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, 2001 Commission File Number 0-1738
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GENERAL KINETICS INCORPORATED
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(Exact Name of Registrant as Specified in its Charter)
Virginia 54-0594435
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10688- D Crestwood Drive Manassas, VA 20109
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 703-331-8803
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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 4, 2002 6,718,925 Shares
INDEX
Page No.
--------
Cautionary Statement Under the Private Securities Litigation Reform Act of 1996........................... 3
Part I - Financial Information
Item 1 - Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
November 30, 2001 and May 31, 2001............................................................... 5
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended November 30, 2001 and November 30, 2000,
respectively...................................................................................... 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 2001 and
November 30, 2000, respectively.................................................................. 7
Notes to Condensed Consolidated Financial Statements............................................... 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................................. 11
Item 3 - Quantitative and Qualitative
Disclosures About Market Risk........................................................................ 16
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K.......................................................................... 17
2
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements contained in this Quarterly Report on Form 10-Q, including without
limitation, as set forth under the caption "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 may contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve risks and
uncertainties. They are not historical facts or guarantees of future performance
or events. They are based on current expectations, estimates, beliefs,
assumptions, goals and objectives, and are subject to uncertainties that are
difficult to predict. In particular, certain risks and uncertainties may
include, but are 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. Forward looking
statements included in this quarterly report are based on information known to
GKI as of the date of this quarterly report and GKI accepts no obligation (and
expressly disclaims any obligations) to update these forward looking statements
and does not intend to do so. Certain of these risks and uncertainties 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. Revenues, expenses, assets and liabilities vary during the year and
generally accepted accounting principles require the Company to make estimates
and assumptions in preparing the interim
3
financial statements. The Company has made its best effort in establishing good
faith estimates and assumptions. However, actual results may differ. 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, 2001 and 2000 set forth in the
Company's annual report on Form 10-K, as amended, for the fiscal year ended May
31, 2001.
4
General Kinetics Incorporated
Balance Sheets
November 30, 2001 and
May 31, 2001
November 30, May 31,
2001 2001
---- ----
(Unaudited) (Audited)
------------ ---------
Assets
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Current Assets:
Cash and cash equivalents $ 278,500 $ 388,300
Accounts receivable, net of allowance of $57,500 and $72,700 1,425,500 1,251,600
Inventories 1,675,600 1,452,300
Prepaid expenses and other 35,300 13,100
------------ ------------
Total Current Assets 3,414,900 3,105,300
------------ ------------
Property, Plant and Equipment 2,800,900 2,786,100
Less: Accumulated Depreciation (2,057,000) (1,984,400)
------------ ------------
743,900 801,700
Other Assets 117,100 102,400
------------ ------------
Total Assets $ 4,275,900 $ 4,009,400
============ ============
Liablilities and Stockholders' Deficit
--------------------------------------
Current Liabilities:
Advances from Factor $ 203,500 $ --
Current maturities of long-term debt 75,100 75,100
Accounts payable, trade 1,216,100 1,104,100
Accrued expenses and other payables 523,300 575,000
------------ ------------
Total Current Liabilities 2,018,000 1,754,200
------------ ------------
Long-Term Debt - less current maturities (including
$8,824,900 and $8,793,900 of convertible debentures) 9,283,000 9,288,300
Other long-term liabilities 243,800 263,000
------------ ------------
Total Long-Term Liabilities 9,526,800 9,551,300
------------ ------------
Total Liabilities 11,544,800 11,305,500
------------ ------------
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 (15,869,600) (15,896,800)
------------ ------------
(6,818,700) (6,845,900)
Less: Treasury Stock, at cost (526,632 shares) (450,200) (450,200)
------------ ------------
Total Stockholders' Deficit (7,268,900) (7,296,100)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 4,275,900 $ 4,009,400
============ ============
The accompanying notes are an integral part of the above statements.
Page 5
General Kinetics Incorporated
Statements of Operations
(Unaudited)
Six Months Ended Three Months Ended
November 30, November 30, November 30, November 30,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $ 4,689,200 $ 4,713,900 $ 2,620,700 $ 2,447,300
Cost of Sales 3,765,400 3,765,900 2,161,100 1,846,100
------------ ------------ ------------ ------------
Gross Profit 923,800 948,000 459,600 601,200
------------ ------------ ------------ ------------
Selling, General & Administrative 779,900 844,700 384,700 415,700
Product Research, Development & Improvement -- 37,700 -- 37,700
------------ ------------ ------------ ------------
Total Operating Expenses 779,900 882,400 384,700 453,400
------------ ------------ ------------ ------------
Operating Income 143,900 65,600 74,900 147,800
Interest Expense (116,700) (110,200) (61,100) (60,400)
------------ ------------ ------------ ------------
Net Income (Loss) 27,200 (44,600) 13,800 87,400
============ ============ ============ ============
Basic Earnings per Share:
Basic Earnings (Loss) per Share $ 0.004 ($0.007) $ 0.002 $ 0.013
Weighted Average Number of Common Shares
Outstanding 6,718,925 6,718,925 6,718,925 6,718,925
Diluted Earnings per Share:
Diluted Earnings (Loss) per Share $ 0.003 ($0.007) $ 0.002 $ 0.004
Weighted Average Number of Common Shares
and Dilutive Equivalents Outstanding 24,708,925 6,718,925 24,708,925 24,708,925
The accompanying notes are an integral part of the above statements.
Page 6
General Kinetics Incorporated
Statements of Cash Flows
(Unaudited)
Six Months Ended
November 30, November 30,
2001 2000
---- ----
Cash Flows From Operating Activities:
Net Income/(Loss) $ 27,200 $ (44,600)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 72,600 79,800
Amortization of bond discount 31,000 31,000
(Increase) Decrease in Assets:
Accounts Receivable (173,900) (603,600)
Inventories (223,300) 209,500
Prepaid Expenses (22,200) 3,100
Other assets (14,700) 52,800
Increase (Decrease) in Liabilities:
Accounts Payable - Trade 112,000 19,400
Accrued Expenses (51,700) (241,500)
Other Long Term Liabilities (19,200) (19,200)
--------- ---------
Net cash provided by/(used in) Operating Activites (262,200) (513,300)
--------- ---------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (14,800) (8,100)
--------- ---------
Net cash provided by/(used in) Investing Activities (14,800) (8,100)
--------- ---------
Cash Flows from Financing Activities:
Advances from Factor/Borrowings
on Demand Notes Payable 604,700 70,500
Repayments of advances from Factor/
Demand Notes Payable (401,200) (114,600)
Repayments on Long Term Debt (36,300) (33,900)
--------- ---------
Net cash provided by/(used in) Financing Activities 167,200 (78,000)
--------- ---------
Net (decrease) increase in cash and cash equivalents (109,800) (599,400)
Cash and Cash Equivalents: Beginning of Period 388,300 958,100
--------- ---------
Cash and Cash Equivalents: End of Period $ 278,500 $ 358,700
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 124,500 $ 116,900
Income Taxes -- 800
The accompanying notes are an integral part of the above statements.
Page 7
GENERAL KINETICS INCORPORATED
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The unaudited condensed financial statements at November 30, 2001, and
for the three months and six months ended November 30, 2001 and November 30,
2000, 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, 2001, are not necessarily indicative of the results to be
expected for the full year.
Note 2 - Earnings Per Share
Earnings per share is based on the weighted average number of shares of common
stock and dilutive common stock equivalents outstanding. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity. The following table
presents a reconciliation between the weighted average shares outstanding for
basic and diluted earnings per share for the three months ended November 30,
2001 and 2000, and the six months ended November 30, 2001:
Three Months ended Nov 30, 2001: Income Shares Per Share Amount
------ ------ ----------------
Basic earnings per share
Income available to common shareholders $ 13,800 6,718,925 $ 0.002
Effect of assumed conversion of
convertible debentures, net of tax 23,684 17,990,000 0.001
-------- ---------- --------
Dilutive earnings per share $ 37,484 24,708,925 $ 0.002
8
Three Months ended Nov 30, 2000: Income Shares Per Share Amount
------ ------ ----------------
Basic earnings per share
Income available to common shareholders $ 87,400 6,718,925 $ 0.013
Effect of assumed conversion of
convertible debentures, net of tax 23,684 17,990,000 0.001
---------- ---------- --------
Dilutive earnings per share $ 111,084 24,708,925 $ 0.004
Six Months ended Nov 30, 2001: Income Shares Per Share Amount
------ ------ ----------------
Basic earnings per share
Income available to common shareholders $ 27,200 6,718,925 $ 0.004
Effect of assumed conversion of
convertible debentures, net of tax 47,368 17,990,000 0.003
---------- ---------- ----------
Dilutive earnings per share $ 74,568 24,708,925 $ 0.003
Note 3 - Notes Payable
At November 30, 2001 and May 31, 2001 convertible debentures initially issued to
clients of Gutzwiller & Partner, AG ("Gutzwiller"), now known as Rabo Investmet
Management Ltd. (the "Manager") are outstanding in 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. Shares issuable upon conversion are
also subject to certain rights to registration under the Securities Act of 1933,
as amended.
In a filing with the SEC dated October 30, 2001, the Manager indicated that it
may be deemed to be the beneficial owner of debentures having an aggregate
principal amount of $7,885,000, including $7,300,000 held in client accounts
managed by the Manager on behalf of various clients who hold beneficial economic
ownership thereof. That SEC filing also indicated that the Manager may be deemed
to be the beneficial owner of an aggregate of 1,715,000 outstanding shares of
the Company's common stock, including 1,472,300 shares held in client accounts.
Note 4 - Related Party Transactions
In August 2001, the Company entered into a factoring agreement with Link2It
Corporation, a company formed by Larry Heimendinger and Richard McConnell, both
members of the Company's Board of Directors. The agreement is intended to
replace the Company's prior agreement with Reservoir Capital Corporation
("Reservoir"). The agreement, which was negotiated at arms length and approved
by unanimous vote of the Company's Board of Directors,
9
is on terms substantially identical to those of the Reservoir facility, but more
favorable to the Company in certain respects, including provision for advances
at a rate of up to 85% of specified accounts receivable. At November 30, 2001
outstanding advances due to Link2It Corporation totaled approximately $203,500.
Interest expense on these advances was $9,500 for the quarter ended November 30,
2001.
Note 5 - Income Taxes
The Company's estimated effective tax rate for fiscal 2002 is 0%. This estimated
effective tax rate is lower than the statutory rate due to the existence of net
operating loss carryforwards.
Note 6 - Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") approved
Statement on Financial Accounting Standards No. 144. "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS No. 144
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived assets and
for Long-Lived assets to be disposed Of" and the accounting and reporting
provisions of the Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 establishes a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale and resolved significant implementation issues related to SFAS No. 121.
SFAS No. 144 retains the requirements of SFAS No. 121 to recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable from
its undiscounted cash flows and measure an impairment loss as the difference
between the carrying amount and fair value of the asset. SFAS No. 144 excludes
goodwill from its scope, describes a probability-weighted cash flow estimation
approach, and establishes a "primary-asset" approach to determine the cash flow
estimation for groups of assets and liabilities. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early adoption encouraged. The Company believes the adoption
of SFAS No. 144 will not have a material impact of its financial position or
results of operations.
10
GENERAL KINETICS INCORPORATED
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended November 30, 2001 Compared to Three Months Ended
-------------------------------------------------------------------
November 30, 2000
-----------------
Net sales for the three months ended November 30, 2001 were approximately
$2.62 million compared to net sales of approximately $2.45 million for the
quarter ended November 30, 2000. The small increase in sales was due primarily
to what are believed to be normal fluctuations in demand for the Company's
products and services.
The gross margin percentage decreased from 24.6% for the quarter ended
November 30, 2000 to 17.54% for the quarter ended November 30, 2001. The primary
reasons for the decrease in gross profit margins was changes in the mix of jobs
produced in the quarter ended November 30, 2001 as compared to the job mix in
the quarter ended November 30, 2000. The mix of jobs produced in the quarter
ended November 30, 2001 required more machine shop hours than were used in the
prior year, and a larger amount of the machine shop work was outsourced to
subcontractors during the current period. In order to increase machine shop
capacity and reduce the amount of outsourcing for machined parts, the Company
has entered into a lease purchase agreement for a new vertical machining center
that was put into service in December 2001.
Sales, General & Administrative costs were approximately $384,700 in the
second quarter of fiscal 2002 as compared to approximately $415,700 in the
corresponding quarter of the prior fiscal year. The change was principally due
to a reduction in corporate facility costs due to the Company moving its
corporate headquarters to Manassas, Virginia in March 2001. During the quarter
ended November 30, 2000, the Company incurred $37,700 in Product Research,
Development & Improvement costs related to the initial development work on a new
enclosure product; there were no comparable costs in the quarter ended November
30, 2001.
For the three months ended November 30, 2001, the Company had operating
income of $74,900 compared to operating income of $147,800 for the comparable
quarter of the prior fiscal year. The decrease was due primarily to the decrease
in gross profit margins described above.
Interest expense was essentially unchanged at $60,400 in the second quarter
of fiscal 2001 compared to $61,100 in the second quarter of fiscal 2002.
11
The Company's estimated effective tax rate for fiscal 2002 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, 2001, Compared to Six Months Ended
----------------------------------------------------------------
November 30, 2000
------------------
Net sales for the six months ended November 30, 2001 were approximately
$4.7 million, and were essentially unchanged compared to net sales of
approximately $4.7 million for the six months ended November 30, 2000. Sales for
the first half of fiscal 2002 are not necessarily indicative of the results to
be expected for the full year.
The gross margin percentage decreased from 20.1% for the six months ended
November 30, 2000 to 19.7% for the six months ended November 30, 2001. The
primary reasons for the decrease in gross profit margins was changes in the mix
of jobs produced in the six-months ended November 30, 2001 as compared to the
job mix in the six-months ended November 30, 2000. The mix of jobs produced in
the six-months ended November 30, 2001 required more machine shop hours than
were used in the same period of the prior year, and a larger amount of the
machine shop work was outsourced to subcontractors during the current period. In
order to increase machine shop capacity and reduce the amount of outsourcing for
machined parts, the Company has entered into a lease purchase agreement for a
new vertical machining center that was put into service in December 2001.
Sales, General & Administrative costs were approximately $779,900 in the
first six months of fiscal 2002 as compared to approximately $844,700 in the
first six months of the prior fiscal year. The change was principally due to a
reduction in corporate facility costs due to the Company moving its corporate
headquarters to Manassas, Virginia in March 2001. During the six months ended
November 30, 2000, the Company incurred $37,700 in Product Research, Development
& Improvement costs related to the initial development work on a new enclosure
product; there were no comparable costs in the six months ended November 30,
2001.
For the six months ended November 30, 2001, the Company had operating
income of $143,900 compared to operating income of $65,600 for the comparable
six months of the prior fiscal year. The increase was principally due to the
reduction in operating expenses described above.
Interest expense increased from $110,200 in the first six months of fiscal
2001 to $116,700 in the first six months of fiscal 2002. This
12
increase occurred principally because in fiscal 2002 the Company has used
slightly more accounts receivable financing to alleviate short-term cash
requirements than in the prior fiscal year.
13
Liquidity and Capital Resources
The Company relies upon internally generated funds and accounts receivable
financing to finance its operations. During the first half of fiscal 2002, the
Company showed a net profit of approximately $27,200. During fiscal 2001, the
net loss totaled $129,800. In order to generate the working capital required for
operations, the Company must continue to generate orders, increase its level of
shipments, and continue to operate profitably during the remainder of fiscal
2002.
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
costs in order to recover from its liquidity problems and seek to operate
profitably in fiscal 2002.
As of November 30, 2001, the Company had cash of $278,500. The Company has faced
production issues that have contributed to losses from operations in the prior
fiscal year. The Company has taken and is continuing to take steps to address
these production issues through changes and additions to plant supervision and
by regularly updating scheduling and planning procedures. The Company is trying
to stabilize the level of shipments at a profitable level through these changes
and an increased sales effort.
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 the next twelve months.
The Company may also seek additional funding sources to provide a cushion to
handle variances in cash requirements if sales, gross profits and shipment
levels fluctuate throughout the fiscal year, or if the Company purchases capital
equipment to increase production capacity due to any possible increased sales
opportunities. 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 or increase its level of
sales, consistently make timely shipments and produce its products at adequate
profit margins, or the Company will continue to face 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. The Company sustained operating losses
in fiscal 2001, 2000, and 1999, and in addition, the Company has significant
short-term cash commitments, the funding of which is limited to cash flow from
operations and 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.
14
In recent years, the Company had been party to a factoring agreement with
Reservoir Capital Corporation ("Reservoir") that provides for advances (or
loans) of up to 80% of specified accounts receivable. In August 2001, Link2It
Corporation, a company formed by Larry Heimendinger and Richard McConnell, both
directors of the Company, entered into a new factoring agreement with the
Company on terms substantially identical to those of the Reservoir facility, but
more favorable to the Company in certain respects, including provision for
advances at a rate of up to 85% of specified accounts receivable. The Company
expects to draw on this facility, or a similar facility, throughout fiscal 2002
as necessary to help alleviate liquidity problems, although, as discussed above,
the Company will also need to control expenses, maintain the sales backlog at
appropriate levels, and keep shipment levels in line with booked orders in order
to meet these requirements. At November 30, 2001 outstanding advances due to
Link2It Corporation totaled approximately $203,500.
The Company had significant amounts payable to trade creditors at November 30,
2001. In addition, commitments under operating leases, net of sublessee income,
amount to $8,300 in fiscal 2002. Current maturities of long-term debt amount to
$75,100 in fiscal 2002.
The Company has outstanding debentures originally issued to clients of
Gutzwiller, now known as Rabo Investment Management Ltd. (the "Manager")
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. In a filing with the SEC dated
October 30, 2001, the Manager indicated that it may be deemed to be the
beneficial owner of debentures having an aggregate principal amount of
$7,885,000, including $7,300,000 held in client accounts managed by the Manager
on behalf of various clients who hold beneficial economic ownership thereof.
Analysis of Cash Flows
Operating activities used $262,200 in cash in the first half of fiscal 2002.
This reflects net income of $27,200 plus $103,600 in non-cash expenses, offset
by $393,000 in cash to fund changes in working capital items. The cash used to
fund changes in working capital items includes an increase in inventories of
$223,300 and an increase in accounts receivable in $173,900, partially offset by
an increase in accounts payable of $112,000.
Investing activities used $14,800 in the first half of fiscal 2002. These
activities consisted of acquired property, plant and equipment.
15
Financing activities provided $167,200 in the first half of fiscal 2002. These
activities consisted primarily of factoring accounts receivable netting to
$203,500, partially offset by the repayment of certain long-term debt.
Management believes that inflation did not have a material effect on the
operations of the Company during the first quarter of fiscal 2002.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") approved
Statement on Financial Accounting Standards No. 144. "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS No. 144
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived assets and
for Long-Lived assets to be disposed Of" and the accounting and reporting
provisions of the Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 establishes a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale and resolved significant implementation issues related to SFAS No. 121.
SFAS No. 144 retains the requirements of SFAS No. 121 to recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable from
its undiscounted cash flows and measure an impairment loss as the difference
between the carrying amount and fair value of the asset. SFAS No. 144 excludes
goodwill from its scope, describes a probability-weighted cash flow estimation
approach, and establishes a "primary-asset" approach to determine the cash flow
estimation for groups of assets and liabilities. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early adoption encouraged. The Company believes the adoption
of SFAS No. 144 will not have a material impact of its financial position or
results of operations.
Item 3 - 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.
16
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports of Form 8-K
None
17
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, 2002 /s/ Larry M. Heimendinger
-------------------------------- ------------------------------------
Chairman of the Board
(Principal Executive Officer)
Date: January 14, 2002 /s/ Sandy B. Sewitch
-------------------------------- ------------------------------------
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
18