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, 1998
-------------
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
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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 _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. [ X ]
[Cover page 1 of 2 pages]
<PAGE>
The aggregate market value of voting stock held by non-affiliates of the
registrant at September 22, 1998 (2,524,983 shares), was approximately $903,943.
Since these are only a few trading the Company's Stock, this is based on an
estimate average of the bid and asked price of $.358/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
and 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, castings, or 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 80% of the backlog is expected to be shipped
in the year ending June 30, 1999. A substantial portion of the backlog may be
canceled at any time without penalty. The decrease in the backlog is believed to
be due primarily to the continuing efforts of the Company to ship product
on-time and reduce overdue shipments to a minimum.
Backlog Backlog
June 30, 1998 June 30, 1997
------------- -------------
Total Backlog $1,852,052 $1,180,128
The backlog increase is due primarily to a large two year contract with a
customer.
GC's sales for the last three fiscal years are as follows:
Year Ended June 30
--------------------------------------------------
1998 1997 1996
---- ---- ----
Net sales $5,590,365 $5,406,840 $5,277,155
A. L. Johnson ("ALJ") Division
- ------------------------------
ALJ and its predecessor have been in business for over 43 years. Located 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
primary competition is from competing processes, such as investment, sand,
permanent mold and die casting. ALJ generally services over 250 customers each
year.
Apollo Masters Division ("Apollo")
- ----------------------------------
In 1988 GC purchased, from Capitol Records ("Capitol"), the assets used in
connection with its lacquer master manufacturing business and moved those assets
to a plant leased by the Company in Banning, California.
Located 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 Company expects the vinyl record
industry volume to continue to decline 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.
Currently, approximately 50% of Apollo's market is in the U.S. and 50% 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 reasonable demand for vinyl records for the immediate future. However, a rapid
decline in the market for lacquer masters may require that the Company
reevaluate the viability of Apollo. 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, 1998, Apollo has established 7 distributors
and has made deliveries to over 122 customers in 29 countries worldwide. Apollo
also imports and distributes stylus.
Sales and Marketing
- -------------------
The Company markets ALJ castings through a Sales Manager, and a network of
independent sales representatives. ALJ may, from time to time, pay commissions
to other independent sales representatives on a per customer order basis. Apollo
does not have direct salesmen, and contracts with independent sales
representatives and distributors.
Major Customers Over 10%
- ------------------------
One customer, Die Cast Products, a subsidiary of Pace Inc., accounted
approximately 11% of sales in 1998.
Foreign Sales
- -------------
Approximately 50% of Apollo's sales are to foreign markets, and such sales in
1997 represented approximately 9% of GC's consolidated sales. ALJ has no
material foreign sales.
Competition
- -----------
ALJ competes in the U.S. 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 ALJ. Apollo competes in
a world wide market where the Company believes there is only one U.S. competitor
and one Japanese competitor.
Employees
- ---------
At June 30, 1998, GC had 75 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 1998, GC paid a discretionary Christmas holiday
bonus of approximately $39,700.
Item 2. Properties
----------
As of June 30, 1998, 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 its
operations 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, 1998, there is no litigation of which the Company is aware and/or
is not insured. 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
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 has been required to make
certain payments to these creditors over a period of seven years at no interest.
During 1998, the Company made payments and/or settlements with a number of these
creditors. The Company anticipates continuing this program in 1999. The creditor
notes generally do not provide for any specific remedies or for acceleration in
the event of non-payment.
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. As of August 1998, the Company has paid $60,000 of such amount
and is obligated to pay $20,000 plus interest in August 1999 and August 2,000.
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 $120,000, as of June 30th, 1998, 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 1998.
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. Trading is extremely isolated
and sporadic. The table below sets forth the bid and asked prices for the
Company's common stock as reported by the Company's market maker. The Company
does not believe that the bid and asked quotations are indicative of the actual
market if a person wished to purchase or sell any significant number of common
shares.
Common Shares 1998 1997 1996
- ------------- --------------------- --------------------- ------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
Bid $.125 $.187 $.187 $.312 $.625 $.75 $.75 $.625 $.625
Asked $.375 $.50 $.50 $.625 $.125 $.25 $.25 $.125 $.125
Holders
- -------
The number of holders of record of the Company's common stock as of June 1998,
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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year ended June 30
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
Audited Audited Unaudited Unaudited Unaudited
Restated
Statement of Operations Data
- ----------------------------
<S> <C> <C> <C> <C> <C>
Net Sales ............. $ 5,590,365 $ 5,406,840 $ 5,277,155 $ 4,413,210 $ 4,862,604
Gross Profit .......... 1,925,917 1,774,430 1,709,813 1,179,031 1,182,101
Selling and
Administrative ...... 1,390,638 1,313,091 1,209,139 1,206,167 1,298,021
Income (loss) from
Operations ........... 535,638 461,339 500,674 (27,136) (7,822)
Net Income
(Loss) per share .... $ .07 $ .04 $ .02 $ .02 $ (.00)
Weighted average shares
outstanding ........ $ 5,548,401 $ 5,727,122 $ 5,748,499 $ 5,748,499 $ 7,178,355
Balance Sheet Data
Working Capital ....... $ 383,645 $ 142,671 $ (148,884) $ (944,289) $ (414,912)
Total Assets .......... 2,340,293 2,312,944 2,433,456 1,822,598 1,707,989
Long Term Debt ........ 492,726 $ 466,307 $ 513,620 $ 273,240 402,723
Net Stockholders'
Equity (Deficit) .... $ 753,093 $ 391,140 $ (158,206) $ (836,835) $ (817,635)
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1998, the Company had cash balances of approximately $323,920.
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. The Company has no bank line and
does not plan to obtain any.
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 1997 and 1998, 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 1999. 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.
<PAGE>
Results of Operations
- ---------------------
The following table sets forth a percentage comparison of the Company's
statement of operations.
Percentage of Sale
Years Ended June 30,
1998 1997 1996
---- ---- ----
Net Sales 100% 100% 100%
Cost of sales 66 67 68
Selling and
Administrative Expenses 25 24 23
Interest Expense (net of
interest income) 0 0 1
Income before
income taxes, discontinued
operations and extraordinary item 7 9 7
Net Income 6 4 2
Comparison of Fiscal year ended June 30,1998, and June 30, 1997
- ---------------------------------------------------------------
In 1998, the Company's sales increased by $183,525 or 3.4% over 1997. Sales
remained relatively constant due to the Company's continued selling efforts.
During 1998, the Company's cost of sales continued to decrease from 67% in 1997
to 66% in 1998. As a result, income from operations increased from $461,339 in
1997 to $535,639 in 1998.
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
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 provision 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.
Factors Affecting Future Results
- --------------------------------
During 1998, order rates from existing customers were good and as of June 30,
1998 there was no appreciable slowing. However, in July and August 1998 the ALJ
Division experienced some stretchouts of orders and the incoming order rate
slowed. The Company anticipates further slowing during the second quarter due to
the global economic slowdown. This may make it difficult to continue the
performance of the past year.
The Company has reviewed its internal computer systems for year 2000 compliance
and is satisfied that all of its internal computer systems are either already
year-2000 compliant or can be made year-2000 compliant through simple upgrades.
The Company does not expect the costs of achieving full year-2000 compliance to
be material for the internal systems. However, there can be no assurance that
coding errors or other defects will not be discovered in the future. In
addition, since the Company is very small in relation to many of its customers
and suppliers, the Company has been unable to ascertain if any of its suppliers
and customers are year-2000 compliant. Therefore, there can be no assurances
that the Company's cash flow and materials from suppliers will not be
interrupted which could result in severe disruptions in the Company's
operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements Page No.
Financial Statements
Balance Sheets at
June 30, 1998 and June 30, 1997 18
Statements of Operations for each of the
Three Fiscal Years: June 30, 1998, 1997, and 1996 19
Statements of Stockholders' Equity for each of the
Three Fiscal Years: June 30, 1998, 1997, and 1996 20
Statements of Cash Flows for each of the
Three Fiscal Years: June 30, 1998, 1997, and 1996 21
Notes to Financial Statements 22
Financial Statement Schedules for each of the
Three Fiscal Years: June 30, 1998, 1997, and 1996
V. Property, Plant and Equipment 30
VI. Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment 31
VIII. Valuation and Qualifying Accounts and Reserves 32
IX. Short-Term Borrowings 33
X. Supplementary Income Statement Information 33
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
<PAGE>
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:
<TABLE>
<CAPTION>
Served as
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
F.Willard Griffith II 66 Chairman, CEO, CFO, Secretary,
and Assistant Treasurer 1975
Richard R. Carlson 68 President, Chief Operating Officer,
Treasurer, Assistant Secretary;
Director 1975
Carol J. Carlson 69 Director 1987
Carol Q. Griffith 64 Director 1987
</TABLE>
<TABLE>
<CAPTION>
Served as
Officers Position Officer Since
-------- -------- -------------
<S> <C> <C>
H. J. Jackson 62 President and General Manager,
Apollo Masters Division. 1989
Michael Shoemaker 57 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 is a graduate of Purdue
University with a BS degree in Electrical Engineering. Mr. Griffith is also
Chairman of Zephyr-Tec Corp., a company founded by Mr. Griffith's daughter
specializing in Loss Prevention and Disability Management of repetitive stress
injuries through the use of Speech Recognition Software.
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. Mrs.
Griffith is also a Director of Zephyr-Tec Corp.
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
<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
$100,000 and of all directors and officers of GC as a group for services in all
capacities to GC during the fiscal year ended June 30, 1998, was as follows:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Accruals Awards Payouts
Other All
Name & Principal Annual Restricted Other
Position Compen- Stock Options LTIP Compen-
Year Salary Bonus sation Awards Sales Payouts sation
Paid ($) ($) ($) ($) ($) ($) ($)
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F.Willard Griffith II . 1998 215,696 10,300 36,470 -0- -0- -0- -0-
Chairman & CEO ........ 1997 215,789 200 38,120 -0- -0- -0- -0-
1996 204,488 -0- 28,979 -0- -0- -0- -0-
1995 198,075 -0- 11,805 -0- -0- -0- -0-
Richard R. Carlson .... 1998 215,696 10,300 36,470 -0- -0- -0- -0-
President & COO ....... 1997 215,789 200 38,120 -0- -0- -0- -0-
1996 204,488 -0- 28,979 -0- -0- -0- -0-
1995 198,075 -0- 11,805 -0- -0- -0- -0-
Michael Shoemaker ..... 1998 114,054 7,500 -0- -0- -0- -0- -0-
President & General Mgr 1997 129,716 2,000 -0- -0- -0- -0- -0-
ALJ Division .......... 1996 96,843 -0- 12,000 -0- -0- -0- -0-
<FN>
(1) Cash bonuses were paid in 1998, as shown. A Christmas bonus was also 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>
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 directors.
Employee Cash Bonus
- -------------------
The Company paid a Christmas bonus to all employees in 1998 totaling
approximately $39,700 and expects to pay a Christmas bonus in 1999, in addition
to the Company's contribution to the 401K Plan.
Employment Contracts
- --------------------
Pursuant to their employment contracts, expiring in 2008, Mr. Griffith and Mr.
Carlson are each entitled to receive a base salary ($5,075.90/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. 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 first the employee's contract obligations until the end of the
contract and to thence employee's designated beneficiary, a death benefit of
approximately $15,052 per month in 1998, increased by an annual cost-of-living
adjustment factor until the death of that beneficiary or July 1, 2008, whichever
is later.
Mr. Shoemaker has an employment contract expiring in July 2008 entitling Mr.
Shoemaker to receive in salary of $2,403.38/week increased by the cost of living
and a death benefit agreement which requires the company, in the event of the
death of Mr. Shoemaker, to pay to his designated beneficiary $5,000/month until
the earliest of March 15, 2008 or the death of the employee and the subsequent
death of the employee's designated beneficiary. See material contracts items
10.34, 10.35 and 10.36
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
and in the amount of $500,000 on Mr. Shoemaker. 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 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. Options to purchase a
total of 1,360,000 shares of GC's common stock have been granted.
<PAGE>
1988 Stock Option Plan (con't)
The following chart sets forth all of the options held as of June 30, 1998, 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, 1998
-------------------
Value of
Average Unexercised
Per Share In-the-Money
No. of Exercise Options at
Shares Price June 30, 1998
------ ----- -------------
<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>
<PAGE>
No options were exercised in 1998. The value of unexercised options is based on
the average of the bid and asked price as of June 30, 1998 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.
1998 Stock Option Plan
- ----------------------
In 1998, GC's Board of Directors adopted the 1998 Stock Option Plan which will
be presented for approval by the stockholders at the annual meeting to be held
mid January 1999.
401K Retirement Plan
- --------------------
In April 1996, the Company's Board of Directors authorized the adoption of the
Company's 401K Retirement Plan to enable employees the opportunity to save for
future retirement. The Board has authorized a Company matching contribution of
up to $300 on a $1 matching for each $3 contributed by the employee. The
matching contribution is determined by the Board of Directors and may be changed
at any time. At July 31, 1998, 36 employees are participating and the Company's
contribution in 1998 was $19,284.
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, 1998 (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 93012
Common Carol Q. Griffith (1),(6) 16,279 .29%
c/o GC International, Inc.
4671 Calle Carga, Camarillo, CA 93012
Common The Carlson Family Trust 1,478,150 26.64%
(1),(3),(4)
c/o GC International, Inc.,
4671 Calle Carga, Camarillo, CA 93012
All officers and directors as a group(1),(4),(5) 3,023,418 54.49%
(6 persons)
- ------------
<FN>
(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.
</FN>
</TABLE>
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 and have
the ability to control the company.
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Certain Transactions
- --------------------
The Company leases 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 1998 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."
<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, I and J below.
3. Exhibits
Index to Exhibits (14c)
DESCRIPTION REFERENCE
3.1 Articles of Incorporation A
3.1.1 Restated Articles of Incorporation A
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
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
DESCRIPTION REFERENCE
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
10.16 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
10.34 Amendment to amend and restate the employment contract of J
Richard R. Carlson.
10.35 Amendment to amend and restate the employment contract of
F. Willard Griffith. J
10.36 Employment contract with Michael Shoemaker J
22. Subsidiaries of the Registrant NONE
<TABLE>
<CAPTION>
Index to Exhibits Reference Legend
- ----------------------------------
<S> <C>
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
J Incorporated by reference to the Comany's Form 10K filed on or about
October 15, 1998
</TABLE>
<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, 1998 and 1997 and the related statements of income, retained earnings,
and cash flows for the years 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, 1998and 1997 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
The statements of income, retained earnings, and cash flows for the years ended
June 30, 1996 were compiled by management. We have not audited or reviewed the
1996 financial statements and, accordingly do not express an opinion or any
other form of assurance on them.
Finocchiaro & Company
Pasadena, California
September 2, 1998
17
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, 1998 and 1997
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash ............................................. $ 323,920 $ 278,791
Accounts receivable, net of allowance for
doubtful of $6,464 in 1998 and $6,607 in 1997 .... 639,886 654,411
Inventories ...................................... 479,772 479,873
Prepaid expenses ................................. 4,277 3,333
Prepaid income taxes ............................. 4,219 --
Deferred tax benefit .................................. 26,044 181,760
----------- -----------
Total current assets ................ 1,478,118 1,598,168
Property and equipment ........................... 545,251 418,733
Other assets
Deposits & deferred expenses ..................... 35,760 34,123
Deferred tax benefit ............................. 281,164 261,920
----------- -----------
Total other assets ................. 316,924 296,043
----------- -----------
Total Assets .......................................... $ 2,340,293 $ 2,312,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................. $ 130,858 $ 138,219
Accrued expenses ................................. 696,903 734,641
Income taxes payable ............................. -- 55,635
Note payable ..................................... 266,713 527,002
----------- -----------
Total current liabilities .................... 1,094,474 1,455,497
Other Liabilities
Note payable, net of current portion ............. 172,725 146,307
Liability reserve ................................ 120,000 --
Liability reserve ................................ 200,000 320,000
----------- -----------
Total other liabilities ...................... 492,725 466,307
----------- -----------
Total liabilities ............................ 1,587,199 1,921,804
Commitments and contingencies
Stockholders' equity:
Common stock, without par value. 30,000,000 shares
authorized, 5,548,401 shares in 1998 and
in 1997 issued and outstanding ............... 1,791,590 1,791,590
Accumulated deficit .............................. (1,038,496) (1,400,450)
----------- -----------
Total stockholders' equity ................... 753,094 391,140
----------- -----------
Total Liabilities and Stockholders' Equity ... $ 2,340,293 $ 2,312,944
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1998, 1997 and 1996
(Unaudited)
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales ............................. $ 5,590,366 $ 5,406,840 $ 5,277,155
Cost of sales ......................... 3,664,447 3,632,410 3,567,342
----------- ----------- -----------
Gross profit .......................... 1,925,919 1,774,430 1,709,813
Operating expenses:
Selling ............................. 234,888 243,487 166,640
General & Administrative ............ (1,155,392) 1,069,604 1,042,499
----------- ----------- -----------
Income from operations ................ 535,639 461,339 500,674
Other income (expense)
Interest, net ........................ (7,320) (5,163) (32,883)
Other ................................ (120,920) 19,798 (72,560)
----------- ----------- -----------
Income before income taxes &
extraordinary items .................. 407,397 475,974 395,231
Loss from discontinued operations ..... -0- 55,670 -0-
Provision for income taxes ............ 174,650 258,547 208,174
----------- ----------- -----------
Income before extraordinary item ...... 232,747 161,757 187,057
Extraordinary item .................... 129,207 71,177 (52,872)
----------- ----------- -----------
Net income ............................ $ 361,954 $ 232,934 $ 134,185
=========== =========== ===========
Earnings per common share
Basic earnings per share
Income from continuing operations .... $ 0.04 $ 0.04 $ 0.03
Loss from discontinued operations .... -- $ (0.01) --
----------- ----------- -----------
Income before extraordinary item ..... $ 0.04 $ 0.03 $ 0.03
Extraordinary item ................... $ 0.03 $ 0.01 ($ 0.01)
----------- ----------- -----------
Net income ................... $ 0.07 $ 0.04 $ 0.02
=========== =========== ===========
Diluted earnings per share
Income from continuing operations $ 0.04 $ 0.04 $ 0.03
Loss from discontinued operations -- 0.01 --
----------- ----------- -----------
Income before extraordinary item $ 0.04 $ 0.03 $ 0.03
Extraordinary item .............. $ 0.02 $ 0.01 ($ 0.01)
----------- ----------- -----------
Net income ................... $ 0.06 $ 0.04 $ 0.02
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS'EQUITY
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
Number Dollar Accumulated
of Shares Value Deficit Total
<S> <C> <C> <C> <C>
1996
Stockholders' equity at June 30, 1995 5,748,499 $ 1,791,590 $(1,767,569) $ 24,021
Net Income .......................... -- -- 134,185 134,185
----------- ----------- ----------- -----------
Stockholders' equity at June 30, 1996 5,748,499 $ 1,791,590 $(1,663,384) $ 158,206
1997
Net Income .......................... -- -- 232,934 --
Retirement of common stock .......... (200,098) -- -- --
----------- ----------- ----------- -----------
Stockholders' equity at June 30, 1997 5,548,401 $ 1,791,590 $(1,400,450) $ 391,140
1998
Net Income .......................... -- -- 361,954 --
----------- ----------- ----------- -----------
Stockholders' equity at June 30, 1998 5,548,401 $ 1,791,590 $(1,038,496) $ 753,094
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years ended June 30, 1998, 1997 and 1996
(Unaudited)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 361,954 $ 232,934 $ 134,185
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................ 121,192 87,332 71,567
Gain on sale of property, plant & equipment .......... (1,500) (1,317) --
Changes in operating assets & liabilities:
Receivables decrease ................................. 14,525 (5,975) 122,654
Inventory (increase) decrease ........................ 101 59,524 3,984
Accounts payable increase (decrease) ................. (7,361) (15,507) (291,631)
Accrued liabilities increase (decrease) .............. (37,738) (103,539) 101,183
Income taxes payable increase ........................ (59,854) 54,835 --
Reserve liability decrease ........................... -- (32,337) --
Deferred tax decrease ................................ 136,472 209,727 207,442
Prepaid expenses (increase) decrease ................. (944) (3,333) 9,050
Other assets and deposits (increase) decrease ........ (1,637) 19,634 5,553
--------- --------- ---------
Net cash provided by operating activities ............ 525,210 501,978 363,993
Cash flow from investing activities:
Purchase of property, plant & equipment ........ (247,710) (143,661) (112,589)
Proceeds from sale of property, plant
& equipment .................................. 1,500 1,317 --
--------- --------- ---------
Net cash used by investing activities ................ (246,210) (142,344) (112,589)
Cash flows from financing activities:
Payments on short term borrowings .................... -- (216,711) (106,989)
Payments on long term debt ........................... (345,075) (40,187) (86,745)
New long term borrowings ....................... 111,204 -- --
--------- --------- ---------
Net cash used by financing activities ................ (233,871) (256,898) (193,734)
Increase in cash and cash equivalents ................... 45,129 102,736 57,670
Cash and cash equivalents, beginning .................... 278,791 176,055 118,385
--------- --------- ---------
Cash and cash equivalents, ending ....................... $ 323,920 $ 278,791 $ 176,055
========= ========= =========
Cash paid during year for
Interest ..................................... $ 7,320 $ 16,886 $ 41,735
Income taxes ................................. 58,824 3,050 1,574
</TABLE>
The accompanying notes are an integral part of these financial statements
21
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO 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
and 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 based upon income 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 Per Share
- --------------------
Earnings per common and common equivalent share are based upon the weighted
average number of shares outstanding during each period, adjusted for stock
options which are considered common stock equivalents, when dilutive. Both Basic
EPS and Dilutive EPS were calculated using Treasury Stock method. The market
value used is based on the average of bid and asked price at June 30, 1998 and
was $ .358.
22
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
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.
Presentation
- ------------
For financial statement reporting purposes, certain reclassifications of prior
years' balances have been made to conform to the 1998 presentation.
The financial statements for the years ended June 30, 1996 were 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 $207,448.
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.
23
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(3) INVENTORIES
Inventories at June 30, 1998 and 1997 consisted of:
1998 1997
---- ----
<S> <C> <C>
Raw material $ 58,411 $ 51,858
Work in process 421,361 428,015
------- ---------
$ 479,772 $ 479,873
========= =========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Estimated
1998 1997 useful lives
----------- ----------- ------------
<S> <C> <C> <C>
Machinery and equipment ........... $ 1,036,186 $ 810,066 5 to 15years
Automobile and trucks ............. 157,610 183,485 3 to 15years
Office equipment .................. 103,376 88,811 3 to 15years
Leasehold improvements ............ 180,508 172,626 2 to 10years
Idle Assets ....................... 86,742 121,652 5 to 15years
Construction in progress .......... -- 446
----------- -----------
1,564,422 1,377,086
Less accumulated depreciation and
amortization ............... (1,019,171) (958,352)
----------- -----------
$ 545,251 $ 418,733
=========== ===========
</TABLE>
Depreciation expense for the years ended June 30, 1998 and 1997 totaled $121,192
and $87,332, respectively.
24
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(5) NOTES PAYABLE
Notes payable at June 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Equipment purchase, 60-month note from a supplier at an interest rate of 10% and
a monthly payment of $956 until September 1999 ................................ $ 2,821 $ 13,429
Equipment purchase, 48-month lease from a supplier at an interest rate of 9.66%
and a monthly payment of $254
until February 1999 ........................................................... 1,963 4,681
Automobile purchase, 60 months from GMAC at an interest rate
of 15.45% and a monthly payment of $991 until June 2001 ....................... 28,397 35,306
Forklift purchase, 60 months from a supplier at an interest rate of 12.27% and
monthly payments of $340 until
September 1998. 1,235 .......................................................... 4,653
Automobile purchase, 60 months from GMAC at an interest rate
of 11% and a monthly payment of $950 until June 2002 .......................... 36,753 43,689
Equipment purchase, 24 month lease from Pyrotek at An 0% interest rate and a
monthly payment of $817
until October 1999 ............................................................ 13,079 0
Equipment purchase, 60 month lease from a supplier at And interest rate of 8.5%
and a monthly payment of $1,879
until December 2002 ........................................................... 84,073 0
Automobile purchase, 60 months from Chase at an interest rate
of 16.25% and a monthly payment of $444 until April 2002 ...................... 15,137 17,772
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1998 1997
-------- --------
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 ................................................................... 60,000 80,000
Notes payable, with zero interest rate due May 1998 ........................... 195,980 473,779
-------- --------
Total debt ..................................................................... 439,438 673,309
Less: current maturities of notes payable ...................................... 266,713 527,002
-------- --------
Long-term portion .............................................................. $172,725 $146,307
======== ========
</TABLE>
Maturities of long-term debt at June 30, 1998 for the succeeding fiscal
years are as follows:
1999 $ 62,365
2000 63,832
2001 35,528
2002 11,000
(6) STOCK OPTION PLAN
The Company has a stock option plan which was adopted in June 1988 providing
for the issuance of up to 1,700,000 shares of common stock to key employees.
During 1998 no 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 2013. As
of June 30, 1998, 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 2008 with
two of its principal officers. The terms of each contract call for a base
compensation and fixed payment totaling approximately $215,696 per annum plus
an incentive bonus of 5% of the consolidated pretax profit of the Company. The
fixed payment and bonus was accrued during 1998.
26
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(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,
1998, 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 June 30, 1998 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 foot building. The lease was renegotiated in November
1993 and extended to expire on December 31, 1999. The lease contains an annual
increase based on the Consumer Price Index. At June 30, 1998 the lease rate was
$12,943 per month.
The following is a schedule of future minimum lease payments for those
operating leases which have remaining terms in excess of one year:
1999 $ 397,560
2000 329,994
2001 253,404
2002-2007 1,687,194
Rent expense charged to operations for the years ended June 30, 1998,
and 1997 was approximately $379,154, and $383,667 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.
27
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has made three principal payments of $20,000 each in August
1996, 1997 and 1998. 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 1997 for the
interim claim, the company believes its reserve for any future liability in the
amount of $120,000, as of June 30, 1998, is adequate to cover any final claim.
Litigation Reserves - The company has established a reserve for
expected litigation costs in connection with the settlement of certain
outstanding liabilities. The company believes that the $200,000 reserve at June
30, 1998 is sufficient to cover potential litigation expenses.
(9) EARNINGS PER SHARE
The following data show the amounts used in computing earnings per
share for the years ended June 30, 1998, 1997 and 1996.
1998 1997 1996
Income available to common stockholders
basic and duluted $ 232,747 $ 217,427 $187,057
Weighted average number of common shares
used in basic EPS 5,548,401 5,727,122 5,748,499
Effect of dilutive securities stock options 1,007,011 114,928 9,683
--------- --------- -------
Weighted average number of common shares and
dilutive potential common stock used in
diluted EPS 6,555,412 5,842,050 5,758,1982
========= ========= ==========
28
<PAGE>
(10) PROVISION FOR INCOME TAXES
Provision for income taxes consists of the following:
Federal State Total
1998 -------------------------------------------
Current .................... $ -- 37,950 $ 37,950
Deferred ................... 158,497 (21,797) 136,700
1997
Current .................... $ 3,651 $ 45,169 $ 48,820
Deferred ................... 209,296 431 209,727
1997
Current .................... $ -- $ 800 $ 800
Deferred ................... 181,823 25,551 207,374
A reconciliation of the Federal and State statutory tax rate and the effective
tax rate is as follows:
1998 1997 1996
------- -------- -------
Statutory Federal and State tax rate 16.4% 11.4% 0.5%
Utilization of net operating loss 27.2 44.7 51.6
Other, net (9.0) (2.4) 8.7
------ ---- ---
Effective income tax rates 34.6% 53.6% 60.8%
======== ===== =====
As of June 30, 1998, the Company estimates that it has available for Federal
income taxes purposes approximately $161,800 of investment tax credit carry
forwards which expire in the year 2006.
The tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred assets and liabilities consist of the
following:
Deferred tax assets: 1998 1997 1996
--------- ----------- --------
Net operating loss ................... $ -- $156,968 $381,174
Accrued expenses .................... 370,301 341,682 342,533
Deferred tax liabilities:
Depreciation tax basis
of property & Equipment ............. $ 63,093 $ 54,970 $ 70,300
(11) EXTRAORDINARY ITEM
The extraordinary gain of $145,634, less income taxes of $16,427,
results from the Company's arrangement to restructure certain debt during the
year ended June 30, 1998.
29
<PAGE>
GC INTERNATIONAL, INC.
SCHEDULE V-- PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Transfer Other
Balance at From Changes Balance
Beginning Construction add at End
Description of Period Additions Retirements In Progress (Deduct) Period
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended June 30, 1998
Machinery and equipment $ 810,066 $ 225,674 $ -- $ 446 $ -- $ 1,036,186
Office equipment ....... 88,811 14,565 -- -- -- 103,376
Automobiles and trucks . 183,485 -- 29,875 -- -- 157,610
Leasehold improvements . 172,626 7,882 34,911 -- -- 180,508
Idle Assets ............ 121,652 -- -- -- -- 86,741
Constriction in Progress 446 -- -- (446) -- --
----------- ----------- ----------- ----------- ----------- -----------
$ 1,377,086 $ 248,121 $ 60,786 $ -- $ -- $ 1,564,421
=========== =========== =========== =========== =========== ===========
Year ended June 30, 1997
Machinery and equipment .. $ 753,703 $ 48,241 (6,432) $ 14,554 $ -- $ 810,066
Office equipment ......... 71,530 17,281 -- -- -- 88,811
Automobiles and trucks ... 152,533 71,859 (40,907) -- -- 183,485
Leasehold improvements ... 166,347 6,279 -- -- -- 172,626
Construction in Progress . 15,000 -- -- (14,554) -- 446
Idle Assets .............. 121,652 -- -- -- -- 121,652
----------- ----------- ----------- ----------- ----------- -----------
$ 1,280,765 $ 143,660 $ (47,339) $ -- $ -- $ 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
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GC INTERNATIONAL, INC.
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
Charged to Other
Balance at Costs Changes Balance
Beginning and Retire- Add at End
Description of Period Expenses ments Deduct of Period
- ------------------------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998
Machinery and equipment $ 541,915 $ 86,798 $ -- $ -- $ 628,713
Office equipment ....... 65,142 7,140 -- -- 72,282
Automobiles and trucks . 76,048 23,536 (25,464) -- 74,120
Leasehold improvements . 155,711 3,719 -- -- 159,430
Idle Assets ............ 119,352 -- (34,911) -- 84,625
---------- ---------- ---------- ---------- ----------
Year ended June 30, 1997 $ 958,352 $ 121,193 $ (60,375) $ -- $1,109,170
========== ========== ========== ========== ==========
Machinery and equipment $ 479,015 $ 69,332 $ (6,432) $ -- $ 541,915
Office equipment ....... 60,548 4,594 -- -- 65,142
Automobiles and trucks . 106,301 10,655 (40,908) -- 76,048
Leasehold improvements . 152,960 2,751 -- -- 155,711
Idle Assets ............ 119,536 -- -- -- 119,536
---------- ---------- ---------- ---------- ----------
$ 918,360 $ 87,332 $ (47,340) $ -- $ 958,352
========== ========== ========== ========== ==========
Year ended June 30, 1996
Machinery and equipment $ 452,653 $ 64,943 $ -- $ (38,581) $ 479,015
Office equipment ....... 56,737 4,397 -- (586) 60,548
Automobiles and trucks . 104,967 1,334 -- -- 106,301
Leasehold improvements . 144,984 893 -- 7,083 152,960
Idle Assets ............ 87,452 -- -- 32,084 119,536
---------- ---------- ---------- ---------- ----------
$ 846,793 $ 71,567 $ -- $ -- $ 918,360
========== ========== ========== ========== ==========
</TABLE>
31
The accompanying notes are an integral part of these financial statements.
<PAGE>
GC INTERNATIONAL, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
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>
1998 Allowance for
doubtful accounts ... $ 6,607 $ 5,195 $ (5,338) $ -- $ 6,464
========= ======== ======== ======= ========
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
========= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
GC INTERNATIONAL, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
For the Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
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, 1998 $ -- -% $ -- $ -- -%
Amounts payable to:
Banks for borrowings
Year ended June 30, 1997 $ -- 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
------------------
<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
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended June 30, 1998, 1997 and 1996
Item Charged to Costs and Expenses
---- -----------------------------
1998 1997 1996
----- ------ -----
Repairs and Maintenance $88,255 $85,776 $67,267
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.
The accompanying notes are an integral part of these financial statements.
<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 29, 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 29, 1997 By: F. Willard Griffith II
F. Willard Griffith II
Principal Executive Officer
and Principal Financial Officer
Date: September 29, 1997 By: Richard R. Carlson
Richard R. Carlson
Director and President
Date: September 29, 1997 By: Carol Q. Griffith
Carol Q. Griffith
Director
Date: September 29, 1997 By: 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-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 323,920
<SECURITIES> 0
<RECEIVABLES> 646,350
<ALLOWANCES> (6,464)
<INVENTORY> 479,773
<CURRENT-ASSETS> 1,478,119
<PP&E> 1,564,420
<DEPRECIATION> (1,019,170)
<TOTAL-ASSETS> 2,340,293
<CURRENT-LIABILITIES> 1,094,474
<BONDS> 0
0
0
<COMMON> 1,791,590
<OTHER-SE> (1,038,497)
<TOTAL-LIABILITY-AND-EQUITY> 2,340,293
<SALES> 5,590,365
<TOTAL-REVENUES> 5,590,365
<CGS> 3,664,448
<TOTAL-COSTS> 3,664,448
<OTHER-EXPENSES> 1,511,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,319
<INCOME-PRETAX> 407,396
<INCOME-TAX> 174,650
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (129,207)
<CHANGES> 0
<NET-INCOME> 361,953
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
