<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 December 31, 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.)
ONE WINNENDEN, 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 February
12, 1997 was 4,283,269
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
Exhibit Index is located at Page 14
<PAGE> 2
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31, 1996 (UNAUDITED)
AND MARCH 31, 1996 3 - 4
UNAUDITED STATEMENTS
OF INCOME - THREE MONTHS AND
NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1995 5
UNAUDITED STATEMENTS
OF CASH FLOWS - THREE MONTHS AND
NINE MONTHS ENDED
DECEMBER 31, 1996AND 1995 6
NOTES TO CONDENSED FINANCIAL
STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8 - 11
PART II - OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
EXHIBIT 15
2
<PAGE> 3
FORM 10-QSB
DECEMBER 31, 1996
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED FINANCIAL STATEMENTS
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
UNRESTRICTED CASH AND
SHORT-TERM INVESTMENTS $ 533,707 $ 127,059
RESTRICTED CASH AND
SHORT-TERM INVESTMENTS 0 325,834
ACCOUNTS RECEIVABLE, NET 1,814,732 1,187,082
COSTS AND ESTIMATED EARNINGS IN EXCESS OF
BILLINGS ON UNCOMPLETED CONTRACTS 1,418,889 331,644
INVENTORIES 1,021,588 1,312,407
PREPAID EXPENSES 96,259 88,863
---------- ----------
TOTAL CURRENT ASSETS 4,885,175 3,372,889
---------- ----------
PROPERTY AND EQUIPMENT:
MACHINERY AND EQUIPMENT 803,706 761,700
FURNITURE AND FIXTURES 116,782 113,982
LEASEHOLD IMPROVEMENTS 291,184 67,811
---------- ----------
1,211,672 943,493
LESS - ACCUMULATED DEPRECIATION
AND AMORTIZATION 459,596 292,099
---------- ----------
NET PROPERTY AND EQUIPMENT 752,076 651,394
---------- ----------
OTHER ASSETS:
EXCESS OF COST OVER FAIR VALUE OF
NET ASSETS ACQUIRED, NET 3,501,163 3,668,772
DEFERRED PREPRODUCTION COSTS, NET 633,211 397,444
ACCOUNT AND NOTE RECEIVABLE
FROM STOCKHOLDER 59,177 19,177
INVESTMENT, AT LOWER OF COST OR MARKET 30,000 30,000
OTHER 16,186 16,183
---------- ----------
TOTAL OTHER ASSETS 4,239,737 4,131,576
---------- ----------
TOTAL LONG-TERM ASSETS 4,991,813 4,782,970
---------- ----------
TOTAL ASSETS $9,876,988 $8,155,859
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
3
<PAGE> 4
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
ACCOUNTS PAYABLE TO STOCKHOLDER $ 0 $ 100,000
ACCOUNTS PAYABLE 2,161,272 1,951,551
ACCRUED EXPENSES 543,362 494,089
NOTE PAYABLE AND CURRENT MATURITIES
OF LONG-TERM DEBT 366,325 666,325
BILLINGS IN EXCESS OF COSTS AND ESTIMATED
EARNINGS ON UNCOMPLETED CONTRACTS 1,371,441 243,371
DEFERRED SERVICE CONTRACT REVENUE 1,264,304 1,124,028
------------ ------------
TOTAL CURRENT LIABILITIES 5,706,704 4,579,364
------------ ------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,914,098 1,964,709
TOTAL LIABILITIES 7,620,802 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;
16,000,000 SHARES AUTHORIZED; 4,283,269
AND 4,133,269 SHARES ISSUED AND
OUTSTANDING AT DECEMBER 31 AND
MARCH 31, 1996, RESPECTIVELY 4,283 4,133
SERIES B COMMON STOCK, $.001 PAR VALUE;
500 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING AT DECEMBER 31
AND MARCH 31, 1996 1 1
ADDITIONAL PAID-IN CAPITAL 11,373,453 10,865,450
ACCUMULATED DEFICIT (9,121,551) (9,257,798)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,256,186 1,611,786
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,876,988 $ 8,155,859
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
4
<PAGE> 5
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
UNAUDITED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES:
SYSTEMS $ 2,100,057 $ 2,056,669 $ 6,865,970 $ 6,626,006
MAINTENANCE 1,495,252 938,170 4,435,580 2,672,067
----------- ----------- ------------ -----------
TOTAL SALES 3,595,309 2,994,839 11,301,550 9,298,073
----------- ----------- ------------ -----------
COST OF SALES:
SYSTEMS 1,093,365 1,213,809 3,674,057 3,978,768
MAINTENANCE 916,884 679,472 2,755,538 1,958,981
----------- ----------- ------------ -----------
TOTAL COST OF SALES 2,010,249 1,893,281 6,429,595 5,937,749
----------- ----------- ------------ -----------
GROSS PROFIT 1,585,060 1,101,558 4,871,955 3,360,324
----------- ----------- ------------ -----------
OPERATING EXPENSES:
SELLING AND ADMINISTRATIVE 1,428,417 1,201,070 4,414,729 3,940,667
RESEARCH AND DEVELOPMENT 53,678 36,307 167,891 150,045
----------- ----------- ------------ -----------
TOTAL OPERATING EXPENSES 1,482,095 1,237,377 4,582,620 4,090,712
----------- ----------- ------------ -----------
OPERATING INCOME, (LOSS) 102,965 (135,819) 289,335 (730,388)
----------- ----------- ------------ -----------
OTHER EXPENSES
INTEREST EXPENSE, NET (34,489) (42,192) (153,088) (156,858)
----------- ----------- ------------ -----------
NET INCOME, (LOSS) $ 68,476 ($ 178,011) $ 136,247 ($ 887,246)
=========== =========== ============ ===========
EARNINGS (LOSS) PER SHARE $ 0.02 ($ 0.04) $ 0.03 ($ 0.23)
FULLY DILUTED WEIGHTED
AVERAGE SHARES OUTSTANDING 4,444,543 4,108,269 4,361,210 3,825,820
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
5
<PAGE> 6
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME, (LOSS) $ 68,476 ($178,011) $ 136,247 ($ 887,246)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED BY OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 130,620 80,620 425,993 236,349
(INCREASE) IN ACCOUNTS
RECEIVABLE (526,306) (353,222) (627,650) (599,266)
(INCREASE) DECREASE IN INVENTORIES (414,445) 247,645 290,819 440,508
(INCREASE) DECREASE IN PREPAID EXPENSES
AND OTHER ASSETS 13,272 7,234 (7,396) (35,300)
INCREASE (DECREASE) IN ACCOUNTS
PAYABLE (91,016) 195,585 109,721 219,400
(DECREASE) INCREASE IN ACCRUED EXPENSES (58,649) (228,740) 32,425 179,328
INCREASE IN DEFERRED SERVICE
CONTRACT REVENUE 23,300 452,761 140,276 223,236
INCREASE (DECREASE) IN BILLINGS IN EXCESS
OF COSTS AND ESTIMATED EARNINGS ON
UNCOMPLETED CONTRACTS, NET 1,076,593 (432,376) 40,824 (838,952)
----------- --------- --------- -----------
NET CASH FROM (USED BY) OPERATING ACTIVITIES 221,845 (208,504) 541,259 (1,061,943)
----------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (224,376) (16,299) (594,836) (171,438)
----------- --------- --------- -----------
NET CASH USED BY INVESTING ACTIVITIES (224,376) (16,299) (594,836) (171,438)
----------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE AND
LONG-TERM DEBT 0 275,000 0 868,336
REPAYMENT OF NOTES PAYABLE AND
LONG-TERM DEBT (79,067) (310,589) (350,611) (781,919)
INCREASE IN NOTES RECEIVABLE 0 0 (40,000) 0
DECREASE IN RESTRICTED CASH 0 0 325,834 0
ISSUANCE OF COMMON STOCK 0 0 525,002 1,000,000
----------- --------- --------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES: (79,067) (35,589) 460,225 1,086,417
----------- --------- --------- -----------
NET INCREASE (DECREASE) IN UNRESTRICTED
CASH AND SHORT-TERM INVESTMENTS (81,598) (260,392) 406,648 (146,964)
UNRESTRICTED CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD 615,305 422,024 127,059 308,596
----------- --------- --------- -----------
UNRESTRICTED CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 533,707 $ 161,632 $ 533,707 $ 161,632
----------- --------- --------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE> 7
FORM 10-QSB
DECEMBER 31, 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 principles 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. 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.
7
<PAGE> 8
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
SALES: Sales for the three month period ended December 31, 1996
increased 20% compared to the same period in 1995. System sales for the three
month period ended December 31, 1996 increased 2% from the same period in 1995.
Maintenance sales increased 59% over the same three month period. Sales for the
nine month period ended December 31, 1996 increased 22% from the same period in
1995. Systems sales increased 4% in the nine month period ended December 31,
1996 compared to the same period in 1995. Maintenance sales rose 66% in the same
nine month period. The increase in systems sales is attributable to increased
market penetration of the Company's products and repeat orders from the existing
customer base. 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 December 31, 1996 was $2,135,000 compared to
$1,317,000 at December 31, 1995.
GROSS PROFIT: Gross profit as a percentage of total sales for the three
month period ended December 31, 1996 increased to 44% from 37% for the same
period last year. Gross profit relating to systems sales increased to 48% from
41% for the same three month period last year. Gross profit on maintenance sales
increased to 39% in the three month period ended December 31, 1996 compared to
28% in the same period last year. For the nine month period ended December 31,
1996, gross profit as a percentage of net sales increased to 43% compared to 36%
in the same period last year. Gross profit relating to systems sales increased
to 47% from 40% for the same nine month period last year. Gross profit on
maintenance sales increased to 38% in the nine month period ended December 31,
1996 compared to 27% in the same period last year. The increase in gross profit
for systems sales was primarily due to fixed manufacturing expenses having been
held constant during the period and less lower margin custom work on systems in
process and completed during the current period. The increase in gross margin
for maintenance sales is primarily due to an increase in higher priced services
provided beyond standard single shift maintenance agreements.
8
<PAGE> 9
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
OPERATING EXPENSES: Operating expenses include Selling, Administrative
and Research and Development expenses.
Selling and administrative expenses remained essentially level as a
percentage of net sales for the three month period ended December 31, 1996
compared to the same period one year ago. Selling and administrative expenses
decreased to 39% from 42% as a percentage of net sales for the nine month period
ended December 31, 1996 compared to the same period one year ago.
Research and Development (R&D) expenses increased as a percentage of
net sales to 1.5% in the three month period ended December 31, 1996 from 1.2%
for the same three month period in 1995. R&D expenses decreased as a percentage
of net sales to 1.5% in the nine month period ended December 31, 1996 from 1.6%
for the same nine month period in 1995.
OTHER EXPENSES: Net interest expense decreased to $34,489 for the three
month period ended December 31, 1996 from $42,192 for the same period last year.
Net interest expense decreased to $153,088 for the nine month period ended
December 31, 1996 from $156,858 for the same period last year. This was due to
the smaller balance outstanding under the Company's credit agreements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for liquidity is to fund operations while
increasing sales and improving gross margins. The Company derives liquidity
through systems and maintenance sales (including customer deposits), bank
borrowings, financing arrangements with third parties and, from time to time,
sales of its equity securities. During the three month period ended December 31,
1996, the Company had a positive cash flow from operating activities of $221,845
compared to a negative cash flow of $208,504 for the same three month period in
1995. A significant reason for the positive cash flow in the three month period
ended September 30, 1996 was the Company's realization of a net profit for the
three month period of $68,476 compared to a net loss of $178,011 in the same
three month period in 1995.
The net profit for the nine month period ended December 31, 1996 was
$136,247 compared to a net loss of $887,246 in the same nine month period in
1995. During the first nine months of this fiscal year, operating activities
provided $541,259 in cash compared to a use of cash by operating activities of
$1,061,943 in the first nine months of last fiscal year.
9
<PAGE> 10
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
The Company has a $2,000,000 revolving credit agreement with a bank of
which $1,700,000 of an available $1,750,000 is outstanding under Facility A, and
$125,000 of an available $250,000 is outstanding under Facility B at December
31, 1996. 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 revolving credit facility 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. Based on current projections, management believes
that the Company will be able to generate sufficient funds to meet the Company's
needs for liquidity during the balance of the year. It is possible that the
Company's business may require larger amounts of capital than the Company
currently anticipates. There can be no assurance that the Company will be able
to obtain such capital.
At December 31, 1996, total Stockholders' Equity was $2,256,186
compared to Stockholders' Equity of $1,611,786 at March 31, 1996. Although there
can be no assurances of success, it is anticipated that the Company will
continue to increase its net worth during fiscal 1997.
10
<PAGE> 11
FORM 10-QSB
DECEMBER 31, 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.
11
<PAGE> 12
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
(A) EXHIBITS ON FORM 8-K
NONE
(B) REPORTS ON FORM 8-K
NO REPORT ON FORM 8-K WAS FILED BY GUNTHER INTERNATIONAL, LTD. DURING
THE QUARTER ENDED DECEMBER 31, 1996.
12
<PAGE> 13
FORM 10-QSB
DECEMBER 31, 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: February 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)
13
<PAGE> 14
FORM 10-QSB
DECEMBER 31, 1996
GUNTHER INTERNATIONAL, LTD.
EXHIBIT INDEX
Pages in
Sequentially
Exhibit Numbered
Number Description Copy
- ------ ----------- ----
27 -- Financial Data Schedule 15
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 533,707
<SECURITIES> 0
<RECEIVABLES> 1,814,732
<ALLOWANCES> 0
<INVENTORY> 1,021,588
<CURRENT-ASSETS> 4,885,175
<PP&E> 1,156,922
<DEPRECIATION> 459,596
<TOTAL-ASSETS> 9,876,988
<CURRENT-LIABILITIES> 5,706,704
<BONDS> 1,914,098
0
0
<COMMON> 4,283
<OTHER-SE> 11,373,453
<TOTAL-LIABILITY-AND-EQUITY> 9,876,988
<SALES> 2,100,057
<TOTAL-REVENUES> 3,595,309
<CGS> 1,093,365
<TOTAL-COSTS> 3,492,666
<OTHER-EXPENSES> 34,489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,489
<INCOME-PRETAX> 68,476
<INCOME-TAX> 0
<INCOME-CONTINUING> 68,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,476
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
