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, 2000
-----------------
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..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, 2000 (2,399,773 shares), was approximately $311,970.
Since there are only a few trades of the Company's Stock during the year, this
is based on an estimate average of the bid and asked price of $.13/share during
the quarter ended 6/30/00.
Note. If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and
expense, the aggregate market value of the common stock held by
non-affiliates may be calculated on the basis of assumptions reasonable
under the circumstances provided that the assumptions are set forth in
this form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes..X.. No......
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The total shares
outstanding at September 22, 2000 are as follows:
Common Stock 5,350,798 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, 2001. 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 30,2000 June 30, 1999
------------ -------------
Total Backlog $1,197,674 $1,250,417
The backlog decrease is due primarily to a general business decline in the
casting industry and the completion of a large contract.
GC's sales for the last three fiscal years are as follows:
Year Ended June 30
---------------------------------------------------
2000 1999 1998
---- ---- ----
Net sales $4,882,168 $5,207,664 $5,590,365
A. L. Johnson ("ALJ") Division
------------------------------
ALJ and its predecessor have been in business for over 45 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.
1
<PAGE>
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, 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, 2000, 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,Raytheon TI Systems, accounted approximately 11.3% of consolidated
sales in 2000.
Foreign Sales
-------------
Approximately 50% of Apollo's sales are to foreign markets, and such sales in
2000 represented approximately 14.9% of GC's consolidated sales. ALJ has no
material foreign sales.
2
<PAGE>
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, 2000, GC had 62 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, and currently, GC is experiencing a shortage of
suitably trained applicants. This shortage affected the results in 2000 and is
continuing in 2001. GC maintains health, disability and life insurance programs
for full-time employees. During 2000, GC paid a discretionary Christmas holiday
bonus of approximately $17,600.
Item 2. Properties
-------------------
As of June 30, 2000, 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, 2000, 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 2000, the Company made payments and/or settlements with several of these
creditors. The Company anticipates continuing this program in 2001. The creditor
notes generally do not provide for any specific remedies or for acceleration in
the event of non-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. As of August 2000, the company has paid the EPA in full for the
partial settlement. The EPA has notified the company that the final remediation
settlement amount due from the company is approximately $560,000. However, the
EPA attorneys' stated that a settlement can be reached.
Based on the settlement reached with the EPA in August 1996 for the interim
claim, the Company believes its reserve in the amount of $120,000, as of June
30th, 2000, is reasonable to cover a settlement amount of the final claim. The
company expects the settlement to occur by year end. However, if a reasonable
settlement cannot be negotiated, the Company could be in serious financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during 2000.
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.
<TABLE>
<CAPTION>
Common Shares
2000 1999 1998
---- ---- ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
(In Quarters)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bid $.09 $.14 $.19 $.13 $.25 $.18 $.23 $.10 $1.25 $.187 $.187 $.312
Asked N/A N/A N/A N/A $.375 $.25 $.30 $.16 $.375 $.50 $.50 $.625
</TABLE>
During 2000, the company purchased from stockholders and retired approximately
72,393 shares at a price of approximately $.15/share.
Holders
-------
The number of holders of record of the Company's common stock as of June 2000,
were approximately 125.
4
<PAGE>
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
Statement of Operations Data 2000 1999 1998 1997 1996
---------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales $4,882,168 $5,207,664 $5,590,336 $5,406,840 $5,277,155
Gross Profit 1,552,533 1,764,904 1,925,919 1,774,430 1,709,813
Selling, Admin & other 1,560,892 1,588,515 1,390,280 1,313,091 1,209,139
Income (loss) from
Operations (8,359) 176,389 535,639 461,339 500,674
Net Income (loss) per $ (0.01) $ 0.02 $ 0.07 $ 0.04 $ 0.02
share
Balance Sheet Data
Working Capital $339,960 $403,600 $383,644 $142,671 $(148,884)
Total Assets 2,165,220 2,324,812 2,340,293 2,312,944 2,433,456
Long Term Debt 433,063 501,194 492,725 466,307 513,620
Net Stockholders $767,138 $850,245 $753,094 $391,140 $158,206
Equity (Deficit)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
------------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
As of June 30, 2000, the Company had cash balances of approximately $173,019.
Management believes that this balance and the cash flow from operations are
maybe adequately to fund ongoing operations. As of August 31,2000, the cash
balance has decreased to $137,704 and is anticipated to decrease further as a
result of losses and increased inventory 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 2000 and 1999, the Company
has been able to arrange satisfactory equipment and automobile leases or
purchase contracts.
5
<PAGE>
The Company anticipates that additional capital equipment will be required for
the Company's operating divisions during 2001. The Company anticipates paying
for any such equipment from cash flow or cash reserves or arranging equipment
financing with the supplier. If sufficient cash or purchase terms are not
available, the Company could be materially adversely affected.
Results of Operations
---------------------
The following table sets forth a percentage comparison of the Company's
statement of operations.
Percentage of Sales
Years Ended June 30,
---------------------
2000 1999 1998
---- ---- ----
Net Sales 100% 100% 100%
Cost of sales 68% 66 66
Selling and
Administrative Expenses 32% 31 25
Interest Expense (net of
interest income) 0 0 0
Income before
income taxes, discontinued
operations and extraordinary item (2) 1 7
Net Income (1) 2 6
Comparison of Fiscal Year ended June 30, 2000, and June 30, 1999
----------------------------------------------------------------
In 2000, the Company's sales decreased $325,496 0r 6.2%. This decrease is a
result of the decline of business in the casting industry because the ALJ sales
representatives were not doing their job in promoting the ALJ products. This is
a continuation of the decline that started in 1999. The downward trend seems to
be reversing as our new internal and direct selling experts seem to be working.
As a result of the lower sales, sales and administration expense increased to
32% of sales from 31%. In addition, ALJ suffered the loss of several key people
for various reasons. As a result of the personnel loss, the scraps rate doubled,
driving down the net income into an operating loss of $8.359 for the next year.
Losses are expected continue until the new sales effort begins to produce
results.
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.
Factors Affecting Future Results
--------------------------------
During 2000, order rates from customers were slow due in part to poor selling
activities resulting in a decreased backlog at June 30, 2000. The Company
anticipates that backlog will increase during 2001. If the backlog increases due
to change in sales methods, it is possible that the company may return to
profitability during 2001.
6
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements Page No.
Financial Statements
Balance Sheets at
June 30, 2000 and June 30, 1999 18
Statements of Operations for each of the
Three Fiscal Years: June 30, 2000, 1999, and 1998 19
Statements of Stockholders' Equity for each of the
Three Fiscal Years: June 30, 2000, 1999, and 1998 20
Statements of Cash Flows for each of the
Three Fiscal Years: June 30, 2000, 1999, and 1998 21
Notes to Financial Statements 22
Financial Statement Schedules for each of the
Three Fiscal Years: June 30, 2000, 1999, and 1998
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
7
<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:
Served as
Name Age Position Director Since
---- --- -------- --------------
F.Willard Griffith II 68 Chairman, CEO, CFO, Secretary,
and Assistant Treasurer 1975
Richard R. Carlson 71 President, Chief Operating Officer,
Treasurer, Assistant Secretary;
Director 1975
Carol J. Carlson 71 Director 1987
Carol Q. Griffith 66 Director 1987
Served as
Name Age Position Director Since
---- --- -------- --------------
H. J. Jackson 64 President and General Manager,
Apollo Masters Division. 1989
Michael Shoemaker 59 President and General Manager,
A. L. Johnson Division. 1979
F. Willard Griffith II co-founded GC in March 1975 and has been Chairman and
Chief Executive Officer since that date and has been Secretary and Assistant
Treasurer of the Corporation since 1981. Mr. Griffith is a graduate of Purdue
University with a BS degree in Electrical Engineering. Mr. Griffith is also
Chairman of Zephyr-Tec Corp.
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
8
<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
$100,000 and of all directors and officers of GC as a group for services in all
capacities to GC during the fiscal year ended June 30, 2000, was as follows:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long - Term Compensation
------------------------------------------- ------------------------------------------------
Accrual Awards Payouts
Name & Principal Position Other Restricted All Other
Annual Stock Options LTIP Compensa-
Year Salary Bonus Compensation Awards Sales Payments tions
Paid ($) ($) ($) ($)
--------------------------- ---- ------- ------ ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) (2) (3)
F. Willard Griffith II 2000 291,633 10,300 - 0 - - 0 - - 0 - - 0 - 43,000
Chairman & CEO 1999 274,194 10,300 7,102 - 0 - - 0 - - 0 - 55,000
1998 215,696 10,300 36,470
1997 215,789 200 38,120 - 0 - - 0 - - 0 - - 0 -
Richard R. Carlson 2000 291,633 10,300 - 0 - - 0 - - 0 - - 0 - 43,000
President & COO 1999 274,194 10,300 7,102 - 0 - - 0 - - 0 - 55,000
1998 215,696 10,300 36,470 - 0 - - 0 - - 0 - - 0 -
1997 215,789 200 38,120 - 0 - - 0 - - 0 - - 0 -
Michael Shoemaker 2000 131,721 2,800 - 0 - - 0 - - 0 - - 0 - - 0 -
President & General Mgr. 1999 125,744 5,300 - 0 - - 0 - - 0 - - 0 - - 0 -
ALJ Division 1998 114,054 7,500 - 0 - - 0 - - 0 - - 0 - - 0 -
1997 129,716 2,000 - 0 - - 0 - - 0 - - 0 - - 0 -
<FN>
(1) Cash bonuses were paid in 2000, 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.
(3) Pay-outs include bonuses previously accrued but not paid.
The Company has not included in the table above the value of
incidental personal perquisites furnished by the Company to its executive
officers, since such incidental personal value did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonuses reported for the named
executive officers in the table above.
</FN>
</TABLE>
Directors' Compensation
-----------------------
Directors of the Company do not receive any compensation for performing their
duties as directors.
Employee Cash Bonus
-------------------
The Company paid a Christmas bonus to all employees in 2000 totaling
approximately $17,600 and expects to pay a Christmas bonus in 2001, in addition
to the Company's contribution to the 401K Plan.
9
<PAGE>
Employment Contracts
--------------------
Pursuant to their employment contracts, expiring in 2008, Mr. Griffith and Mr.
Carlson are each entitled to receive a base salary ($5,638.96/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 $15,488 per month in 2000, 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 $2,495.98/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 also 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).
1998 Stock Option Plan
----------------------
In 1999 GC'S Board of Director's adopted the 1998 stock option plan. The plan
was approved at the Company's annual meeting in November 1999. All prior plans
have been intergrated in the 1998 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 1,380,000 shares of GC's common stock have been granted.
The following chart sets forth all of the options held as of June 30, 2000, by
each of the officers or directors of GC and by all option holders as a group.
All options are currently exercisable.
10
<PAGE>
Options Held
As of June 30, 2000
Value of
Average Unexercised
Per Share In-the-Money
No. of Exercise Options at
1999 Shares Price June 30,2000
---- ------ -------- ------------
F. W. Griffith II 500,000 $ .06 $ 35,000
Richard R. Carlson 500,000 $ .06 $ 35,000
H. J. Jackson 130,000 $ .06 $ 9,100
Michael Shoemaker 50,000 $ .06 $ 3,500
80,000 $ .15 -0-
All officers and directors 1,260,000
Total options outstanding 1,360,000 $.081 $ 82,600
No options were exercised in 2000. The value of unexercised options is based on
the average of the bid and asked price as of June 30, 2000 at $.13/ 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 1998 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.
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, 2000, 27 employees are participating and the Company's
contribution in 2000 was $19,072.
11
<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, 1999 (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
Class of Beneficial Beneficial Percent
Owner Ownership of Class
-------- ------------------------------------- --------- --------
<S> <C> <C>
Common The Griffith Family Trust(3)(5) 1,495,785 27.31%
c/o GC International, Inc.
4671 Calle Carga, Camarillo, CA 93012
Common Carol Q. Griffith (5) 16,279 .30%
c/o GC International, Inc.
4671 Calle Carga, Camarillo, CA 93012
Common JASCAT LTD 1,478,150 26.99%
(5)(2)(3)
c/o GC International, Inc.,
4671 Calle Carga, Camarillo, CA 93012
All officers and directors as a group(3)(4) 3,053.084
(6 persons)
------------
<FN>
(1) Includes 67,075 shares held by trusts or for the Griffith children and a
grandchild.
(2) Includes 33,200 shares held by Trusts or for the Carlson children and
grandchildren.
(3) Excludes presently exercisable options to purchase 500,000 shares each held
by Messrs. Griffith and Carlson.
(4) Excludes presently exercisable options to purchase 360,000 shares held by
officers and key managers.
(5) Excludes shares beneficially owned by spouse disclosed elsewhere herein.
</FN>
</TABLE>
Messrs Carlson and Griffith, together with their spouses and families, control
approximately 2,990,214 shares or 54.6% of the total of 5,476,008 shares
outstanding and have the ability to control the company.
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 $13,486 per month in 2000 under
a lease expiring December 31, 2004. 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."
12
<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.
2
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
13
<PAGE>
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
10.37 1998 Stock Option Plan K
14
<PAGE>
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
J Incorporated by reference to the Company's Form 10K filed on or
about October 15, 1998
K Incorporated by reference to the Company's Form 10K and
proxy statement filed on or about September 30, 1999
15
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
GC International, Inc.
We have audited the accompanying balance sheets of GC International, Inc. (a
California corporation) as of June 30, 2000 and 1999 and the related statements
of income, retained earnings, and cash flows for the years ended June 30, 2000,
1999 and 1998. 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, 2000 and 1999 and the results of its operations and its cash flows for
the years ended June 30, 2000, 1999 and 1998 in conformity with generally
accepted accounting principles.
Pasadena, California
August 9, 2000
16
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
June 30, 2000 and 1999
June 30, 2000 June 30, 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 173,019 $ 371,085
Accounts receivable, net of allowance for doubtful
accounts of $5,538 in 2000 and $5,133 in 1999 548,399 508,214
Inventories (notes 2 and 3) 555,963 472,931
Prepaid expenses 8,260 6,787
Prepaid income taxes -- 26,561
Deferred tax benefit 19,338 18,395
----------- -----------
Total current assets 1,304,979 1,403,973
Property and equipment (notes 2 and 4) 448,363 548,106
Other assets
Deposits and deferred expenses 43,760 35,999
Deferred tax benefit 368,118 336,734
----------- -----------
Total other assets 411,878 372,733
----------- -----------
Total Assets $ 2,165,220 $ 2,324,812
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 123,604 $ 68,776
Accrued expenses 592,539 646,409
Notes payable (note 5) 248,876 258,188
----------- -----------
965,019 973,373
Other liabilities
Notes payable, net of current portion (note 5) 113,063 181,194
Liability reserve (notes 2 and 8) 120,000 120,000
Litigation reserve (note 8) 200,000 200,000
----------- -----------
Total other liabilities 433,063 501,194
----------- -----------
Total liabilities 1,398,082 1,474,567
Commitments and contingencies (note 8)
Stockholders' equity
Common stock, no par value, 30,000,000 shares authorized,
5,350,798 shares issued and outstanding in 2000 and
5,423,191 shares issued and outstanding in 1999 1,759,149 1,770,007
Retained earnings (992,011) (919,762)
----------- -----------
Total stockholders' equity 767,138 850,245
----------- -----------
Total Liabilities And Stockholders' Equity $ 2,165,220 $ 2,324,812
=========== ===========
</TABLE>
17
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2000, 1999 and 1998
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 4,882,168 $ 5,207,664 $ 5,590,366
Cost of sales 3,329,635 3,442,760 3,664,447
----------- ----------- -----------
Gross profit 1,552,533 1,764,904 1,925,919
Operating expenses
Selling 240,104 259,730 234,888
General and administrative 1,320,788 1,328,785 1,155,392
----------- ----------- -----------
Income (loss) from operations (8,359) 176,389 535,639
Other income (expense)
Interest, net (6,597) (8,164) (7,320)
Other (90,131) (121,211) (120,922)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item (105,087) 47,014 407,397
Provision (benefit) for income taxes (notes 2 and 10) (32,838) (71,720) 174,650
----------- ----------- -----------
Income (loss) before extraordinary item (72,249) 118,734 232,747
Extraordinary item (note 11) -- -- 129,207
----------- ----------- -----------
Net Income (Loss) $ (72,249) $ 118,734 $ 361,954
=========== =========== ===========
Earnings (loss) per common share (notes 2 and 9)
Basic earnings (loss) per share
Income (loss) before extraordinary item ($ 0.01) $ 0.02 $ 0.04
Extraordinary item -- -- 0.03
----------- ----------- -----------
Net income (loss) ($ 0.01) $ 0.02 $ 0.07
=========== =========== ===========
Diluted earnings (loss) per share
Income (loss) before extraordinary item ($ 0.01) $ 0.02 $ 0.04
Extraordinary item -- -- 0.02
----------- ----------- -----------
Net income (loss) ($ 0.01) $ 0.02 $ 0.06
=========== =========== ===========
</TABLE>
18
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2000, 1999 and 1998
Common Stock
Number Dollar Accumulated
of Shares Value Deficit Total
--------- ----- ------- -----
<S> <C> <C> <C> <C>
1998
Stockholders' equity at June 30, 1997 5,548,401 $ 1,791,590 $ 1,400,450) $ 391,140
Net income 361,954 361,954
----------- ----------- ----------- -----------
Stockholders' equity at June 30, 1998 5,548,401 1,791,590 (1,038,496) 753,094
1999
Net income 118,734 118,734
Retirement of common stock (125,210) (21,583) (21,583)
----------- ----------- ----------- -----------
Stockholders' Equity At June 30, 1999 5,423,191 1,770,007 (919,762) 850,245
2000
Net loss (72,249) (72,249)
Retirement of common stock (72,393) (10,858) (10,858)
----------- ----------- ----------- -----------
Stockholders' Equity At June 30, 2000 5,350,798 $ 1,759,149 $ (992,011) $ 767,138
=========== =========== =========== ===========
</TABLE>
19
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2000, 1999 and 1998
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (72,249) $ 118,734 $ 361,954
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 127,064 141,290 121,192
(Gain) loss on sale of property and equipment 510 (1,881) (1,500)
Changes in operating assets and liabilities:
Receivables (increase) decrease (40,185) 131,672 14,525
Inventory (increase) decrease (83,032) 6,841 101
Prepaid expenses (increase) decrease 33,088 (32,852) (944)
Deferred tax benefit (increase) decrease (32,327) (47,921) 136,472
Other assets and deposits increase (7,761) (239) (1,637)
Accounts payable increase (decrease) 54,828 (62,082) (7,361)
Accrued liabilities decrease (61,870) (42,494) (37,738)
Income taxes payable decrease -- -- (59,854)
--------- --------- ---------
Net cash provided (used) by operating activities (81,934) 211,068 525,210
Cash flows from investing activities:
Purchase of property and equipment (27,831) (144,145) (247,710)
Proceeds from sale of property and
equipment -- 1,881 1,500
--------- --------- ---------
Net cash used by investing activities (27,831) (142,264) (246,210)
Cash flows from financing activities:
Payments on short term borrowings -- (2,821) --
Payments on long term debt (95,597) (131,633) (345,075)
New long term borrowings 18,154 134,398 111,204
Re-purchase of common stock (10,858) (21,583) --
--------- --------- ---------
Net cash used by financing activities (88,301) (21,639) (233,871)
Increase (decrease) in cash and cash equivalents (198,066) 47,165 45,129
Cash and cash equivalents, beginning 371,085 323,920 278,791
--------- --------- ---------
Cash And Cash Equivalents, Ending $ 173,019 $ 371,085 $ 323,920
========= ========= =========
Cash paid during year for:
Interest $ 19,591 $ 8,164 $ 7,320
Income taxes 800 28,697 58,824
</TABLE>
20
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
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 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 (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 for stock options which are
considered common stock equivalents, when dilutive. Both Basic EPS and
Dilutive EPS were calculated using the Treasury Stock method. The
market value used is based on the average of bid and asked price at
June 30, 2000, which was $0.151.
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.
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 $13,486 per month under a lease expiring
December 31, 2011. The lease contains an annual increase based upon the
Consumer Price Index.
3. INVENTORIES
Inventories at June 30, 2000 and 1999 consisted of:
2000 1999
------------- -------------
Raw material $ 62,434 $ 72,679
Work in process 493,529 400,252
------------- -------------
$ 555,963 $ 472,931
============= =============
21
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
<TABLE>
<CAPTION>
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 and 1999 consisted of:
Estimated
2000 1999 useful lives
------------- ------------- ------------
<S> <C> <C> <C>
Machinery and equipment $ 1,168,261 $ 1,166,594 5 to 15 years
Automobile and trucks 127,609 127,609 3 to 15 years
Office equipment 120,552 107,185 3 to 15 years
Leasehold improvements 180,508 180,508 2 to 10 years
Idle assets 86,742 86,742
------------- -------------
1,683,672 1,668,638
Less: accumulated depreciation
and amortization (1,235,309) (1,120,532)
------------- -------------
$ 448,363 $ 548,106
============= =============
</TABLE>
Depreciation expense for the years ended June 30, 2000 and 1999 totaled
$127,064 and $141,290, respectively.
<TABLE>
<CAPTION>
5. NOTES PAYABLE
Notes payable at June 30, 2000 and 1999 consists of the following:
2000 1999
------------- -------------
<S> <C> <C>
Equipment purchase, 60-month note from Ricoh at an
interest rate of 2.21% and a monthly payment of $346
until November 2004. $ 16,396 $ -
Automobile purchase, 60 months from GMAC at
an interest rate of 11% and a monthly
payment of $950 until June 2002. 20,381 29,015
Equipment purchase, 24 month lease from
Pyrotek at an 0% interest rate and a monthly
payment of $817 until October 1999. - 3,270
Equipment purchase, 60-month lease from a
supplier at an interest rate of 8.5% and a monthly
payment of $1,879 until December 2002. 50,626 68,058
Equipment purchase, 60-month lease from
U.S. Bancorp at an interest rate of 7.72%
and a monthly payment of $1,888 until
December 2003. 69,287 85,901
Automobile refinance, 36-month lease from Santa Barbara
Bank & Trust at an interest rate of 11% and a monthly
payment of $1,333 until November 2001. 20,885 33,781
</TABLE>
22
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
<TABLE>
<CAPTION>
5. NOTES PAYABLE (continued) 2000 1999
------------- -------------
<S> <C> <C>
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. 20,000 40,000
Note payable, with zero interest rate,
due May 1998. 164,364 179,357
------------- -------------
Total debt 361,939 439,382
Less: current maturities of notes payable 248,876 258,188
------------- -------------
Long-term portion $ 113,063 $ 181,194
============= =============
</TABLE>
Maturities of long-term debt at June 30, 2000 for the succeeding fiscal
years are as follows:
2001 $ 60,902
2002 35,650
2003 14,894
2004 1,617
6. STOCK OPTION PLAN
The Company has a stock option plan which was adopted in 1999 providing
for the issuance of up to 1,700,000 shares of common stock to key
employees. No options were granted in 1999, and 20,000 options were
granted in 2000. 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 at various
times. As of June 30, 2000, there were no stock options exercised and
1,380,000 options were 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 $344,933
per annum plus an incentive bonus of 5% of the consolidated pretax
profit of the Company. There was no bonus accrued during 2000.
8. COMMITMENTS AND CONTINGENCIES
Leases - Leases of Company facilities are classified as operating
leases and expire on various years through 2011. Of the two building
leases, at June 30, 2000, 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, 2000 the
lease rate was $21,117 per month.
23
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
8. COMMITMENTS AND CONTINGENCIES (continued)
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
July 1999 and extended to expire on December 31, 2011. The lease
contains an annual increase based upon the Consumer Price Index. At
June 30, 2000 the lease rate was $13,486 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:
2001 $ 415,237
2002 430,019
2003 432,975
2004 439,302
2005 and thereafter 1,842,321
Rent expense charged to operations for the years ended June 30, 2000
and 1999 was approximately $411,237 and $383,367, 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.
The Company has made four principal payments of $20,000 each in August
1996, 1997, 1998 and 1999. 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 $120,000, as of June 30, 2000, is adequate
to cover any final claim.
Litigation Reserve - 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, 2000 is sufficient to cover potential litigation expenses.
<TABLE>
<CAPTION>
9. EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings per
share for the years ended June 30, 2000, 1999, 1998:
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) available to common stockholders - basic and
diluted $ (72,249) $ 118,734 $ 232,747
Weighted average number of common shares used in basic EPS 5,367,838 5,520,176 5,548,401
Effect of dilutive securities - stock options 797,086 851,643 1,007,011
------------- ------------- -------------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS 6,164,924 6,371,819 6,555,412
============= ============= =============
</TABLE>
24
<PAGE>
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
10. PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes at June 30, 2000, 1999 and 1998
consists of the following:
Federal State Total
------------- ------------- -----------
2000
Current $ - $ 800 $ 800
Deferred (26,288) (7,350) (33,638)
1999
Current $ 4,347 $ 2,109 $ 6,456
Deferred (57,859) (20,317) (78,176)
1998
Current $ - $ 37,950 $ 37,950
Deferred 158,497 (21,797) 136,700
A reconciliation of the Federal and State statutory tax rate and the
effective tax rate is as follows:
2000 1999 1998
------- ------- -------
Statutory Federal and State tax rate (23.4)% 4.5% 16.4%
Utilization of net operating loss and tax credits -- (9.2) 27.2
Tax increase (decrease) on beginning cumulative
temporary differences 1.7 (121.3) --
Other, net (9.1) (26.5) (9.0)
------- -------- -------
Effective income tax rate (31.2)% (152.5)% 34.6%
====== ======= ======
As of June 30, 2000, the Company estimates that is has available for
Federal income taxes purposes approximately $193,827 of investment tax
credit carry forwards which expire in the year 2006.
The tax effects of temporary differences and carryforwards that give
rise to significant portions of deferred assets and liabilities consist
of the following:
2000 1999 1998
-------- -------- --------
Deferred tax assets:
Net operating loss $175,870 $ -- $ --
Accrued expenses 218,967 193,916 370,301
Deferred tax liabilities:
Depreciation tax basis of property
and equipment $ 25,338 $ 29,834 $ 63,093
11. EXTRAORDINARY ITEM
The extraordinary gain of $145,634 net of income taxes of $16,427,
results from the Company's arrangement to restructure certain debt
during the year ended June 30, 1998.
25
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SCHEDULE V-- PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 2000, 1999 and 1998
Balance at
Beginning of Changes to Changes at Balance at End
Period Additions Retirements in Progress end (deduct) of Period
------ --------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended June 30, 2000
Machinery and equipment $ 107,185 $ 23,579 $ (10,212) $ 120,552
Office Equipment 1,166,594 4,252 (2,585) 1,168,261
Automobiles and trucks 127,609 127,609
Leasehold improvements 180,508 180,508
Idle Assets 86,742 86,742
---------- -------- --------- ------- ---------- -------------
Total $1,668,637 $ 27,831 $ (12,797) - - $1,683,671
========== ======== ========= ======= ========== =============
Year Ended June 30, 1999
Machinery and equipment $1,036,186 $ 130,408 $ $1,166,594
Office Equipment 103,376 3,809 107,185
Automobiles and trucks 157,610 9,928 (39,929) 127,609
Leasehold improvements 180,508 180,508
Idle Assets 86,742 _ - 86,742
---------- -------- --------- ------- ---------- -------------
Total $1,564,421 $ 144,145 $ (39,929) - - $1,668,637
========== ======== ========= ======= ========== =============
Year Ended June 30, 1998
Machinery and equipment $ 810,066 $ 225,675 $ $1,036,187
Office Equipment 88,811 14,565 103,376
Automobiles and trucks 183,485 (25,875) 157,610
Leasehold improvements 172,626 7,882 180,508
Construction in Progress 121,652 (34,911) 86,741
Idle Assets 446 (0)
---------- -------- --------- ------- ---------- -------------
Total $1,377,085 $ 248,122 $ (60,786) - - 1,564,421
========== ======== ========= ======= ========== =============
</TABLE>
26
<PAGE>
GC INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SCHEDULE VI-Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
For the Years Ended June 30, 2000, 1999 and 1998
Balance at Additions
Beginning of charged to Other changes Balance at End
Period Costs and Expenses Retirements Add Deduct of Period
------ -------------------- ----------- ---------- ---------
Year Ended June 30, 2000
<S> <C> <C> <C> <C> <C>
Machinery and equipment $ 730,803 $ 85,686 $(2,585) $813,904
Office Equipment 81,153 10,335 (9,702) 81,786
Automobiles and trucks 61,037 28,500 89,537
Leasehold improvements 162,913 2,543 165,456
Idle Assets 84,625 84,625
--------- --------- --------- ----------
Total 1,120,531 $127,065 $(12,287) $1,235,308
========= ======== ======== ==========
Year Ended June 30, 1999
Machinery and equipment $ 628,713 $ 102,090 $ $730,803
Office Equipment 72,282 8,871 81,153
Automobiles and trucks 74,120 26,846 (39,929) 61,037
Leasehold improvements 159,430 3,483 162,913
Idle Assets 84,625 84,625
--------- --------- --------- ----------
Total $1,019,170 $ 141,290 $ (39,929) $1,120,531
========== ========= ========= ==========
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 119,536 (34,911) 84,625
--------- --------- --------- ----------
Total $ 958,352 $ 121,193 $ (60,375) $1,019,170
========= ========= ========= ==========
</TABLE>
27
<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: October 12, 2000 By: /s/ 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: October 12, 2000 By: /s/ F. Willard Griffith II
------------------------------
F. Willard Griffith II
Principal Executive Officer
and Principal Financial Officer
Date: October 12, 2000 By: /s/ Richard R. Carlson
------------------------------
Richard R. Carlson
Director and President
Date: October 12, 2000 By: /s/ Carol Q. Griffith
------------------------------
Carol Q. Griffith
Director
Date: October 12, 2000 By: Carol J. Carlson
------------------------------
Carol J. Carlson
Director
28
