SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- ----- EXCHANGE AT OF 1934
For the quarterly period ended March 31, 2001
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OR
TRANSITION REPORT PRUSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-17259
GC INTERNATIONAL, INC.
(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 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 document 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
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APPLICABLE ONLY TO CORPORATE ISSUEERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date 5,350,798.
GC INTERNATIONAL, INC.
INDEX
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PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Unaudited Condensed Balance Sheets
March 31, 2001 and June 30, 2000..........................1
Unaudited Condensed Statements of Operations
Three and nine months ended March 31, 2001
and March 31, 2000........................................2
Unaudited Statements of Cash Flows for the nine months
Ended March 31, 2001 and March 31, 2000...................3
Notes to Unaudited Condensed Financial Statements.............4
Item 2. Management's Discussion and Analysis of
Financial Condition & Results of Operation............4
PART II. OTHER INFORMATION:
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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
G C International, Inc.
Balance Sheets
Unaudited
March 31, 2001 June 30, 2000
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ASSETS
Current Assets
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Cash $ 200,529 $ 173,019
A/R less allowance for doubtful 595,290 548,399
Accounts of $5538 and $5538
Inventories 473,395 555,963
Prepaid Expenses 27,568 8,261
Deferred Tax Benefit 19,338 19,338
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Total Current Assets 1,316,120 1,304,979
Property and Equipment, net 437,459 448.36
Deposits and Deferred Expenses 45,204 43,760
Deferred Tax Benefit 368,118 368,118
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Total Assets $ 2,166,901 $ 2,165,220
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
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Accounts Payable $ 243,205 $ 123,604
Accrued Expenses 514,505 592,539
Notes Payable 234,304 248,876
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Total Current Liabilities 992,014 965,020
Other Liabilities
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Notes Payable, net of current 131,556 113,063
Other Long Term Debt 320,000 320,000
Stockholders' Equity
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Common Stock, without par value 1,759,149 1,759,149
Accumulated deficit (1,035,828) (992,011)
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Net Stockholders' Equity 723,321 767,138
Total Liability and Stockholders' Equity $ 2,166,901 $ 2,165,220
=========== ===========
The accompanying notes are a integral part of these financial statements
1
G C International, Inc.
Condensed Statement of Operations
(Unaudited)
3 Months Ended 9 Months Ended
-------------------------- --------------------------
3/31/01 3/31/00 3/31/01 3/31/00
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Net Sales $ 1,265,083 $ 1,472,723 $ 3,901,047 $ 3,701,559
Cost of Sales 856,097 970,904 2,727,485 2,542,588
----------- ----------- ----------- -----------
Gross Profit 408,986 501,819 1,173,562 1,158,971
Operating Expenses:
Selling 65,224 81,634 172,204 169,627
Administrative 344,227 353,463 993,436 994,779
----------- ----------- ----------- -----------
Operating Profit (Loss) (465) 66,722 7,923 (5,435)
Other income (expense):
Other income (expense), net 5,163 62,243 44,027 66,449
Interest Expense net of 2,005 (42,189) 6,733 5,699
----------- ----------- ----------- -----------
Interest Income
Income (Loss) before income taxes, (7,633) 46,669 (42,837) (77,583)
extraordinary event, and
discontinued operations
Income tax benefit (expense) 800 (511) 800 (511)
Net Income (Loss) $ (8,433) $ 47,180 $ (43,637) $ (77,072)
=========== =========== =========== ===========
Earnings per Common Share
Primary $ (0.00) $ (0.01) $ (0.01) $ (0.01)
Fully Diluted $ (0.00) $ (0.01) $ (0.01) $ (0.01)
Weighted average shares outstanding
Primary 5,350,798 6,783,191 5,350,798 6,783,191
Fully Diluted 5,350,798 6,783,191 5,350,798 6,783,191
The accompanying notes are an integral part of these financial statements.
2
G C International, Inc.
Statement of Cash Flows
(Unaudited)
9 Months Ended 9 Months Ended
March 31, 2001 March 31, 2001
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Cash flows from operating activities:
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Net Income $ (43,637) $ (77,072)
Adjustment to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 100,963 82,737
Repurchase of GCI Stock -- (10,859)
Adjustments to cash from operations:
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Accounts Receivable (increase) decrease (46,892) (147,609)
Inventory (increase) decrease 82,568 (8,209)
Accrued payable increase (decrease) 119,601 93,148
Accrued liabilities increase (decrease) (78,034) (56,034)
Income taxes payable increase (decrease) -- 34,561
Prepaid expenses (increase) decrease (19,308) (20,516)
Other assets & Deposits (increase) decrease (1,443) (7,043)
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Net cash provided (used) by operating activities: 113,818 (116,895)
Cash flows from investing activities:
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Purchase of property, plant, and equipment (90,059) (13,497)
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Net cash provided (used) by investing activities (90,059) (13,497)
Cash flows from financing activities:
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Payments on short term borrowings (14,572) (7,698)
Payments on long term debt (18,503) (51,463)
New long term borrowings -- --
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Net cash provided (used) by financing activities (33,076) (59,161)
Increase (Decrease) in cash and cash equivalents 27,510 (189,554)
Cash at beginning of period 173,019 371,085
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Cash at end of period $ 200,529 $ 181,531
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The accompanying notes are an integral part of these financial statements.
3
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, 2001, and March 31, 2000, and the results of
it's operation for the three and nine months ended March 31, 2001 and 2000.
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, 2001 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
2001 2000
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Raw materials $ 77,550 $ 79,088
Work in process 395,845 402,052
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Total $473,395 $481,140
======== ========
Inventories decreased slightly at the end of March 2001 due to work that was
shipped at the end of the month.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
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As of March 31, 2001, the Company's cash position increased slightly to $200,529
and working capital was $324,106, compared to cash of $181,531 and working
capital of $353,403 in the prior period. The cash position increased during the
period as a result of increased collections in accounts receivable. Management
believes that these funds and cash flow from operations are marginal to fund
ongoing operations, and the division must increase sales and cash flow during
2002. 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. At the
present time, the Company is very short of cash and has been stretching
payables.
4
Energy Costs
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The Energy crisis in California is acute. During the past 9 months the Company's
energy costs have risen substantially and are projected to rise further.
According to recent reports, a rate increase of 45% or more has been approved.
If these costs cannot be recovered through price increases, the fiscal health of
the Company could be in jeopardy. In addition, rotating blackouts may cause a
reduction in production output causing additional losses.
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 2001, the Company has been
able to arrange satisfactory purchase contracts.
The Company anticipates that additional capital equipment may be required for
the Company's operating divisions during 2001 and 2002. 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
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The Company makes 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, 2001 was $155,365 compared to $164,365 at March 31, 2000.
The Company settled and paid 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. In April, 2000 EPA requested that the Company pay
in excess of $500,000 for the final remediation. However, the EPA also offered
to settle for a lesser amount based on a financial analysis of the Company's
ability to pay. As of February 20, 2001, the Company received a letter
suggesting that the EPA would settle for approximately $320,000. The Company has
resubmitted our financials requesting a further reduction. The Company has only
reserved $120,000 to cover this settlement. In any event, the Company cannot pay
the amount requested because there are insufficient funds. However, there is no
guarantee that the Company will be able to settle the claim on terms that are
satisfactory.
Results of Operations
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Comparison of three and nine months ended March 31, 2001, and March 31, 2000.
The Company's sales for the nine months ending March 31, 2001, increased
slightly to $199,488 or 5.4% and for the 3 month period sales decreased by
$207,640 or 14.1% over the comparable period of the prior year.
5
There has been a noticeable decrease in the Company's markets as the current
recession continues to impact ALJ. The backlog which was approximately
$1,773,800 at June 30, 2000 decreased at March 31, 2001 to $1,320,700.
Significantly, a substantial part of the backlog is stretched out. If orders can
be booked as a result of continued sales and marketing efforts, shipments could
increase during the fourth 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. In addition, the
Company has terminated Sales Representatives in California and switched to
direct sales. This seems to be producing positive results with our customers.
The Apollo Division has had, in the past, good production yields and division
profits have generally held up. Apollo shipments are expected to remain stable
during the next six months and are therefore expected to provide profits and
cash flow. In March and April 2001, Apollo suffered a production problem, which
reduced yields dramatically causing a significant drop in Apollo profits. Yields
have been improving but as of April 30, they have not been brought back to
former levels. There is no guarantee that Apollo will be able to return to
former yields and failure to do so will impact the company's ability to return
to positive cash flow. Therefore, the Company's profits, cash position and
earnings per share may decrease as compared to 2000.
The Company's cost of sales increased to 67.7% in the 3 months ended March 31,
2001 as compared to 65.9% in the comparable period. Operating expenses decreased
slightly as compared to the prior three-month period. The Company expects to
continue heavy selling activities during the next three months to obtain new
tooling and orders. Administrative expense increased due to an increase in
management and direct personnel. The Company suffered a loss of $8,433 for the
Quarter ending March 31, 2001 compared to a profit of $47,180 for March 31, 2000
and for the nine months the loss decreased to $43,637 compared to the prior
period loss of $77,072.
However, the current recession is making new orders for tooling and production
difficult to obtain and a loss is projected for the quarter ending June 30, 2001
and for the fiscal year.
6
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 12, 2001 F. Willard Griffith II
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Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
7