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, 1998
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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 (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 (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 ___ 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 ___ 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.
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<CAPTION>
INDEX
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Unaudited Condensed Balance Sheets
September 30, 1998 and June 30, 1998...............................1
Unaudited Condensed Statements of Operations
Three months ended September 30, 1998
and September 30, 1997.............................................2
Unaudited Statements of Cash Flows for the Three months
Ended September 30, 1998 and September 30, 1997................3
Notes to Unaudited Condensed Financial Statements
Ended September 30, 1998 and September 30, 1997................4
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
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GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
September 30 June 30
1998 1998
Unaudited -----------
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 368,756 $ 323,920
Accounts receivable, net of
Allowance for doubtful accounts
of $6,464 at September 30 and
$6,464 at June 30, 1998 698,419 639,886
Inventories 489,280 479,773
Prepaid expenses 2,679 8,496
Deferred tax benefit 26,044 26,044
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Total current assets 1,585,177 1,478,119
Property and equipment, net 546,805 545,250
Deposits & deferred expenses 39,012 35,760
Deferred tax benefit 281,164 281,164
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Total assets $2,452,158 $2,340,293
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 184,286 $ 130,858
Accrued expenses 698,480 696,904
Income taxes payable 24,915 -
Notes payable 258,168 266,713
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Total current liabilities 1,165,849 1,094,474
Other Liabilities:
Notes payable, net of current portion 140,912 172,726
Other long term debt 120,000 120,000
Litigation Reserve 200,000 200,000
Stockholders' equity:
Common stock, without par value 1,791,590 1,791,590
Accumulated deficit (966,192) (1,038,497)
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Net stockholders' equity 825,397 753,093
Total Liabilities and
Stock Holders Equity $2,452,158 $2,340,293
========= =========
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The accompanying notes are an integral part of these financial statements.
1
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GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
3 Months Ended
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September 30, 1998 September 30, 1997
(Unaudited) (Unaudited)
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<S> <C> <C>
Net sales $1,456,212 $1,382,715
Cost of sales 927,101 913,874
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Gross profit 529,111 468,841
Operating expenses:
Selling 68,650 48,505
General & Administrative 361,926 282,676
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Income from operations 98,535 137,660
Other income (expense)
Interest, net (4,040) (4,292)
Other (13,181) (2,636)
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Income before income taxes 81,314 130,732
Provision for income taxes 9,010 52,042
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Net income $ 72,305 $ 78,690
========= =========
Earnings per common share
Primary and Fully diluted $0.01 $0.01
Weighted average shares outstanding
Primary 5,548,401 5,798,721
Fully diluted 5,548,401 5,798,721
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
3 Months Ended
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September 30, 1998 September 30,1997
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income $ 72,305 $ 78,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,843 25,912
Gain on sale of property, plant & equipment (1,850) -
Adjustments to cash from operations:
- ------------------------------------
Accounts Receivables (incr)decr (58,533) (55,468)
Inventory (incr)decr (9,507) 25,785
Accrued payable (incr)decr 53,428 (38,164)
Accrued liabilities (incr)decr 1,576 (7,860)
Income taxes payable (incr)decr 24,915 11,763
Reserve liability (incr)decr - (665)
Deferred tax (incr)decr - 47,679
Prepaid expenses (incr)decr 5,818 10,402
Other assets & deposits (incr)decr (3,252) (25,798)
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Net cash provided by operating activities 116,742 72,276
Cash flows from investing activities:
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Purchase of property, plant & equipment (33,398) (7,025)
Proceeds from sale of property, plant
& equipment 1,850 -
-------- --------
Net cash provided by investing activities (31,548) (7,025)
Cash flows from financing activities:
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Payments on short term borrowings (8,548) (29,748)
Net cash used by financing activities (31,813) (28,947)
New long term borrowings - -
-------- --------
Net cash provided by financing activities (40,358) (58,695)
Increase in cash and cash equivalents 44,836 6,556
Cash at beginning of period 323,920 278,791
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Cash at end of period $ 368,756 $ 285,346
======== ========
</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, 1998, and June 30, 1998, and the results
of it's operation for the three months ended September 30, 1998 and 1997.
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, 1998 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:
September 30 September 30
1998 1997
---- ----
Raw materials $ 60,675 $ 51,385
Work in process 428,605 402,703
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Total $489,280 $454,088
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998, the Company's cash position was $368,756 and working
capital was a positive $419,329, compared to cash of $245,346 in the prior
period. The cash position improved during the quarter as a result of the profit
of the Company. Management believes that these funds and cash flow from
operations are adequate to fund ongoing operations. However, there is no
assurance that these funds will prove adequate if the Company is unable to
maintain positive cash flow operations in the future.
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 1998, 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 1999. The Company will use its best
4
<PAGE>
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.
Factors Affecting Future Results
- --------------------------------
The Company must make payments to certain creditors in accordance with the
Company's 1991 Plan of Reorganization. The total of the non-interest bearing
notes, at September 30, 1998 was $190,899 compared to $443,021 at September 30,
1997.
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 a
former division. The Company made the third payment of $20,000 in August 1998,
with the last payment due August 2000. Based on the settlement reached with the
EPA in 1996 for the interim claim, the Company believes that its reserve for
future liability in the amount of $120,000 is adequate to cover any final
settlement.
The Company has reviewed its internal computer systems for year 2000 compliance
and is satisfied that all of its internal computer systems are either already
year-2000 compliant or can be made year-2000 compliant through simple upgrades.
The Company does not expect the costs of achieving full year-2000 compliance to
be material for the internal systems. However, there can be no assurance that
coding errors or other defects will not be discovered in the future. In
addition, since the Company is very small in relation to many of its customers
and suppliers, the Company has been unable to ascertain if any of its suppliers
and customers are year-2000 compliant. Therefore, there can be no assurances
that the Company's cash flow and materials from suppliers will not be
interrupted which could result in severe disruptions in the Company's
operations.
Results of Operations
- ---------------------
Comparison of three months ended September 30, 1998, and September 30, 1997.
The Company's sales for the three months ending September 30, 1998, increased
slightly by $73,497 or 5.3% over the comparable period of the prior year.
As a result of the continuing growth in the Company's markets, the backlog which
was approximately $1,852,052 at June 30, 1998, increased slightly and at
September 30, 1998 was approximately $1,979,000. There is no assurance that the
growth will continue or that the Company's sales efforts will continue to be
successful.
The cost of sales decreased to 63.7% compared to 66.1% in the prior year period,
primarily as a result of increased efficiencies in manufacturing, achieved
partly through investment in new production equipment. Operating expenses
increased to $430,576 (approximately $100,000) compared to $331,181 in the prior
period as a result of increased investment in the Company's sales and marketing
program and increases in G&A costs including audit and tax preparation and
investment in administrative staff for planned growth. As a result, the profit
for the quarter before taxes was $81,314 compared to $130,732 for the prior
year. Provision for income taxes was lower because of tax credits and
over-payments. Therefore, the net income after taxes remained relatively
constant at 5% of sales versus 5.7% for the prior year. The profit per share for
the three month period remain constant at $.01/share.
5
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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
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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.
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(Registrant)
November 12, 1998 F. Willard Griffith II
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Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 368,756
<SECURITIES> 0
<RECEIVABLES> 698,419
<ALLOWANCES> (6,464)
<INVENTORY> 489,280
<CURRENT-ASSETS> 1,585,177
<PP&E> 1,575,825
<DEPRECIATION> (1,029,019)
<TOTAL-ASSETS> 2,452,158
<CURRENT-LIABILITIES> 1,165,848
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (966,192)
<TOTAL-LIABILITY-AND-EQUITY> 2,452,158
<SALES> 1,456,212
<TOTAL-REVENUES> 1,456,212
<CGS> 927,101
<TOTAL-COSTS> 927,101
<OTHER-EXPENSES> 447,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,040
<INCOME-PRETAX> 81,314
<INCOME-TAX> 9,009
<INCOME-CONTINUING> 72,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,305
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
