<PAGE> 1
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 Quarter Ended SEPTEMBER 30, 1997
Commission file number 0-10735
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)
(281) 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 ___
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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's common stock, $.01
par value per share, as of November 1, 1997 was 6,634,525.
<PAGE> 2
INDEX
THE GNI GROUP, INC.
Page
PART I - FINANCIAL INFORMATION Number
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 1
Consolidated Statements of Operations
Three Months ended September 30, 1997
and September 30, 1996 2
Consolidated Statements of Cash Flows
Three Months ended September 30, 1997
and September 30, 1996 3
Notes to Consolidated Financial
Statements 4-5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6-10
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE> 3
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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THE GNI GROUP, INC.
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
ASSETS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and time deposits $ 491,824 $ 807,387
Accounts receivable, less allowance of approximately $54,000
for 9/30/97 and $46,000 for 6/30/97 7,126,250 6,449,885
Inventory 417,596 524,436
Federal tax receivable 930,470 930,470
Prepaid expenses and other assets 3,651,254 2,676,172
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,617,394 11,388,350
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PROPERTY, PLANT AND EQUIPMENT 50,772,464 48,768,095
Less accumulated depreciation (16,651,269) (15,473,844)
- ----------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 34,121,195 33,294,251
- ----------------------------------------------------------------------------------------------------------------
Restricted time deposits 1,397,199 1,386,699
Intangible assets, net 19,388,073 19,788,457
Other assets 3,040,184 2,730,447
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 70,564,045 $ 68,588,204
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,168,192 $ 2,253,663
Accrued liabilities 3,533,075 2,981,203
Federal income taxes payable 310,445 ---
Notes payable 572,036 ---
Current portion of long-term debt 2,495,652 2,495,652
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 10,079,400 7,730,518
- ----------------------------------------------------------------------------------------------------------------
Accrued liability 3,233,635 3,724,674
Long-term debt, less current portion 30,875,738 31,444,724
Deferred income taxes 797,155 800,000
- ----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Non-redeemable convertible preferred stock, $.01 par value. Authorized
1,000,000 shares; issued 0 shares. --- ---
Common stock, $.01 par value.
Authorized 20,000,000 shares; issued 6,674,709 shares
at 9/30/97 and 6,654,709 at 6/30/97 66,747 66,547
Additional paid-in capital 21,156,898 21,052,098
Retained earnings 4,401,478 3,816,649
Less cost of treasury stock (40,184 shares) (47,006) (47,006)
- ----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,578,117 24,888,288
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,564,045 $ 68,588,204
================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
NOTE: The Balance Sheet at September 30, 1997 is unaudited. The Balance Sheet at
June 30, 1997 has been derived from the audited financial statements at that
date.
1
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
THE GNI GROUP, INC. Three Months Ended
September 30,
1997 1996
- -------------------------------------------------------------------------------
REVENUES $ 10,917,257 $ 9,959,627
COST AND EXPENSES:
Cost of services 6,145,858 5,701,841
Selling, general and administrative 1,245,998 1,116,594
Depreciation and amortization 1,728,768 1,235,668
- -------------------------------------------------------------------------------
TOTAL COST AND EXPENSES 9,120,624 8,054,103
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OPERATING INCOME 1,796,633 1,905,524
- -------------------------------------------------------------------------------
Interest income 26,323 22,433
Interest expense 985,541 370,973
Other income (expense) 104,015 (3,772)
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INCOME BEFORE TAX 941,430 1,553,212
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Income tax 356,600 566,200
- -------------------------------------------------------------------------------
NET INCOME $ 584,830 $ 987,012
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- -------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ .08 $ .15
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES USED TO CALCULATE EARNINGS PER SHARE 7,241,923 6,752,098
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements are an integral part of these
statements.
2
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
NET INCOME $ 584,830 $ 987,012
Adjustments to reconcile income to net cash provided
by operating activities:
Depreciation and amortization 1,728,768 1,235,668
Deferred taxes (2,845) 214,019
Gain on sale of assets (4,500) (7,683)
Change in assets and liabilities:
Decrease (increase) in accounts receivable (676,366) 185,359
Decrease (increase) in inventory 106,840 (109,893)
Increase in prepaid expenses and other (975,081) (591,186)
Increase in other assets (445,695) (139,831)
Increase (decrease) in accounts payable 912,288 (129,511)
Increase (decrease) in accrued liabilities 60,833 (296,923)
Increase (decrease) in federal income taxes payable 310,445 (172,819)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,599,517 1,174,212
=======================================================================================================
Cash flows from investing activities:
Increase in restricted time deposits (10,500) (99,309)
Payment of cash in connection with
EMPAK transaction --- (12,000,000)
Proceeds from sale of assets 4,500 15,700
Purchases of fixed assets (2,019,369) (737,264)
- -------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,025,369) (12,820,873)
=======================================================================================================
Cash flows from financing activities:
Cash proceeds from notes payable 920,782 852,144
Net cash from exercise of stock options 105,000 13,332
Proceeds from issuance of long-term debt --- 12,000,000
Principal payments of long-term debt and notes payable (917,733) (1,894,600)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 108,049 10,970,876
=======================================================================================================
NET DECREASE IN CASH AND CASH EQUIVALENTS (317,803) (675,785)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 807,387 1,122,941
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 489,584 $ 447,156
=======================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
3
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
THE GNI GROUP, INC. September 30, 1997
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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 September 30, 1997 and the related
Statements of Operations and Cash Flows for the three month periods ended
September 30, 1997 and 1996 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 common equivalent shares 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.
4
<PAGE> 7
Income Taxes
The provision for income taxes related to continuing operations in the
consolidated statements of operations is summarized below (unaudited):
Three Months Ended
September 30, 1997
- -------------------------------------------------------------------------------
Provision:
Federal-Current $ 307,600
Federal-Deferred ---
State 49,000
- -------------------------------------------------------------------------------
Total $ 356,600
- -------------------------------------------------------------------------------
The significant components of deferred income tax expense for the three
months ended September 30, 1997 are as follows:
Deferred tax expense (exclusive of the effect of the component
listed below) $ ---
Increase in beginning-of-the-year balance of the valuation
allowance for deferred tax assets ---
- -------------------------------------------------------------------------------
Total deferred tax provision $ ---
- -------------------------------------------------------------------------------
The tax effects of temporary timing differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997 are presented below:
Deferred tax assets:
Amounts deductible when paid $ 465,871
Accounts receivable, principally due to allowance for
doubtful accounts 20,053
Compensated balances, principally due to accrual for financial
reporting purposes 119,361
Alternative minimum tax credit carryforward 1,021,850
- --------------------------------------------------------------------------------
Total deferred tax assets $ 1,627,135
Less valuation allowance (20,000)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 1,607,135
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Facility and equipment, principally due to differences in
depreciation and capitalized interest $ 2,404,290
Other ---
- --------------------------------------------------------------------------------
Total deferred tax liabilities $ 2,404,290
- --------------------------------------------------------------------------------
Net deferred tax liability $ 797,155
- --------------------------------------------------------------------------------
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS-
FISCAL 1998 FIRST QUARTER COMPARED WITH FISCAL 1997 FIRST QUARTER
Revenues. Revenues for the first quarter of fiscal 1998 were $10,917,257 as
compared to $9,959,627 for the comparable period of fiscal 1997, an increase of
$957,630, or 9.6%. This increase was primarily attributable to (i) an increase
in revenues from the Company's treatment and disposal operation, off-set by (ii)
a decrease in chemical manufacturing and processing revenues. Revenues from the
Company's treatment and disposal operations increased by approximately
$1,740,000, or 44.3%, from the fiscal 1997 first quarter compared to the fiscal
1998 first quarter. Revenues from the fiscal 1998 period benefitted from
increased deepwell disposal volumes resulting from the Company's consolidation
transaction with EMPAK Inc. ("EMPAK"), which closed on September 30, 1996,
whereby EMPAK exited the third-party commercial deepwell disposal business and
agreed to assist in the transfer of EMPAK's third-party commercial deepwell
customers to the Company. Transportation revenues also increased in the first
quarter of fiscal 1998 as compared with the comparable period in fiscal 1997, an
increase of approximately $192,000, or 17.6%. This increase in transportation
revenues was primarily attributable to the increase in deepwell disposal volumes
during the fiscal 1998 period.
Revenues from the Company's chemical manufacturing and processing
subsidiary, GNI Chemicals Corporation ("GNIC"), decreased by approximately
$975,000, or 19.7%, in the first quarter of fiscal 1998 as compared to the
fiscal 1997 period. The Company's GNIC revenues for the fiscal 1998 period were
approximately $3,970,000 as compared to $4,945,000 for the fiscal 1997 period,
primarily the result of lower chemical manufacturing and processing revenues
compared with the first quarter of fiscal 1997. Specialty chemical sales in the
fiscal 1998 period were roughly the same as in last year's period. However,
GNIC's custom manufacturing and processing revenues were approximately $1
million higher than in the previous quarter (the fourth quarter of fiscal 1997).
The fluctuation in GNIC's quarterly revenues is primarily due to customer
decisions related to timing of projects. Therefore, GNIC's custom manufacturing
and processing revenues may vary from quarter to quarter. GNIC's strategy is to
foster long-term relationships in its manufacturing and processing business,
thereby minimizing the quarter to quarter effects of customer timing decisions.
Cost of Services. Cost of services decreased as a percent of revenues from
57.2% during the first quarter of fiscal 1997 to 56.3% for the first quarter of
fiscal 1998. In absolute dollar terms, cost of services increased by
approximately $444,000 in support of approximately $958,000 of additional
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses as a percent of revenues were 11.2% and 11.4%,
respectively, for the first quarter of fiscal 1997 and fiscal 1998. SG&A
expenses for the first quarter of fiscal 1998 increased by 11.6% in absolute
dollar terms compared to the first quarter of fiscal 1997.
6
<PAGE> 9
Depreciation and Amortization. Depreciation and Amortization ("D&A")
expenses increased as a percent of revenues, from 12.4% in the first quarter of
fiscal 1997 to 15.8% in the first quarter of fiscal 1998. D&A expenses for the
first quarter of fiscal 1998 increased by 39.9% in absolute dollar terms
compared to the first quarter of fiscal 1997 due primarily to (i) the additional
D&A expenses resulting from the capital improvements made by the Company to its
facilities during fiscal 1997, and (ii) the additional D&A expenses associated
with the Company's consolidation transaction with EMPAK which were not present
in the fiscal 1997 period.
Net Interest Expense. Net interest expense increased in the fiscal 1998
first quarter as compared with the fiscal 1997 first quarter. 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 1998 period. The increased level of indebtedness was associated with (i)
capital improvements made by the Company to its facilities during fiscal 1997,
and (ii) the debt associated with the Company's recent EMPAK consolidation. The
rate of interest was higher in the fiscal 1998 period as compared with the
fiscal 1997 period primarily as a result of the Senior Subordinated Notes
placement as of December 31, 1996 bearing interest at the annual rate of 12.00%.
Net Income. The Company recorded net income of $584,830, or $.08 per share,
for the first quarter of fiscal 1998 compared to net income of $987,012, or $.15
per share, for the first quarter of fiscal 1997.
Inflation did not have a material impact on the Company's revenues or income
for either the first quarter of fiscal 1998 or fiscal 1997. 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 December 31, 1996, the Company entered into an
agreement with two institutional investors who purchased $20 million aggregate
principal amount of 12.00% senior subordinated notes, together with warrants to
purchase 428,400 shares of the Company's Common Stock. The proceeds were used to
repay a term loan with a commercial bank utilized primarily by the Company to
fund the EMPAK consolidation transaction. 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.
7
<PAGE> 10
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, 1996, the Equipment Line bears interest at
the bank's prime rate of interest. The Equipment Line had a two year advancing
period through October 31, 1995. As provided for in the Credit 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 September 30, 1997, the unpaid principal balance
outstanding on the Equipment Line was $5,000,000.
The Term Loan represents borrowings that 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 totaled
$869,565 at September 30, 1997.
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 interest at the bank's
prime rate of interest. Quarterly principal payments of $200,000 plus interest
were required for the first year, then quarterly payments of $75,000 plus
interest are required until maturity. As of September 30, 1997, the unpaid
principal balance outstanding on the Acquisition Line was $750,000.
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 was
interest-only; thereafter, quarterly principal payments of $125,000 plus accrued
interest are required until maturity. As of September 30, 1997, the unpaid
principal balance outstanding on the CWM Note was $1,125,000.
8
<PAGE> 11
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. From November 3, 1995 until
September 23, 1996, the amount drawn under the Revolver could 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
product inventory, or $500,000; plus (c) the flat amount of $3,250,000 until
April 30, 1996 when such amount was reduced by $200,000 per quarter, and then
would have been reduced to $0 beginning December 31, 1996, and thereafter. Then,
effective as of September 23, 1996, the bank and the Company again amended the
Credit Agreement (i) to decrease the total commitment amount of the Revolver
from $10,000,000 to $7,000,000; (ii) to remove the flat amount concept, item (c)
above, from the borrowing base limitation calculation, and (iii) to provide for
a $15,000,000 term loan more fully described in the following paragraph. Most
recently, effective March 18, 1997, the bank and the Company again amended the
Credit Agreement (i) to increase the total commitment amount of the Revolver
from $7,000,000 to $15,000,000; and (ii) to remove the concept of a borrowing
base limitation. Therefore, effective as of March 18,1997, the Company has
availability on the entire $15,000,000. Although the maturity date of the
Revolver remained unchanged, the Company and the bank are in discussions
regarding extending the maturity date and other matters. Effective as of October
1, 1996, advances under the Revolver bear interest at the bank's prime rate of
interest. As of September 30, 1997, the Company has an unpaid principal balance
outstanding on the Revolver of $7,000,000.
Effective as of September 23, 1996, the bank and the Company amended the
Credit Agreement to provide an additional term note in the amount of $15,000,000
("Term Note"). The Term Note was used by the Company (i) to fund the $12,000,000
EMPAK transaction that closed on September 30, 1996; and (ii) to transfer the
flat amount of $3,000,000, referred to in item (c) above, from the Revolver's
borrowing base calculation. The Term Note carried an interest rate equal to the
bank's prime rate of interest. On December 31, 1996, the Company repaid the Term
Note in its entirety with a portion of the proceeds from the Company's
$20,000,000 aggregate principal amount of 12.00% senior subordinated notes with
warrants, as more fully described in the paragraph below.
On December 31, 1996, the Company entered into a Note and Warrant Purchase
Agreement (the "Purchase Agreement") with two institutional investors who
purchased $20 million aggregate principal amount of 12.00% senior subordinated
notes, together with warrants to purchase 428,400 shares of the Company's Common
Stock. The notes and the warrants issued pursuant to the Purchase Agreement
(respectively, the "Notes" and the "Warrants") were issued under Rule 506 of
Regulation D of the Securities Act of 1993, as amended, on December 31, 1996.
NationsBanc Capital Markets, Inc. acted as placement agent. The Company received
consideration of $18,462,044 for the purchase of the Notes and $1,537,956 for
the issuance of the Warrants.
9
<PAGE> 12
For the first quarter of fiscal 1998 the Company provided approximately
$1,600,000 in net cash from operations compared with approximately $1,174,000
for the fiscal 1997 period. This increase of approximately $426,000 was
attributable to several factors, some of which were off-setting: (i) lower net
income in the fiscal 1998 period as compared with the fiscal 1997 period, (ii) a
higher level of D&A expenses in the fiscal 1998 period as compared with the
fiscal 1997 period, (iii) an increase in accounts receivable in the fiscal 1998
period compared with a slight decrease in the fiscal 1997 period, (vi) an
increase in accounts payable for the first quarter of fiscal 1998 compared with
a slight decrease in the fiscal 1997 period, and (v) an increase in federal
income taxes payable during the first quarter of fiscal 1998 compared with a
slight decrease in the fiscal 1997 period. The higher level of D&A expenses in
the fiscal 1998 period as compared with the fiscal 1997 period was primarily a
result of the additional D&A expenses associated with the Company's recent EMPAK
consolidation transaction. Accounts receivable increased during the first
quarter of fiscal 1998 primarily as a result of an increase in revenues during
that period, as compared with the first quarter of fiscal 1997 when the level of
accounts receivable remained nearly unchanged. The increase in accounts payable
during the fiscal 1998 period was primarily a result of the increase in the
level of capital expenditures made by the Company during the period.
During the first quarter of fiscal 1998 and fiscal 1997, the Company's net
cash used in investing activities was $2,025,000 and $12,821,000, respectively.
For fiscal 1997, the main component was the cash payment of $12,000,000 made on
the last day of the fiscal 1997 first quarter in connection with the EMPAK
consolidation transaction. The Company's capital expenditures during the first
quarter of fiscal 1998 and fiscal 1997 were approximately $2,019,000 and
$737,000, respectively. Capital expenditures for fixed assets for the first
quarter of both fiscal 1998 and fiscal 1997 were primarily related to general
improvements to the Company's GNIC and treatment and disposal facilities. For
the first quarter of fiscal 1998, the Company's financing activities provided
approximately $108,000 compared with approximately $10,971,000 in the fiscal
1997 period. For the fiscal 1997 period, the largest source of financing was the
net cash proceeds from the issuance of the Term Note by the Company's bank.
Primarily as a result of the Company's capital expenditures made during the
first quarter of fiscal 1998, (i) cash balances decreased approximately $315,000
during the period, and (ii) accounts payable increased by approximately $914,000
during the period. During the first quarter of fiscal 1998, accounts receivable
increased by approximately $677,000, primarily as a result of the increased
level of revenues generated during the period. During the first quarter of
fiscal 1998, Prepaid expenses and other current assets increased by
approximately $975,000 and Notes payable increased by approximately $572,000,
each primarily as a result of the renewal of the Company's various annual
insurance coverages during the first quarter of fiscal 1998.
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.
10
<PAGE> 13
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
None.
11
<PAGE> 14
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: November 13, 1997 /s/Carl V Rush, Jr.
--------------------------- ---------------------
Carl V Rush, Jr.
President and CEO
Date: November 13, 1997 /s/Donna L. Ratliff
--------------------------- ---------------------
Donna L. Ratliff
Treasurer
(Principal Accounting Officer)
12
<PAGE> 15
EXHIBIT INDEX
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 491,824
<SECURITIES> 0
<RECEIVABLES> 7,180,250
<ALLOWANCES> 54,000
<INVENTORY> 417,596
<CURRENT-ASSETS> 12,617,394
<PP&E> 50,772,464
<DEPRECIATION> 16,651,269
<TOTAL-ASSETS> 70,564,045
<CURRENT-LIABILITIES> 10,079,400
<BONDS> 0
0
0
<COMMON> 66,747
<OTHER-SE> 25,511,370
<TOTAL-LIABILITY-AND-EQUITY> 70,564,045
<SALES> 10,917,257
<TOTAL-REVENUES> 10,917,257
<CGS> 6,145,858
<TOTAL-COSTS> 9,120,624
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<INCOME-PRETAX> 941,430
<INCOME-TAX> 356,600
<INCOME-CONTINUING> 584,830
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<EXTRAORDINARY> 0
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<NET-INCOME> 584,830
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
