09 (.035) $0.28 shares Average weighted number of shares 3,004,883 2,742,039 2,973,226 2,727,979 Diluted Income per Share ($.25) $.08 ($.35) $.27 Average number of diluted shares of Common stock outstanding 3,004,883 2,915,247 2,973,226 2,915,247 PCC GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands, (Unaudited) Six Months Ended March 31, 2000 1999 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Net income $ (926) $ 810 Depreciation and amortization 18 34 Provision for bad debts (172) Increase (decrease) from changes in: Investment in Securities Accounts receivable (615) 1,233 Receivables from related parties 164 1,644 Inventory 29 259 Prepaids and other assets (209) (938) Accounts payable and accrued Liabilities 262 (2,982) Net cash provided by (used in) Operating activities (1,331) (112) CASH FLOW FROM INVESTING ACTIVITIES: Capital purchases (55) Net investments in and advances to joint venture (219) (2) Net cash provided by (used in) investing activities (274) (2) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from common stock issuance 229 990 Change in line of credit 1,182 (2,400) Changes in treasury stock (96) Net cash provided by (used in) Financing activities 1,315 (1,410) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (290) (1,524) CASH AND CASH EQUIVALENTS, Beginning of year 817 2,467 CASH AND CASH EQUIVALENTS, end of quarter $ 527 $ 943 Cash paid during the year for: Interes t$90 $81 Income taxes $0 $0 The accompanying notes are an integral part of these consolidated consolidated financial statements. PCC Group, Inc Notes to Consolidated Financial Statements Note-1 Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three months and the six months period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the year ending September 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 1999. Note 2 - Income Taxes During fiscal 1998, the Company utilized $1,593,229 ot the net operating loss carryforward. As of September 30, 1999, for federal income tax purposes, the Company had approximately $3,200,000 of federal income tax net operating loss carryforwards, expiring through 2019. In additiona the Company has approximately $600,000 and $300,000 of net capital loss carryforwards for federal and state purposes.The annual utilization of the operating loss carryforward may be significantly limited due to the adverse resolution, if any, with respect to the loss carryover provisions of Internal Revenue Code section 382 in connection with certain stock issuances by the Company. ITEM 2. - Management's Discussion and Analysis of Financial Condition and Results of Operation.. Except for historical information contained herein, the matters set forth in this report are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. The Company disclaims any interest or obligations to update these forward looking statements. Three Months Ended March 31, 2000 as Compared to the Three Months Ended March 31, 1999 Net sales for the quarter ended March 31, 2000 decreased by $6.2 million (36%) over net sales of $17.4 million for the similar 1999 fiscal quarter. This decrease was due to a decrease in PC hardware sales in March and part of February. Gross profit for the second quarter of 2000 was $.2 million, a (71%) decrease from the second quarter of 1999. The decrease in gross profit was the result of a soft market in PC hardware. Gross profit as a percentage of net sales decreased from 4.0% in the second quarter of 1999 to 1.8% in the second quarter of 2000. The reduction was due to market oversupply of hard disk drives which resulted in pricing pressures that required the Company to reduce its gross margins, and market pressures created by competition from internet businesses. Selling, general and administrative expenses increased from $761,000 in the second quarter of fiscal 1999 compared to $825,000 for the comparable fiscal 2000 period. As a percentage of revenue, SG&A expenses increased from 4.4% in 1999 to 9.0% in 2000. The increase in SG&A was due to the increased overhead associated with the start-up of the company's new internet businesses. Income from operations decreased from $(48,000) in the second quarter of fiscal 1999 to ($618,000) in the comparable fiscal 2000 period. The decrease in income from operations was due to competitive market in PC hardware , and the overhead associated with the start-up of the company's new internet busineses. Other income/expense decreased from $312,000 in 1999 when compared to ($93,000) for the comparable fiscal 2000 period. The decrease was attributable to recognizing a gain on the stock portfolio in 1999. Net income decreased to ($711,000), or ($0.25) per share (after preferred stock dividend deduction), in the second quarter of fiscal 2000 compared to $291,000, or $.09 per share (after preferred stock dividend deduction) for the same fiscal 1999 quarter. The decrease in net income is the result of a soft market in PC hardware resulting in competitive price pressures and, the overhead associated with the new internet business offset by the recognition of gain on the securities portfolio. Six Months ended March 31, 2000 as compared to the Six months ended March 31,1999 Net sales for the six months ended March 31, 2000 decreased by $19.2 million (42%) over net sales of $45.2 million for the similar 1999 period. This increase primarily reflects the fluctuations in the hard disk drive market, and competition from the internet market. Gross profit for the first six months of 2000 was $553,000 a (72%) decrease from the six months of 1999. The decrease in gross profit was the result of pricing pressures. Gross profit as a percentage of net sales decreased from 4.3% in the first six months of 1999 to 2.1% in the first six months of 2000. The reduction was due to market oversupply of certain products which resulted in pricing pressures that required the Company to reduce its gross margins, and competeitive pricing from internet market.. Selling, general and administrative expenses increased to $1,408,000 in the first six months of fiscal 2000 compared to $1,355,000 for the comparable fiscal 1999 period. As a percentage of revenue, SG&A expenses increased from 3.0% in 1999 to 5.4% in 2000. The increase in SG&A was due to start up costs associated with the company's new internet divisions. Income from operations decreased to ($855,000) in the first six months of fiscal 2000 from $605,000 in the comparable fiscal 1999 period. The decrease in income from operations is due to two factors. The soft market in PC hardware , the start-up cost associated with a new division.. Other income/expense decreased to ($125,000) in 2000 when compared to $237,000 for the comparable fiscal 1999 period. The variance was mainly attributable to the gain on the stock portfolio sold by the Company in 1999. Net income decreased to ($980,000), or ($0.35) per share (after preferred stock dividend deduction), in the first six months of fiscal 2000 compared to $810,000, or $.28 per share (after preferred stock dividend deduction) for the same fiscal 1999 quarter. The decrease in net income is the result of decreased sales, lower gross margin, and costs associated with new internet startups, and, offset by the effect of the securities transactions gain experienced in 1999 which adversely affected last year's net income, . Liquidity and Capital Resources During the second quarter of fiscal 1999, the Company entered into a line of credit agreement with an institutional lender. The credit facility provides the Company with both accounts receivable and inventory based borrowings of up to $6.5 million. The $5,000,000 credit facility, which expires on September 30, 2000, is secured by a lien on all of the Company's personal property. In addition to the foregoing credit facility, the Company has obtained a $1 million term loan from its bank to fund the development expenses of the Company's new Computer Discount Center e-commerce division. The term loan requires the Company to make monthly payments of principal and interest from September 1999 through August 2002, at which time the term loan matures. In addition to the foregoing two credit facilities, the Company has obtained a credit facility to fund its purchases of equipment under its existing equipment purchase contract with a Taiwanese company. This credit facility will not be available to the Company after the equipment purchases are completed. As of the date of this report, substantially all of the Company's obligations under the equipment purchase agreement had been completed, and the Company expects that the equipment purchase arrangement and the related bank credit facility will expire during the current fiscal quarter. In addition the company has a $2 million revolving line of credit. The line is to issue and finance letters of credit. The company is not in compliance with certain of the financial covenants required by its principal lender, however the company has received a letter from the lender waiving these covenants. The Company expects to fund the working capital needs of its distribution business with internally generated funds, vendor lines of credit and its current asset-based financing facility. Based on the amount of credit available to the Company, its current cash balances, and its current operations, the Company believes that it has sufficient capital to finance its working capital needs for the next 12-month period. In addition to the web-site through which it is offering computer and software parts and products for sale to retail customers, during fiscal 1999 the Company launched a new auto sales website and incurred substantial costs to establish an Internet broker-dealer business Because the cost of funding all three of these operations was significant, the Company recently disposed of the Internet automobile sales business to a third party buyer in exchange for a 29% equity interest in the buyer. As a result, the Company will no longer be required to fund the start-up costs of this business, leaving the Company with additional funds with which it can develop its remaining new businesses. The Company expects to fund the additional costs associated with the new Internet businesses through internal cash flow, and possibly additional debt or equity financing. Although the initial start-up expenses of the web-sites have been significant, the Company believes that it will have sufficient financial resources to maintain its new businesses as well as continue its primary wholesale business. The Company launched its Broker Dealer business in March 2000, and believes that this division will now begin developing revenues. However, the Company has not had any prior experience in operating any Internet businesses or in operating a broker-dealer business and cannot therefore accurately predict the amount of costs it will have to incur in the operation of these and other future E commerce operations. Accordingly, if the Company's estimates of revenues and expenses are not correct, the Company may not have sufficient financing to fund all of the expenses it expects to incur, and any such shortfall may have a material adverse effect on the Company's liquidity and its financial results from operations. In addition, no assurance can be given that the new Internet operations will generate significant revenues in the future or that they will ever be profitable. Net cash provided by (used in) operating activities in the fiscal quarter ended March 31, 2000 $(1,331,000), as compared to ($112,000 in the same quarter is 1999 mainly reflects the net effects of an operating loss in operations, augmented by increases in accounts receivable , related party receivables,and an increase in prepaids offset by a decreases in inventory. and an increase in accounts payable and other liabilitiews. Net cash provided (used in) investing activities in the current quarter was $(274,000), principally representing inter-company activity. Net cash provided (used in) financing activities in the current quarter was $1,315,000 as compared to ($1,410,000) in last year's period, and mainly reflects a increase in the borrowing againtst asset-based line of credit. Item 2. Changes in Securities and use of Proceeds In January 1999, the Company sold $750,000 of its new 8% Convertible Preferred Stock (the "Preferred Stock") to two institutional investors register The holders of the Preferred Stock are entitled to receive dividends in cash at a rate of 8% per annum, compounded annually and payable semi-annually on the first day of July and January of each year, commencing on July 1, 1999. The Preferred Stock is convertible into shares of the Company's common stock at a conversion price equal to stated value of the Preferred Stock multiplied by the lower of (a) 125% of the closing sales price of the common stock on the date that the registration statement is declared effective, or (b) the average of the three lowest closing sales prices of the common stock for the 22 consecutive trading days immediately preceding the conversion date. The holders of the Preferred shares of the Preferred Stock until May 19, 1999, and thereafter, the holders can only convert 20% of the Preferred Stock during any subsequent 30-day period. The holders also may not convert the Preferred Stock if such conversion would result in any of the holders being deemed to be the beneficial owner of more than 5% of the then outstanding shares of common stock of the Company or if the shares of common stock, when added to the number of shares of common stock previously issued by the Company upon conversion of the Preferred Stock would equal or exceed 20% of the number of shares of common stock that were issued and outstanding on the date of the original issuance of the Preferred Stock. The Preferred Stock has not voting rights, other than as may be required pursuant to the laws of the State of California. In January, 2000 the holders of the preferred stock exercised their conversion rights, and converted 200 shares of preferred stock into 96,000 shares of the Company's common stock. . Item 3. Exhibits and Reports on Form 8-K (a) Ex 27 Financial Data Schedule (b) The Company did not file and reports on Form 8-K during the fiscal quarter ended March 31, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has dully caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PCC GROUP, INC. (Registrant) Date: May 10, 2000 /s/ JACK WEN Jack Wen Chairman of the Board, President and Chief Executive Officer Date: May 10, 2000 _______ /s/ DONALD JOHNSON ___ Donald Johnson Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer)