-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KuXNCnmD2Z6Yx6XBMOyvRlBmOIVwK1ewYJDUNKR59tknlcBpjnhl835uDFcUt2C1 7VSPJZlfVpSqgnByFEyBIA== 0000927797-97-000118.txt : 19971008 0000927797-97-000118.hdr.sgml : 19971008 ACCESSION NUMBER: 0000927797-97-000118 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971007 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GC INTERNATIONAL INC /CA CENTRAL INDEX KEY: 0000841708 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PRIMARY METAL PRODUCTS [3390] IRS NUMBER: 942278595 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-17259 FILM NUMBER: 97691662 BUSINESS ADDRESS: STREET 1: 156 BURNS AVE CITY: ATHERTON STATE: CA ZIP: 94027 BUSINESS PHONE: 4153228449 MAIL ADDRESS: STREET 1: 156 BURNS AVENUE CITY: ATHERTON STATE: CA ZIP: 94027 10-K/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1997 ------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 000-17259 GC INTERNATIONAL, INC. ---------------------- (Exact name of registrant as specified in its charter) California 94-2278595 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 156 Burns Avenue, Atherton, California 94027 ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 322-8449 ----------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered - ------------------- ---------- None None ---- ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value ------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes____ No _X_ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] [Cover page 1 of 2 pages] The aggregate market value of voting stock held by non-affiliates of the registrant at September 22, 1997 (5,548,401 shares), was approximately $2,080,650. This is based on the average of the bid parent asked price of $.375/share during the quarter ended 6/30/97. Note. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances provided that the assumptions are set forth in this form. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes...... No...... (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The total shares outstanding at September 22, 1996, are as follows: Common Stock 5,548,401 shares DOCUMENTS INCORPORATED BY REFERENCE NONE [Cover page 2 of 2 pages] Part I Item 1. Business General - ------- GC International, Inc. (the "Company") manufactures metal products, primarily for inclusion in products sold by electronics, computer and aerospace companies. In 1988, the Company established a subsidiary for the production of audio recording master discs. Description of Business - ----------------------- GC's business units generally manufacture their own products from raw materials, such as aluminum ingots, aluminum castings, or aluminum discs, or semi-finished metal components purchased from third parties. Except for certain materials used by the A. L. Johnson division ("ALJ") which are available from only one vendor (but for which replacements are readily available), raw materials and critical components are generally available from more than one source. All of GC's business units generally compete with many companies, many of which are larger and have greater resources. In all cases, competition is generally based upon technical competence, price, quality and delivery times. None of GC's business units has any patent protection. None of GC's businesses is seasonal, and only one division has significant foreign sales. The following table sets forth certain financial information with respect to GC's business units. Approximately 100% of the backlog is expected to be shipped in the year ending June 30, 1998. A substantial portion of the backlog may be canceled at any time without penalty. The decrease in the backlog is believed to be due primarily to the continuing efforts of the company to ship product on-time and reduce overdue shipments to a minimum.
Backlog Backlog June 30, 1997 June 30, 1996 ------------- ------------- Total Backlog $1,180,128 $1,167,932
GC's sales for the last three fiscal years are as follows:
Year Ended June 30, 1997 1996 1995 ---- ---- ---- Net sales $5,406,840 $5,277,155 $4,413,210
A. L. Johnson Division - ---------------------- The ALJ business unit, has been in business for over 42 years. In Camarillo, California, ALJ utilizes a Rubber/Plaster Mold ("RPM") process and equipment to produce precision, high-strength, thin- walled aluminum castings, primarily for the computer, electronics and aerospace industries. The parts are used in many applications, including medical electronics, computer housings and camera parts. The RPM process is particularly cost effective when the customer's production requirement is for low numbers of units. GC believes that the RPM process is most applicable if the production run is between 10 and 200 units per 1 month. Customers sometimes select ALJ for pre-production runs before expensive hard tooling is cost justified. ALJ's direct competition in RPM castings is composed generally of a few companies believed to be larger than ALJ and several smaller competitors. ALJ's major competition generally results from competing processes, such as investment, sand, permanent mold and die casting. ALJ has regularly serviced over 250 customers each year. Apollo Masters Division - ----------------------- In 1988 GC purchased, from Capitol Records ("Capitol"), the assets used by Capitol in connection with its lacquer master manufacturing business and moved those assets to a plant leased by the Company in Banning, California. Apollo processes precision, highly polished aluminum substrates by applying a filtered lacquer coating to the discs in a clean room environment. After drying and inspection, the masters are sold to audio recording engineers who use specialized equipment to cut grooves in the lacquer. The masters are then used to make additional pressing masters, ultimately resulting in vinyl records. The vinyl record industry volume has declined, as expected, as compact discs and audio cassettes replace vinyl records. Therefore, Apollo's future business and profitability will depend on Apollo's ability to gain market share from its competitors. Apollo's business plan anticipates that, over the next five to seven years, the use of lacquer masters will decline gradually from the present levels. Currently, approximately 47% of Apollo's market is in the U.S. and 53% is in the rest of the world, with the European market being the largest foreign market. Apollo does not expect the current decline of the vinyl record business to be precipitous for the Company, because to produce a single vinyl record takes a minimum of two masters, and the Company believes that there will continue to be a sufficient demand for vinyl records for the Company to continue to make a reasonable return on its investment. However, a continued rapid decline in the market for lacquer masters may require that the Company reevaluate the business plan. There is no guarantee that Apollo can remain profitable in the future. If in future years, Apollo turns unprofitable and the decision is made to discontinue the operation, the Company could incur significant losses. As of June 30, 1997, Apollo has established 7 distributors and has made deliveries to over 122 customers in 29 countries worldwide. Apollo also imports and distributes stylus as a result of a worldwide distributorship with a Japanese company. Sales and Marketing - ------------------- The Company markets ALJ castings through a Sales Manager, and a network of independent sales representatives. Apollo does not have direct salesmen, and Apollo contracts with independent sales representatives and distributors. ALJ may, from time to time, pay commissions to other independent sales representatives on a per customer order basis. Major Customers Over 10% - ------------------------ Only one customer accounted for not more than 12% of sales in any of the past three years. Foreign Sales - ------------- Approximately 53% of Apollo's sales are to foreign markets, and such sales in 1997 represented approximately 11% of GC's consolidated sales. ALJ has no material foreign sales. 2 Competition - ----------- GC, with the exception of Apollo, competes on the basis of quality, delivery and price in markets where there are substantial numbers of competitors offering similar products and services, and many of these competitors are larger than GC's ALJ Division. Apollo competes in a world wide market where the Company believes there is only one U.S. competitor and one Japanese competitor. Therefore, Apollo anticipates that, by producing recording master discs of a quality equal to or better than its competition, it will be able to continue to capture a reasonable part of the market. There is no assurance, however, that, even with an acceptable product, any of the potential customers will make significant purchases from Apollo. Employees - --------- At June 30, 1997, GC had 68 employees. The Company believes its relations with its employees, none of whom is currently represented by any labor union, are good. From time to time, GC may experience a shortage of suitably trained applicants. GC maintains health, disability and life insurance programs for full-time employees. During 1997, GC paid a discretionary Christmas holiday bonus of approximately $24,000. Item 2. Properties - ------------------- As of June 30, 1997, GC leases two separate manufacturing facilities. The two leases aggregate approximately 75,864 square feet, under leases that expire at various times. The Company believes its current facilities are adequate and suitable for the operations and anticipated sales growth for the foreseeable future. One of the facilities is leased from a related party; see "Item 13--Certain Relationships and Related Transactions." The leases are subject to rental escalation provisions. Management believes that, as leases expire, GC will be able to negotiate satisfactory leases with the present lessors or relocate to satisfactory alternative facilities. Item 3. Legal Proceedings - -------------------------- As of June 30, 1997, there is no litigation of which the Company is aware. With the exception of the potential litigation on claims explained below, the Company does not know of any litigation likely to be asserted directly against the Company which would not be insured or which, if decided adversely to the Company, would, in the opinion of management, materially affect the financial condition of the Company. Bankruptcy Filing and Discharge from Chapter 11 - ----------------------------------------------- On March 26, 1990, Registrant and its Subsidiaries each filed for protection as Debtor-in-Possession under Chapter 11 of the Federal Bankruptcy Code. On April 23, 1991, the Second Amended Plan of Reorganization was approved by the court. As a result of the settlement with unsecured creditors, the Company is required to make certain payments to these creditors over a period of seven years at no interest. During 1997, the Company made payments and/or settlements with a number of these creditors. The company anticipates continuing this program in 1998. The creditor notes generally do not provide for any specific remedies or for acceleration in the event of non-payment. The creditors remedy would be to sue the Company for payment. 3 EPA Claim for OII Superfund Site Cleanup - ---------------------------------------- In 1996, the Company settled an interim claim with the EPA under a partial consent decree for an amount of $100,000 plus interest for a Superfund Site cleanup in connection with waste generated in the 1970's by the company's former Raytee division. The Company has made two principal payments of $20,000 each in August 1996 and 1997. Payments of $20,000 plus fixed interest are due each successive August with the last payment due August 2000. Based on the settlement reached with the EPA in August 1996 for the interim claim, the Company believes it's reserve for any future liability in the amount of $320,000, as of June 30th, 1997, is adequate to cover any final claim. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted to a vote of security holders during 1997. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters - ----------------------------------------------------------------------------- Market Information - ------------------ The Company's stock is traded over-the-counter. The table below sets forth the bid and asked prices for the Company's common stock as reported by the company's market maker. Common Shares 1997 1996 1995 - ------------- ------------------------ --------------- -------------- 1st 2nd 3rd 4th Qtr. Qtr. Qtr. Qtr. ONLY ONE Asked $.625 $.75 $.75 $.625 $.625 TRADE AT Bid $.125 $.25 $.25 $.125 $.125 $.15 Holders - ------- The number of holders of record of the Company's common stock as of June 1997, was approximately 300. Dividend Policy - --------------- GC has not paid cash dividends on its Common Stock since its incorporation and does not anticipate paying dividends on its Common Stock in the foreseeable future. Item 6. Selected Financial Data - -------------------------------- The following financial data has been derived from the financial statements of the registrant. The selected financial data should be read in conjunction with the financial statements and notes thereto, management's discussion and analysis of results of operations and financial condition included elsewhere in this report on Form 10-K. 4
SELECTED FINANCIAL DATA Year ended June 30 ------------------ 1997 1996 1995 1994 1993 ------------------------------------------------------------------- Audited Unaudited Unaudited Unaudited Unaudited Restated Statement of Operations Data ---------------------------- Net Sales .......... $ 5,406,840 $ 5,277,155 $ 4,413,210 $ 4,862,604 $ 5,657,760 Gross Profit ....... 1,774,430 1,709,813 1,179,031 1,182,101 1,072,984 Selling and Administrative ... 1,313,091 1,209,139 1,206,167 1,298,021 1,395,032 Income (loss) from operations ........ 461,339 500,674 (27,136) (7,822) (249,983) Net Income (Loss) per share . $ .04 $ .02 $ .02 $ (.00) $ (.04) Weighted average shares outstanding 5,798,721 5,748,499 5,748,499 7,178,355 7,131,699 Balance Sheet Data ------------------ Working Capital .... $ 142,671 $ (148,884) $ (944,289) $ (414,912) $ (970,415) Total Assets ....... 2,312,944 2,433,456 1,822,598 1,707,989 2,030,561 Long Term Debt ..... $ 466,307 $ 513,620 $ 273,240 402,723 438,958 Net Stockholders' Equity (Deficit) . $ 391,140 $ (158,206) $ (836,835) $ (817,635) $ (759,813)
5 Item 7. Management's Discussion and Analysis of Financial Condition ----------------------------------------------------------- and Results of Operations ------------------------- Liquidity, Capital Resources, and Bank Loan Agreement - ----------------------------------------------------- Bank Loan Agreement - ------------------- As of April 1997, the Company's bank loan was paid in full. During 1997, the loan was paid down by a total of $171,499. Liquidity and Capital Resources - ------------------------------- As of June 30, 1997, the Company had cash balances of approximately $278,791. Management believes that this balance and the cash flow from operations are sufficient to adequately fund ongoing operations. However, there is no assurance that these funds will prove adequate if the Company is unable to maintain positive cash flow operations in the future. Capital Equipment Requirements and Equipment Leases - --------------------------------------------------- The Company, from time to time, has satisfied certain of its capital equipment requirements by entering into equipment leases with third parties or purchase arrangements with the equipment manufacturers. During 1996 and 1997, the company has been able to arrange satisfactory equipment and automobile leases or purchase contracts. The Company anticipates that additional capital equipment will be required for the Company's operating divisions during 1998. The Company anticipates paying for any such equipment from cash flow or cash reserves or arranging equipment financing with the supplier. If sufficient cash or purchase terms are not available, the Company could be materially adversely affected. Results of Operations - --------------------- The following table sets forth a percentage comparison of the Company's statement of operations.
Percentage of Sales ------------------- Years Ended June 30, -------------------- 1997 1996 1995 Net Sales 100% 100% 100% Cost of sales 67 68 73 Selling and Administrative Expenses 24 23 27 Interest Expense (net of interest income) 0 1 2 Income (loss) before income taxes discontinued operations and extraordinary item 9 7 1 Net Income (Loss) 4 2 4
Comparison of fiscal year ended June 30, 1997 and June 30, 1996 - --------------------------------------------------------------- In 1997, the Company's sales increased by $129,685 or 2% over 1996 due to continuing aggressive sales efforts and the improving economy. Sales expense increased to $243,487 from $166,640 resulting from continued investment in the sales representative program. During 1997, the Company's cost of sales continued to decrease from 68% in 1996 to 67% in 1997 reflecting the continuing management efforts on improving productivity and quality. As a result, income before taxes and extraordinary 6 items increased $80,743 over 1996. In 1997, net income increased to $232,934 or $.04/share after provision for taxes of $260,295. Most of the tax provisions was for the net operating federal loss benefit. In 1997 the company exhausted its net operating loss carry forward for California income tax but the Federal carry forward eliminated all but a nominal Federal tax of approximately $1250. Comparison of fiscal year ended June 30, 1996 and June 30, 1995 - --------------------------------------------------------------- The Company's sales increased by $863,945 or 20% in 1997 over the prior year due to the improving economy and the company's efforts to diversify its sales outside California. Cost of sales decreased from 73% in 1995 to 68% in 1997 reflecting improved productivity and lower cost. Income before taxes and extraordinary items increased to $395,231 from $39,295 in 1995. Comparison of fiscal year ended June 30, 1995 and June 30, 1994 - --------------------------------------------------------------- The Company's sales decreased by $449,394 in 1997 over the prior year due to California's poor economy. However, the backlog increased by $799,548 reflecting an up turn in the economy. Cost of sales continued to decrease from 76% to 73% reflecting continued efforts to reduce costs. Net loss increased slightly over the previous year due to lower sales volume and an increase in the EPA reserve. 7 Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- Index to Financial Statements Page No. Financial Statements Balance Sheets at June 30, 1997 and June 30, 1996 19 Statements of Operations for each of the Three Fiscal Years: June 30, 1997, 1996, and 1995 20 Statements of Stockholders' Equity for each of the Three Fiscal Years: June 30, 1997, 1996, and 1995 21 Statements of Cash Flows for each of the Three Fiscal Years: June 30, 1997, 1996, and 1995 22 Notes to Financial Statements 24 Financial Statement Schedules for each of the Three Fiscal Years: June 30, 1997, 1996, and 1995 V. Property, Plant and Equipment 31 VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment 32 VIII. Valuation and Qualifying Accounts and Reserves 33 IX. Short-Term Borrowings 34 X. Supplementary Income Statement Information 35 Financial statement schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the Financial Statements or Notes thereto. Item 9. Changes in and Disagreements With Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- None ---- 8 PART III Item 10. Directors and Executive Officers - ------------------------------------------
The directors and executive officers of GC, their ages and positions with the Company are set forth below: Served as Name Age Position Director Since ---- --- -------- -------------- F.Willard Griffith II 65 Chairman, CEO, CFO, Secretary, and Assistant Treasurer 1975 Richard R. Carlson 68 President, Chief Operating Officer, Treasurer, Assistant Secretary; Director 1975 Carol J. Carlson 65 Director 1987 Carol Q. Griffith 63 Director 1987 Officers -------- H. J. Jackson 61 President and General Manager, Apollo Masters Division. 1989 Michael Shoemaker 56 President and General Manager, A. L. Johnson Division. 1979
F. Willard Griffith II co-founded GC in March 1975 and has been Chairman and Chief Executive Officer since that date and has been Secretary and Assistant Treasurer of the Corporation since 1981. Mr. Griffith was a founder and Executive Vice President of American Regitel Corporation, which was sold to General Instrument Corporation in 1974. Mr. Griffith is also a founder and Past Chairman of The Electronics Association of California. Mr. Griffith is a graduate of Purdue University with a BS degree in Electrical Engineering. Richard R. Carlson co-founded GC in March 1975 and has been President, Chief Operating Officer and a director of GC since that date and has been Treasurer and Assistant Secretary since 1981. Prior to founding GC, Mr. Carlson was President and a Director of A. L. Johnson Co., Inc., a wholly owned subsidiary of Consyne Corporation. Mr. Carlson is a graduate of the University of Minnesota with a BS and MS in Industrial Engineering. Carol Griffith is the spouse of F. Willard Griffith II, and from March 1975 to July 1981, Mrs. Griffith was Vice President, Secretary of the Corporation and a Director. Mrs. Griffith was re-elected a Director in November 1987. Carol Carlson is the spouse of Richard Carlson, and from March 1975 to July 1981, Mrs. Carlson was Vice President, Treasurer of the Corporation and a Director. Mrs. Carlson was re-elected a Director in November 1987. H.J. Jackson joined GC as Vice President of Corporate Marketing in March 1989 and was appointed to the position of Vice President and General Manager of Apollo in January 1991 and in 1997 was made President of the Division. Prior to joining GC, Mr. Jackson was Vice President of Marketing of Capitol Magnetics, a division of Capitol Records, EMI, since 1976 and Senior Vice President from 1984 to 1988. Michael Shoemaker joined GC in 1975 as an employee of ALJ, where he had been employed since 1960. Since July 1995, Mr. Shoemaker has been Vice President and General Manager of ALJ, Camarillo and in 1997 was made President of the Division. Since 1979, Mr. Shoemaker had been Vice President and General Manager of the ALJ North 9 - ------ Item 11. Executive Compensation Executive Compensation - ---------------------- The remuneration of each of the five most highly compensated executive officers and directors of GC whose cash and cash-equivalent remuneration exceeded $100,000 and of all directors and officers of GC as a group for services in all capacities to GC during the fiscal year ended June 30, 1997, was as follows: SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation ------------------------ -------------------------- Accrual Awards Payouts -------------------------------------- -------------------- ----------------- Other Accrued Annual Restricted All other Name & Principal Compen- Stock Options LTIP Compen- Position Year Salary Bonus sation Awards(s) SARs Payouts sation Paid ($) ($) ($) ($) ($) ($) ($) (1) (2) - -------------------------------------------------------------------------------------------------------------------- F.Willard Griffith II ...... 1997 215,789 200 15,787 -0- -0- -0- -0- Chairman & CEO ............. 1996 204,488 -0- 28,979 -0- -0- -0- -0- 1995 198,075 -0- 11,805 -0- -0- -0- -0- 1994 195,796 -0- 10,000 -0- -0- -0- -0- Richard R. Carlson .......... 1997 215,789 200 15,787 -0- -0- -0- -0- Pesident & COO .............. 1996 204,488 -0- 28,979 -0- -0- -0- -0- 1995 198,075 -0- 11,805 -0- -0- -0- -0- 1994 195,796 -0- 10,000 -0- -0- -0- -0- H.J. Jackson ................ 1997 59,709 2,000 1,341 -0- -0- -0- -0- President & General Mgr ..... 1996 72,240 -0- -0- -0- -0- -0- -0- Apollo Division ............. 1995 104,180 -0- -0- -0- -0- -0- -0- 1994 105,170 -0- -0- -0- 6,000 -0- -0- Michael Shoemaker ..... 1997 129,716 2,000 -0- -0- -0- -0- -0- President & General Mgr 1996 96,843 -0- -0- -0- 12,000 -0- -0- ALJ Division (1) No cash bonuses were paid in 1997, as shown, except for a Christmas bonus paid to all employees. Officers of the corporation receive standard benefits of medical and other group insurance available to at least 80% of all other employees. Executives and salesmen of the Company also receive the use of a Company automobile and reimburse the Company for personal or commuting use. (2) Other annual compensation includes contractual amounts and accrued salary not paid. The company is currently paying certain prior year salary accruals.
10 The Company has not included in the table above the value of incidental personal perquisites furnished by the company to its executive officers, since such incidental personal value did not exceed the lesser of $50,000 or 10% of the total of annual salary and bonuses reported for the named executive officers in the table above. Directors' Compensation - ----------------------- Directors of the Company do not receive any compensation for performing their duties as a director. Employee Cash Bonus - ------------------- The Company paid a nominal Christmas bonus to all employees in 1997 totaling approximately $24,000 and may pay a Christmas bonus in 1998, in addition to the company's contribution to the 1997 401K Plan. Employment Contracts - -------------------- Pursuant to their employment contracts, expiring in 2006, Mr. Griffith and Mr. Carlson are each entitled to receive a base salary ($4,075.90/week) increased by a cost-of-living adjustment each year, plus an incentive performance bonus equal to five percent of the Company's pretax, pre-bonus profit as defined in employment contracts. In addition, Messrs. Griffith and Carlson are entitled to a fixed payment of $10,000 per year. In the past five years (1993-1997) these payments or bonuses were accrued but not paid. The contracts have an acceleration provision in the event of early termination. The employment contracts also provide for salary continuation in the event of disability and under a Death Benefit Agreement, in the event of death of the employee, the Company is obligated to pay to the employee's designated beneficiary a death benefit of approximately $14,505 per month, increased by an annual cost-of-living adjustment factor until the death of that beneficiary or July 1, 2006, whichever is later. The Company owns and is the beneficiary of a key man life insurance policy in the face amount of $1,000,000 each on the lives of Messrs. Griffith and Carlson. The Company believes that the key man life insurance would provide sufficient funds to the Company for payments of the death benefit and for other corporate purposes in locating and training a replacement for the deceased. The company has had no retirement or deferred compensation plan until April 1996 (see 401K Plan). 1988 Stock Option Plan - ---------------------- In September 1988, GC adopted the 1988 Stock Option Plan pursuant to which GC may grant Incentive Stock Options (ISO), Non Qualified Stock Options (NQSO), and Stock Appreciation Rights (SAR) to purchase up to 1,700,000 shares of the Company's stock. The purchase price of common stock upon exercise of options granted under the Plan may not be less than the fair market value of the common stock at the date of grant as determined by the Board of Directors. In 1979, GC adopted a Non-Qualified Stock Option Plan and with the adoption of the 1988 Plan, all 1979 options were integrated into the 1988 Plan. In 1997 options for 60,000 shares were granted to non executives. Options to purchase a total of 1,360,000 shares of GC's common stock have been granted. 11 1988 Stock Option Plan (con't) - ------------------------------ The following chart sets forth all of the options held as of June 30, 1997, by each of the officers or directors of GC and by all option holders as a group. All options are currently exercisable.
Options Held As of June 30, 1997 ------------------- Value of Average Unexercised Per Share In-the-Money No. of Exercise Options at Shares Price June 30, 1997 F. W. Griffith II 500,000 $.06 $187,500 Richard R. Carlson 500,000 $.06 187,500 H. J. Jackson 130,000 $.06 40,950 Michael Shoemaker 50,000 $.06 15,750 80,000 $.15 18,000 --------- All officers and directors 1,260,000 Total options outstanding 1,360,000 $.081
No options were exercised in 1997. The value of the unexercised option is based on the average of the bid and asked price as of June 30, 1997 at $.375/ share. By virtue of holding such options, the above described persons possess the opportunity to profit from a rise in the share market price, and the exercise of such options would dilute the interests of shareholders. The Company will obtain additional equity capital upon exercise of such options, but it is possible that the terms of such options will not be as favorable as those which could then be obtained by the Company from other sources of capital. The Board of Directors, the current administrators of the 1988 Stock Option Plan, in its discretion, determines which employee is eligible to receive options, the amount of shares, and the terms on which the option is granted. The primary criteria used by the Board in determining the size of the option is the importance to the Company of the skills of the employee receiving the issuance. The Board of Directors may not issue any options to any member of the Board without engaging an impartial outside Committee who determines the appropriateness of the issuance. 1997 401K Retirement Plan - ------------------------- In April 1997, the Company's Board of Directors authorized the adoption of the company's 1997 401K Retirement Plan to enable employees the opportunity to save for future retirement. The Board has authorized a company matching contribution of up to $200 on a $1 matching for each $4 contributed by the employee. The matching contribution is determined by the Board of Directors and may be changed at any time. At July 31, 1997, 34 employees are participating and the company's contribution as of July 31, 1997 has been $6,538. 12 Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ The following table sets forth certain information regarding GC's Common Stock owned on August 31, 1997 (I) by each person or entity who is known by GC to own beneficially more than five percent of GC's Common Stock. (ii) by each of GC's directors and (iii) by all directors and officers of GC as a group: - --------------------------------------------------------------------------------
Name Amount Title of and Address and Nature of Percent Class of Beneficial Beneficial of Class Owner Ownership - ------------------------------------------------------------------------------------- Common The Griffith Family Trust(1),(2),(4),(6) 1,466,119 26.42% c/o GC International, Inc. 4671 Calle Carga, Camarillo, CA 93010 Common Carol Q. Griffith (1),(6) 16,279 .29% c/o GC International, Inc. 4671 Calle Carga, Camarillo, CA 93010 Common The Carlson Family Trust 1,478,150 26.64% (1),(3),(4) c/o GC International, Inc., 4671 Calle Carga, Camarillo, CA 93010 All officers and directors as a group(1),(4),(5) 3,023,418 54.49% (6 persons) - ------------ (1) Excludes 89,819 shares currently held for former GC ESOP participants. (2) Includes 37,409 shares held for the Griffith children and a grandchild. (3) Includes 33,200 shares held by Trusts for the Carlson children and grandchildren. (4) Excludes presently exercisable options for 500,000 shares each held by Messrs. Griffith and Carlson. (5) Excludes presently exercisable options for 300,000 shares held by officers and key managers. (6) Excludes shares beneficially owned by spouse disclosed elsewhere herein. Messrs Carlson and Griffith, together with their spouses and families, control 2,960,548 shares or 53.35% of the total of 5,548,401 shares outstanding.
13 Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- Certain Transactions - -------------------- A building is leased from CJ Squared LLC, a limited liability company formed by F. Willard Griffith II, Richard R. Carlson, Carol Q. Griffith and Carol J. Carlson who are officers and director/stockholders, for $12,765 per month in 1997 under a lease expiring December 31, 1999. The lease contains an annual increase based on the Consumer Price Index. Mr. Griffith and Mr. Carlson are parties to employment contracts. See "Item Executive Compensation--Employment Contracts." 14 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- 1(a). Financial statements listed in Item 8 above are incorporated herein by reference. (b). Financial statement schedules listed in Item 8 above are incorporated herein by reference. 2. Reports on Form 8-K. Reference Exhibits, Material Contracts 10.29, 10.30, 10.31, 10.32 and 10.33 and F, G, H below. 3. Exhibits Index to Exhibits (14c) DESCRIPTION REFERENCE 3.1 Articles of Incorporation ................................ A 3.1.1 Restated Articles of Incorporation ....................... Page 45 3.2 By-Laws .................................................. A 10. Material Contracts ....................................... A 10.1 1988 Stock Option Plan ................................... A 10.2 GCI ESOP Plan and Amendment .............................. A 10.2.1 ESOP Trust Agreement with Imperial Trust ................. A 10.2.2 IRS Determination Letter ................................. A 10.3 Employment Contract with F. Willard Griffith II .......... A 10.4 Employment Contract with Richard R. Carlson .............. A 10.5 Promissory Note from F. Willard Griffith II .............. A 10.6 Promissory Note from Richard R. Carlson .................. A 10.7.1 Building Lease 1255 Birchwood Drive, Sunnyvale, Ca. and Amendments ........................................... A 10.7.2 Building Lease 101 N. Lincoln, Banning, Ca. and Amendments A 10.7.3 Building Lease 901 Magnolia, Monrovia, Ca. and Amendments A 10.7.4 Building Lease 907 Magnolia, Monrovia, Ca. and Amendments A 10.7.5 Building Lease 12833 Simms Avenue, Hawthorne, Ca. and Amendments ........................................... A 10.7.6 Building Lease 320 W. Duarte, Monrovia, Ca. and Amendment A 10.8 Letter of Intent with Everest and Jennings International, Inc. for purchase of Aero Alloys Division . A 10.9 Purchase Agreement with Capitol Magnetics Division of EMI International ............................ A 10.10Lease Agreement with McDonnell Douglas Finance Corp. ..... A 10.11Lease Agreement with Sovran Leasing ...................... A 10.12Bank Loan Agreement and Amendments with Bank of California A 10.13Form of Directors Indemnification Agreement .............. A 10.14Employee Bonus Plan ...................................... A 10.15MDFC Lease Agreement ..................................... B 15 10. Material Contracts (con't) DESCRIPTION 10.16 Building Lease, Duarte Lease Extension B 10.17 Building Sublease, Aero Alloys B 10.18 Comerica Loan Agreements B 10.19 Building Sublease Ventura A 10.20 Comerica Loan Agreement A 10.21 Comerica Loan Agreement Modification A 10.22 Bankruptcy Filing GC International C 10.23 Bankruptcy Filing Apollo Masters Corp. C 10.24 Bankruptcy Filing GCI/Aero, Inc. C 10.25 Letter Agreement with Annandale Securities D 10.26 Not Used 10.27 Not Used 10.28 Debtors Joint Plan of Reorganization for GC International, Inc. LA 90-07128LF E 10.29 Debtors Joint Seconded Amended Plan of Reorganization for GC International, Inc. LA 90-07128LF F 10.30 Order of Court Confirming Discharge and Approval of the Second Amended Joint Plan of Reorganization F 10.31 Lease Agreement for 12946 Park Street, Santa Fe Springs, California G 10.32 Lease Agreement for 4671 Calle Carga, Camarillo, California H 10.33 Lease Agreement extension for 4671 Calle Carga, Camarillo, Ca I
22. Subsidiaries of the Registrant NONE Index to Exhibits Reference Legend - ---------------------------------- A Incorporated by reference to the Company's Registration Statement on Form 10 filed October 19, 1988. B Incorporated by reference to the Company's Form 8-K filed on or about January 6, 1989. C Incorporated by reference to the Company's Form 8-K filed on or about April 5, 1990. D Incorporated by reference to the Company's Form 8-K filed on or about January 2, 1990 E Incorporated by reference to the Company's Form 8-K filed on or about November 9, 1990 F Incorporated by reference to the Company's Form 8-K filed on or about April 30, 1991 G Incorporated by reference to the Company's Form 8-K filed on or about July 17, 1991 H Incorporated by reference to the Company's Form 8-K filed on or about September 9, 1991 I Incorporated by reference to the company's Form 10K filed on or about September 20, 1997 16 GC INTERNATIONAL, INC. FINANCIAL STATEMENTS The financial statements included herein are audited for 1997 and unaudited for prior years. 17 INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Board of Directors and Stockholders GC International, Inc. We have audited the accompanying balance sheet of GC International, Inc. as of June 30, 1997 and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of GC International, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GC International, Inc. as of June 30, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The balance sheet as of June 30, 1996 and the statements of income, retained earnings, and cash flows for the years ended June 30, 1996 and 1995 were compiled by management. We have not audited or reviewed the 1996 and 1995 financial statements and, accordingly do not express an opinion or any other form of assurance on them. Finocchiaro & Co. Pasadena, California September 16, 1997 18 GC INTERNATIONAL, INC.
BALANCE SHEETS June 30, 1997 and 1996 (Unaudited) June 30, 1997 June 30, 1996 ------------- ------------- ASSETS Current Assets Cash .......................................... $ 278,791 $ 176,055 Accounts receivable, net of allowance for doubtful of $6,607 in 1997 and $6,361 in 1996 . 654,411 648,435 Inventories ................................... 479,873 539,397 Prepaid expenses .............................. 3,333 -0- Deferred tax benefit .......................... 181,760 248,859 Total current assets ............ 1,598,168 1,612,746 Property and equipment ........................ 418,733 362,405 Other assets Deposits & deferred expenses .................. 34,123 53,757 Deferred tax benefits ......................... 261,920 404,548 ----------- ----------- Total other assets ............. 296,043 458,305 ----------- ----------- Total Assets ............................................. $ 2,312,944 $ 2,433,456 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable .............................. 138,219 153,725 Accrued expenses .............................. 734,641 763,391 Income taxes payable .......................... 55,635 800 Note payable .................................. 527,002 843,714 ----------- ----------- Total current liabilities ................ 1,455,497 1,761,630 Other Liabilities Note payable, net of current portion .......... 146,307 186,493 Liability reserve ............................. 320,000 327,127 ----------- ----------- Total other liabilities .................. 466,307 513,620 ----------- Total liabilities ........................ 1,921,804 2,275,250 Commitments and contingencies Stockholders' equity (deficit): Common stock, without par value. Authorized 5,548,401 shares in 1997 and 3,748,499 shares in 1996 issued and outstanding .... 1,791,590 1,791,590 Accumulat(1,400,450) .......................... (1,633,384) ----------- ----------- Total stockholders' equity ............... 391,140 158,206 ----------- Total Liabilities and Stockholders' Equity $ 2,312,944 $ 2,433,456 =========== ===========
The accompanying notes are an integral part of these financial statements. 19 GC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS For the Years Ended June 30, 1997, 1996 and 1995 (Unaudited) (Unaudited) 1997 1996 1995 ------ ------ ----- Net sales ........................................... $ 5,406,840 $ 5,277,155 $ 4,413,210 Cost of sales ....................................... 3,632,410 3,567,342 3,234,179 ----------- ----------- ----------- Gross profit ........................................ 1,774,430 1,709,813 1,179,031 Operating expenses: Selling .................................. 243,487 166,640 284,745 General & Administrative ................. 1,069,604 1,042,499 921,422 ----------- ----------- ----------- Income (loss) from operation ........................ 461,339 500,674 (27,136) Other income (expense) Interest, net ............................ (5,163) (32,883) (66,580) Other .................................... 19,798 (72,560) 133,011 ----------- ----------- ----------- Income before income taxes & extraordinary items ...................... 475,974 395,231 39,295 Loss from operations discontinued ................... 55,670 -0- 3,185 Provision for (benefit from) income taxes ............................. 258,547 208,174 (129,339) ----------- ----------- ----------- Income before extraordinary item .................... 161,757 187,057 165,449 Extraordinary item .................................. 71,177 (52,872) (55,543) ----------- ----------- ----------- Net income .......................................... $ 232,934 $ 134,185 $ 109,906 =========== =========== =========== Earnings per common share Primary and Fully diluted: Income from continuing operations $ 0.04 $ 0.03 $ 0.03 Loss from discontinued operations $ 0.01 $ 0.00 $ 0.00 Income before extraordinary item .... $ 0.03 $ 0.03 $ 0.03 Extraordinary item .................. $ 0.01 ($ 0.01) ($ 0.01) ----------- ----------- ----------- Net income .......................... $ 0.04 $ 0.02 $ 0.02 =========== =========== =========== Weighted average shares outstanding Primary .................................. 5,798,721 5,748,499 5,748,499 Fully dil5,798,721 ....................... 5,748,499 5,748,499
The accompanying notes are an integral part of these financial statements. 20 GC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended June 30, 1997, 1996 and 1995 Preferred Stock Preferred Stock Series A Series B Retained Common Stock $1.00 Par $.25 Par earnings ----------------------- -------------------- ------------------- Number Dollar Number Dollar Number Dollar (accumulated of Shares Value of Shares Value of Shares Value (deficit) Total 1995 Stockholders' deficit at June 30, 1994 ............ 5,748,499 $ 1,791,590 629,856 $110,000 800,000 $88,000 $(2,075,475) $ ( 85,885) Net Income ................. -- -- -- -- -- -- 109,906 109,906 Retirement of Prefered Stock -- -- (629,856) (110,000) (800,000) (88,000) 198,000 -0- Stockholders' equity at June 30, 1995 ............ 5,748,499 $ 1,791,590 -0- -0- -0- -0- $(1,767,569) $ 24,021 1996 Net Income ................. -- -- -- -- -- -- 134,185 134,185 Stockholders' equity at June 30, 1996 ............ 5,748,499 $ 1,791,590 -0- -0- -0- -0- $(1,633,384) $ 158,206 1997 Net income ................. -- -- -- -- -- -- 232,934 232,934 Retirement of Common Stock . (200,098) -0- -- -- -- -- -- -- Stockholders' Equity at June 30, 1997 ............. 5,548,401 $ 1,791,590 -0- -0- -0- -0- $(1,400,450) $ 391,140 ========== =========== ======== ======== ======== ======= =========== ===========
The accompanying notes are an integral part of these financial statements. 21 GC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS For the Years ended June 30, 1997, 1996 and 1995 (Unaudited) (Unaudited) 1997 1996 1995 ------ ------ ----- Cash flows from operating activities: Net income ......................................... $ 232,934 $ 134,185 $ 109,906 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 87,332 71,567 (66,774) Changes in net assets and liabilities of discontinued operations ............... -0- -0- 231,228 Gain on sale of property, plant & equipment (1,317) -0- -0- Changes in operating assets & liabilities: Receivables (increase) decrease ........... (5,975) 122,654 (25,587) Inventory (increase) decrease ............. 59,524 3,984 (134,452) Accrued payable increase (decrease) ....... (15,507) (291,631) 171,910 Accrued liabilities increase (decrease) ... (103,539) 101,183 210,697 Income taxes payable increase ............. 54,835 -0- -0- Reserve liability decrease ................ (32,337) -0- -0- Deferred tax (increase) decrease .......... 209,727 207,442 (129,106 Prepaid expenses (increase) decrease ...... (3,333) 9,050 240 Other assets and deposits decrease ........ 19,634 5,553 19,630 ------ ----- ------ Net cash provided by operating activities . 501,978 363,993 387,692 Cash flow from investing activities: Purchase of property, plant & equipment ... (143,661) (112,589) (46,044) Proceeds from sale of property, plant & equipment ............................. 1,317 -0- -0- --------- --------- --------- Net cash used by investing activities ..... (142,344) (112,589) (46,044) Cash flows from financing activities: Payments on short term borrowings ......... (216,711) (106,989) (119,314) -------- -------- -------- Payments on long term debt ................ (40,187) (86,745) (129,483) ------- ------- -------- Net cash used by financing activities ..... (256,898) (193,734) (248,797) Increase in cash and cash equivalents .............. 102,736 57,670 92,851 Cash and cash equivalents, beginning ............... 176,055 118,385 25,534 ------- ------- ------- Cash and cash equivalents, ending .................. $ 278,791 $ 176,055 $ 118,385 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 22 GC INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS For the Years ended June 30, 1997, 1996 and 1995 Supplemental disclosure of cash flow information: - ------------------------------------------------- The Company made payments of $16,886, $41,735 and $72,873 for interest during the years ended June 30, 1997, 1996, and 1995, respectively. The accompanying notes are an integral part of these financial statements. 23 GC INTERNATIONAL, INC. Notes to Consolidated Financial Statements (1) DESCRIPTION OF BUSINESS GC International, Inc. (the "Company") manufactures metal products, primarily for inclusion in products sold by electronics, computer and aerospace companies. In 1988, the Company established a subsidiary for the production of audio recording master discs. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Inventories - ----------- Inventories, consisting primarily of costs incurred on uncompleted contracts (work in process), are valued principally at the lower of average cost or market. In cases where losses are estimated on fixed-price contracts, the full provision for such losses is charged to current operations. Property and Equipment - ---------------------- Property and equipment are carried at cost. Depreciation is computed using the straight-line method. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deductions are made for retirements resulting from renewals or betterments. Income Taxes - ------------ Income taxes are provided (recovered) based upon income (loss) reported for financial statement purposes. Deferred income taxes are provided for timing differences principally in the recognition of depreciation expense and California franchise tax for financial reporting and tax purposes. Net Income (loss) Per Share - --------------------------- Earnings (loss) per common and common equivalent share are based upon the weighted average number of shares outstanding during each period, adjusted 24 for stock options which are considered common stock equivalents, when dilutive. Primary EPS was calculated using the Modified Treasury Stock method. The market value used is based on the average of bid and asked price at June 30, 1997 and was $ .375. Since all options were outstanding for 1997, Primary EPS equals Fully Diluted EPS. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Environmental Remediation Costs - ------------------------------- The Company accrues losses associated with environmental remediation obligations when they are probable and reasonably estimable. These accruals are adjusted as additional information is available or if circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. GC INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS Presentation - ------------ For financial statement reporting purposes, certain reclassifications of prior years' balances have been made to conform to the 1997 presentation. The financial statements for the years ended June 30, 1996 and 1995 restated to account for the recognition of deferred tax benefits that resulted primarily from net operating losses and deductible timing differences of accrued expenses. As a result of these changes, net income for the year ended June 30, 1997 decreased by $407,448 and earnings per share decreased by $0.04 and net income for the year ended June 30, 1995 increased by $129, 106 and earnings per share increased by $0.02. Related Party Transactions - -------------------------- A building is leased from CJ Squared LLC, a Limited Liability Company, formed by F. Willard Griffith, Richard R. Carlson, Carol Q. Griffith and Carol J. Carlson who are officers and director/stockholders, for $12,765 per month under a lease expiring December 31, 1999. The lease contains an annual increase based upon the Consumer Price Index. 25
(3) INVENTORIES Inventories at June 30, 1997 and 1996 consisted of: 1997 1996 ----------- ---------- Raw material $ 51,858 $ 66,830 Work in process 428,015 472,367 ---------- --------- $ 479,873 $ 539,197 ========= =========
(4) PROPERTY AND EQUIPMENT Property and equipment at June 30, 1997 and 1996 consisted of: Estimated 1997 1996 useful lives ------------ ---------- ------------ Machinery and equipment $ 810,066 $ 753,703 5 to 15years Automobile and trucks 183,485 152,533 3 to 15years Office equipment 88,811 71,530 3 to 15years Leasehold improvements 172,626 166,347 2 to 10years Idle Assets 121,652 121,652 5 to 15years Construction in progress 446 15,000 --------------- ------------ 1,377,086 1,280,765 Less accumulated depreciation and amortization (958,352) (918,360) ------------ ---------- $ 418,733 $ 362,405 ============ ==========
Depreciation expense for the years ended June 30, 1997 and 1996 totaled $87,332 and $71,567, respectively. 26
(5) NOTES PAYABLE Notes payable at June 30, 1997 and 1996 consists of the following: 1997 1996 ----------- ---------- Note payable, secured by receivables, inventory and other assets, to Comerica Bank at an interest rate of 2.5% above the bank's prime rate and an approximate monthly payment of $18,000 until April 1997 .......................................................................... $ 0 $ 171,449 Equipment purchase, 60-month note from a supplier at an interest rate of 10% and a monthly payment of $956 until September 1999 ................................................................ 13,429 23,031 Equipment purchase, 48-month lease from a supplier at an interest rate of 9.66% and a monthly payment of $254 until February 1999 ................................................................. 4,681 7,150 Automobile purchase, 60 months from GMAC at an interest rate of 15.45% and a monthly payment of $991 until June 2001 ............................................... 35,306 41,232 Forklift purchase, 60 months from a supplier at an interest rate of 12.27% and monthly payments of $340 until September 1998 ......................................... 4,653 7,679 Automobile purchase, 60 months from Chase at an interest rate of 11% and a monthly payment of $950 until June 2002 ............................................... 43,689 0 Automobile purchase, 60 months from Chase at an interest rate of 16.25% and a monthly payment of $444 until April 2002 .................................................................... 17,772 0 Note due to EPA for cleanup for Raytee, a former division of the Company, at an approximate interest rate of 5.7% and and an annual payment of $20,000 plus interest until August 2000 ............................................... 80,000 100,000 Note payable, with zero interest rate and a monthly payment of $9,000 until May 1998 ................................................................ 473,779 679,616 ---------- ---------- Total debt ..................................................................... 673,309 1,030,207 Less: current maturities of notes payable ...................................... 527,002 843,714 ---------- ---------- Long-term portion .............................................................. $ 146,307 $ 186,493 ========== ==========
27 Maturities of long-term debt at June 30, 1997 for the succeeding fiscal years are as follows: 1999 $44,909 2000 41,664 2001 44,858 2002 14,876 (6) STOCK OPTION PLAN The Company has a stock option plan which was adopted in September 1988 providing for the issuance of up to 1,700,000 shares of common stock to key employees. During 1997, 60,000 options were granted. The Plan provides that options be granted at exercise prices equal to market value on the date the options are granted. The options outstanding are all currently exercisable and expire in 1999. As of June 30, 1997, there were no stock options exercised and 1,360,000 options outstanding. (7) COMPENSATION ARRANGEMENTS The Company has entered into employment contracts which expire in 2006 with two of its principal officers. The terms of each contract call for a base compensation and fixed payment totaling approximately $221,946 per annum plus an incentive bonus of 5% of the consolidated pretax profit of the Company. The fixed payment and bonus was accrued during 1997. (8) COMMITMENTS AND CONTINGENCIES Leases - Leases of Company facilities are classified as operating leases and expire on various years through 2006. Of the two building leases, at June 30, 1997, one was with related parties. With the exception of the lease described below, leases generally require the Company to pay most costs, such as property taxes, maintenance and insurance. In 1991, the Company signed a 10-year lease with a non-related party for a 45,864 square foot building. The lease was renegotiated in May 1996 and extended to expire on August 31, 2006 with extensions. The lease requires a 7% increase every 30 months. At September 1, 1997 the lease rate was $19,736 per month. In 1983, the Company signed a 7-year, 9-month lease with a related party for a 30,000 square feet building. The lease was renegotiated in November 1993 and extended to expire on December 31, 1999. The lease contains an annual increase based upon the Consumer Price Index. At June 30, 1997 the lease rate was $12,765 per month. The Company leases an automobile on a 36-month lease, ending October 1998 for a payment of $506 per month. The company may purchase the automobile at the end of the lease for $9,928. The following is a schedule of future minimum lease payments for those operating leases which have remaining terms in excess of one year: 1998 $ 396,087 1999 397,560 2000 329,994 2001 253,404 2002-2007 1,687,194 28 Rent expense charged to operations for the years ended June 30, 1997, 1996 and 1995 was approximately $383,667, $359,467 and $357,133, respectively. Environmental Remediation Costs - ------------------------------------ In 1996, the Company settled an interim claim with the EPA under a partial consent decree for an amount of $100,000 plus interest for a Superfund Site cleanup in connection with waste generated in the 1970's by Raytee, a former division of the Company. Company has made two principal payments of $20,000 each in August 1996 and 1997. Payments of $20,000 plus fixed interest are due each successive August with the last payment due August 2000. Based on the settlement reached with the EPA in August 1996 for the interim claim, the company believes its reserve for any future liability in the amount of $320,000, as of June 30, 1997, is adequate to cover any final claim. (9) PROVISION FOR INCOME TAXES
Provision for income taxes consists of the following: Federal State Total 1997 Current $ 3,651 $ 45,169 $ 48,820 Deferred 209,296 431 209,727 1996 Current $ -0- $ 800 $ 800 Deferred 181,823 25,551 207,374 1995 Current $ -0- $ 800 $ 800 Deferred (119,366) (10,773) (130,139)
A reconciliation of the Federal and State statutory tax rate and the effective tax rate is as follows: 1997 1996 1995 ----------- ----------- ----------- Statutory Federal and State tax rate 11.4% 0.5% 0% Utilization of net operating loss 44.7 51.6 - Other, net (2.4) 8.7 - ----------- Effective income tax rates 53.6% 60.8% 0% ========================================
As of June 30, 1997, the Company estimates that is has available for Federal income taxes purposes approximately $461,670 of net operating loss carry forward ("NOL") which will expire in various periods from 2004 to 2007 and approximately $198,000 of investment tax credit carry forwards which expires in the year 2000. The company has utilized all of the NOL for the State of California and accrued for the payment of California Income Tax in 1997. 29 The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred assets and liabilities consist of the following:
1997 1996 ---------------------------- Deferred tax assets: Net operating loss $156,968 $381,174 Accrued expenses 341,682 342,533 Deferred tax liabilities: Depreciation tax basis of property & Equipment $ 54,970 $ 70,300
(10) LOSS FROM DISCONTINUED OPERATIONS The Company incurred expenses of $55,670, net of income tax benefits of $37,113, from the accrual of environmental remediation liabilities. A division of the Company that has since been discontinued incurred the resulting liabilities. (11) EXTRAORDINARY ITEM The extraordinary gain of $71,177, net of income taxes of $47,452, results from the Company's arrangement to restructure certain debt during the year ended June 30, 1997. 30
GC INTERNATIONAL, INC. AND DIVISIONS SCHEDULE V-- PROPERTY, PLANT AND EQUIPMENT For the Years Ended June 30, 1997, 1996 and 1995 Transfer Other Balance at From Changes Balance Beginning Construction add at End Description of Period Additions Retirements In Progress (Deduct) Period ----------- --------- --------- ----------- ----------- -------- ------ Year ended June 30, 1997 Machinery and equipment .. $ 753,703 $ 48,241 $ (6,432) $ 14,554 $ -- $ 810,066 Office equipment ......... 71,530 17,281 -- -- -- 88,811 Automobiles and trucks ... 152,533 71,859 (40,907) -- -- 183,485 Leasehold improvements ... 166,347 6,279 -- -- -- 172,626 Construction in Progress . 15,000 -- -- (14,554) -- 446 Idle Assets .............. 121,652 -- -- -- -- 121,652 ----------- ----------- ----------- ----------- ----------- $ 1,280,765 $ 143,660 $ (47,339) $ 0 $ 0 $ 1,377,086 =========== =========== =========== =========== =========== =========== Year ended June 30, 1996 Machinery and equipment $ 756,608 $ 39,348 $ -- $ -- $ (42,253) $ 753,703 Office equipment ....... 70,716 1,400 -- -- (586) 71,530 Automobiles and trucks . 106,301 46,232 -- -- -- 152,533 Leasehold improvements . 144,984 10,608 -- -- 10,755 166,347 Construction in progress -- 15,000 -- -- -- 15,000 Idle Assets ............ 89,568 -- -- -- 32,084 121,652 ----------- ----------- ----------- ----------- ----------- ----------- $ 1,168,177 $ 112,588 $ -- $ -- $ -- $ 1,280,765 =========== =========== =========== =========== =========== =========== Year ended June 30, 1995 Machinery and equipment $ 1,095,827 $ 33,686 $ (372,905) -- -- $ 756,608 Office equipment ....... 85,876 12,358 (27,518) -- -- 70,716 Automobiles and trucks . 109,236 -- (2,935) -- -- 106,301 Leasehold improvements . 234,780 -- (89,796) -- 144,984 Idle Assets ............ 302,902 -- (213,334) -- -- 89,568 ----------- ----------- ----------- $ 1,828,621 $ 46,044 $ 706,488 $ -- $ -- $ 1,168,177 =========== =========== =========== =========== =========== ===========
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the Years Ended June 30, 1997, 1996 and 1995 Additions Charged to Other Balance at Costs Changes Balance Beginning and Add at End Description of Period Expenses Retirements Deduct of Period Year ended June 30, 1997 Machinery and equipment $479,015 $ 69,332 $ (6,432) $ 0 $ 541,915 Office equipment 60,548 4,594 - 0 65,142 Automobiles and trucks 106,301 10,655 (40,908) 0 76,048 Leasehold improvements 152,960 2,751 - 0 155,711 Idle Assets 119,536 - - 0 119,536 ---------------- ------------------------------------------------------------------ $ 918,360 $ 87,332 $ (47,340) $ -0- $ 958,352 ================== =================== ========== ========== ========== Year ended June 30, 1996 Machinery and equipment $ 452,653 $ 64,943 $ -0- $ (38,581) $ 479,015 Office equipment 56,737 4,397 -0- (586) 60,548 Automobiles and trucks 104,967 1,334 -0- -0- 106,301 Leasehold improvements 144,984 893 -0- 7,083 152,960 Idle Assets 87,452 -0- -0- 32,084 119,536 ---------------- ------------------- ---------------------------------------------- Year ended June 30, 1995 $ 846,793 $ 71,567 $ -0- $ -0- $ 918,360 ================== =================== ========== ========== ========== Machinery and equipment $ 686,615 $ 61,337 $( 295,299) $ - $ 452,653 Office equipment 80,126 3,884 ( 27,273) - 56,737 Automobiles and trucks 106,273 1,553 ( 2,859) - 104,967 Leasehold improvements 234,715 -0- ( 89,731) - 144,984 Idle Assets 281,098 -0- ( 193,646) - 87,452 ---------- ---------- ---------- ---------- ---------- $ 1,388,827 $ 66,774 $( 608,808) $ - $ 846,793 ========== ========== ========== ========== ==========
31 GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended June 30, 1997, 1996 and 1995 Other Balance at Charged to Charged to Charges Beginning Costs and Other Add Balance at Year Description of Year Expenses Accounts (Deduct) End of Year 1997 Allowance for doubtful accounts $ 6,361 $ 28,229 $ (27,983) $ - $ 6,607 =============== ================ ================= ================= ======== 1996 Allowance for doubtful accounts $ 8,129 $ 7,132 $ (8,900) $ - $ 6,361 ================ ================= ================ ================= ======== 1995 Allowance for doubtful accounts $ 28,579 $ - $(20,450) $ - $ 8,129 ======== ======== ======== ======== ========
32 GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE IX--SHORT-TERM BORROWINGS For the Years Ended June 30, 1997 1996 and 1995 Maximum Average Weighted Category Weighted Amount Amount Average Aggregate Balance Average Outstanding Outstanding Interest Short-Term at End of Interest During the During the During the Borrowings Period Rate Period Period(1) Period(2) Year ended June 30, 1997 $ -0- 10.50% $171,499 $ 85,750 10.12% Amounts payable to: Banks for borrowings Year ended June 30, 1996 $171,499 10.50% $368,781 $263,454 11.61% Amounts payable to: Banks for borrowings Year ended June 30, 1995 $368,781 10.31% $586,000 $451,732 10.15% Amounts payable to: Banks for borrowings ------------------ (1) The average amount of short-term borrowings is determined by using the average daily balances divided by 365. (2) The weighted average interest rate is computed by dividing total interest expense by the average short-term borrowings.
33 GC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended June 30, 1997, 1996 and 1995 Item Charged to Costs and Expenses ---- ----------------------------- 1997 1996 1995 ------ ------ ----- Repairs and Maintenance 35,197 $35,391 $44,973
Other items are not set forth inasmuch as each such item does not exceed 1% of total sales as shown in the accompanying consolidated statements of operations or is disclosed elsewhere in the accompanying consolidated financial statements. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GC International, Inc. (Registrant) Date: September 23, 1997 By: F. Willard Griffith II ---------------------- F. Willard Griffith II Chairman and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 23, 1997 By: /s/F. Willard Griffith II -------------------------------- F. Willard Griffith II Principal Executive Officer and Principal Financial Officer Date: September 23, 1997 By: /s/Richard R. Carlson --------------------------------- Richard R. Carlson Director and President Date: September 23, 1997 By: /s/Carol Q. Griffith ---------------------------------- Carol Q. Griffith Director Date: September 23, 1997 By: /s/Carol J. Carlson ---------------------------------- Carol J. Carlson Director EX-27 2 FDS --
5 1 U.S. YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 1 278,791 0 661,018 (6,607) 479,873 1,598,168 1,377,085 (958,352) 2,332,885 1,455,497 0 0 0 1,791,590 (1,400,450) 391,140 5,406,840 5,406,840 3,632,410 3,632,410 1,332,889 27,983 (5,163) 475,974 258,547 217,427 55,670 (71,177) 0 232,934 .04 .04
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