<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
____________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number: 0-15891
GDC GROUP, INC.
--------------------------
(Exact Name of Registrant as Specified in Charter)
COLORADO 84-0891674
- ------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1580 Lincoln Street, Suite 900
Denver, Colorado 80203
---------------------------------------------
(Mailing Address of Principal Executive Offices)
(303) 840-6585
---------------------------------------------------
(Registrant's Telephone Number Including Area Code)
DK, Industries, Inc., 1580 Lincoln St., Suite 1125, Denver, Colorado
--------------------------------------------------------------------------
(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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No x
------- -------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this report.
Number of Shares
Outstanding As of
Class March 31, 1997
- --------------------------- ------------------
Common Stock $.02 Par Value 7,347,020
This Form 10-Q consists of 14 pages.
<PAGE>
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS*
Balance Sheets at March 31, 1997 and
September 30, 1996................................... F-1
Statement of Operations for the Three Months
Ended March 31, 1997 and 1996........................ F-2
Statement of Cash Flows for the Three Months
Ended March 31, 1997 and 1996........................ F-3
Note to the Financial Statements...................... F-4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION......... 3
PART II. OTHER INFORMATION
ITEMS 1 - 6........................................... 10
SIGNATURE PAGE............................................. 10
*The accompanying interim financial statements have not been audited by an
independent certified public accountant, and are so noted as "Unaudited" where
applicable. Only those statements corresponding to a fiscal year-end (September
30) are audited.
2
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
GDC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 212,931 $1,298,361
Accounts receivable, trade 1,537,582 412,248
Other receivables 350,231 329,168
Inventory 177,234 177,234
Prepaid expenses 168,869 195,561
Other current assets 60,365 4,936
----------- ----------
Total Current Assets 2,507,212 2,417,508
Property & equipment, net 8,618,580 7,655,891
Debt restructure costs, net 798,271 922,501
Goodwill, net 4,612,586 ---
Other assets 97,444 161,675
----------- ----------
$16,634,093 $11,157,575
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current Liabilities:
Short-term debt $ 4,372,610 $ 241,726
Current maturities of LT debt 4,213,361 4,254,724
Accounts payable & accrued expenses 6,783,298 3,755,813
----------- ----------
Total Current Liabilities 15,369,269 8,252,263
Long-term debt, net of current portion 677,290 95,552
Deferred income taxes 82,145 82,145
Stockholders' Equity:
Common stock, 70,000,000 shares
authorized, $0.02 par value,
5,628,412 shares issued and
outstanding as of September 30,
1996, and 7,347,020 shares issued
and outstanding as of March 31, 1997 146,940 112,568
Additional paid-in capital 5,508,512 3,588,518
Accumulated deficit (5,150,063) (973,471)
----------- -----------
Total Stockholders' Equity 505,389 2,727,615
----------- -----------
$16,634,093 $11,157,575
=========== ===========
</TABLE>
See Notes to Financial Statements
F-1
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GDC GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Contract Revenue $ 2,016,526 $1,818,099 $ 3,581,752 $2,960,559
Cost of Contract Revenue 2,845,790 1,251,475 4,592,777 1,913,564
------------ ----------- ------------ -----------
Gross Profit (Loss) (829,264) 566,624 (1,011,025) 1,046,995
Selling, General & Admin.
Expenses 1,265,194 545,491 2,309,409 1,119,611
Other Expenses --- --- 183,731 ---
------------ ----------- ------------- ----------
Net Operating Income (Loss) (2,094,458) 21,133 (3,504,165) (72,616)
------------ ----------- ----------- ----------
Other Income (Expenses):
Interest expense (275,561) (91,144) (421,776) (226,490)
Amortization expense (153,050) (194,747) (242,591) (218,116)
Other, net (5,921) 765 (8,060) (3,233)
----------- ---------- ----------- ----------
(434,532) (285,126) (672,427) (441,373)
----------- ---------- ----------- ----------
Income (Loss) Before Taxes (2,528,990) (263,993) (4,176,592) (513,989)
Income Tax (Expense) Benefit --- 75,154 --- 151,154
----------- ---------- ----------- ----------
Net (Loss) ($2,528,990) ($188,839) ($4,176,592) ($362,835)
=========== ========== =========== ==========
Net (Loss) per Common Share ($0.385) ($0.149) ($0.664) ($0.276)
=========== ========== =========== ==========
Weighted Average Shares
Outstanding 6,564,034 1,271,387 6,290,979 1,313,248
=========== ========== =========== ==========
</TABLE>
See Notes to Financial Statements.
F-2
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GDC GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ($4,176,592) ($362,835)
Adjustments to reconcile net loss
from operating activities:
Depreciation and amortization 836,445 563,680
Deferred income taxes 0 (151,154)
Changes in operating assets and liabilities,
net of effects from purchases of Walsh and
EnviroScope:
Receivables (812,096) 396,173
Prepaid expenses 39,789 (58,087)
Other current assets 8,642 (1,269,393)
Accounts payable & accrued expenses (376,428) 1,253,921
Other assets (21,496) 6,176
----------- ----------
Net Cash Provided by (Used in) Operations (4,501,736) 378,481
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,144,411) (78,262)
Net cash acquired upon purchase of Walsh 13,529 ---
Excess assets over liabilities acquired upon
purchase of EnviroScope, net of cash (30,437) ---
----------- ----------
Net Cash Used in Investing Activities (1,161,319) (78,262)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 5,022,404 195,095
Principal payments on long-term debt ( 1,130,406) (611,233)
Proceeds from sale of common stock 685,627 ---
------------ ---------
Net Cash Provided by (Used in) Financing Activities 4,577,625 (416,138)
------------ ---------
INCREASE (DECREASE) IN CASH (1,085,430) (115,919)
CASH, beginning of period 1,298,361 115,919
------------ ---------
CASH, end of period $ 212,931 $ 0
============ =========
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Cash paid for interest $ 281,256 $ 268,176
============ ==========
Related party debt converted to equity --- $1,063,457
============ ==========
Debt converted to equity $ 1,312,800 ---
============ ==========
Net liabilities assumed upon acquisition of Walsh $ 4,751,458 ---
============ ==========
Net assets acquired upon acquisition of EnviroScope $ 44,061 ---
============ ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. In September 1996, GDC Holdings Corporation, (GDHC) a wholly owned
subsidiary of Registrant, completed a reorganization between it and TVIES,
Inc., (TVIES) by which TVIES became a wholly owned subsidiary of GDCH. Ssee
Form 8-K Filing of Registrant dated September 30, 1996.
2. In November 1996, registrant held a special meeting of shareholders. A
proxy statement was mailed to all shareholders and the meeting was held on
November 14, 1996. At the meeting three proposals were approved.
a) The name of the Company was changed from DK Industries, Inc. to GDC
Group, Inc.
b) The Articles of Incorporation were amended to increase the number of
authorized shares of common stock from 30,000,000 to 70,000,000, and to
increase the number of authorized shares of preferred stock from
10,000,000 to 20,000,000.
c) Ratified the adoption of a stock option plan and certain options
granted thereunder.
3. On December 13, 1996, the Registrant, acquired 100% of the membership
interest of Walsh Remedial Construction Services, LLC., ("WRCS") a Colorado
Limited Liability Company. The interests were acquired from James P. Walsh
& Associates, Inc., a Colorado corporation, doing business under the name
of Walsh Environmental Engineers, Inc. ("Walsh Environmental") and from
William T. Spear, one of the WRCS' managers. See Form 8-K filing of
Registrant dated November 14, 1996.
4. In March 1997 the Company's wholly owned subsidiary GDC Holdings
Corporation acquired all of the stock of JWS, Inc. subsequently renamed
EnviroScope, Inc. EnviroScope, Inc. is a company involved in the business
of assisting clients who are involved in permitting and regulatory matters.
Its current largest contract involves the permitting on projects in the New
York/New Jersey harbor area. The acquisition was not material from a
financial standpoint and no Form 8-K filing was made in relation to this
acquisition.
5. In June 1996, the Company filed its Form 10-KSB which included the audited
financial statements for the fiscal year end September 30, 1996. This
report is incorporated herein by reference, and the footnotes to the
audited financial statement should be read in conjunction with these
financial statements.
6. The financial statements presented in this 10-QSB for the period ending
December 31, 1996 are management prepared, unaudited, consistently applied
and include normal recurring accruals.
7. In August 1997, the senior secured lender Finova Capital Corporation
(Finova) sent a letter to GDC Enviro Solutions, Inc. (Borrower) and to GDC
Holdings Corporation, and GDC Group, Inc. (Guarantors) giving notice of an
event of default and declaring the entire loan immediately due and payable.
The current outstandings under the Finova loan are approximately
$3,500,000. Finova agreed to waive its acceleration if the Company brought
the loan current, approximately $400,000. The Company continues to discuss
its default with Finova and is attempting to secure adequate funds through
the liquidation of certain assets and raising additional funds from outside
third parties in order to bring the Finova loan current.
8. The lack of funds to available operating companies has resulted in the
suspension of operations of Walsh Remedial Construction Services, Inc.,
Enviro-Scope, Inc., and TVIES, Inc. The Company's other operating
subsidiary, GDC Enviro-Solutions, Inc. has very significantly reduced its
staff and is currently operating at only one facility the Shell Oil
facility at Norco, Louisiana.
9. Due to lack of cash flow and lack of liquidity, coupled with demands being
made by lenders and creditors, management is discussing various options
including sale of certain assets, closure of certain subsidiaries or other
more drastic measures which could include filing of a petition of
bankruptcy at one or more subsidiary companies. There is no assurance that
the Company will succeed in working out any of its plans that would enable
it to continue in business.
F-4
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, the Company had a working capital deficiency of
$12,862,057, compared with a working capital deficiency of $8,704,067 at March
31, 1996. This decrease is primarily due to the company's net operting losses
for the past two fiscal quarters as well as an increase in accounts payable and
accrued expenses, and an increase in short term debt. The major impacts were due
to operating losses on contracts and due to the aquisition of Walsh Remedial
Construction Services, Inc.
Net cash used in operating activities was $4,501,736 for the six months
ended March 31,1997, compared with net cash provided of $378,481 for the six
months ended March 31, 1996. The increase in net cash used in operating
activities was primarily due to the increase in the net loss for the six months,
and the increase in the quarter depreciation and acquisition related costs
during the six month period.
Net cash used in investing activities was $1,161,319 in the six months,
compared with net cash used in investing activities of $78,262 during the six
months ended March 31, 1996. This change was principally due to the purchase of
property, plant and equipment used in connection with the Company's projects at
the Winnfield, Louisiana and the New York New Jersey Harbor Project sites.
Net cash provided by financing activities was $4,577,625 in the six months
ended March 31, 1997, compared with net cash used in financing activities of
$416,138 during the six months ended March 31, 1996. This change was principally
due to the Company's sale of common stock, increase in long term debt related to
equipment, and short term bridge debt.
The Company has significant immediate cash requirements resulting
principally from (i) working capital and equipment needs for remediation and
dredging projects; (ii) the assumption of significant obligations in connection
with recent acquisitions as well as significant costs incurred in consummating
such acquisitions; (iii) high start-up costs on certain new projects,
particularly with respect to equipment purchases and mobilization; (iv)
significant repayment obligations on loans, including loans in default; (v) the
termination of material projects and a delay in the receipt of payments due to
the Company thereunder; (vi) the expiration of contracts with key customers and
(vii) significant financing costs, including loan origination fees, commissions
to a placement agent and professional fees. In addition, the Company has past
due payroll
3
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taxes of approximately $750,000. As a result of the foregoing, the
Company is currently in default of many of its obligations to lenders and
vendors, and has significant short-term cash needs which it will not be able to
satisfy without raising significant funds from current private offerings of
securities as well as other proposed financings.
The Company (primarily through GDC Solutions) has financed its operations
in the quarter ended March 31, 1997, in part through (i) an existing $3.5
million equipment credit facility from FINOVA Capital Corporation ("FINOVA"),
(ii) a $2.5 million revolving credit facility from Coast Business Credit
("Coast"), (iii) a $400,000 equipment loan from Ally Capital Corporation and
Environmental Allies N.V. (collectively, "Ally"), and, various bridge loan
finances from various private parties totalling approximately $1,400,000 net of
conversions of certain of these Bridge loans to equity through conversion of
warrants in the Registrant. Currently the Company is in default of the FINOVA
facility and thereby had certain cross-defaults with other lenders. In March
1997, following Coast's termination of its credit facility and acceleration of
the Company's indebtedness thereunder, the Company paid the Coast facility in
full (approximately $679,000 inclusive of principal, interest and fees). As of
the date of this report the Company remains in default of both the FINOVA and
the Ally loan facilities, and these loans are recorded as current liabilities in
the Company's financial statements.
The current default of the FINOVA facility relates to a monetary default of
approximately $400,000 as well as technical defaults due to the breach of
certain covenants and/or negative covenants set forth in the FINOVA loan
documents. Although the Company has not received any default notice in
connection with such breaches, there can be no assurance that FINOVA will agree
to deliver any required waivers or consents, and FINOVA has accelerated the
maturity date of all amounts outstanding under the loan due to the defaults
thereunder. The default of the Ally loan was due to the Company's failure to
make the required monthly installments for March - August 1997. Ally has
accelerated the full amount due under the loan, which is approximately $400,000.
Acceleration of the loan is having a material adverse effect on the Company due
to the Company's working capital deficiency and significant cash requirements
for other past due and current obligations. In addition, the FINOVA facility is
guaranteed by GDC Holdings (the sole stockholder of the Company's operating
subsidiaries) and is secured by substantially all of GDC Solutions' assets. The
Ally loan is secured by certain equipment of GDC Solutions, the personal
guaranty of Kathleen J. Elnaggar and the pledge of the assets of 3E Corporation
of Louisiana, which corporation is wholly owned by Mrs. Elnaggar, individually,
and in her capacity as Trustee. The foreclosure by FINOVA and/or Ally upon
their respective security interests would
4
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have a material adverse effect on the Company. The Company is in monetary
default on a Subordinated Note, payable to Louisiana Seed Capital Fund, L.P. and
Louisiana Economic Development Corporation. The default of the Note was due to
the Company's failure to make the required monthly installments for March -
August 1997. The holders have given notice of default. The Note is guaranteed by
Kathleen J. Elnaggar, personally, and secured by real estate owned by Mrs.
Elnaggar, individually, and as trustee. The remaining balance on the note is
approximately $200,000.
In addition to the above loans in default, as of the date of this report
the Company has obligations to vendors aggregating approximately $5,500,000
which are past due, principally related to the Cape Fear project, the IT
Subcontract and the WRCS Port Authority projects. Furthermore, the Company has
significant cash requirements for its current business operations and in
connection with short-term debt obligations. The Company will require
significant additional financings to meet its current and future obligations and
there can be no assurance that it will be able to raise additional funds
required or that such funds will be raised on satisfactory terms. Furthermore,
the Company cannot guarantee that it will have sufficient revenues from
operations or from financings to make the principal and interest payments on the
promissory notes issued to investors in its recent financings or in the current
debt financing of GDC Solutions.
Moreover, as described below under "Closing of Acquisition Loans," the
Company is also in default of promissory notes in the aggregate principal amount
of $3,000,000 held by two lenders who financed the Company's acquisition of
WRCS. The notes, on which principal of $750,000 (plus accrued interest) was
payable on April 1, 1997, and $750,000 payable on July 1, 1997, are secured by
the Company's ownership interest in WRCS. As a result of the Company's default
on such payments, the Company must also pay the lenders late payment fees of
$375,000. Although the lenders may choose to not foreclose upon their security
interests as the Company attempts to cure its defaults; there can be no
assurance that the Company will have funds available to pay the December
installment and late fee. The default of the loan on July 1, 1997 and the
Company's inability to obtain waivers or extensions from the lenders related
thereto, enables the lenders to accelerate the maturity date of the loan and
foreclose upon their security interest in WRCS to the extent necessary to
recover any unpaid amount then due.
5
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If the Company does not raise significant proceeds through debt or equity
financings within the next 30 to 45 days, it is likely that the Company and/or
one or more of its operting subsidiaries will be forced to scale back its
operations, or consider other alternatives including the sale of one or more of
its operations, the sale of equipment and assets and/or the filing for
protection under the bankruptcy laws. Due to the current lack of operating
funds, and the inability of the Company since May 1997 to raise additional debt
or equity financings, the Company has been forced to shut down operations at
Walsh Remedial Construction Services, Inc., Enviroscope, Inc., TVIES Inc., and
has significantly curtailed and cut back its operations and staff at GDC Enviro
Solutions, Inc. The Company, while continuing to seek outside financings on
either a debt or equity basis, has begun discussions with its senior lenders,
the lenders who financed the Walsh acquisition, and critical vendors about the
potential sale of or closure of its operating companies, and the orderly
liquidation of their assets.
The following is a description of the Company's recent financings:
CLOSING OF PRIVATE PLACEMENT. A private placement of 800 Units of the
Company was consummated between September 30, 1996 and November 8, 1996. The
majority of which closed and was recorded on September 30, 1996. The Units were
comprised of an aggregate of 4,000,000 shares of Common Stock, Class A Warrants
to purchase 4,000,000 shares of Common Stock at an initial exercise price of
$2.25, and Class B Warrants to purchase 4,000,000 shares of Common Stock at an
initial exercise price of $3.75. The Warrant exercise prices are subject to
automatic downward adjustments (i) based on specified anti-dilution provisions
in the Warrants and (ii) if the Company does not satisfy certain obligations,
including, among other things, the filing within 270 days of November 8, 1996 of
a registration statement covering the shares issued in the private placement and
the shares underlying the warrants. The offering resulted in net proceeds to the
Company of approximately $3,671,000 of which approximately $1,317,000 was used
to repay indebtedness incurred in prior bridge loan financings (inclusive of
principal and interest) and approximately $715,000 was used for offering costs
including the placement agent's commission, legal fees, state filing fees, costs
and expenses of the Placement Agent, and other expenses related to the offering.
CLOSING OF ACQUISITION LOANS. In December 1996, the Company borrowed $3.0
million from two lenders to finance the Company's purchase of WRCS. See
"Business-Acquisitions-Walsh Remedial Construction Services, LLC." The lenders
are stockholders of the Company, who both beneficially own more than 5% of the
Company's
6
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Common Stock (taking account of currently exercisable warrants held by
the lenders). The loans bear interest at the rate of 14% per annum. Principal
on the loan is payable in three installments, due on April 1, 1997 ($750,000),
July 1, 1997 ($750,000) and December 15, 1997 ($1,500,000). Accrued interest is
payable in four installments during the loan term. The Company is obligated to
make prepayments on the loan from (i) proceeds of securities offerings and
financings of GDC Group, Inc., (ii) account receivable financings of WRCS and
(iii) "excess" cash flow of WRCS (as defined). The lenders were paid loan
origination fees totalling $150,000 (5% of the loan amount) and issued Series AA
Warrants to purchase an aggregate of 750,000 shares of Common Stock at an
initial exercise price of $2.25 per share. The Warrant exercise price is
subject to automatic downward adjustments similar to those of the Class A and
Class B Warrants. These two loans are currently in default.
CLOSING OF BRIDGE LOANS. Between January 30 and May 31, 1997, GDC
Solutions borrowed an aggregate of $3,158,985 from various investors (the
"Bridge Financing"). Certain of the lenders are stockholders of the Company
and, giving effect to shares issuable upon exercise of warrants acquired from
GDC, are the beneficial owners of 5% or more of the Company's Common Stock.
Loans in the original principal amount of $2,308,985 bear interest at 14% per
annum and loans in the principal amount of $850,000 bear interest at the
Applicable Federal Rate. Principal and interest on the loans, which are
unsecured, are payable in full on December 15, 1997. GDC Solutions is obligated
to make prepayments on the loans in the event GDC and/or any of its
subsidiaries, closes one or more public or private offerings of debt or equity
securities resulting in aggregate gross proceeds of at least $3,500,000
(exclusive of certain financings with FINOVA). GDC Solutions is obligated to
pay the lenders loan origination fees aggregating $255,898.50, plus Series AA
Warrants to purchase an aggregate of 626,348 shares of GDC Common Stock at an
initial exercise price of $2.25 per share. The Warrant exercise price is subject
to the automatic downward adjustments described above under the caption
"--Closing of Acquisition Loans." As GDC Solutions failed to repay the loans on
or before July 1, 1997, and October 1, 1997 and may fail to pay the next
installment due December 15, 1997, it will be obligated to pay certain lenders
additional fees aggregating up to $69,580, $25,000 and $69,580, respectively,
plus Series AA Warrants to purchase an aggregate of 25,000 shares of Common
Stock of GDC on each of said dates. The imposition of such fees, combined with
the mandatory prepayment provisions described above (which could hinder the
ability of the Company to raise needed capital) could
7
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have a material adverse effect on the Company and further impair its cash
position. In addition, if the loans are not repaid in full on the final maturity
date, the lenders have the right to convert all or part of the outstanding loan
balance into Common Stock of the Company at a conversion price equal to forty
percent (40%) of the average of the Market Prices (as defined) of the Common
Stock. As described below under "Warrant exercise price reduction," certain
lenders "converted" the sum of $1,520,831 payable by the Company under the
promissory notes issued in the Bridge Financing to pay the exercise price of
Warrants held by such lenders. Said "converted" amount includes $1,427,378
principal amount of loans, with the balance constituting accrued interest and
unpaid loan origination fees.
WARRANT EXERCISE PRICE REDUCTION. In March 1997, the Company reduced the
exercise price of its Series A and AA Warrants from $2.25 to $1.25 per share and
its Series B Warrants from $3.75 to $1.50 per share, effective (including
extensions) during the period March 13, 1997 through May 30, 1997. The Company
gave warrantholders the right to pay the exercise price of Warrants during this
period by "converting" the amount payable under promissory notes issued in the
Bridge Financing referred to above (inclusive of interest, principal, and loan
origination fees). Through May 30, 1997, Series A, AA and B Warrants to
purchase 108,000, 74,850 and 1,155,753 shares of GDC Common Stock were
exercised, resulting in net cash proceeds to the Company of $441,360 and a
reduction in indebtedness under promissory notes of $1,520,831 (inclusive of
accrued interest, principal and unpaid loan origination fees).
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED WITH THE QUARTER ENDED MARCH 31,
1996.
Revenues increased by $198,427 or 11%, to $2,016,526 in the quarter ended
March 31, 1997, from $1,818,099, during the quarter ended March 31,1996. The
increase resulted primarily from additional revenue at Walsh Remedial
Construction Services offset somewhat by decreases in revenue at GDC Enviro
Solutions in Baton Rouge.
Gross profit decreased by $1,395,888, or 246%, to a loss of $829,264 in the
quarter from a gross profit of $566,624 in the quarter ended March 31, 1996.
This decrease resulted primarily from increased costs of contract operations
taken at the Cape Fear, Winnfield, and New York/New Jersey harbor contract
sites, coupled with reduced contract revenues.
8
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Selling, general and administrative expenses increased by $719,703, or
132%, to $1,265,194 in the quarter, from $545,491 during the quarter ended March
31, 1996. The increase in expenses related principally to costs incurred during
the quarter in connection with the acquisitions, as well as the expenses at the
Company's Denver office.
Other expenses increased by $149,406, or 52%, to $434,532 for the three
months ended March 31, 1997 from $285,126 during the three months ended March
31, 1996, principally as a result of an increase of $184,417 in interest expense
due to increased borrowings.
The Company had a loss before income taxes of $2,528,990 compared with a
loss before income taxes of $263,993 during the three months ended March 31,
1996.
The Company had no income tax benefit in the quarter compared with an
income tax benefit of $75,154 during the three months ended March 31, 1996.
The Company had a net loss of $4,176,592 for the six month period ended
March 31, 1997, the first two fiscal quarters, compared with net loss of
$362,835 during the six months ended March 31, 1996. The Company had a net loss
per common share of ($0.385) for the three months ended March 31, 1997, compared
to a loss of ($0.149) for the three months ended March 31, 1996, and a loss per
common share of ($0.664) and ($0.276) for the six month periods ending March 31,
1997 and March 31, 1996 respectively.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved through its subsidiary companies in
numerous legal actions arising in the normal course of business. It is
management's assessment that the range of loss related to any individual pending
legal actions will hot have a material adverse effect on the Company's
consolidated financial position.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS FROM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: October 24, 1997
/s/ James W. Muzzy
-----------------------------------------
James W. Muzzy, Vice President,
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-START> JAN-01-1997 OCT-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 212,931 212,931
<SECURITIES> 0 0
<RECEIVABLES> 1,887,813 1,887,813
<ALLOWANCES> 0 0
<INVENTORY> 177,234 177,234
<CURRENT-ASSETS> 2,507,212 2,507,212
<PP&E> 8,618,580 8,618,580
<DEPRECIATION> 427,059 836,445
<TOTAL-ASSETS> 16,634,093 16,634,093
<CURRENT-LIABILITIES> 15,369,269 15,369,269
<BONDS> 0 0
0 0
0 0
<COMMON> 5,655,452 5,655,452
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 16,634,093 16,634,093
<SALES> 2,016,526 3,581,752
<TOTAL-REVENUES> 2,016,526 3,581,752
<CGS> 2,845,790 4,592,777
<TOTAL-COSTS> 1,265,194 2,309,409
<OTHER-EXPENSES> 0 183,731
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (275,561) (421,776)
<INCOME-PRETAX> (2,528,990) (4,176,592)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,528,900) (4,176,592)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,528,990) (4,176,592)
<EPS-PRIMARY> (0.385) (0.664)
<EPS-DILUTED> (0.385) (0.664)
</TABLE>
