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VII. G�nther's Financial Demise
As of FYE May 31, 1990, the income statement of G�nther and
its subsidiaries showed a net profit of $387,962. During FYE May
31, 1991, petitioner began advancing cash to G�nther so that
G�nther could service its bank loans and meet its short-term
financial obligations. As of FYE May 31, 1991, the income
statement of G�nther and its subsidiaries showed a net loss of
$414,443.
Early in FYE May 31, 1992, G�nther management's interim
reports to petitioner showed a fiscal-year-to-date loss of
roughly DM 5 million ($3,012,500 approximately). From
petitioner’s perspective, this result was a disaster. G�nther
was unable to pay its bank loans and trade payables currently out
of cashflow generated from its operations, and, consequently,
petitioner had to advance the necessary funds to prevent a
default by G�nther on the guaranteed bank loans. Sometime later
in FYE May 31, 1992, G�nther’s management reported that a capital
contribution in the amount of $2 million was required to avert
statutory bankruptcy under German law. Petitioner made the
requested contribution to capital after G�nther’s management
projected significant improvement in operating results for the
latter half of G�nther’s FYE April 30, 1992.
Petitioner’s management first became aware of the true
severity of G�nther’s financial problems during July 1992, when
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