<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
-------------------------
OR
/ / 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 000-17259
GC INTERNATIONAL , INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2278595
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
156 BURNS AVENUE, ATHERTON CALIFORNIA 94027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (415) 322-8449
--------------
N/A
------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILLED 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 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 SECTION 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 X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE 5,748.499.
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<PAGE> 2
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS ITEM 1.
<S> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1995 AND JUNE 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATION . . . . . . . . . . . . . . . . . . . . . . 4
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
GC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPT. 30 JUNE 30
1995 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 136,831 $ 118,385
Accounts receivable, less allowance for doubtful
accounts of $3,880 and $8,129 769,956 771,089
Inventories 492,513 543,380
Prepaid expenses 10,217 9,080
---------- ----------
Total current assets 1,409,517 1,441,904
Property and equipment, net 305,761 321,384
Deposits & Deferred Expenses 55,437 59,310
---------- ----------
$1,770,715 $1,822,598
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term bank borrowings $ 320,781 $ 374,035
Current maturities of long-term debt 76,936 59,938
Accounts payable 299,235 445,357
Accrued liabilities:
Payroll 166,743 170,261
Customer Deposits 67,959 55,104
Commissions 4,216 5,858
Vacation Pay 231,875 235,177
Employee accruals 187,654 179,043
Other 861,914 861,421
---------- ----------
Total current liabilities 2,217,313 2,386,194
Long-term debt, less current maturities 27,279 30,181
Other long-term debt 238,592 243,058
Stockholders' equity (deficit):
Preferred stock, authorized 10,000,000 shares,
Common stock, without par value. Authorized
30,000,000 shares; issued and outstanding
5,748,499 shares 1,791,590 1,791,590
Accumulated deficit (2,504,055) (2,628,425)
---------- ----------
Net stockholders' equity (deficit) (712,465) (836,835)
$1,770,715 $1,822,598
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
1
<PAGE> 4
GC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED
------------------------------
SEPT. 30 SEPT. 30
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $ 1,381,448 $ 909,135
Cost of Sales 955,556 651,122
----------- -----------
Gross Profit 425,892 258,013
Operating expenses:
Selling 38,028 57,065
Administrative 249,482 226,713
----------- -----------
Operating Profit (loss) 138,382 (25,765)
Extraordinary
Loss on discontinued operation -0- (11,429)
Other income (expense):
Other income (expense), net (5,094) 10,433
Interest expense, net of
interest income (8,917) (16,213)
----------- -----------
Income (loss) before
income taxes 124,371 (42,974)
Income tax expense (refund) -0- (233)
----------- -----------
Net Profit (loss) $ 124,371 $ (42,741)
=========== ===========
Common stock: Weighted average
number of shares outstanding 5,748,499 7,178,355
Profit (Loss) per common share
$ .02 $ (.01)
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 5
GC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1
The financial statements included herein have been prepared by GC International,
Inc., ("GCI") without audit, and include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the Company's
financial position as of September 30, 1995, and June 30, 1995, and the results
of operations for the three months ended September 30, 1995 and 1994. Certain
information and note disclosures normally included in financial statements have
been condensed or omitted pursuant to such rules and regulations of the
Securities and Exchange commission, although the Company believes that
disclosure in such financial statements is adequate to make the information
presented not misleading.
These financial statements should be read in conjunction with the Company's
financial statements and notes thereto included in the Company's Form 10-K
Annual Report filed with the Securities and Exchange Commission. The results of
operations for the three-months ended September 30 are not necessarily
indicative of the results of the full year.
NOTE 2
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following:
<TABLE>
<CAPTION>
SEPT. 30 SEPT. 30
1995 1994
-------- --------
<S> <C> <C>
Raw materials $ 54,336 $ 65,561
Work in process 438,177 300,689
-------- --------
Total $492,513 $366,250
======== ========
</TABLE>
3
<PAGE> 6
Management Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity, Capital Resources, and Bank Loan Agreement
BANK LOAN AGREEMENT
The Company's loan agreement with its bank was renewed until April 1, 1996. The
agreement requires principal payments of $16,000/month at an interest rate of
2-1/2% above the bank's prime rate. As of September 30, 1995, outstanding
borrowings on the loan were $320,781 as compared to $542,000 a year earlier.
LIQUIDITY
As of September 30, 1995, the Company's cash position was $136,831 and working
capital was a negative $779,657. The cash position and payments to trade
creditors improved during the quarter as a result of the profit of the company
during the first quarter. However, a settlement reached with the EPA will
require the company to pay $100,000 plus interest over the next five years. (See
note 5 below)
OTHER IMPACTS ON LIQUIDITY
The Company's liquidity is continuing to be positive and negatively impacted
because of:
(1) The company reported profits and positive cash flow for the 3 month period
ending September 30, 1995.
(2) At the present time, the Company is able to maintain production and payments
to suppliers. In the second quarter ending December 31, the Company is likely to
show a loss and/or negative cash flow due to the lost production over the
holidays. With continued profitability and positive cash flow during the third
and fourth quarter, the Company's cash situation could improve. However, there
is no assurance that the Company will be able to maintain payments to suppliers
on time and, if it is unable to do so, the Company could be materially adversely
affected.
(3) The Company must make payments to Pre-petition Creditors in accordance with
the Plan of Reorganization. Due to the severe cash shortage of the company, no
substantial payments have been made to creditors. Although the company is in
default with substantially all of the creditors, the company is working with
certain of the creditors who have requested payment. The creditor notes
generally do not provide for any specific remedies or for acceleration in the
event of non-payment.
(4) The Company owes the Company's legal counsel(s) approximately $90,000 in
connection with the bankruptcy.
(5) The Company received notification by the EPA on approximately July 25, that
under a partial consent decree the company is eligible to settle for an amount
of $688,156 for a Superfund Site cleanup in connection with waste generated by
the company's former Raytee division. The company had until September 1, 1995 to
accept or decline the EPA's offer of settlement. In addition, the EPA provided
the company with a means to negotiate payment terms for a potential lower amount
based on the financial condition of the company.
The company responded to the EPA request for financial information and
evidenced its interest in settling the claim at a level at which GC could
afford. In addition, GC asserted its various defenses and claimed to not be
responsible for any settlement at all. The EPA reviewed the documents and
financial information submitted by GCI and agreed to settle the claim for
$100,000, to be paid over five years with interest. GC has until November 10,
1995 to respond. In the event that GC is not included in the partial consent
decree, GC could be: (1) sued by the EPA or (2) sued by other potentially
responsible parties who have agreed to the settlement or (3) recognizing the
poor financial condition of the company, no one would attempt to make a claim.
4
<PAGE> 7
If the EPA claim was to be litigated and the company is required to pay
such claim in the approximate amount of $688,000 the company could:(1) be forced
to file for protection under the bankruptcy laws or (2) be forced out of
business or (3) be required to make significant payments to the EPA over a
period of time, which would severely restrict the company's ability to recover
from its bankruptcy and the recession.
In addition, this settlement amount is a partial settlement and the
final remediation is of an unknown amount which will not be determined until
some time in 1996 or 1997.
As of September 30, 1995, the company has established a reserve of
$328,910. Based on the EPA's proposed settlement offer, management believes that
this amount is sufficient to cover a settlement agreement that might be made for
this final remediation. The company also appealed the waste content, and in
addition asserts that since the EPA did not make a valid claim, even though the
EPA was deemed to have been notified (as a Federal Agency) that the company was
in Chapter 11, the EPA claim was discharged without liability at the time of
confirmation.
The company has tendered notification of the potential EPA claim to all
of its insurance carriers from 1975 through 1995 and prior to the acquisition of
the Raytee Company. As of October 27, 1995, substantially all of the insurance
carriers have rejected the potential liability, because of language in the
insurance policy. GC will continue to assert its claim.
CAPITAL EQUIPMENT REQUIREMENTS AND EQUIPMENT LEASES
The Company, from time to time, has satisfied certain of its capital
equipment requirements by entering into equipment leases with third parties or
purchase arrangements with the equipment manufacturers.
The Company anticipates that additional capital equipment will be
required for the Company's operating divisions during 1996. Because of the
Company's negative net worth and lack of working capital, it may not be possible
to lease or purchase some or all of such equipment on terms satisfactory to the
Company. If sufficient capital equipment is not available, the Company could be
materially adversely affected. In addition, a continued shortage of capital
resources could materially adversely affect the ability of the Company to make
needed improvements which could result in a longer time to return to
profitability.
RESULTS OF OPERATIONS
Comparison of three months ended September 30, 1995, and September 30, 1994.
The Company's sales for the three months ending September 30, 1995, increased
$472,313 or 52% over the comparable period of the prior year, generally
reflecting the increase in new orders received by the ALJ division during the
past year.
The backlog has remained relatively consistent throughout the Quarter and at
October 31, 1995 was approximately $1,320,539.
The cost of sales decreased slightly to 69.2% compared to 71.5% in the prior
year period. Operating expenses increased to $287,510 compared to $283,778 in
the prior period. However, expenses decreased as a percentage of sales to 20.8%
compared to 31.2% due to the increased sales. Interest expense on bank debt
decreased as a result of the reduction in principal.
5
<PAGE> 8
PART II
Item 1 Legal Proceedings: None. See note 5 to the MD&A on page 4
Item 2 Changes in Securities: Not Applicable
Item 3 Defaults upon Senior Securities: Not Applicable
Item 4 Submission of Matters to a Vote of Securities Holders:
Not Applicable.
Item 5 Other Information: None
Item 6 Exhibits and Reports on Form 8K
a) Exhibits
Exhibit 27 Article Financial Schedule
for Form 10-Q
b) Reports on Form 8-K
None
6
<PAGE> 9
GC INTERNATIONAL, INC.
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.
GC INTERNATIONAL, INC.
----------------------
(REGISTRANT)
NOVEMBER 11, 1995 F. WILLARD GRIFFITH II
- ----------------- -------------------------------------
DATE F. WILLARD GRIFFITH II
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
7
<PAGE> 10
EXHIBIT EXHIBIT DESCRIPTION
NO.
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET FOR PERIOD ENDING
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIRST
QUARTER 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 136,831
<SECURITIES> 0
<RECEIVABLES> 773,836
<ALLOWANCES> 3,880
<INVENTORY> 492,513
<CURRENT-ASSETS> 1,409,517
<PP&E> 1,169,577
<DEPRECIATION> 863,816
<TOTAL-ASSETS> 1,770,715
<CURRENT-LIABILITIES> 2,217,313
<BONDS> 0
<COMMON> 1,791,590
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,770,715
<SALES> 1,381,448
<TOTAL-REVENUES> 1,381,448
<CGS> 955,556
<TOTAL-COSTS> 1,243,066
<OTHER-EXPENSES> 14,011
<LOSS-PROVISION> 3,880
<INTEREST-EXPENSE> 5,094
<INCOME-PRETAX> 124,371
<INCOME-TAX> 0
<INCOME-CONTINUING> 124,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,371
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
