10-Q 1 gci10q-301.txt QUARTERLY REPORT FOR 3-31-01 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 ---------------------------------- OR TRANSITION REPORT PRUSUANT 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 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 ---- ---- 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 ----- PART I. FINANCIAL INFORMATION: ------- ---------------------- 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: -------- ------------------ 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

The accompanying notes are a integral part of these financial statements 1

The accompanying notes are an integral part of these financial statements. 2

The accompanying notes are an integral part of these financial statements. 3 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 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 ------ 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 ---- ---- Raw materials $ 77,550 $ 79,088 Work in process 395,845 402,052 ------- ------- 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 ------------------------------- 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 ------------ 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 --------------------------------------------------- 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 -------------------------------- 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 --------------------- 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 ------------------------ 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) May 12, 2001 F. Willard Griffith II ------------ ---------------------- Date F. Willard Griffith II Chairman, Chief Executive Officer and Chief Financial Officer 7

GC INTERNATIONAL INC /CA 10-Q