Item 1. Business
General
GC International, Inc. ("GC" or the "Company"), a California corporation, manufactures metal products, primarily for inclusion in products sold by electronics, computer and aerospace companies. All references to years are fiscal years ending June 30 unless otherwise specified.
Description of Business
GC's business units generally manufacture their own products from raw materials, such as aluminum ingots, aluminum castings, or aluminum discs, or semi-finished metal components purchased from third parties. Except for certain materials used by the A. L. Johnson division ("ALJ") which are available from only one vendor (but for which replacements are readily available), raw materials and critical components are generally available from more than one source. All of GC's business units generally compete with many companies, many of which are larger and have greater resources. In all cases, competition is generally based upon technical competence, price, quality and delivery times. None of GC's business units has any patent protection. None of GC's businesses is seasonal, and only one division has significant foreign sales.
The following table sets forth certain financial information with respect to GC's business units. Approximately 100% of the backlog is expected to be shipped in the year ended June 30, 1997. A substantial portion of the backlog may be cancelled at any time without penalty. The decrease in the backlog is believed to be due primarily to the continuing efforts of the company to ship product on-time and reduce overdue shipments to a minimum.
Backlog Backlog June 30, 1996 June 30, 1995
Total Backlog $1,167,932 $1,405,777
GC's sales for the last three fiscal years are as follows:
Year Ended June 30, 1996 1995 1994
Net sales $5,277,155 $4,413,210 $4,862,604
A. L. Johnson Division
The ALJ business unit, has been in business for over 41 years. In Camarillo, California, ALJ utilizes a Rubber/Plaster Mold ("RPM") process and equipment to produce precision, high-strength, thin- walled aluminum castings, primarily for the computer, electronics and aerospace industries. The parts are used in many applications, including medical electronics, computer housings and camera parts.
The RPM process is particularly cost effective when the customer's production requirement is for low numbers of units. GC believes that the RPM process is most applicable if the production run is between 10 and 200 units per month. Customers sometimes select ALJ for pre-production runs before expensive hard tooling is cost justified.
ALJ's direct competition in RPM castings is composed generally of a few companies believed to be larger than ALJ and several smaller competitors. ALJ's major competition generally results from competing processes, such as investment, sand, and permanent mold and die casting. ALJ has regularly serviced over 250 customers each year.
Apollo Masters Division
In 1988 GC purchased, from Capitol Records ("Capitol"), the assets used and Capitol in connection with its lacquer master manufacturing business and moved those assets to a plant leased by the Company in Banning, California.
Apollo processes precision, highly polished aluminum substrates by applies a filtered lacquer coating to the discs in a clean room environment. After drying and inspection, the masters are sold to audio recording engineers who use specialized equipment to cut grooves in the lacquer. The masters are then used to make additional pressing masters, ultimately resulting in vinyl records. The vinyl record industry volume has declined, as expected, as compact discs and audio cassettes replace vinyl records. Therefore, Apollo's future business and profitability will depend on Apollo's ability to gain market share from its competitors. Apollo's business plan anticipates that, over the next five to seven years, the use of lacquer masters will decline gradually from the present levels. Currently, approximately 45% of Apollo's market is in the U.S. and 55% is in the rest of the world, with the European market being the largest foreign market. Apollo does not expect the current decline of the vinyl record business to be precipitous for the Company, because to produce a single vinyl record takes a minimum of two masters, and the Company believes that there will continue to be a sufficient demand for vinyl records for the Company to continue to make a reasonable return on its investment. However, a continued rapid decline in the market for lacquer masters may require that the Company reevaluate the business plan. There is no guarantee that Apollo can remain profitable in the future. If in future years, Apollo turns unprofitable and the decision is made to discontinue the operation, the Company could incur significant losses. As of June 30, 1996, Apollo has established 9 distributors and 4 sales representatives and has made deliveries to over 122 customers in 29 countries worldwide. Apollo also imports and distributes stylus as a result of a worldwide exclusive distributorship with a Japanese company.
Sales and Marketing
The Company markets ALJ castings through a Sales Manager, one part-time saleswoman and a network of independent sales representatives. Apollo does not have direct salesmen, and Apollo contracts with independent sales representatives and distributors. ALJ may, from time to time, pay commissions to other independent sales representatives on a per customer order basis.
Major Customers Over 10%
No single customer accounted for over 10% of sales in any of the past three years.
Foreign Sales
Approximately 55% of Apollo's sales are to foreign markets, and such sales in 1996 represented approximately 12% of GC's consolidated sales. ALJ has no material foreign sales.
Competition
GC, with the exception of Apollo, competes on the basis of quality, delivery and price in markets where there are substantial numbers of competitors offering similar products and services, and many of these competitors are larger than GC's ALJ Division. Apollo competes in a world wide market where the Company believes there is only one U.S. competitor and one Japanese competitor. Therefore, Apollo anticipates that, by producing recording master discs of a quality equal to or better than its competition, it will be able to continue to capture a reasonable part of the market. There is no assurance, however, that, even with an acceptable product, any of the potential customers will make significant purchases from Apollo.
Employees
At June 30, 1996, GC had 85 employees. The Company believes its relations with its employees, none of whom is currently represented by any labor union, are good. From time to time, GC may experience a shortage of suitably trained applicants. GC maintains health, disability and life insurance programs for full-time employees. During 1996, GC paid a discretionary Christmas holiday bonus of approximately $15,400.
Item 2.
Item 2. Properties
As of June 30, 1996, GC leases two separate manufacturing facilities. The two leases aggregate approximately 75,864 square feet, under leases that expire at various times.
The Company believes its current facilities are adequate and suitable for the operations and anticipated sales growth for the foreseeable future. One of the facilities is leased from a related party; see "Item 13 - -Certain Relationships and Related Transactions." The leases are subject to rental escalation provisions. Management believes that, as leases expire, GC will be able to negotiate satisfactory leases with the present lessors or relocate to satisfactory alternative facilities.
Item 3.
Item 3. Legal Proceedings
As of June 30, 1996, there is no litigation of which the company is aware. With the exception of the potential litigation on claims explained below, the Company does not know of any litigation likely to be asserted directly against the Company which would not be insured or which, if decided adversely to the Company, would, in the opinion of management, materially affect the financial condition of the Company.
Bankruptcy Filing and Discharge from Chapter 11
On March 26, 1990, Registrant and its Subsidiaries each filed for protection as Debtor-in-Possession under Chapter 11 of the Federal Bankruptcy Code. On April 23, 1991, the Second Amended Plan of Reorganization was approved by the court. As a result of the settlement with unsecured creditors, the company is required to make certain payments to these creditors over a period of seven years at no interest. Due to the severe cash shortage of the company, no substantial payments were made to creditors during 1996. Although the company is in default with substantially all of the creditors, the company is working with certain of the creditors who have requested payment. The creditor notes generally do not provide for any specific remedies or for acceleration in the event of non-payment. The creditors remedy would be to sue the company for payment.
EPA Claim for OII Superfund Site Cleanup
The Company settled a claim with the EPA under a partial consent decree for an amount of $100,000 plus interest for a Superfund Site cleanup in connection with waste generated by the company's former Raytee division. The company made the first payment of $20,000 in August 1996. Payments of $20,000 plus fixed interest are due each successive August with the last payment due August 2000.
As of June 30, 1996, the company has established a reserve of $328,910. Which management believes is sufficient to cover both the current settlement of $100,000 and the final remediation settlement at sometime in the future.
However, the EPA could present a claim for the final remediation, which is so excessive as to require the company to seek protection under Chapter 11 again.
The company has tendered notification of the potential EPA claim to all of its insurance carriers from 1975 through 1995 and prior to the acquisition of the Raytee Company. As of September 22, 1996, substantially all of the insurance companies which have been contacted have rejected the potential liability, because of language in the insurance policy.
PART II
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during 1996.
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Market Information
The Company's stock is traded over-the-counter. The table below sets forth the bid and asked prices for the Company's common stock as reported by the company s market maker.
Common Shares 1996 1995 1994
Bid $.625 ONLY ONE ONLY ONE TRADE Asked $.125 TRADE AT AT $.06 $.15
The latest trade prior to June 30, 1996 was at $.15. As of September 23, 1996, the highest trade was reported to be at $.375.
Holders
The number of holders of record of the Company's common stock as of June 1996, was approximately 300.
Dividend Policy
GC has not paid cash dividends on its Common Stock since its incorporation and does not anticipate paying dividends on its Common Stock in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
The following financial data has been derived from the consolidated financial statements of the registrant. The selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements and notes thereto, management's discussion and analysis of results of operations and financial condition included elsewhere in this report on Form 10-K.
SELECTED FINANCIAL DATA
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity, Capital Resources, and Bank Loan Agreement
Bank Loan Agreement
During 1996, the company's term loan was paid down by a total of $197,283 to $171,498 at June 30, 1996. The term loan is based on eligible receivables with fixed payments of $16,000/month and at interest rate of 2-1/2% over the bank's prime rate. On September 1, 1996 the amount outstanding on this term loan was approximately $139,000. The Company has been notified that the bank has renewed the loan with the same terms until January 1, 1997.
The Company expects the bank to continue to renew the loan in January. However, if a new agreement cannot be made with the bank, or alternative sources cannot be found at that time, the company could be forced to use its cash to pay off the balance of the loan at that time. The balance at January 1, 1997 is anticipated to be approximately $75,000.
Liquidity and Capital Resources
As of June 30, 1996, the Company had cash balances of approximately $176,055. Management believes that this balance and the cash flow from operations are sufficient to adequately fund ongoing operations, providing a new loan arrangements can continue to be made with the bank. However, there is no assurance that these funds will prove adequate if the Company is unable to maintain positive cash flow operations in the future.
Capital Equipment Requirements and Equipment Leases
The Company, from time to time, has satisfied certain of its capital equipment requirements by entering into equipment leases with third parties or purchase arrangements with the equipment manufacturers. During 1995 and 1996, the company has been able to arrange satisfactory equipment and automobile leases or purchase contracts.
The Company anticipates that additional capital equipment will be required for the Company's operating divisions during 1997. Because of the Company's negative net worth and lack of working capital, it may not be possible to lease or purchase some or all of such equipment on terms satisfactory to the Company. If sufficient capital equipment is not available, the Company could be materially adversely affected. In addition, a continued shortage of capital resources could materially adversely affect the ability of the Company to make needed improvements and reduce profit levels.
Results of Operations
During 1996, the company s efforts in establishing a network of commissioned sales representatives, both in California and outside California was completed. The company believes the 20% increase in revenues in 1996 is due in part to the fruition of expanding the sales base and in part to the improving economy. This trend appears to be continuing with the backlog at ALJ remaining relatively consistent.
The following table sets forth a percentage comparison of the Company's consolidated statements of operations.
Comparison of fiscal year ended June 30, 1996 and June 30, 1995
The Company's sales increased by $863,945 or 20% in 1996 over the prior year due to the improving economy and the company s efforts to diversify its sales outside California. The company earned a profit of $341,633 in 1996 as compared to a loss of $19,200 in 1995. Cost of sales decreased from 73% in 1995 to 68% in 1996 reflecting improved productivity and lower cost. Because of the company s net operating loss carry forward no Federal or State Income Tax (other than the State minimum of $800) was due in 1996. In 1997, the company anticipates that no Federal Tax will be due, but the company will have California Income Tax due.
Comparison of fiscal year ended June 30, 1995 and June 30, 1994
The Company's sales decreased by $449,394 in 1996 over the prior year due to California's poor economy. However, the backlog increased by $799,548 reflecting an up turn in the economy. Cost of sales continued to decrease from 76% to 73% reflecting continued efforts to reduce costs. Net loss increased slightly over the previous year due to lower sales volume and an increase in the EPA reserve.
Comparison of fiscal year ended June 30, 1994 and June 30, 1993
The company's sales decreased $795,156 in 1994 over the prior year due to the recession in California. The backlog decreased from $1,151,269 at June 30, 1993 to $606,229 at June 30, 1994, reflecting this softness. Apollo sales, however, decreased only $54,560 over the prior year with the balance of approximately $750,000 occurring at ALJ. Cost of sales continued to decrease from 81% to 76% reflecting continuing efforts to reduce costs. The net loss decreased from $249,983 in 1993 to $7,822 in 1994. Due to continued efforts in company safety and through a successful appeal to the Workers Compensation Rating Bureau, the company's W/C premiums have also decreased substantially.
Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Unaudited Financial Statements Page No.
Financial Statements Consolidated Balance Sheets at June 30, 1996 and June 30, 1995 19
Consolidated Statements of Operations for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 20
Consolidated Statements of Stockholders' Equity for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 21
Consolidated Statements of Cash Flows for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994 22
Notes to Consolidated Financial Statements 24
Financial Statement Schedules for Each of the Three Fiscal Years: June 30, 1996, 1995, and 1994
V. Property, Plant and Equipment 31
VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment 32
VIII. Valuation and Qualifying Accounts and Reserves33
IX. Short-Term Borrowings 34
X. Supplementary Income Statement Information 35
Financial statement schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or Notes thereto.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
The Company's statements submitted in this form 10-K are unaudited because of the necessity to conserve the cash needed for continuing operations.
PART III
Item 10.
Item 10. Directors and Executive Officers
The directors and executive officers of GC, their ages and positions with the Company are set forth below: Served as Name Age Position Director Since
F.Willard Griffith II 64 Chairman, CEO, CFO, Secretary,and Assistant Treasurer 1975
Richard R. Carlson 67 President, Chief Operating Officer, Treasurer, Assistant Secretary; Director 1975
Carol J. Carlson 64 Director 1987
Carol Q. Griffith 62 Director 1987
H. J. Jackson 60 Vice President and General Manager, Officer Apollo Masters Division. Since
Michael Shoemaker 55 Vice President and General Manager, A. L. Johnson Division. 1979
F. Willard Griffith II co-founded GC in March 1975 and has been Chairman and Chief Executive Officer since that date and has been Secretary and Assistant Treasurer of the Corporation since 1981. Mr. Griffith was a founder and Executive Vice President of American Regitel Corporation, which was sold to General Instrument Corporation in 1974. Mr. Griffith is also a founder and Past Chairman of The Electronics Association of California. Mr. Griffith is a graduate of Purdue University with a BS degree in Electrical Engineering.
Richard R. Carlson co-founded GC in March 1975 and has been President, Chief Operating Officer and a director of GC since that date and has been Treasurer and Assistant Secretary since 1981. Prior to founding GC, Mr. Carlson was President and a Director of A. L. Johnson Co., Inc., a wholly owned subsidiary of Consyne Corporation. Mr. Carlson is a graduate of the University of Minnesota with a BS and MS in Industrial Engineering.
Carol Griffith is the spouse of F. Willard Griffith II, and from March 1975 to July 1981, Mrs. Griffith was Vice President, Secretary of the Corporation and a Director. Mrs. Griffith was re-elected a Director in November 1987.
Carol Carlson is the spouse of Richard Carlson, and from March 1975 to July 1981, Mrs. Carlson was Vice President, Treasurer of the Corporation and a Director. Mrs. Carlson was re-elected a Director in November 1987.
H.J. Jackson joined GC as Vice President of Corporate Marketing in March 1989 and was appointed to the position of Vice President and General Manager of Apollo in January 1991. Prior to joining GC, Mr. Jackson was Vice President of Marketing of Capitol Magnetics, a division of Capitol Records, EMI, since 1976 and Senior Vice President from 1984 to 1988.
Michael Shoemaker joined GC in 1975 as an employee of ALJ, where he had been employed since 1960. Since July 1995, Mr. Shoemaker has been Vice President and General Manager of ALJ, Camarillo. Since 1979, Mr. Shoemaker had been Vice President and General Manager of the ALJ North division.
Item 11.
Item 11. Executive Compensation
Executive Compensation
The remuneration of each of the five most highly compensated executive officers and directors of GC whose cash and cash-equivalent remuneration exceeded $100,000 and of all directors and officers of GC as a group for services in all capacities to GC during the fiscal year ended June 30, 1996, was as follows:
Directors' Compensation
Directors of the company do not receive any compensation for performing their duties as a director.
Employee Cash Bonus
The company paid a nominal Christmas bonus to all employees in 1996 totalling approximately $15,400 and may pay a Christmas bonus in 1997, in addition to the company s contribution to the 1996 401K Plan.
Employment Contracts
Pursuant to their employment contracts, expiring in 2006, Mr. Griffith and Mr. Carlson are each entitled to receive a base salary ($3,971.84/week) increased by a cost-of-living adjustment each year, plus an incentive performance bonus equal to five percent of the Company's consolidated pretax, pre-bonus profit as defined in employment contracts. In addition, Messrs. Griffith and Carlson are entitled to a fixed payment of $10,000 per year. In the past five years (1992-1996) this payment or bonuses were accrued but not paid. The contracts have an acceleration provision in the event of early termination. The employment contracts also provide for salary continuation in the event of disability and under a Death Benefit Agreement, in the event of death of the employee, the Company is obligated to pay to the employee's designated beneficiary a death benefit of approximately $14,135.46 per month, increased by an annual cost-of-living adjustment factor until the death of that beneficiary or July 1, 2006, whichever is later. The Company owns and is the beneficiary of a key man life insurance policy in the face amount of $1,000,000 each on the lives of Messrs. Griffith and Carlson. The Company believes that the key man life insurance would provide sufficient funds to the Company for payments of the death benefit and for other corporate purposes in locating and training a replacement for the deceased. The company has had no retirement or deferred compensation plan until April 1996 (see 401K Plan).
1988 Stock Option Plan
In September 1988, GC adopted the 1988 Stock Option Plan pursuant to which GC may grant Incentive Stock Options (ISO), Non Qualified Stock Options (NQSO), and Stock Appreciation Rights (SAR) to purchase up to 1,700,000 shares of the Company's stock. The purchase price of common stock upon exercise of options granted under the Plan may not be less than the fair market value of the common stock at the date of grant as determined by the Board of Directors. In 1979, GC adopted a Non-Qualified Stock Option Plan and with the adoption of the 1988 Plan, all 1979 options were integrated into the 1988 Plan. In April 1994, the Board of Directors amended all outstanding options to provide for an exercise price of $.06, which was the price of the latest purchase of shares and also amended the expiration date of all options to be April 4, 1999.
In 1996, only one option was granted. Options to purchase a total of 1,300,000 shares of GC's common stock have been granted.
1988 Stock Option Plan (con't)
The following chart sets forth all of the options held as of June 30, 1996, by each of the officers or directors of GC and by all option holders as a group. All options are currently exercisable.
No options were exercised in 1996. Value of unexercised option is based on the latest trade before June 30, 1996 at $.15/ share.
By virtue of holding such options, the above described persons possess the opportunity to profit from a rise in the share market price, and the exercise of such options would dilute the interests of shareholders. The Company will obtain additional equity capital upon exercise of such options, but it is possible that the terms of such options will not be as favorable as those which could then be obtained by the Company from other sources of capital.
The Board of Directors, the current administrators of the 1988 Stock Option Plan, in its discretion, determines which employee is eligible to receive options, the amount of shares, and the terms on which the option is granted. The primary criteria used by the Board in determining the size of the option is the importance to the Company of the skills of the employee receiving the issuance.
The Board of Directors may not issue any options to any member of the Board without engaging an impartial outside Committee who determines the appropriateness of the issuance.
1996 401K Retirement Plan
In April 1996, the Company s Board of Directors authorized the adoption of the company s 1996 401K Retirement Plan to enable employees the opportunity to save for future retirement. The Board also authorized a company matching contribution of up to $100 on a $1 matching for each $4 contributed by the employee. The matching contribution is determined by the Board of Directors and may be changed at any time. At July 31, 1996, 38 employees are participating and the company s contribution as of July 31, 1996 has been $3,020.61.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding GC's Common Stock owned on August 31, 1996 (i) by each person or entity who is known by GC to own beneficially more than five percent of GC's Common Stock. (ii) by each of GC's directors and (iii) by all directors and officers of GC as a group:
Item 13.
Item 13. Certain Relationships and Related Transactions
Certain Transactions
A building is leased from CJ Squared LLC, a limited liability company formed by F. Willard Griffith II, Richard R. Carlson, Carol Q. Griffith and Carol J. Carlson who are officers and director/stockholders, for $12,522 per month under a lease expiring December 31, 1999. The lease contains an annual C.P.I. increase.
Mr. Griffith and Mr. Carlson are parties to employment contracts. See "Item Executive Compensation--Employment Contracts."
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1(a). Financial statements listed in Item 8 above are incorporated herein by reference.
(b). Financial statement schedules listed in Item 8 above are incorporated herein by reference.
2. Reports on Form 8-K. Reference Exhibits, Material Contracts 10.29, 10.30, 10.31 10.32 and 10.33 and F, G, H below.
3. Exhibits
Index to Exhibits (14c)
DESCRIPTION REFERENCE
3.1 Articles of Incorporation A 3.1.1 Restated Articles of Incorporation Page 45
3.2 By-Laws A
10. Material Contracts A
10.1 1988 Stock Option Plan A 10.2 GCI ESOP Plan and Amendment A 10.2.1 ESOP Trust Agreement with Imperial Trust A 10.2.2 IRS Determination Letter A 10.3 Employment Contract with F. Willard Griffith II A 10.4 Employment Contract with Richard R. Carlson A 10.5 Promissory Note from F. Willard Griffith II A 10.6 Promissory Note from Richard R. Carlson A 10.7.1 Building Lease 1255 Birchwood Drive, Sunnyvale, Ca. and Amendments A 10.7.2 Building Lease 101 N. Lincoln, Banning, Ca. and Amendments A 10.7.3 Building Lease 901 Magnolia, Monrovia, Ca. and Amendments A 10.7.4 Building Lease 907 Magnolia, Monrovia, Ca. and Amendments A 10.7.5 Building Lease 12833 Simms Avenue, Hawthorne, Ca. and Amendments A 10.7.6 Building Lease 320 W. Duarte, Monrovia, Ca. and Amendment A 10.8 Letter of Intent with Everest and Jennings International, Inc. for purchase of Aero Alloys Division A 10.9 Purchase Agreement with Capitol Magnetics Division of EMI International A 10.10 Lease Agreement with McDonnell Douglas Finance Corp. A 10.11 Lease Agreement with Sovran Leasing A 10.12 Bank Loan Agreement and Amendments with Bank of California A 10.13 Form of Directors Indemnification Agreement A 10.14 Employee Bonus Plan A 10.15 MDFC Lease Agreement B 10. Material Contracts (con't) A
DESCRIPTION REFERENCE
10.16 Building Lease, Duarte Lease Extension B 10.17 Building Sublease, Aero Alloys B 10.18 Comerica Loan Agreements B 10.19 Building Sublease Ventura A 10.20 Comerica Loan Agreement A 10.21 Comerica Loan Agreement Modification A 10.22 Bankruptcy Filing GC International C 10.23 Bankruptcy Filing Apollo Masters Corp. C 10.24 Bankruptcy Filing GCI/Aero, Inc. C 10.25 Letter Agreement with Annandale Securities D 10.26 Not Used 10.27 Not Used 10.28 Debtors Joint Plan of Reorganization for GC International, Inc. LA 90-07128LF E 10.29 Debtors Joint Seconded Amended Plan of Reorganization for GC International, Inc. LA 90-07128LF F 10.30 Order of Court Confirming Discharge and Approval of the Second Amended Joint Plan of Reorganization F 10.31 Lease Agreement for 12946 Park Street, Santa Fe Springs, California G 10.32 Lease Agreement for 4671 Calle Carga, Camarillo, CaliforniaH 10.33 Lease Agreement extension for 4671 Calle Carga, Camarillo, Ca I
22. Subsidiaries of the Registrant NONE
Index to Exhibits Reference Legend
A Incorporated by reference to the Company's Registration Statement on Form filed October 19, 1988. B Incorporated by reference to the Company's Form 8-K filed on or about January 6, 1989. C Incorporated by reference to the Company's Form 8-K filed on or about April 5, 1990. D Incorporated by reference to the Company's Form 8-K filed on or about January 2, 1990 E Incorporated by reference to the Company's Form 8-K filed on or about November 9, 1990 F Incorporated by reference to the Company's Form 8-K filed on or about April 30, 1991 G Incorporated by reference to the Company's Form 8-K filed on or about July 17, 1991 H Incorporated by reference to the Company's Form 8-K filed on or about September 9, 1991
I Incorporated by reference to be company s Form 10K filed on or about September 20, 1996
GC INTERNATIONAL, INC.
FINANCIAL STATEMENTS
The financial statements included on Pages 19 through 34 are unaudited and subject to audit at a later date.
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS
See accompanying notes to financial statments.
GC INTERNATIONAL, INC. AND DIVISIONS
GC INTERNATIONAL, INC. AND DIVISIONS
Consolidated Statements of Cash Flow, continued
Supplemental disclosure of cash flow information:
The Company made payments of $41,735, $72,873 and 72,966 for interest during the years ended June 30, 1996, 1995, and 1994, respectively. The Company was not required to pay any Federal or State taxes except for the State of California State Franchise Tax of $800 in the years ended June 30, 1996, 1995, and 1994.
See accompanying notes to consolidated financial statements.
GC INTERNATIONAL, INC. AND DIVISIONS Notes to Consolidated Financial Statements (Unaudited)
(1) Bankruptcy Reorganization and Discontinued Operations
On March 26, 1990, GC International, Inc., and its two Subsidiaries ("Debtor") each filed for protection as Debtor-in-Possession under Chapter 11 of the Federal Bankruptcy Code. On April 23, 1991, the Second Amended Plan of Reorganization was approved.
Due to the cash shortage of the company, only a few payments were made to creditors during 1996. Although the company is in default with substantially all of the creditors, the company is working with certain of the creditors who have requested payment. The creditor notes generally do not provide for any specific remedies or for acceleration in the event of non-payment. The creditors remedy would be to sue the company for payment. The current value of the prepetition creditor notes as of June 30, 1996 was calculated to be $679,617 with $551,173 due currently.
(2) Summary of Significant Accounting Policies
Description of Business
GC International, Inc. ("GC") manufactures metal products, primarily for inclusion in products sold by electronics, computer and aerospace companies. In 1988, GC established a subsidiary for the production of audio recording master discs.
Principles of Consolidation
The consolidated financial statements include the accounts of GC International, Inc., and its wholly owned subsidiary, Apollo Masters Corporation. Apollo was merged into the company in July 1994. All significant intercompany transactions and balances have been eliminated in consolidation.
Inventories
Inventories, consisting primarily of costs incurred on uncompleted contracts (work in process), are valued principally at the lower of average cost or market. In cases where losses are estimated on fixed-price contracts, the full provision for such losses is charged to current operations.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using the straight-line method. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements (Unaudited)
Income Taxes
Income taxes are provided (recovered) based upon income (loss) reported for financial statement purposes. Deferred income taxes are provided for timing differences principally in the recognition of depreciation expense and California franchise tax for financial reporting and tax purposes. Deferred taxes were eliminated in 1994, 1995 and 1996 as a result of the operating losses incurred.
Earnings (Loss) Per Common Share
Earnings (loss) per common and common equivalent share are based upon the weighted average shares outstanding during each period, adjusted for stock options which are considered common stock equivalents, when dilutive. Primary EPS was calculated using the Treasury Stock method. The market value used is based on the most recent trade as of June 30, 1996 at $.15/share. Since all options were outstanding for 1996, Primary EPS equal Fully Diluted EPS. Calculations of primary and fully diluted EPS began in 1996. Convertible Series A and Series B preferred shares, issued in fiscal 1991 in connection with reorganization were considered common stock equivalents. In 1995, all Preferred Shares and accrued dividends paid in kind were cancelled by the stockholder.
Reclassifications
Certain prior years balances have been reclassified to conform with the current year's presentation.
Related Party Transactions
A building was leased in 1994 from CCG Properties, a partnership formed by F. Willard Griffith II, and Richard R. Carlson, who are officers and director/stockholders of the Company, and the estate of a former Vice President of the Company, for $5,468.92 per month under a month-to-month lease. The building was vacated in July 1994.
A building is leased from CJ Squared LLC, a Limited Liability Company, formed by F. Willard Griffith II, Richard R. Carlson, Carol Q. Griffith and Carol J. Carlson who are officers and director/stockholders, for $12,522 per month under a lease expiring December 31, 1999. The lease contains an annual C.P.I. increase.
(3) Inventories
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements (Unaudited) - continued
(4) Property and Equipment
Property and equipment at June 30, 1996 and 1995 consisted of:
(5) Income Taxes
The Company files consolidated Federal and combined state tax returns with its subsidiaries.
As of June 30, 1996, the Company estimates that it has available for Federal income tax purposes approximately $2,628,425 of net operating loss carry forward ( NOL ) which will expire in various periods from 2004 to 2007 and approximately $198,038 of investment tax credit carry forwards which expires in the year 2000. The company also estimates it has utilized all or substantially all of the NOL for the State of California and will have to pay California Income Tax in 1997.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements (Unaudited) - continued
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements (Unaudited) - continued
(7) Leases
Leases of Company facilities are classified as operating leases and expire in various years through 2016. Of the two building leases at June 30, 1996, one was with related parties. With the exception of the lease described below, leases generally require the Company to pay most costs, such as property taxes, maintenance and insurance.
In 1991, the Company signed a 10-year lease with a non-related party for a 45,864 sq. ft. building. The lease was renegotiated in May 1996 and extended to expire on Aug.31, 2016 with extensions. The lease requires a 7% increase every 30 months. At September 1, 1996 the lease rate was $19,736 per month.
The company leases an automobile on a 36 month lease, ending October 1998 for a payment of $506/month. The company may purchase the automobile at the end of the lease for $9,928.15.
Rent expense charged to operations for the years ended June 30, 1996, 1995, and 1994 was approximately $359,467,$357,133, and $435,000.
GC INTERNATIONAL, INC. AND DIVISIONS
Notes to Consolidated Financial Statements (Unaudited) - continued
(8) Stock Plans
Stock Option Plan
The Company has a stock option plan which was adopted in September 1988 providing for the issuance of up to 1,700,000 shares of common stock to key employees. During 1995, options were granted. In 1994, the Board amended all outstanding options covering 1,100,000 shares and adjusted the exercise price to $.06 per share which is the purchase price of the only trade during 1994. The Plan provides that options be granted at exercise prices equal to market value on the date the option is granted. The options outstanding are all currently exercisable and expire in 1999. As of June 30, 1996, there were no stock options exercised and 1,300,000 options outstanding.
(9) Compensation Arrangements
The Company has entered into employment contracts which expire in 2006 with two of its principal officers. The terms of each contract call for a base compensation and fixed payment totalling approximately $216,535 per annum plus an incentive bonus of 5% of the consolidated pretax profit of the Company. The fixed payment and bonus was accrued during 1996.
(10) Contingencies - EPA Claim
EPA Claim for OII Superfund Site Cleanup
The Company settled a claim with the EPA under a partial consent decree for an amount of $100,000 plus interest for a Superfund Site cleanup in connection with waste generated by the company's former Raytee division. The company made the first payment of $20,000 in August 1996. Payments of $20,000 plus fixed interest are due each successive August with the last payment due August 2000.
As of June 30, 1996, the company has established a reserve of $328,910. Which management believes is sufficient to cover both the current settlement of $100,000 and the final remediation settlement at sometime in the future.
However, the EPA could present a claim for the final remediation, which is so excessive as to require the company to seek protection under Chapter 11 again.
The company has tendered notification of the potential EPA claim to all of its known insurance carriers from 1975 through 1995 and prior to the acquisition of the Raytee Company. As of September 1996, substantially all of the insurance companies have rejected the potential liability because of language in the insurance policy.
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE V-- PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 1996, 1995 and 1994
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
GC INTERNATIONAL, INC. AND DIVISIONS
GC INTERNATIONAL, INC. AND DIVISIONS
SCHEDULE IX--SHORT-TERM BORROWINGS For the Years Ended June 30, 1996 1995 and 1994
GC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended June 30, 1996, 1995 and 1994
Other items are not set forth inasmuch as each such item does not exceed 1% of total sales as shown in the accompanying consolidated statements of operations or is disclosed elsewhere in the accompanying consolidated financial statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GC International, Inc. (Registrant)
Date: September 23, 1996 By: _________________________________ F. Willard Griffith II Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: September 23, 1996 By: _________________________________ F. Willard Griffith II Principal Executive Officer and Principal Financial Officer
Date: September 23, 1996 By: _________________________________ Richard R. Carlson Director and President
Date: September 23, 1996 By: _________________________________ Carol Q. Griffith Director
Date: September 23, 1996 By: _________________________________ Carol J. Carlson Director
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GC International, Inc. (Registrant)
Date: September 23, 1996 By: F. Willard Griffith II F. Willard Griffith II Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: September 23, 1996 By: F. Willard Griffith II F. Willard Griffith II Principal Executive Officer and Principal Financial Officer
Date: September 23, 1996 By: Richard R. Carlson Richard R. Carlson Director and President
Date: September 23, 1996 By: Carol Q. Griffith Carol Q. Griffith Director
Date: September 23, 1996 By: Carol J. Carlson Carol J. Carlson Director
GC INTERNATIONAL, INC. EXHIBIT 10.33
AMENDMENT TO LEASE
This AMENDMENT TO LEASE (the "Amendment") is made and entered into as of the 25th day of April 1996 by and between CFN/ Camarillo Properties, LTD., a California limited partnership (the lessor ), and GC International, Inc., a California corporation (the "Lessee").
RECITALS
This Amendment is entered into on the basis of and with respect to the following facts, agreements and understandings:
A. Lessor leased to Lessee the real property and improvements commonly known as 4671 Calle Carga, Camarillo, Ventura County, California, on the terms and conditions set forth in that certain Standard Industrial/Commercial Single-Tenant Lessee-Net dated as of August 21, 1991 and executed by Lessor and Lessee (the Lease ). A true and correct copy of the Lease is attached hereto as Exhibit A and incorporating herein by this reference.
B. Lessor and Lessee have agreed to extend the term of the Lease and to make certain other modifications to the term of the Lease.
NOW, THEREFORE, for good and valuable consideration, including the mutual covenants and agreements set forth herein, Lessor and Lessee hereby agree to amend and modify the lease as follows:
1. Extension of Term. The term of the Lease shall be extended from August 31, 2001 to and including August 31, 2006.
2. Adjustment to Base Rent. The Base Rent to be paid during the term of the Lease shall be as follows
(a) For the period commencing on the date hereof and continuing through June 30, 1996, the monthly Base Rent shall be as provided in the Lease.
(b) For the period commencing July 1, 1996 and continuing thereafter through February 28, 1999, the monthly Base Rent shall be Nineteen Thousand Seven Hundred Thirty-Five And 85/100 Dollars ($19,735.85), payable in semi-monthly installments of Nine Thousand Eight Hundred Sixty-Seven and 93/100 Dollars ($9,867.93) on the first day of each calendar month during said period and Nine Thousand Eight Hundred Sixty-Seven and 92/100 Dollars ($9,867.92) on the fifteenth day of each calendar month during said period;
(c) For the period commencing March 1, 1999 and continuing thereafter through August 31, 2001, and the monthly Base Rent shall be Twenty-One Thousand One Hundred Seventeen and 36/100 Dollars ($21,117.36), payable in semi-monthly installments of Ten Thousand Five Hundred Fifty-Eight and 68/100 Dollars ($10,558.68) on the first day of each calendar month during said period and Ten Thousand Five Hundred Fifty- Eight and 68/100 Dollars ($10,558.68) on the fifteenth day of each calendar month during said period;
(d) For the period commencing September 1, 2001 and continuing thereafter through February 28, 2004, the monthly Base Rent shall be Twenty-Two Thousand Five Hundred Ninety-Five and 57/100 Dollars ($22,595.57), payable in semi-monthly installments of Eleven Thousand Two Hundred Ninety-Seven and 79/100 Dollars ($11,297.79) on the first day of each calendar month during said period and Eleven Thousand Two Hundred Ninety-Seven and 78/100 Dollars ($11,297.78) on the fifteenth day of each calendar month during said period;
(e) For the period commencing March 1, 2004 and continuing thereafter through June 30, 2006, the monthly Base Rent shall be Twenty-Four Thousand One Hundred Seventy-Seven and 26/100 Dollars ($24,177.26), payable in semi-monthly installments of Twelve Thousand Eighty-Eight and 63/100 Dollars($12,088.63) on the first day of each calendar month during said period and Twelve Thousand Eighty-Eight and 63/100 Dollars ($12,088.63) on the fifteenth day of each calendar month during said period;
3. Option to Extend Lease Term. Paragraph 50 of the Lease is hereby demanded to provide that Lessee shall have a single option to extend the Lease Term for an additional five (5) year period. Such extended tenancy shall be on the terms and conditions of the Lease, as amended hereby. Paragraph 50.A(iv)II is hereby amended to provide that the MRV Adjustment Date shall be July 1, 2006. Notwithstanding any provision in Paragraph 50 to the contrary: (I) if the Base Rent for the extended tenancy as determined in accordance with Paragraph 50 shall be less than the Base Rent for the calendar month immediately preceding the commencement of such extended tenancy (the Minimum Base Rent ), the initial Base Rent for such extended tenancy shall be equal to the Minimum Base Rent; or (ii) if the Base Rent for the extended tenancy as determined in accordance with Paragraph 50 shall be greater than one hundred ten percent (110%) of the Base Rent for the calendar month immediately preceding the commencement of such extended tenancy (the Maximum Base Rent ), the initial Base Rent for such extended tenancy shall be equal to the Maximum Base Rent. The initial Base Rent for the extended tenancy shall be increased by seven percent (7%) as of January 1, 2009 for the balance of such extended tenancy.
4. Tenant Improvement Allowance. Provided Lessee is not then in default under the terms of the Lease, Lessor shall pay to Lessee (I) the sum of Nine Thousand Three Hundred Eighty-Five and 74/100 Dollars ($9,385.74) On July 1, 1996 as reimbursement to Lessee for tenant improvement costs incurred by Lessee and (ii) the sum of Ten Thousand Dollars ($10,000) on July 1, 1997 as reimbursement to Lessee for tenant improvement costs incurred by Lessee.
5. Effectiveness of Lease. Except as set forth is this Amendment, all of the provisions of the Lease shall remain unchanged and in full force and effect. All capitalized terms not otherwise defined herein shall have the meaning given to such terms in the Lease.
6. Notices. All notices or other written communications hereunder shall be deemed to have been properly given (I) upon delivery, if delivered in person or by facsimile transmission with receive acknowledged by the recipient thereof, (ii) one Business Day (hereinafter defined) after having been deposited for overnight delivery with any reputable overnight corridor service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintain by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:
If to Lessor: CFN/Camarillo Properties, LTD c/o CNA Enterprises, Inc. 1901 Avenue Of The Stars, Suite 1600 Los Angeles, California 90067
With A Copy To:Norman D. Sloan, Esq. Gipson Hoffman & Pancione A Professional Corporation 1901 Avenue Of The Stars, Suite 1100 Los Angeles, California 90067-6002
If to Lessee: GC International, Inc. 156 Burns Avenue Atherton, CA 94027
7. Interpretations. The parties agree that each party and its counsel have reviewed and revised this Amendment and that any rule of construction to the effect that ambiguities are to the resolved against the drafting party shall not apply in the interpretation of this Amendment.
8. Authority. The persons executing this Amendment have the full right and authority to enter into this Amendment on behalf of the parties for whom they are signing.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Amendment effective as of the day first above written.
LESSOR LESSEE
CFN/CAMARILLO PROPERTIES, LTD. GC INTERNATIONAL, INC. a California limited partnership a California Corporation
By: CNA Enterprises, Inc. a California corporation, Its General Partner
By:
Title:
By Arnon Adar, President
(Wpamend)