Second Quarter 10-Q Filing - Analysis
NET SALES
During the quarter ended on March 31, 1999 net sales decreased by 12% from $19.7 million in 1998 to $17.4 million in 1998.
www.123cdc.com/fiasco
The Company notably failed to disclose the sales volume and number of hits produced by its new internet business. Non disclosure sends an early warning signal regarding the prospects of PCCG's entry into cyberspace.
On a press release dated March 29, 1999, Jack Wen, the Company's CEO, made the following statement "We are very encouraged by the number of hits and number of orders per day that www.123cdc.com has been receiving even though we have, to date, engaged in virtually no promotional activity for the site," On its latest press release commenting on the second quarter results, dated May 19, 1999, the Company's Marketing Director stated "We've been very encouraged by the large number of daily impressions and, more importantly, the number of orders that www.123cdc.com has been receiving even though we've just begun promotional activity for the site". Where is the beef? These deceitful statements, without any type of valid support, clearly epitomize the modus operandi of this Chinese controlled and managed company.
OPERATING INCOME
Income from operations significantly decreased from $560,000 for the quarter ended on March 31, 1998, to $(48,000) in the similar 1999 period.
STOCK PRICE
As of May 27, 1999, the value of PCCG's stock had plummeted from its $8.44 high at the beginning of 1999 to $4.50. A 47% decrease. The sell-off has begun.
COOKED BOOKS
The Company announced that the Note Receivable from a Related Party for $1,250,000 had been settled. However, the following analysis reflects that Notes Receivable from Related Parties solely decreased by $771,000, while Advances to Vendors and a new balance sheet item, Other Assets, suspiciously increased by $364,000 and $194,000. Thus, it appears that through creative maneuvers and bookkeeping manipulation, matters remain largely unchanged.
In thousands
Receivables from related parties
3/31/99 - $771
9/30/98 - $1,548
Advances to vendors
3/31/99 - $3,398
9/30/98 - $3,034
Other assets
3/31/99 - $203
9/30/98 - $9
Total
3/31/99 - $4,372
9/30/98 - $4,591
PHANTOM ASSETS
Fifty four percent of the Company's total assets can be classified as "phantom assets". Breakdown follows:
1. Notes Receivable Related Parties - This item simply represents a transfer of assets to members of the Wen family and/or a business owned by a family member. It is highly questionable whether these monies will ever be reimbursed to the Company.
2. Advances to Vendors - In its latest 10-K filing, the Company's auditors disclosed that PCCG had advanced $3 million to vendors for "the purchase of certain customized equipment". The Company has not provided any information on this significant balance sheet item. Although PCCG has announced that it is no longer involved in tire recycling activities, could these advances be for recycling equipment? This item is very puzzling because 90% of PCCG's core business purchases are made and financed through Western Digital.
Lack of disclosure appears to indicate the use of corporate resources in questionable activities including (a) The possible transfer of assets and profits to phantom offshore vendors, and/or (b) Continued involvement in the development of tire recycling plants located in China and Taiwan, through fictitious or related party owned foreign corporations.
3. Notes Receivable - Dalian Divestiture. The Company has tacitly admitted that the divestiture of its $3.2 million recycling plant represents a sham by choosing not to provide appropriate transaction information. Briefly, in order to avoid NASDAQ de-listing resulting from the write-off of its five years old non-operating plant, PCCG apparently conceived a shrewd scheme whereby the Chinese facility was sold, in a cashless transaction, to an unidentified party. The investment write-off would have reduced the Company's equity under the $3 million threshold required for NASDAQ small-cap listing. It is quite obvious that this Note Receivable should be considered as uncollectable debt.
Finally, the assets of wholesale distributors are normally concentrated in three balance sheet accounts: cash, accounts receivable and inventory. Thus, resources in the aggregate of $7,189,000 (Cash, A/R Related Parties, Vendor Advances, Note Receivable Dalian Divestiture and Other Assets) are not being utilized to fund the launching of the Company's web site business.
Prospective investors are advised to proceed with extreme caution. For detailed information on this company refer to the Red Flag posting appearing on this Bulletin Board. |
