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 March 31, 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 ofregistrant 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 _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 5,548,401.
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<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
March 31, 1998 and June 30, 1997...........................1
Unaudited Condensed Statements of Operations Three months
and nine months ended March 31, 1998
and March 31, 1997.........................................2
Unaudited Statements of Cash Flows for the nine months
Ended March 31, 1998 and March 31, 1997................3
Notes to Unaudited Condensed Financial Statements
Ended March 31, 1998 and March 31, 1997................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>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31 June 30
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash .................................... $ 288,023 $ 278,791
Accounts receivable, net of
Allowance for doubtful accounts
of $6,707 at March 31 and
$6,607 at June 30, 1997 ............. 622,667 654,411
Inventories ............................. 481,399 479,873
Prepaid expenses ........................ 74,600 3,333
Deferred tax benefit .................... 181,760 181,760
----------- -----------
Total current assets ............. 1,648,450 1,598,168
Property and equipment, net ............. 561,037 418,733
Deposits & deferred expenses ............ 35,564 34,123
Deferred tax benefit .................... 108,799 261,920
----------- -----------
Total assets .................... $ 2,353,849 $ 2,312,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................ $ 133,895 $ 138,219
Accrued expenses ........................ 654,148 734,641
Income taxes payable .................... 34,594 55,635
Notes payable ........................... 365,734 527,002
----------- -----------
Total current liabilities ........... 1,188,371 1,455,497
Other Liabilities:
Notes payable, net of current portion ... 184,277 146,307
Reserve for future liability ............ 320,000 320,000
----------- -----------
Total liabilities ................... 1,692,648 1,921,806
Stockholders' equity:
Common stock, without par value ......... 1,791,590 1,791,590
Accumulated deficit ..................... (1,130,389) (1,400,450)
----------- -----------
Net stockholders' equity ............ 661,201 391,140
----------- -----------
Total liabilities and
stock holders equity ............. $ 2,353,849 $ 2,312,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS of OPERATIONS
(Unaudited)
3 Months Ended 9 Months Ended
------------------------ --------------------------
Mar.31 Mar.31 Mar.31 Mar.31
1998 1997 1998 1997
------------------------ --------------------------
<S> <C> <C> <C> <C>
Net Sales .......................................... $ 1,368,511 $ 1,306,212 $ 4,178,560 $ 4,096,216
Cost of Sales ...................................... 904,105 873,933 2,723,893 2,805,140
----------- ----------- ----------- -----------
Gross Profit .............................. 464,406 432,279 1,454,667 1,291,076
Operating expenses:
Selling ....................................... 59,998 66,318 166,130 178,139
Administrative ................................ 309,707 272,386 858,087 781,026
----------- ----------- ----------- -----------
Income from Operations ............................. 94,701 93,575 430,450 331,911
Other income (expense):
Other income (expense), net ................... (6,097) 936 (65,896) 7,043
Interest expense, net of
interest income ............................... (1,782) (5,025) (5,738) 5,822
----------- ----------- ----------- -----------
Income before income taxes and ..................... 86,822 89,486 358,816 344,776
extraordinary items
Provision for income taxes ......................... (74,850) (9,429) (195,388) (31,525)
----------- ----------- ----------- -----------
Income before extraordinary item ................... 11,492 80,057 163,430 313,251
Extraordinary item ................................. 89,266 0 106,633 0
----------- ----------- ----------- -----------
Net Income ........................... $ 101,238 $ 80,057 $ 270,061 $ 313,251
=========== =========== =========== ===========
Earnings per Common Share Primary and fully diluted:
Income before extraordinary item ................. $ -- $ .01 $ .03 $ .05
Extraordinary item ............................... .02 -- .02 --
----------- ----------- ----------- -----------
Net Income ....................................... $ .02 $ .01 $ .05 $ .05
=========== =========== =========== ===========
Weighted average shares outstanding
Primary ....................................... 5,798,721 5,748,499 5,798,721 5,748,499
Fully Diluted ................................. 5,798,721 5,748,499 5,798,721 5,748,499
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Statement of Cash Flows
(Unaudited)
9 Months Ended
--------------
March 31 March 31
1998 1997
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Cash Flows from Operating Activities:
- -------------------------------------
<S> <C> <C>
Profit from operations ......................... $ 270,061 $ 313,251
Adjunoonstments to Cash from operations:
- ----------------------------------------
Depreciation and amortization (incr) decr ....... 26,751 55,797
Receivables (increase) decrease ................. 31,743 33,239
Inventory (increase) decrease ................... (1,526) 50,416
Accounts Payable increase (decrease) ............ (4,323) (11,501)
Accrued liabilities increase (decrease) ......... (101,534) (96,886)
Prepaid expenses (increase) decrease ............ (71,267) (9,094)
Other assets and deposits(increase) decrease .... 151,680 1,725
--------- ---------
Net cash provided by
operating activities ............................ 301,585 336,947
Cash flow from investing activities:
- ------------------------------------
Purchases of equipment .......................... (219,442) (15,281)
Purchases of furniture & fixtures ............... (2,932) (15,992)
Purchase of leasehold improvements .............. (7,882) (4,586)
Proceeds from sale of automobiles ............... 25,875 --
Disposal of equipment ........................... 415 --
Devaluation of idle assets ...................... 34,911 --
--------- ---------
Net cash provided (used) by investing
activities .................................. (169,055) (35,859)
Cash Flow from Financing Activities:
- ------------------------------------
Paydown of A/R Line to Comerica ................. -- (146,991)
Payments made on notes .......................... (182,158) (126,740)
Notes on new equipment .......................... 111,204 --
Payments made on equipment notes ................ -- (15,533)
Payments made on automobiles .................... (12,146) --
Lease payable on new equipment .................. (20,198) --
Note payable to EPA ............................. (20,000) 80,000
--------- ---------
Net cash used by financing activities ................ (123,298) (209,264)
Net increase in cash ................................. 9,232 91,824
Cash at beginning of period .......................... 278,791 176,055
Cash at end period ................................... $ 288,023 $ 267,879
========= =========
</TABLE>
3
<PAGE>
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 March 31, 1998, and June 30, 1997, and the results of
its operations for the three and nine months ended March 31, 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 and nine months ended March 31, 1998 are not
necessarily indicative of the results for 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:
March 31 June 30
1998 1997
---- ----
Raw materials $ 68,282 $ 51,858
Work in process 413,117 428,015
------- -------
Total $481,399 $479,873
======= =======
4
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
Comparison of the three and nine months ended March 31, 1998, and March 31,
1997.
The Company did not experience material changes in the results of its operations
in the covered periods.
Sales for the quarter increased by $62,023 or 4.7%. Income for operations
decreased by $25,841 due to increased administration overhead. However, the
gross profit increased by $32,127.
The Company's sales for the nine months ending March 31, 1998, increased
slightly by $82,344 or .2% over the comparable period of the prior year.
The backlog which was approximately $1,180,000 at June 30, 1997, has increased
to approximately $1,436,000 at March 31, 1998.
The cost of sales decreased to 65.2% compared to 68.5% in the prior year period,
primarily as a result of increased efficiencies in manufacturing.
Although pre-tax income for the quarter was higher in 1997, the profit for the
quarter after provision for taxes was $101,238 or 7.4% compared to $80,057 or
6.1% for the prior year, and $270,061 in the nine months as compared to $313,251
for the prior period. The profit per share for the nine month period remained
constant at $.05/share.
The reduction in after tax profits was a result of the increase in provision for
taxes for the nine months from $31,525 in 1997 to $195,388 in 1998.
The federal net operating loss carry forward will preclude the Company from
paying full federal income taxes for 1998. However, it is anticipated that
alternative minimum federal tax in the approximate amount of $10,000 will be due
for 1998. The Company has no net operating loss carry forward for California
income tax purposes and pays taxes at the rate of approximately 9% of net
profits.
Capital Resources
- -----------------
Management views the existing positive cash flow as sufficient to meet the needs
of the Company and to make any required payments on outstanding debts as
scheduled or required. The Company has been making settlements on the
pre-petition creditor notes for less than the note balance wherever possible.
The Company intends to continue that program, as appropriate. As a result of the
Company's settlement efforts, extraordinary income in the amount of $89,266 for
the quarter and $106,673 for the nine months was recorded.
5
<PAGE>
The Company's plan of operations anticipates a small increase in sales for the
fiscal year ending June 30, 1998 and it 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 for the next 12 months.
The Company currently does not have any lines of credit or bank loans and does
not anticipate any need for borrowings for the near future.
Notes payable increased $37,570 due to the financing of equipment.
Long-term Debt includes financed equipment and automobile purchases and the EPA
Settlement described herein. The reserve for future liability is for the
estimated future EPA liability described herein.
Liquidity
- ---------
As of March 31, 1998, the Company's cash position was $288,023 and working
capital was a positive $460,079, compared to cash of $267,879 and negative
working capital of $378,752 at March 31, 1997.
The Company reported continuing profits and positive cash flow for the three and
nine months period ending March 31, 1998.
The Company must make payments to pre-petition creditors in accordance with the
Company's 1991 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 March 31, 1998 was
$291,621 compared to $643,675 at March 31, 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 the
Company's former Raytee division. The Company made the first and second payments
of $20,000 each in August 1997 and 1998. 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 1997, the Company believes that
its reserve for future liability in the amount of $320,000 is adequate to cover
any final settlement, although there can be no assurance thereof.
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 1997 and 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 1998. The Company will use its best
efforts to satisfy its capital needs by using internally generated cash in and
by entering into other arrangements as available. There can be no assurances
that cash resources will be adequate.
6
<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
7
<PAGE>
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)
May 11, 1998 F. Willard Griffith II
------------ ----------------------
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> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 288,023
<SECURITIES> 0
<RECEIVABLES> 629,374
<ALLOWANCES> 6,707
<INVENTORY> 481,399
<CURRENT-ASSETS> 1,648,450
<PP&E> 1,546,141
<DEPRECIATION> 985,104
<TOTAL-ASSETS> 2,353,849
<CURRENT-LIABILITIES> 1,188,371
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,130,389)
<TOTAL-LIABILITY-AND-EQUITY> 2,353,849
<SALES> 1,368,511
<TOTAL-REVENUES> 1,368,511
<CGS> 904,104
<TOTAL-COSTS> 904,104
<OTHER-EXPENSES> 375,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,782
<INCOME-PRETAX> 86,822
<INCOME-TAX> 74,850
<INCOME-CONTINUING> 11,972
<DISCONTINUED> 0
<EXTRAORDINARY> (89,266)
<CHANGES> 0
<NET-INCOME> 101,238
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
