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, 1999
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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 5,496,782.
<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
March 31, 1999 and June 30, 1998............................1
Unaudited Condensed Statements of Operations Three months
and nine months ended March 31, 1999
and March 31, 1998..........................................2
Unaudited Statements of Cash Flows for the nine months
Ended March 31, 1999 and March 31, 1998.................3
Notes to Unaudited Condensed Financial Statements.........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 ................................................... 7
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31, 1999 June 30, 1998
Unaudited Audited
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<S> <C> <C>
ASSETS
Current Assets
Cash .................................................. $ 321,869 $ 323,920
Accounts receivable, net of
Allowance for doubtful accounts
Of $6,464 at March 31 and
$6,464 at June 30, 1999 .............................. 582,798 639,886
Inventories ........................................... 509,312 479,773
Prepaid expenses ...................................... 18,656 8,496
Deferred tax benefit .................................. 26,044 26,044
----------- -----------
Total current assets ................................ 1,458,579 1,478,119
Property and equipment, net ........................... 595,688 545,250
Deposits & deferred expenses .......................... 44,934 35,760
Deferred tax benefit .................................. 281,164 281,164
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Total assets ........................................ $ 2,370,365 $ 2,340,293
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable ...................................... $ 138,041 $ 130,858
Accrued expenses ...................................... 630,120 696,904
Income taxes payable .................................. 1,255 --
Notes payable ......................................... 261,910 266,713
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Total current liabilities ........................... 1,031,326 1,094,474
Other Liabilities:
Notes payable, net of current portion ................. 195,566 172,726
Other long term debt .................................. 320,000 320,000
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Total other liabilities ............................. 515,566 492,726
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Total liabilities ................................... 1,546,893 1,587,200
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Stockholders' equity:
Common stock, without par value ....................... 1,781,782 1,791,590
Accumulated deficit ................................... (958,310) (1,038,497)
----------- -----------
Net stockholders' equity ............................ 823,473 753,093
Total Liabilities and
Stock Holders Equity .............................. $ 2,370,365 $ 2,340,293
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
3 Months Ended 9 Months Ended
--------------------------- -------------------------
3/31/99 3/31/98 3/31/99 3/31/98
(Unaudited) (Unaudited)
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales ......................... $ 1,228,737 $ 1,368,511 $ 4,025,333 $ 4,178,560
Cost of sales ..................... 826,596 904,105 2,639,486 2,723,893
----------- ----------- ----------- -----------
Gross profit ...................... 402,142 464,406 1,385,847 1,454,667
Operating expenses:
Selling ......................... 61,472 59,998 203,997 166,130
Administrative .................. 325,743 309,707 996,064 _858,087
----------- ----------- ----------- -----------
Operating Profit .............. 14,926 94,701 186,786 430,450
Other income (expense) ............ (23,837) (6,097) (86,839) (65,897)
Interest Expense net of ........... (2,118) (1,782) (6,742) (5,738)
----------- ----------- ----------- -----------
interest income
Income (loss) before income taxes . (11,029) 86,822 92,204 358,816
Extraordinary event, and
discontinued operations
Income tax benefit (expense) ...... 6,203 (74,850) (12,017) (195,388)
Income (loss) extraordinary item .. -- 89,286 -- 106,633
----------- ----------- ----------- -----------
Net income (loss) ................. $ (4,826) $ 101,238 $ 80,187 $ 270,061
=========== =========== =========== ===========
Earnings per common share
Primary .......................... $ (.00) $ 0.02 $ 0.01 $ 0.05
Fully diluted .................... $ (.00) $ 0.02 $ 0.01 $ 0.05
Weighted average shares outstanding
Primary ......................... 6,856,782 5,798,721 6,856,782 5,798,721
Fully diluted ................... 6,856,782 5,798,721 6,856,782 5,798,721
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
9 Months Ended
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March 31, 1999 March 31,1998
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 80,187 $ 270,061
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................. 93,279 26,751
Gain on sale of property, plant & equipment .... (1,850) --
Purchase of GCI Stock .......................... (9,808) --
Adjustments to cash from operations:
Accounts Receivables ..........(incr)decr 57,088 31,743
Inventory .....................(incr)decr (29,540) (1,526)
Accrued payable ............... incr(decr) 7,184 (4,323)
Accrued liabilities ........... incr(decr) (66,784) (101,534)
Income tax accruables ......... incr(decr) 1,255 --
Deferred tax ..................(incr)decr- -- --
Prepaid expenses ..............(incr)decr (10,060) (71,267)
Other assets & deposits .......(incr)decr (9,174) 151,680
--------- ---------
Net cash provided by operating activities .......... 119,788 301,585
Cash flows from investing activities:
Purchase of property, plant & equipment ...... (133,717) (194,930)
Proceeds from sale of property, plant ........ 1,850 25,875
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& equipment
Net cash provided (used) by .................. (131,867) (169,055)
investing activities
Cash flows from financing activities:
Payments on short term borrowings ............ (4,802) (161,268)
Net cash used by financing activities ........ (34,526) (73,234)
New long term borrowings ..................... 57,367 111,204
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Net cash provided (used) by
financing activities ....................... 18,039 (123,298)
Increase (decrease) in cash & cash equivalents ..... (2,051) 9,232
Cash at beginning of period ........................ 323,920 278,791
Cash at end of period .............................. $ 321,869 $ 288,023
========= =========
</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 March 31, 1999, and June 30, 1998, and the results of
it's operation for the three and nine months ended March 31, 1999 and 1998.
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, 1999 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:
March 31 March 31
1999 1998
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Raw materials ....... $ 63,862 $ 68,282
Work in process ..... 443,450 413,117
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Total ........ $509,312 $481,399
Inventories increased at the end of March 1999 due to work in process that could
not be shipped or was not scheduled to be shipped at the end of March.
Inventories are expected to remain at the current level during the next quarter.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, the Company's cash position was $321,869 and working
capital was $427,253, compared to cash of $323,920 and working capital of
$383,645 in the prior period. The cash position decreased during the period as a
result of the purchase of new plant and equipment and an increase in inventory
of the Company and a slowdown in orders during the last nine months thus
reducing profits. 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.
4
<PAGE>
Capital Equipment Requirements and Equipment Leases
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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 1999, the Company has been
able to arrange satisfactory equipment and automobile 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 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
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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 March 31, 1999 was $181,899 compared to $195,980 at March 31, 1998.
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 and nine months ended March 31, 1999, and March 31, 1998.
The Company's sales for the nine months ending March 31, 1999, decreased by
$153,227 or 3.7% and for the three months by $139,774 or 10.2% over the
comparable period of the prior year.
There has been a noticeable decrease in the Company's markets, the backlog which
was approximately $1,852,052 at June 30, 1998, decreased at March 31, 1999 to
$1,411,444. Significantly, a substantial part of the backlog is stretched out
over the next year. Despite continued sales and marketing efforts and expense,
tooling sales of the ALJ Division have decreased. This means that as current
production orders are filled, production will decrease causing a potentially
significant decrease in profits. The Company is increasing the marketing efforts
by increasing direct mailings and is changing sales representatives in under
performing territories. In addition, the Company is considering adding a Company
sales force, primarily in California. As a result of this slowdown, ALJ recently
has cut back the work force by approximately 10%.
5
<PAGE>
The Apollo Division profits exceeded the prior year. Apollo shipments are
expected to increase slightly during the next nine months and are therefore
expected to provide increasing profits and cash flow. However, Apollo increases
are not expected to offset ALJ decreases. Therefore, it is probable that the
company's profits, cash position and earnings per share will decrease as
compared to 1998.
The cost of sales remained constant at 66% for both periods. Operating expenses
increased $175,844 as compared to the prior nine month period of which
approximately $138,000 represents additional selling expenses. The Company
expects to continue heavy selling activities during the next three months to
obtain new tooling and orders. A recent mailing to prospective customers has
provided good results. Administrative expense increased due to increase in
overhead and expenses associated with marketing, web site development and other
expenses. As a result, the Company had a net loss of $4,826 in the quarter as
compared to $101,238 profit in the prior period and for the nine month period
the Company showed a profit of $80,187 as compared to $270,061 in 1998.
- ---------------
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.
(Registrant)
May 11, 1999 /s/ 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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 321,869
<SECURITIES> 0
<RECEIVABLES> 589,262
<ALLOWANCES> (6,464)
<INVENTORY> 509,312
<CURRENT-ASSETS> 1,458,579
<PP&E> 1,686,072
<DEPRECIATION> (1,100,384)
<TOTAL-ASSETS> 2,370,365
<CURRENT-LIABILITIES> 1,031,326
<BONDS> 0
0
0
<COMMON> 1,781,782
<OTHER-SE> (958,310)
<TOTAL-LIABILITY-AND-EQUITY> 2,370,365
<SALES> 1,228,737
<TOTAL-REVENUES> 1,228,737
<CGS> 826,596
<TOTAL-COSTS> 826,596
<OTHER-EXPENSES> 413,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,118
<INCOME-PRETAX> (11,029)
<INCOME-TAX> (6,203)
<INCOME-CONTINUING> (4,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,826)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
