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 ACT OF 1934 For the quarterly period ended December 31, 2000 ------------------------------------------ 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. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 94-2278595 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer Identification no.) incorporation or organization) 156 BURNS AVENUE, ATHERTON CALIFORNIA 94027 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (650) 322-8449 ----------------------------- N/A -------------------------------------------------------------------------------- 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 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 ----- PART I. FINANCIAL INFORMATION: ------- ----------------------~~---~~ Item 1. Financial Statements Unaudited Condensed Balance Sheets ~~September~~December 3031, 2000 and June 30, 2000..................................1 Unaudited Condensed Statements of Operations Three and six months ended ~~September~~December 3031, 2000 and ~~September~~December 3031, 1999............................................~~....~~2 Unaudited Statements of Cash Flows for the ~~Three~~six months Ended ~~September~~December 3031, 2000 and ~~September~~December 3031, 1999......................3 Notes to Unaudited Condensed Financial Statements Ended ~~September~~December 3031, 2000 and ~~September~~December 3031, 1999......................4 Item 2. Management's Discussion and Analysis of Financial Condition & Results of Operation.....................~~..........~~4 PART II. OTHER INFORMATION: -------- ------------------~~---~~ Item 1. Legal Proceedings..............................................~~..........5~~6 Item 2. Changes in Securities..........................................~~..........5~~6 Item 3. Defaults Upon Senior Securities................................~~..........5~~6 Item 4. Submission of Matters to a Vote of Security Holders...........................................~~..........5~~6 Item 5. Other Information..............................................~~..........5~~6 Item 6. Exhibits & Reports on Form 8-K.................................~~..........5~~6 Signatures ............................................................. 6

GC INTERNATIONAL, INC. BALANCE SHEETS Unaudited ~~September~~December 3031, 2000 June 30, 2000 ~~2000~~ ----------------- ------------- ASSETS Current Assets Cash $ ~~114~~98,~~651~~412 $ 173,019 Accounts receivable, net of ~~676,234 508,213~~ Allowance for doubtful accounts 769,391 548,399 Of $5,~~133~~538 at ~~September~~December 303 and $5,~~133~~538 at June 30, ~~1999~~2000 Inventories ~~465~~474,~~870~~372 555,963 Prepaid expenses 1437,~~818~~206 8,261 Prepaid income tax - 26,561 Deferred tax benefit $ 19,338 $ 19,338 ------~~-----~~ ------~~-----~~ Total current assets 1,~~290~~398,~~910~~719 1,304,979 Property and equipment, net ~~505~~470,~~640~~228 448,363 Deposits & deferred expenses 4347,~~025~~646 43,760 Deferred tax benefit 368,118 368,118 -------~~----~~ -------~~----~~ Total assets $ 2,~~207~~284,~~694~~710 $ 2,165,220 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable $ ~~206~~320,~~831~~397 $ 123,604 Accrued expenses ~~578~~524,~~635~~368 592,539 Income taxes payable Notes payable ~~242~~239,~~142~~600 248,876 -------~~----~~ -------~~----~~ Total current liabilities 1,~~027~~084,~~608~~365 965,020 Other Liabilities: Notes payable, net of current portion ~~169~~149,~~385~~391 113,063 Other long term debt 320,000 320,000 Stockholders' equity: Common stock, without par value. 1,759,149 1,759,149 Accumulated deficit (1,~~068~~028,~~447~~195) (992,011) ----------- --------~~---~~ Net stockholders' equity ~~690~~730,~~701~~954 767,138 Total Liabilities and Stock Holders Equity $ 2,~~207~~284,~~694~~710 $ 2,165,220 =========== ===========

The accompanying notes are an integral part of these financial statements. 1

GC INTERNATIONAL, INC. STATEMENTS OF OPERATIONS 3 Months Ended ~~---------------------------------------~~6 ~~September~~Months ~~30,~~Ended ~~2000~~12/31/00 ~~September~~12/31/99 ~~30,~~12/31/00 ~~1999~~12/31/99 (Unaudited) (Unaudited) ~~----------- -----------~~ Net sales $1,370,163 $1,~~265~~190,~~801~~937 $2,635,964 1$2,~~037~~228,~~899~~836 Cost of sales ~~948~~922,~~645~~742 ~~734~~836,~~825~~859 1,871,387 1,571,684 ------- ------- --------- --------- Gross profit ~~317~~447,~~155~~421 ~~303~~354,~~074~~078 764,577 657,152 Operating expenses: Selling 5650,~~009~~971 4146,~~911~~083 106,980 87,994 General & ~~Administrative~~Admin. ~~330~~319,~~092~~117 ~~313~~327,~~941~~375 649,209 641,316 ------- ------- ------- ------- Income (loss) from operations(77,333) (6819,~~945~~380) 8,388 (5272,~~778~~158) Other income (expense) Interest, net (2,~~072)~~356 (3719 4,~~487)~~428 4,206 Other (533,~~419)~~924 (542,~~847)~~042 39,344 47,889 ------ ------ ------ ------ Income (loss) before income taxes 41,053 (7662,~~437~~140) (6235,~~113~~384) (124,252) Provision for income taxes --800 800 800 -- --- --- ----- ---~~--------~~ Net ~~Income~~income (loss) $40,253 $(7662,~~437~~140) $(36,184) $(62124,~~113~~252) ======= ======== ======== ========= Earnings per common share Primary and Fully diluted ~~Income from continuing operations~~ $ (0.01) $(0.01) $(0.01) $0.02 Weighted average shares outstanding Primary 5,~~350~~423,~~798~~191 5,423,191 5,423,191 5,423,191 Fully diluted 5,~~350~~423,~~798~~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 ~~September~~6 30Months ~~June~~Ended ~~30 2000 2000~~ --------- ---------- ~~Cash flows from operating activities:~~ -------------- December 31, 2000 December 31,1999 (Unaudited) (Unaudited) ----------- ------------ Cash flows from operating activities: Net income $ (7636,~~437~~184) $ ~~(72~~124,~~249)~~251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3368,~~048~~360 ~~127~~53,~~064~~106 Gain on sale of property, plant & equipment -- ~~(510)~~ Adjustments to cash from operations: ~~------------------------------------~~ Accounts ~~Receivables~~Receivable (~~127~~incr)decr (220,~~835~~992) (4042,~~185~~476) Inventory (incr) decr 9081,~~093~~592 ~~(83,032)~~816 Accrued payable (incr(decr) ~~decr 83~~196,~~226~~793 5473,~~828~~778 Accrued liabilities incr (decr) (1468,~~004~~171) 61(70,~~870~~074) Income taxes payable incr (decr) --(7,491) --Prepaid income taxes 26,561 Reserve liability incr (decr) ~~100~~ -- ~~Deferred tax incr (decr)~~ -- ~~(32,327)~~ Prepaid expenses (incr)(decr) (628,~~557~~946) 33(19,~~088~~967) Other assets & deposits (incr)(decr) ~~735~~ (73,~~761~~886) (~~incr~~14,700)~~(decr)~~ ------~~---~~ --------- Net cash provided by operating activities (1711,~~631~~434) (81124,~~934~~699) Cash flows from investing activities: ~~-------------------------------------~~ Purchase of property, plant & equipment (90,~~325~~225) (2710,~~831~~030) Proceeds from sale of property, plant & equipment - - --------- --------- Net cash provided (used) by investing activities (90,~~325~~225) (2710,~~831~~030) Cash flows from financing activities: ~~-------------------------------------~~ Payments on ~~long~~short term ~~debt~~borrowings (139,~~167~~276) ~~(95~~6,~~597)~~100 ~~New~~Payments on long term ~~borrowings~~debt 62(11,~~755~~712) 1835,~~154~~161 Re-purchase of common stock 48,040 - New long term borrowings - (10,~~858~~859) ---------- ---------- Net cash provided by ~~investing~~financing activities 4927,~~588~~052 (8852,~~301~~120) -------- ---------- Increase (decrease) in cash and cash equivalents (5874,~~368~~606) (~~198~~186,~~066~~849) Cash at beginning of period 173,019 371,085 --------~~-------------------~~ --------- ~~---------~~ Cash at end of period $ ~~114~~98,~~651~~412 $ ~~173~~184,~~019~~236 ========= =========

The accompanying notes are an integral part of these financial statements. 3

4 Energy Costs ------------ The Energy crisis in California is acute. During the past 6 months the Company's energy costs have risen substantially and are projected to rise further. If these costs cannot be recovered through price increases, fiscal health of the Company could be in jeopardy. 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 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. 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 makes 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, 2000 was $158,365 compared to $170,365 at December 31, 1999. 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 will resubmit our financial 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 --------------------- Comparison of three and six months ended December 31, 2000, and December 31, 1999. The Company's sales for the six months ending December 31, 2000, increased $407,128 or 18.3% and for the 3 month period ended December 31, 2000, sales increased by $179,266 or 15.1% over the comparable period of the prior year. 5 However, there has been a noticeable decrease in the Company's markets as the recession continues to impact ALJ. The backlog which was approximately $1,197,674 at June 30, 2000 decreased at December 31, 2000 to $944,879. Significantly, a substantial part of the backlog is stretched out. If orders continue to be booked as a result of continued sales and marketing efforts, shipments 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. 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 good 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 may decrease as compared to 2000. The Company's cost of sales increased 19.1% in the 6 months ended December 31, 2000 over the comparable period. Operating expenses increased 3.7% due to increased 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 direct personnel. As a result of the sales increase at ALJ, the Company was able to become profitable for the Quarter ending December 31, 2000. Profit for the quarter was $40,253 or 3% compared to a loss of $62,140 or 5.2% for December 31, 1999 for the six months the loss decreased to $36,184 compared to the prior period loss of $124,252. However, the current recession is making new orders for tooling and production difficult to obtain and a loss is projected for the quarter ending March 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 ------------------------ 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 12, 2001 F. Willard Griffith II ------------------- ------------------------------------------- Date F. Willard Griffith II Chairman, Chief Executive Officer and Chief Financial Officer 7

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