<PAGE>
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 November 30, 1999 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 January 5, 2000 6,718,925 Shares
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <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 -
November 30, 1999 and May 31, 1999...............................................................................4
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended November 30, 1999 and November 30, 1998,
respectively......................................................................................................5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 1999 and
November 30, 1998, 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..................................................................................16
</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
November 30, 1999 and May 31, 1999
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
------------ -------
(Unaudited) (Audited)
----------- ---------
<S><C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 139,500 $ 307,400
Accounts receivable, net of allowance of $208,000 1,925,700 1,502,800
Inventories 940,700 1,285,600
Prepaid expenses and other 40,700 59,300
Note receivable, current 75,000 70,000
Note receivable, affiliate, net of allowance of $87,500 87,500 87,500
------------ ------------
Total Current Assets 3,209,100 3,312,600
------------ ------------
Property, Plant and Equipment 2,996,700 2,942,800
Less: Accumulated Depreciation (2,025,200) (1,926,800)
------------ ------------
971,500 1,016,000
Note Receivable, less current portion, net of allowance of $0 and $150,000 125,000 330,000
Other Assets 162,800 26,600
------------ ------------
Total Assets $ 4,468,400 $ 4,685,200
============ ============
Liablilities and Stockholders' Deficit
Current Liabilities:
Advances from Factor $ 174,100 $ 79,000
Current maturities of long-term debt 66,200 66,200
Notes payable 88,400 -
Accounts payable, trade 932,800 958,800
Accrued expenses and other payables 540,700 638,900
------------ ------------
Total Current Liabilities 1,802,200 1,742,900
------------ ------------
Long-Term Debt - less current maturities (including
$8,685,600 and $8,654,700 of convertible debentures) 9,314,100 9,304,400
Other long-term liabilities 256,200 275,400
------------ ------------
Total Long-Term Liabilities 9,570,300 9,579,800
------------ ------------
Total Liabilities 11,372,500 11,322,700
------------ ------------
Stockholders' Deficit:
Common Stock, $0.25 par value, 50,000,000 and 10,000,000 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 (15,504,800) (15,238,200)
------------ ------------
(6,453,900) (6,187,300)
Less: Treasury Stock, at cost (526,632 shares) (450,200) (450,200)
------------ ------------
Total Stockholders' Deficit (6,904,100) (6,637,500)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 4,468,400 $ 4,685,200
============ ============
</TABLE>
The accompanying notes are an integral part of the above statements.
4
<PAGE>
General Kinetics Incorporated
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S><C> <C> <C> <C> <C>
Net Sales $5,051,500 $2,446,400 $2,602,600 $1,660,900
Cost of Sales 4,303,400 1,802,900 2,079,900 1,203,100
---------- ---------- ---------- ----------
Gross Profit 748,100 643,500 522,700 457,800
---------- ---------- ---------- ----------
Selling, General & Administrative 838,600 892,200 412,500 407,400
---------- ---------- ---------- ----------
Total Operating Expenses 838,600 892,200 412,500 407,400
---------- ---------- ---------- ----------
Operating Income (loss) (90,500) (248,700) 110,200 50,400
Interest Expense 176,100 86,100 80,400 40,200
---------- ---------- ---------- ----------
Income (loss) before extraordinary item (266,600) (334,800) 29,800 10,200
---------- ---------- ---------- ----------
Extraordinary item - gain from debt extinguishment -- 67,000 -- 67,000
---------- ---------- ---------- ----------
Net Income (loss) $ (266,600) $ (267,800) $ 29,800 $ 77,200
========= ========== ========== ==========
Basic Earnings per Share:
Earnings (loss) before extraordinary item ($0.04) ($0.05) $0.004 $0.001
Earnings from extraordinary item -- 0.01 -- .010
---------- ---------- ---------- ----------
Basic Earnings (loss) per Share ($0.04) ($0.04) $0.004 $.011
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 ($0.04) ($0.05) $0.002 $0.001
Earnings from extraordinary item -- 0.01 -- 0.003
---------- ---------- ---------- ----------
Diluted Earnings (loss) per S+A11hare ($0.04) ($0.04) $0.002 $0.004
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 6,718,925 6,718,925 24,708,925 24,708,925
</TABLE>
The accompanying notes are an integral part of the above statements.
5
<PAGE>
General Kinetics Incorporated
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30, November 30,
1999 1998
------------ ------------
<S><C> <C> <C>
Cash Flows From Operating Activities:
Net Income/(Loss) $ (266,600) $ (267,800)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 98,400 70,400
Extraordinary gain on debt extinguishment (67,000)
Amortization of bond discount 31,000 31,000
Bad debt provision (75,000)
(Increase) Decrease in Assets:
Accounts Receivable (422,900) (530,500)
Inventories 344,900 (397,200)
Prepaid Expenses 18,600 (24,900)
Other assets (136,200) (22,800)
Increase (Decrease) in Liabilities:
Accounts Payable - Trade (26,000) (98,300)
Accrued Expenses (76,800) (63,300)
Other Long Term Liabilities (19,200) (18,900)
Net cash provided by/(used) in Operating Activites (454,800) (1,464,300)
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (53,900) (90,600)
Payment received on notes receivable 200,000 --
Net cash provided by/(used) in Investing Activities 146,100 (90,600)
----------- -----------
Cash Flows from Financing Activities:
Advances from Factor/Borrowings
on Demand Notes Payable 1,522,600 --
Repayments of advannces from Factor/
Demand Notes Payable (1,429,200) --
Issuance of Notes Payable 88,400 --
Repayments on Long Term Debt (41,000) (68,300)
----------- -----------
Net cash provided by/(used) in Financing Activities 140,800 (68,300)
----------- -----------
Net (decrease) increase in cash and cash equivalents (167,900) (1,623,200)
Cash and Cash Equivalents: Beginning of Period 307,400 1,923,300
----------- -----------
Cash and Cash Equivalents: End of Period $ 139,500 $ 300,100
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 177,400 $ 104,200
Income Taxes 800 6,800
</TABLE>
The accompanying notes are an integral part of the above statements.
6
<PAGE>
GENERAL KINETICS INCORPORATED AND SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The condensed consolidated financial statements at November 30, 1999 and May
31, 1999, and for the three months and six months ended November 30, 1999, and
November 30, 1998, 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 six month periods ended
November 30, 1999, are not necessarily indicative of the results to be expected
for the full year.
Note 2 - Net Income/(Loss)Per Share
The Company implemented Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", at May 31, 1998. SFAS No. 128 replaces 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 November 30, 1999 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 November 30, 1999; 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 action 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. Subsequent to the end of the Company's second fiscal quarter, in December
1999, Cryptek exercised its option and paid the Company $478,750, representing a
discount of $10,000 in consideration of a closing in December rather than at the
end of the six-month option period
8
<PAGE>
in April 2000. The $478,750 will first be applied to settle the note receivable
with a carrying value of $200,000, and the excess of $278,750 will be recorded
as a non-recurring gain in non-operating income. This gain will be recognized
because GKI did not attribute any value to the preferred interest in Cryptek due
to uncertainty over valuation at the time of the original sale transaction.
9
<PAGE>
GENERAL KINETICS INCORPORATED
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended November 30, 1999 Compared to Three Months Ended
- -------------------------------------------------------------------
November 30, 1998
- -----------------
Net sales for continuing operations for the three months ended November 30,
1999 were approximately $2.6 million compared to net sales of approximately $1.7
million for the quarter ended November 30, 1998. The increase in sales was due
primarily to an increase in demand for the three months ended November 30, 1999
as compared to the same period of the prior fiscal year.
The gross margin percentage decreased from 27.6% for the quarter ended
November 30, 1998 to 20.1% for the quarter ended November 30, 1999. The primary
reasons for the decrease in gross margin 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. 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 production. 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. The gross margin percentage of 20.8% in the second quarter of fiscal
2000 showed significant improvement as compared to a gross margin percentage of
9.2% the first quarter of the fiscal year.
Sales, General & Administrative costs were essentially unchanged at
approximately $412,500 in the second quarter of fiscal 2000 as compared to
approximately $407,400 in the corresponding quarter of the prior fiscal year.
For the three months ended November 30, 1999, the Company had operating income
of $110,200 compared to operating income of $50,400 for the comparable quarter
of the prior fiscal year. The increase was due primarily to the increase in
revenues described above.
Interest expense increased from $40,200 in the second quarter of fiscal 1999
to $80,400 in the second 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>
The Company recorded an extraordinary gain from debt extinguishment of $67,000
during the quarter ended November 30, 1998. It had no such extraordinary income
items in the comparable quarter of the current fiscal year.
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.
Six Months Ended November 30, 1999, Compared to Six Months Ended November
- -------------------------------------------------------------------------
30, 1998
- --------
Net sales for the six months ended November 30, 1999 were approximately $5.1
million compared to net sales of approximately $2.4 million for the six months
ended November 30, 1998. The increase in sales was due primarily to a increase
in demand in the first half 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 is not necessarily indicative of the results to be expected for
the full year. The Company's contract backlog was approximately $4.5 million at
November 30, 1998 as compared to approximately $2.9 million at November 30,
1999.
The gross margin percentage decreased from 26.3% for the six months ended
November 30, 1998 to 14.8% for the six months ended November 30, 1999. 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. 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 production. 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. The gross margin percentage of 20.1% in the second quarter of fiscal
2000 showed significant improvement as compared to a gross margin percentage of
9.2% the first quarter of the fiscal year.
Sales, General & Administrative costs were approximately $838,600 in the first
six months of fiscal 1999 as compared to approximately $892,200 in the first six
months of the prior fiscal year. This decrease was principally due to a decrease
in marketing costs of approximately $57,000, reflecting the higher costs
incurred in the first quarter of fiscal 1999 in connection with the development
of a commercial catalog and product line.
11
<PAGE>
For the six months ended November 30, 1999, the Company had an operating loss
of $90,500 compared to an operating loss of $248,700 for the comparable six
months of the prior fiscal year. The improvement was due principally to the
increase in sales and decrease in marketing costs described above.
Interest expense increased from $86,100 in the first six months of fiscal 1999
to $176,100 in the first six 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.
The Company recorded an extraordinary gain from debt extinguishment of $67,000
during the six months ended November 30, 1998. 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 two months 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 November 30, 1999, the Company had cash of approximately $139,500. 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 payroll and
materials remained high. 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. The
12
<PAGE>
Company had net income of approximately $29,800 in the second quarter of the
fiscal year.
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 again 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 quarter of fiscal 2000, although the Company showed a net profit of
$29,800 during the second quarter 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 November 30, 1999, the balance of advances due
to Reservoir was $174,100. 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 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.
13
<PAGE>
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 $454,800 in cash in the first half of fiscal 2000.
This reflects a net loss of $266,600 less $129,400 in non-cash expenses, plus
$317,600 in cash to fund changes in working capital items. The cash to fund
changes in working capital items included an increase in accounts receivable of
$422,900, partially offset by a decrease in inventories of $344,900, in the six
months ended November 30, 2000.
Investing activities provided $146,100 in the first half of fiscal 2000. These
activities consisted of the repayment of $200,000 for the Cryptek note
receivable discussed above, offset by $53,900 of acquired property, plant and
equipment.
Financing activities provided $140,800 in the first half of fiscal 2000. These
activities consisted primarily of net factored accounts receivable advances
totaling $93,400, plus the loan of $88,400 used to repay the bond interest
discussed above, offset by repayments of long term debt totaling $41,000.
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 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.
14
<PAGE>
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: January 14, 2000 /s/ Larry M. Heimendinger
-------------------- -----------------------------------
Chairman of the Board
(Principal Executive Officer)
Date: January 14, 2000 /s/ Sandy B. Sewitch
--------------------- -----------------------------------
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 139,500
<SECURITIES> 0
<RECEIVABLES> 2,508,700
<ALLOWANCES> 295,500
<INVENTORY> 940,700
<CURRENT-ASSETS> 3,209,100
<PP&E> 2,996,700
<DEPRECIATION> 2,025,200
<TOTAL-ASSETS> 4,468,400
<CURRENT-LIABILITIES> 1,802,200
<BONDS> 9,314,100
0
0
<COMMON> 1,811,500
<OTHER-SE> (8,715,600)
<TOTAL-LIABILITY-AND-EQUITY> 4,468,400
<SALES> 5,051,500
<TOTAL-REVENUES> 5,051,500
<CGS> 4,303,400
<TOTAL-COSTS> 4,303,400
<OTHER-EXPENSES> 838,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,100
<INCOME-PRETAX> (266,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (266,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (266,600)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
