Flint Industries, Inc. and Subsidiaries - Page 9




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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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