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 March 31, 1997
--------------
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
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(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_____ No ___X__
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.
----------
<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
March 31, 1997 and June 30, 1996. . . . . . . . . . .1
Unaudited Condensed Statements of Operations
Three Months and Nine Months ended March 31, 1997
and March 31, 1996. . . . . . . . . . . . . . . . . .2
Unaudited Statements of Cash Flows for the Nine Months
Ended March 31, 1997 and March 31, 1996 . . . . . . . . .3
Notes to Unaudited Condensed Financial Statements
Ended March 31, 1997 and March 31, 1996 . . . . . . . . .4
Item 2. Management's Discussion and Analysis of
Financial Condition & Results of Operation . . . . .5
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . .7
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . .7
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . .7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . .7
Item 5. Other Information. . . . . . . . . . . . . . . . . . . .7
Item 6. Exhibits & Reports on Form 8-K . . . . . . . . . . . . .7
Signatures . . 8
<PAGE>
<TABLE>
<CAPTION>
GC INTERNATIONAL, INC.
Condensed Balance Sheets
(Unaudited)
March 31 June 30
1997 1996
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash ................................................ $ 267,879 $ 176,055
Accounts receivable, less allowance
for doubtful
accounts of $6,365 and $6,361 ..................... 615,196 648,435
Inventories ......................................... 488,981 539,397
Prepaid expenses ................................... 9,094 0
___________ ___________
Total current assets .................................. 1,381,150 1,363,887
Property and equipment, net ........................... 342,468 362,450
Deposits & Deferred Expenses .......................... 52,033 53,757
------ ------
$ 1,775,651 $ 1,780,049
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Short-term bank borrowings ......................... $ 24,508 $ 171,499
Current maturities of long-term debt ............... 42,965 21,023
Accounts payable ................................... 142,834 153,725
Accrued liabilities:
Payroll ............................................. 160,671 154,475
Customer Deposits ................................... 72,149 64,706
Commissions ......................................... 15,078 12,883
Vacation Pay ........................................ 226,982 261,248
Employee accruals ................................... 255,613 240,613
Other ............................................... 819,102 1,008,585
------- ---------
Total current liabilities .................... 1,759,902 2,088,757
Long-term debt, less current maturities ............. 20,595 58,070
Other long-term debt ................................ 177,105 128,424
Stockholders' equity (deficit):
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 ................................. (1,973,541) (2,286,792)
---------- ----------
Net stockholders' equity (deficit) ................ (181,951) (495,202)
-------- --------
$ 1,775,651 $ 1,780,049
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
GC INTERNATIONAL, INC.
Condensed Statements of Operations
(Unaudited)
3 Months Ended 9 Months Ended
-------------- --------------
March 31 March 31 March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ......................... $ 1,306,212 $ 1,273,587 4,096,216 $ 3,886,866
Cost of Sales ..................... 873,933 911,568 2,805,140 2,697,310
------- ------- --------- ---------
Gross Profit .................. 432,279 362,019 1,291,076 1,189,556
Operating expenses:
Selling ......................... 66,318 43,699 178,139 125,603
Administrative .................. 272,386 275,567 781,026 783,460
------- ------- ------- -------
Operating Profit (loss) ....... 93,575 42,753 331,911 280,493
Other income (expense):
Other income (expense), net ..... 936 ( 5,377) 7,043 (31,653)
Interest expense, net of
interest income ............... (5,025) ( 5,049) 5,822 (27,033)
------ - ----- ----- -------
Income before income taxes ........ 89,486 32,327 344,776 221,807
Income tax benefit (expense) ...... (9,429) -0- (31,525) ( 726)
------ -------- ------- --------- ---
Net Income ................. $ 80,057 $ 32,327 $ 313,251 $ 221,081
=========== =========== =========== ===========
Earnings per Common Share
Primary ......................... $ 0.01 $ 0.01 $ 0.05 $ 0.04
Fully Diluted ................... $ 0.01 $ 0.00 $ 0.04 $ 0.03
Weighted average shares outstanding
Primary ......................... 5,748,499 5,748,499 5,748,499 5,748,499
Fully Diluted ................... 7,108,499 7,048,499 7,108,499 7,048,499
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
GC INTERNATIONAL, INC.
Fiscal Year to Date Statement of Cash Flows
(Unaudited)
March 31 March 31
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Profit from operations .......................... $ 313,251 $ 221,081
Adjustments to Cash from operations:
Depreciation and amortization (incr) decr ........ 41,147 52,670
Depreciation of Automobile (increase) decr ....... 14,650 0
Receivables (increase) decrease .................. 33,239 91,304
Inventory (increase) decrease .................... 50,416 77,587
Accounts Payable increase (decrease) ............. (11,501) (260,927)
Accrued liabilities increase (decrease) .......... (96,886) 29,206
Prepaid expenses (increase) decrease ............. (9,094) (5,344)
Other assets and deposits(increase) decrease ..... 1,724 $ 37,663
----- ---------
Net cash provided (used) by
operating activities ............................. 336,946 243,240
------- -------
Cash flow from investing activities:
Purchases of equipment ........................... (15,281) (45,391)
Purchases of furniture & fixtures ................ (15,992) (1,400)
Purchase of leasehold improvements ............... (4,586) 0
------ -
Net cash provided (used) by investing
activities ..................................... (35,859) (46,791)
------- -------
Cash Flow from Financing Activities:
Paydown of A/R Line to Comerica .................. (146,991) (147,554)
Payments made on Chapter 11 debts ................ (126,740) (14,072)
Payments made on equipment notes ................. (15,533) (8,099)
Payments on SBE note ............................. 0 (49,003)
Note payable on deferred rents ................... 0 28,541
Lease payable on new equipment ................... 0 8,379
Note payable to EPA .............................. 80,000 0
------ -
Net cash provided (used) by financing
activities ..................................... (209,264) (181,808)
-------- --------
Net increase (decrease) in cash .................... 91,824 14,640
Cash at beginning of period ........................ 176,055 118,385
Cash at end period ................................. $ 267,879 $ 133,025
========= =========
</TABLE>
<PAGE>
GC INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to 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 March 31, 1997,
and June 30, 1996, and the results of it's operation for the three
months and nine months ended March 31, 1997 and 1996. 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. The last
audited financial statements of GCI were for the year ended June 30,
1989. Since that time, GCI has been unable to bear the cost of an audit
as a result of its financial condition. GCI has engaged an auditor to
audit the financial statements for the year ended June 30, 1997.
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 nine-months ended March
31, 1997 are not necessarily indicative of the results of the full year.
Note 2
<TABLE>
<CAPTION>
Inventories are stated at the lower of cost (first-in, first-out method)
or market and consist of the following:
March 31 March 31
1997 1996
---- ----
<S> <C> <C>
Raw materials . $ 63,349 $ 52,637
Work in process 425,632 413,156
------- -------
Total .. $488,981 $465,793
======== ========
</TABLE>
<PAGE>
Management s Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
Comparison of nine months ended March 31, 1997, and March 31, 1996.
The Company's sales for the nine months ending March 31, 1997, increased
$209,350 or 5.4% over the comparable period of the prior year, generally
reflecting the increase in new orders received by the Company s ALJ division
as a result of the general strength in the economy.
The backlog which was approximately $1,168,000 at June 30, 1996, has remained
relatively constant throughout the nine months and at March 31, 1997 was
approximately $1,177,000. However, lower orders in March, will result in
reduced shipments and profits during the fourth quarter. This was expected, as
one large customer s orders have been filled.
The cost of sales decreased slightly to 68.5% compared to 69.4% in the prior
year period, primarily as a result of increased efficiencies in manufacturing.
Operating expenses increased to $331,911 compared to $280,493 in the prior
period primarily as a result of increased investment in the company s sales
representative program and marketing expense. Interest expense on bank debt
decreased as a result of the reduction in principal. As a result, profit for
the quarter was $80,057 or 6.1% compared to $32,327 or 2.5% for the prior
year. The profit per share (undiluted) for the nine month period increased to
$0.05/ share compared to $0.04/share in the prior period.
During the nine month period the company exhausted its Net Operating Loss
carry forward for California income tax purposes and began paying or accruing
a state tax charge of 9% of profits. The federal Net Operating Loss carry
forward will preclude the Company from paying federal income taxes for 1997.
However, it is anticipated that a nominal alternative minimum federal tax in
the approximate amount of $1,250 will be due.
Ongoing Operations Plan
- -----------------------
Management views the existing positive cash flow ($91,824 for the nine months
ending March 31, 1997) as sufficient to meet the operating needs of the
company and to make any required payments on outstanding debts as scheduled or
required. The company has been and intends to continue making settlements on
the pre-petition creditor notes wherever possible for less than the note
balance.
The company s plan of operations anticipates a modest 5% increase in sales for
the fiscal year ending June 30, 1998 and will concentrate efforts on improving
the manufacturing operations and margins by increasing efficiency and yields,
thereby increasing cash flow availability. This plan is anticipated to provide
the necessary cash required to meet future obligations.
In addition, the company s bank loan, which had required monthly payments of
principal of $16,000 per month, was paid in full on April 23, 1997. Therefore,
the company s available cash flow increases immediately by $16,000.00 per
month or $192,000.00 per year.
Liquidity, Capital Resources, and Bank Loan Agreement
Bank Loan Agreement
- -------------------
The Company's loan agreement with its bank was renewed until June 1, 1997.
The agreement required principal payments of $16,000/month; the loan bears
interest at a rate of 2-1/2% above the bank's prime rate. As of March 31,
1997, outstanding borrowings on the loan were $24,508 as compared to $221,227
a year earlier. On April 23, 1997, the loan was paid in full.
<PAGE>
Long Term Debt
- --------------
Long-term Debt includes financed equipment and automobile purchases. Other
long-term Debt includes the long-term portion of the Notes owed to Pre-
petition Creditors (see Other Impacts on Liquidity Note 2)
Liquidity
- ---------
As of March 31, 1997, the Company's cash position was $267,879 and working
capital was a negative $378,752, compared to cash of $133,025 and negative
working capital of $723,163 in the prior year. The cash position improved
during the quarter as a result of the profit of the Company.
Other Impacts on Liquidity
- --------------------------
The Company's liquidity is continuing to be positive and negatively impacted
because of the following factors.
(1) The company reported continuing profits and positive cash flow for the
three months and nine month period ending March 31, 1997.
(2) The Company must make payments to Pre-petition Creditors in accordance
with the Plan of Reorganization under the Company s 1990 bankruptcy filing,
which was discharged in 1991. Due to the cash shortage of the Company in the
past, few payments have been made to creditors. Although the Company is in
default with substantially all of the creditors, the Company is working to
settle with certain 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.
(3) The Company settled an interim claim with the EPA for $100,000 plus
interest for a Superfund Site cleanup in connection with waste generated by
the company's former Raytee division. The Company made the first payment of
$20,000 in August 1996. Payments of $20,000 plus fixed interest are due each
successive August with the last payment due August 2000. The amount that may
be due for the Final Claim is unknown at the present time.
Based on the settlement reached with the EPA in August 1996 for the interim
claim, the Company believes that it s reserve for any future liability in the
amount of $227,217 is adequate to cover any final settlement.
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. During 1996 and 1997, the
Company has been able to arrange satisfactory equipment and automobile leases
or purchase contracts.
The Company anticipates that additional capital equipment will be required for
the Company's operating divisions during 1997. 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 and increase profit margins.
The Company will use its best efforts to satisfy its capital needs by using
internally generated cash in excess of mandated debt repayments and by
entering into other arrangements as available. There can be no assurances
that cash resources will be adequate.
<PAGE>
PART II
Item 1 Legal Proceedings: None
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: None
<PAGE>
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)
May 10, 1997 F. Willard Griffith II
------------ ----------------------
Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
<PAGE>
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)
May 10, 1997
Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 267,879
<SECURITIES> 0
<RECEIVABLES> 621,561
<ALLOWANCES> (6,365)
<INVENTORY> 488,981
<CURRENT-ASSETS> 1,381,150
<PP&E> 1,301,975
<DEPRECIATION> (959,507)
<TOTAL-ASSETS> 1,775,651
<CURRENT-LIABILITIES> 1,759,902
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,973,541)
<TOTAL-LIABILITY-AND-EQUITY> 1,775,651
<SALES> 1,306,212
<TOTAL-REVENUES> 1,306,212
<CGS> 873,933
<TOTAL-COSTS> 873,933
<OTHER-EXPENSES> 342,793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,025
<INCOME-PRETAX> 89,486
<INCOME-TAX> 9,429
<INCOME-CONTINUING> 80,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,057
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
