SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
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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
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 (I.R.S. employer Identification no.)
incorporation or organization)
156 BURNS AVENUE, ATHERTON CALIFORNIA 94027
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (650) 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 ___ 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 5,548,401.
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GC INTERNATIONAL, INC.
INDEX
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PART I. FINANCIAL INFORMATION:
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<S> <C> <C>
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
September 30, 1997 and June 30, 1997.................................1
Unaudited Condensed Statements of Operations
Three months ended September 30, 1997
and September 30, 1996...............................................2
Unaudited Statements of Cash Flows for the Three months
Ended September 30, 1997 and September 30, 1996..................3
Notes to Unaudited Condensed Financial Statements
Ended September 30, 1997 and September 30, 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
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<CAPTION>
GC INTERNATIONAL, INC.
BALANCE SHEETS
September 30, June 30
1997 1997
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ASSETS
<S> <C> <C>
Current Assets
Cash ....................................... $ 285,346 $ 278,791
Accounts receivable, net of
Allowance for doubtful accounts
of $6,607 at September 30 and
$6,361 at June 30, 1997 ................ 709,879 654,411
Inventories ................................ 454,088 479,873
Prepaid expenses ........................... (7,068) 3,333
Deferred tax benefit ....................... $ 181,760 181,760
----------- -----------
Total current assets ................ 1,624,005 1,598,168
Property and equipment, net ................ 399,846 418,733
Deposits & deferred expenses ............... 52,021 34,123
Deferred tax benefit ....................... 222,141 261,920
----------- -----------
Total assets ...................... $2,298,013 $ 2,312,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable ........................... $ 100,055 $ 138,219
Accrued expenses ........................... 726,116 734,641
Income taxes payable ....................... 67,398 55,635
Notes payable .............................. 497,255 527,002
----------- -----------
Total current liabilities .............. 1,390,823 1,455,497
Other Liabilities:
Notes payable, net of current portion ...... 117,360 146,307
Other long term debt ....................... 320,000 320,000
Stockholders' equity:
Common stock, without par value ............ 1,791,590 1,791,590
Accumulated deficit ....................... (1,321,760) (1,400,450)
----------- -----------
Net stockholders' equity ............... 469,830 391,140
Total Liabilities and
Stock Holders Equity ................ $ 2,298,013 $ 2,312,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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<CAPTION>
GC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
3 Months Ended
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September 30, 1997 September 30, 1996
(Unaudited) (Restated)
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<S> <C> <C>
Net sales .................................. $ 1,382,715 $ 1,403,156
Cost of sales .............................. 913,874 984,849
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Gross profit ............................... 468,841 418,667
Operating expenses: ........................ 48,505 55,109
Selling ............................. 282,676 245,764
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General & Administrative
Income from operation ...................... 137,660 117,794
Other income (expense)
Interest, net ....................... (4,292) (6,899)
Other ............................... (2,636) (3,171)
----------- -----------
Income before income taxes 130,732 ......... 107,724
Provision for income taxes ................. 52,042 38,200
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Net income ................................. $ 78,690 $ 69,524
=========== ===========
Earnings per common share
Primary and Fully diluted ........... $ 0.01 $ 0.01
Weighted average shares outstanding
Primary ............................. 5,798,721 5,748,499
Fully diluted ....................... 5,798,721 5,748,499
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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<CAPTION>
GC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
September 30 June 30
1997 1997
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<S> <C> <C>
Cash flows from operating activities:
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Net income ........................................... $ 78,690 $ 232,934
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................. 25,912 87,332
Gain on sale of property, plant & equipment ... 0 (1,317)
Adjustments to cash from operations:
Accounts Receivables (incr)decr ............... (55,468) (5,975)
Inventory (incr)decr .......................... 25,785 59,524
Accrued payable (incr)decr .................... (38,164) (15,507)
Accrued liabilities(incr)decr ................. (7,860) (103,539)
Income taxes payable (incr)decr ............... 11,763 54,835
Reserve liability (incr)decr .............. (665) (32,337)
Deferred tax (incr)decr ................... 47,679 209,727
Prepaid expenses (incr)decr ............... 10,402 (3,333)
Other assets & deposits (incr)decr ........ (25,798) 19,634
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Net cash provided by operating activities . 72,276 501,978
Cash flows from investing activities:
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Purchase of property, plant & equipment ... (7,025) (143,661)
Proceeds from sale of property, plant
& equipment ............................. 0 1,317
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Net cash provided by financing activities . (7,025) (142,344)
Cash flows from financing activities:
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Payments on short term borrowings ......... (29,748) (216,711)
Net cash used by financing activities ..... (28,947) (40,187)
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Net cash provided by investing activities . (58,695) (256,898)
Increase in cash and cash equivalents ................ 6,556 102,736
Cash at beginning of period .......................... 278,791 176,055
--------- ---------
Cash at end of period ................................ $ 285,346 $ 278,791
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GC INTERNATIONAL, INC.
Notes to Condensed Financial Statements
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, 1997, and June 30, 1997, and the results
of it's operation for the three months ended September 30, 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
it's 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, 1997 are not necessarily
indicative of the results of the full year.
Note 2
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Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following:
<TABLE>
<CAPTION>
September 30 September 30
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 51,385 $ 67,556
Work in process 402,703 403,205
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Total $454,088 $470,761
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4
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
Comparison of three months ended September 30, 1997, and September 30, 1996.
The Company's sales for the three months ending September 30, 1997, decreased
slightly by $20,801 or 1.5% over the comparable period of the prior year,
generally reflecting a decrease in orders at the Apollo Division.
The backlog which was approximately $1,180,000 at June 30, 1997, has remained
relatively constant throughout the three months and at September 30, 1997 was
approximately $1,226,000. However, lower orders in October, may result in
reduced shipments and profits during the second quarter.
The cost of sales decreased to 66.1% compared to 70.2% in the prior year period,
primarily as a result of increased efficiencies in manufacturing. Operating
expenses increased to $331,181 compared to $300,873 in the prior period
primarily as a result of increased investment in the Companys sales program and
marketing expense. As a result the profit for the quarter after provision for
taxes was $78,690 or 5.7% compared to $69,524 or 5.0% for the prior year. The
profit per share for the three month period remain constant at $.01/share.
The Company is fully taxed for California income tax purposes and began paying 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 1998. However, it
is anticipated that a nominal alternative minimum federal tax in the approximate
amount of $4,000 will be due for 1998.
Ongoing Operations Plan
- -----------------------
Management views the existing positive cash flow 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.
Liquidity, Capital Resources, and Bank Loan Agreement
Bank Loans
- ----------
The Company's loan with its bank was paid in April 1997. The Company does not
have any current lines of credit and does not anticipate any need for borrowings
for the near future.
5
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Long Term Debt
- --------------
Long-term Debt includes financed equipment and automobile purchases and the EPA
Settlement. Other long-term Debt includes the accrued reserve for the future EPA
liability.
Liquidity
- ---------
As of September 30, 1997, the Company's cash position was $245,346 and working
capital was a positive $233,182, compared to cash of $240,117 in the prior
period and negative working capital of $327,483. 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 period ending September 30, 1997.
(2) The Company must make payments to Pre-petition Creditors in accordance with
the Company's 1994 Plan of Reorganization. Although the Company is in default
with the remainder of the creditors, the Company is working to settle with
certain creditors who have requested payment. The non-interest bearing creditor
notes generally do not provide for any specific remedies or for acceleration in
the event of non-payment. The total amount due to creditors at September 30,
1997 was $443,021 compared to $673,061 at September 30, 1996.
(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 in the 1970's by
the Company's former Raytee division. The Company made the second payment of
$20,000 in August 1997. Payments of $20,000 plus fixed interest are due each
successive August with the last payment due August 2000. Based on the settlement
reached with the EPA in August 1996 for the interim claim, the Company believes
that its reserve for future liability in the amount of $320,000 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 1998. The Company will use its best
efforts to satisfy its capital needs by using internally generated cash in
excess of debt repayments and by entering into other arrangements as available.
There can be no assurances that cash resources will be adequate.
6
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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
7
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GC INTERNATIONAL, INC.
Signatures
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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)
October 30, 1997 F. Willard Griffith II
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Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 285,346
<SECURITIES> 0
<RECEIVABLES> 716,486
<ALLOWANCES> (6,607)
<INVENTORY> 454,088
<CURRENT-ASSETS> 1,624,005
<PP&E> 1,384,110
<DEPRECIATION> (984,264)
<TOTAL-ASSETS> 2,298,013
<CURRENT-LIABILITIES> 1,390,823
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,321,760)
<TOTAL-LIABILITY-AND-EQUITY> 2,298,013
<SALES> 1,382,715
<TOTAL-REVENUES> 1,382,715
<CGS> 913,874
<TOTAL-COSTS> 913,874
<OTHER-EXPENSES> 333,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,292
<INCOME-PRETAX> 130,732
<INCOME-TAX> 52,042
<INCOME-CONTINUING> 78,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,690
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
