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, 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.
<PAGE>
GC INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
December 31, 1998 and June 30, 1998........................1
Unaudited Condensed Statements of Operations
Three and six months ended December 31, 1998
and December 31, 1997......................................2
Unaudited Statements of Cash Flows for the three months
Ended December 31, 1998 and December 31, 1997..............3
Notes to Unaudited Condensed Financial Statements
Ended December 31, 1998 and December 31, 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 ................................................. 6
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1998 June 30, 1998
Unaudited
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<S> <C> <C>
ASSETS
Current Assets
Cash ....................................... $ 329,776 $ 323,920
Accounts receivable, net of
Allowance for doubtful accounts
of $6,464 at December 31 and
$6,464 at June 30, 1998 ................. 650,341 639,886
Inventories ................................ 531,408 479,773
Prepaid expenses ............................. 31,285 8,496
Deferred tax benefit ......................... 26,044 26,044
----------- -----------
Total current assets ..................... 1,568,854 1,478,119
Property and equipment, net ................ 620,235 545,250
Deposits & deferred expenses ............... 42,992 35,760
Deferred tax benefit ....................... 268,128 281,164
----------- -----------
Total assets ............................. $ 2,513,245 $ 2,340,293
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $ 201,486 $ 130,858
Accrued expenses ........................... 668,457 696,904
Income taxes payable ....................... 7,455 --
Notes payable .............................. 268,128 266,713
----------- -----------
Total current liabilities ................ 1,145,526 1,094,474
Other Liabilities:
Notes payable, net of current portion ...... 209,612 172,726
Other long term debt ....................... 320,000 320,000
----------- -----------
Total other liabilities .................. 529,612 492,726
----------- -----------
Total liabilities ................... 1,657,138 1,587,200
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Stockholders' equity:
Common stock, without par value ............ 1,791,590 1,791,590
Accumulated deficit ........................ (953,483) (1,038,497)
----------- -----------
Net stockholders' equity ................. 838,107 753,093
Total Liabilities and
Stock Holders Equity ................... $ 2,513,245 $ 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 6 Months Ended
-------------------------- -------------------------
12/31/98 12/31/97 12/31/98 12/31/97
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C>
Net sales ......................... $ 1,340,383 $ 1,427,334 $ 2,796,596 $ 2,810,049
Cost of sales ..................... 885,789 905,915 1,812,890 1,819,789
----------- ----------- ----------- -----------
Gross profit ...................... 454,594 521,419 983,706 990,260
Operating expenses:
Selling ......................... 73,875 57,626 142,525 106,131
General & Administrative ........ 308,394 265,703 670,321 548,379
----------- ----------- ----------- -----------
Income from operations ............ 72,324 198,090 170,860 335,750
Other income (expense)
Interest, net ................... (584) 336 (4,624) (3,956)
Other ........................... (49,821) (39,797) (63,002) (42,432)
----------- ----------- ----------- -----------
Income before income taxes ........ 21,919 158,629 103,234 289,362
Provision for income taxes ........ 9,210 68,497 18,220 120,539
----------- ----------- ----------- -----------
Net income ........................ $ 12,709 $ 90,132 $ 85,014 $ 168,823
=========== =========== =========== ===========
Earnings per common share
Primary and Fully diluted ....... $ 0.00 $ 0.02 $ 0.01 $ 0.03
Weighted average shares outstanding
Primary ......................... 5,798,721 5,798,721 5,798,721 5,798,721
Fully diluted ................... 5,798,721 5,798,721 5,798,721 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
6 Months Ended
-----------------------------------
December 31, 1998 December 31,1997
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income ..................................... $ 85,014 $ 168,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 55,423 54,885
Gain on sale of property, plant & equipment (1,850) (1,500)
Adjustments to cash from operations:
Accounts Receivables ....... (incr)decr ... (10,455) 24,998
Inventory .................. (incr)decr ... (51,635) 8,668
Accrued payable ............ incr(decr)... 70,629 10,209
Accrued liabilities ........ incr(decr)... (28,447) (25,843)
Income taxes payable ....... incr(decr)... 7,455 (31,905)
Reserve liability .......... incr(decr)... -- 5,817
Deferred tax ............... (incr)decr ... -- 101,443
Prepaid expenses ........... (incr)decr ... (22,789) (34,626)
Other assets & deposits .... (incr)decr ... (7,232) (13,848)
--------- ---------
Net cash provided by operating activities 96,112 267,121
Cash flows from investing activities:
Purchase of property, plant & equipment .. (130,408) (95,929)
Proceeds from sale of property, plant
& equipment ............................ 1,850 15,000
--------- ---------
Net cash provided (used) by
investing activities ................ (128,558) 94,429
Cash flows from financing activities:
Payments on short term borrowings ........ 1,415 (52,493)
Net cash used by financing activities .... 36,886 (26,464)
New long term borrowings ................. -- --
--------- ---------
Net cash provided by financing activities 38,302 (78,957)
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Increase in cash and cash equivalents .......... 5,856 93,735
Cash at beginning of period .................... 323,920 278,791
--------- ---------
Cash at end of period .......................... $ 329,776 $ 372,526
========= =========
</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, 1998, and December 31, 1997, and the
results of it's operation for the three and six months ended December 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 six months ended December 31, 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:
<TABLE>
<CAPTION>
December 31 December 31
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 58,036 $ 51,587
Work in process 473,372 419,618
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Total $531,408 $471,205
======= =======
</TABLE>
Inventories increased at the end of December 1998 due to work in process that
could not be shipped or was not scheduled to be shipped at the end of December.
Inventories are expected to decrease during the next quarter.
4
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1998, the Company's cash position was $329,776 and working
capital was $423,327, compared to cash of $372,526 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. 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 1999, the Company has been
able to arrange satisfactory equipment and automobile purchase contracts. During
the six months ending December 31, 1998, the company purchased for cash a metal
spectrographic analysis machine for approximately $30,000 and a new computer
controlled milling machine which is leased.
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
- --------------------------------
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 December 31, 1998 was $186,399 compared to $412,953 at December 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 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.
5
<PAGE>
Results of Operations
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Comparison of three and six months ended December 31, 1998, and December 31,
1997.
The Company's sales for the six months ending December 31, 1998, decreased
slightly by $13,453 or 0.5% 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 December 31, 1998 to
$1,773,751. 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 adding mailings to the schedule and is changing sales representatives in
under performing territories. As a result of this slowdown ALJ recently has cut
back the work force by 10-15%.
The Apollo Division has improved production yields and although the October
through December quarter is traditionally a slow sales period, division profits
exceeded the prior year. Apollo shipments are expected to increase during the
next six 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 likely that the company's profits, cash position and earnings
per share will decrease as compared to 1998.
The cost of sales remained constant at 64.8% for both periods. Operating
expenses increased $158,336 as compared to the prior six month period of which
approximately $36,000 represents additional selling expenses. The Company
expects to continue heavy selling activities during the next six months to
obtain new tooling and orders. Administrative expense increased due to increase
in overhead and expenses associated with marketing, web site development and
other expenses. As a result, the net income decreased in the quarter to $12,709
(1%) as compared to $90,132 in the prior period.
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
- ------------------------
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 10, 1999 F. Willard Griffith II
- ------------------- -----------------------------
Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 329,776
<SECURITIES> 0
<RECEIVABLES> 656,805
<ALLOWANCES> (6,464)
<INVENTORY> 531,408
<CURRENT-ASSETS> 1,568,854
<PP&E> 1,682,763
<DEPRECIATION> (1,062,527)
<TOTAL-ASSETS> 2,513,245
<CURRENT-LIABILITIES> 1,145,526
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (953,483)
<TOTAL-LIABILITY-AND-EQUITY> 838,107
<SALES> 1,340,383
<TOTAL-REVENUES> 1,340,383
<CGS> 885,789
<TOTAL-COSTS> 885,789
<OTHER-EXPENSES> 432,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 584
<INCOME-PRETAX> 21,919
<INCOME-TAX> 9,210
<INCOME-CONTINUING> 12,709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,709
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
