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 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (415) 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 X No......
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, 1996 (2,792,035 shares), was
approximately $1,047,013 This is based on the most recent purchase
of shares known to the company made during July 1996 at $.375/share.
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 X 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 5,748,499 shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Part I
Item 1. Business
General
GC International, Inc. ("GC" or the "Company"), a California
corporation, manufactures metal products, primarily for inclusion in
products sold by electronics, computer and aerospace companies. All
references to years are fiscal years ending June 30 unless otherwise
specified.
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 ended June 30, 1997.
A substantial portion of the backlog may be cancelled 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, 1996 June 30, 1995
Total Backlog $1,167,932 $1,405,777
GC's sales for the last three fiscal years are as follows:
Year Ended June 30,
1996 1995 1994
Net sales $5,277,155 $4,413,210 $4,862,604
A. L. Johnson Division
The ALJ business unit, has been in business for over 41 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 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, and 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 and 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 applies 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 45% of Apollo's market is in the
U.S. and 55% 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, 1996, Apollo has established 9 distributors
and 4 sales representatives and has made deliveries to over 122
customers in 29 countries worldwide. Apollo also imports and
distributes stylus as a result of a worldwide exclusive
distributorship with a Japanese company.
Sales and Marketing
The Company markets ALJ castings through a Sales Manager, one
part-time saleswoman 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%
No single customer accounted for over 10% of sales in any of
the past three years.
Foreign Sales
Approximately 55% of Apollo's sales are to foreign markets,
and such sales in 1996 represented approximately 12% of GC's
consolidated sales. ALJ has no material foreign sales.
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, 1996, GC had 85 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 1996, GC paid a discretionary Christmas holiday
bonus of approximately $15,400.
Item 2. Properties
As of June 30, 1996, 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, 1996, 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. Due to the severe cash shortage of the
company, no substantial payments
were made to creditors during 1996. Although the company is in
default with substantially all of the creditors, the company is
working with certain of the creditors who have requested payment.
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.
EPA Claim for OII Superfund Site Cleanup
The Company settled a 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 by the
company's former Raytee division. The company made the first payment
of $20,000 in August 1996. Payments of $20,000 plus fixed interest
are due each successive August with the last payment due August
2000.
As of June 30, 1996, the company has established a reserve of
$328,910. Which management believes is sufficient to cover both
the current settlement of $100,000 and the final remediation
settlement at sometime in the future.
However, the EPA could present a claim for the final
remediation, which is so excessive as to require the company to seek
protection under Chapter 11 again.
The company has tendered notification of the potential EPA
claim to all of its insurance carriers from 1975 through 1995 and
prior to the acquisition of the Raytee Company. As of September 22,
1996, substantially all of the insurance companies which have been
contacted have rejected the potential liability, because of language
in the insurance policy.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
1996.
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 1996 1995 1994
Bid $.625 ONLY ONE ONLY ONE TRADE
Asked $.125 TRADE AT AT $.06
$.15
The latest trade prior to June 30, 1996 was at $.15. As of September 23,
1996, the highest trade was reported to be at $.375.
Holders
The number of holders of record of the Company's common stock as of June
1996, 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 consolidated
financial statements of the registrant. The selected consolidated
financial data should be read in conjunction with the unaudited
consolidated 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.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended June 30
1996 1995 1994 1993 1992
Unaudited Unaudited Unaudited Unaudited Unaudited
Restated
Statement of Operations Data
<S> <C> <C> <C> <C> <C>
Net Sales .......... $ 5,277,155 $ 4,413,210 $ 4,862,604 $ 5,657,760 $ 6,927,603
Gross Profit ....... 1,709,813 1,179,031 1,182,101 1,072,984 1,009,113
Selling and
Administrative ... 1,368,180 1,198,231 1,298,021 1,395,032 1,906,585
Net Income
(Loss) ........... 341,633 (19,200) (7,822) (249,983) (1,319,185)
Net Income
(Loss) per share . $ .06 $ (.00) $ (.00) $ (.04) $ (.19)
Weighted average
shares outstanding 5,748,499 5,748,499 7,178,355 7,131,699 7,048,499
Balance Sheet Data
Working Capital .... $ (724,870) $ (944,289) $ (414,912) $ (970,415) $ (667,698)
Total Assets ....... 1,780,049 1,822,598 1,707,989 2,030,561 2,388,370
Long Term Debt ..... $ 186,494 $ (273,240) 402,723 438,958 608,402
Net Stockholders'
Equity (Deficit) . $ (495,202) $ (836,835) $ (817,635) $ (759,813) $ (507,233)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
Liquidity, Capital Resources, and Bank Loan Agreement
Bank Loan Agreement
During 1996, the company's term loan was paid down by a total of
$197,283 to $171,498 at June 30, 1996. The term loan is based on eligible
receivables with fixed payments of $16,000/month and at interest rate of
2-1/2% over the bank's prime rate. On September 1, 1996 the amount
outstanding on this term loan was approximately $139,000. The Company has
been notified that the bank has renewed the loan with the same terms until
January 1, 1997.
The Company expects the bank to continue to renew the loan in January.
However, if a new agreement cannot be made with the bank, or alternative
sources cannot be found at that time, the company could be forced to use
its cash to pay off the balance of the loan at that time. The balance at
January 1, 1997 is anticipated to be approximately $75,000.
Liquidity and Capital Resources
As of June 30, 1996, the Company had cash balances of approximately
$176,055. Management believes that this balance and the cash flow from
operations are sufficient to adequately fund ongoing operations, providing
a new loan arrangements can continue to be made with the bank. 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 1995 and
1996, 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 1997. Because of the
Company's negative net worth and lack of working capital, it may not be
possible to lease or purchase some or all of such equipment on terms
satisfactory to the Company. If sufficient capital equipment is not
available, the Company could be materially adversely affected. In addition,
a continued shortage of capital resources could materially adversely affect
the ability of the Company to make needed improvements and reduce profit
levels.
Results of Operations
During 1996, the company s efforts in establishing a network of
commissioned sales representatives, both in California and outside
California was completed. The company believes the 20% increase in revenues
in 1996 is due in part to the fruition of expanding the sales base and in
part to the improving economy. This trend appears to be continuing with the
backlog at ALJ remaining relatively consistent.
The following table sets forth a percentage comparison of the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
Percentage of Sales
Years Ended June 30,
1996 1995 1994
<S> <C> <C> <C>
Net Sales ......................... 100% 100% 100%
Cost of sales .................... 68 73 76
Selling and
Administrative Expenses ....... 24 27 27
Interest Expense (net of
interest income) .............. 1 1 1
Income (loss) before
income taxes discontinued
operations and extraordinary item 1 (1) (2)
Net Income (Loss) ............... 6 (0) (0)
</TABLE>
Comparison of fiscal year ended June 30, 1996 and June 30, 1995
The Company's sales increased by $863,945 or 20% in 1996 over the
prior year due to the improving economy and the company s efforts to
diversify its sales outside California. The company earned a profit of
$341,633 in 1996 as compared to a loss of $19,200 in 1995. Cost of sales
decreased from 73% in 1995 to 68% in 1996 reflecting improved productivity
and lower cost. Because of the company s net operating loss carry forward
no Federal or State Income Tax (other than the State minimum of $800) was
due in 1996. In 1997, the company anticipates that no Federal Tax will be
due, but the company will have California Income Tax due.
Comparison of fiscal year ended June 30, 1995 and June 30, 1994
The Company's sales decreased by $449,394 in 1996 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.
Comparison of fiscal year ended June 30, 1994 and June 30, 1993
The company's sales decreased $795,156 in 1994 over the prior year due
to the recession in California. The backlog decreased from $1,151,269 at
June 30, 1993 to $606,229 at June 30, 1994, reflecting this softness.
Apollo sales, however, decreased only $54,560 over the prior year with the
balance of approximately $750,000 occurring at ALJ. Cost of sales continued
to decrease from 81% to 76% reflecting continuing efforts to reduce costs.
The net loss decreased from $249,983 in 1993 to $7,822 in 1994. Due to
continued efforts in company safety and through a successful appeal to the
Workers Compensation Rating Bureau, the company's W/C premiums have also
decreased substantially.
Item 8. Financial Statements and Supplementary Data
Index to Unaudited Financial Statements Page No.
Financial Statements
Consolidated Balance Sheets at
June 30, 1996 and June 30, 1995 19
Consolidated Statements of Operations for
Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 20
Consolidated Statements of Stockholders' Equity
for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 21
Consolidated Statements of Cash Flows
for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 22
Notes to Consolidated Financial Statements 24
Financial Statement Schedules
for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994
V. Property, Plant and Equipment 31
VI. Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment 32
VIII. Valuation and Qualifying Accounts and Reserves33
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 Consolidated Financial Statements or Notes thereto.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
The Company's statements submitted in this form 10-K are unaudited because
of the necessity to conserve the cash needed for continuing operations.
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 64 Chairman, CEO, CFO,
Secretary,and Assistant Treasurer 1975
Richard R. Carlson 67 President, Chief Operating Officer,
Treasurer, Assistant Secretary; Director 1975
Carol J. Carlson 64 Director 1987
Carol Q. Griffith 62 Director 1987
H. J. Jackson 60 Vice President and General Manager, Officer
Apollo Masters Division. Since
1989
Michael Shoemaker 55 Vice 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. 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. Since 1979, Mr. Shoemaker had been Vice
President and General Manager of the ALJ North division.
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 $100,000 and of all directors and officers of GC as a group for
services in all capacities to GC during the fiscal year ended June 30, 1996, was
as follows:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Accrual Awards Payouts
Other
Accrued
Annual Restricted All other
Name & Principal Compen- Stock Options LTIP Compen-
Position Year Salary Bonus sation Awards(s)SARs Payoutssation
($) ($) ($) ($) ($) ($)
Paid (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F.Willard Griffith II ........ 1996 204,488 -0- 28,979 -0- -0- -0- -0-
Chairman & CEO ............ 1995 198,075 -0- 11,805 -0- -0- -0- -0-
1994 195,796 -0- 10,000 -0- -0- -0-
Richard R. Carlson .......... 1996 204,488 -0- 28,979 -0- -0- -0- -0-
President & COO ........... 1995 198,075 -0- 11,805 -0- -0- -0- -0-
1994 195,796 -0- 10,000 -0- -0- -0- -0-
H.J. Jackson ................ 1996 72,240 -0- -0- -0- -0- -0- -0-
Vice President & General Mgr 1995 104,180 -0- -0- -0- -0- -0- -0-
Apollo Division .......... 1994 185,170 -0- -0- -0- 6,000 -0- -0-
(3)
Michael Shoemaker
Vice President ............. 1996 96,843 -0- -0- -0- $12,000 -0- -0-
& General Mgr (4)
ALJ Division
<FN>
(1) No cash bonuses were paid for 1996, as shown, except for a Christmas
bonus paid to all employees. Officers of the corporation receive standard
benefits of medicaland 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.
Accruals are a result of contractual obligations and a voluntary salary deferral
of certain executive's pay for cash flow purposes. The Company intends to repay
these deferrals whenever cash flow permits.
(2) Other annual compensation includes contractual amounts and accrued
salary not paid.
(3) In July, 1995, Mr. Jackson, at his request, reduced the amount of time
spent at the company s Apollo Division with a commensurate reduction in salary.
Mr. Jackson, who had previously also been General Manager of ALJ, Camarillo
relinquished that position to Mr. Shoemaker.
(4) In July, 1995, Michael Shoemaker became Vice President and General
Manager of the company s ALJ Division and his salary was increased to $100,000/
annually. In addition, the company paid Mr. Shoemaker s moving expenses. Mr.
Shoemaker also received an option to purchase an additional 80,000 shares of GCI
Common Stock @ $.15/ share.
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.
</FN>
</TABLE>
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 1996
totalling approximately $15,400 and may pay a Christmas bonus in 1997, in
addition to the company s contribution to the 1996 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 ($3,971.84/week)
increased by a cost-of-living adjustment each year, plus an incentive
performance bonus equal to five percent of the Company's consolidated 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 (1992-1996) this payment 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 $14,135.46 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 April 1994, the
Board of Directors amended all outstanding options to provide for an exercise
price of $.06, which was the price of the latest purchase of shares and also
amended the expiration date of all options to be April 4, 1999.
In 1996, only one option was granted. Options to purchase a total of
1,300,000 shares of GC's common stock have been granted.
1988 Stock Option Plan (con't)
The following chart sets forth all of the options held as of June 30, 1996,
by each of the officers or directors of GC and by all option holders as a group.
All options are currently exercisable.
<TABLE>
<CAPTION>
Options Held
As of June 30, 1996
Value of
Average Unexercised
Per Share In-the-Money
No. of Exercise Options at
Shares Price June 30, 1996
<S> <C> <C> <C>
F. W. Griffith II 500,000 $.06 $45,000
Richard R. Carlson 500,000 $.06 45,000
H. J. Jackson 130,000 $.06 11,700
Michael Shoemaker 50,000 $.06 4,500
80,000 $.15 $ -0-
------
All officers and directors 1,260,000
Total options outstanding 1,300,000 $.064
</TABLE>
No options were exercised in 1996. Value of unexercised option is based on
the latest trade before June 30, 1996 at $.15/ 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.
1996 401K Retirement Plan
In April 1996, the Company s Board of Directors authorized the adoption of
the company s 1996 401K Retirement Plan to enable employees the opportunity to
save for future retirement. The Board also authorized a company matching
contribution of up to $100 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, 1996, 38 employees are participating and
the company s contribution as of July 31, 1996 has been $3,020.61.
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, 1996 (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:
<TABLE>
<CAPTION>
Name Amount
Title of and Address and Nature of Percent
Class of Beneficial Beneficial of Class
Owner Ownership
<S> <C> <C> <C>
Common The Griffith Family Trust(1),(2),(4),(6) 1,466,119 25.50%
c/o GC International, Inc.
4671 Calle Carga, Camarillo, CA 93010
Common Carol Q. Griffith (1),(6) 16,279 .28%
c/o GC International, Inc.
4671 Calle Carga, Camarillo, CA 93010
Common The Carlson Family Trust 1,478,150 25.71%
(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 52.59%
(6 persons)
____________
<FN>
(1) Excludes 97,694 shares currently in the possession of the Company
held for former GC ESOP participants who have not been located or have not
executed the appropriate distribution documents.
(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 (52.59%).
</FN>
</TABLE>
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 $12,522
per month under a lease expiring December 31, 1999. The lease contains an
annual C.P.I. increase.
Mr. Griffith and Mr. Carlson are parties to employment contracts. See
"Item Executive Compensation--Employment Contracts."
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
10.10 Lease Agreement with McDonnell Douglas Finance Corp. A
10.11 Lease Agreement with Sovran Leasing A
10.12 Bank Loan Agreement and Amendments with Bank of California A
10.13 Form of Directors Indemnification Agreement A
10.14 Employee Bonus Plan A
10.15 MDFC Lease Agreement B
10. Material Contracts (con't) A
DESCRIPTION REFERENCE
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, CaliforniaH
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 be company s Form 10K filed on or about
September 20, 1996
GC INTERNATIONAL, INC.
FINANCIAL STATEMENTS
The financial statements included on Pages 19 through 34 are unaudited
and subject to audit at a later date.
<TABLE>
<CAPTION>
GC INTERNATIONAL, INC. AND DIVISIONS
Consolidated Balance Sheets
June 30, 1996 and 1995
(Unaudited)
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash ................................................... $ 176,055 $ 118,385
Accounts receivable, less allowance
for doubtful accounts of
$6,361 and $8,129 ...................................... 648,435 771,089
Inventories ............................................ 539,397 543,380
Prepaid expenses ....................................... -0- 9,050
- -----
Total current assets ............................ 1,363,887 1,441,904
Property and equipment, net .................................. 362,405 321,384
Deposits & Deferred Expenses ................................. 53,757 59,310
------ ------
$ 1,780,049 $ 1,822,598
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Short-term bank borrowings ................................$ 171,499 $ 374,035
Current maturities of long-term debt ....................... 21,022 59,938
Accounts payable ........................................... 153,726 445,357
Accrued liabilities:
Payroll ............................................. 154,475 170,261
Customer Deposits .................................... 64,706 55,104
Commissions .......................................... 12,883 5,858
Vacation pay ......................................... 261,248 235,177
Employee accruals .................................... 240,613 179,043
Other ................................................ 1,008,586 861,421
--------- -------
Total current liabilities ....................... 2,088,758 2,386,194
--------- ---------
Long-term debt, less current maturities ................ 58,069 30,181
Other long-term debt ................................... 128,424 243,058
Stockholders' equity (deficit):
Common stock, without par value. Authorized
30,000,000 shares; issued and outstanding
5,748,499 shares ............................................. 1,791,590 1,791,590
Accumulated deficit .................................... (2,286,792) (2,286,792)
---------- ----------
Net stockholders' equity (deficit) .......................... (495,202) (836,835)
-------- --------
See Commitments (notes 1, 6, 7, 9 and 10)
$ 1,780,049 $ 1,822,598
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years ended June 30, 1996, 1995 and 1993
(Unaudited)
1996 1995 1994
<S> <C> <C> <C>
Net sales ........................... $ 5,277,155 $ 4,413,210 $ 4,862,604
Cost of sales ....................... 3,367,342 3,234,179 3,680,503
Gross profit ........... 1,709,813 1,179,031 1,182,101
Operating expenses:
Selling expenses .............. 166,640 284,745 193,057
Administrative expenses ....... 1,042,499 921,422 1,104,963
Operating Profit (loss) ....... 500,674 (27,136) (115,919)
Other income (expense), net ......... (72,560) 133,011 262,052
Interest expense, net of
interest income ................ 32,883 66,580 71,273
Profit (loss) from
continuing operations
before income taxes,
discontinued operations
and extraordinary item .... 395,231 39,295 74,860
Income tax expense .................. 726 (233) 2,002
Profit (loss) before
discontinued operations
and extraordinary item .... 394,505 39,528 72,858
Discontinued operations:
Loss from operations of
discontinued division ..... -0- 3,185 -0-
Extraordinary item - income (expense)
arising from changes in net present
value of creditors notes net
of settlement ..................... (52,872) (55,543) (80,680)
Net income (loss) ................. $ 341,633 $ (19,200) $ 7,822)
Weighted average number of common
and common equivalent shares ...... 5,748,499 5,748,499 7,178,355
Income (loss) per common and common
equivalent share:
(Loss) before extraordinary item
and discontinued operations .... $ .07 $ .01 $ (.01)
Discontinued operation ............ .00 .00 -0-
Extraordinary item ................ (.01) (.01) -0-
Net income (loss) ........ $ .06 $ (.00) $(.01)
Primary EPS .............. $ .05 $ N/A $ N/A
</TABLE>
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
For the Years Ended June 30, 1996, 1995 and 1994
(Unaudited)
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 ..... 5,748,499 $ 1,791,590 583,200 $ 110,000 800,000 $ 88,000 $(2,749.403) $ (759,813)
Preferred Stock Dividend ... -- -- 46,556 -- -- -- ( 7,822) ( 7,822)
Net Income ................. -- -- -- -- -- -- -- --
Retained Earnings Adjustment -- -- -- -- -- -- ( 50,000) ( 50,000)
Balance, June 30, 1994 ..... 5,748,499 $ 1,791,590 629,856 $ 110,000 800,000 $ 88,000 $(2,807,225) $(817,635)
Retirement of
Prefered Stock (1) ......... -- -- (629,856) (110,000) (800,000) (88,000) 198,000 -0-
Net Income ................. -- -- -- -- -- -- ( 19,200) (19,200)
Balance, June 30, 1995 ..... 5,748,499 $ 1,791,590 -0- -0- -0- -0- $(2,628,425) $(836,835)
Net Income ................. -- -- -- -- -- -- 341,633 341,633
Balance, June 30, 1996 ..... 5,748,499 $ 1,791,590 -0- -0- -0- -0- $(2,286,792) $(495,202)
<FN>
(1) During 1995, the holder of all Class A and B Preferred Shares returned the
Shares to the company at no charge.
</FN>
</TABLE>
See accompanying notes to financial statments.
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow
Years ended June 30, 1996, 1995 and 1993
(Unaudited)
Cash flows from operating activities: 1996 1995 1994
<S> <C> <C> <C>
Profit before extraordinary item
$ 394,505 $ 39,528 $ 72,723
Reclassification and adjustments to
trade credit debt due to reorganization ....... (52,872) (55,543) (80,546)
Adjustments to cash from operations:
Depreciation and amortization ................. 71,567 (66,774) 128,824
Changes in net assets and liabilities
of discontinued operations ................. -0- 228,043 -0-
Receivables (increase) decrease ............... 122,654 (25,587) 117,342
Inventory (increase) decrease ................. 3,984 (134,452) (16,832)
Accounts payable increase (decrease) .......... (291,631) 171,910 (22,588)
Accrued liabilities increase (decrease) ....... 101,183 210,697 (180,794)
Income taxes payable (decrease) ............... -0- -0- (2,310)
Prepaid expenses (increase) decrease .......... 9,050 240 (2,400)
Other assets and deposits
(increase) decrease ........................... 5,553 19,630 40,094
Total Adjustments
Net cash provided by (used in)
operating activities .................. 363,993 387,692 53,513
Cash flow from investing activities:
Net (Addition) deletions
to property, ............................. (112,589) (46,044) (38,096)
plant and equipment
Net cash provided (used) in .............. (112,589) (46,044) (38,096)
investing activities
Cash flow from financing activities:
Net increase (decrease) short term
borrowings ................................. (106,989) (119,314) (72,728)
Payments on long term debt .................... (86,745) (129,483) (36,234)
Net cash provided from (used in) (193,734) (248,797) (108,962)
financing activities
Net increase (decrease) in cash ................. 57,670 92,851 (93,545)
Cash at beginning of period ..................... 118,385 25,534 119,080
Cash at end of period ........................... $ 176,055 $ 118,385 $ 25,534
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
Consolidated Statements of Cash Flow, continued
Supplemental disclosure of cash flow information:
The Company made payments of $41,735, $72,873 and 72,966 for interest
during the years ended June 30, 1996, 1995, and 1994, respectively. The
Company was not required to pay any Federal or State taxes except for the
State of California State Franchise Tax of $800 in the years ended June 30,
1996, 1995, and 1994.
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited)
(1) Bankruptcy Reorganization and Discontinued Operations
On March 26, 1990, GC International, Inc., and its two Subsidiaries
("Debtor") 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.
Due to the cash shortage of the company, only a few payments were made
to creditors during 1996. Although the company is in default with
substantially all of the creditors, the company is working with certain of
the creditors who have requested payment. 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.
The current value of the prepetition creditor notes as of June 30, 1996 was
calculated to be $679,617 with $551,173 due currently.
(2) Summary of Significant Accounting Policies
Description of Business
GC International, Inc. ("GC") manufactures metal products, primarily
for inclusion in products sold by electronics, computer and aerospace
companies. In 1988, GC established a subsidiary for the production of audio
recording master discs.
Principles of Consolidation
The consolidated financial statements include the accounts of GC
International, Inc., and its wholly owned subsidiary, Apollo Masters
Corporation. Apollo was merged into the company in July 1994. All
significant intercompany transactions and balances have been eliminated in
consolidation.
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. Deduction is made for retirements resulting from renewals or
betterments.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited)
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. Deferred taxes were eliminated in 1994, 1995 and 1996 as
a result of the operating losses incurred.
Earnings (Loss) Per Common Share
Earnings (loss) per common and common equivalent share are based upon
the weighted average shares outstanding during each period, adjusted for
stock options which are considered common stock equivalents, when dilutive.
Primary EPS was calculated using the Treasury Stock method. The market
value used is based on the most recent trade as of June 30, 1996 at
$.15/share. Since all options were outstanding for 1996, Primary EPS equal
Fully Diluted EPS. Calculations of primary and fully diluted EPS began in
1996. Convertible Series A and Series B preferred shares, issued in fiscal
1991 in connection with reorganization were considered common stock
equivalents. In 1995, all Preferred Shares and accrued dividends paid in
kind were cancelled by the stockholder.
Reclassifications
Certain prior years balances have been reclassified to conform with
the current year's presentation.
Related Party Transactions
A building was leased in 1994 from CCG Properties, a partnership
formed by F. Willard Griffith II, and Richard R. Carlson, who are officers
and director/stockholders of the Company, and the estate of a former Vice
President of the Company, for $5,468.92 per month under a month-to-month
lease. The building was vacated in July 1994.
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 $12,522
per month under a lease expiring December 31, 1999. The lease contains an
annual C.P.I. increase.
(3) Inventories
<TABLE>
<CAPTION>
Inventories at June 30, 1996 and 1995 consisted of:
1996 1995
<S> <C> <C>
Raw materials $ 66,830 $ 66,872
Work in process 472,367 476,508
$539,397 $543,380
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited) - continued
(4) Property and Equipment
Property and equipment at June 30, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995 useful lives
<S> <C> <C> <C>
Machinery and equipment $ 753,703 $ 756,608 5 to 15 years
Automobiles and trucks 152,533 106,301 3 to 15
years
Office equipment 71,530 70,716 3 to 15 years
Leasehold improvements 166,347 144,984 Life of
lease or
Idle Assets 121,652 89,568 asset, whichever
Construction in progress 15,000 -0- Is shorter
1,280,765 1,168,177
Less accumulated
depreciation and
amortization (918,360) ( 846,793)
$ 362,405 $ 321,384
</TABLE>
(5) Income Taxes
The Company files consolidated Federal and combined state tax returns
with its subsidiaries.
As of June 30, 1996, the Company estimates that it has available for
Federal income tax purposes approximately $2,628,425 of net operating loss
carry forward ( NOL ) which will expire in various periods from 2004 to
2007 and approximately $198,038 of investment tax credit carry forwards
which expires in the year 2000. The company also estimates it has utilized
all or substantially all of the NOL for the State of California and will
have to pay California Income Tax in 1997.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited) - continued
<TABLE>
<CAPTION>
(6) Debt Obligations
Short Term Bank Borrowings ........................... 1996 1995
<S> <C> <C>
The company has a short term loan which has been renewed until
January 1, 1997. The note is amortized at the rate of $16,000/month
at an interest rate of 2-1/2% above the banks prime rate. The note
is secured by receivables, inventory and other assets. At June 30,
1996, the interest rate was 10.25%. The bank also charges a
commitment fee of 1/2% each renal
$171,499 $374,035
Total short term bank borrowing ........................... $171,499 $374,035
Long-term debt at June 30, 1996 and 1995 consisted of:
1996 1995
Equipment purchase, 60 month note from
a supplier at an interest rate of 10% .............................. $ 23,031 $ 31,724
and monthly payments of $956 until 9/1/99
Equipment purchase 48 month lease from a
supplier at an interest rate of 9.66% and .......................... 7,150 9,392
monthly payments of $254.34 until February
1999
Automobile purchase, 60 months from GMAC
at an interest rate oF 15.45% and a monthly .............. 41,232 -0-
payment of $990.67 until June 2001
Forklift purchase, 60 months from a supplier
at an interest rate of 12.27% and monthly .......................... 7,679 -0-
payments of $339.71 until September, 1998
Settlement note with the California State Board of Equalization
regarding a disputed sales tax issue. The settlement in the amount
of $101,541.80, called for payments of $1,250.00/month principal and
interest starting, September 28, 1993 increasing to $4,447.00/month
on February 15, 1995 with the last payment due March 1996. The
interest rate is fixed at 11%. This note was paid in full in 1996
-0- 49,003
________ ________
Total long-term debt ...................................... 79,092 90,119
Less current maturities ................................... 21,023 59,938
$ 58,069 $ 30,181
</TABLE>
<TABLE>
<CAPTION>
Current maturities of long-term debt in each of the next three years are as
follows:
<S> <C>
1997 $23,653
1998 $14,074
1999 $ 9,392
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited) - continued
(7) Leases
Leases of Company facilities are classified as operating leases and
expire in various years through 2016. Of the two building leases at June
30, 1996, 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 sq. ft. building. The lease was renegotiated in May 1996 and
extended to expire on Aug.31, 2016 with extensions. The lease requires a 7%
increase every 30 months. At September 1, 1996 the lease rate was $19,736
per month.
The company leases an automobile on a 36 month lease, ending October
1998 for a payment of $506/month. The company may purchase the automobile
at the end of the lease for $9,928.15.
<TABLE>
<CAPTION>
The following is a schedule of future minimum lease payments for those
operating leases which have remaining terms in excess of one year:
<S> <C>
1997 $ 393,173
1998 $ 393,173
1999 $ 394,140
2000 $ 403,679
2001-2007 $1,773,967
==== ==== ==========
</TABLE>
Rent expense charged to operations for the years ended June 30, 1996, 1995,
and 1994 was approximately
$359,467,$357,133, and $435,000.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements
(Unaudited) - continued
(8) Stock Plans
9
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 1995, options were granted. In 1994, the Board
amended all outstanding options covering 1,100,000 shares and adjusted the
exercise price to $.06 per share which is the purchase price of the only
trade during 1994. The Plan provides that options be granted at exercise
prices equal to market value on the date the option is granted. The options
outstanding are all currently exercisable and expire in 1999. As of June
30, 1996, there were no stock options exercised and 1,300,000 options
outstanding.
(9) 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 totalling approximately $216,535 per
annum plus an incentive bonus of 5% of the consolidated pretax profit of
the Company. The fixed payment and bonus was accrued during 1996.
(10) Contingencies - EPA Claim
EPA Claim for OII Superfund Site Cleanup
The Company settled a 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 by the company's former Raytee division.
The company made the first payment of $20,000 in August 1996. Payments of
$20,000 plus fixed interest are due each successive August with the last
payment due August 2000.
As of June 30, 1996, the company has established a reserve of
$328,910. Which management believes is sufficient to cover both the current
settlement of $100,000 and the final remediation settlement at sometime in
the future.
However, the EPA could present a claim for the final remediation,
which is so excessive as to require the company to seek protection under
Chapter 11 again.
The company has tendered notification of the potential EPA claim to
all of its known insurance carriers from 1975 through 1995 and prior to the
acquisition of the Raytee Company. As of September 1996, substantially all
of the insurance companies have rejected the potential liability because of
language in the insurance policy.
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE V-- PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
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, 1996
<S> <C> <C> <C> <C> <C> <C>
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 who
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
=========== =========== =========== ===== ======= ===========
Year ended June 30, 1994
Machinery and equipment ...... $ 2,271,426 $ -- $ 1,175,599 $ -- $ -- $ 1,095,827
Office equipment ............. 100,670 -- 14,794 -- -- 85,876
Automobiles and trucks ....... 122,851 -- 13,615 -- -- 109,236
Leasehold improvements ....... 234,715 65 -- -- -- 234,780
Idle Assets .................. -- 302,902 -- -- -- 302,902
------- -------
$ 2,729,662 $ 302,957 $ 1,204,008 $ -- $ -- $ 1,828,621
=========== =========== =========== ===== ======= ===========
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
For the Years Ended June 30, 1996, 1995 and 1994
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, 1996
<S> <C> <C> <C> <C> <C>
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
Year ended June 30, 1994
Machinery and equipment $ 1,748,502 $ -- $ 1,061,886 $ -- $ 686,616
Office equipment ...... 102,258 -- 22,132 -- 80,126
Automobiles and trucks 111,512 -- 5,239 -- 106,273
Leasehold improvements 223,865 10,850 -- -- 234,715
Idle Assets ........... -- 281,098 -- -- 281,098
$ 2,186,137 $ 291,948 $ 1,089,257 $ -- $ 1,388,828
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
For the Years Ended June 30, 1996, 1995 and 1994
Other
Balance a Charged to Charged to Charges
Beginning Costs and Other Add Balance at
Year Description of Year Expenses Accounts (Deduct) End of Year
<S> <C> <C> <C> <C> <C> <C>
1996 Allowance for
doubtful accounts $ 8,129 $ 7,132 $ (8,900) $ - $6,361
1995 Allowance for
doubtful accounts $ 28,579 $ - $(20,450) $ - $8,129
1994 Allowance for
doubtful accounts $ 67,335 $ - $(38,756) $ - $28,579
</TABLE>
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE IX--SHORT-TERM BORROWINGS
For the Years Ended June 30, 1996 1995 and 1994
<TABLE>
<CAPTION>
Maximum Average Weighted
Category Weighted Amount Amount Average
Aggregate Balance Average OutstandingOutstanding Interest
Short-Term at End of Interest During the During the During the
Borrowings Period Rate Period Period(1) Period(2)
<S> <C> <C> <C> <C> <C>
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
Year ended June 30, 1994: $586,000 8.67 $679,000 $642,000 9.21%
Amounts payable to:
Banks for borrowings
<FN>
__________________
(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.
</FN>
</TABLE>
GC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT
INFORMATION
For the Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Item Charged to Costs and Expenses
1996 1995 1994
<S> <C> <C> <C>
Repairs and Maintenance $35,391 $44,973 $62,708
</TABLE>
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.
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, 1996 By: _________________________________
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, 1996 By: _________________________________
F. Willard Griffith II
Principal Executive Officer
and Principal Financial Officer
Date: September 23, 1996 By: _________________________________
Richard R. Carlson
Director and President
Date: September 23, 1996 By: _________________________________
Carol Q. Griffith
Director
Date: September 23, 1996 By: _________________________________
Carol J. Carlson
Director
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, 1996 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, 1996 By: F. Willard Griffith II
F. Willard Griffith II
Principal Executive Officer
and Principal Financial Officer
Date: September 23, 1996 By: Richard R. Carlson
Richard R. Carlson
Director and President
Date: September 23, 1996 By: Carol Q. Griffith
Carol Q. Griffith
Director
Date: September 23, 1996 By: Carol J. Carlson
Carol J. Carlson
Director
GC INTERNATIONAL, INC.
EXHIBIT 10.33
AMENDMENT TO LEASE
This AMENDMENT TO LEASE (the "Amendment") is made and entered into as
of the 25th day of April 1996 by and between CFN/ Camarillo Properties,
LTD., a California limited partnership (the lessor ), and GC International,
Inc., a California corporation (the "Lessee").
RECITALS
This Amendment is entered into on the basis of and with respect to the
following facts, agreements and understandings:
A. Lessor leased to Lessee the real property and improvements commonly
known as 4671 Calle Carga, Camarillo, Ventura County, California, on the
terms and conditions set forth in that certain Standard
Industrial/Commercial Single-Tenant Lessee-Net dated as of August 21, 1991
and executed by Lessor and Lessee (the Lease ). A true and correct copy of
the Lease is attached hereto as Exhibit A and incorporating herein by this
reference.
B. Lessor and Lessee have agreed to extend the term of the Lease and
to make certain other modifications to the term of the Lease.
NOW, THEREFORE, for good and valuable consideration, including the
mutual covenants and agreements set forth herein, Lessor and Lessee hereby
agree to amend and modify the lease as follows:
1. Extension of Term. The term of the Lease shall be extended from
August 31, 2001 to and including August 31, 2006.
2. Adjustment to Base Rent. The Base Rent to be paid during the term
of the Lease shall be as follows
(a) For the period commencing on the date hereof and continuing
through June 30, 1996, the monthly Base Rent shall be as provided in the
Lease.
(b) For the period commencing July 1, 1996 and continuing thereafter
through February 28, 1999, the monthly Base Rent shall be Nineteen Thousand
Seven Hundred Thirty-Five And 85/100 Dollars ($19,735.85), payable in
semi-monthly installments of Nine Thousand Eight Hundred Sixty-Seven and
93/100 Dollars ($9,867.93) on the first day of each calendar month during
said period and Nine Thousand Eight Hundred Sixty-Seven and 92/100 Dollars
($9,867.92) on the fifteenth day of each calendar month during said period;
(c) For the period commencing March 1, 1999 and continuing thereafter
through August 31, 2001, and the monthly Base Rent shall be Twenty-One
Thousand One Hundred Seventeen and 36/100 Dollars ($21,117.36), payable in
semi-monthly installments of Ten Thousand Five Hundred Fifty-Eight and
68/100 Dollars ($10,558.68) on the first day of each calendar month during
said period and Ten Thousand Five Hundred Fifty- Eight and 68/100 Dollars
($10,558.68) on the fifteenth day of each calendar month during said
period;
(d) For the period commencing September 1, 2001 and continuing
thereafter through February 28, 2004, the monthly Base Rent shall be
Twenty-Two Thousand Five Hundred Ninety-Five and 57/100 Dollars
($22,595.57), payable in semi-monthly installments of Eleven Thousand Two
Hundred Ninety-Seven and 79/100 Dollars ($11,297.79) on the first day of
each calendar month during said period and Eleven Thousand Two Hundred
Ninety-Seven and 78/100 Dollars ($11,297.78) on the fifteenth day of each
calendar month during said period;
(e) For the period commencing March 1, 2004 and continuing thereafter
through June 30, 2006, the monthly Base Rent shall be Twenty-Four Thousand
One Hundred Seventy-Seven and 26/100 Dollars ($24,177.26), payable in
semi-monthly installments of Twelve Thousand Eighty-Eight and 63/100
Dollars($12,088.63) on the first day of each calendar month during said
period and Twelve Thousand Eighty-Eight and 63/100 Dollars ($12,088.63) on
the fifteenth day of each calendar month during said period;
3. Option to Extend Lease Term. Paragraph 50 of the Lease is hereby
demanded to provide that Lessee shall have a single option to extend the
Lease Term for an additional five (5) year period. Such extended tenancy
shall be on the terms and conditions of the Lease, as amended hereby.
Paragraph 50.A(iv)II is hereby amended to provide that the MRV Adjustment
Date shall be July 1, 2006. Notwithstanding any provision in Paragraph 50
to the contrary: (I) if the Base Rent for the extended tenancy as
determined in accordance with Paragraph 50 shall be less than the Base Rent
for the calendar month immediately preceding the commencement of such
extended tenancy (the Minimum Base Rent ), the initial Base Rent for such
extended tenancy shall be equal to the Minimum Base Rent; or (ii) if the
Base Rent for the extended tenancy as determined in accordance with
Paragraph 50 shall be greater than one hundred ten percent (110%) of the
Base Rent for the calendar month immediately preceding the commencement of
such extended tenancy (the Maximum Base Rent ), the initial Base Rent for
such extended tenancy shall be equal to the Maximum Base Rent. The initial
Base Rent for the extended tenancy shall be increased by seven percent (7%)
as of January 1, 2009 for the balance of such extended tenancy.
4. Tenant Improvement Allowance. Provided Lessee is not then in
default under the terms of the Lease, Lessor shall pay to Lessee (I) the
sum of Nine Thousand Three Hundred Eighty-Five and 74/100 Dollars
($9,385.74) On July 1, 1996 as reimbursement to Lessee for tenant
improvement costs incurred by Lessee and (ii) the sum of Ten Thousand
Dollars ($10,000) on July 1, 1997 as reimbursement to Lessee for tenant
improvement costs incurred by Lessee.
5. Effectiveness of Lease. Except as set forth is this Amendment, all
of the provisions of the Lease shall remain unchanged and in full force and
effect. All capitalized terms not otherwise defined herein shall have the
meaning given to such terms in the Lease.
6. Notices. All notices or other written communications hereunder
shall be deemed to have been properly given (I) upon delivery, if delivered
in person or by facsimile transmission with receive acknowledged by the
recipient thereof, (ii) one Business Day (hereinafter defined) after having
been deposited for overnight delivery with any reputable overnight corridor
service, or (iii) three (3) Business Days after having been deposited in
any post office or mail depository regularly maintain by the U.S. Postal
Service and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Lessor: CFN/Camarillo Properties, LTD
c/o CNA Enterprises, Inc.
1901 Avenue Of The Stars, Suite 1600
Los Angeles, California 90067
With A Copy To:Norman D. Sloan, Esq.
Gipson Hoffman & Pancione
A Professional Corporation
1901 Avenue Of The Stars, Suite 1100
Los Angeles, California 90067-6002
If to Lessee: GC International, Inc.
156 Burns Avenue
Atherton, CA 94027
7. Interpretations. The parties agree that each party and its counsel
have reviewed and revised this Amendment and that any rule of construction
to the effect that ambiguities are to the resolved against the drafting
party shall not apply in the interpretation of this Amendment.
8. Authority. The persons executing this Amendment have the full right
and authority to enter into this Amendment on behalf of the parties for
whom they are signing.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment effective as of the day first above written.
LESSOR LESSEE
CFN/CAMARILLO PROPERTIES, LTD. GC INTERNATIONAL, INC.
a California limited partnership a California Corporation
By: CNA Enterprises, Inc.
a California corporation,
Its General Partner
By:
Title:
By
Arnon Adar, President
(Wpamend)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Statement of Operations and the Consolidated Balance
Sheets and is qualified in its entirety by reference to such in the June
1996 10-K reprinting.
</LEGEND>
<CIK> 0000841708
<NAME> GC International, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 176,055
<SECURITIES> 0
<RECEIVABLES> 654,796
<ALLOWANCES> (6,361)
<INVENTORY> 539,397
<CURRENT-ASSETS> 1,363,887
<PP&E> 1,280,765
<DEPRECIATION> (918,360)
<TOTAL-ASSETS> 1,780,049
<CURRENT-LIABILITIES> 2,088,758
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (2,286,792)
<TOTAL-LIABILITY-AND-EQUITY> 1,780,049
<SALES> 5,277,155
<TOTAL-REVENUES> 5,277,155
<CGS> 3,567,342
<TOTAL-COSTS> 3,567,342
<OTHER-EXPENSES> 1,281,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,883
<INCOME-PRETAX> 395,231
<INCOME-TAX> 726
<INCOME-CONTINUING> 394,505
<DISCONTINUED> 0
<EXTRAORDINARY> 52,872
<CHANGES> 0
<NET-INCOME> 341,633
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
