<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 JUNE 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 June 30, 1996, was as follows:
Common Stock, $0.01 Par Value per share - 3,353,750
<PAGE>
Part I
FINANCIAL INFORMATION
The following comparative financial statements for the three month period ended
June 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 month period ended June 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>
JUNE 30 MARCH 31
1996 1996
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $119,000 $136,000
Trade accounts and notes receivable, less
allowance for doubtful accounts of $228,000,
at June 30, 1996, and $239,000 at
March 31, 1996 3,851,000 3,273,000
Inventories (Note 2) 2,710,000 2,735,000
Prepaid expenses and other assets 90,000 101,000
Deferred Income Taxes 314,000 314,000
---------- ----------
TOTAL CURRENT ASSETS 7,084,000 6,559,000
Property and Equipment at cost, Net (Note 3) 2,042,000 2,104,000
Other Assets 95,000 120,000
---------- ----------
$9,221,000 $8,783,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of Credit $2,475,000 $2,263,000
Accounts Payable 2,569,000 2,647,000
Current portion of long-term debt (Note 4) 235,000 235,000
Accrued Liabilities 989,000 717,000
---------- ----------
TOTAL CURRENT LIABILITIES 6,268,000 5,862,000
Long-Term Debt, less current portion (Note 4) 848,000 904,000
Deferred Income Taxes 369,000 369,000
---------- ----------
TOTAL LONG TERM LIABILITES 1,217,000 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
3,353,750 shares at June 30, 1996 and
3,475,450 at March 31, 1996 34,000 35,000
Additional Paid in capital 199,000 309,000
Retained Earnings 1,608,000 1,436,000
Notes Receivable From Officers/Stockholders (Note 5) (105,000) (132,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,736,000 1,648,000
---------- ----------
$9,221,000 $8,783,000
---------- ----------
---------- ----------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
JUNE 30 JUNE 30
1996 1995
----------- -----------
Net Sales $8,706,000 $6,199,000
Cost of Sales 6,781,000 5,305,000
---------- ----------
Gross Margin 1,925,000 894,000
Selling, General, and Administrative Expenses 1,549,000 949,000
---------- ----------
Operating Income (Loss) 376,000 (55,000)
Interest and Other Expense 89,000 78,000
---------- ----------
Earnings (Loss) before income taxes 287,000 (133,000)
Provision for Income Taxes 115,000 (53,000)
---------- ----------
NET EARNINGS (LOSS) 172,000 (80,000)
---------- ----------
---------- ----------
Earnings (loss) per common share $0.05 ($0.02)
---------- ----------
---------- ----------
Weighted average number of common shares
and common share equivalents outstanding 3,353,750 3,552,500
---------- ----------
---------- ----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30 June 30
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings (loss) $172,000 ($80,000)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 146,000 138,000
Deferred income taxes 0 (53,000)
Loss (gain) on sale of property and equipment
Changes in operating assets and
liabilities:
Trade accounts and notes receivable (578,000) (350,000)
Inventories 25,000 13,000
Prepaid expenses and other assets 36,000 (29,000)
Accounts payable and accrued
liabilities 194,000 25,000
-------- --------
Net cash provided by (used in) operating activities (5,000) (336,000)
-------- --------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (84,000) (211,000)
Reduction in notes receivable from
officers/stockholders 27,000 34,000
Proceeds from sale of property and equipment 0
-------- --------
Net cash provided by (used in) investing activities (57,000) (177,000)
-------- --------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (56,000) 83,000
Net proceeds from (payments on) revolving
credit line 212,000 428,000
Repurchase of common stock (111,000)
-------- --------
Net cash provided by (used in) financing
activities 45,000 511,000
-------- --------
Net increase (decrease) in cash and cash
equivalents (17,000) (2,000)
Cash and cash equivalents at beginning of period 136,000 117,000
-------- --------
Cash and cash equivalents at end of period $119,000 $115,000
-------- --------
-------- --------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
5
<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
Inventories are comprised of:
JUNE 30 MARCH 31
1996 1996
---------- -----------
Raw Materials $1,617,000 $1,643,000
Work in Progress 316,000 316,000
Finished Goods 777,000 776,000
---------- ----------
TOTAL $2,710,000 2,735,000
---------- ----------
---------- ----------
3. PROPERTY AND EQUIPMENT
The Company's investment in property and equipment, at cost, less related
accumulated depreciation and amortization is summarized below:
JUNE 30 MARCH 31
1996 1996
----------- -----------
Machinery and Equipment $3,556,000 $3,528,000
Tools, Dies and Molds 2,800,000 2,761,000
Furniture, Fixtures, and Vehicles 654,000 637,000
Buildings and Leasehold Improvements 92,000 92,000
Research and Development Equipment 282,000 282,000
---------- ----------
$7,384,000 $7,300,000
Accumulated Depreciation and Amortization 5,342,000 5,196,000
---------- ----------
$2,042,000 $2,104,000
---------- ----------
---------- ----------
6
<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>
JUNE 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. $508,000 $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. $97,000 $104,000
Unsecured subordinated note payable, bearing interest at
14%, principal payments due quarterly increasing from
$2,500 to $40,000 through December 2000. $478,000 $480,000
----------- ----------
$1,083,000 $1,139,000
Less current portion $235,000 $235,000
----------- ----------
$848,000 $904,000
----------- ----------
----------- ----------
</TABLE>
5. RELATED PARTY TRANSACTIONS
On June 30, 1996, advances to officers/stockholders totaling $105,000 are
outstanding, this represents a decrease of $27,000 from the period ended
March 31, 1996. Principal payments on these advances will be due in
semiannual installments over the next three 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 $30,976
in fiscal year 1996.
7
<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 $3,500,000 with
an interest rate of .75 percent above prime, payable monthly. At June 30,
1996 $2,475,000 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 June
30, 1996.
Accounts receivable (before allowance for doubtful accounts) at June 30, 1996
were $4,079,000 compared to $3,512,000 at March 31, 1996. This 16.1% increase
is primarily due to an increase in sales for the three months ended June 30,
1996 from the three months ended March 31, 1996 of $2,329,000 or 36.5%.
The current ratio has increased slightly as of June 30, 1996 to 1.13:1 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 $84,000 during the three months
ended June 30, 1996. The Company anticipates purchases of approximately
$600,000 during the fiscal year ending March 31, 1997.
(2) RESULTS OF OPERATION
Sales for the three months ended June 30, 1996 increased by 40% from the same
three month period in 1995. This increase is explained in part by a surge in
the manufactured housing industry which resulted in a 19% increase in the
number of fireplaces sold to 27,090 from 22,764. Additionally there was a $49
increase in selling price per unit for the quarter ended June 30, 1996
compared to the quarter ended June 30, 1995, 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 three months ended June
30, 1996 to 77.9% from 85.6% for the same period in 1995. This decrease is due
to higher selling prices coupled with an improved steel purchasing program.
Selling, general, and administrative expenses were 17.8% of sales for the
three months ended June 30, 1996 compared to 15.3% for the same period in
1995. This increase is due to additional accruals for legal fees and bad debts
which were recorded in the three months ended June 30, 1996.
Interest and other expense as a percent of sales decreased .3% for the three
months ended June 30, 1996 from the same period in 1995. This decrease is due
to interest on additional borrowings offset against a higher level of sales.
Net income increased by 3.3% of sales for the three months ended June 30,
1996 compared to the same period in 1995. This increase is related to the
increased sales and offset by the higher legal and bad debt accruals.
8
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, & 5 are inapplicable.
ITEM 6
(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.
Weighted average number of shares
outstanding during the period 3,353,750
Number of common shares equivalents
and warrants outstanding, calculated
under treasury stock method,
using the average market price
----------
3,353,750
----------
----------
(12) Financial Statements Furnished to Security Holders.
None furnished this quarter.
OTHER EXHIBITS ARE OMITTED BECAUSE THEY ARE INAPPLICABLE.
(b) Reports on Form 8-K
No Form 8-K was filed during this quarter.
SIGNATURES
Pursuant to the requirements of the Securities and 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 8, 1996 FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
------------------------
Jane Ann Iovine
Vice President of Finance
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 119,000
<SECURITIES> 0
<RECEIVABLES> 4,079,000
<ALLOWANCES> 228,000
<INVENTORY> 2,710,000
<CURRENT-ASSETS> 7,084,000
<PP&E> 7,384,000
<DEPRECIATION> 5,342,000
<TOTAL-ASSETS> 9,221,000
<CURRENT-LIABILITIES> 6,268,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 1,702,000
<TOTAL-LIABILITY-AND-EQUITY> 9,221,000
<SALES> 8,706,000
<TOTAL-REVENUES> 8,706,000
<CGS> 6,781,000
<TOTAL-COSTS> 8,330,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> 287,000
<INCOME-TAX> 115,000
<INCOME-CONTINUING> 172,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
