UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1997
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 0-27646
Gum Tech International, Inc.
--------------------------------------------------------------
(Exact name of small business issuer as specified in it charter)
Utah 87-0482806
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4205 North Seventh Avenue
Suite 300
Phoenix, AZ 85013-3080
--------------------------------------
(Address of principal executive offices)
(602) 277-0606
-------------------------
(Issuer's telephone number)
Check whether the issuer (1) 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
----- -----
There are 5,836,460 shares of the registrant's common stock, no par value
outstanding as of October 31, 1997.
<PAGE>
GUM TECH INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Part I Financial Information Page
Item 1. Condensed Balance Sheet as of
September 30, 1997 1
Condensed Statements of Operations
for the three months ended September 30, 1997
and 1996 3
Condensed Statements of Operations
for the nine months ended September 30, 1997
and 1996 4
Condensed Statements of Cash Flows
for the nine months ended September 30, 1997
and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II Other Information and Signatures 12
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
September 30, 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 4,776,608
Restricted Cash 56,452
Accounts receivable, net of
allowance for doubtful accounts
of $21,516 987,796
Inventories 1,097,283
Current portion of notes receivable 311,585
Accrued interest 59,763
Prepaid expenses and other 157,592
------------
Total Current Assets 7,447,079
------------
Property and Equipment, at cost:
Machinery and production equipment 3,436,409
Office furniture and equipment 136,750
Leasehold improvements 190,526
------------
Total Property and Equipment 3,763,685
Less accumulated depreciation (890,574)
------------
Net Property and Equipment 2,873,111
------------
Other Assets:
Prepaid advertising 4,295,014
Notes receivable 66,000
Intangible assets, net of
accumulated amortization 225,144
Deposits and other 245,029
------------
Total Other Assets 4,831,187
------------
Total Assets $ 15,151,377
============
The accompanying notes are an integral part of
these condensed financial statements.
1
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
September 30, 1997
(Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 359,718
Accrued interest 29,697
Customer deposits 816
Current portion of long-term debt 230,544
------------
Total Current Liabilities 620,775
------------
Long Term Debt, net of current portion above:
Notes payable 2,530,000
Equipment Lease Obligations 1,315,349
Total Long Term Debt 3,845,349
------------
Commitments and Contingencies --
Stockholders' Equity:
Preferred stock: no par value,
1,000,000 shares authorized,
none issued or outstanding --
Common stock: no par value,
10,000,000 shares authorized,
5,761,460 shares issued and outstanding 11,898,150
(Accumulated deficit) (1,212,897)
------------
Total Stockholders' Equity 10,685,253
------------
Total Liabilities and Stockholders' Equity $ 15,151,377
============
The accompanying notes are an integral part of
these condensed financial statements.
2
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,
---------------------------
1997 1996
---------------------------
Net Sales $ 1,783,334 $ 396,757
Cost of Sales 820,149 291,153
----------- -----------
Gross Profit 963,185 105,604
Operating Expenses 863,708 1,605,487
Research and Development 21,754 144,551
----------- -----------
Income (Loss) From Operations 77,723 (1,644,434)
----------- -----------
Other Income (Expense):
Interest and Other Income 67,083 27,714
Interest Expense (120,006) (41,816)
----------- -----------
Total Other Income (Expense) (52,923) (14,102)
----------- -----------
Income (Loss) Before Provision For Income Taxes 24,800 (1,658,536)
Provision (benefit) for income taxes -- --
----------- -----------
Net Income (Loss) $ 24,800 $(1,658,536)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted Average Number of Common
Shares Outstanding 6,653,686 4,879,566
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.00 $ (0.34)
=========== ===========
Fully diluted:
Weighted Average Number of Common
Shares Outstanding 6,950,711 4,879,566
=========== ===========
Net Income (Loss) Per Share of Common Stock $ 0.00 $ (0.34)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements.
3
<PAGE>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended
September 30,
---------------------------
1997 1996
---------------------------
Net Sales $ 6,194,689 $ 2,441,288
Cost of Sales 2,948,498 1,360,985
----------- -----------
Gross Profit 3,246,191 1,080,303
Operating Expenses 2,270,915 3,229,902
Research and Development 92,971 195,324
----------- -----------
Income (Loss) From Operations 882,305 (2,344,923)
----------- -----------
Other Income (Expense):
Interest and Other Income 148,786 73,447
Interest Expense (314,166) (179,427)
----------- -----------
Total Other Income (Expense) (165,380) (105,980)
----------- -----------
Income (Loss) Before Provision
For Income Taxes 716,925 (2,450,903)
Provision (benefit) for income taxes -- (213,343)
----------- -----------
Net Income (Loss) $ 716,925 $(2,237,560)
=========== ===========
Net Income (Loss) Per Share of Common Stock:
Primary:
Weighted Average Number of Common
Shares Outstanding 6,143,529 4,278,128
=========== ===========
Net Income (Loss) Per Share
of Common Stock $ 0.13 $ (0.52)
=========== ===========
Fully diluted:
Weighted Average Number of Common
Shares Outstanding 6,782,462 4,278,128
=========== ===========
Net Income (Loss) Per Share
of Common Stock $ 0.11 $ (0.52)
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
GUM TECH INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
-----------------------------------
1997 1996
-----------------------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income (loss) $ 716,925 $(2,237,560)
Adjustments to reconcile net income
(loss) to net cash (used)
by operating activities:
Depreciation 431,171 317,446
Amortization 34,504 --
Deferred income taxes -- (215,412)
Accrued interest on notes receivable (59,763) (20,652)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (233,924) 303,452
Decrease in income tax receivable 234,440 --
Decrease (Increase) in inventories 269,661 (560,654)
Decrease (Increase) in prepaid
expenses and other 658,439 (60,241)
(Increase) in prepaid advertising expenses (4,295,014) --
Decrease (Increase) in deposits and other 166,623 (120,049)
(Decrease) in accounts payable and accrued expenses (8,850) (337,914)
Decrease) in customer deposits (64,684) (36,959)
----------- -----------
Net Cash (Used) By Operating Activities (2,150,472) (2,968,543)
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (165,800) (648,339)
Decrease in notes receivable (61,585) (216,000)
----------- -----------
Net Cash (Used) By Investing Activities (227,385) (864,339)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from borrowing 2,530,000 706,397
Principal payments on notes payable (165,728) (2,536,942)
Issuance of common stock -- 8,430,000
Issuance of common stock upon exercise
of options/warrants 4,121,768 --
Costs for issuance of common stock (188,678) --
Debt issuance costs incurred (259,648) --
Offering costs incurred -- (1,277,807)
----------- -----------
Net Cash Provided By Financing Activities 6,037,714 5,321,648
----------- -----------
Net Increase in Cash and Cash Equivalents 3,659,857 1,488,766
Cash and Cash Equivalents at
Beginning of Period 1,116,751 503,327
----------- -----------
Cash and Cash Equivalents at
End of Period $ 4,776,608 $ 1,992,093
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 209,515 $ 286,790
Income taxes -- 23,165
Supplemental Disclosure of Non Cash Investing
and Financing Activities:
Capital lease obligation incurred for new equipment
$ -- $ 1,194,554
The accompanying notes are an integral part of
these condensed financial statements.
5
</TABLE>
<PAGE>
GUM TECH INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial information of the Company is prepared in
accordance with the rules prescribed for filing condensed interim financial
statements and, accordingly, does not include all disclosures that may be
necessary for complete financial statements prepared in accordance with
generally accepted accounting principles. The disclosures presented are
sufficient, in management's opinion, to make the interim information
presented not misleading. All adjustments, consisting of normal recurring
adjustments, which are necessary so as to make the interim information not
misleading, have been made. Results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of results of operations
that may be expected for the year ending December 31, 1997. It is
recommended that this financial information be read with the complete
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996 previously filed with the Securities
and Exchange Commission.
2. Net income (loss) per share of common stock is computed using the weighted
average number of common shares and common share equivalents outstanding
during the periods presented. Common share equivalents result from
outstanding options and warrants to purchase common stock. Pursuant to the
requirements of the Securities and Exchange Commission, common shares
issued by the Company during the twelve months immediately preceding the
initial public offering, plus the number of shares usable upon exercise of
stock options granted during this period, have been included in the
calculation of the shares used in computing net income (loss) per share as
if they were outstanding for all periods presented (using the treasury
stock method and the estimated public offering price in calculating
equivalent shares).
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was organized in 1991 to develop, market and distribute
specialty chewing gum products. The Company's first chewing gum product included
a natural caffeine substance marketed to runners and other exercise enthusiasts
as a source of energy and carbohydrates. In 1994 and 1995, the Company raised
funds through debt and equity financings which were used to establish a new
management team, develop additional chewing gum products, build inventories and
purchase chewing gum manufacturing equipment for the Company's 28,000 square
foot manufacturing facility which commenced operations in late March, 1996. The
facility currently has 34 employees and by the end of 1996 the Company produced
100% of its chewing gum products.
The Company distributes its branded and private-label nutrient and
therapeutic chewing gum products to many of the nation's top drugstore chains,
including Rite-Aid, Walgreens, Drug Emporium, Longs, Thrifty, Phar-Mor, Eckard
and Payless. The Company also has nationwide distribution in the mass market
chains (Target, Kmart, Meijer), major supermarket chains (Smith's , Lucky's) and
various health food distributors. In addition, the Company is increasing
distribution and further expanding its presence in international markets
including Japan, Korea, Russia, Scandinavia, and Europe. The Company is also
involved in many private label endeavors, including the research and development
of various nicotine and non-nicotine smoking cessation products.
Results of Operations for the Three Months Ended September 30, 1997 Compared to
the Three Months Ended September 30, 1996.
- --------------------------------------------------------------------------------
The following table sets forth certain statement of operations information
expressed both in dollars and as a percentage of net sales for the periods
indicated:
Quarters Ended September 30,
1997 1996
------------------ --------------------
Net sales $1,783,334 100% $396,757 100%
Cost of sales 820,149 46 291,153 73
Gross profit 963,185 54 105,604 27
Operating expenses 863,708 49 1,605,487 405
Research and development 21,754 1 144,551 36
Income (Loss) from operations 77,723 4 (1,644,434) (414)
Interest and other income 67,083 4 27,714 7
Interest expense (120,006) 7 (41,816) 11
Provision (benefit) for income taxes - - - -
Net income (Loss) 24,800 1 (1,658,536) (418)
7
<PAGE>
Net Sales. Net sales increased by $1,386,577 or 349%, to $1,783,334 for the
three months ended September 30, 1997, compared to $396,757 for the three months
ended September 30, 1996. The increase in sales was a result of the launch of
the Company's first smoking cessation product, CigArrest, which accounted for
approximately $600,000 in net sales. In addition, $498,000 of discontinued and
excess inventories were sold pursuant to a barter agreement that the Company
entered into with SKR Resources, Inc. in April, 1997. In September, 1997, the
agreement was amended to $796,000 from $438,000. The Company receives barter
credits toward advertising and other expenses in consideration for such
inventories. The products sold in the agreement consisted of ChromaTrim,
CitrusSlim and DentaHealth.
Cost of Sales. Cost of sales, as a percentage of net sales, decreased 27%
to $820,149 or 46% of net sales for the three months ended September 30, 1997
compared to $291,153 or 73% of net sales for the same period in 1996. The
primary reason for the decrease is the Company is capitalizing on the economies
of scale for its chewing gum products.
Gross Profit. Gross profit, as a percentage of net sales, increased by 27%
to $963,185 or 54% of net sales for the three months ended September 30, 1997
compared to $105,604 or 27% of net sales for the same period in 1996. The
increase in gross profit percentage was directly related to the decrease in cost
of sales.
Operating Expenses. Operating expenses were $863,708, a decrease of
$741,779 for the three months ended September 30, 1997 compared to the same
period in 1996. Approximately $440,340 of these operating expenses for the three
months ended September 30, 1997, were attributable to the operations of the
manufacturing plant, of which, $134,000 were directly related to depreciation of
the plant's manufacturing equipment. Factors contributing to a decrease in
non-manufacturing operating expenses for the three months ended September 30,
1997 were primarily related to advertising of $426,089 versus $742,985 for the
same period in 1996. Other significant non-manufacturing operating expenses for
the three months ended September 30, 1997 were administrative management labor
$190,159, accounting, legal and professional consulting fees $116,376, travel
and trade shows $55,978, general administrative labor $52,964 and sales labor
$35,422.
Research and Development. Research and Development expenditures were
$21,754 for the three months ended September 30, 1997, compared to $144,551 for
the same period in 1996. The majority of these costs were related to the
formulation of the following: a Ginseng gum, which helps maintain overall good
health; an Antacid/Calcium gum, which prevents, helps and treats osteoporosis
and prevents upset stomachs; a newly reformulated Love Gum; and other various
private label dental, smoking cessation and body building cube gums.
Interest and Other Income and Interest Expense. Interest and other income
was $67,083 an increase of $39,369 for the three months ended September 30,
1997, primarily as a result of an increase in working capital from equity
financings that were invested in short-term investments. Interest expense was
8
<PAGE>
$120,006 an increase of $78,190 for the three months ended September 30, 1997,
primarily as a result of the Company issuing $2,530,000 of subordinated
convertible notes in February and March, 1997.
Net Income. Net income increased to $24,800 for the three months ended
September 30, 1997 compared to a net loss of $1,658,536 for the same period in
1996.
Results of Operations for the Nine Months Ended September 30, 1997 Compared to
the Nine Months Ended September 30, 1996.
- --------------------------------------------------------------------------------
The following table sets forth certain statement of operations information
expressed both in dollars and as a percentage of net sales for the periods
indicated:
Nine Months Ended September 30,
1997 1996
------------------- -------------------
Net sales $6,194,689 100% $2,441,288 100%
Cost of sales 2,948,498 48 1,360,985 56
Gross profit 3,246,191 52 1,080,303 44
Operating expenses 2,270,915 37 3,229,902 132
Research and development 92,971 1 195,324 8
Income (Loss) from operations 882,305 14 (2,344,923) (96)
Interest and other income 148,786 3 73,447 3
Interest expense (314,166) 5 (179,427) 7
Provision (benefit) for income taxes - - (213,343) 8
Net income (Loss) 716,925 12 (2,237,560) (92)
Net Sales. Net sales increased by $3,753,401 or 154%, to $6,194,689 for the
nine months ended September 30, 1997 compared to $2,441,288 for the nine months
ended September 30, 1996. The increase in sales was primarily a result of $3.57
million of discontinued and excess inventories sold in a barter agreement that
the Company entered into in December, 1996 with Active Media Services, Inc. and
another barter agreement entered into in April, 1997 with SKR Resources, Inc. in
which the Company receives barter credits toward advertising and other expenses
in consideration for such inventories. Both barter agreements have been
completely shipped and the products sold in the agreements consisted of
ChromaTrim, CitrusSlim, DentaHealth, Vita ACE and gum from the Jack LaLanne line
of products.
Cost of Sales. Cost of sales, as a percentage of net sales, decreased 8% to
$2,948,498 or 48% of net sales for the nine months ended September 30, 1997,
compared to $1,360,985 or 56% of net sales for the same period in 1996. The
primary reason for the decrease is the Company has eliminated its dependence
upon outside manufacturers and is capitalizing on the economies of scale for its
chewing gum products.
Gross Profit. Gross profit, as a percentage of net sales, increased by 8%
to $3,246,191 or 52% of net sales for the nine months ended September 30, 1997,
compared to $1,080,303 or 44% of net sales for the same period in 1996. The
increase in gross profit was directly related to the decrease in cost of sales.
9
<PAGE>
Operating Expenses. Operating expenses were $2,270,915, a decrease of
$958,987 for the nine months ended September 30, 1997 compared to the same
period in 1996. Approximately $1,223,124 of these operating expenses were
attributable to the operations of the manufacturing plant, of which, $417,592
were directly related to depreciation of the plant's manufacturing equipment.
Factors contributing to a decrease in non-manufacturing operating expenses for
the nine months ended September 30, 1997 were primarily related to advertising
of $629,912 versus $1,062,511 for the same period in 1996. Other significant
non-manufacturing operating expenses for the nine months ended September 30,
1997 were administrative management labor $541,116, travel and trade shows
$282,865, accounting, legal and professional consulting fees $301,396, general
administrative labor $165,957, art/production fees $125,471 and sales labor
$100,097.
Research and Development. Research and Development expenditures were
$92,971 for the nine months ended September 30, 1997, compared to $195,324 for
the same period in 1996. The majority of these costs for the nine months ended
September 30, 1997 were related to the formulation of the following: Vita ACES+,
an anti-oxidant gum; Chew and Sooth Zinc gum, a throat soother; High Gear, and
energy gum; Calcium gum, prevents, helps and treats osteoporosis; Ginseng gum,
helps maintain overall good health; and other various private label dental,
smoking cessation and body building cube gums.
Interest and Other Income and Interest Expense. Interest and other income
was $148,786, an increase of $75,339 for the nine months ended September 30,
1997, primarily as a result of an increase in working capital from equity
financings that were invested in short-term investments. Interest expense was
$314,166 an increase of $134,739 for the nine months ended September 30, 1997,
primarily as a result of the Company issuing $2,530,000 of subordinated
convertible notes in February and March, 1997.
Net Income. Net income increased to $716,925 for the nine months ended
September 30, 1997 compared to a net loss $2,237,560 for the same period in
1996.
Liquidity and Capital Resources
As of September 30, 1997, the Company's working capital was $6.83 million
compared to $3.65 million at December 31, 1996. For the nine month period ended
September 30, 1997, the Company experienced a decrease in cash used by operating
activities of $2.15 million primarily as a result of an increase in prepaid
advertising expenses related to the Active Media Services, Inc. and SKR
Resources, Inc. barter agreements.
Investing activities consumed $227,385 in cash for the nine months ended
September 30, 1997 compared to $864,339 of cash used in the same period of 1996.
This was primarily from the acquisition of additional manufacturing equipment.
10
<PAGE>
Financing activities provided $6.04 million in cash for the nine months
ended September 30, 1997 compared to $5.32 million in cash for the same period
in 1996. The cash provided for 1996 was primarily a result of the Company
successfully completing its Initial Public Offering on April 24, 1996 less the
repayment of notes payable. The cash provided for 1997 was primarily from the
exercise of the Company's Common Stock Purchase Warrants issued in the Company's
Initial Public Offering . The Company called the Warrants for redemption in
July, 1997, and 457,400 of its 460,000 (99.43%) Warrants were exercised at an
exercise price of $7.50 per share prior to the date set for redemption for total
gross proceeds to the Company of $3,430,500. In addition, the Company sold an
aggregate of $2.53 million of convertible debentures in February and March,
1997.
Outlook
The statements contained in this section are based on current expectations.
These statement are forward looking, and actual results may differ materially.
The accumulated advertising credits resulting from the barter transaction
described under September 30, 1997 Results of Operations and totaling
approximately $4.3 million will be used over approximately the next two and
one-half years to advertise and promote CigArrest, a smoking cessation gum as
well as other products developed by the Company in the future. The Company also
expects to continue to support the reformulated ChromaTrim and CitrusSlim weight
loss/control gums and all other new products (i.e. Calcium gum, Ginseng gum and
the Zinc Chew and Sooth gums) with various advertising campaigns and direct
response. During the fourth quarter of 1997, the Company has committed to
approximately $900,000 of advertising, of which $360,000 will be paid by barter
credits. Although the Company believes it will be able to use all of its barter
credits, any barter credits unused within the two and one-half year period will
reduce future earnings by the amount of such unused barter credits.
The $3.4 million received from the Common Stock Purchase Warrant redemption
will be added to the Company's working capital and may be used to expand and
completely rebuild the Company's manufacturing and warehouse facilities when
demand outstrips capacity.
The Company's future results of operations and other forward looking
statements contained in this section, in particular the statement(s) concerning
plant efficiencies and capacities, capital spending, research and development
and other expenses involve a number of risks and uncertainties. In addition to
the factors discussed above, among the other factors that could cause actual
results to differ materially are the following: business conditions and the
general economy; competitive factors, such as rival gum manufacturers' pricing
and marketing efforts; availability of third-party material products at
reasonable prices; unused barter credits, if any; risk of nonpayment of accounts
receivable; risks of inventory obsolescence due to shifts in market demand;
timing of product introductions; and litigation involving product liabilities
and consumer issues.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
- -------------------------
On October 16, 1996, a lawsuit was filed against the Company in the United
States District Court for the Central District of California, CV-95-9784. The
action is entitled GCN Products, Inc. vs. Roy Kelly, et al. The complaint, as it
relates to the Company, principally alleges that the Company engaged in unlawful
rebates, appropriations and overcharges, commercial bribery, fraud and unjust
enrichment. Plaintiff seeks compensatory and punitive damages. The Company
denies all allegations and intends to vigorously defend the suit.
On December 11, 1996, a complaint was filed by Moira Cervi-Skinner, a
former employee of the Company, with the United States Equal Employment
Opportunity Commission (EEOC) in Phoenix, Arizona naming the Company and an
officer and director of the Company. The complaint alleges unwelcome sexual
conduct and sex discrimination as a condition of employment at the Company. In
addition, a demand letter has been received from the complainant's attorney
demanding $825,000. There is no lawsuit filed at this time. The Company intends
to contest these allegations and all alleged damages vigorously if a suit should
be brought. The Company believes it is insured for its own attorneys fees and
costs in this matter.
On August 27, 1997, a lawsuit was filed by Paul R. Janssens-Lens against
Gum Tech International, Inc., in the case of Janssens-Lens v. Gum Tech
International, Inc., Kensington Securities, Inc., Kirtis Wyatt and Jane Doe
Wyatt in the Superior Court of Arizona, in and for the County of Maricopa, case
number CV97-15896. The Jansenns-Lens lawsuit alleges both breach of contract and
tort actions, including intentional interference with prospective economic
advantage, misrepresentation, securities fraud and consumer fraud and seeks
compensatory damages in an amount of no less than $1,680,000, together with an
award of punitive damages in an amount to be determined at trial. The lawsuit
settled in the early stages between plaintiff Paul R. Janssens-Lens and
defendants Kensington Securities, Inc. and Kirtis Wyatt. The Company did not
participate in this settlement agreement. The plaintiff is now in the process of
determining whether he believes he still has a viable cause of action against
the Company. In the event the plaintiff elects to proceed against the Company,
the Company intends to vigorously defend the lawsuit. The Company believes it is
insured for its costs in this matter.
Item 2. Changes in Securities
- -----------------------------
None
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Item 5. Other
- -------------
None
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
A. Exhibits
None
B. Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated August 14, 1997,
where Gum Tech International, Inc. and Nabisco, Inc. entered into a "Joint
Development Agreement" to develop and commercialize a number of new and improved
products. In the development phase of the agreement, Gum Tech will combine its
expertise in areas such as coatings and active ingredients with Nabisco's
expertise in areas such as gum bases and flavors. Gum Tech commits to having a
minimum manufacturing capacity for at least 20 million units from now until June
1, 1998.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Gum Tech International, Inc.
/s/ Gerald N. Kern
----------------------------------------
Gerald N. Kern
Chief Executive Officer and President
/s/ Jeffrey L. Bouchy
----------------------------------------
Jeffrey L. Bouchy
Senior Vice President -
Chief Financial Officer
November 14, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,776,608
<SECURITIES> 0
<RECEIVABLES> 1,009,312
<ALLOWANCES> 21,516
<INVENTORY> 1,097,283
<CURRENT-ASSETS> 7,447,079
<PP&E> 3,763,685
<DEPRECIATION> 890,574
<TOTAL-ASSETS> 15,151,377
<CURRENT-LIABILITIES> 620,775
<BONDS> 0
0
0
<COMMON> 11,898,150
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