FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 2002.
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from __________ to __________
Commission File Number: 0-22994
GUNTHER INTERNATIONAL LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 51-0223195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WINNENDEN ROAD, NORWICH, CONNECTICUT 06360
(Address of principal executive offices) (Zip Code)
860-823-1427
(Issuers Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last year)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
----- -----
The number of shares of the Registrant's Common stock outstanding as of October
31, 2002 was 19,372,200.
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
GUNTHER INTERNATIONAL LTD.
INDEX
<Table>
<Caption>
Page
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PART I - CONDENSED FINANCIAL INFORMATION
Item 1. Financial Statements - (unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 2002 and March 31, 2002 3
Condensed Consolidated Statements of Operations for
The three and six months ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Item 3. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 2. Changes in securities and use of proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
</Table>
2
PART I. CONDENSED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GUNTHER INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30, 2002 March 31, 2002
------------------ --------------
Assets
Current Assets:
Cash $ 505,148 $ 1,119,790
Restricted cash 101,054 100,054
Accounts receivable, less allowance 1,458,463 849,059
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,118,213 776,278
Inventories 1,997,908 1,666,462
Prepaid expenses 270,077 228,265
-------------- --------------
Total current assets 5,450,863 4,739,908
-------------- --------------
Equipment and Leasehold Improvements:
Machinery and equipment 2,106,992 2,230,914
Furniture and fixtures 538,886 505,939
Leasehold improvements 153,616 135,962
-------------- --------------
2,799,494 2,872,815
Accumulated depreciation and amortization (1,828,007) (1,518,098)
-------------- --------------
971,487 1,354,717
-------------- --------------
Other Assets:
Goodwill 2,551,429 2,551,429
Other 23,527 30,727
-------------- --------------
2,574,956 2,582,156
-------------- --------------
$ 8,997,306 $ 8,676,781
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 27,842 $ 27,842
Notes payable to related parties 1,000,000 --
Accounts payable 2,482,151 1,977,539
Accrued expenses 1,198,055 1,188,462
Billings in excess of costs and estimated
earnings on uncompleted contracts 401,114 515,903
Deferred service contract revenue 2,088,134 1,888,830
-------------- --------------
Total current liabilities 7,197,296 5,598,576
-------------- --------------
Long-term debt, less current maturities 47,659 62,078
-------------- --------------
Total liabilities 7,244,955 5,660,654
-------------- --------------
</Table>
3
<Table>
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $.001 par value: 500,000 shares authorized; none issued -- --
Common Stock, $.001 par value: 32,000,000 shares authorized; 20,300,190
shares issued at September 30, 2002 and 20,291,769 shares issued at 20,300 20,292
March 31, 2002, including shares held in treasury
Treasury stock, at cost (919,569 shares) (137,935) (137,935)
Additional paid-in capital 20,037,611 20,005,119
Accumulated deficit (18,167,625) (16,871,349)
-------------- --------------
Total Stockholders' Equity 1,752,351 3,016,127
-------------- --------------
$ 8,997,306 $ 8,676,781
============== ==============
</Table>
4
GUNTHER INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
Three Months Ended September 30, Six Months Ended September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Sales:
Systems $ 3,182,493 $ 1,338,238 $ 4,955,938 $ 3,434,026
Maintenance 2,829,061 2,939,387 5,570,156 5,664,091
Supplies 810,394 334,722 1,451,231 547,986
-------------- -------------- -------------- --------------
Total sales 6,821,948 4,612,347 11,977,325 9,646,104
-------------- -------------- -------------- --------------
Cost of sales:
Systems 2,284,043 1,610,447 4,098,185 3,346,541
Maintenance 1,997,957 2,065,576 4,177,274 4,093,727
Supplies 648,220 259,524 1,187,195 419,266
-------------- -------------- -------------- --------------
Total cost of sales 4,930,220 3,935,548 9,462,654 7,859,534
-------------- -------------- -------------- --------------
Gross profit 1,891,728 676,799 2,514,671 1,786,569
-------------- -------------- -------------- --------------
Operating expenses:
Selling and administrative 1,852,129 1,565,048 3,360,798 2,859,607
Research and development 230,868 238,348 430,726 558,556
-------------- -------------- -------------- --------------
Total operating expenses 2,082,997 1,803,396 3,791,524 3,418,163
-------------- -------------- -------------- --------------
Operating loss (191,269) (1,126,597) (1,276,853) (1,631,594)
Interest expense, net (16,611) (171,255) (19,423) (328,835)
-------------- -------------- -------------- --------------
Net loss $ (207,880) $ (1,297,852) $ (1,296,276) $ (1,960,429)
============== ============== ============== ==============
Net loss per share $ (0.01) $ (0.30) $ (0.07) $ (0.46)
============== ============== ============== ==============
Weighted average number of
common shares outstanding 19,380,621 4,291,769 19,376,526 4,291,769
============== ============== ============== ==============
</Table>
5
GUNTHER INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------- -------------
Operating activities:
Net loss $ (1,296,276) $ (1,960,429)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Depreciation and amortization 317,109 289,795
Provision for doubtful accounts 18,161 23,000
Interest accrued on related party note payable -- 127,752
Deferred directors' compensation 32,500 30,287
Changes in operating assets and liabilities:
Accounts receivable (627,565) 851,896
Inventories (199,196) 155,359
Prepaid expenses (41,812) (94,555)
Accounts payable 504,612 135,995
Accrued expenses 9,593 (30,901)
Deferred service contract revenue 199,304 606,613
Billings, costs and estimated earnings on
uncompleted contracts, net (456,724) 108,979
------------- -------------
Net cash (used for) provided by operating activities (1,540,294) 243,791
------------- -------------
Investing activities:
Acquisitions of equipment and leasehold improvements (58,929) (173,742)
------------- -------------
Net cash used for investing activities (58,929) (173,742)
------------- -------------
Financing activities:
Repayment of notes payable and long-term debt (14,419) (9,791)
Proceeds from related party notes payable 1,000,000 --
Transfer to restricted cash (1,000) --
-------------
Net cash provided by (used for) financing activities 984,581 (9,791)
------------- -------------
Change in cash (614,642) 60,258
Cash, beginning of period 1,119,790 759,393
------------- -------------
Cash, end of period $ 505,148 $ 819,651
============= =============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 8,270 $ 104,891
Cash paid for income taxes 13,833 20,713
Supplemental Disclosure of Non-Cash Investing Activities:
Equipment acquired for notes payable and capitalized leases $ -- $ 25,801
</Table>
6
GUNTHER INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position and the results of operations and cash
flows for the interim periods presented. These financial statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2002. The results of operations for the interim periods are not
necessarily indicative of results to be expected for the full year. The
condensed consolidated balance sheet as of March 31, 2002 was derived from the
audited financial statements at that date.
Certain prior period amounts have been reclassified to conform to the current
presentation.
2. LIQUIDITY:
The Company's primary need for liquidity is to fund operations while it
endeavors to increase sales and achieve consistent profitability. Historically,
the Company has derived liquidity through systems and maintenance sales
(including customer deposits), financing arrangements with banks and other third
parties and, from time to time, sales of its equity securities.
Under the Company's normal sales policy, approximately 50% of the sales price of
each system is received by the Company within 30 days from the time an order is
placed; approximately 40% is received at the time the system is shipped and the
remaining 10% is received approximately 30 days after delivery of the system. As
a result, the Company receives a significant cash flow benefit from the receipt
of new orders.
At September 30, 2002, backlog for high-speed assembly system and upgrade
orders, consisting of total contract price less revenue recognized to date for
all signed orders on hand, was $1.3 million compared to $3.1 million at June 30,
2002 and $1.9 million at March 31, 2002.
At September 30, 2002, the Company had a deficiency in working capital of
$1,746,000. For the six months ended September 30, 2002, the Company incurred a
net loss of $1,296,000 and used cash of $1,540,000 in operating activities.
On July 3, August 7 and September 26, 2002, the Company borrowed $700,000,
$100,000 and $200,000, respectively, from a shareholder and member of the Board
of Directors to alleviate cash deficiencies. These borrowings were evidenced by
8% notes payable which are due on or before December 31, 2002. The Company
subsequently repaid $100,000 of the notes on October 10, 2002.
The ability of the Company to continue as a going concern may be dependent upon
obtaining long-term financing to support its liquidity needs until it achieves a
sufficient order flow to generate profitable operating results and positive cash
flows from operating activities. The accompanying financial statements do not
include any adjustments to the amounts or classification of assets and
liabilities which might be required should the Company be unable to continue its
operations in the ordinary course of business.
3. SPARE PARTS:
During the quarter ended September 30, 2002, the Company was able to obtain for
a nominal cost and use certain spare parts previously sold to customers. As a
result, maintenance cost of sales was about $94,000 lower for the three and six
month periods ended September 30, 2002 than they otherwise would have been.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Operating results may be affected by certain accounting estimates. The most
sensitive and significant accounting estimates in the financial statements
relate to revenue recognition under sales contracts for the Company's high-speed
assembly equipment using the percentage of completion method, asset valuation
allowances (deferred income tax assets, slow moving and obsolete inventories and
accounts receivable) and accruals for product warranty expense. The Company
recognizes revenues under sales contracts for its high-speed assembly equipment
based on the ratio of incurred costs to total estimated costs. To the extent
these estimates change, sales will be affected in the period these changes are
determined. The majority of contracts for high-speed assembly equipment are
completed over no more than two quarters. Therefore, changes in revenue
resulting from changes in estimates will be limited to a two quarter period on
any one contract. Management continuously monitors uncompleted sales contracts,
performing detailed analyses of costs incurred, and estimated costs to complete,
in conjunction with measuring contract performance and recognizing contract
revenues. Similarly, management critically evaluates the potential realization
of deferred income tax benefits as well as the likely usefulness of its
inventories and the collectibles of accounts receivable. Accruals for product
warranty are based primarily on recent historical performance.
RESULTS OF OPERATIONS
Revenues -
Revenues for the three months ended September 30, 2002, increased to $6.8
million from $4.6 million for the three months ended September 30, 2001 (48%)
and total revenues for the six month period ending September 30, 2002 increased
24%, to $12.0 million from $9.6 million for the six months ended September 30,
2001.
System revenues consist of sales of high-speed inserter assembly systems,
upgrades to previously sold systems and inc.jet imager systems. System revenues
for the three months ended September 30, 2002 increased $1.9 million (138%) to
$3.2 million from $1.3 million for the same period ended September 30, 2001.
Revenues also increased from $3.4 million for the six months ended September 30,
2001 to $5.0 million for the six months ended September 30, 2002, an increase of
$1.6 million (44%).
The Company uses the percentage of completion method for recognizing revenue on
high-speed inserter assembly systems which results in a timing difference
between the order and revenue recognition. As a result, while actual orders
recorded for the six months ended September 30, 2001 were slightly higher than
for the same period in fiscal year 2003, revenues recognized year to date in
fiscal 2003 exceeded those for the same period in fiscal year 2002 primarily due
to a higher rate of orders recorded in the first quarter of fiscal 2003 ($2.7
million) than in the preceding year ($450,000). A summary of orders, revenue
recognized and backlog for the each of the last four fiscal quarters for the
high-speed assembly systems and related upgrades is as follows:
(in millions)
<Table>
<Caption>
September 30, 2002 June 30, 2002 March 31, 2002 December 31, 2001
------------------ ------------- -------------- -----------------
Backlog, beginning of period $ 3.1 $ 1.9 $ 2.3 $ 2.5
Orders 1.2 2.7 1.6 2.0
Revenue recognized (3.0) (1.5) (2.0) (2.2)
Backlog, end of period $ 1.3 $ 3.1 $ 1.9 $ 2.3
</Table>
Backlog consists of total contract price less revenue recognized to date for all
signed orders on hand. Based on the order backlog as of September 30, 2002, the
Company believes that third quarter revenues recognized for high-speed assembly
systems will be lower than the second quarter revenues stated above.
inc.jet imager revenues for the three months ended September 30, 2002 compared
to the same period in fiscal 2002 decreased $130,000, or 36%, from $361,000 to
$231,000. For the six months ended September 30, 2001 and 2002, respectively,
imager revenues fell from $765,000 to $464,000, a decrease of 39%. Management
believes that this decrease is the result of customers deferring orders in
anticipation of the release of the Company's new jet.engine imager in the third
quarter.
8
Maintenance revenues consist of contracted maintenance, repair parts sales and
other miscellaneous service revenues. Maintenance service contract revenue
increased $139,000 and $294,000, to $2.7 million and $5.4 million, respectively,
for the quarter and six months ended September 30, 2002 compared to the same
periods in fiscal 2002. This resulted from additional contracts sold with new
machine installations and normal contract price increases. Other service
revenues fell from $337,000 to $89,000, respectively, for the quarters ended
September 30, 2001 and 2002 and from $562,000 to $174,000, respectively, for the
six months ended September 30, 2001 and 2002. The high level of other service
revenues in fiscal 2002 related primarily to the conversion of a customer to
self-maintenance resulting in increased parts and training revenues and revenues
related to the physical move of a customer location involving seven machines.
Supplies revenues consist of ink cartridges, bladders and miscellaneous parts
and supplies related to inc.jet. Revenues have increased 142%, to $810,000 from
$335,000, quarter over quarter and from $548,000 to $1,451,000 (165%) for the
six months ended September 30, 2001 and 2002, respectively as a result of
aggressive pricing and a marketing campaign begun in fiscal 2002 to target the
dealer market.
Gross Profit -
Total gross profit increased to 28% from 15% and 21% from 19%, respectively, for
the quarter and six months ended September 30, 2002 and 2001.
The gross profit on system revenues increased to 28% ($898,000) from a loss of
$272,000 (-20%) for the three months ended September 30, 2002 and 2001 and also
increased to 17% ($858,000) from 3% ($87,000) for the six months ended September
30, 2002 and 2001, respectively.
The gross profit on high-speed inserter assemblies increased to a profit of
$750,000 (25%) from a loss of $542,000 quarter over quarter. For the six months
ended September 30, the gross profit on high-speed inserters increased to a
profit of $568,000 (13%) from a loss in the comparable six month period of
$456,000.
inc.jet imager gross profit decreased for the quarters and six months ended
September 30, 2001 and 2002 from $269,000 (75%) to $147,000 (64%) and $544,000
(71%) to $289,000 (62%), respectively, as a result of lower sales volume and
price pressure in advance of the jet.engine introduction.
The gross profit on maintenance revenues decreased by $42,000 (from 30% to 29%)
for the three months ended September 30, 2001 and 2002. For the six months ended
September 30, 2001 and 2002, maintenance profits decreased by $177,000 from 28%
to 25%, respectively. This net decrease is primarily attributable to the decline
in other service revenue as a result of the conversions to self-maintenance and
physical move of a customer in fiscal 2002 as described above. Offsetting this
decrease, the Company realized a reduction in parts cost of sales of $94,000 for
the three and six months ended September 30, 2002 as a result of the use of
certain spare parts obtained for a nominal cost as discussed in Note 3 of the
"Notes to Condensed Consolidated Financial Statements" above. Future reductions
in maintenance cost of sales based on similarly obtained parts are expected to
range from $1 million to $2.4 million over the next several years.
In terms of dollars, inc.jet supply gross profits have increased by $87,000 from
the quarter ended September 2001 to the quarter ended September 2002 and from
$129,000 to $264,000 for the six months ended September 2001 and 2002,
respectively as a result of higher sales volume. In terms of percentage,
however, inc.jet supplies gross profits have declined from 22% to 20% quarter
over quarter and from 24% to 18% for the six months ended September 30, 2001 and
2002, respectively, primarily as a result of price pressure in the marketplace
as well as an increase in sales volume to dealers generating lower margins.
Expenses -
Selling and administrative expenses increased $287,000 and $501,000 for the
three and six months ended September 30, 2002. Selling and administrative
expenses, as a percentage of total revenues, for the three and six months ended
September 30, 2002 were 27% and 28%, respectively, compared to 34% and 30% for
the same periods in fiscal 2002. The quarter over quarter increase is
attributable to an increase in
9
expenses related to inc.jet ($119,000), an increase in employee health care
costs ($115,000) related to higher than expected claims experience and the
run-out of claims under a previous self-insured health insurance plan and a
$55,000 increase in selling and marketing costs. For the four month period, from
June 1 to September 30, 2002, Company incurred $294,000 of insurance claims
under this self-insured plan including twelve major claims totaling over
$136,000. The increase in sales and marketing costs relate to a number of
factors, the most relevant being an increase in commissions ($52,000) primarily
due to the timing of equipment orders received and an increase in show expenses
($62,000) primarily related to the "Series W" roll-out. These increases were
offset somewhat by lower salary expense ($33,000) and lower travel expenses
($24,000). The increase in selling and administrative costs of $501,000 from the
six months ended September 30, 2001 to the same period for 2002 is the result
of: an increase in inc.jet sales, marketing and administrative costs of $281,000
as a result of the ramp-up of the business in the second quarter of fiscal year
2002; increases in health insurance costs ($155,000), commissions ($89,000), and
show expenses ($57,000) as discussed above; offset by a reduction in
professional service fees of $52,000. Professional service fees in fiscal 2002
were related to the implementation of the Company's management information
system.
Research and development expenses for the second quarter of fiscal 2003 and year
to date have decreased $7,000 and $128,000 from the comparable periods in fiscal
2002 as a result of the wind-down of the development of both the Series W
high-speed sorter and the inc.jet jet.engine imager.
Interest expense declined substantially between the three and six month periods
ended September 30, 2002 and 2001 as a result of the extinguishment of the debt
owed to Gunther Partners, LLC and various other parties in November of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for liquidity is to fund operations while it
endeavors to increase sales and achieve consistent profitability. Historically,
the Company has derived liquidity through systems and maintenance sales
(including customer deposits), financing arrangements with banks and other third
parties and, from time to time, sales of its equity securities.
Under the Company's normal sales policy, approximately 50% of the sales price of
each high-speed assembly system is received by the Company within 30 days from
the time an order is placed; approximately 40% is received at the time the
system is shipped and the remaining 10% is received approximately 30 days after
delivery of the system. As a result, the Company receives a significant cash
flow benefit from the receipt of new orders. In general, the Company's cash
flows from operating activities are significantly affected by the timing of the
billings of customer receivables and the payments to vendors for systems under
production.
At September 30, 2002, the Company had a deficiency in working capital of
$1,746,000. For the six months then ended, the Company incurred a net loss of
$1,296,000 and used cash of $1,540,000 in operating activities. The Company's
liquidity position through the first six months of the year has been adversely
affected by several factors. Of most significance, there was an unexpected delay
on a contract deposit of $610,000, a portion of which was collected subsequent
to the end of this quarter. The remainder of this payment as well as the balance
due on the contract will ultimately be collected during the third quarter of
fiscal 2003. The Company, as of September 1, 2002, switched from a self-insured
employee medical plan to a fully insured plan. During this time, the Company has
incurred substantial additional cash requirements as a result of higher claims
experience and the run-out of claims under the prior plan as well as funding the
current premiums under the new plan. Additionally, as a result of the increase
in inc.jet sales volume, the Company's cash flow has been adversely affected by
the funding of increased inc.jet inventories and receivables required to support
the growth.
As a result of the cash deficiency caused by the foregoing factors, on July 3,
August 7 and September 26, 2002, the Company borrowed $700,000, $100,000 and
$200,000, respectively, from a shareholder and member of the Board of Directors
to alleviate cash deficiencies. These borrowings were evidenced by 8% notes
payable which are due on or before December 31, 2002. Subsequent to the end of
the quarter, on October 10, 2002, the Company repaid $100,000 of the notes
payable
10
At September 30, 2002, while the revenue backlog for high-speed assembly system
and upgrade orders was $1.3 million, the associated unbilled receivables
relating to these contracts was $2.1 million. In addition, subsequent to
September 30, the Company received an additional order and a 50% deposit for a
high-speed assembly system. Assuming high-speed assembly system sales achieve
budgeted levels, management expects to receive approximately $1,600,000 in
additional contract payments during the third fiscal quarter and $2,400,000 in
contract payments during the fourth fiscal quarter. Management believes that
these amounts, when aggregated with other scheduled receipts, are expected to be
sufficient to fund the Company's operations during the balance of the fiscal
year, including the repayment of the shareholder loans.
While management believes that it may have sufficient cash to fund its
obligations throughout the balance of the fiscal year, at the same time, the
Company believes that the timing of the cash receipts could be such that it may
need to borrow additional funds during the remainder of the year to cover
short-term deficiencies in its cash position. Should the Company experience a
shortfall in its cash position, the Company has been assured by the shareholder
and Gunther Partners, LLC that, if required, the existing notes payable can be
renewed for an additional period of time and, also, that additional funds will
be provided so as to assure the Company's liquidity.
The Company's cash needs may be affected by a number of factors, however, many
of which are beyond the control of management. See "Forward Looking Statements,"
below. Also, there can be no assurance that the Company's actual sales will
achieve budgeted levels. Thus, there can be no assurance that the Company will
not need significantly more cash than is presently forecasted by management or
that the Company's current and expected sources of cash will be sufficient to
fund the Company's ongoing operations.
INFLATION
The effect of inflation on the Company has not been significant during the last
two years.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. In general, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements within the meaning of Section
21E. Without limiting the generality of the foregoing, the words "believes,"
"anticipates," "plans," "expects," and other similar expressions are intended to
identify forward-looking statements. Investors should be aware that such
forward-looking statements are based on the current expectations of management
and are inherently subject to a number of risks and uncertainties that could
cause the actual results of the Company to differ materially from those
reflected in the forward-looking statements. Some of the important factors which
could cause actual results to differ materially from those projected include,
but are not limited to, the following: (i) general economic conditions and
growth rates in the finishing and related industries; (ii) competitive factors
and pricing pressures; (ii) changes in the Company's product mix; (iii)
technological obsolescence of existing products and the timely development and
acceptance of new products; (iv) inventory risks due to shifts in market
demands; (v) component constraints and shortages; (vi) the continued improvement
and expansion of manufacturing capacity and efficiency; (vii) the continued
availability of financing; (viii) the ability to generate increased sales
meeting or exceeding projected levels; (ix) continued adherence with the
Company's current pricing policy, which generally calls for the payment of a 50%
deposit on all orders of high-speed assembly systems; and (ix) the timely
receipt of customer payments on or near the due dates for such payments. The
Company does not undertake to update any forward-looking statement made in this
report or that may from time-to-time be made by or on behalf of the Company.
ITEM 3. CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to provide
reasonable assurance as to the reliability of our published financial statements
and other disclosures included in this report. Within the
11
90 day period prior to the date of this report, we evaluated the effectiveness
of the design and operation of our disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information relating to Gunther International Ltd.
(including subsidiaries) required to be included in this quarterly report on
Form 10-QSB
There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date that we carried out our evaluation.
12
GUNTHER INTERNATIONAL LTD.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2002, the Company credited an
aggregate of 76,090 shares of Common Stock to the accounts of seven
directors who were participating in the Gunther International Ltd.
Directors' Equity Plan (the "Plan"). In accordance with the terms of
the Plan, each participating director is entitled to receive grants of
Common Stock in lieu of a quarterly cash retainer. The number of
shares which each director is entitled to receive each fiscal quarter
is equal to (a) $2,500, divided by (b) the fair market value of a
share of Common Stock as of the last business day of the quarter. The
fair market value of the Common Stock on the last business day of the
quarter was $0.23 per share. Each director elected to defer receipt of
the shares credited to his account. No underwriters were used in
connection with any of the foregoing transactions and, accordingly,
there were no underwriting discounts or commissions. The issuance of
these securities was exempt from registration under the Securities Act
of 1933 in reliance upon Section 4(2) thereof and the rules and
regulations promulgated there under.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The 2002 Annual Meeting of Stockholders was held on September 12, 2002
at the Company's corporate office in Norwich, Connecticut.
B. The following individuals were elected as directors at the Annual
Meeting:
<Table>
<Caption>
Name Votes For Votes Withheld
---- --------- --------------
James A. Cotter, Jr. 19,220,707 13,810
Edward F. Hacker 19,220,707 13,810
J. Kenneth Hickman 19,220,707 13,810
Steven S. Kirkpatrick 19,220,707 13,810
Gerald H. Newman 19,188,024 46,493
Marc I. Perkins 19,220,707 13,810
Robert Spiegel 19,220,707 13,810
Thomas M. Steinberg 19,220,707 13,810
</Table>
C. Adoption of the Gunther International Ltd. Stock Option Plan was
ratified by a vote of 18,917,249 for, 312,709 against and 4,559
abstentions.
D. Adoption of an amendment to the Gunther International Ltd. Directors'
Equity Plan was ratified by a vote of 18,912,249 for, 318,903 against
and 3,365 abstentions.
ITEM 5. OTHER INFORMATION.
Gerald H. Newman resigned as a member of the Board of Directors of the
Company, effective as of October 9, 2002. The resignation did not
result from any disagreement with the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 of Regulation S-B:
3.1 Restated Certificate of Incorporation of the registrant, dated as
of December 29, 1993 (filed as Exhibit 3.1 to the registrant's Form
10-QSB for the period ended September 30, 2001 and incorporated
herein by reference).
13
3.2 Certificate of Amendment to the registrant's Restated Certificate
of Incorporation dated as of October 22, 2001 (filed as Exhibit 3.2
to the registrant's Form 10-QSB for the period ended September 30,
2001, and incorporated herein by reference).
10.1 Promissory Note, dated September 26, 2002, made by the registrant
to the order of Robert Spiegel.
99.1 Certification of Marc I. Perkins, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of John K. Carpenter, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
B. Reports on Form 8-K.
None
14
GUNTHER INTERNATIONAL LTD.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GUNTHER INTERNATIONAL LTD.
(Registrant)
/s/ John K. Carpenter Date: November 13, 2002
-------------------------
John K. Carpenter
Chief Financial Officer and Treasurer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
15
RULE 13A-14 CERTIFICATION
CERTIFICATION
I, Marc I. Perkins, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Gunther
International Ltd;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based upon our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors which could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Marc I. Perkins
----------------------------
Marc I. Perkins
Chief Executive Officer
RULE 13A-14 CERTIFICATION
CERTIFICATION
I, John K. Carpenter, certify that:
2. I have reviewed this quarterly report on Form 10-QSB of Gunther
International Ltd;
3. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
4. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
5. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based upon our evaluation as of the Evaluation Date;
6. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weakness in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
7. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors which could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ John K. Carpenter
---------------------------------------
John K. Carpenter
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary