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 December 31, 1996
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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
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GC INTERNATIONAL , INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2278595
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(State or other jurisdiction of
incorporation or organization) (I.R.S. employer
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
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N/A
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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 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 January 31, 1996 was 5,748,499.
<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
December 31, 1996 and June 30, 1996 . . . . . . . . .1
Unaudited Condensed Statements of Operations
Three Months and Six Months ended December 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . .2
Unaudited Statements of Cash Flows for the Six Months
Ended December 31, 1996 and December 31, 1995 . . . . .3
Notes to Unaudited Condensed Financial Statements
Ended December 31, 1996 and December 31, 1995 . . . . .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)
December 31 June 30
1996 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash ................................................ $ 227,904 $ 176,055
Accounts receivable, less allowance for doubtful
accounts of $6,366 and $6,361 ..................... 684,850 648,435
Inventories ......................................... 454,149 539,397
Prepaid expenses ................................... 10,119 -0-
___________ ___________
Total current assets .................................. 1,377,022 1,363,887
Property and equipment, net ........................... 347,361 362,405
Deposits & Deferred Expenses .......................... 39,561 53,757
------ ------
Total Assets .......................................... $ 1,763,944 $ 1,780,049
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Short-term bank borrowings ......................... $ 73,284 $ 171,499
Current maturities of long-term debt ............... 22,298 21,023
Accounts payable ................................... 169,044 153,725
Accrued liabilities:
Payroll
155,037 154,475
Customer Deposits ................................... 71,923 64,706
Commissions ......................................... 24,348 12,883
Vacation Pay ........................................ 221,533 261,248
Employee accruals ................................... 250,613 240,613
Other ............................................... 820,429 1,008,585
------- ---------
Total current liabilities .................... 1,808,509 2,088,757
Long-term debt, less current maturities ............. 46,593 58,070
Other long-term debt ................................ 170,850 128,424
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 ................................... (2,053,598) (2,286,792)
---------- ----------
Net stockholders' equity (deficit) ................ (262,008) (495,202)
-------- --------
Total Liabilities and Stockholders' Equity ............ $ 1,763,944 $ 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 6 Months Ended
Dec. 31 Dec. 31 Dec.31 Dec.31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ......................... $ 1,386,488 $ 1,231,830 $ 2,790,004 $ 2,613,278
Cost of Sales ..................... 946,358 830,185 1,931,207 1,785,742
------- ------- --------- ---------
Gross Profit .................. 440,130 401,645 858,797 827,536
Operating expenses:
Selling ......................... 56,712 43,876 111,821 81,904
Administrative ................. 262,876 258,411 508,640 507,892
------- ------- ------- -------
Operating Profit .............. 120,542 99,358 238,336 257,740
Other income (expense):
Other income (expense), net ..... 29,530 (21,182) 22,632 (26,277)
Interest expense, net of
interest income ............... (2,507) (13,067) (5,679) (21,984)
------ ------- ------ -------
Income before
discontinued operations ......... 147,565 65,109 255,289 189,479
Income before income taxes ........ 147,565 65,109 255,289 189,479
Income tax (benefit) .............. 20,521 726 22,095 (726)
Net Profit ................. $ 127,044 $ 64,383 $ 233,194 $ 188,753
=========== =========== =========== ===========
Earnings per common share:
Primary ......................... $ .02 $ .01 $ .04 $ .03
Fully diluted .................. $ .02 $ .01 $ .04 $ .03
Weighted overage 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.
Statement of Cash Flows
(Unaudited)
6 Months Ended
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Dec. 31 Dec. 31
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Profit from operations ......................... $ 233,194 $ 188,753
Adjustments to Cash from operations:
Depreciation and amortization (incr) decr ...... 25,737 34,027
Receivables (increase) decrease ................ (36,415) 89,480
Inventory (increase) decrease .................. 85,248 50,389
Accounts Payable increase (decrease) ........... 13,327 (231,090)
Accrued liabilities increase (decrease) ........ (121,215) 20,643
Prepaid expenses (increase) decrease ........... (10,119) (2,706)
Other assets and deposits
(increase) decrease .......................... 14,196 5,786
------ -----
Net cash provided (used) by
operating activities ........................... 203,953 155,282
Cash flow from investing activities:
Net (additions) deletions to property,
plant and equipment .......................... (10,692) (40,749)
------- -------
Net cash provided (used) by investing
activities ................................... (10,692) (40,749)
Cash Flow from Financing Activities:
Net increase (decrease) short term
borrowings ................................... (141,412) (103,940)
-------- --------
Net cash provided (used) by financing
activities ................................... (141,412) (103,940)
-------- --------
Net increase (decrease) in cash .................. 51,849 10,593
Cash at beginning of period ...................... 176,055 118,385
------- -------
Cash at end of period ............................ $ 227,904 $ 128,978
========= =========
</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 December 31, 1996, and June 30, 1996, and the
results of operations for the three months and six months ended December 31,
1996 and 1995. 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
anticipates engaging an auditor to audit the financials 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 six-months ended December 31, 1996 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>
Dec. 31 Dec. 31
1996 1995
---- ----
<S> <C> <C>
Raw materials $69,087 $53,155
Work in process 385,062 439,836
------- -------
Total $454,149 $492,991
======== ========
</TABLE>
<PAGE>
GC INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Financial Condition & Results of Operation
(Unaudited)
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
Comparison of six months ended December 31, 1996, and December 31, 1995.
The Company's sales for the six months ending December 31, 1996, increased
$176,726 or 6.8% 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 strength in the economy generally.
The backlog has remained relatively constant throughout the half and at
December 31, 1996 was approximately $1,350,000.
The cost of sales increased slightly to 69.2% compared to 68.3% in the
prior year period, primarily as a result of increased overhead in manufacturing.
Operating expenses increased to $620,461 compared to $589,796 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 $127,044 or 9.2% compared to $64,383 or 5.2% for the prior year. The
profit per share (undiluted) for the six months increased to $.04/ share
compared to $.03/share in the prior period.
During this 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.
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 requires 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 December 31,
1996, outstanding borrowings on the loan were $73,284 as compared to $272,781 a
year earlier. The loan is anticipated to be paid in full by June 1, 1997.
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 December 31, 1996, the Company's cash position was $227,904 and
working capital was a negative $431,487, compared to cash of $128,978 and a
negative working capital of $724,870 in the prior year. The cash position
improved during the quarter as a result of the profit of the Company during the
first half.
<PAGE>
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 period ending December 31, 1996.
(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.
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 reduce profit levels.
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)
February 9, 1997 F. Willard Griffith II
- ---------------- ----------------------
Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (A) the
consolidated statements of operations and the consolidated balance sheets. And
is qualified in its entirety by reference to such (B) December 1996 10-Q
reporting.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U S
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 227,904
<SECURITIES> 0
<RECEIVABLES> 691,216
<ALLOWANCES> (6,366)
<INVENTORY> 454,149
<CURRENT-ASSETS> 1,377,022
<PP&E> 1,291,458
<DEPRECIATION> (944,097)
<TOTAL-ASSETS> 1,763,944
<CURRENT-LIABILITIES> 1,808,509
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (2,053,008)
<TOTAL-LIABILITY-AND-EQUITY> 1,763,944
<SALES> 1,386,488
<TOTAL-REVENUES> 1,386,488
<CGS> 946,358
<TOTAL-COSTS> 946,358
<OTHER-EXPENSES> 290,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,507
<INCOME-PRETAX> 147,565
<INCOME-TAX> 20,521
<INCOME-CONTINUING> 127,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,044
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
