SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 29, 2000 Commission File Number 0-1738
GENERAL KINETICS INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-0594435
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
14130-A Sullyfield Circle, Chantilly, VA 20151
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 703-802-4848
-----------------
Indicate by checkmark 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 [ ]
The number of shares of Registrant's Common Stock
outstanding as of April 5, 2000 6,718,925 Shares
<PAGE>
<TABLE>
<CAPTION>
INDEX
PAGE NO.
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<S> <C> <C>
Cautionary Statement Under the Private Securities Litigation Reform Act of 1996..............3
Part I - Financial Information
Item I - Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
February 29, 2000 and May 31, 1999..........................................................4
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended February 29, 2000 and February 28, 1999,
respectively.................................................................................5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 29, 2000 and
February 28, 1999, respectively..............................................................6
Notes to Condensed Consolidated Financial Statements.........................................7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................10
Part 2 - Other Information
Item 6 - Exhibits and Reports on Form 8-K............................................................15
</TABLE>
2
<PAGE>
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Quarterly Report on Form 10-Q under the caption "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including, but not limited to, the
risk that the Company may not be able to obtain additional financing if
necessary; the risk that the Company may not be able to continue the necessary
development of its operations, including maintaining or increasing sales and
production levels, on a profitable basis; the risk the Company may in the future
have to comply with more stringent environmental laws or regulations, or more
vigorous enforcement policies of regulatory agencies, and that such compliance
could require substantial expenditures by the Company; the risk that U.S.
defense spending may be substantially reduced; and the risk that the Company's
Common Stock will not continue to be quoted on the NASD OTC Bulletin Board
services. In addition, the Company's business, operations and financial
condition are subject to substantial risks which are described in the Company's
reports and statements filed from time to time with the Securities and Exchange
Commission, including this Report.
PART I FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
The unaudited consolidated financial statements of General Kinetics
Incorporated ("GKI" or the "Company") set forth below have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. The Company believes that the disclosures made are adequate to make
the information presented not misleading.
In the opinion of management of the Company, the accompanying consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) that are necessary for a fair presentation of results for
the periods presented. It is suggested that these consolidated financial
statements be read in conjunction with the audited financial statements for the
fiscal years ended May 31, 1999 and 1998 set forth in the Company's Annual
Report on Form 10-K, as amended, for the fiscal year ended May 31, 1999.
3
<PAGE>
General Kinetics Incorporated
Balance Sheets
February 29, 2000 and
May 31, 1999
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
(Unaudited) (Audited)
------------ ------------
Assets
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 650,600 $ 307,400
Accounts receivable, net of allowance of $52,000 and $208,000 1,417,000 1,502,800
Inventories 802,300 1,285,600
Prepaid expenses and other 34,200 59,300
Note receivable, current - 70,000
Note receivable, affiliate, net of allowance of $87,500 87,500 87,500
------------ ------------
Total Current Assets 2,991,600 3,312,600
------------ ------------
Property, Plant and Equipment 2,729,800 2,942,800
Less: Accumulated Depreciation (1,785,900) (1,926,800)
------------ ------------
943,900 1,016,000
Note Receivable, less current portion, net of allowance of $0 and $150,000 - 330,000
Other Assets 39,000 26,600
------------ ------------
Total Assets $ 3,974,500 $ 4,685,200
------------ ------------
Liablilities and Stockholders' Deficit
--------------------------------------
Current Liabilities:
Advances from Factor $ - $ 79,000
Current maturities of long-term debt 66,200 66,200
Notes payable 35,600 -
Accounts payable, trade 679,300 958,800
Accrued expenses and other payables 615,100 638,900
------------ ------------
Total Current Liabilities 1,396,200 1,742,900
------------ ------------
Long-Term Debt - less current maturities (including
$8,716,600 and $8,654,700 of convertible debentures) 9,313,500 9,304,400
Other long-term liabilities 246,600 275,400
------------ ------------
Total Long-Term Liabilities 9,560,100 9,579,800
------------ ------------
Total Liabilities 10,956,300 11,322,700
------------ ------------
Stockholders' Deficit:
Common Stock, $0.25 par value, 50,000,000 1,811,500 1,811,500
shares authorized, 7,245,557 shares issued, 6,718,925
shares outstanding
Additional Contributed Capital 7,239,400 7,239,400
Accumulated Deficit (15,582,500) (15,238,200)
------------ ------------
(6,531,600) (6,187,300)
Less: Treasury Stock, at cost (526,632 shares) (450,200) (450,200)
------------ ------------
Total Stockholders' Deficit (6,981,800) (6,637,500)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 3,974,500 $ 4,685,200
------------ ------------
</TABLE>
The accompanying notes are an integral part of the above statements.
Page 4
<PAGE>
General Kinetics Incorporated
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 6,883,700 $ 4,661,900 $ 1,832,200 $ 2,215,500
Cost of Sales 6,102,900 3,403,400 1,799,500 1,600,500
----------- ----------- ----------- -----------
Gross Profit 780,800 1,258,500 32,700 615,000
----------- ----------- ----------- -----------
Selling, General & Administrative 1,169,800 1,337,900 331,200 445,700
----------- ----------- ----------- -----------
Total Operating Expenses 1,169,800 1,337,900 331,200 445,700
----------- ----------- ----------- -----------
Operating Income (loss) (389,000) (79,400) (298,500) 169,300
Gain on settlement of Cryptek note 278,800 278,800
Interest Expense (234,100) (133,000) (58,000) (46,900)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (344,300) (212,400) (77,700) 122,400
----------- ----------- ----------- -----------
Extraordinary item - gain from debt extinguishment - 67,000 - -
----------- ----------- ----------- -----------
Net Income (loss) $ (344,300) $ (145,400) $ (77,700) $ 122,400
----------- ----------- ----------- -----------
Basic Earnings per Share:
Earnings (loss) before extraordinary item ($ 0.05) ($ 0.03) ($ 0.01) $ 0.02
Earnings from extraordinary item - 0.01 - -
----------- ----------- ----------- -----------
Basic Earnings (loss) per Share ($ 0.05) ($ 0.02) ($ 0.01) $ 0.02
Weighted Average Number of Common Shares
Outstanding 6,718,925 6,718,925 6,718,925 6,718,925
Diluted Earnings per Share:
Earnings (loss) before extraordinary item ($ 0.05) ($ 0.03) ($ 0.01) $ 0.01
Earnings from extraordinary item - 0.01 - -
----------- ----------- ----------- -----------
Diluted Earnings (loss) per share ($ 0.05) ($ 0.02) ($ 0.01) $ 0.01
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 6,718,925 6,718,925 6,718,925 24,708,925
</TABLE>
The accompanying notes are an integral part of the above statements.
Page 5
<PAGE>
General Kinetics Incorporated
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
February 29, February 28,
2000 1999
------------ --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income/(Loss) $ (344,300) $ (145,400)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 137,700 114,600
Extraordinary gain on debt extinguishment - (67,000)
Gain on settlement of Cryptek Note (278,800)
Amortization of bond discount 46,500 47,500
Bad debt provision - (75,000)
(Increase) Decrease in Assets:
Accounts Receivable 85,800 (1,284,000)
Inventories 483,300 (884,000)
Prepaid Expenses 25,100 (28,800)
Other assets (12,400) (22,800)
Increase (Decrease) in Liabilities:
Accounts Payable - Trade (279,500) 455,500
Accrued Expenses (3,500) 55,900
Other Long Term Liabilities (28,800) (28,500)
------------ ------------
Net cash provided by/(used) in Operating Activites (168,900) (1,862,000)
------------ ------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (66,300) (141,400)
Payment received on notes receivable 400,000 25,000
Net proceeds from settlement of Cryptek Note 278,800 -
------------ ------------
Net cash provided by/(used) in Investing Activities 612,500 (116,400)
------------ ------------
Cash Flows from Financing Activities:
Advances from Factor/Borrowings
on Demand Notes Payable 1,574,400 300,800
Repayments of advances from Factor/
Demand Notes Payable (1,653,400) (124,700)
Issuance of Notes Payable 88,400
Repayments on Notes Payable (52,800)
Repayments on Long Term Debt (57,000) (85,600)
------------ ------------
Net cash provided by/(used) in Financing Activities (100,400) 90,500
------------ ------------
Net (decrease) increase in cash and cash equivalents 343,200 (1,887,900)
Cash and Cash Equivalents: Beginning of Period 307,400 1,923,300
------------ ------------
Cash and Cash Equivalents: End of Period $ 650,600 $ 35,400
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 198,900 $ 128,400
Income Taxes 800 7,100
</TABLE>
The accompanying notes are an integral part of the above statements.
Page 6
<PAGE>
GENERAL KINETICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The condensed consolidated financial statements at February 29, 2000 and May
31, 1999, and for the three months and nine months ended February 29, 2000 and
February 28, 1999, respectively, include the accounts of General Kinetics
Incorporated ("GKI").
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under generally
accepted accounting principles in that certain note information included in the
Company's Annual Report has been omitted; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary to a fair presentation of the results of
the interim periods.
The results of operations for the three month and nine month periods ended
February 29, 2000, are not necessarily indicative of the results to be expected
for the full year.
Note 2 - Net Income/(Loss)Per Share
The Company calculates net income (loss) per share following Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No.
128 replaced the presentation of primary and fully diluted earnings per share
with basic and diluted earnings per share and requires a reconciliation of the
numerator and denominator of basic earnings per share to diluted earnings per
share. Earnings per share have been computed using the weighted average number
of common shares outstanding. The Company has excluded the effects of
outstanding options and convertible securities as the effect would have been
anti-dilutive.
Note 3 - Notes Payable
At February 29, 2000 and May 31, 1999, convertible debentures initially
issued to clients of Gutzwiller & Partner, A.G. ("Gutzwiller") have an aggregate
principal amount of approximately $9.0 million, mature in August 2004, are
convertible into common stock at a conversion price of 50 cents per share, and
bear interest at 1% per annum, which is payable annually.
7
<PAGE>
Shares issuable upon conversion are also subject to certain rights to
registration under the Securities Act of 1933, as amended.
In November 1999, the Company finalized an agreement for the funding of the
August 1999 scheduled payments of interest on the convertible debentures through
five promissory notes totaling $88,421. The notes bear interest at 10% per
annum, and are payable at the rate of one note each month beginning in December
1999, with final payment on the last note scheduled in April 2000.
Real Estate Mortgage Loans
Although there have been no payment defaults, the Company was in violation of
certain loan covenants under the real estate mortgage agreement on the Company's
Johnstown facility as of February 29, 1000; however, the lender has agreed to
waive the violations through May 31, 2000.
Note 4 - Income Taxes
The Company's estimated effective tax rate for fiscal 2000 is 0%. This
estimated effective tax rate is lower than the statutory rate due to the
existence of net operating loss carryforwards.
Note 5 - Cryptek
In October 1999, the Company entered into an agreement that amended the
settlement agreement the Company had reached with Cryptek Secure Communications,
LLC ("Cryptek") in December 1998. The October 1999 Agreement reduced the face
amount of the promissory note payable to the Company by Cryptek from $550,000 to
$400,000 in exchange for accelerating the payment schedule. The Company received
$200,000 upon execution of the new Agreement. In addition, the October 1999
Agreement gave Cryptek the option to pay the remainder of the promissory note
and redeem the preferred interest in Cryptek held by the Company (with a face
amount of $900,000 and a requirement for mandatory redemption in December 2002)
for an additional $488,750, if that option were exercised within six months
after the execution of the October 1999 Agreement.
At November 30, 1999 the $150,000 reduction in the face amount of the note
was offset against an existing valuation reserve related to the Cryptek
promissory note. In December 1999, Cryptek exercised its option and paid the
Company $478,800, representing a discount of $10,000 in consideration of a
closing in December rather than at the end of the six-month option period in
April 2000. The $478,800 was first applied to
8
<PAGE>
settle the note receivable with a carrying value of $200,000, and the excess of
$278,800 is recorded in the accompanying financial statements as a non-recurring
gain in non-operating income. This gain was recognized because GKI did not
attribute any value to the preferred interest in Cryptek for financial statement
purposes due to uncertainty over valuation at the time of the original sale
transaction.
Note 6 - Notes Receivable
The Company has agreed to extend the repayment period for certain outstanding
convertible loans totaling $175,000 to Link2It, LLC. Such loans will now be
scheduled to mature on January 1, 2001. Due to delays in the introduction of
Link2It's proprietary products into the marketplace and the extended repayment
period of the loans, the accompanying financial statements at February 29, 20000
include a valuation reserve of $87,500 with respect to the notes.
9
<PAGE>
GENERAL KINETICS INCORPORATED
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended February 29, 2000 Compared to Three Months Ended February 28,
1999
Net sales for the three months ended February 29, 2000 were approximately $1.8
million compared to net sales of approximately $2.2 million for the quarter
ended February 29, 1999. The decrease in sales was due primarily to a decline in
demand for the three months ended February 29, 2000 as compared to the same
period of the prior fiscal year. However, sales have historically varied
significantly throughout the year, and management does not believe that the
third quarter decrease in net sales necessarily represents a continuing trend.
The gross margin percentage decreased from 27.8% for the quarter ended February
28, 1999 to 1.8% for the quarter ended February 29, 2000. The primary reason for
the decrease in gross margin was the reduction in shipments in the third quarter
of fiscal 2000 as compared to the same period for the prior fiscal year, and as
compared to the second quarter of fiscal 2000. There were significant
manufacturing inefficiencies created as the Company increased production during
the first two quarters of fiscal 2000, and then decreased production in the
third quarter. The Company is continuing to take steps to address these
production issues and to better deal with changes in shipping volume through
changes and additions to plant supervision and by adding new scheduling and
planning procedures.
Sales, General & Administrative costs were down from $445,700 in the third
quarter of fiscal 1999 to $331,200 in the third quarter of the current fiscal
year. This decrease was principally due to marketing costs during fiscal 1999 of
approximately $56,500 related to the development of a new commercial catalog and
product line, along with decreases in legal, communications, and salary
expenses.
For the three months ended February 29, 2000, the Company had an operating
loss of $298,500 compared to operating income of $169,300 for the comparable
quarter of the prior fiscal year. The decrease was due primarily to the decrease
in revenues and gross margins described above.
Interest expense increased from $46,900 in the third quarter of fiscal 1999
to $58,000 in the third quarter of fiscal 2000. This increase occurred
principally because in fiscal 2000 the Company has used accounts receivable
financing to alleviate short-term cash requirements.
10
<PAGE>
As discussed above, during the third quarter of fiscal 2000 the Company
recorded a non-recurring gain on the settlement of the Cryptek note and
preferred interest of $278,800.
The Company's estimated effective tax rate for fiscal 2000 is 0%. This
estimated effective tax rate is lower than the statutory rate due to the
existence of net operating loss carryforwards.
Nine Months Ended February 29, 2000, Compared to Nine Months Ended February 28,
1999
Net sales for the nine months ended February 29, 2000 were approximately $6.8
million compared to net sales of approximately $4.7 million for the nine months
ended February 28, 1999. The increase in sales was due primarily to an increase
in demand in the first two quarters of fiscal 2000 as compared to the same
period of the prior fiscal year. However, the increase in demand reflected in
the first half of fiscal 2000, reflected in higher net sales for the first three
quarters overall, is not necessarily indicative of the results to be expected
for the full year. The Company's contract backlog was approximately $3.8 million
at February 29, 2000 as compared to approximately $5.5 million at February 28,
1999.
The gross margin percentage decreased from 27.0% for the nine months ended
February 28, 1999 to 11.3% for the nine months ended February 29, 2000. The
primary reasons for the decrease in gross margins were additional manufacturing
costs associated with a large increase in monthly production requirements during
the last quarter of fiscal 1999 and the first half of fiscal 2000, followed by a
reduction in shipments during the third quarter of fiscal 2000. The Company
significantly increased payroll, overtime, and overhead costs in order to scale
up to the higher production volume. There were significant manufacturing
inefficiencies created as the Company increased and then decreased production.
The Company is continuing to take steps to address these production issues and
to better deal with changes in shipping volume through changes and additions to
plant supervision and by adding new scheduling and planning procedures.
Sales, General & Administrative costs were approximately $1.2 million in the
first nine months of fiscal 2000 as compared to approximately $1.3 in the first
nine months of the prior fiscal year. This decrease was principally due to
marketing costs during fiscal 1999 of approximately $56,500 related to the
development of a new commercial catalog and product line, along with decreases
in legal, communications, and salary expenses.
11
<PAGE>
For the nine months ended February 29, 2000, the Company had an operating
loss of $389,000 compared to an operating loss of $79,400 for the comparable
nine months of the prior fiscal year. The decrease was due primarily to the
decrease in gross margins described above.
Interest expense increased from $133,000 in the first nine months of fiscal
1999 to $234,100 in the first nine months of the current fiscal year. This
increase occurred principally because in fiscal 2000 the Company has used
accounts receivable financing to alleviate short-term cash requirements.
As discussed above, during the third quarter of fiscal 2000 the Company
recorded a non-recurring gain on the settlement of the Cryptek note and
preferred interest of $278,800.
The Company recorded an extraordinary gain from debt extinguishment of
$67,000 during the nine months ended February 28, 1999. It had no such
extraordinary income items in the comparable quarter of the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied upon internally generated funds and accounts receivable
financing, plus cash from sales of two of its operating companies, to finance
its operations. The Company's capital requirements primarily result from working
capital needed to support increases in inventory and accounts receivable. During
the second half of fiscal 1999, and the first quarter of fiscal 2000, the
Company's expenditures for material and equipment, as well as payroll and
related costs, rose substantially as the level of booked and anticipated orders
increased. In order to generate the additional working capital required for
these purposes, the Company must continue to generate orders and stabilize its
level of shipments, which did not keep pace with the increased level of orders
and expenditures in the first quarter of fiscal 2000. As a result, the Company
has faced severe liquidity problems.
The Company must continue to market electronic enclosure products to government
and commercial markets, enter into contracts which the Company can complete with
favorable profit margins, ship the orders in a timely manner, and control its
increased costs in order to recover from its liquidity problems and seek to
operate profitably in the remainder of fiscal 2000.
As of February 29, 2000, the Company had cash of approximately $651,000. The
Company's liquidity was substantially diminished during the first quarter of
fiscal 2000 because of two months in which the level of shipments was
significantly lower than anticipated, while expenditures for
12
<PAGE>
payroll and materials remained high, and there was an operating loss of $298,500
during the third quarter of fiscal 2000. The Company is continuing to take steps
to address these production issues through changes and additions to plant
supervision and by adding new scheduling and planning procedures.
Management believes that cash on hand, borrowings from the factoring of accounts
receivable, and careful management of operating costs and cash disbursements can
enable the Company to meet its cash requirements through May 31, 2000. As
discussed in Note 5 to the consolidated financial statements, during the second
quarter of fiscal 2000 the Company renegotiated the terms of its promissory note
due from, and preferred membership interest in, Cryptek. This has resulted in
cash to the Company totaling $200,000 in October 1999 and $478,750 in December
1999. The Company may also seek additional funding sources to provide a cushion
to handle variances in cash requirements if sales and shipment levels fluctuate
throughout the fiscal year. However, there is no assurance the Company will be
successful in pursuing its plans or in obtaining additional financing to meet
those cash requirements. The Company must continue to maintain its level of
sales, consistently make timely shipments and produce its products at adequate
profit margins, or the Company will continue to face severe liquidity problems,
and may be left without sufficient cash to meet its ongoing requirements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As explained above, the Company has
sustained significant operating losses and cash flow deficits in fiscal 1999 and
the first three quarters of fiscal 2000. In addition, the Company has
significant short-term cash commitments and additional short-term borrowing to
fund these commitments is limited to the factoring of certain accounts
receivable. These factors raise significant doubt about the Company's ability to
continue as a going concern. The financial statements do not contain any
adjustment that might result from the outcome of these uncertainties.
The Company is party to a factoring agreement with Reservoir Capital Corporation
("Reservoir") in which Reservoir agreed to purchase eligible accounts receivable
from the Company at an assignment price equal to 80% of the outstanding amount
of such accounts receivable. At February 29, 2000 there were no advances due to
Reservoir. The Company expects to draw on this facility through fiscal 2000 as
necessary to alleviate cash requirements, although, as discussed above, the
Company will also need to reduce and control expenses, maintain the sales
backlog at appropriate levels, and keep shipment levels in line with booked
orders in order to meet these requirements.
The Company has outstanding debentures originally issued to clients of
Gutzwiller totaling approximately $9.0 million. The debentures mature in
13
<PAGE>
August 2004, are convertible into common stock at a conversion price of 50 cents
per share, and bear interest at 1% per annum payable annually. In November 1999,
the Company finalized an agreement for the funding of the August 1999 scheduled
payments of interest on the convertible debentures through five promissory notes
totaling $88,421. The notes bear interest at 10% per annum, and are payable at
the rate of one note each month beginning in December 1999, with final payment
on the last note scheduled in April 2000.
ANALYSIS OF CASH FLOWS
Operating activities used $168,900 in cash in the first three quarters of fiscal
2000. This reflects a net loss of $344,300 less $184,200 in non-cash expenses
and $270,000 in cash to fund changes in working capital items, offset by a gain
of $278,800 on the settlement of the Cryptek note and preferred interest. The
cash to fund changes in working capital items included a decrease in inventories
of $483,00, partially offset by a decrease in accounts payable of $279,500 in
the nine months ended February 29, 2000.
Investing activities provided $612,500 in the first three quarters of fiscal
2000. These activities consisted of the repayment of $400,000 in respect of the
Cryptek note receivable and a net gain of $278,800 on the Cryptek transaction as
discussed in Note 5 above, offset by $666,300 of acquired property, plant and
equipment.
Financing activities used $100,400 in the first three quarters of fiscal 2000.
These activities consisted primarily of net cost of factored accounts receivable
advances totaling $79,00, plus the loan of $88,400 used to repay the bond
interest discussed above, offset by repayments of the bond interest loan and
long term debt totaling $109,800.
Management believes that inflation did not have a material effect on the
operations of the Company during fiscal 2000.
Year 2000
Many existing computer systems and software products accept only two digit
entries in the date code field. Beginning in the year 2000, and in certain
instances prior to the year 2000, these date code fields need to accept four
digit entries to distinguish 21st century dates from 20th century dates ("year
2000 compliant").
During fiscal 1999, the Company began updating its accounting software package
to a version that contains modifications intended to make them year
14
<PAGE>
2000 compliant. Management did not believe the Company would suffer any material
loss of customers or other material adverse effects as a result of these
modifications. There was no additional cost to the Company for the accounting
software upgrade to be year 2000 compliant. Most other software programs used
within the Company were considered to be year 2000 compliant. The Company
developed and implemented a plan to test year 2000 compliance in all of its
systems. The Company is aware of no material difficulties of this nature with
its systems in the year 2000 to date.
The Company believes that its computer systems are year 2000 compliant. However,
there can be no assurance that during the next several months the Company's
systems, customers or vendors will not experience unforeseen difficulties
related to the year 2000 issues, or that the Company might not incur additional
expenses to related to year 2000 compliance.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, operations of the Company may be exposed to
fluctuations in currency values and interest rates. These fluctuations can vary
the cost of financing, investing, and operating transactions. Because the
Company has only fixed rate long-term convertible debentures and no foreign
currency transactions, there is no material impact on earnings from fluctuations
in interest and currency exchange rates.
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None
15
<PAGE>
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.
GENERAL KINETICS INCORPORATED
Date: April 14, 2000 /s/ Larry M. Heimendinger
- ------------------------------ -------------------------------------
Chairman of the Board
(Principal Executive Officer)
Date: April 14, 2000 /s/ Sandy B. Sewitch
- ------------------------------ -------------------------------------
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 650,600
<SECURITIES> 0
<RECEIVABLES> 1,644,000
<ALLOWANCES> 139,500
<INVENTORY> 802,300
<CURRENT-ASSETS> 2,991,600
<PP&E> 2,729,800
<DEPRECIATION> 1,785,900
<TOTAL-ASSETS> 3,974,500
<CURRENT-LIABILITIES> 1,396,200
<BONDS> 9,313,500
1,811,500
0
<COMMON> 0
<OTHER-SE> (8,793,300)
<TOTAL-LIABILITY-AND-EQUITY> 3,974,500
<SALES> 6,883,700
<TOTAL-REVENUES> 6,883,700
<CGS> 6,102,900
<TOTAL-COSTS> 6,102,900
<OTHER-EXPENSES> 891,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,100
<INCOME-PRETAX> (344,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (344,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (344,300)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
