-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IoVsdh9D/2DYRU4S5aof6NB0ZrEWcmG2vk3Uyw1vwoa1jw6cczlr27gVLmh9tnoy CRvXQqlG/49FpPBCU0yGNg== 0001047469-98-030778.txt : 19980813 0001047469-98-030778.hdr.sgml : 19980813 ACCESSION NUMBER: 0001047469-98-030778 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIREPLACE MANUFACTURERS INC CENTRAL INDEX KEY: 0000738992 STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIPMENT, EXCEPT ELECTRIC & WARM AIR FURNACES [3433] IRS NUMBER: 953244946 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13746 FILM NUMBER: 98684097 BUSINESS ADDRESS: STREET 1: 2701 S HARBOR BLVD CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7145497782 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998 OR / / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-13746 FIREPLACE MANUFACTURERS, INC. (Exact Name of Registrant as specified in its charter) California 95-3244946 - ---------------------------------------------- -------------------------- (State or other jurisdiction of Incorporation) (I.R.S. Employer I.D. No.) 2701 South Harbor Boulevard, Santa Ana, California 92704 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 549-7782 -------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than 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 outstanding of each of the Registrant's classes of Common Stock as of July 22, 1998, was as follows: Common Stock, $0.01 Par Value per share - 3,326,775 Documents incorporated by reference. None PART I FINANCIAL INFORMATION The following comparative financial statements for the three month period ended June 30, 1998, have not been audited by independent public accountants; but, in the opinion of management, all adjustments necessary to present fairly the results of operations for the periods have been included. The statements have been prepared by the company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. Operating results for the three month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending March 31, 1999. It is suggested that the condensed financial statements be read in conjunction with the financial statements and accompanying notes included in the Company's 1998 Annual Report on Form 10-K. 2 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
JUNE 30 1998 MARCH 31 (UNAUDITED) 1998 ------------ ---------- ASSETS Current Assets: Cash and Cash Equivalents $1,303,000 $1,232,000 Trade accounts and notes receivable, less allowance for doubtful accounts of $249,000 at June 30, 1998, and $261,000 at March 31, 1998 1,985,000 1,802,000 Inventories (Note 2) 1,550,000 1,571,000 Prepaid expenses and other assets 74,000 74,000 Deferred Income Taxes 411,000 411,000 ---------- ---------- TOTAL CURRENT ASSETS 5,323,000 5,090,000 Property and Equipment at cost, Net (Note 3) 1,241,000 1,339,000 Other Assets 50,000 218,000 ---------- ---------- $6,614,000 $6,647,000 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable 1,351,000 1,163,000 Accrued Liabilities 1,166,000 1,719,000 ---------- ---------- TOTAL CURRENT LIABILITIES 2,517,000 2,882,000 ---------- ---------- Long-Term Debt 0 0 Deferred Income Taxes 181,000 181,000 ---------- ---------- TOTAL LONG TERM LIABILITES 181,000 181,000 ---------- ---------- Preferred Stock: $1.00 par value, authorized 1,000,000 shares; none issued or outstanding Common Stock: $.01 par value, authorized 10,000,000 shares; issued and outstanding 3,326,775 shares at June 30, 1998 and 3,326,775 at March 31, 1998 33,000 33,000 Retained Earnings 3,883,000 3,551,000 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 3,916,000 3,584,000 ---------- ---------- $6,614,000 $6,647,000 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 3 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30 JUNE 30 1998 1997 (UNAUDITED) (UNAUDITED) ----------- ----------- Net Sales $6,797,000 $7,768,000 Cost of Sales 5,060,000 5,707,000 ---------- ---------- Gross Margin 1,737,000 2,061,000 Selling, General, and Administrative Expenses 1,199,000 1,597,000 ---------- ---------- Operating Income 538,000 464,000 Interest Income or (Expense) 12,000 (7,000) ---------- ---------- Earnings before income taxes 550,000 457,000 Provision for Income Taxes 220,000 183,000 ---------- ---------- NET EARNINGS 330,000 274,000 ---------- ---------- ---------- ---------- Basic and Diluted Earnings per Common Share (Note 6) $0.10 $0.08 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 4 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30 JUNE 30 1998 1997 (UNAUDITED) (UNAUDITED) ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net earnings $330,000 $274,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization before retirements 149,000 147,000 Loss (gain) on sale of property and equipment Changes in operating assets and liabilities: Trade accounts and notes receivable (183,000) 370,000 Inventories 21,000 (104,000) Prepaid expenses and other assets 168,000 (26,000) Accounts payable and accrued liabilities (364,000) (120,000) ---------- -------- Net cash provided by operating activities 121,000 541,000 ---------- -------- CASH FLOW FROM INVESTING ACTIVITIES Purchases of property and equipment (51,000) (85,000) Proceeds from sale of property and equipment 1,000 ---------- -------- Net cash used in investing activities (50,000) (85,000) ---------- -------- CASH FLOW FROM FINANCING ACTIVITIES Payments on long-term debt (53,000) Repurchase of common stock (37,000) ---------- -------- Net cash used in financing activities 0 (90,000) ---------- -------- Net increase in cash and cash equivalents 71,000 366,000 Cash and cash equivalents at beginning of period 1,232,000 333,000 ---------- -------- Cash and cash equivalents at end of period $1,303,000 $699,000 ---------- -------- ---------- --------
The accompanying notes are an integral part of these financial statements. 5 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its presently inactive, wholly-owned subsidiary (Fireplace Industries of California, Inc.). All material inter-company transactions have been eliminated. All adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations have been included. 2. INVENTORIES Inventories are comprised of:
(UNAUDITED) JUNE 30 MARCH 31 1998 1998 ---------- ---------- Raw Materials $1,090,000 $1,032,000 Work in Progress 239,000 239,000 Finished Goods 221,000 300,000 ---------- ---------- TOTAL $1,550,000 1,571,000 ---------- ---------- ---------- ----------
3. PROPERTY AND EQUIPMENT The Company's investment in property and equipment, at cost, less related accumulated depreciation and amortization is summarized below:
(UNAUDITED) JUNE 30 MARCH 31 1998 1998 ---------- ---------- Machinery and Equipment $2,926,000 $2,889,000 Tools, Dies and Molds 1,395,000 1,389,000 Furniture, Fixtures, and Vehicles 352,000 352,000 Buildings and Leasehold Improvements 60,000 60,000 Research and Development Equipment 262,000 256,000 ---------- ---------- $4,995,000 $4,946,000 Accumulated Depreciation and Amortization 3,754,000 3,607,000 ---------- ---------- $1,241,000 $1,339,000 ---------- ---------- ---------- ----------
4. RELATED PARTY TRANSACTIONS The Company has two monthly operating leases of equipment with H&H Equities Incorporated. H&H Equities Incorporated is wholly owned by Willard P. Harris and John D. Hornsby, officers of the Company and members of the Company's Board of Directors. The monthly lease payments are $7,119 and totaled $21,357 for the three months ended June 30, 1998. 6 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5. STOCK OPTIONS During 1997, FMI granted options for 835,000 shares at an option price of $2.88. The options vest evenly over five years from the grant date. No options have been exercised or expired during 1998. As part of the proposed merger with DESA International, FMI has obtained agreement from each holder of such options to cancel his or her options immediately prior to the merger for the aggregate consideration of $28,823. As permitted under generally accepted accounting principles, grants under these plans are accounted for following APB Opinion No. 25 and related interpretations. Accordingly, no compensation cost has been recognized for grants under the stock option plan. 6. EARNINGS PER SHARE DISCLOSURES Effective December 31, 1997, the Company Adopted Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings Per Share", which supersedes Accounting Principles Board (APB) Opinion No. 15. Statement No. 128 requires the presentation of basic and diluted earnings per share. Diluted per share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce a loss or increase the income per common share from continuing operations. The Company initially applied Statement No. 128 for its interim period ending December 31, 1997. Since December 31, 1997, is the first period the Company must apply these provisions, the reported earnings per share for June 1997 have been restated to conform to the new requirements. The weighted average number of common shares and common share equivalents outstanding during the period used to compute basic and diluted earnings per share is as follows:
Weighted Average Earnings Per THREE MONTHS ENDED 6/30/98: Income Shares Share ------ --------- ------------- Basic EPS 330,000 3,326,775 0.10 Effect of Dilutive Securities Options 0 86,437 ------- --------- ---- Diluted EPS 330,000 3,413,212 0.10 THREE MONTHS ENDED 6/30/97: Basic EPS 274,000 3,429,884 0.08 Effect of Dilutive Securities 0 0 ------- --------- ---- Diluted EPS 274,000 3,429,884 0.08
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (1) LIQUIDITY AND CAPITAL RESOURCES Accounts receivable (before allowance for doubtful accounts) at June 30, 1998 were $2,234,000 compared to $2,063,000 at March 31, 1998. This 8.3% increase is due to timing of cash receipts. The Company's standard terms are 1% 10 Net 30 and the June 30, 1998 days sales outstanding is 28 an increase of 3 days from the March 31, 1998 days sales outstanding of 25. Management is not aware of any significant potential uncollectable accounts. The Company continues to utilize a financing agreement, with the approval of the customer, where the Company is paid within 15 days at a discount of 2.25% or within 30 days at a discount of 1.75%. The agreement contains a clause whereby if the finance company repossess' any inventory of the customer, the Company is obligated to repurchase the repossessed inventory. The Company does not anticipate any material repurchase of inventory. The Company accounts for this arrangement as a sale of receivables. The balance sheet at June 30, 1998 and March 31, 1998 includes approximately $223,000 and $150,000 due from the finance company respectively. At June 30, 1998 and March 31, 1998 the amount of receivables sold to but not collected by the finance company was approximately $430,000 and $722,000 respectively. The impact of the sales of receivables on the days sales outstanding was to reduce the days sales outstanding by 3 and 10 days at June 30 and March 31, 1998 respectively. 7 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Accrued liabilities decreased due to payment of fiscal year 1998 bonus'. The bonus' were paid in May of 1998. The current ratio has increased 19% as of June 30, 1998 to 2.11:1 from 1.76:1 at March 31, 1998. Cash balances and accounts receivable balances increased at June 30 and accruals decreased due to payment of annual profit sharing. The Company has made capital additions of $51,000 during the three months ended June 30, 1998. The Company anticipates total purchases of approximately $450,000 during the fiscal year ending March 31, 1999. (2) RESULTS OF OPERATIONS Sales for the three months ended June 30, 1998 Decreased by 12.5% from the same three month period in 1997. This decrease is attributed to the Company's decision to decrease sales of lower margin wood burning fireplaces and accessories coupled with poor weather conditions and customer concerns related to the proposed merger with DESA International. Cost of sales as a percent of sales increased 1% for the three months ended June 30, 1998 from the same period in 1997 due to the relationship of the fixed costs included in cost of sales to the lower sales. Selling, general, and administrative expenses were 17.6% of sales for the three months ended June 30, 1998 compared to 20.6% for the same period in 1997. The decrease is attributed to lower bonus accruals plus lower commissions and promotions on lower sales. Interest income and expense changed from a $7,000 expense for the three month ended June 30, 1997 to $12,000 of income for the three months ended June 30, 1998. The increase is due to the elimination of borrowed money coupled with increased cash which is earning interest. Net earnings as a percent of sales increased by 1.4% for the three months ended June 30, 1998 compared to the same period in 1997. The increase is attributed to lower bonus accruals and commissions expense. (3) YEAR 2000 DISCLOSURE The Company's computer systems are not compliant with year 2000 requirements. At this time management is considering several options to gain compliance with prices ranging from $50,000 to $250,000. Price differences would allow for other system upgrades to be implemented simultaneously with the year 2000 solution. (4) FORWARD LOOKING STATEMENTS Certain information presented in this report constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. In addition to matters affecting the economy and the Company's industry generally, factors which could cause actual results to differ from expectations include the following: * Loss of one or more significant customers * Reduction in gross profit margins due to competitive pricing pressures * Changes in governmental regulation or failure to comply with existing regulation * Changes in the cost or availability of purchased parts * Inability to reduce costs while maintaining customer service (5) NEW ACCOUNTING PRONOUNCEMENTS No related pronouncements were issued this quarter. 8 FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEDINGS A claim was asserted against the Company alleging infringement of a company's patent. The original claim was for $50 per unit sold that infringed upon the patent (management estimated the potential claim at approximately $1,000,000). The district court granted the Company's motion for summary judgment and held that the Company's products do not infringe the patent at issue, either literally or by operation of the doctrine of equivalents. The summary judgment has been appealed. The Company's independent counsel is unable to express an opinion as to the probable outcome of the action and therefore no estimate can be made of a range of amount of loss, if any, that is reasonably possible. No amounts have been accrued in regards to this matter and it is reasonably possible that a change in the estimate will occur in the near term. ITEM 5. OTHER INFORMATION The company entered into an Agreement and Plan of Reorganization with DESA International on May 13, 1998 in which the Company will be merged with and into DESA International. As part of such merger the Company's common stock will be exchanged for $7.14 per share, not to exceed $23,750,000. Upon consummation of the merger, all outstanding stock options, subject to possible adjustment, will be canceled and all existing employment agreements and severance compensation agreements will be terminated. Upon closing, three members of the executive management team will enter into three year non-compete agreements with the buyer. Consummation of the merger is dependent upon the approval of the shareholders at a special meeting scheduled to be held on August 18, 1998. No assurances can be given that the merger will be consummated. ITEM 6 (a) Exhibits (27) Financial Data Schedule: Incorporated by reference from the Electronic filing of this report. (b) Reports on Form 8-K
No Form 8-K was filed during this quarter. 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. Date: August 11, 1998 FIREPLACE MANUFACTURERS, INC. BY: /s/ WILLARD P. HARRIS ---------------------------------- Willard P. Harris Chief Executive Officer /s/ JANE ANN IOVINE ---------------------------------- Jane Ann Iovine Chief Financial Officer 9 EX-27 2 EXHIBIT 27
5 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 1,303,000 0 2,234,000 249,000 1,550,000 5,323,000 4,995,000 3,754,000 6,614,000 2,517,000 0 0 0 33,000 3,883,000 6,614,000 6,797,000 6,797,000 5,060,000 6,259,000 0 0 (12,000) 550,000 220,000 330,000 0 0 0 330,000 .10 .10
-----END PRIVACY-ENHANCED MESSAGE-----