10-K 1 gci-10k_63001.txt FORM 10-K FOR JUNE 30, 2001 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 --------- GC INTERNATIONAL, INC. ---------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2278595 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 156 Burns Avenue, Atherton, California 94027 ------------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 322-8449 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered None None ------------ ------------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value ----------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes.... No..... 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 -------- 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 -------------------------------------------------------------------------------- to be more than the low $300,000's for the next three months. Thus the Company ------------------------------------------------------------------------------ has experienced a decline of approximately 30% in volume. --------------------------------------------------------- 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 -------------------------------------------------------------------- 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

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 ------------------------------------------------------------------------------ has experienced a decline of approximately 30% in volume. The Company has also ------------------------------------------------------------------------------ noted that other casting operations have already ceased. However, ALJ has, in ----------------------------------------------------------------------------- the past, been able to survive the recessions. Of course there is no guarantee ------------------------------------------------------------------------------ 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:

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.

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:

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

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

Depreciation expense for the years ended June 30, 2001 and 2000 totaled $135,338 and $127,064, respectively

22 GC INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS

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:

24 GC INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 and 2000

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.

The accompanying notes are an integral part of these financial statements. 26

The accompanying notes are an integral part of these financial statements. 27

The accompanying notes are an integral part of these financial statements. 28

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

GC INTERNATIONAL INC /CA 10-K