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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORTS UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended MARCH 31, 1996
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Commission file number 0-10735
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THE GNI GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 76-0232338
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 BATTLEGROUND ROAD, DEER PARK, TEXAS 77536
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(Address of principal executive offices) (Zip Code)
(713) 930-0350
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock,
$.01 par value, as of May 1, 1996 was 6,565,692.
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INDEX
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 1996 and June 30, 1995 1
Consolidated Statements of Operations
Three and Nine Months ended March 31,
1996 and March 31, 1995 2
Consolidated Statements of Cash Flows
Nine Months ended March 31, 1996 and
March 31, 1995 3
Notes to Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6-11
Part II - OTHER INFORMATION
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Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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THE GNI GROUP, INC. March 31, June 30,
1996 1995
ASSETS
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<S> <C> <C>
CURRENT ASSETS:
Cash and time deposits $ 325,864 $ 852,370
Accounts receivable, less allowance of approximately
$444,000 for 3/31/96 and $39,000 for 6/30/95 7,448,984 5,601,191
Federal income tax receivable 847,441 --
Inventory 640,864 86,388
Prepaid expenses and other assets 1,302,436 596,146
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TOTAL CURRENT ASSETS 10,565,589 7,136,095
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PROPERTY, PLANT AND EQUIPMENT 42,623,641 47,036,702
Less accumulated depreciation (10,617,128) (11,462,567)
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NET PROPERTY, PLANT AND EQUIPMENT 32,006,513 35,574,135
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Acquisition costs 4,429,490 --
Restricted time deposits 1,477,993 1,350,071
Other assets 1,161,124 2,018,575
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TOTAL ASSETS $ 49,640,709 $ 46,078,876
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 4,709,036 $ 1,865,210
Accrued liabilities 3,191,064 1,479,563
Federal income taxes payable 53,036 553,036
Notes payable 230,171 --
Current portion of long-term debt 2,495,652 2,620,652
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TOTAL CURRENT LIABILITIES 10,678,959 6,518,461
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Accrued liability 539,837 --
Long-term debt, less current portion 17,192,391 13,864,130
Deferred income taxes 237,891 1,278,639
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STOCKHOLDERS' EQUITY:
Non-redeemable convertible preferred stock, $.01 par value.
Authorized 1,000,000 shares; issued 0 shares at 3/31/96
and 234,375 shares at 6/30/95 ($937,500 involuntary -- 2,344
liquidation preference)
Common stock, $.01 par value.
Authorized 20,000,000 shares; issued 6,605,876 shares
at 3/31/96 and 6,130,126 shares at 6/30/95 66,059 61,300
Additional paid-in capital 19,251,048 19,225,461
Retained earnings 1,721,530 5,175,547
Less cost of treasury stock (40,184 shares) (47,006) (47,006)
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TOTAL STOCKHOLDERS' EQUITY 20,991,631 24,417,646
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,640,709 $ 46,078,876
================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
NOTE: The Balance Sheet at March 31, 1996 is unaudited. The Balance Sheet at
June 30, 1995 has been derived from the audited financial statements at that
date.
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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THE GNI GROUP, INC. Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES $ 9,943,422 $ 8,492,103 $ 28,672,455 $ 25,019,156
COST AND EXPENSES:
Cost of services 7,307,381 5,100,516 18,347,069 15,094,608
Selling, general and administrative 1,872,309 753,886 4,136,962 3,079,046
Depreciation and amortization 1,114,798 1,020,694 3,576,221 2,875,448
Asset impairment FASB No. 121 6,708,791 -- 6,708,791 --
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TOTAL COST AND EXPENSES 17,003,279 6,875,096 32,769,043 21,049,102
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OPERATING INCOME (LOSS) (7,059,857) 1,617,007 (4,096,588) 3,970,054
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Interest income 16,172 18,555 56,532 52,265
Interest expense 414,933 255,154 1,151,123 797,456
Other income (expense) (13,637) 72,249 48,664 67,073
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INCOME (LOSS) BEFORE TAX (7,472,255) 1,452,657 (5,142,515) 3,291,936
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Income tax (benefit) (2,542,400) 538,874 (1,688,500) 1,243,510
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NET INCOME (LOSS) $ (4,929,855) $ 913,783 $ (3,454,015) $ 2,048,426
================================================================================================================
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NET INCOME (LOSS) PER COMMON SHARE $ (.75) $ .14 $ (.53) $ .31
================================================================================================================
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SHARES USED TO CALCULATE E.P.S. 6,565,233 6,641,118 6,510,628 6,637,859
================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
2
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THE GNI GROUP, INC. Nine Months Ended
March 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
NET INCOME (LOSS) $ (3,454,015) $ 2,048,426
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 3,576,221 2,875,448
Impairment of Assets per FASB No. 121 6,708,791 --
Deferred taxes (1,040,748) 252,217
Loss (gain) on sale of asset (22,469) 4,615
Change in assets and liabilities, net of effects
of business acquired:
Increase in accounts receivable (1,847,793) (417,593)
Decrease (increase) in inventory (254,042) 440,217
Decrease (increase) in prepaid expenses and other (706,289) 270,271
Increase in other assets (1,158,201) (395,825)
Increase (decrease) in accounts payable 2,843,825 (266,094)
Increase (decrease) in accrued liabilities 1,166,338 (259,418)
Increase (decrease) in income taxes payable (430,000) 391,293
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,381,618 $ 4,943,557
================================================================================================================
Cash flows from investing activities:
Increase in restricted time deposits (127,922) (122,378)
Proceeds from sale of asset 26,326 17,991
Payment of cash in connection with business (193,132) (538,138)
acquisition, net of cash acquired
Purchases of fixed assets (5,263,829) (4,663,875)
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NET CASH USED IN INVESTING ACTIVITIES (5,558,557) (5,306,400)
================================================================================================================
Cash flows from financing activities:
Cash proceeds from notes payable 933,095 824,000
Net cash from exercise of stock options 28,000 --
Net proceeds from revolving line 1,350,000 1,000,000
Principal payments of long-term debt and notes payable (2,699,662) (1,662,303)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (388,567) 161,697
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NET DECREASE IN CASH AND CASH EQUIVALENTS (565,506) (201,146)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 852,370 682,891
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 325,864 $ 481,745
================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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THE GNI GROUP, INC. March 31, 1996
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SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly-owned. All significant intercompany
transactions are eliminated.
The Consolidated Balance Sheet as of March 31, 1996 and the related
Statements of Operations for the three and nine month periods ended March 31,
1996 and 1995, and Statements of Cash Flows for the nine month period ended
March 31, 1996 and 1995 are unaudited; in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have
been included. Such adjustments consisted of normal, recurring items. Interim
results are not necessarily indicative of results for a full year. The
financial statements and Notes are presented as permitted by Form 10-Q and do
not contain certain information included in the Company's Annual Financial
Statements and Notes.
Statement of Cash Flows
For purposes of reporting cash flows, cash and time deposits include cash
on hand and certificates of deposit.
Earnings Per Share
The average number of common and dilutive equivalent common shares for 1995
includes the weighted average number of common shares outstanding, shares
issuable assuming conversion of the non-redeemable convertible preferred stock
and shares issuable pursuant to the assumed exercise of stock options (by
application of the treasury stock method). Primary and fully diluted earnings
per share are equivalent due to the insignificance of other dilutive
securities. Stock options were not included in the loss per share computation
for 1996 as their effect was anti-dilutive due to the loss recorded.
Adoption of FASB No. 121
Effective January 1, 1996, the Company adopted FASB No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." FASB No. 121 requires that an impairment loss be recognized
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. As a result of the adoption of FASB No.
121, the Company recognized a non-cash pre-tax charge against earnings of $6.7
million.
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Income Taxes
The provision for income taxes related to continuing operations in the
consolidated statements of operations is summarized below (unaudited):
<TABLE>
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Nine Months Ended
March 31, 1996
<S> <C>
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Provision:
Federal-Current $ (717,752)
State-Current (1,040,748)
Federal/State-Deferred 70,000
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Total $ (1,688,500)
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The significant components of deferred income tax expense for the nine months ended March 31, 1996 are as follows:
Deferred tax benefit (exclusive of the effect of the component
listed below) $ (1,040,748)
Increase in beginning-of-the-year balance of the valuation allowance for
deferred tax assets --
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Total deferred tax benefit $ (1,040,748)
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The tax effects of temporary timing differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at March 31, 1996 are presented below:
Deferred tax assets:
Amounts deductible when paid $ 752,454
Accounts receivable, principally due to allowance for doubtful accounts 164,070
Compensated balances, principally due to accrual for financial
reporting purposes 79,101
Alternative minimum tax credit carryforward 1,040,805
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Total deferred tax assets $ 2,036,430
Less valuation allowance (20,000)
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Net deferred tax assets $ 2,016,430
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Deferred tax liabilities:
Facility and equipment, principally due to differences in depreciation,
capitalized interest, and the adoption of FASB No. 121 $ 2,254,321
Other --
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Total deferred tax liabilities $ 2,254,321
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Net deferred tax liability $ 237,891
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</TABLE>
5
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MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-
FISCAL 1996 THIRD QUARTER COMPARED WITH FISCAL 1995 THIRD QUARTER
Revenues. Revenues for the third quarter of fiscal 1996 were $9,943,422 as
compared to $8,492,103 for the comparable period of fiscal 1995, an increase of
$1,451,320, or 17%. This increase in revenues was primarily attributable to an
increase in revenues from the Company's chemical manufacturing and processing
subsidiary, GNI Chemicals Corporation ("GNIC"), of approximately $720,000, or
20%, as compared to the third quarter of fiscal 1995. The Company's GNIC
revenues for the fiscal 1996 period were approximately $4,375,000 as compared
to $3,655,000 for the fiscal 1995 period. This increase is the result of an
increase in specialty chemical sales offset by a decrease in chemical
manufacturing and processing revenues. Specialty chemical sales benefitted
from the Company's recent acquisition of E.I. du Pont de Nemours & Company's
("DuPont") refined acetonitrile business, which was completed in the second
quarter of fiscal 1996, and therefore did not contribute to GNIC's revenues
during the third quarter fiscal 1995. GNIC's manufacturing and processing
revenues were moderately lower than the comparable fiscal 1995 period due to
capacity allocated to a large customer that was unexpectedly not utilized. In
addition, revenues from the Company's treatment and disposal subsidiaries
increased by approximately $565,000, or 15%, from the fiscal 1995 third quarter
compared to the fiscal 1996 third quarter. Revenues from the fiscal 1996
period as compared with the fiscal 1995 period, benefitted from increased
disposal volumes for the Company's deepwells due primarily to the acquisition
of the Company's treatment, storage and disposal facility located in Corpus
Christi, Texas. Volumes at the Company's Deer Park, Texas deepwells were
somewhat negatively impacted by the lack of rainfall during the fiscal 1996
period in the region. The overall higher level of treatment and disposal
activity in the third quarter of fiscal 1996 as compared with the comparable
period in fiscal 1995 contributed to an increase of approximately $165,000, or
17%, in the Company's transportation revenues.
Cost of Services. Cost of services increased as a percent of revenues from
60.1% during the third quarter of fiscal 1995 to 73.5% for the third quarter of
fiscal 1996. In absolute dollar terms, cost of services increased by
approximately $2,207,000 in support of approximately $1,451,000 of additional
revenues. This increase is primarily the result of a number of one-time
charges and expenses incurred by the Company during the fiscal 1996 third
quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses as a percent of revenues were 18.8% and 8.9%,
respectively, for the third quarter of fiscal 1996 and fiscal 1995. In
absolute dollars, SG&A expenses were approximately $1,118,000 higher in the
fiscal 1996 period compared with the fiscal 1995 period. The increased level
of SG&A expenses in the fiscal 1996 third quarter as compared with the
comparable period in fiscal 1995 is primarily a result of: (i) the effect of an
increase resulting from a number of one-time charges and expenses incurred
during the fiscal 1996 third quarter, and (ii) the effect of a
6
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decrease in the fiscal 1995 third quarter due to the reversal of provisions
which were made during the previous quarter of fiscal 1995 for
performance-based compensation expenses when the performance targets were not
met.
Depreciation and Amortization Expenses. Depreciation and Amortization
(D&A) expenses decreased as a percent of revenues from 12.0% in the third
quarter of fiscal 1995 to 11.2% in the third quarter of fiscal 1996. D&A
expenses for the third quarter of fiscal 1996 increased by 9.2% in absolute
dollar terms compared to the third quarter of fiscal 1995 due primarily to
capital improvements to its facilities primarily during fiscal 1996 and two
acquisitions made by the Company.
FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Effective January 1, 1996, the Company
adopted FASB No. 121 which requires that an impairment loss be recognized
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. As a result of the adoption of FASB No.
121, the Company recognized a non-cash pre-tax charge against earnings of $6.7
million.
Net Interest Expense. Net interest expense increased in the fiscal 1996
third quarter as compared with the fiscal 1995 third quarter. This increase
was primarily attributable to higher principal balances on the Company's
indebtedness and a higher rate of interest on that indebted-ness during the
fiscal 1996 period. The increased level of indebtedness was associated with
(i) capital improvements made by the Company to its facilities during fiscal
1996, and (ii) acquisitions of the Corpus Christi, Texas treatment, storage and
disposal facility, and a specialty chemical product business.
Net Income (Loss). The Company had a net loss of $4,929,855, or a loss of
$.75 per share, for the third quarter of fiscal 1996 compared with net income
of $913,783, or $.14 per share, for the third quarter of fiscal 1995. The
Company's adoption of FASB No. 121 impacted the net loss figure for the fiscal
1996 third quarter by approximately $4.4 million after-tax or approximately
$.68 per share.
FISCAL 1996 NINE MONTHS COMPARED TO FISCAL 1995 NINE MONTHS
Revenues. Revenues for the first nine months of fiscal 1996 were
$28,672,455 as compared to $25,019,156 for the comparable period of fiscal
1995, an increase of $3,653,299, or 15%. This increase in revenues was
primarily attributable to an increase in revenues from the Company's GNIC
operation of approximately $3,220,000, or 34%, as compared with the first nine
months of fiscal 1995. The Company's GNIC revenues for the fiscal 1996 period
were approximately $12,730,000 as compared to $9,510,000 for the fiscal 1995
period. This increase was primarily attributable to (i) the Company's
acquisition of DuPont's refined acetonitrile business at the midway point of
the fiscal 1996 period and therefore did not contribute to GNIC's revenues
during the fiscal 1995 period, and (ii) GNIC's manufacturing and processing
revenues increasing moderately in the fiscal 1996 period as compared with the
fiscal 1995 period. In
7
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addition, revenues from the Company's treatment and disposal subsidiaries
increased by approximately $245,000, or 2%, from the fiscal 1995 period to the
fiscal 1996 period. Revenues from the fiscal 1996 period included some
seasonal softness in the month of December not present in the fiscal 1995
period. Also, volumes at the Deer Park, Texas facility were somewhat
negatively impacted by the lack of rainfall in the region during the last
one-third of the fiscal 1996 period. Transportation revenues increased
slightly during the first nine months of fiscal 1996 period as compared with
the first nine months of fiscal 1995, an increase of approximately $190,000, or
6%.
Cost of Services. Cost of services increased as a percent of revenues from
60.3% during the first nine months of fiscal 1995 to 64.0% for the first nine
months of fiscal 1996. In absolute dollar terms, cost of services increased by
approximately $3,252,000 in support of approximately $3,653,000 of additional
revenues. This increase is primarily the result of a number of one-time
charges and expenses incurred by the Company during the last one-third of the
fiscal 1996 period.
Selling, General and Administrative Expenses. SG&A expenses as a percent
of revenues were 12.3% and 14.4% of revenues, respectively, for the first nine
months of fiscal 1995 and fiscal 1996. In absolute dollars, SG&A expenses were
approximately $1,058,000 higher in the fiscal 1996 period compared with the
fiscal 1995 period. The increased level of SG&A expenses in the first nine
months of fiscal 1996 as compared with the first nine months of fiscal 1995 is
primarily a result of a number of one-time charges and expenses incurred during
the last one-third of the fiscal 1996 period.
Depreciation and Amortization Expenses. D&A expenses increased as a
percent of revenues from 11.5% in the first nine months of fiscal 1995 to 12.5%
in the first nine months of fiscal 1996. D&A expenses for the first nine
months of fiscal 1996 increased by 24.4% in absolute dollar terms compared to
the first nine months of fiscal 1995 due primarily to capital improvements to
its facilities primarily during fiscal 1996 and two acquisitions made by the
Company.
FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Effective January 1, 1996, the Company
adopted FASB No. 121 which requires that an impairment loss be recognized
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. As a result of the adoption of FASB No.
121, the Company recognized a non-cash pre-tax charge against earnings of $6.7
million.
Net Interest Expense. Net interest expense increased for the first nine
months of fiscal 1996 compared to the first nine months of fiscal 1995. This
increase was primarily attributable to higher principal balances on the
Company's indebtedness and a higher rate of interest on that indebtedness
during the fiscal 1996 period. The increased level of indebtedness was
associated with (i) capital improvements made by the Company to its facilities
during fiscal 1996, and (ii) acquisitions of the Corpus Christi, Texas
treatment, storage and disposal facility, and a specialty chemical product
business.
8
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Net Income (Loss). The Company had a net loss of $3,454,015, or a loss of
$.53 per share, for the first nine months of fiscal 1996 compared with net
income of $2,048,426, or $.31 per share, for the first nine months of fiscal
1995. The Company's adoption of FASB No. 121 impacted the net loss figure for
the fiscal 1996 period by approximately $4.4 million after-tax or approximately
$.68 per share.
Inflation did not have a material impact on the Company's revenues or
income for either the fiscal 1996 or 1995 periods. Further, it is not expected
that inflation will have a material impact during the upcoming quarters for
either the Company's revenues or income.
LIQUIDITY AND CAPITAL RESOURCES
The Company continuously evaluates opportunities for growth and
development. Management expects that future revenue growth will be dependent
upon a corresponding increase in the fixed assets of and working capital used
by the Company. Historically, the Company has financed its growth through
funds generated from operations, borrowings under various credit arrangements
with a commercial bank, and the private placements of shares of Common Stock
and Series A Preferred Stock. As of March 26, 1993, the Company effected the
public offering of 1,214,000 shares of common stock at a price of $8.25 per
share, resulting in proceeds of approximately $9.5 million before the deduction
of offering costs. The proceeds were used to construct certain additions to
the Company's GNIC facility, to reduce indebtedness, and for general corporate
purposes. Management believes that the Company's existing cash balances, funds
generated from operations, and borrowings under available credit arrangements
will be sufficient to meet the Company's current capital requirements. In
order to finance the future growth and development of the Company, the Company
will require, and from time to time evaluates alternative sources of,
additional capital.
Effective as of June 30, 1993, the Company amended and restated its credit
agreement ("Credit Agreement") with a commercial bank to provide for the
addition of an $8,000,000 advancing equipment line of credit ("Equipment
Line"). The Credit Agreement includes a $6,621,520 term loan ("Term Loan") and
a $4,000,000 revolving credit line ("Revolver"). The credit facility is
collateralized by substantially all of the assets of the Company and its
subsidiaries, including the stock of its subsidiaries.
The Credit Agreement restricts the Company from incurring additional
indebtedness, prohibits the Company from making any changes to its capital
structure or dividend payments without prior approval of the bank, requires the
maintenance of minimum working capital, minimum tangible net worth, and maximum
debt-to-tangible net worth and debt coverage ratios, and contains other
provisions and restrictive covenants that management believes are customary.
The Equipment Line has been utilized to fund capital expenditures of the
Company. Effective as of October 1, 1994, the Equipment Line bears an interest
rate of either 0.25% above the bank's prime rate of interest or 2.25% above
LIBOR, at the Company's election. The Equipment Line had a two year advancing
period through October 31, 1995. As provided for in the Credit
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<PAGE> 12
Agreement, on October 31, 1994 funds advanced over the previous 12 months
converted to a four-year term loan. Upon its conversion to a term loan,
quarterly principal payments of $250,000 plus interest are required, with a
balloon at maturity. At the time of conversion and thereafter, the Company has
the option to fix the interest rate. As of March 31, 1996, the unpaid
principal balance outstanding on the Equipment Line was $6,500,000.
The Term Loan represents borrowings which were originally used by the
Company to finance the construction of the Company's GNIC facility, which was
completed in the first quarter of fiscal 1991. The Term Loan bears interest at
a fixed rate of 8.44%, matures December 1, 1998 and requires quarterly
principal payments of $173,913. The unpaid principal balance of the Term Loan
totalled $1,913,044 at March 31, 1996.
Effective as of March 3, 1995, the bank and the Company amended the Credit
Agreement to provide an additional $2,000,000 in term debt ("Acquisition Line")
that was used for the acquisition of Chemical Waste Management, Inc.'s ("CWM")
waste treatment, storage and disposal facility located in Corpus Christi,
Texas. The Acquisition Line has a five-year maturity and bears an interest
rate of either 0.25% above the bank's prime rate of interest or 2.25% above
LIBOR, at the Company's election. Quarterly principal payments of $200,000
plus interest are required for the first year, then quarterly payments of
$75,000 plus interest are required until maturity. As of March 31, 1996, the
unpaid principal balance outstanding on the Acquisition Line was $1,200,000.
In connection with the acquisition of its Corpus Christi, Texas facility,
CWM took back a note in the principal amount of $2,000,000 as part of the
consideration ("CWM Note"). The CWM Note has a maturity of five years and
bears interest at the rate of 10% per year. The first year of the CWM Note is
interest-only; thereafter, quarterly principal payments of $125,000 plus
accrued interest are required until maturity. As of March 31, 1996, the unpaid
principal balance outstanding on the CWM Note was $1,875,000.
Effective as of November 3, 1995, the bank and the Company amended the
Credit Agreement (i) to extend the maturity date of the Revolver to October 31,
1997 and (ii) to increase the total commitment amount of the Revolver from
$4,000,000 to $10,000,000. The Revolver is used by the Company for working
capital and other general corporate purposes. The amount drawn under the
Revolver may not exceed a borrowing base limitation equal to the sum of (a) 80%
of the Company's consolidated accounts receivable plus (b) the lesser of 50% of
the Company's finished product inventory, or $500,000; plus (c) the flat amount
of $3,250,000 until April 30, 1996 when such amount is reduced to $3,050,000
and then reduced to $0 beginning July 31, 1996 and thereafter. Effective as of
October 31, 1994, advances under the Revolver bear interest at either the
bank's prime rate of interest or 2.0% above LIBOR, at the Company's election.
As of March 31, 1996, the Company has an unpaid principal balance outstanding
on the Revolver of $8,200,000.
10
<PAGE> 13
For the first nine months of fiscal 1996 and fiscal 1995, net cash provided
by operations was approximately $5,382,000 and $4,944,000, respectively. The
significant differences in the components that comprise net cash provided by
operations were: (i) a net loss during the first nine months of fiscal 1996
compared to net income for the first nine months of fiscal 1995, (ii) the
charges associated with the adoption of FASB No. 121 in the fiscal 1996 period,
(iii) a decrease in deferred taxes for the fiscal 1996 period compared with an
increase for the fiscal 1995 period, (iv) a larger increase in accounts
receivable in the fiscal 1996 period compared with the fiscal 1995 period, (v)
an increase in prepaid expenses and other in the fiscal 1996 period compared
with a decrease in fiscal 1995, (vi) an increase in accounts payable during the
first nine months of fiscal 1996 compared with a decrease in fiscal 1995, and
(vii) an increase in accrued liabilities during the first nine months of fiscal
1996 compared with a decrease in fiscal 1995. Items (i), (ii), (iii), and
(vii) stem from the Company's adoption of FASB No. 121 in that it generated a
net loss for the period, reduced deferred taxes, and increased accrued
liabilities. The higher level of accounts receivable, Item (iv), in the fiscal
1996 period compared with fiscal 1995 is a result of the higher level of
revenues generated during the fiscal 1996 period. The increase in the
Company's prepaid expenses and other, Item (v), during the fiscal 1996 period
was substantially the result of a receivable associated with an insurance claim
in the process of being paid and the remaining balance on the Company's various
prepaid insurance coverages which renew each July 1st. And finally, the
increase in accounts payable, Item (vi), during the first nine months of fiscal
1996 was associated with the both increased level of capital expenditures made
and the increased level of revenues generated by the Company during the fiscal
1996 period as compared with the fiscal 1995 period.
During the first nine months of fiscal 1996 and fiscal 1995, the Company's
capital expenditures were approximately $5,264,000 and $4,664,000,
respectively. Capital expenditures for fixed assets during the first nine
months of fiscal 1996 were primarily related to general improvements and
additions to the Company's GNIC facility and general improvements to its
treatment and disposal facilities. Capital expenditures for fixed assets
during the fiscal 1995 period primarily consisted of the expansion of the
Company's GNIC and treatment and disposal facilities.
Cash decreased by approximately $527,000, primarily the result of capital
expenditures made by the Company during the fiscal 1996 period. Accounts
receivable increased by approximately $1,848,000 during the first nine months
of fiscal 1996, primarily as a result of higher revenues during the fiscal 1996
period. As a result of the Company's adoption of FASB No. 121, (i) federal
income taxes receivable increased by approximately $847,000, (ii) net fixed
assets decreased by approximately $3,568,000, (iii) current accrued liabilities
increased by approximately $1,712,000, (iv) federal income taxes payable
decreased by approximately $500,000, (v) long-term accrued liability increased
by approximately $540,000, and (vi) deferred taxes decreased by approximately
$1,040,000. Inventory increased by approximately $554,000, primarily the
result of inventory associated with the Company's acquisition of DuPont's
refined acetonitrile business. Prepaid expenses and other current assets and
Notes Payable increased by approximately $706,000 and $230,000, respectively,
during the first nine months of fiscal 1996, primarily as a result of the
renewal of the Company's various annual insurance coverages during
11
<PAGE> 14
the fiscal 1996 period. Acquisition costs increased by approximately
$4,429,000 primarily as a result of the DuPont acquisition. Accounts payable
increased by approximately $2,844,000, primarily the result of the increased
level of capital expenditures made and the increased level of revenues
generated by the Company during the fiscal 1996 period. Long-term debt, less
current portion increased by approximately $3,328,000, primarily the result of
the Company's acquisition of the refined acetonitrile business from DuPont.
DIVIDEND POLICY
The Company does not pay any cash dividends on its common stock and does
not have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
12
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) On January 29, 1996, the Company filed Amendment No. 1 to its
Current Report on Form 8-K, dated November 28, 1995,
containing financial information required under Item 7.
(Financial Statements and Exhibits) in respect to the
acquisition by the Company of the refined acetonitrile
business from E.I. du Pont de Nemours & Company.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE GNI GROUP, INC.
Date: May 13, 1996 /s/ Carl V Rush, Jr.
---------------------------- -------------------------------------
Carl V Rush, Jr.
President and CEO
Date: May 13, 1996 /s/ Donna L. Ratliff
---------------------------- -------------------------------------
Donna L. Ratliff
Treasurer
(Principal Accounting Officer)
14
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Numbered Page
------- -------------
<S> <C> <C>
2.1 Amendment No. 1 to the Company's Current Report on
Form 8-K, dated November 28, 1995, containing
financial information required under Item 7.
(Financial Statements and Exhibits) in respect to the
acquisition by the Company of the refined
acetonitrile business from E.I. du Pont de Nemours &
Company was filed by the Company on January 29, 1996
and is hereby incorporated by reference.
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 325,864
<SECURITIES> 0
<RECEIVABLES> 7,448,984
<ALLOWANCES> 444,000
<INVENTORY> 640,864
<CURRENT-ASSETS> 10,565,589
<PP&E> 42,623,641
<DEPRECIATION> 10,617,128
<TOTAL-ASSETS> 49,640,709
<CURRENT-LIABILITIES> 10,678,959
<BONDS> 0
<COMMON> 66,059
0
0
<OTHER-SE> 20,925,572
<TOTAL-LIABILITY-AND-EQUITY> 49,640,709
<SALES> 28,672,455
<TOTAL-REVENUES> 28,672,455
<CGS> 18,347,069
<TOTAL-COSTS> 18,347,069
<OTHER-EXPENSES> 14,421,974
<LOSS-PROVISION> 446,000
<INTEREST-EXPENSE> 1,151,123
<INCOME-PRETAX> (5,142,515)
<INCOME-TAX> (1,688,500)
<INCOME-CONTINUING> (3,454,015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,454,015)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
