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]
<PAGE>
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]
<PAGE>
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.
<TABLE>
<CAPTION>
Backlog Backlog
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Total Backlog $1,180,128 $1,167,932
</TABLE>
GC's sales for the last three fiscal years are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $5,406,840 $5,277,155 $4,413,210
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year ended June 30
------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------
Audited Unaudited Unaudited Unaudited Unaudited
Restated
Statement of Operations Data
----------------------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
5
<PAGE>
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.
<TABLE>
<CAPTION>
Percentage of Sales
-------------------
Years Ended June 30,
--------------------
1997 1996 1995
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
PART III
Item 10. Directors and Executive Officers
- ------------------------------------------
<TABLE>
<CAPTION>
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
---- --- -------- --------------
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
- ------
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 $100,000 and of all directors and officers of GC as a group for
services in all capacities to GC during the fiscal year ended June 30, 1997, was
as follows:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------ --------------------------
Accrual Awards Payouts
-------------------------------------- -------------------- -----------------
Other
Accrued
Annual Restricted All other
Name & Principal Compen- Stock Options LTIP Compen-
Position Year Salary Bonus sation Awards(s) SARs Payouts sation
Paid ($) ($) ($) ($) ($) ($) ($)
(1) (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
<FN>
(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.
</FN>
</TABLE>
10
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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:
- --------------------------------------------------------------------------------
<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 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
<FN>
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.
</FN>
</TABLE>
13
<PAGE>
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
<PAGE>
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
<PAGE>
10. Material Contracts (con't)
DESCRIPTION
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
GC INTERNATIONAL, INC.
FINANCIAL STATEMENTS
The financial statements included herein are audited for 1997 and
unaudited for prior years.
17
<PAGE>
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
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, 1997 and 1996
(Unaudited)
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1997, 1996 and 1995
(Unaudited) (Unaudited)
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
========== =========== ======== ======== ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years ended June 30, 1997, 1996 and 1995
(Unaudited) (Unaudited)
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
(3) INVENTORIES
Inventories at June 30, 1997 and 1996 consisted of:
1997 1996
----------- ----------
<S> <C> <C>
Raw material $ 51,858 $ 66,830
Work in process 428,015 472,367
---------- ---------
$ 479,873 $ 539,197
========= =========
</TABLE>
<TABLE>
<CAPTION>
(4) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1996 consisted of:
Estimated
1997 1996 useful lives
------------ ---------- ------------
<S> <C> <C> <C> <C>
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
============ ==========
</TABLE>
Depreciation expense for the years ended June 30, 1997 and 1996 totaled
$87,332 and $71,567, respectively.
26
<PAGE>
<TABLE>
<CAPTION>
(5) NOTES PAYABLE
Notes payable at June 30, 1997 and 1996 consists of the following:
1997 1996
----------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
27
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Provision for income taxes consists of the following:
Federal State Total
<S> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the Federal and State statutory tax rate and the
effective tax rate is as follows:
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
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%
========================================
</TABLE>
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
<PAGE>
The tax effects of temporary differences and carryforwards that give
rise to significant portions of deferred assets and liabilities consist
of the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
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
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
31
<PAGE>
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
32
<PAGE>
GC INTERNATIONAL, INC. AND DIVISIONS
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
<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>
33
<PAGE>
GC INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
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
------ ------ -----
<S> <C> <C> <C>
Repairs and Maintenance 35,197 $35,391 $44,973
</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.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 278,791
<SECURITIES> 0
<RECEIVABLES> 661,018
<ALLOWANCES> (6,607)
<INVENTORY> 479,873
<CURRENT-ASSETS> 1,598,168
<PP&E> 1,377,085
<DEPRECIATION> (958,352)
<TOTAL-ASSETS> 2,332,885
<CURRENT-LIABILITIES> 1,455,497
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,400,450)
<TOTAL-LIABILITY-AND-EQUITY> 391,140
<SALES> 5,406,840
<TOTAL-REVENUES> 5,406,840
<CGS> 3,632,410
<TOTAL-COSTS> 3,632,410
<OTHER-EXPENSES> 1,332,889
<LOSS-PROVISION> 27,983
<INTEREST-EXPENSE> (5,163)
<INCOME-PRETAX> 475,974
<INCOME-TAX> 258,547
<INCOME-CONTINUING> 217,427
<DISCONTINUED> 55,670
<EXTRAORDINARY> (71,177)
<CHANGES> 0
<NET-INCOME> 232,934
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
