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, 1999
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
incorporation or organization) (I.R.S. employer 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
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: 5,423,191.
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<PAGE>
GC INTERNATIONAL, INC.
INDEX
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PART I. FINANCIAL INFORMATION:
- --------------------------------
Item 1. Financial Statements
Unaudited Condensed Balance Sheets
December 31, 1999 and June 30, 1999........................1
Unaudited Condensed Statements of Operations
Three and six months ended December 31, 1999
and December 31, 1998......................................2
Unaudited Statements of Cash Flows for the six months
Ended December 31, 1999 and December 31, 1998..........3
Notes to Unaudited Condensed Financial Statements
Ended December 31, 1999 and December 31, 1998..........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
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1999 June 30, 1999
Unaudited
----------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash ........................................... $ 184,236 $ 371,085
Accounts receivable, net of
Allowance for doubtful accounts ................ 550,690 508,214
Of $5,133 at September 30 and
$5,133 at June 30, 1999
Inventories .................................... 472,115 472,931
Prepaid expenses ............................... 26,754 6,787
Prepaid income tax ............................. -- 26,561
Deferred tax benefit ........................... 18,396 18,395
----------- -----------
Total current assets ............... 1,252,190 1,403,972
Property and equipment, net ............... 505,031 548,106
Deposits & deferred expenses .............. 50,699 35,999
Deferred tax benefit ...................... 336,734 336,734
----------- -----------
Total assets ...................... $ 2,144,654 $ 2,324,812
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable .......................... $ 142,554 $ 68,776
Accrued expenses .......................... 576,335 646,409
Income taxes payable ...................... (7,491) --
Notes payable ............................. 252,087 258,188
----------- -----------
Total current liabilities ............. 963,486 973,373
Other Liabilities:
Notes payable, net of current portion ..... 146,032 181,194
Other long term debt ...................... 320,000 320,000
Stockholders' equity:
Common stock, without par value ........... 1,759,149 1,770,007
Accumulated deficit ....................... (1,044,013) (919,762)
----------- -----------
Net stockholders' equity .............. 715,136 850,245
Total Liabilities and
Stock Holders Equity ............... $ 2,144,654 $ 2,324,812
=========== ===========
</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
-------------- --------------
12/31/99 12/31/98 12/31/99 12/31/98
(Unaudited) (Unaudited)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales ......................... 1,190,937 1,340,383 2,228,836 $ 2,796,596
Cost of sales ..................... 856,959 885,789 1,571,684 1,812,890
----------- ----------- ----------- -----------
Gross profit ...................... 354,078 454,594 657,152 983,706
Operating expenses:
Selling ......................... 46,082 73,875 87,994 142,525
General & Admin ................. 327,375 308,394 641,316 670,321
----------- ----------- ----------- -----------
Income (loss)from operations ...... (19,380) 72,324 (72,158) 170,860
Other income (expense)
Interest net .................... (719) (584) (4,206) (4,624)
Other ........................... (42,041) (49,821) 47,889 (63,002)
----------- ----------- ----------- -----------
Income (loss) before
income taxes .................... (62,140) 21,919 (124,242) 103,234
Provision for income taxes ........ -- 9,210 -- 18,220
----------- ----------- ----------- -----------
Net income (loss) ................. $ (62,140) $ 12,709 $ (124,252) $ 85,014
=========== =========== =========== ===========
Earnings per common share
Primary and Fully diluted ....... $ (.02) $ 0.00 $ (.01) $ 0.01
Weighted average shares outstanding
Primary ......................... 5,423,191 5,423,191 5,423,191 5,423,191
Fully diluted ................... 5,423,191 5,423,191 5,423,191 5,423,191
</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, 1999 December 31,1998
(Unaudited) (Unaudited)
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................... $(124,252) $ 85,014
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 53,106 55,423
Gain on sale of property, plant & equipment ...... -- (1,850)
Adjustments to cash from operations:
Accounts Receivables ........(incr)decr ......... (42,476) (10,455)
Inventory ...................(incr)decr ....... 816 (51,635)
Accrued payable ............. incr(decr) ....... 73,778 70,629
Accrued liabilities ......... incr(decr) ....... (70,074) (28,447)
Income taxes payable ........ incr(decr) ....... (7,491) 7,455
Prepaid income taxes ........ ....... 26,561 --
Reserve liability ........... incr(decr) ....... -- --
Prepaid expenses ............(incr)decr ....... (19,967) (22,789)
Other assets & deposits .....(incr)decr ....... (14,700) (7,232)
--------- ---------
Net cash provided by operating activities ...... (124,699) 96,112
Cash flows from investing activities:
Purchase of property, plant & equipment ........ (10,030) (130,408)
Proceeds from sale of property, plant
& equipment .................................. -- 1,850
--------- ---------
Net cash provided (used) by investing activities (10,030) (128,558)
Cash flows from financing activities:
Payments on short term borrowings .............. (6,100) 1,415
Payments on long term debt ..................... (35,161) 36,886
Re-purchase of common stock .................... (10,859) --
New long term borrowings ....................... -- --
--------- ---------
Net cash provided by financing activities ..... (52,120) 38,302
--------- ---------
Increase (decrease) in cash and cash equivalents ..... (186,849) 5,856
Cash at beginning of period ...................... 371,085 323,920
--------- ---------
Cash at end of period ................................ $ 184,236 $ 329,776
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 December 31, 1999, and December 31, 1998, and the
results of it's operation for the three and six months ended December 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 six months ended December 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:
December 31 December 31
1999 1998
---- ----
Raw materials $66,101 $ 58,036
Work in process 406,014 473,372
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Total $472,115 $531,408
======= =======
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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999, the Company's cash position was $184,236 and working
capital was $288,704, compared to cash of $371,085 and working capital of
$430,599 in the prior period. The cash position decreased during the period as a
result of continuing losses resulting from poor shipments at the ALJ division.
Management believes that these funds and cash flow from operations are adequate
to fund ongoing operations, if the division can increase sales and cash flow
during 2000. However, there is no assurance that these funds will prove adequate
if the Company is unable to obtain positive cash flow operations in the future.
4
<PAGE>
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 2000, the Company has been
able to arrange satisfactory purchase contracts.
The Company anticipates that additional capital equipment will be required for
the Company's operating divisions during 2000. The Company will use its best
efforts to satisfy its capital needs by using internally generated cash in
excess of debt repayments, cash resources 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, 1999 was $170,365 compared to $186,399 at December 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 fourth payment of $20,000 in August 1999,
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.
As of February 1st the year 2000, there were no problems at the company and its
suppliers and customers. There has been no current impact on operations,
suppliers and payments from customers.
Results of Operations
- ---------------------
Comparison of three and six months ended December 31, 1999, and December 31,
1998.
The Company's sales for the six months ending December 31, 1999, decreased
$567,760 or 20.3% and for the 3 month period ended December 31, 1999, sales
decreased by $149,446 or 11.1% over the comparable period of the prior year.
There has been a noticeable decrease in the Company's markets, the backlog which
was approximately $1,250,417 at June 30, 1999 and $1,852,052 at June 30, 1998,
increase at December 31, 1999 to $1,527,558. Significantly, a substantial part
of the backlog is stretched out. The back-log has increased from $1,364,960 at
September 30, 1999. If orders continue to be booked as a result of continued
sales and marketing efforts, shipment could increase during the third quarter to
enable a return to profitability. However, there are no assurances that the
Company will be able to do so. The company has been increasing the marketing
efforts by adding mailings to the schedule and is changing sales representatives
in underperforming territories.
5
<PAGE>
The Apollo Division has improved production yields and division profits have
held up. Apollo shipments are expected to remain stable during the next six
months and are therefore expected to provide profits and cash flow. However,
Apollo increases are not expected to offset ALJ decreases. Therefore, the
Company's profits, cash position and earnings per share will decrease as
compared to 1999.
The Company's cost of sales increased 4.2% in the 6 months ended December 31,
1999 over the comparable period. Operating expenses decreased $8,811 due to
lower selling costs as compared to the prior six month period. The Company
expects to continue heavy selling activities during the next six months to
obtain new tooling and orders. Administrative expense increased due to an
increase in management and sales personnel. As a result, the net loss increased
in the quarter to $62,140(5%) as compared to profit of $12,709 in the prior
period.
As the backlog and monthly shipments have increased over the first half, ALJ is
now facing the problem of a tight labor market. This results in increased
overtime and labor costs to meet customer requirements, thereby decreasing gross
margins. If ALJ is unable to hire sufficient qualified personnel, profits and
cash flow will continue to be adversely affected.
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
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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 184,236
<SECURITIES> 0
<RECEIVABLES> 555,823
<ALLOWANCES> (5,133)
<INVENTORY> 472,115
<CURRENT-ASSETS> 1,252,190
<PP&E> 1,678,667
<DEPRECIATION> (1,173,636)
<TOTAL-ASSETS> 2,144,654
<CURRENT-LIABILITIES> 963,486
<BONDS> 0
0
0
<COMMON> 1,759,149
<OTHER-SE> (1,044,013)
<TOTAL-LIABILITY-AND-EQUITY> 2,144,654
<SALES> 1,190,937
<TOTAL-REVENUES> 1,190,937
<CGS> 836,859
<TOTAL-COSTS> 1,210,317
<OTHER-EXPENSES> 42,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 719
<INCOME-PRETAX> (62,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,140)
<EPS-BASIC> (.017)
<EPS-DILUTED> (.017)
</TABLE>
