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, 2001
-----------------
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.
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(Exact name of registrant as specified in its charter)
California 94-2278595
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
156 Burns Avenue, Atherton, California 94027
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 322-8449
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
None None
------------ ------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
-----------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes.... No.....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
[Cover page 1 of 2 pages]
The aggregate market value of voting stock held by non-affiliates of the
registrant at September 22, 2001 (2,199,733 shares), was approximately $175,920.
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 $.08/share during
the quarter ended 6/30/01.
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 5,418,070 shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE
[Cover page 2 of 2 pages]
Item 1. Business
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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, 2002. 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 30,2001 June 30, 2000
------------ -------------
Total Backlog $988,632 $1,197,674
The backlog decrease is due primarily to a general business decline in the
casting industry. As of October 3rd 2001, the backlog has deteriorated further
as the economy slips further into recession. At the present time, there is no
indication that orders will improve in the near future. Unless orders improve
within the next 6 months, the company will have a serious cash shortage which
may affect ongoing operations
GC's sales for the last three fiscal years are as follows:
Year Ended June 30
---------------------------------------------------
2001 2000 1999
---- ---- ----
Net sales $5,216,545 $4,882,168 $5,207,664
However, shipments have decreased dramatically in September and are not forecast
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to be more than the low $300,000's for the next three months. Thus the Company
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has experienced a decline of approximately 30% in volume.
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1
A. L. Johnson ("ALJ") Division
------------------------------
ALJ and its predecessor have been in business for over 50 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 approximately 200
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 will decline as compact discs 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, 2001,
Apollo has established approximately 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,one salesman or
employee and several 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.
2
Major Customers Over 10%
------------------------
Two customers accounted for approximately 29.4% of consolidated sales in 2001.
Foreign Sales
-------------
Approximately 50% of Apollo's sales are to foreign markets, and such sales in
2001 represented approximately 12% 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, 2001, GC had 54 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 has experienced a shortage of
suitably trained applicants. This shortage affected the results in 2001 and may
continue in 2002. GC maintains health, disability and life insurance programs
for full-time employees. During 2001, GC paid a discretionary Christmas holiday
bonus of approximately $20,800.
Item 2. Properties
----------
As of June 30, 2001, 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, 2001,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.
3
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 2001, the Company made payments and/or settlements with some of these
creditors. The Company anticipates continuing this program in 2002. The creditor
notes generally do not provide for any specific remedies or for acceleration in
the event of non-payment. However there is no insurance that one or more of
these creditors could decide to seek legal assistance.
EPA Claim for OII Superfund Site Cleanup
----------------------------------------
In 1996, the Company settled an interim claim with the EPA under a partial
consent decree (CD5) 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. In August 2000, the company 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 $270,000. The company
has asked the EPA for further reduction to $100,000 with payments spread over 5
years.
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, 2001, 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 and terms cannot be negotiated, the Company could be in serious
financial condition.
Unlawful Termination Claim
--------------------------
An employee who was laid off in November 2000, has asserted an unlawful
termination claim under a workers compensation claim. The company has employee
Practices Disability Insurance (EPLI) which is currently handling the defense of
the claim. The company believes the claim is without merit.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during 2001.
4
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
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Market Information
------------------
The Company's stock is traded over-the-counter on the Electronic Bulletin Board
(EBB). 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
-------------
2001 2000 1999
---- ---- ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Bid $.07 $.11 $.08 $.06 $.09 $.14 $.19 $.13 $.25 $.18 $.23 $.10
Asked $.15 $.14 $.14 $.10 N/A N/A N/A N/A $.375 $.25 $.30 $.16
Holders
-------
The number of holders of record of the Company's common stock as of June 2001,
were approximately 125.
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.
5
Selected Financial Data
Year ended June 30
Statement of Operations Data 2001 2000 1999 1998 1997
---------------------------- ---- ---- ---- ---- ----
Net Sales $ 5,216,545 $ 4,882,168 $ 5,207,664 $ 5,590,336 $ 5,406,840
Gross Profit 1,551,932 1,552,533 1,764,904 1,925,919 1,774,430
Selling & Admin 1,564,744 1,560,892 1,588,515 1,390,280 1,313,091
Income (loss) from
Operations (9,812) (8,359) 176,389 535,639 461,339
Net Income (loss) per (.05) $ (0.01) $ 0.02 $ 0.07 $ 0.04
share
Balance Sheet Data
------------------
Working Capital $ 300,101 $ 339,960 $ 403,600 $ 383,644 $ 142,671
Total Assets 1,982,060 2,165,220 2,324,812 2,340,293 2,312,944
Long Term Debt 433,482 433,063 501,194 492,725 466,307
Net Stockholders $ 507,463 $ 767,138 $ 850,245 $ 753,094 $ 391,140
Equity
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
This Annual Report to Shareholders contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a results of the risk
factors set forth below under the heading "Factors Affecting Future Results" and
elsewhere in this Annual Report to Shareholders.
Liquidity and Capital Resources
-------------------------------
As of June 30, 2001, the Company had cash balances of approximately $154,013.
Management believes that this balance and the cash flow from operations is not
adequate to fund ongoing operations as presently constituted. As of September
20, 2001, the cash balance has decreased substantially as a result of losses.
There is a substantial cost and cash cutting plan that is being implemented and
is considered essential to survival. 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. Currently 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 2001 and 2000, the Company
has been able to arrange satisfactory equipment and automobile leases or
purchase contracts.
The Company anticipates that additional capital equipment may be required for
the Company's operating divisions during 2002. 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.
6
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,
-------------------------------
2001 2000 1999
---- ---- ----
Net Sales 100% 100% 100%
Cost of sales 70% 68% 66
Selling and
Administrative Expenses 30% 32% 31
Interest Expense (net of
interest income) 0 0 0
Income before
income taxes, (1)% (2) 1
Net Income (loss) (1)% (1) 2
Comparison of Fiscal year ended June 30, 2001 and June 30, 2000
---------------------------------------------------------------
In 2001, the Company's losses continued even though sales increased 6.8%. This
is because the Company's gross profit on sales dropped 2% due to the pressure of
low unemployment on wages, a 33% increase in electrical energy cost and general
price increases from our material suppliers. Production efficiency continued to
suffer from the need to replace several key production workers who left the
company. During the year, the Company's reorganized sales department with a new
sales manager and salesman for the California Market which began to show
results. Unfortunately, the recession has hit the casting industry very hard and
the backlog of new production orders continues to decline.
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 was a
result of the decline of business in the casting industry and because the ALJ
sales representatives were not doing their job in promoting the ALJ products.
This was a continuation of the decline that started in 1999. 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 scrap rate doubled, driving down
the net income into an operating loss of $8,359.
Comparison of Fiscal year ended June 30, 1999, and June 30, 1998
----------------------------------------------------------------
In 1999, the Company's sales decreased by $382,702 or 6.8% over 1998.
During 1999, the Company's cost of sales remained constant at 66%. However,
sales increased by 6% as The Company began to increase sales support to the
sales representative. As a result, net income from operations decreased from
$535,639 in 1998 to $176,389 in 1999.
Factors Affecting Future Results
--------------------------------
During 2001, order rates from customers continued to decrease in a result of the
current recession resulting in a decreased backlog at June 30, 2001. The Company
anticipates that backlog will continue to decrease during 2002 as the effects of
the recession continue. If the backlog begins to increase due to changes in
sales methods, it is possible that the company could return to profitability
during 2002.
However, shipments have decreased dramatically in September and are not forecast
--------------------------------------------------------------------------------
to be more than the low $300,000's for the next three months. Thus the Company
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has experienced a decline of approximately 30% in volume. The Company has also
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noted that other casting operations have already ceased. However, ALJ has, in
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the past, been able to survive the recessions. Of course there is no guarantee
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that it will be able to do so in the futures.
---------------------------------------------
7
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements Page No.
Financial Statements
Balance Sheets at
June 30, 2001 and June 30, 2000 18
Statements of Operations for each of the
Three Fiscal Years: June 30, 2001, 2000, and 1999 19
Statements of Stockholders' Equity for each of the
Three Fiscal Years: June 30, 2001, 2000, and 1999 20
Statements of Cash Flows for each of the
Three Fiscal Years: June 30, 2001, 2000, and 1999 21
Notes to Financial Statements 22
Financial Statement Schedules for each of the
Three Fiscal Years: June 30, 2001, 2000, and 1999
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
8
PART III
Item 10. Directors and Executive Officers
---------------------------------
The directors and executive officers of GC, their ages and positions with the
Company are set forth below:
Served as
Name Age Position Director Since
---- --- -------- --------------
F.Willard Griffith II 69 Chairman, CEO, CFO, Secretary,
and Assistant Treasurer 1975
Richard R. Carlson 72 President, Chief Operating Officer,
Treasurer, Assistant Secretary;
Director 1975
Carol J. Carlson 69 Director 1987
Carol Q. Griffith 67 Director 1987
H. J. Jackson 65 President and General Manager,
Apollo Masters Division. 1989
Michael Shoemaker 60 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
9
Item 11. Executive Compensation
-----------------------
Executive Compensation
The remuneration of each of the five most highly compensated executive officers
and directors of GC whose cash and cash-equivalent remuneration exceeded
$100,000 and of all directors and officers of GC as a group for services in all
capacities to GC during the fiscal year ended June 30, 2001, was as follows:
SUMMARY COMPENSATION TABLE
Annual Compensation Long - Term Compensation
--------------------------------------- ------------------------------------------------
Accruals Awards Payouts
-------- ------ -------
Name & Principal Position Year Salary Bonus Other Restricted All Other
Paid Paid Compensation Stock Options LTIP Compensa-tions
($) Awards Sales ($) Payments
($) ($)
-------------------------------- ------- ---------- ---------- ---------------- --------------- ---------- ----------- -----------
(1) (2) (3)
F. Willard Griffith II 2001 299,823 300 10,000 - 0 - - 0 - - 0 - 32,000
Chairman & CEO 2000 291,633 300 10,000 - 0 - - 0 - - 0 - 43,000
1999 274,194 300 17,102 - 0 - - 0 - - 0 - 55,000
1998 215,696 10,300 36,470
Richard R. Carlson 2001 291,633 300 10,000 - 0 - - 0 - - 0 - 30,000
President & COO 2000 291,633 300 10,000 - 0 - - 0 - - 0 - 43,000
1999 274,194 300 17,102 - 0 - - 0 - - 0 - 55,000
1998 215,696 10,300 36,470 - 0 - - 0 - - 0 - - 0 -
Michael Shoemaker 2001 131,721 5,300 - 0 - - 0 - - 0 - - 0 - - 0 -
President & General Mgr 2000 131,721 2,800 - 0 - - 0 - - 0 - - 0 - - 0 -
ALJ Division 1999 125,744 5,300 - 0 - - 0 - - 0 - - 0 - - 0 -
1998 114,054 7,500 - 0 - - 0 - - 0 - - 0 - - 0 -
<FN>
(1) Cash bonuses were paid in 2001, 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. During 2001, the Company paid certain prior accrued vacation and on
other accruals. These payments ceased in 2001.
(3) Pay-outs include salary and bonuses previously accrued but not paid. During
2001, The Company paid certain prior accrued vacation and other accruals. Those
payments ceased in 2001.
</FN>
10
The Company has not included in the table above the value of incidental personal
perquisites furnished by the Company to its executive officers, since such
incidental personal value did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonuses reported for the named executive officers in
the table above.
Directors' Compensation
-----------------------
Directors of the Company do not receive any compensation for performing their
duties as directors.
Employee Cash Bonus
-------------------
The Company paid a Christmas bonus to all employees in 2001 totaling
approximately $20,800 and expects to pay a Christmas bonus in 2002, 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 ($5,638.96/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 to employee's designated beneficiary, a death benefit of
approximately $16,991 per month in 2001, 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 $2,594.32/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 partial
payments of the death benefit and for other corporate purposes in locating and
training a replacement for the deceased. The Company has no retirement or
deferred compensation 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
11
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, 2001, by
each of the officers or directors of GC and by all option holders as a group.
All options are currently exercisable.
Options Held
As of June 30, 2001
Value of
Average Unexercised
Per Share In-the-Money
No. of Exercise Options at
Shares Price June 30,2001
------ ----- ------------
F. W. Griffith II 500,000 $ .06 $ 10,000
Richard R. Carlson 500,000 $ .06 $ 10,000
H. J. Jackson 130,000 $ .06 $ 2,600
Michael Shoemaker 50,000 $ .06 $ 1,000
80,000 $ .15 -0-
---------
All officers and directors 1,260,000
Total options outstanding 1,380,000 $.081 $ 82,600
No options were exercised in 2001. The value of unexercised options is based on
the average of the bid and asked price as of June 30, 2001 at $.08/ 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 1999 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, 2001, 27 employees are participating and the Company's
contribution in 2001 was $6,657.
12
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information regarding GC's Common Stock
owned on August 31, 2001 (I) by each person or entity who is known by GC to own
beneficially more than five percent of GC's Common Stock. (ii) by each of GC's
directors and (iii) by all directors and officers of GC as a group:
Name Amount
Title of and Address and Nature of Percent
Class of Beneficial Beneficial of Class
Owner Ownership
-------- ----------- ------------- -------
Common The Griffith Family Trust (1)(3)(5) 1,554,950 28.70%
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 (5)(2)(3) 1,549,150 28.59%
c/o GC International, Inc.,
4671 Calle Carga, Camarillo, CA 93012
All officers and directors as a group(3)(4) 3,120,379
(6 persons)
------------
<FN>
(1) Includes 126,240 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>
Messrs Carlson and Griffith, together with their spouses and families, control
approximately 3,120,374 shares or 57.6% of the total of 5,418,070 shares
outstanding and have the ability to control the company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section
----------------------------------------------------------------------------
16(a) of the Exchange Act requires the Company's Directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and report changes in ownership of Common stock and other equity securities of
the Company. Officers, directors and greater than 10% shareholders are required
by the SEC regulation to furnish the Company with copies of all 16(a) forms they
file. The Company is aware of the following filings and transactions that were
not reported timely during the last completed fiscal year.
13
Name Number of Late Reports
---- ----------------------
Jascat Ltd. R. R. Carlson G.P. 1
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 $13,823 per month in 2001 under
a lease expiring December 31, 2004. The lease contains an annual increase based
on the Consumer Price Index.
Messrs Griffith, Carlson and Shoemaker are parties to employment contracts. See
"Item Executive Compensation--Employment Contracts."
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
1(a). Financial statements listed in Item 8 above are incorporated herein by
reference.
(b). Financial statement schedules listed in Item 8 above are incorporated
herein by reference.
2. Reports on Form 8-K. Reference Exhibits, Material Contracts 10.29, 10.30,
10.31, 10.32 and 10.33 and F, G, H, 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
14
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 1999 Stock Option Plan K
15
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
16
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, 2001 and 2000 and the related statements
of income, retained earnings, and cash flows for the years ended June 30, 2001,
2000 and 1999. 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, 2001 and 2000 and the results of its operations and its cash flows for
the years ended June 30, 2001, 2000 and 1999 in conformity with generally
accepted accounting principles.
Pasadena, California
September 13, 2001
GC INTERNATIONAL, INC.
BALANCE SHEETS
June 30, 2001 and 2000
June 30, 2001 June 30, 2000
---------------------- ---------------------
ASSETS
Current Assets
Cash $ 154,013 $ 173,019
Accounts receivable, net of allowance for doubtful accounts
of $7,832 in 2001 and $5,538 in 2000 775,359 548,399
Accounts receivable - other 5,694 -
Inventories (notes 2 and 3) 386,211 555,963
Prepaid expenses 9,247 8,260
Deferred tax benefit 10,693 19,338
---------------------- ---------------------
Total current assets 1,341,217 1,304,979
Property and equipment (notes 2 and 4) 403,084 448,363
Other assets
Deposits and deferred expenses 41,210 43,760
Deferred tax benefit 196,549 368,118
---------------------- ---------------------
Total other assets 237,759 411,878
---------------------- ---------------------
Total Assets $ 1,982,060 $ 2,165,220
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 231,379 $ 123,604
Accrued expenses 580,744 592,539
Notes payable (note 5) 228,992 248,876
---------------------- ---------------------
1,041,115 965,019
Other liabilities
Notes payable, net of current portion (note 5) 113,482 113,063
Liability reserve (notes 2 and 8) 120,000 120,000
Litigation reserve (note 8) 200,000 200,000
---------------------- ---------------------
Total other liabilities 433,482 433,063
---------------------- ---------------------
Total liabilities 1,474,597 1,398,082
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 2001 and 2000 1,759,149 1,759,149
Retained earnings (1,251,686) (992,011)
---------------------- ---------------------
Total stockholders' equity 507,463 767,138
---------------------- ---------------------
Total Liabilities And Stockholders' Equity $ 1,982,060 $ 2,165,220
====================== =====================
17
GC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2001, 2000 and 1999
2001 2000 1999
-------------- ------------- -------------
Net sales $ 5,216,544 $ 4,882,168 $ 5,207,664
Cost of sales 3,664,612 3,329,635 3,442,760
-------------- ------------- -------------
Gross profit 1,551,932 1,552,533 1,764,904
Operating expenses
Selling 229,573 240,104 259,730
General and administrative 1,332,171 1,320,788 1,328,785
-------------- ------------- -------------
Income (loss) from operations (9,812) (8,359) 176,389
Other income (expense)
Interest, net (6,833) (6,597) (8,164)
Other (62,016) (90,131) (121,211)
-------------- ------------- -------------
Income (loss) before income taxes (78,661) (105,087) 47,014
Provision (benefit) for income taxes (notes 2 and 10) 181,014 (32,838) (71,720)
-------------- ------------- -------------
Net Income (Loss) $ (259,675) $ (72,249) $ 118,734
============== ============= =============
Earnings (loss) per common share (notes 2 and 9)
Basic earnings (loss) per share ($0.05) ($0.01) $0.02
Diluted earnings (loss) per share ($0.05) ($0.01) $0.02
18
GC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2001, 2000 and 1999
Common Stock
-------------------------
Number Dollar Accumulated
of Shares Value Deficit Total
--------- ----- ------- -----
1999
Stockholders' equity at June 30, 1998 5,548,401 $ 1,791,590 $ (1,038,496) $ 753,094
--------- ----------- ------------ -------------
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
2001
Net loss (259,675) (259,675)
--------- ----------- ------------ -------------
Stockholders' Equity At June 30, 2001 5,350,798 $ 1,759,149 $ (1,251,686) $ 507,463
19
GC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2001, 2000 and 1999
2001 2000 1999
------------ ------------- ------------
Cash flows from operating activities:
Net income (loss) $ (259,675) $ (72,249)$ 118,734
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 135,338 127,064 141,290
(Gain) loss on sale of property and equipment - 510 (1,881)
Changes in operating assets and liabilities:
Receivables (increase) decrease (232,654) (40,185) 131,672
Inventory (increase) decrease 169,752 (83,032) 6,841
Prepaid expenses (increase) decrease (987) 33,088 (32,852)
Deferred tax benefit (increase) decrease 180,214 (32,327) (47,921)
Other assets and deposits (increase) decrease 2,550 (7,761) (239)
Accounts payable increase (decrease) 155,794 54,828 (62,082)
Accrued liabilities decrease (59,814) (61,870) (42,494)
------------ ------------- ------------
Net cash provided (used) by operating activities 90,518 (81,934) 211,068
Cash flows from investing activities:
Purchase of property and equipment (90,059) (27,831) (144,145)
Proceeds from sale of property and
equipment - - 1,881
------------ ------------- ------------
Net cash used by investing activities (90,059) (27,831) (142,264)
Cash flows from financing activities:
Payments on short term borrowings - - (2,821)
Payments on long term debt (107,650) (95,597) (131,633)
New long term borrowings 88,185 18,154 134,398
Re-purchase of common stock - (10,858) (21,583)
------------ ------------- ------------
Net cash used by financing activities (19,465) (88,301) (21,639)
Increase (decrease) in cash and cash equivalents (19,006) (198,066) 47,165
Cash and cash equivalents, beginning 173,019 371,085 323,920
------------ ------------- ------------
Cash And Cash Equivalents, Ending $ 154,013 $ 173,019 $ 371,085
=========== ========== ============
Cash paid during year for:
Interest $ 18,361 $ 19,591 $ 8,164
Income taxes 800 800 28,697
20
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
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, 2001, which was $0.08.
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. The lease contains an annual increase based upon
the Consumer Price Index. The lease will expire on December 31, 2005,
with an option to be extended to December 31, 2011. At June 30, 2001,
the lease rate was $13,823 per month.
3. INVENTORIES
Inventories at June 30, 2001 and 2000 consisted of:
2001 2000
------------- -------------
Raw material $ 65,433 $ 62,434
Work in process 320,778 493,529
------------- -------------
$ 386,211 $ 555,963
============= =============
21
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2001 and 2000 consisted of:
Estimated
2001 2000 useful lives
------------- ----------- ------------
Machinery and equipment $ 1,256,800 $ 1,168,261 5 to 15 years
Automobile and trucks 127,609 127,609 3 to 15 years
Office equipment 108,571 120,552 3 to 15 years
Leasehold improvements 180,508 180,508 2 to 10 years
Idle assets 86,742 86,742
----------- -------------
1,760,230 1,683,672
Less: accumulated depreciation
and amortization (1,357,146) (1,235,309)
----------- -----------
$ 403,084 $ 448,363
=========== ===========
Depreciation expense for the years ended June 30, 2001 and 2000 totaled
$135,338 and $127,064, respectively
5. NOTES PAYABLE
Notes payable at June 30, 2001 and 2000 consists of the following:
2001 2000
------------- -------------
Equipment purchase, 60-month note from Ricoh at an
interest rateof 2.21% and a monthly payment of $348
until November 2004. $ 12,806 $ 16,396
Automobile purchase, 60 months from GMAC at
an interest rate of 11% and a monthly
payment of $950 until June 2002. 10,748 20,381
Equipment purchase, 60-month lease from
U.S. Bancorp at an interest rate of 8.89% and a
monthly payment of $1,930 until September 2005. 77,185 -
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. 31,652 50,626
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. 51,233 69,287
Automobile refinance, 36-month lease from Santa Barbara
Bank & Trust at an interest rate of 11% and a monthly $1,333
payment of until November 2001. 6,485 20,885
22
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
5. NOTES PAYABLE (continued) 2001 2000
------------- -------------
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
Note payable, with zero interest rate,
due May 1998. 152,365 164,364
------------- -------------
Total debt 342,474 361,939
Less: current maturities of notes payable 228,992 248,876
------------- -------------
Long-term portion $ 113,482 $ 113,063
============= =============
Maturities of long-term debt at June 30, 2001 for the succeeding fiscal
years are as follows:
2002 $ 228,991
2003 52,748
2004 33,511
2005 and thereafter 27,223
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 2001, 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, 2001, 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 $332,124
per annum plus an incentive bonus of 5% of the consolidated pretax
profit of the Company. There was no bonus accrued during 2001.
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, 2001, 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, 2001 the
lease rate was $21,117 per month.
23
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
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, 2005, with an option
to be extended to December 31, 2011. The lease contains an annual
increase based upon the Consumer Price Index. At June 30, 2001 the
lease rate was $13,823 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:
2002 $ 434,064
2003 437,021
2004 443,348
2005 and thereafter 1,872,663
Rent expense charged to operations for the years ended June 30, 2001
and 2000 was approximately $417,259 and $411,237, 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 five principal payments of $20,000 each in August
1996, 1997, 1998, 1999 and 2000. Payments of $20,000 plus fixed
interest are due each successive August with the last payment due
August 2000.
On August 28, 2001, the EPA assessed the Company an additional and
final claim of $270,000. The Company is in the process of negotiating
the reduction of this assessment. Accordingly, as of June 30, 2001, the
Company believes its reserve of $120,000 is adequate to cover this
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, 2001 is sufficient to cover potential litigation expenses.
9. EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings per
share for the years ended June 30, 2001, 2000, 1999:
2001 2000 1999
------------- ------------- -------------
Income (loss) available to common stockholders - basic and
diluted $ (229,593) $ (72,249) $ 118,734
Weighted average number of common shares used in basic EPS 5,350,798 5,367,838 5,520,176
Effect of dilutive securities - stock options 301,875 797,086 851,643
------------- ------------- -------------
Weighted average number of common shares and dilutive
potential common stock used in diluted EPS 5,652,673 6,164,924 6,371,819
============= ============= =============
24
GC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 and 2000
10. PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes at June 30, 2001, 2000 and 1999
consists of the following:
Federal State Total
------------- ------------- -------------
2001
Current $ - $ 800 $ 800
Deferred 188,855 (7,841) 181,014
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)
At June 30, 2001, the deferred portion of provision for taxes has
increased from prior years due to tax credits of $193,827 that expired
at June 30, 2000. Since these tax credits are no longer available to
offset any future taxable income, provision for taxes at June 30, 2001
has been increased accordingly.
A reconciliation of the Federal and State statutory tax rate and the
effective tax rate is as follows:
2001 2000 1999
------------- ------------- -------------
Statutory Federal and State tax rate 1.0% (23.4)% 4.5%
Expiration (utilization) of net operating loss and
tax credits 246.4 - (9.2)
Tax increase (decrease) on beginning cumulative
temporary differences (2.0) 1.7 (121.3)
Other, net (15.3) (9.5) (26.5)
------------- ------------- -------------
Effective income tax rate 230.1% (31.2)% (152.5)%
============= ============= =============
The tax effects of temporary differences and carryforwards
that give rise to significant portions of deferred assets
and liabilities consist of the following:
2001 2000 1999
------------- ------------- -------------
Deferred tax assets:
Net operating loss $ 215,465 $ 175,870 $ -
Accrued expenses 226,447 218,967 193,916
Deferred tax liabilities:
Depreciation tax basis of property and equipment $ 19,205 $ 25,338 $ 29,834
25
GC International, Inc
Schedule V - Property, Plant and Equipment
For the Years Ended June 30, 2001, 2000 and 1999
Additions
Balance at charged to
Beginning of Costs and Other Changes Balance at End
Period Expenses Retirements Add Deduct of Period
----------- --------------- ---------------- -------------- ----------------
Year Ended June 30, 2001
------------------------
Machinery and Equipment $ 1,168,261 $ 88,670 $ - $ (131) $ 1,256,800
Office Equipment 1,555 (13,501) (35) 108,571
120,552
Automobiles and Trucks 127,609 - - - 127,609
Leasehold improvements 180,507 - - - 180,507
Idle Assets 86,742 - - - 86,742
------------- ------------ ------------- ------------- -------------
Total $ 1,683,671 $ 90,225 $ (13,501) $ (166) $ 1,760,229
Year Ended June 30, 2000
------------------------
Machinery and Equipment $ 1,166,594 $ 4,252 $ (2,585) $ - $ 1,168,261
Office Equipment 107,185 23,579 (10,212) - 120,552
Automobiles and Trucks 127,609 - - - 127,609
Leasehold Improvements 180,507 - - - 180,507
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 180,507 - - - 180,507
Idle Assets 86,742 - - - 86,742
------------- ------------ ------------- ------------- -------------
Total $ 1,564,421 $ 144,145 $ (39,929) $ - $ 1,668,637
The accompanying notes are an integral part of these financial statements.
26
GC International, Inc.
Schedule VI - Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment
For the Years Ended June 30, 2001, 2000 and 1999
Additions
Balance at charged to Other Balance at
Beginning of Costs and changes End of
Period Expenses Retirements Add Deduct Period
------------ ----------- ----------- ---------- ----------
Year Ended June 30 2001
-----------------------
Machinery and equipment 813,904 95,677 909,581
Office Equipment 81,786 11,928 (13,501) 80,213
Automobiles and trucks 89,537 25,191 114,728
Leasehold improvements 165,456 2,543 167,999
Idle Assets 84,625 84,625
------ ------
Total 1,235,308 135,339 (13,501) - 1,357,146
========= ======= ======= ========= =========
Year Ended June 30 2000
-----------------------
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
========= ======= ======= ========= =========
0.00
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
========= ======= ======= ========= =========
The accompanying notes are an integral part of these financial statements.
27
GC International, Inc.
Schedule VIII- Valuation and Qualifying Accounts and Reserves
For the Years ended June 30, 2001, 2000 and 1999
Balance at Charged to Charged to
Beginning Costs and other Other Balance at
of Year Expenses Accounts Charges End of Year
------- -------- -------- ------- -----------
2001 Allowance for $ 5,538 $ - $ - $ 5,538
doubtful accounts
2000 Allowance for 5,133 405 - - 5,538
doubtful accounts
1999 Allowance for 6,464 21,659 (22,990) - 5,133
doubtful accounts
The accompanying notes are an integral part of these financial statements.
28
GC International, Inc.
Schedule IX-Short-Term Borrowings
For the Years Ended June 30, 2001, 2000, and 1999
Average Weighted
Category Amount Amount Average
Aggregate Balance Maximum Outstanding Outstanding Interest
Short-term At End of Weighted Average During the During the During the
Borrowings Period Interest Rate Period Period (1) Period (2)
---------- ------ ------------- ------ ---------- ----------
Year ended June $- $- $- $- $-
30,2001
Amounts Payable to:
Banks for Borrowings
Year ended June $- $- $- $- $-
30,2000
Amounts Payable to:
Banks for borrowing
Year ended June $- $- $- $- $-
30,1999
Amounts Payable to:
Banks for borrowing
------------------------
<FN>
(1) The average amount of the 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>
29
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 9, 20001 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: October 9, 2001 By: F. Willard Griffith II
--------------------- ---------------------------------
F. Willard Griffith II
Principal Executive Officer
and Principal Financial Officer
Date: October 9, 2001 By: Richard R. Carlson
--------------------- ---------------------------------
Richard R. Carlson
Director and President
Date: October 9, 2001 By: Carol Q. Griffith
--------------------- ---------------------------------
Carol Q. Griffith
Director
Date: October 9, 2001 By: Carol J. Carlson
--------------------- ---------------------------------
Carol J. Carlson
Director
30