10-Q 1 gci-10q123101.txt QUARTERLY REPORT FOR DECEMBER 31, 2001 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 December 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 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 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 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: --------------------------- 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

The accompanying notes are an 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 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 ------ 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 ---- ---- Raw materials $55,357 $ 77,495 Work in process 321,781 396,877 ------- ------- Total $377,138 $474,372 ======== ======== 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 ------------------------------- 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 --------------------------------------------------- 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 -------------------------------- 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 --------------------- 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. 5 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 6 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 ------------------- ------------------------------------- Date F. Willard Griffith II Chairman, Chief Executive Officer and Chief Financial Officer 7

GC INTERNATIONAL INC /CA 10-Q