SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 30, 2000 Commission File No. 0-5940
TEMTEX INDUSTRIES, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 75-1321869
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 LBJ Freeway, Suite 1375, Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
972/726-7175
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(Registrant's telephone number including area code)
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 such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
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The Registrant had 3,444,641 shares of common stock, par value
$.20 per share, outstanding as of the close of the period covered
by this report.
<PAGE>
PART I. FINANCIAL INFORMATION
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
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2000 1999
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<S> <C> <C>
Net sales $ 4,936 $ 6,124
Cost of goods sold 4,365 5,148
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571 976
Cost and expenses:
Selling, general and administrative 1,435 1,782
Interest 87 43
Other (income) expense (52) (149)
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1,470 1,676
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LOSS FROM OPERATIONS
BEFORE INCOME TAX BENEFIT (899) (700)
State, federal and foreign income tax benefit -- (280)
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NET LOSS $ (899) $ (420)
========= =========
Basic and diluted loss per common share: $(0.26) $(0.12)
========= =========
Basic and diluted weighted average common
shares outstanding 3,444,641 3,444,641
========= =========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands except share and per share data)
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 142 $ 1,021
Accounts receivable, less allowance for
doubtful accounts of $344 at
November 30, 2000 and $319 at
August 31, 2000 2,833 2,847
Inventories 7,695 7,452
Prepaid expenses and other assets 213 180
Income taxes recoverable 597 484
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TOTAL CURRENT ASSETS 11,480 11,984
OTHER ASSETS 151 162
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 2,615 2,615
Machinery, equipment, furniture and fixtures 18,528 18,432
Leasehold improvements 1,306 1,302
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22,449 22,349
Less allowances for depreciation and amortization 18,234 17,954
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4,215 4,395
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$ 15,846 $ 16,541
============ ===========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES
Notes payable $ 490 $ --
Accounts payable 2,062 1,565
Accrued expenses 791 1,396
Income taxes payable 39 206
Current maturities of indebtedness to
related parties 17 15
Current maturities of long-term obligations 33 32
------------ -----------
TOTAL CURRENT LIABILITIES 3,432 3,214
INDEBTEDNESS TO RELATED PARTIES,
less current maturities 1,560 1,565
LONG-TERM OBLIGATIONS,
less current maturities 363 372
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000
shares authorized, none issued -- --
Common stock - $.20 par value; 10,000,000 shares
authorized, 5,286,125 shares issued 720 720
Additional capital 9,253 9,253
Retained earnings 957 1,856
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10,930 11,829
Less:
Treasury stock:
At cost - 153,696 shares 439 439
At no cost - 1,687,788 shares -- --
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10,491 11,390
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$ 15,846 $ 16,541
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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TEMTEX INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
-------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (899) $ (420)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 280 298
Loss on disposition of property, plant and equipment -- (6)
Provision for doubtful accounts 33 42
Changes in operating assets and liabilities:
Accounts receivable (19) (118)
Inventories (243) (164)
Prepaid expenses and other assets (22) (118)
Accounts payable and accrued expenses (108) 113
Income taxes payable/recoverable (280) (736)
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NET CASH USED IN OPERATING ACTIVITIES (1,258) (1,109)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (100) (277)
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NET CASH USED IN INVESTING ACTIVITIES (100) (277)
FINANCING ACTIVITIES
Net proceeds from notes payable 490 --
Principal payments on long-term obligations
and indebtedness to related parties (11) (10)
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NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 479 (10)
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DECREASE IN CASH AND CASH EQUIVALENTS (879) (1,396)
Cash and cash equivalents at beginning of period 1,021 4,077
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 142 $ 2,681
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of Temtex Industries, Inc. (the
Company) and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The condensed financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-
month period ended November 30, 2000 are not necessarily
indicative of the results that may be expected for the year
ending August 31, 2001. For further information, refer to the
consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended
August 31, 2000.
NOTE B--INCOME TAXES
For the period ended November 30, 1999, the Company recorded a
state and federal tax benefit using an effective rate of
approximately 39%.
For the period ended November 30, 2000 no state and federal
income tax benefit has been recorded as the Company has recorded
a valuation allowance to fully reserve the net operating loss
carryforwards since the realization of these assets is uncertain.
The Company has state net operating loss carryforwards of
approximately $11,500,000 expiring in the years 2002 through
2015. In addition, the Company also has a federal net operating
loss carryforward of approximately $3,100,000 which begins to
expire in the year 2021.
NOTE C--INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is based upon the weighted
average number of shares of common stock outstanding during each
period. Diluted income (loss) per share is based upon the
weighted average number of shares of common stock and common
stock equivalents outstanding during each period unless the
effect is antidilutive. Common stock equivalents include options
granted to key employees and outside directors. The number of
common stock equivalents was based on the number of shares
issuable on the exercise of options reduced by the number of
shares that are assumed to have been purchased at the average
price of common stock during each quarter with the proceeds from
the exercise of the options.
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<PAGE>
NOTE D--INVENTORIES
Inventories are summarized below:
November 30, August 31,
2000 2000
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(in thousands)
Finished goods $ 3,414 $ 2,992
Work in process 461 619
Raw materials and supplies 3,820 3,841
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$ 7,695 $ 7,452
============ ============
NOTE E--NOTES PAYABLE AND LONG-TERM DEBT
In September 2000, the Company entered into a three-year credit
agreement with Frost Capital Group whereby the Company may borrow
a maximum of $4,000,000 under a revolving credit facility. The
amount available under the facility is subject to limitations
based on specified percentages of the Company's eligible
outstanding receivables and inventory. The outstanding principal
bears interest at an annual rate of 1.25% above the specified
bank's prime commercial interest rate. Interest is payable
monthly and is added to the outstanding loan balance. The credit
agreement does not require the maintenance of any financial
ratios. At November 30, 2000, there was approximately $490,000
outstanding under the credit facility with approximately
$3,510,000 of unused credit still available.
NOTE F--COMMITMENTS AND CONTINGENCIES
Due to the complexity of the Company's operations, disagreements
occasionally occur.
In the opinion of management, the Company's ultimate loss from
such disagreements and potential resulting legal action, if any,
will not be significant.
NOTE G-- FOREIGN OPERATIONS
At November 30, 2000, net assets of approximately $1,032,000 were
located at the Company's manufacturing facility in Mexico.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition
and results of operations of the Company should be read in
conjunction with the unaudited condensed consolidated financial
statements and related notes of the Company included elsewhere in
this report. This Management's Discussion and Analysis of
Financial Condition and Results of Operations and other parts of
this Quarterly Report on Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Among the risks
and uncertainties to which the Company is subject are the risks
inherent in the cyclical and unpredictable nature of the housing
and home products business generally, fluctuations in interest
rates, geographic concentration of the Company's primary market,
the fact that the Company has experienced fluctuations in
revenues and operating results, and the highly competitive nature
of the industries in which the Company competes, together with
each of those other factors set forth in the Company's filings
made with the Securities & Exchange Commission. As a result, the
actual results realized by the Company could differ materially
from the results discussed in the forward-looking statements made
herein. Words or phrases such as "will," "anticipate," "expect,"
"believe," "intend," "estimate," "project," "plan" or similar
expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-
looking statements made in this Quarterly Report on Form 10-Q.
Net Sales
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Net sales of fireplace products decreased approximately 19% or
$1,188,000 in the first quarter of fiscal 2001 compared to the
first quarter of fiscal 2000. The decrease in sales resulted from
an overall decrease in the quantity of fireplaces delivered in
the first quarter of 2001 although deliveries of direct-vent gas
fireplaces increased by approximately 98% between the comparative
quarters. As deliveries of direct-vent fireplaces continue to
grow, the downward trend in sales should be reversed in future
periods. Competition within the industry continues to suppress
selling prices.
Gross Profit
------------
Gross profit decreased from $976,000 to $571,000 or approximately
41% from the first quarter of fiscal 2000 to the first quarter of
fiscal 2001. Even though improvements in gross profit
contributions were experienced in the manufacturing facilities,
especially in Mexico, the decrease in gross profit resulted from
the reduced level of sales which did not allow for full recovery
of overhead charges.
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<PAGE>
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses decreased $347,000
or approximately 19% in the first quarter of fiscal 2001 compared
to the first quarter of fiscal 2000. The most significant
reductions were in salaries, wages, selling commissions and
related payroll expenses resulting from the plan initiated in
fiscal 2000 to relocate the majority of manufacturing from the
California facility to Tennessee and Mexico and reduce personnel
in California and the corporate office.
Interest Expense
----------------
Net interest expense increased $44,000 between the comparative
first quarters. The increase in the net expense was caused by a
small increase in the average indebtedness in fiscal 2001
resulting from borrowings under the new line of credit. In
addition, in the prior year period, the Company had investments
in cash funds which earned interest income that offset a portion
of the prior year expense.
Income Taxes
------------
The Company has not recorded a benefit for income taxes on its
operating loss in the first quarter of fiscal 2001 due to the
Company recording a valuation allowance to reserve the entire
amount until such time that reassessment indicates that it is
more likely than not that the benefits will be realized. For
the period ended November 30, 1999, the Company recorded a
state and Federal tax benefit using an effective rate of
approximately 39%.
Liquidity and Capital Resources
-------------------------------
Net cash used by operating activities was $1,258,000 for the
first three months of 2001 compared to net cash used of
$1,109,000 for the first three months of 2000. The decreased
cash flow from operations in the first three months of fiscal
2001 was primarily due to the loss incurred by operations as well
as changes in working capital, principally a decrease in income
taxes payable and an increase in inventories.
Working capital decreased $722,000 in the first quarter of fiscal
2001 due mainly to the loss from operations.
Capital expenditures and capitalized lease obligations for the
first three months of 2001 were $100,000. Expenditures include
amounts for tooling, dies, replacement items and major repairs to
manufacturing equipment.
In September 2000, the Company entered into a three-year credit
agreement with Frost Capital Group whereby the Company may borrow
a maximum of $4,000,000 under a revolving credit facility. The
amount available under the facility is subject to limitations
based on specified percentages of the Company's eligible
outstanding receivables and inventory. The outstanding principal
bears interest at an annual rate of 1.25% above the specified
bank's prime commercial interest rate and is secured by the
assets of the Company and its subsidiary, Temco Fireplace
Products, Inc. Interest is payable monthly and is added to the
outstanding loan balance. The credit agreement does not require
the maintenance of any financial ratios. At November 30, 2000,
there was approximately $490,000 outstanding under the credit
facility and approximately $3,510,000 remaining available.
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<PAGE>
The Company believes that cash flow from operations, together
with funds available from the revolving credit facility, should
provide the Company with adequate funds to meet its working
capital requirements as well as requirements for capital
expenditures for at least the next twelve months. However, to
the extent the Company continues to experience operating losses
in future periods that cause the Company to require capital in
excess of the borrowing capacity of its existing revolving credit
facility, it may be required to seek additional borrowing
capacity under its existing revolving credit facility or
additional sources of capital. Sources of additional capital may
include public and private equity and debt financings, sales of
nonstrategic assets and other financing arrangements. No
assurances can be made that the Company will be able to obtain
sufficient capital in the future.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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Exhibit
No. Description
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27.1 Financial Data Schedule (filed herewith)
(b) Report on Form 8-K
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The Registrant did not file any reports on Form 8-K
during the quarter for which this report is filed.
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<PAGE>
SIGNATURES
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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.
TEMTEX INDUSTRIES, INC.
DATE: 1/15/01 BY: /s/ E.R.Buford
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E. R. Buford
President
DATE: 1/15/01 BY: /s/ R. L. DeLozier
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R. L. DeLozier
Secretary/Treasurer
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