<PAGE> 1
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, 1997
[ ] 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)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: 860-823-1427
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
----- -----
The number of shares of the Registrant's Common Stock outstanding as of August
12, 1997 was 4,283,269
Transitional Small Business Disclosure Format (check one):
YES NO X
----- -----
Exhibit Index is located at Page 12
<PAGE> 2
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS....................................3
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED)
AND MARCH 31, 1997..........................................3,4
UNAUDITED STATEMENTS
OF INCOME - THREE MONTHS ENDED
JUNE 30, 1997 AND 1996........................................5
UNAUDITED STATEMENTS
OF CASH FLOWS - THREE MONTHS
ENDED JUNE 30, 1997 AND 1996..................................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
2
<PAGE> 3
FORM 10-QSB
JUNE 30, 1997
PART I - CONDENSED FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 183,678 $ 261,700
ACCOUNTS RECEIVABLE 1,465,984 1,298,765
COSTS AND ESTIMATED EARNINGS
IN EXCESS OF BILLINGS
ON UNCOMPLETED CONTRACTS 1,322,982 1,403,715
INVENTORIES 1,768,155 1,262,435
PREPAID EXPENSES 94,931 90,531
---------- ----------
TOTAL CURRENT ASSETS 4,835,730 4,317,146
---------- ----------
PROPERTY AND EQUIPMENT:
MACHINERY AND EQUIPMENT 1,136,777 1,099,208
FURNITURE AND FIXTURES 207,671 187,294
LEASEHOLD IMPROVEMENTS 232,634 229,804
---------- ----------
1,577,082 1,516,306
LESS - ACCUMULATED DEPRECIATION
AND AMORTIZATION 544,796 483,069
---------- ----------
NET PROPERTY AND EQUIPMENT 1,032,286 1,033,237
---------- ----------
OTHER ASSETS:
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, NET 3,389,423 3,445,293
DEFERRED PREPRODUCTION COSTS 499,344 457,189
NOTES RECEIVABLE
FROM STOCKHOLDERS 40,000 40,000
INVESTMENT, AT LOWER OF COST
OR MARKET 30,000 30,000
OTHER 49,638 40,828
---------- ----------
TOTAL OTHER ASSETS 4,008,405 4,013,310
---------- ----------
TOTAL LONG-TERM ASSETS 5,040,691 5,046,547
---------- ----------
TOTAL ASSETS $9,876,421 $9,363,693
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
3
<PAGE> 4
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
(UNAUDITED)
<S> <C> <C>
ACCOUNTS PAYABLE $ 2,788,248 $ 2,059,506
ACCRUED EXPENSES 394,099 479,043
NOTE PAYABLE AND CURRENT MATURITIES
OF LONG-TERM DEBT 401,866 401,866
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS 740,481 771,016
DEFERRED SERVICE CONTRACT REVENUE 1,211,145 1,057,443
------------ ------------
TOTAL CURRENT LIABILITIES 5,535,839 4,768,874
------------ ------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,186,962 2,213,618
TOTAL LIABILITIES 7,722,801 6,982,492
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR VALUE;
AUTHORIZED 16,000,000 SHARES IN 1997;
ISSUED AND OUTSTANDING 4,283,269 SHARES
AT JUNE 30 AND MARCH 31, 1997 4,283 4,283
SERIES B COMMON STOCK, $.001 PAR VALUE;
500 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING AT JUNE 30
AND MARCH 31, 1997 1 1
ADDITIONAL PAID-IN CAPITAL 11,375,825 11,375,826
ACCUMULATED DEFICIT (9,226,489) (8,998,909)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,153,620 2,381,201
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,876,421 $ 9,363,693
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
4
<PAGE> 5
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
---- ----
<S> <C> <C>
SALES:
SYSTEMS $ 1,714,178 $ 2,280,456
MAINTENANCE 1,513,084 1,365,182
----------- -----------
TOTAL SALES 3,227,262 3,645,638
----------- -----------
COST OF SALES:
SYSTEMS 958,948 1,201,046
MAINTENANCE 921,833 835,533
----------- -----------
TOTAL COST OF SALES 1,880,781 2,036,579
----------- -----------
GROSS PROFIT 1,346,481 1,609,059
----------- -----------
OPERATING EXPENSES:
SELLING AND ADMINISTRATIVE 1,471,594 1,481,386
RESEARCH AND DEVELOPMENT 51,191 53,030
----------- -----------
TOTAL OPERATING EXPENSES 1,522,785 1,534,416
----------- -----------
OPERATING (LOSS), INCOME (176,304) 74,643
OTHER EXPENSES
INTEREST EXPENSE (51,276) (47,741)
NET (INCOME), LOSS ($ 227,580) $ 26,902
=========== ===========
NET (LOSS), INCOME PER SHARE ($ 0.05) $ 0.00
WEIGHTED AVERAGE SHARES OUTSTANDING 4,567,399 4,133,269
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
5
<PAGE> 6
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS), INCOME ($227,580) $ 26,902
ADJUSTMENTS TO RECONCILE NET (LOSS),
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 153,041 149,312
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE (167,219) 102,121
(INCREASE) DECREASE IN INVENTORIES (505,720) 188,604
(INCREASE) IN PREPAID EXPENSES
AND OTHER ASSETS (13,210) (93,492)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE 728,742 (506,546)
(DECREASE) INCREASE IN ACCRUED EXPENSES (84,944) 84,717
INCREASE (DECREASE) IN DEFERRED SERVICE
CONTRACT REVENUE 153,702 (4,223)
INCREASE IN BILLINGS IN EXCESS
OF COSTS AND ESTIMATED EARNINGS
ON UNCOMPLETED CONTRACTS, NET 50,198 194,089
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 87,010 141,484
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (138,376) (8,405)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (138,376) (8,405)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENT OF NOTES PAYABLE AND
LONG-TERM DEBT (26,656) (8,100)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (26,656) (8,100)
--------- ---------
NET (DECREASE) INCREASE IN CASH (78,022) 124,979
CASH AT THE BEGINNING OF THE PERIOD 261,700 127,059
--------- ---------
CASH AT THE END OF THE PERIOD $ 183,678 $ 252,038
--------- ---------
</TABLE>
The Company paid $0 and $7,926 for income taxes and $51,276 and $46,068 for
interest expense for the three month periods ended June 30, 1997 and 1996
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
6
<PAGE> 7
FORM 10-QSB
JUNE 30, 1997
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, 1997. 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.
7
<PAGE> 8
FORM 10-QSB
JUNE 30, 1997
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 1998 decreased 11%
compared to the same period in fiscal year 1997. System sales for the first
quarter of 1998 decreased 25% from the first quarter of 1997 and maintenance
sales increased 11% over the same period last year. The decreased systems sales
are attributable to unexpected delays with the Company's new inserter assembly.
Shipments were delayed, which decreased the amount of revenue that was realized
during the period. The delays due to the inserter will be resolved by the middle
of the second fiscal quarter, and shipments will largely be on schedule by the
end of the second quarter. Management expects that approximately $500,000 in
revenue will be recorded in the second quarter that normally would have been
recorded in the first quarter. The increase in maintenance sales was due
primarily to 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, 1997 was $3,603,000
compared to $2,947,000 at June 30, 1996.
GROSS PROFIT: Gross profit as a percentage of net sales for the three month
period ended June 30, 1997 decreased to 42% from 44% for the same period last
year. Gross profit relating to systems sales decreased to 44% from 47% for the
same period last year. The decrease was primarily due to increased costs
associated with the inserter assembly. Gross profit on maintenance services
remained the same for the quarter ended June 30, 1997 at 39% compared to the
quarter ended June 30, 1996.
OPERATING EXPENSES: Operating expenses include Selling, Administrative and
Research and Development expenses.
Selling and administrative expenses decreased 1% for the period ended
June 30, 1997 from the same period last year. Selling and administrative
expenses expressed as a percentage of total sales increased to 46% from 41% for
the three month period ended June 30, 1997 compared to the same period one year
ago. The increase as a percentage of total sales was due primarily to operating
expenses remaining constant, while sales decreased 11% during the period.
8
<PAGE> 9
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
Research and Development (R&D) expenses decreased 3% for the period
ended June 30, 1997 from the same period last year, although in absolute
dollars, the reduction is immaterial.. The slight decrease was due to utilizing
some R&D resources to resolve the issues with the inserter assembly during the
period.
OTHER EXPENSES: Interest expense increased to $51,276 for the three month period
ended June 30, 1997 from $47,741 for the same period last year. This was due to
the increased level of borrowing under the Company's line of credit outstanding
in the first quarter of fiscal year 1998 compared to the first quarter of fiscal
year 1997.
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, 1997, the Company had a positive cash flow from operations of
$87,000 compared to a positive cash flow from operations of $141,000 for the
same period in 1996. A substantial portion of the positive cashflow in the first
quarter of fiscal year 1998 is due to the increase in accounts payable. The
Company had a total negative cash flow of $78,000 in the period ended June 30,
1997 compared to total positive cash flow of $125,000 in the period ended June
30, 1996.
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.
The Company has a $2,250,000 revolving credit agreement with a bank of
which $1,700,000 of an available $1,750,000 is outstanding under Facility A, and
$500,000 of an available $500,000 is outstanding under Facility B at June 30,
1997. In order to induce the bank to enter into the credit facility, Mr. Harold
S. Geneen a director and stockholder of the Company, agreed to provide the bank
with sufficient cash collateral to secure all borrowings under Facility A. The
borrowings under Facility B are secured by the assets of the Company.
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 1998. 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 1998.
9
<PAGE> 10
FORM 10-QSB
JUNE 30, 1997
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
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, 1997.
10
<PAGE> 11
FORM 10-QSB
JUNE 30, 1997
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 14, 1997
--------------------------------------
FREDERICK W. KOLLING III
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER
(ON BEHALF OF THE REGISTRANT AND AS
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
11
<PAGE> 12
FORM 10-QSB
JUNE 30, 1997
GUNTHER INTERNATIONAL, LTD.
EXHIBIT INDEX
Exhibit
Number Description Page
27 Financial Data Schedule...............................................13
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 183,678
<SECURITIES> 0
<RECEIVABLES> 1,465,984
<ALLOWANCES> 0
<INVENTORY> 1,768,155
<CURRENT-ASSETS> 4,835,730
<PP&E> 1,577,082
<DEPRECIATION> 544,796
<TOTAL-ASSETS> 9,876,421
<CURRENT-LIABILITIES> 5,535,839
<BONDS> 2,186,962
0
0
<COMMON> 4,283
<OTHER-SE> 11,375,826
<TOTAL-LIABILITY-AND-EQUITY> 9,876,421
<SALES> 1,714,178
<TOTAL-REVENUES> 3,227,262
<CGS> 958,948
<TOTAL-COSTS> 3,403,566
<OTHER-EXPENSES> 51,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,276
<INCOME-PRETAX> (227,580)
<INCOME-TAX> 0
<INCOME-CONTINUING> (227,580)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,580)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
