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 December 31, 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 ofPrincipal 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 filed 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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<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
December 31, 1997 and June 30, 1997..............................1
Unaudited Condensed Statements of Operations
Three months and six months ended December 31, 1997
and December 31, 1996............................................2
Unaudited Statements of Cash Flows for the six months
Ended December 31, 1997 and December 31, 1996................3
Notes to Unaudited Condensed Financial Statements
Ended December 31, 1997 and December 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>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31 June 30
1997 1997
----------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 372,526 $ 278,791
Accounts receivable, net of
Allowance for doubtful accounts
of $6,707 at December 31 and
$6,607 at June 30, 1997 629,413 654,411
Inventories 471,205 479,873
Prepaid expenses 37,959 3,333
Deferred tax benefit $ 181,760 181,760
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Total current assets 1,692,863 1,598,168
Property and equipment, net 459,777 418,733
Deposits & deferred expenses 40,071 34,123
Deferred tax benefit 168,377 261,920
----------- ---------
Total assets $2,361,088 $2,312,944
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 148,427 $ 138,219
Accrued expenses 714,615 734,641
Income taxes payable 23,730 55,635
Notes payable 474,510 527,002
----------- ----------
Total current liabilities 1,361,282 1,455,497
Other Liabilities:
Notes payable, net of current portion 119,843 146,307
Other long term debt 320,000 320,000
Stockholders' equity:
Common stock, without par value. 1,791,590 1,791,590
Accumulated deficit (1,231,627) (1,400,450)
----------- -----------
Net stockholders' equity 559,963 391,140
Total liabilities and
stock holders equity $2,361,088 $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 6 Months Ended
------------------------ ------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ......................... $ 1,427,334 $ 1,386,488 $ 2,810,049 $ 2,790,004
Cost of Sales ..................... 905,915 946,358 1,819,789 1,931,207
----------- ----------- ----------- -----------
Gross Profit ............. 521,419 440,130 990,260 858,797
Operating expenses:
Selling ...................... 57,626 56,712 106,131 111,821
Administrative ............... 265,703 262,876 548,379 508,640
----------- ----------- ----------- -----------
Income from Operations ............ 198,090 120,542 335,750 238,336
Other income (expense):
Other income (expense), net .. 336 (2,507) (3,956) (5,678)
interest expense, net of
interest income .......... (39,797) 29,530 (42,432) 22,631
----------- ----------- ----------- -----------
Income before income taxes ........ 158,629 147,565 289,362 255,289
Provision for income taxes ........ 68,497 52,327 120,539 90,525
----------- ----------- ----------- -----------
Net Income .......... $ 90,132 $ 95,238 $ 166,823 $ 164,764
=========== =========== =========== ===========
Earnings per Common Share
Primary and fully diluted .... $ 0.02 $ 0.02 $ 0.03 $ 0.03
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>
STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
December 31 June 30
1997 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 168,823 $ 232,934
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 54,885 87,332
Gain on sale of property, plant & equipment (1,500) (1,317)
Adjustments to cash from operations:
Accounts Receivable 24,998 (5,975)
Inventory 8,668 59,524
Accrued payables 10,209 (15,507)
Accrued liabilities (25,843) (103,539)
Income taxes payable (31,905) 54,835
Reserve liability 5,817 (32,337)
Deferred tax 101,443 209,727
Prepaid expenses (34,626) (3,333)
Other assets & deposits (13,848) 19,634
--------- ---------
Net cash provided by operating activities 267,121 501,978
Cash flows from investing activities:
Purchase of property, plant & equipment (95,929) (143,661)
Proceeds from sale of property, plant
& equipment 1,500 1,317
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Net cash provided by investing activities (94,429) (142,344)
Cash flows from financing activities:
Payments on short term borrowings (52,493) (216,711)
Net cash used by financing activities (26,464) (40,187)
--------- ---------
Net cash provided by financing activities (78,957) (256,898)
Increase in cash and cash equivalents 93,735 102,736
Cash at beginning of period 278,791 176,055
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Cash at end of period $ 372,526 $ 278,791
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GC INTERNATIONAL, INC.
Notes to Condensed Financial Statements
Note 1
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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, 1997, and June 30, 1997, and the results
of its operations for the three and six months ended December 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
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 six months ended December 31, 1997 are not
necessarily indicative of the results for 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>
December 31 December 31
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 51,587 $ 69,087
Work in process 419,618 385,062
------- -------
Total $471,205 $454,149
======= =======
</TABLE>
4
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
- ---------------------
Comparison of six months ended December 31, 1997, and December 31, 1996.
The Company did not experience material changes in the results or the operations
in the covered periods.
The Company's sales for the six months ending December 31, 1997, increased
slightly by $20,046 or .7% over the comparable period of the prior year.
The backlog which was approximately $1,180,000 at June 30, 1997, has increased
to approximately $1,338,000 at December 31, 1997.
The cost of sales decreased to 64.8% compared to 69.2% in the prior year period,
primarily as a result of increased efficiencies in manufacturing.
Although pre-tax income was higher in 1997, the profit for the quarter after
provision for taxes was $90,132 or 6.3% compared to $95,238 or 6.9% for the
prior year, and $166,823 or 6% in the six months as compared to $164,764 or 6%
for the prior period. The profit per share for the six month period remained
constant at $.03/share.
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. 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.
Ongoing Operations Plan
- -----------------------
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 and wherever possible for less than the note
balance; the Company intends to continue that program, as appropriate.
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.
Liquidity, Capital Resources, and Bank Loan Agreement
Bank Loans
- ----------
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.
5
<PAGE>
Long Term Debt
- --------------
Long-term Debt includes financed equipment and automobile purchases and the EPA
Settlement described herein. Other long-term Debt includes a reserve for the
estimated future EPA liability described herein.
Liquidity
- ---------
As of December 31, 1997, the Company's cash position was $372,526 and working
capital was a positive $331,581, compared to cash of $227,904 and negative
working capital of $182,628 at December 31, 1996. 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
and six months period ending December 31, 1997.
(2) 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 December 31, 1997
was $412,953 compared to $657,420 at December 31, 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, 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
excess of debt repayments 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)
February 8, 1997 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> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 372,526
<SECURITIES> 0
<RECEIVABLES> 636,120
<ALLOWANCES> (6,707)
<INVENTORY> 471,205
<CURRENT-ASSETS> 1,692,863
<PP&E> 1,447,551
<DEPRECIATION> (987,773)
<TOTAL-ASSETS> 2,361,088
<CURRENT-LIABILITIES> 1,361,283
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,231,627)
<TOTAL-LIABILITY-AND-EQUITY> 2,361,088
<SALES> 1,427,334
<TOTAL-REVENUES> 1,427,334
<CGS> 905,915
<TOTAL-COSTS> 905,915
<OTHER-EXPENSES> 363,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (336)
<INCOME-PRETAX> 158,629
<INCOME-TAX> 68,497
<INCOME-CONTINUING> 90,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,132
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
