<PAGE>
FORM 10-QSB
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 DECEMBER 31, 1995
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 December 31, 1995, was as follows:
Common Stock, $0.01 Par Value per share - 3,552,500
<PAGE>
Part I
FINANCIAL INFORMATION
The following comparative financial statements for the three and nine month
periods ended December 31, 1995, 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 nine month periods ended December 31,
1995 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1996. It is suggested that the condensed financial
statements be read in conjunction with the financial statements and
accompanying notes included in the Company's 1995 Annual Report on Form
10-KSB.
2
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1995
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 155,107 $ 117,268
Trade accounts and notes receivable,
less allowance for doubtful accounts
of $189,000, at December 31, 1995,
and $175,000 at March 31, 1995 4,172,843 2,460,725
Inventories (Note 2) 3,268,572 3,501,750
Prepaid expenses and other assets 195,702 147,302
Deferred Income Taxes 345,000 345,000
----------- ----------
TOTAL CURRENT ASSETS 8,137,224 6,572,045
Property and Equipment at cost, Net (Note 3) 2,189,662 2,183,029
Due from related parties (Note 5) 161,454 204,236
Other Assets 98,276 28,864
----------- ----------
$10,586,616 $8,988,174
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Lines of Credit $2,530,925 $1,542,898
Accounts Payable 4,006,579 2,931,587
Current portion of long-term debt (Note 4) 117,664 116,807
Accrued Liabilities 656,875 1,208,182
----------- ----------
TOTAL CURRENT LIABILITIES 7,312,043 5,799,474
Long-Term Debt, less current portion (Note 4) 1,020,235 997,562
Deferred Income Taxes 411,000 411,000
Preferred Stock: $1.00 par value, authorized
1,000,000 shares authorized; none
issued or outstanding
Common Stock: $.01 par value, authorized
10,000,000 shares; issued and outstanding
3,552,500 shares at December 31, 1995
and March 31, 1995 35,525 35,525
Additional Paid in capital 352,852 352,852
Common Stock Issued for Retirement:
32,950 shares at December 31, 1995 (14,105)
Retained Earnings 1,469,066 1,391,761
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,843,338 1,780,138
----------- ----------
$10,586,616 $8,988,174
----------- ----------
----------- ----------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER DECEMBER
1995 1994
---------- ----------
<S> <C> <C>
Net Sales $8,854,277 $7,376,107
---------- ----------
8,854,277 7,376,107
Cost of Sales 7,278,665 5,983,447
---------- ----------
Gross Margin 1,575,612 1,392,660
Selling, General, and Administrative Expenses 1,252,628 1,216,477
---------- ----------
Operating Income (Loss) 322,984 176,183
Interest and Other Expense 101,567 72,162
---------- ----------
Earnings (Loss) before income taxes 221,417 104,021
Provision for Income Taxes 88,567 41,621
---------- ----------
NET EARNINGS (LOSS) 132,850 62,400
---------- ----------
---------- ----------
Earnings (loss) per common share 0.04 0.02
---------- ----------
---------- ----------
Weighted average number of common shares
and common share equivalents outstanding 3,552,500 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>
NINE MONTHS ENDED
DECEMBER DECEMBER
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $22,351,818 $21,345,078
----------- -----------
22,351,818 21,345,078
Cost of Sales 18,628,429 16,599,528
----------- -----------
Gross Margin 3,723,389 4,745,550
Selling, General, and Administrative Expenses 3,321,006 3,738,670
----------- -----------
Operating Income (Loss) 402,383 1,006,880
Interest and Other Expense 273,541 215,912
----------- -----------
Earnings (Loss) before income taxes 128,842 790,968
Provision for Income Taxes 51,537 316,400
----------- -----------
NET EARNINGS (LOSS) 77,305 474,568
----------- -----------
----------- -----------
Earnings (loss) per common share 0.02 0.13
----------- -----------
----------- -----------
Weighted average number of common shares
and common share equivalents outstanding 3,552,500 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 CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER DECEMBER
1995 1994
----------- ---------
<S> <C> <C>
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings (loss) $132,850 62,400
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 106,875 123,355
Deferred income taxes 37,030 (275)
Loss (gain) on sale of property and equipment 30,208
Changes in operating assets and liabilities:
Trade accounts and notes receivable (414,369) 535,681
Inventories (142,323) (215,398)
Prepaid expenses and other assets (78,420) (14,845)
Accounts payable and accrued
liabilities 439,345 (405,574)
Due from officer/stockholders and
affiliates 2,990 (72,460)
----------- ---------
Net cash provided by (used in) operating activities 114,186 12,884
----------- ---------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (149,695) (154,616)
Proceeds from sale of property and equipment 7,000
----------- ---------
Net cash provided by (used in) investing activities (142,695) (154,616)
----------- ---------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Payments on long-term debt (29,593) (41,766)
Net proceeds (payments) from revolving credit line 121,566 359,176
Purchase of common stock issued for retirement (14,105)
----------- ---------
Net cash provided by (used in) financing activities 77,868 317,410
----------- ---------
Net increase (decrease) in cash and cash equivalents 49,359 175,678
Cash and cash equivalents at beginning of period 105,748 11,764
----------- ---------
Cash and cash equivalents at end of period $155,107 $187,442
----------- ---------
----------- ---------
</TABLE>
"Unaudited"
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER DECEMBER
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings (loss) $77,305 474,568
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 386,444 383,969
Deferred income taxes 0 (4,275)
Loss (gain) on sale of property and equipment 30,208
Changes in operating assets and liabilities:
Trade accounts and notes receivable (1,712,118) (897,866)
Inventories 233,178 (1,138,641)
Prepaid expenses and other assets (117,812) (6,326)
Accounts payable and accrued liabilities 523,685 1,154,545
Due from officer/stockholders and affiliates 42,782 (106,280)
---------- ----------
Net cash provided by (used in) operating activities (536,328) (140,306)
---------- ----------
CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (430,285) (607,945)
Proceeds from sale of property and equipment, net 7,000
---------- ----------
Net cash provided by (used in) investing activities (423,285) (607,945)
---------- ----------
CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from long-term debt 23,530
Payments on long-term debt (54,069)
Net proceeds (payments) from revolving credit line 988,027 874,923
Common stock issued for Retirement (14,105)
---------- ----------
Net cash provided by (used in) financing activities 997,452 820,854
---------- ----------
Net increase (decrease) in cash and cash equivalents 37,839 72,603
Cash and cash equivalents at beginning of period 117,268 114,839
---------- ----------
Cash and cash equivalents at end of period $155,107 $187,442
---------- ----------
---------- ----------
</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 (Financial 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:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1995
----------- ----------
<S> <C> <C>
Raw Materials $2,095,817 $2,399,143
Work in Progress 238,367 221,878
Finished Goods 934,388 880,729
----------- ----------
TOTAL $3,268,572 $3,501,750
----------- ----------
----------- ----------
</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>
DECEMBER 31 MARCH 31
1995 1995
----------- ----------
<S> <C> <C>
Machinery and Equipment 3,523,788 3,399,171
Tools, Dies and Molds 2,740,543 2,537,057
Furniture, Fixtures, and Vehicles 628,229 596,591
Buildings and Leasehold Improvements 155,496 140,243
Research and Development Equipment 274,907 256,825
----------- ----------
$7,322,963 $6,929,887
Accumulated Depreciation and
Amortization 5,133,301 4,746,858
----------- ----------
$2,189,662 $2,183,029
----------- ----------
----------- ----------
</TABLE>
8
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. LONG-TERM DEBT
Long-Term debt is summarized as follows;
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1995
----------- ----------
<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 $4,294 to $7,292 plus
interest, through March 1999. $ 547,553 $ 504,585
Notes payable to a finance company,
bearing interest at 8.75% due in
monthly principal and interest
payments of $2,550 through March 2000. $ 107,846 $ 119,784
Unsecured subordinated note payable,
bearing interest at 14%, principal
payments due quarterly increasing from
$2,500 to $40,000 through December 2000. $ 482,500 $ 490,000
---------- ----------
$1,137,899 $1,114,369
Less current portion $ 117,664 $ 116,807
---------- ----------
$1,020,235 $ 997,562
---------- ----------
---------- ----------
</TABLE>
5. RELATED PARTY TRANSACTIONS
On December 31, 1995, advances to officer stockholders and affiliates
totaling $161,454 are outstanding, this represents a decrease of $42,782 from
the period ended March 31, 1995. Principal payments on these advances will be
due in semiannual installments over the next three years, with interest on
the notes ranging from 7% 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.
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 $3,350,000 with
an interest rate of .75 percent above prime, payable monthly. At December 31,
1995, $2,530,925 was owed under the lines of credit compared to $1,542,898 at
March 31, 1995. 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 but one of these restrictive covenants as
of December 31, 1995 and has received a waiver from the bank covering these
items.
Accounts receivable (before allowance for doubtful accounts) at December 31,
1995, were $4,361,843 compared to $2,635,725 at March 31, 1995. This 65.5%
increase is primarily due to an increase in sales for the three months ended
December 31, 1995 from the three months ended March 31, 1995 of $3,494,479 or
65.2%.
The current ratio has dropped slightly as of December 31, 1995 to 1.11:1 from
1.13:1 at March 31, 1995. The Company believes that based on historical
seasonality during the fourth quarter this ratio may not improve
throughout the rest of fiscal year ended March 31, 1996.
The Company has made capital additions of $430,285 in the nine months ended
December 31, 1995. The Company anticipates purchases to decrease throughout
the rest of fiscal year ended March 31, 1996.
(2) RESULTS OF OPERATION
Sales for the nine months ended December 31, 1995 increased by 4.7% from the
same nine month period in 1994. This increase is due to a number of new gas
fireplace models introduced subsequent to December 31, 1994, coupled with a
marketing plan which has broadened the Company's customer base.
Sales for the three months ended December 31, 1995 increased by 20% from the
same three month period in 1994, in addition to the reasons given above for
the increase during the nine months ended December 31, 1995 a sales program
which offered substantial discounts over 1994 prices was heavily utilized by
customers during the three months ended December 31, 1996.
Cost of sales as a percent of sales increased for the nine months ended
December 31, 1995 to 83.3% from 77.8% for the same period in 1994. Cost of
sales as a percent of sales increased for the three months ended December 31,
1995 to 82.2% from 81.1% for the same period in 1994. These increases are due
to higher than anticipated labor and materials cost related to the
introduction of new products into manufacturing, and lower selling prices in
competitive markets.
Selling, general, and administrative expenses were 14.9% of sales for the
nine months ended December 31, 1995 compared to 17.5% for the same period in
1994. Selling, general and administrative expenses were 14.1% of sales for the
three months ended December 31, 1995 compared to 16.5% for the same period
in 1994. These decreases were due to cost cutting attempts on the part of
management including a decrease in bonus' which are tied to net income.
Interest and other expense as a percent of sales increased slightly by .2% in
the nine months ended December 31, 1995 and .3% for the three months ended
December 31, 1995 from the same period for 1994. These increases are due
primarily to increased borrowings on a higher available line of credit.
Borrowing has increased to fund the higher materials and labor costs
experienced during the nine and three months ended December 31, 1995.
Net income decreased by 1.9% of sales for the nine months ended December 31,
1995 compared to the same period in 1994. This decrease is due to the higher
cost of goods sold experienced during the nine months ended December 31, 1995.
Net income increased by .7% of sales for the three months ended December 31,
1995 compared to the same period in 1994. This increase is related to the
increased sales and offset by the sales program which offered substantial
discounts over 1994 prices.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, & 5 are inapplicable.
10
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 3,552,500
Number of common shares equivalents
and warrants outstanding, calculated
under treasury stock method,
using the average market price
----------
3,552,500
----------
----------
(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 Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 12, 1995
FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
-------------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
-------------------------------
Jane Ann Iovine
Vice President of Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 155,107
<SECURITIES> 0
<RECEIVABLES> 4,172,843
<ALLOWANCES> 189,000
<INVENTORY> 3,268,572
<CURRENT-ASSETS> 8,137,224
<PP&E> 7,322,963
<DEPRECIATION> 5,133,301
<TOTAL-ASSETS> 10,586,616
<CURRENT-LIABILITIES> 7,312,043
<BONDS> 0
0
0
<COMMON> 35,525
<OTHER-SE> 1,807,813
<TOTAL-LIABILITY-AND-EQUITY> 10,586,616
<SALES> 22,351,818
<TOTAL-REVENUES> 22,351,818
<CGS> 18,628,429
<TOTAL-COSTS> 21,949,435
<OTHER-EXPENSES> 273,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 221,417
<INCOME-TAX> 88,567
<INCOME-CONTINUING> 132,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,850
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
