<PAGE>
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 SEPTEMBER 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13746
FIREPLACE MANUFACTURERS, INCORPORATED
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-3244946
- -------------------------------- -------------------------------
(State or other jurisdiction) (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 proceeding 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 outstanding of each of the Registrant's classes of
Common Stock on September 30, 1996, was as follows:
Common Stock, $0.01 Par Value per share - 3,307,750
<PAGE>
Part I
FINANCIAL INFORMATION
---------------------
The following comparative financial statements for the three and six month
periods ended September 30, 1996, 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 period 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 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 and six month periods ended September 30,
1996 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997. It is suggested that the condensed financial
statements be read in conjunction with the financial statements and
accompanying notes included in the Company's 1996 Annual Report on Form
10-KSB.
2
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 MARCH 31
1996 1996
-------------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $618,000 $136,000
Trade accounts and notes receivable, less
allowance for doubtful accounts of $255,000,
at September 30, 1996, and $239,000 at
March 31, 1996 3,713,000 3,273,000
Inventories (Note 2) 2,492,000 2,735,000
Prepaid expenses and other assets 131,000 101,000
Deferred Income Taxes 314,000 314,000
------------- ------------
TOTAL CURRENT ASSETS 7,268,000 6,559,000
Property and Equipment at cost, Net (Note 3) 2,006,000 2,104,000
Other Assets 77,000 120,000
------------- ------------
9,351,000 8,783,000
------------- ------------
------------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Lines of Credit $2,325,000 $2,263,000
Accounts Payable 2,513,000 2,647,000
Current portion of long-term debt (Note 4) 235,000 235,000
Accrued Liabilities 1,212,000 717,000
------------- ------------
TOTAL CURRENT LIABILITIES 6,285,000 5,862,000
------------- ------------
Long-Term Debt, less current portion (Note 4) 792,000 904,000
Deferred Income Taxes 369,000 369,000
------------- ------------
TOTAL LONG TERM LIABILITES 1,161,000 1,273,000
------------- ------------
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
3,307,750 shares at September 30, 1996 and
3,475,450 at March 31, 1996 33,000 35,000
Additional Paid in Capital 152,000 309,000
Retained Earnings 1,841,000 1,436,000
Notes Receivable From Officers/Stockholders (Note 5) (121,000) (132,000)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,905,000 1,648,000
------------- ------------
$9,351,000 $8,783,000
------------- ------------
------------- ------------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------- ------------
<S> <C> <C>
Net Sales $8,372,000 $7,299,000
Cost of Sales 6,472,000 6,045,000
------------- ------------
Gross Margin 1,900,000 1,254,000
Selling, General, and Administrative Expenses 1,426,000 1,119,000
------------- ------------
Operating Income 474,000 135,000
Interest and Other Expense 86,000 94,000
------------- ------------
Earnings before income taxes 388,000 41,000
Provision for Income Taxes 155,000 16,000
------------- ------------
NET EARNINGS 233,000 25,000
------------- ------------
------------- ------------
Earnings (loss) per common share $0.07 $0.01
------------- ------------
------------- ------------
Weighted average number of common shares
and common share equivalents outstanding 3,307,750 3,552,500
------------- ------------
------------- ------------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------- ------------
<S> <C> <C>
Net Sales $17,078,000 $13,498,000
Cost of Sales 13,253,000 11,350,000
------------- ------------
Gross Margin 3,825,000 2,148,000
Selling, General, and Administrative Expenses 2,975,000 2,068,000
------------- ------------
Operating Income 850,000 80,000
Interest and Other Expense 175,000 172,000
------------- ------------
Earnings (loss) before income taxes 675,000 (92,000)
Provision for Income Taxes 270,000 (37,000)
------------- ------------
NET EARNINGS (LOSS) 405,000 (55,000)
------------- ------------
------------- ------------
Earnings (loss) per common share $0.12 ($0.02)
------------- ------------
------------- ------------
Weighted average number of common shares
and common share equivalents outstanding 3,307,750 3,552,500
------------- ------------
------------- ------------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER SEPTEMBER
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings $233,000 $24,000
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 147,000 141,000
Deferred income taxes 16,000
Loss (gain) on sale of property and equipment 3,000
Changes in operating assets and
liabilities:
Trade accounts and notes receivable 138,000 (948,000)
Inventories 218,000 363,000
Prepaid expenses and other assets (23,000) (10,000)
Accounts payable and accrued
liabilities 167,000 59,000
------------- ------------
Net cash provided by (used in) operating activities 883,000 (355,000)
------------- ------------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (114,000) (70,000)
Reduction in notes receivable from officers/stockholders (16,000) 6,000
Proceeds from sale of property and equipment
------------- ------------
Net cash provided by (used in) investing activities (130,000) (64,000)
------------- ------------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (56,000) (29,000)
Net proceeds from (payments on) revolving
credit line (150,000) 438,000
Repurchase of common stock (48,000)
------------- ------------
Net cash provided by (used in) financing
activities (254,000) 409,000
------------- ------------
Net increase (decrease) in cash and cash
equivalents 499,000 (10,000)
Cash and cash equivalents at beginning of period 119,000 116,000
------------- ------------
Cash and cash equivalents at end of period $618,000 $106,000
------------- ------------
------------- ------------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings (loss) $405,000 ($55,000)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 293,000 280,000
Deferred income taxes (37,000)
Loss (gain) on sale of property and equipment 3,000
Changes in operating assets and
liabilities:
Trade accounts and notes receivable (440,000) (1,298,000)
Inventories 243,000 376,000
Prepaid expenses and other assets 13,000 (39,000)
Accounts payable and accrued
liabilities 361,000 84,000
------------- ------------
Net cash provided by (used in) operating activities 878,000 (689,000)
------------- ------------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (198,000) (281,000)
Reduction in notes receivable from officers/stockholders 11,000 40,000
Proceeds from sale of property and equipment
------------- ------------
Net cash provided by (used in) investing activities (187,000) (241,000)
------------- ------------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (112,000) 53,000
Net proceeds from (payments on) revolving
credit line 62,000 866,000
Repurchase of common stock (159,000)
------------- ------------
Net cash provided by (used in) financing
activities (209,000) 919,000
------------- ------------
Net increase (decrease) in cash and cash
equivalents 482,000 (11,000)
Cash and cash equivalents at beginning of period 136,000 117,000
------------- ------------
Cash and cash equivalents at end of period $618,000 $106,000
------------- ------------
------------- ------------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
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
<TABLE>
<CAPTION>
Inventories are comprised of:
SEPTEMBER 30 MARCH 31
1996 1996
------------ -----------
<S> <C> <C>
Raw Materials $1,415,000 $1,643,000
Work in Progress 316,000 316,000
Finished Goods 761,000 776,000
------------ -----------
TOTAL $2,492,000 2,735,000
------------ -----------
------------ -----------
</TABLE>
3. PROPERTY AND EQUIPMENT
The Company's investment in property and equipment, at cost, less related
accumulated depreciation and amortization is summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 30 MARCH 31
1996 1996
------------ -----------
<S> <C> <C>
Machinery and Equipment $3,581,000 $3,528,000
Tools, Dies and Molds 2,861,000 2,761,000
Furniture, Fixtures, and Vehicles 668,000 637,000
Buildings and Leasehold Improvements 94,000 92,000
Research and Development Equipment 282,000 282,000
------------ -----------
$7,486,000 $7,300,000
Accumulated Depreciation and Amortization 5,480,000 5,196,000
------------ -----------
$2,006,000 $2,104,000
------------ -----------
------------ -----------
</TABLE>
8
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
4. LONG TERM DEBT
Long-Term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 MARCH 31
1996 1996
------------ -----------
<S> <C> <C>
Equipment term loans payable to bank, bearing
interest at the bank's prime rate plus 1% due
in monthly principal amounts from $7,000 to
$8,000 plus interest, through March 1999. $461,000 $555,000
Notes payable to a finance company, bearing
interest at 8.75% due in monthly principal and
interest payments of $2,500 through March 2000. $91,000 $104,000
Unsecured subordinated note payable, bearing
interest at 14%, principal payments due
quarterly increasing from $2,500 to $40,000
through December 2000. $475,000 $480,000
------------ -----------
$1,027,000 $1,139,000
Less current portion $235,000 $235,000
------------ -----------
$792,000 $904,000
------------ -----------
------------ -----------
</TABLE>
5. RELATED PARTY TRANSACTIONS
On September 30, 1996, advances to officers/stockholders totaling $121,000
are outstanding, this represents a decrease of $11,000 from the period ended
March 31, 1996. Principal payments on these advances will be due in
semiannual installments over the next two years, with interest on the notes
ranging from 8% to 10%. In the event that the amounts are not repaid, the
principal and interest due will be charged to these individuals as
compensation expense over the remaining repayment period.
During fiscal year 1996 the Company entered into a monthly operating lease of
equipment with H&H Equities Incorporated. H&H Equities Incorporated is
wholly owned by Willard P. Harris and John D. Hornsby, members of the
Company's Board of Directors. The monthly lease payments are $3,872 and
totaled $27,104 for the six months ended September 1996.
9
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) LIQUIDITY AND CAPITAL RESOURCES
The Company has lines of credit with a bank for an aggregate $4,500,000 with
an interest rate of .75 percent above prime, payable monthly. At September
30, 1996 $2,325,000 was owed under the lines of credit compared to $2,263,000
at March 31, 1996. The line of credit agreements contain restrictive
covenants which require maintenance of working capital and other financial
ratios, prohibit the payment of dividends and have certain other limitations.
The Company was in compliance with all of these restrictive covenants as of
September 30, 1996.
Accounts receivable (before allowance for doubtful accounts) at September 30,
1996 were $3,968,000 compared to $3,512,000 at March 31, 1996. This 13.0%
increase is primarily due to an increase in sales for the three months ended
September 30, 1996 from the three months ended March 31, 1996 of $1,995,000
or 31.3%
The current ratio has increased slightly as of September 30, 1996 to 1.16:1
from 1.12:1 at March 31, 1996. The Company does not anticipate a material
change in this ratio during fiscal year ending March 31, 1997.
The Company has made capital additions of $198,000 during the six months
ended September 30, 1996. The Company anticipates total purchases of
approximately $600,000 during the fiscal year ending March 31, 1997.
(2) RESULTS OF OPERATIONS
Sales for the six months ended September 30, 1996 increased by 26.5% from the
same six month period in 1995. This increase is explained in part by a surge
in the manufactured housing industry which resulted in a 17.9% increase in
the number of fireplaces sold to 56,417 from 47,842. Additionally there was a
$21 increase in selling price per unit for the six months ended September 30,
1996 compared to the six months ended September 30, 1995. Sales for the three
months ended September 30, 1996 increased by 14.7% from the same three month
period in 1995. The increase in selling price per unit for the three months
ended September 30, 1996 compared to the three months ended September 30,
1995 was $31. A number of factors affected the selling price, the Company
decreased the number of special discounts available to customers, raised the
price of the product and increased sales of non fireplace items such as pipe,
accessories and logsets.
Cost of sales as a percent of sales decreased for the six months ended
September 30, 1996 to 77.6% from 84.1% for the same period in 1995. Cost of
sales as a percent of sales decreased for the three months ended September
30, 1996 to 77.3% from 82.8% for the same period in 1995. These decreases are
due to higher selling prices coupled with an improved steel purchasing
program.
Selling, general, and administrative expenses were 17.4% of sales for the six
months ended September 30, 1996 compared to 15.3% for the same period in
1995. Selling, general, and administrative expenses were 17.0% of sales for
the three months ended September 30, 1996 compared to 15.3% for the same
period in 1995. These decreases are due to higher sales offset by higher
insurance, legal, bad debt and bonus accruals.
Interest and other expense as a percent of sales decreased .3% for the six
months ended September 30, 1996 and .3% for the three months ended September
30, 1996 from the same periods in 1995. This decrease is due to interest on
lower borrowings.
Net income increased by 2.8% of sales for the six months ended September 30,
1996 and 2.4% for the three months ended September 30, 1996 compared to the
same periods in 1995. These increases are related to the increased sales and
offset by the higher legal and bad debt accruals.
10
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PART II - OTHER INFORMATION
(a) Exhibits
(11) Earnings Per Share:
Earnings per common share and common share equivalents are based on the
weighted average number of shares and common share equivalents outstanding
during the year.
<TABLE>
<CAPTION>
<S> <C>
Weighted average number of shares
outstanding during the period 3,307,750
Number of common shares equivalents
and warrants outstanding, calculated
under treasury stock method,
using the average market price
-----------
3,307,750
-----------
-----------
</TABLE>
(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: October 30, 1996 FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
---------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
---------------------------
Jane Ann Iovine
Vice President of Finance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 618,000
<SECURITIES> 0
<RECEIVABLES> 3,968,000
<ALLOWANCES> 255,000
<INVENTORY> 2,492,000
<CURRENT-ASSETS> 7,268,000
<PP&E> 7,486,000
<DEPRECIATION> 5,480,000
<TOTAL-ASSETS> 9,351,000
<CURRENT-LIABILITIES> 6,285,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 1,872,000
<TOTAL-LIABILITY-AND-EQUITY> 9,351,000
<SALES> 8,372,000
<TOTAL-REVENUES> 8,372,000
<CGS> 6,472,000
<TOTAL-COSTS> 7,898,000
<OTHER-EXPENSES> 86,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 388,000
<INCOME-TAX> 155,000
<INCOME-CONTINUING> 233,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
