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 AT OF 1934
For the quarterly period ended December 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
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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 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
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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
December 31, 2001 and June 30, 2001..........................1
Unaudited Condensed Statements of Operations
Three and six months ended December 31, 2001
and December 31, 2000........................................2
Unaudited Statements of Cash Flows for the six months
Ended December 31, 2001 and December 31, 2000............3
Notes to Unaudited Condensed Financial Statements
Ended December 31, 2001 and December 31, 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..................................................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
GC INTERNATIONAL, INC.
BALANCE SHEETS
December 31, 2001 June 30, 2001
Unaudited
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ASSETS
Current Assets
Cash $ 144,142 $ 154,013
Accounts receivable, net of
Allowance for doubtful accounts 425,469 781,052
Of $27,832 at December 31 and
$5,538 at June 30, 2000
Inventories 377,138 386,211
Prepaid expenses 13,125 9,247
Prepaid income tax -- --
Deferred tax benefit 10,693 10,693
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Total current assets 970,567 1,341,217
Property and equipment, net 386,882 403,084
Deposits & deferred expenses 40,456 41,210
Deferred tax benefit 196,549 196,549
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Total assets $ 1,594,454 $ 1,982,060
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 111,006 $ 237,771
Accrued expenses 666,031 574,353
Income taxes payable -- --
Notes payable 133,135 228,992
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Total current liabilities 910,173 1,041,115
Other Liabilities:
Notes payable, net of current portion 216,964 113,482
Other long term debt 320,000
Stockholders' equity:
Common stock, without par value 1,759,135 1,759,149
Accumulated deficit (1,291,816) (1,251,686)
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Net stockholders' equity 467,318 507,463
Total Liabilities and
Stock Holders Equity $ 1,594,454 $ 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 6 Months Ended
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12/31/01 12/31/00 12/31/01 12/31/00
(Unaudited) (Unaudited)
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Net sales $ 824,513 $ 1,370,163 $ 1,942,853 $ 2,635,964
Cost of sales 667,033 922,742 1,477,052 1,871,387
----------- ----------- ----------- -----------
Gross profit 157,480 447,421 465,801 764,577
Operating expenses:
Selling 51,155 50,971 118,944 106,980
General & Admin 347,831 319,117 672,844 649,209
----------- ----------- ----------- -----------
Income (loss)from operations (241,506) 77,333 (325,987) 8,388
Other income (expense)
Other Net (284,728) 33,924 (281,132) 39,344
Interest Net (8,020) 2,356 (5,524) 4,428
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Income (loss) before
income taxes 51,242 41,053 (39,331) (35,384)
Provision for income taxes 800 800 800 --
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Net income (loss) $ 50,442 $ 40,253 $ (40,131) $ (36,184)
=========== =========== =========== ===========
Earnings per common share
Primary and Fully diluted $ 0.01 $ 0.01 $ (0.01) $ (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
The accompanying notes are an integral part of these financial statements.
2
GC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
6 Months Ended
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December 31, 2001 December 31,2000
(Unaudited) (Unaudited)
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Cash flows from operating activities:
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Net income $ (40,145) $ (36,184)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 63,101 68,360
Reserves transfer to income (non-cash) -294,686 --
Adjustments to cash from operations:
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Accounts Receivable (incr)decr 335,583 (220,992)
Inventory (incr)decr 9,073 81,592
Accrued payable incr(decr) (126,764) 196,793
Accrued liabilities incr(decr) 91.678 (68,171)
Prepaid income taxes
Reserve liability (incr)decr -- --
Prepaid expenses (incr)decr (3,877) (28,946)
Other assets & deposits 754 (3,886)
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Net cash provided by operating activities 34,717 (11,434)
Cash flows from investing activities:
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Purchase of property, plant & equipment (46,899) (90,225)
Proceeds from sale of property, plant
& equipment -- --
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Net cash provided (used) by
investing activities (46,899) (90,225)
Cash flows from financing activities:
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Payments on short term borrowings (1,277) (9,276)
Payments on long term debt 3,589 (11,712)
Re-purchase of common stock 48,040
New long term borrowings -- --
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Net cash provided by financing activities 2,312 27,052
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Increase (decrease) in cash and cash equivalents (9,871) (74,607)
Cash at beginning of period 154,013 173,019
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Cash at end of period $ 144,142 $ 98,412
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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 December 31, 2001, and December 31, 2000, and the
results of it's operations for the three and six months ended December 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 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
2001 2000
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Raw materials $55,357 $ 77,495
Work in process 321,781 396,877
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Total $377,138 $474,372
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Inventories decreased at the end of December 2001 due to the effects of the
recession and a reduced need for inventory.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
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As of December 31st 2001, the Company's cash position was $144,142 and working
capital declined to $60,394, compared to cash of $98,000 and working capital of
$314,354 in the prior period. The working capital declined during the quarter as
a result of current quarter losses. The continuing losses are a direct result of
the current recession and the downturn in business resulting from Sept. 11
attacks. Management believes that these funds and cash flow from operations are
marginal to fund ongoing operations unless profitability or cash flow breakeven
can be attained soon. The Company is reducing expenses wherever possible,
including reduction in force and salaries and is reviewing all fixed operating
expenses for potential reductions. 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".
4
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, 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 settled the final claim with the EPA for a total of $149,839.95
including interest, payable in three equal annual payments of $49,946.65 for a
Superfund site cleanup in connection with waste generated in the 1970's by
former division. The Company had total reserves of $320,000 for this liability.
The Company wrote off old debt owed by the Company to certain creditors who are
out of business or have been unable to be located since 1991.
The net result is a onetime increase in other income at the December 31st 2001
of $288,685.88. Unfortunately, this is only a paper profit and does not result
in any increase in cash.
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 six and three months ended the December 31st 2001 and December
31st 2000. The Company's sales for the six-month period decreased $693,111 or
26.3% as compared to the prior year and for the three month ending December 31st
2001, sales decreased $545,650 or 39.8%. This drop in sales is dramatic proof of
the effect of the Sept. 11 attacks. In addition the backlog of orders suffered a
decline of 32.1 percent due to the attack and recession. For comparison purposes
the backlog was $1,370,631 at September 30th 2000 and was only approximately
$670,000 at December 31, 2001. This decline in backlog really points up the
depth of the current recession as it affects the Company's products.
The cost of sales increased to 76% compared to 72.4% in the prior year.
Operating losses for the six-month period widened to $325,987 or 16.8% as
compared to a profit of $8,388 for the prior year. The losses and increased
costs are a direct result of the precipitous drop in sales.
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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
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 19, 2002 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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