10-Q 1 gci10q-93001.txt FORM 10-Q FOR 9-30-01 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 ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ 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 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 ----- PART I. FINANCIAL INFORMATION: ------- ---------------------- 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: -------- ------------------ 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

~~G C International, Inc. Balance Sheets~~ Unaudited ~~March~~September ~~31,~~30 ~~2001~~ June 30, ~~2000~~2001 2001 -----------~~---~~ ------------- ASSETS Current Assets ~~--------------~~ Cash $ ~~200~~151,~~529~~644 $ ~~173~~154,~~019~~013 ~~A/R~~Accounts ~~less~~receivable, ~~allowance~~net ~~for~~of ~~doubtful 595~~613,~~290~~449 ~~548~~781,~~399~~052 ~~Accounts~~Allowance for doubtful accounts of $~~5538~~7,832 at September 30 and $~~5538~~7,832 at June 30 Inventories ~~473~~315,~~395~~320 ~~555~~386,~~963~~211 Prepaid ~~Expenses~~expenses 2726,~~568~~854 89,~~261~~247 Deferred ~~Tax~~tax ~~Benefit~~benefit 1910,~~338~~693 1910,~~338~~693 ----------- ----------- Total ~~Current~~current ~~Assets~~assets 1,~~316~~177,~~120~~960 1,~~304~~341,~~979~~217 Property and ~~Equipment~~equipment, net ~~437~~419,~~459~~699 ~~448.36~~403,084 Deposits ~~and~~& ~~Deferred~~deferred ~~Expenses~~expenses 4538,~~204~~534 4341,~~760~~210 Deferred ~~Tax~~tax ~~Benefit~~benefit ~~368~~196,~~118~~544 ~~368~~196,~~118~~549 ----------- ----------- Total ~~Assets~~assets $ 21,~~166~~832,~~901~~742 $ 21,~~165~~982,~~220~~060 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current ~~Liabilities:~~liabilities ~~--------------------~~ Accounts ~~Payable~~payable $ ~~243~~175,~~205~~190 $ ~~123~~237,~~604~~771 Accrued ~~Expenses~~expenses ~~514~~556,~~505~~968 ~~592~~574,~~539~~353 Notes ~~Payable~~payable ~~234~~228,~~304~~655 ~~248~~228,~~876~~992 ----------- ----------- Total ~~Current~~current ~~Liabilities~~liabilities ~~992~~960,~~014~~813 ~~965~~1,~~020~~041,115 Other Liabilities: ~~------------------~~ Notes ~~Payable~~payable, net of current ~~131~~portion 135,~~556~~038 113,~~063~~482 Other ~~Long~~long ~~Term~~term ~~Debt~~debt 320,000 320,000 Stockholders' ~~Equity~~equity: ~~--------------------~~ Common ~~Stock~~stock, without par value 1,759,149 1,759,149 Accumulated deficit (1,~~035~~342,~~828~~258) (~~992~~1,~~011~~251,686) ----------- ----------- Net ~~Stockholders~~stockholders' ~~Equity~~equity ~~723~~416,~~321~~890 ~~767~~507,~~138~~463 Total ~~Liability~~Liabilities and ~~Stockholders'~~Stock Holders Equity $ 21,~~166~~832,~~901~~742 $ 21,~~165~~982,~~220~~060 =========== ===========

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

GGC ~~C International~~INTERNATIONAL, ~~Inc~~INC. ~~Condensed~~STATEMENTS ~~Statement~~OF ofOPERATIONS ~~Operations (Unaudited)~~ 3 Months Ended ~~9 Months Ended~~ -------------------------- --------------~~------------~~ ~~3/31/01~~September ~~3/31/00~~30, ~~3/31/01~~2001 ~~3/31/00~~September 30, 2000 (Unaudited) (Unaudited) ----------- -------~~----~~ ----------- -------~~----~~ Net ~~Sales~~sales $ 1,~~265~~118,~~083~~340 $ 1,~~472~~265,~~723~~801 ~~$ 3,901,047 $ 3,701,559~~ Cost of ~~Sales~~sales ~~856~~810,~~097~~019 ~~970~~948,~~904~~645 ~~2,727,485 2,542,588~~ ----------- ----------- ~~----------- -----------~~ Gross ~~Profit~~profit ~~408~~306,~~986~~321 ~~501~~317,~~819~~155 ~~1,173,562 1,158,971~~ Operating ~~Expenses~~expenses: Selling 6567,~~224~~789 8156,~~634~~009 ~~172,204~~General ~~169,627~~& Administrative ~~344~~325,~~227~~013 ~~353~~330,~~463~~092 ~~993,436 994,779~~ ----------- ----------- ~~-----------~~Income ~~----------- Operating Profit~~ (~~Loss~~loss) ~~(465)~~from ~~66,722~~operations ~~7,923~~ (584,~~435~~481) ~~Other income~~ (~~expense~~68,945): Other income (expense), ~~net 5~~Interest,~~163~~ ~~62,243 44,027 66,449 Interest Expense~~ net of (2,~~005~~495) (422,~~189~~072) 6Other (3,~~733~~596) (5,~~699~~419) ----------- ----------- Income before income taxes (90,573) (76,437) Provision for income taxes -- -- ----------- ----------- ~~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~~loss) $ (890,~~433~~573) $ ~~47,180 $~~ (4376,~~637~~437) ~~$ (77,072)~~ =========== =========== ~~=========== ===========~~ Earnings per ~~Common~~common ~~Share~~share Primary $and ~~(0.00) $ (0.01) $ (0.01) $ (0.01)~~ Fully ~~Diluted~~diluted $Income ~~(0.00)~~from $continuing ~~(0.01)~~operations $ (0.0102) $ (0.01) Weighted average shares outstanding Primary 5,350,798 ~~6,783,191~~ 5,350,798 ~~6,783,191~~ Fully ~~Diluted~~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

GGC ~~C International~~INTERNATIONAL, ~~Inc~~INC. ~~Statement~~STATEMENTS ofOF ~~Cash~~CASH ~~Flows~~FLOWS ~~(Unaudited)~~September 930 ~~Months~~June ~~Ended~~30 ~~9 Months Ended March 31,~~ 2001 ~~March 31,~~ 2001 ---------~~-----~~ ----------~~----~~ Cash flows from operating activities: ~~-------------------------------------~~ Net ~~Income~~income $ (4390,~~637~~573) $ (77259,~~072~~675) ~~Adjustment~~Adjustments to reconcile net income to net cash ~~Provided~~provided by operating activities: Depreciation and amortization ~~100~~30,~~963~~284 82135,~~737~~338 ~~Repurchase~~Gain on sale of ~~GCI~~property, ~~Stock~~plant & equipment -- ~~(10,859)~~-- Adjustments to cash from operations: ~~------------------------------------~~ Accounts ~~Receivable~~Receivables (~~increase~~incr) ~~decrease~~decr (46167,~~892~~603) (~~147~~232,~~609~~654) Inventory (~~increase~~incr) ~~decrease~~decr 8210,~~568~~891 (8169,~~209~~752) Accrued payable ~~increase~~incr (~~decrease~~decr) ~~119~~(67,~~601~~140) 93155,~~148~~794 Accrued liabilities ~~increase~~incr (~~decrease~~decr) (7812,~~034~~825) (5659,~~034~~814) Income taxes payable ~~increase~~incr (~~decrease~~decr) -- 34-- Reserve liability incr (decr) -- -- Deferred tax (incr)(decr) -- (180,~~561~~214) Prepaid expenses (~~increase~~incr)(decr) ~~decrease~~ (1917,~~308~~607) (~~20,516~~987) Other assets & ~~Deposits~~deposits (~~increase~~incr) ~~decrease~~ (~~1,443~~decr) 2,676 (72,~~043~~550) --------- --------- Net cash provided ~~(used)~~ by operating activities: ~~113~~(23,~~818~~310) (~~116~~90,~~895~~518) Cash flows from investing activities: ~~-------------------------------------~~ Purchase of property, plant, ~~and~~& equipment (9046,~~059~~889) (1390,~~497~~059) --------- --------- Net cash provided ~~(used)~~ by investing activities (9046,~~059~~889) (1390,~~497~~059) Cash flows from financing activities: ~~-------------------------------------~~ Payments on ~~short term borrowings (14,572) (7,698) Payments on~~ long term debt (1815,~~503~~925) (51107,~~463~~650) New long term borrowings --37,144 --88,185 ~~--------- ---------~~ Net cash provided ~~(used)~~ by ~~financing~~investing activities ~~(33~~21,~~076)~~220 (5919,~~161~~465) Increase (~~Decrease~~decrease) in cash and cash equivalents 27(2,~~510~~369) (~~189~~19,~~554~~006) Cash at beginning of period 154,013 173,019 ~~371,085~~ --------- --------- Cash at end of period $ ~~200~~151,~~529~~644 $ ~~181~~154,~~531~~013 ========= =========

The accompanying notes are an integral part of these financial statements. 3 GC INTERNATIONAL, INC. Notes to Condensed Financial Statements Note 1 ------ 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 ------ 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 -------- -------- Raw materials $ 71,419 $ 58,935 Work in process 303,901 406,935 ------- ------- Total $375,200 $465,870 ======= ======= Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- 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 --------------------------------------------------- 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 -------------------------------- 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 --------------------- 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 ---------- 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) November 12, 2001 /s/ F. Willard Griffith II --------------------- ----------------------------- Date F. Willard Griffith II Chairman, Chief Executive Officer and Chief Financial Officer 6

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