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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 June 30, 1996
[ ] 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.)
5 WISCONSIN AVENUE, NORWICH, CONNECTICUT 06360
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 203-823-1427
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
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The number of shares of the Registrant's Common Stock outstanding as of August
12, 1996 was 4,133,269
Transitional Small Business Disclosure Format (check one):
YES NO X
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Exhibit Index is located at Page 12
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS............................... 3
BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED)
AND MARCH 31, 1996 ................................. 3,4
UNAUDITED STATEMENTS
OF INCOME - THREE MONTHS ENDED
JUNE 30, 1996 AND 1995.............................. 5
UNAUDITED STATEMENTS
OF CASH FLOWS - THREE MONTHS
ENDED JUNE 30, 1996 AND 1995........................ 6
NOTES TO FINANCIAL
STATEMENTS.......................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 8 - 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 10
SIGNATURES........................................................... 11
EXHIBIT INDEX........................................................ 12
EXHIBITS............................................................. 13 - 68
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FORM 10-QSB
JUNE 30, 1996
PART I - CONDENSED FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31,
1996 1996
---- ----
(UNAUDITED)
CURRENT ASSETS:
UNRESTRICTED CASH AND
SHORT-TERM INVESTMENTS $ 252,038 $ 127,059
RESTRICTED CASH AND
SHORT-TERM INVESTMENTS 328,316 325,834
ACCOUNTS RECEIVABLE 1,084,961 1,187,082
COSTS AND ESTIMATED EARNINGS
IN EXCESS OF BILLINGS
ON UNCOMPLETED CONTRACTS 1,828,900 331,644
INVENTORIES 1,123,803 1,312,407
PREPAID EXPENSES 70,179 88,863
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TOTAL CURRENT ASSETS 4,688,197 3,372,889
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PROPERTY AND EQUIPMENT:
MACHINERY AND EQUIPMENT 764,074 761,700
FURNITURE AND FIXTURES 113,982 113,982
LEASEHOLD IMPROVEMENTS 73,842 67,811
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951,898 943,493
LESS - ACCUMULATED DEPRECIATION
AND AMORTIZATION 350,096 292,099
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NET PROPERTY AND EQUIPMENT 601,802 651,394
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OTHER ASSETS:
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, NET 3,612,902 3,668,772
DEFERRED PREPRODUCTION COSTS, NET 471,690 397,444
ACCOUNT AND NOTE RECEIVABLE
FROM STOCKHOLDER 19,177 19,177
INVESTMENT, AT LOWER OF COST
OR MARKET 30,000 30,000
OTHER 16,186 16,183
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TOTAL OTHER ASSETS 4,149,955 4,131,576
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4,751,757 4,782,970
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TOTAL ASSETS $9,439,954 $8,155,859
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, MARCH 31,
1996 1996
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(UNAUDITED)
CURRENT LIABILITIES:
ACCOUNTS PAYABLE TO STOCKHOLDER $ 0 $ 100,000
ACCOUNTS PAYABLE 1,545,005 1,951,551
ACCRUED EXPENSES 578,806 494,089
NOTE PAYABLE AND CURRENT MATURITIES
OF LONG-TERM DEBT 666,325 666,325
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS 1,934,716 243,371
DEFERRED SERVICE CONTRACT REVENUE 1,119,805 1,124,028
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TOTAL CURRENT LIABILITIES 5,844,657 4,579,364
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LONG-TERM DEBT, LESS CURRENT MATURITIES 1,956,609 1,964,709
TOTAL LIABILITIES 7,801,266 6,544,073
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $.001 PAR VALUE; 500,000
SHARES AUTHORIZED; NO SHARES ISSUED OR
OUTSTANDING 0 0
COMMON STOCK, $.001 PAR VALUE;
AUTHORIZED 16,000,000 SHARES IN 1996;
ISSUED AND OUTSTANDING 4,133,269 SHARES
AT JUNE 30 AND MARCH 31, 1996 4,133 4,133
SERIES B COMMON STOCK, $.001 PAR VALUE;
500 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING AT JUNE 30 1 1
AND MARCH 31, 1995
ADDITIONAL PAID-IN CAPITAL 10,865,450 10,865,450
ACCUMULATED DEFICIT (9,230,896) (9,257,798)
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TOTAL STOCKHOLDERS' EQUITY 1,638,688 1,611,786
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,439,954 $ 8,155,859
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
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JUNE 30, JUNE 30,
1996 1995
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SALES:
SYSTEMS $2,280,456 $2,028,036
MAINTENANCE 1,365,182 846,882
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TOTAL SALES 3,645,638 2,874,918
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COST OF SALES:
SYSTEMS 1,201,046 1,290,318
MAINTENANCE 835,533 647,489
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TOTAL COST OF SALES 2,036,579 1,937,807
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GROSS PROFIT 1,609,059 937,111
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OPERATING EXPENSES:
SELLING AND ADMINISTRATIVE 1,481,386 1,296,940
RESEARCH AND DEVELOPMENT 53,030 48,565
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TOTAL OPERATING EXPENSES 1,534,416 1,345,505
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OPERATING INCOME (LOSS) 74,643 (408,394)
OTHER EXPENSES
INTEREST EXPENSE (47,741) (67,630)
NET INCOME (LOSS) $ 26,902 $ (476,024)
========== ==========
INCOME (LOSS) PER SHARE $ 0.01 $ (0.13)
WEIGHTED AVERAGE SHARES OUTSTANDING 4,133,269 3,596,275
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
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JUNE 30, JUNE 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 26,902 $(476,024)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 149,312 75,110
DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE 102,121 (152,592)
DECREASE (INCREASE) IN INVENTORIES 188,604 (53,233)
DECREASE (INCREASE) IN PREPAID EXPENSES
AND OTHER ASSETS (93,492) (40,075)
(DECREASE) INCREASE IN ACCOUNTS PAYABLE (506,546) 104,534
INCREASE IN ACCRUED EXPENSES 84,717 66,568
(DECREASE) IN DEFERRED SERVICE
CONTRACT REVENUE (4,223) (200,000)
INCREASE (DECREASE) IN BILLINGS IN EXCESS
OF COSTS AND ESTIMATED EARNINGS
ON UNCOMPLETED CONTRACTS, NET 194,089 671,235
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NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 141,484 (4,477)
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CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (8,405) (8,557)
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NET CASH USED FOR INVESTING ACTIVITIES (8,405) (8,557)
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CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE AND
LONG-TERM DEBT 0 284,048
REPAYMENT OF NOTES PAYABLE AND
LONG-TERM DEBT (8,100) (452,567)
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NET CASH USED BY FINANCING ACTIVITIES (8,100) (168,519)
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NET INCREASE (DECREASE) IN UNRESTRICTED
CASH AND SHORT TERM INVESTMENTS 124,979 (181,553)
UNRESTRICTED CASH AND SHORT TERM
INVESTMENTS AT BEGINNING OF PERIOD 127,059 308,596
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UNRESTRICTED CASH AND SHORT TERM
INVESTMENTS AT END OF PERIOD $ 252,038 $ 127,043
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The Company paid $7,926 and $0 for income taxes and $46,068 and $48,613 for
interest expense for the three month periods ended June 30, 1996 and 1995
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) MANAGEMENT REPRESENTATION: In the opinion of management, the accompanying
unaudited interim financial statements have been prepared in accordance with
generally accepted accounting principals and contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the financial
position and the results of operations for the interim periods presented. These
financial statements should be read in conjunction with the financial statements
and related notes included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996. The results of operations for the interim
period are not necessarily indicative of results to be expected for the full
year.
(2) PER SHARE DATA: Earnings per common share are based on the weighted average
number of shares of common stock outstanding during each period.
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
TOTAL SALES: Total sales for the first quarter of fiscal year 1997 increased 27%
compared to the same period in fiscal year 1996. System sales for the first
quarter of 1997 increased 12% from the first quarter of 1996 and maintenance
sales increased 61% over the same period last year. The improved results for
systems sales are attributable to increased market penetration for the Company's
products and repeat orders from existing customers. The increase in maintenance
sales was due primarily to the increase in special one time services required by
several customers during the quarter and the increased number of systems under
maintenance contract in the field. The systems order backlog, consisting of
total order price less revenue recognized to date for all signed orders on hand
at June 30, 1996 was $2,947,000 compared to $3,526,000 at June 30, 1995 and
$1,085,000 at March 31, 1996.
GROSS PROFIT: Gross profit as a percentage of net sales for the three month
period ended June 30, 1996 increased to 44.1% from 32.6% for the same period
last year. Gross profit relating to systems sales increased to 47.3% from 36.4%
for the same period last year. The increase was primarily due to increased
manufacturing and purchasing efficiencies, and fewer machines in process with
nonstandard features compared to the same period last year. Gross profit on
maintenance services increased to 38.8% in the first quarter of 1996 compared to
23.5% in the first quarter of 1995. The increase is primarily due to an increase
in higher margin services being provided which are not covered by the standard
maintenance agreements.
OPERATING EXPENSES: Operating expenses include Selling, Administrative and
Research and Development expenses.
Selling and administrative expenses increased 14% for the period ended
June 30, 1996 from the same period last year. The increase is primarily due to
increased selling expenses which correspond to the increase in systems sales for
the period. Selling and administrative expenses expressed as a percentage of
total sales decreased to 41% from 45% for the three month period ended June 30,
1996 compared to the same period one year ago. The decrease as a percentage of
total sales was due primarily to operating expenses rising at only 14% compared
to the same period last year while total sales increased by 27% in the same
period. This favorable trend reflects management's continued emphasis on holding
selling and administrative expenses growth to a lower rate of increase than
total sales growth.
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
Research and Development (R&D) expenses increased 9% for the period
ended June 30, 1996 from the same period last year. The increase was due to
additional spending associated with efforts to broaden the Company's product
lines.
OTHER EXPENSES: Interest expense decreased to $47,741 for the three month period
ended June 30, 1996 from $67,630 for the same period last year. This was due to
the decreased level of convertible notes payable outstanding in the first
quarter of fiscal year 1997 compared to the quarter ended June 30, 1995
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for liquidity is to fund operations while
increasing sales and improving gross margins. During the three month period
ended June 30, 1996, the Company had a positive cash flow from operations of
$141,484 compared to a negative cash flow from operations of $4,477 for the same
period in 1995. The Company had a total positive cash flow of $124,979 in the
period ended June 30, 1996 compared to total negative cash flow of $181,553 in
the period ended June 30, 1995.
In general, as the Company achieves higher sales volumes, a cash flow
benefit will be realized from the increasing levels of deposits received from
customers, usually 50% of the systems price, at the time the order is placed.
The Company believes that an increased level of sales can be supported without a
significant corresponding increase in inventory levels due to improvements in
purchasing procedures and parts receipts scheduling.
On June 4, 1996, the Company entered into a new line of credit
arrangement with a bank which was used to refinance the Company's pre-existing
line of credit. The new arrangement provides for two revolving loans totaling
$2,000,000. The available borrowing under Facility A is in the amount of
$1,750,000, and is to be fully cash collateralized by assets provided by Mr.
Harold S. Geneen, a stockholder and a Director of the Company. The funds
advanced under Facility A bear interest at the bank's base rate. The maturity
date of Facility A is January 10, 1998. The available borrowing under Facility B
is in the amount of $250,000, and is secured by all tangible and intangible
personal property of the Company. The funds advanced under Facility B bear
interest at the bank's base rate, plus 1%. The maturity date of Facility B is
January 10, 1998. On June 5, 1996, there was an outstanding balance of
$1,700,000 owed to the bank on Facility A, and a $0 balance owed to the bank on
Facility B. There are no mandatory prepayments due for either Facility A or B
prior to the maturity date.
Except for the financing arrangements described above, the Company does
not have any commitments for outside funding of any kind. It must depend,
therefore, upon the generation of sufficient internally generated funds and the
remaining funds available under its revolving line of credit to fund its
operations during fiscal 1997. Management believes that such internally
generated funds and available borrowings under its revolving credit facility
will be sufficient to fund its cash requirements during fiscal 1997.
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
This report contains forward looking statements based on current
expectations that involve a number of risks and uncertainties. The factors that
could cause actual results to differ materially include the following: general
economic conditions and growth rates in the finishing and related industries,
competitive factors and pricing pressures, changes in the Company's product mix,
technological obsolescence of existing products and the timely development and
acceptance of new products, inventory risks due to shifts in market demands,
component constraints and shortages, and the ramp-up and expansion of
manufacturing capacity.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
(A) EXHIBITS ON FORM 8-K
10.1 -- Revolving Loan and Security Agreement dated May 31,
1996 between Gunther International, Ltd. and Bank of
Boston Connecticut
10.2 -- Subordination Agreement dated May 31, 1996 between
Bank of Boston Connecticut and Connecticut
Innovations, Inc.
27 -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
NO REPORT ON FORM 8-K WAS FILED BY GUNTHER INTERNATIONAL, LTD.
DURING THE QUARTER ENDED JUNE 30, 1996.
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
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.
GUNTHER INTERNATIONAL, LTD
(REGISTRANT)
/s/ Frederick W. Kolling III Date: August 13, 1996
----------------------------------
FREDERICK W. KOLLING III
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
(ON BEHALF OF THE REGISTRANT AND AS
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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FORM 10-QSB
JUNE 30, 1996
GUNTHER INTERNATIONAL, LTD.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ------
10.1 Revolving Loan and Security Agreement dated May 31, 1996
between Gunther International, Ltd. and Bank of Boston Connecticut 13
10.2 Subordination Agreement dated May 31, 1996 between Bank
of Boston Connecticut and Connecticut Innovations, Inc. 62
27 Financial Data Schedule 68
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