<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
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 30, 1997, was as follows:
Common Stock, $0.01 Par Value per share - 3,355,500
Documents incorporated by reference. None
<PAGE>
PART I
FINANCIAL INFORMATION
The following comparative financial statements for the three month period
ended June 30, 1997, 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 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1998. It is suggested that the condensed financial
statements be read in conjunction with the financial statements and
accompanying notes included in the Company's 1997 Annual Report on Form 10-K.
2
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FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30 MARCH 31
1997 1997
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 699,000 $ 333,000
Trade accounts and notes receivable, less
allowance for doubtful accounts of $308,000,
at June 30, 1997, and $272,000 at
March 31, 1997 1,937,000 2,307,000
Inventories (Note 2) 1,951,000 1,847,000
Prepaid expenses and other assets 144,000 118,000
Deferred Income Taxes 421,000 421,000
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TOTAL CURRENT ASSETS 5,152,000 5,026,000
Property and Equipment at cost, Net (Note 3) 1,699,000 1,761,000
Other Assets 150,000 150,000
---------- ----------
$7,001,000 $6,937,000
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 2,204,000 2,042,000
Current portion of long-term debt (Note 4) 212,000 212,000
Accrued Liabilities 1,172,000 1,454,000
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TOTAL CURRENT LIABILITIES 3,588,000 3,708,000
---------- ----------
Long-Term Debt, less current portion (Note 4) 182,000 235,000
Deferred Income Taxes 281,000 281,000
---------- ----------
TOTAL LONG TERM LIABILITES 463,000 516,000
---------- ----------
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
3,417,550 shares at June 30, 1997 and
3,447,950 at March 31, 1997 34,000 35,000
Additional Paid in Capital 212,000 248,000
Retained Earnings 2,704,000 2,430,000
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TOTAL STOCKHOLDERS' EQUITY 2,950,000 2,713,000
---------- ----------
$7,001,000 $6,937,000
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---------- ----------
"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
1997 1996
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Net Sales $7,768,000 $8,706,000
Cost of Sales 5,707,000 6,781,000
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Gross Margin 2,061,000 1,925,000
Selling, General, and Administrative Expenses 1,597,000 1,549,000
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Operating Income 464,000 376,000
Interest and Other Expense 7,000 89,000
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Earnings before income taxes 457,000 287,000
Provision for Income Taxes 183,000 115,000
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NET EARNINGS 274,000 172,000
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----------- ----------
Earnings (loss) per common share $0.08 $0.05
----------- ----------
----------- ----------
Weighted average number of common shares
and common share equivalents outstanding 3,429,884 3,414,240
----------- ----------
----------- ----------
"Unaudited"
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED
JUNE 30 JUNE 30
1997 1996
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CASH FLOW (LOSS) FROM OPERATING ACTIVITIES
Net earnings $ 274,000 $ 172,000
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 147,000 146,000
Loss (gain) on sale of property and equipment
Changes in operating assets and liabilities:
Trade accounts and notes receivable 370,000 (578,000)
Inventories (104,000) 25,000
Prepaid expenses and other assets (26,000) 36,000
Accounts payable and accrued liabilities (120,000) 194,000
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Net cash provided by (used in) operating activities 541,000 (5,000)
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CASH FLOW (LOSS) FROM INVESTING ACTIVITIES
Purchases of property and equipment (85,000) (84,000)
Reduction in notes receivable from officers/stockholders 27,000
Proceeds from sale of property and equipment
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Net cash provided by (used in) investing activities (85,000) (57,000)
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CASH FLOW (LOSS) FROM FINANCING ACTIVITIES
Proceeds from (payments on) long-term debt (53,000) (56,000)
Net proceeds from (payments on) revolving
credit line 212,000
Repurchase of common stock (37,000) (111,000)
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Net cash provided by (used in) financing
activities (90,000) 45,000
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Net increase (decrease) in cash and cash
equivalents 366,000 (17,000)
Cash and cash equivalents at beginning of period 333,000 136,000
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Cash and cash equivalents at end of period $699,000 $119,000
--------- ---------
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"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
1997 1997
---------- ----------
Raw Materials $ 805,000 $1,254,000
Work in Progress 265,000 265,000
Finished Goods 881,000 328,000
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TOTAL $1,951,000 1,847,000
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---------- ----------
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
1997 1997
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Machinery and Equipment $3,031,000 $2,982,000
Tools, Dies and Molds 1,340,000 1,322,000
Furniture, Fixtures, and Vehicles 646,000 629,000
Buildings and Leasehold Improvements 64,000 64,000
Research and Development Equipment 280,000 279,000
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$5,361,000 $5,276,000
Accumulated Depreciation and
Amortization 3,662,000 3,515,000
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$1,699,000 $1,761,000
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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:
JUNE 30 MARCH 31
1997 1997
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Equipment term loans payable to bank, secured by
substantially all of the Company's assets, bearing
interest at the bank's prime rate plus .5% to 1%
due in monthly principal amounts of approximately
$16,000, plus interest, through February 1999. The
equipment term loans are part of the agreement
covering the line of credit and are subject to
the same covenants. $320,000 $367,000
Notes payable to a finance company, bearing
interest at 8.75%, due in monthly principal
and interest payments of $2,500 through March 2000. $ 74,000 $ 80,000
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$394,000 $447,000
Less current maturities $212,000 $212,000
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$182,000 $235,000
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Maturities of long-term debt are as follows:
1998 $212,000; 1999 $206,000 and 2000 $29,000.
5. 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 1997.
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 $4,000,000 with an
interest rate of .50 percent above prime, payable monthly. At March 31, 1997
and June 30, 1997, there were no amounts outstanding under the lines of credit.
The net availability remaining under this revolving line of credit is $1,841,000
compared to $2,080,000 at March 31, 1997. 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, 1997. The line of credit is subject to renewal on
August 1, 1997. The Company does not anticipate any problems with its ability
to continue with its current financing.
The Company also has available a $500,000 equipment line of credit which
converts to a forty-eight month term loan on August 1, 1997. The borrowings
under the line bear interest at the bank's prime rate plus 1%. The line is
subject to the same covenants as the line of credit discussed above. At June
30, 1997, there were no amounts outstanding under this agreement.
Accounts receivable (before allowance for doubtful accounts) at June 30, 1997
were $2,245,000 compared to $2,579,000 at March 31, 1997. This 13.0% decrease
is primarily attributed to improved credit collections for the three months
ended June 30, 1997 from the three months ended March 31, 1997. Days sales
outstanding at March 31, 1997 was 28 compared to 24 at June 30, 1997.
The current ratio has increased 5.9% as of June 30, 1997 to 1.44:1 from 1.36:1
at March 31, 1996. The Company benefited from higher margins and reductions in
accounts receivable resulting in this higher ratio.
The Company has made capital additions of $85,000 during the three months ended
June 30, 1997. The Company anticipates total purchases of approximately
$500,000 during the fiscal year ending March 31, 1998.
The Company has, and may continue to, repurchase its common stock. Between
March 31, 1997 and June 30, 1997 the Company has repurchased 30,400 shares of
common stock for $37,000. These shares are retired as required by California
law.
(2) RESULTS OF OPERATION
Sales for the three months ended June 30, 1997 decreased by 10.8% from the same
three month period in 1996. This decrease is attributed to a decrease in
purchases of wood burning fireplaces and accessories.
Cost of sales as a percent of sales decreased 4.4% for the three months ended
June 30, 1997 to 73.5% from 77.9% for the same period in 1996. This decrease is
attributed to an improved purchasing program and good controls of labor costs.
Selling, general, and administrative expenses were 20.6% of sales for the three
months ended June 30, 1997 compared to 17.8% for the same period in 1996. The
increase is attributed to higher bonus accruals which reflect the higher 1998
first quarter net earnings.
Interest and other expense decreased 92.1% for the three months ended June 30,
1997 from the same period in 1996. This decrease is due to interest calculated
on lower borrowings.
Net earnings increased by 59.3% for the three months ended June 30, 1997
compared to the same periods in 1996. This increase is attributed to lower
material, labor, and interest expense offset against higher bonus accruals.
8
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FIREPLACE MANUFACTURERS, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 modifies the
disclosure requirements for reportable segments and is effective for the
Company's year ending March 31, 1999. The Company has not determined the
effect of the adoption of this Statement.
PART II - OTHER INFORMATION
(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 14, 1997
FIREPLACE MANUFACTURERS, INC.
BY: WILLARD P. HARRIS
---------------------------
Willard P. Harris
Chief Executive Officer
JANE ANN IOVINE
---------------------------
Jane Ann Iovine
Vice President of Finance
9
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 699,000
<SECURITIES> 0
<RECEIVABLES> 2,245,000
<ALLOWANCES> 308,000
<INVENTORY> 1,951,000
<CURRENT-ASSETS> 5,152,000
<PP&E> 5,361,000
<DEPRECIATION> 3,662,000
<TOTAL-ASSETS> 7,001,000
<CURRENT-LIABILITIES> 3,588,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 2,916,000
<TOTAL-LIABILITY-AND-EQUITY> 7,001,000
<SALES> 7,768,000
<TOTAL-REVENUES> 7,768,000
<CGS> 5,707,000
<TOTAL-COSTS> 7,304,000
<OTHER-EXPENSES> 7,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 457,000
<INCOME-TAX> 183,000
<INCOME-CONTINUING> 274,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
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