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 September 30, 2001
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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 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 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 _X_ 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 5,350,798.
GC INTERNATIONAL, INC.
INDEX
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PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements
Unaudited Condensed Balance Sheets
September 30, 2001 and June 30, 2001 .......................1
Unaudited Condensed Statements of Operations
Three months ended September 30, 2001 and
September 30, 2000 .........................................2
Unaudited Statements of Cash Flows for the
Three months Ended September 30, 2001 and
September 30, 2000 .........................................3
Notes to Unaudited Condensed Financial Statements
Ended September 30, 2001 and September 30, 2000 ............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 ...........................................5
Item 2. Changes in Securities .......................................5
Item 3. Defaults Upon Senior Securities .............................5
Item 4. Submission of Matters to a Vote
of Security Holders ........................................5
Item 5. Other Information ...........................................5
Item 6. Exhibits & Reports on Form 8-K ..............................5
Signatures ..................................................6
GC INTERNATIONAL, INC.
BALANCE SHEETS
Unaudited
September 30 June 30
2001 2001
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ASSETS
Current Assets
Cash $ 151,644 $ 154,013
Accounts receivable, net of 613,449 781,052
Allowance for doubtful accounts of $7,832
at September 30 and $7,832 at June 30
Inventories 315,320 386,211
Prepaid expenses 26,854 9,247
Deferred tax benefit 10,693 10,693
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Total current assets 1,177,960 1,341,217
Property and equipment, net 419,699 403,084
Deposits & deferred expenses 38,534 41,210
Deferred tax benefit 196,544 196,549
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Total assets $ 1,832,742 $ 1,982,060
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 175,190 $ 237,771
Accrued expenses 556,968 574,353
Notes payable 228,655 228,992
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Total current liabilities 960,813 1,041,115
Other Liabilities:
Notes payable, net of current portion 135,038 113,482
Other long term debt 320,000 320,000
Stockholders' equity:
Common stock, without par value 1,759,149 1,759,149
Accumulated deficit (1,342,258) (1,251,686)
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Net stockholders' equity 416,890 507,463
Total Liabilities and
Stock Holders Equity $ 1,832,742 $ 1,982,060
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The accompanying notes are an integral part of these financial statements.
1
GC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
3 Months Ended
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September 30, 2001 September 30, 2000
(Unaudited) (Unaudited)
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Net sales $ 1,118,340 $ 1,265,801
Cost of sales 810,019 948,645
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Gross profit 306,321 317,155
Operating expenses:
Selling 67,789 56,009
General & Administrative 325,013 330,092
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Income (loss) from operations (84,481) (68,945)
Other income (expense)
Interest, net (2,495) (2,072)
Other (3,596) (5,419)
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Income before income taxes (90,573) (76,437)
Provision for income taxes -- --
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Net Income (loss) $ (90,573) $ (76,437)
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Earnings per common share
Primary and Fully diluted
Income from continuing operations $ (.02) $ (.01)
Weighted average shares outstanding
Primary 5,350,798 5,350,798
Fully diluted 5,350,798 5,350,798
The accompanying notes are an integral part of these financial statements.
2
GC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
September 30 June 30
2001 2001
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Cash flows from operating activities:
Net income $ (90,573) $(259,675)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30,284 135,338
Gain on sale of property, plant & equipment -- --
Adjustments to cash from operations:
Accounts Receivables (incr) decr (167,603) (232,654)
Inventory (incr) decr 10,891 (169,752)
Accrued payable incr (decr) (67,140) 155,794
Accrued liabilities incr (decr) (12,825) (59,814)
Income taxes payable incr (decr) -- --
Reserve liability incr (decr) -- --
Deferred tax (incr)(decr) -- (180,214)
Prepaid expenses (incr)(decr) (17,607) (987)
Other assets & deposits (incr)(decr) 2,676 (2,550)
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Net cash provided by operating activities (23,310) (90,518)
Cash flows from investing activities:
Purchase of property, plant & equipment (46,889) (90,059)
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Net cash provided by investing activities (46,889) (90,059)
Cash flows from financing activities:
Payments on long term debt (15,925) (107,650)
New long term borrowings 37,144 88,185
Net cash provided by investing activities 21,220 (19,465)
Increase(decrease)in cash and cash equivalents (2,369) (19,006)
Cash at beginning of period 154,013 173,019
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Cash at end of period $ 151,644 $ 154,013
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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 market for The Company's Products has declined significantly and continues
to decline after the September 11 Attack. How much further a decline will occur
is completely unknown. See "Factors Affecting Future Results". 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 September 30, 2001 and June 30, 2001, and the results of it's
operation for the three months ended September 30, 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 months ended September 30, 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:
September 30 September 30
2001 2000
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Raw materials $ 71,419 $ 58,935
Work in process 303,901 406,935
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Total $375,200 $465,870
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
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As of September 30, 2001, the Company's cash position was $151,644 and working
capital was $217,147, compared to cash of $114,651 and working capital of
$263,302 in the prior period. The working capital declined during the quarter as
a result of current quarter losses. The continuing losses are a result of the
current recession. Management believes that these funds and cash flow from
operations are marginal to fund ongoing operations unless profitability can be
attained soon. There is no assurance that these funds will prove adequate if the
Company is unable to attain positive cash flow from operations in the future.
See "Factors affecting future results".
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.
The Company anticipates that additional capital equipment may be required for
the Company's operating divisions during 2002. 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 or other arrangements will be
adequate or available.
4
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 September 30, 2001 was $149,365 compared to $161,365 at September 30,
2000.
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 final payment of $20,000 in August 2000.
In September, 2001 EPA requested that the Company pay $270,000 for the final
remediation. However, the EPA also offered to consider re-evaluating this
position on a financial analysis of the Company's ability to pay. This analysis
is underway at September 30. The Company believes that its liability reserves of
a total of $320,000 for future liability is adequate to cover the EPA and other
potential settlements. However, there is no guarantee that the Company will be
able to settle the claim on terms that are satisfactory. The Company has taken
steps to reduce payroll, defer salaries and expenses in order to reduce the
negative cash flow.
Results of Operations
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Comparison of three months ended September 30, 2001, and September 30, 2000.
The Company's sales for the three months ending September 30, 2001, decreased
$147,460 or 11.6% over the comparable period of the prior year. The Company
believes that the current recession has caused a marked decline in the Company's
markets.
The backlog which was approximately $988,632 at June 30,2001 decreased
significantly and at September 30, 2001 was approximately $819,300.due to the
recession. The backlog was $1,370,631 at September 30,2000. This decline
indicates the depth of the recession.
Fortunately, the cost of sales decreased to 72.4% compared to 74.9% in the prior
year period. However, the loss for the quarter was $90,573 or 8.1% compared to a
loss of $76,437 or 6.0% for the prior year. The lower volume of revenues did not
support the fixed costs.
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
5
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.
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(Registrant)
November 12, 2001 /s/ F. Willard Griffith II
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Date F. Willard Griffith II
Chairman, Chief Executive Officer and
Chief Financial Officer
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