SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FLANDERS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Commission File No. 0-27958
-------
North Carolina 0-27958 13-3368271
- ---------------------------- ----------- ------------------------
(State or other jurisdiction (Commission (IRS Employer ID Number)
of incorporation or File No.)
organization.)
531 Flanders Filters Road, Washington, North Carolina 27889
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 946-8081
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act
of 1934 during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
11,934,000 shares common stock par value $.001 as of April 30, 1995
-------------------------------------------------------------------
(Title of Class)
<PAGE>
FLANDERS CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .
Item 1 - Financial Statements
Consolidated Condensed Balance Sheet for March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . .
Consolidated Condensed Statements of Income for the
three months ended March 31, 1996 and 1995 . . . . . . . .
Consolidated Condensed Statement of Shareholders' Equity
for the three months ended March 31, 1996 and 1995 . . . .
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 . . . . . . .
Notes to Consolidated Condensed Financial Statements . . . . .
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . .
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . . . . . .
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . .
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . .
Item 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . .
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
March 31, December 31,
ASSETS 1996 1995
- ----------------------------------------------------- -------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 191,209 $ 2,973,797
Receivables;
Trade, less allowance for doubtful accounts
of $148,000 9,267,763 7,243,557
Other 202,359 321,356
Inventories 2,774,118 2,321,367
Deferred taxes 137,961 137,961
Other current assets 165,121 46,586
-------------- --------------
Total current assets 12,738,531 13,044,624
-------------- --------------
Other assets 182,804 183,542
Property and equipment, net of accumulated depreciation
and amortization of $5,758,677 at 3/31/96;
$5,590,677 at 12/31/95 5,638,822 5,301,063
-------------- --------------
$ 18,560,157 $ 18,529,229
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------
Current liabilities
Notes payable 1,611,249 3,890,425
Current maturities of long-term debt 183,021 454,181
Accounts payable 4,427,471 3,984,140
Accrued expenses 1,115,158 685,482
-------------- --------------
Total current liabilities 7,336,899 9,014,228
-------------- --------------
Long-term debt, less current maturities 1,338,658 1,306,584
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares
authorized; non issued - -
Common stock, $.001 par value; 50,000,000 shares
authorized, issued and outstanding: 11,934,000
at March 31, 1996; 11,434,000 at December 31, 1995 11,934 11,434
Additional paid-in capital 4,500,490 3,418,671
Retained earnings 5,322,176 4,778,312
-------------- --------------
Total stockholders' equity 9,834,600 8,208,417
-------------- --------------
$ 18,560,157 $ 18,529,229
============== ==============
</TABLE>
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months ended
March 31,
-------------- --------------
1996 1995
-------------- --------------
<S> <C> <C>
Net sales $ 11,838,653 $ 9,834,387
Cost of goods sold 8,959,269 7,318,489
-------------- --------------
Gross profit 2,879,384 2,515,898
-------------- --------------
Operating expenses
General and administrative 1,155,643 1,180,645
Selling 765,754 614,511
Research and development 50,929 77,139
Management fees - 125,000
-------------- --------------
1,972,326 1,997,295
-------------- --------------
Operating income 907,058 518,603
-------------- --------------
Nonoperating income (expense):
Other income 82,215 109,910
Interest expense (62,533) (157,233)
-------------- --------------
19,682 (47,323)
-------------- --------------
Income before income taxes 926,740 471,280
-------------- --------------
Income taxes 382,876 176,278
-------------- --------------
Net income $ 584,843 $ 295,002
============== ==============
Earnings per weighted average common and common
equivalent share outstanding:
Primary $ 0.04 $ 0.03
============== ==============
Fully diluted $ 0.04 $ 0.03
============== ==============
Weighted average common and common equivalent shares
outstanding:
Primary 13,950,135 9,693,478
============== ==============
Fully diluted 14,563,796 9,693,478
============== ==============
</TABLE>
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Additional
Common Paid-In Retained
Stock Capital Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ 9,643 $ 310,741 $ 3,632,992
Issuance of 378,411 shares of
common stock 378 165,543 -
Issuance of 1,100,000 shares of common
stock related to December 11, 1995
Private Placement 1,100 2,429,004 -
Reverse acquisition of Elite Acquisitions, Inc. 334 - (334)
Purchase and retirement of 21,197 shares of
common stock (21) (11,617) -
Indemnification of claim by Stockholders - 525,000 -
Net income - - 1,145,654
-------------- -------------- --------------
Balance, December 31, 1995 11,434 3,418,671 4,778,312
Issuance of 500,000 shares of common stock
related to January 10, 1995
Private Placement 500 1,081,819 -
Net income - - 543,864
-------------- -------------- --------------
Balance, March 31, 1996 (unaudited) $ 11,934 $ 4,500,490 $ 5,322,176
============== ============== ==============
</TABLE>
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months ended
March 31,
-------------- --------------
1996 1995
-------------- --------------
<S> <C> <C>
NET CASH (USED) BY
OPERATING ACTIVITIES $ (964,613) $ (549,640)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (432,032) (162,164)
-------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES (432,032) (162,164)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in revolving credit agreements (2,279,176) 1,294,902
Net change in long-term borrowings (189,086) (150,485)
Proceeds from issuance of common stock 1,082,319 -
Purchase of common stock for retirement - (571)
-------------- --------------
NET CASH (USED) BY
FINANCING ACTIVITIES (1,385,943) 1,143,846
-------------- --------------
NET INCREASE (DECREASE) IN CASH (2,782,588) 432,042
CASH AT BEGINNING OF PERIOD 2,973,797 (747,538)
-------------- --------------
CASH AT END OF PERIOD $ 191,209 $ (315,496)
============== ==============
CASH PAID FOR TAXES $ 484,033 $ 1,000
============== ==============
</TABLE>
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements
Nature of business: Flanders Corporation (the "Company") primarily manufactures
high-efficiency air filters, filtration systems, and housings which are used
primarily in ultra-clean manufacturing environments (cleanrooms). The Company
also provides installation supervision, filter testing, and certification
services for installed systems. The Company sells its products primarily to
cleanroom contractors and industrial users in North America, based on credit
terms established for individual customers.
Interim financial statements: The interim financial statements presented herein
are unaudited and have been prepared in accordance with the instructions to Form
10-Q. These statements should be read in conjunction with financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995. The accompanying financial statements have not
been examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management such financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to summarize fairly the Company's financial position, results of
operations, and cash flows. The results of operations and cash flows for the
three months ended March 31, 1996 may not be indicative of the results that may
be expected for the year ending December 31, 1996.
Note 2. Inventories
Inventories consist of the following at March 31, 1996 and December 31, 1995:
1996 1995
---------- ----------
Finished goods ................................... $ 251,087 $ 198,607
Work in progress ................................. 1,349,490 879,987
Raw materials .................................... 1,233,540 1,302,773
---------- ----------
2,834,117 2,381,367
Less allowance for obsolete raw materials ........ 60,000 60,000
---------- ----------
$2,774,117 $2,321,367
========== ==========
Note 3. Capital Transactions
On January 22, 1996, Elite Acquisitions, Inc., stockholders approved a
reincorporation merger with Flanders Corporation, a newly formed wholly-owned
company, whereby Elite Acquisitions, Inc., would merge with Flanders Corporation
in a share for share stock exchange with Flanders Corporation being the
surviving company. The Merger Agreement and Articles of Merger were effective as
of January 29, 1996. As a result of the merger, the financial statements of
Elite Acquisitions, Inc., have been presented as those of Flanders Corporation
and the authorized capitalization of Flanders Corporation consisting of
50,000,000 shares of common stock at a par value of $0.001 and 10,000,000 shares
of preferred stock, with no par value, has been presented as the capital
structure of the Company.
On January 24, 1996, the Company completed a private placement offering dated
January 10, 1996 of 500,000 shares of the Company's common stock at $2.50 per
share to accredited investors. The net proceeds to the Company after commissions
and expenses from the offering totaling $167,681 amounted to $1,082,319.
On February 14, 1996, the Company entered into a tentative agreement to acquire
all of the outstanding stock of Charcoal Service Corporation ("CSC"), a
competing carbon filter and containment manufacturer as well as the land and
building on which CSC operates.
Note 4. Stock Options and Warrants
On January 22, 1996 the Company approved a Long-Term Incentive Plan and a
Director Option Plan which resulted in reserving 2,500,000 shares of the
Company's common stock for issuance under these plans.
<PAGE>
On February 12, 1996, the Company granted options to purchase 819,520 shares of
the Company's common stock at an exercise price of $2.50 per share, of which
options to purchase 119,520 shares were granted to certain key employees under
its Long-Term Incentive Plan and options to purchase 700,000 shares were granted
to consultants to the Company. On that same date, options to purchase 200,000
shares of the Company's common stock were granted to a consultant to the
Company at an exercise price of $3.50 per share.
On February 22, 1996, the Company granted to its President and its Vice
President of Finance options to purchase 1,000,000 shares each of the Company's
common stock at an exercise price of $2.50 per share.
The following table summarizes the activity related to the Company's stock
options and warrants for the three months ended March 31, 1996 and the year
ended December 31, 1995:
<TABLE>
Price
per Share
Stock -----------------------
Warrants Options Warrants Options
------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995 - -
Granted 61,280 2,500,000 $2.50 $1.00
Exercised - -
Canceled or expired - -
------------------------
Outstanding at December 31, 1995 61,280 2,500,000 $2.50 $1.00
Granted 35,000 3,019,520 $2.50 $2.50 - $3.50
Exercised - -
Canceled or expired - -
------------------------
Outstanding at March 31, 1996 96,280 5,519,520 $2.50 $1.00 - $3.50
========================
Exercisable at March 31, 1996 96,280 2,500,000 $2.50 $1.00
========================
</TABLE>
The warrants expire at various periods through July 24, 1996. The options expire
at various times through February 22, 2001.
Note 5. Earnings Per Common Share and Common Equivalent Share
The computation of earnings per common share and common share equivalent is
based upon the weighted average number of common shares outstanding during the
period. Earnings per common share and common equivalent share include the effect
of the stock options and warrants mentioned in Note 4 as if the options and
warrants had been exercised at the date the options and warrants were granted.
The number of common shares outstanding was increased by the number of shares
issuable under the stock options and warrants and this theoretical increase in
the number of common shares was reduced by the number of common shares which are
assumed to have been repurchased with the applicable portion of the proceeds
from the exercise of the options and warrants.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Net sales: Net sales for the three months ended March 31, 1996 increased
20.4% to $11,839,000 compared to $9,834,000 for the three months ended March
31, 1995. The increase was due primarily to increased overall demand for the
Company's products. Approximately $804,000 of the increase was due to
increased sales volume from the Company's Airpure Products subsidiary.
Gross Profit: Gross profits for the three months ended March 31, 1996
represented 24% of net sales, compared to 28% of net sales for the three
months ended March 31, 1995. The primary reason for the decrease in gross
profit margin was the consolidation of operations of Airpure, whose gross
profit represented 12.9% of its net sales, and normal fluctuations in
materials prices and product mix. The Company expects gross profits to range
from 23% to 33%.
Operating expenses: Operating expenses decreased slightly, to $1,972,000,
compared to $1,997,000 for the three months ended March 31, 1996 and 1995,
respectively. Excluding the management fees paid to Flanders Equity
Corporation in 1995, a company affiliated through common ownership,
operating expenses increased $120,000 compared to the prior year quarter,
primarily due to increased commissions and marketing.
Income taxes: For the three months ended March 31, 1996 and 1995, the
Company's tax provision represented approximately 41% and 37% of net income
before income taxes.
Net income: Net income increased to $544,000, or $.04 per share, from
$295,000, or $.03 per share, for the three months ended March 31, 1996 and
1995, respectively.
Liquidity and Capital Resources
Working capital was $6,260,000 at March 31, 1996, compared to $4,030,000 at
December 31, 1995. This includes cash and cash equivalents of $191,000 and
$2,974,000 at March 31, 1996 and December 31, 1995, respectively. Working
capital does not include the unused portion of the Company's revolving credit
lines. Trade receivables increased to $9,268,000 from $7,244,000 at March 31,
1996 and December 31, 1995, respectively. The increase in receivables is
attributable entirely to the increase in the volume of net sales.
On January 24, 1996, the Company completed a private placement offering dated
January 10, 1996 of 500,000 shares of the Company's common stock at $2.50 per
share to accredited investors. The net proceeds to the Company after commissions
and expenses from the offering totaling $167,681 amounted to $1,082,319.
Flanders and Airpure each have a revolving line of credit with a bank, for $5.0
million and $1.5 million, respectively. At March 31, 1996, $3,959,000 and
$930,000 were available for borrowing under the respective lines. Amounts drawn
under the respective lines bear interest at a commercial loan variable rate
index plus 0.75% and 1%, respectively, and are due no later than July 1996 and
June 1996, respectively. The lines are secured by a first security interest on
receivables, inventory and substantially all equipment, and a second deed of
trust on real property.
Planned expansion of the Company will require substantial continuing capital
investment for the manufacture of filtration products. In addition, the Company
has announced it has entered into a tentative agreement to acquire Charcoal
Service Corporation, a competing carbon filter and containment manufacturer.
Although the Company has been able to arrange equity financing or debt
facilities to date, there can be no assurance that sufficient debt financing or
equity will continue to be available in the future, nor that it will be
available on terms acceptable to the Company. Substantial additional debt or
equity financing may be needed for the Company to achieve its short-term and
long-term business objectives. Failure to obtain sufficient capital could result
in materially adverse conditions for the business. The Company expects that
future financing will include equity placements, however, no assurance can be
given that the Company will be able to obtain additional financing on reasonable
terms, if at all.
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material additions to, or changes in status of, any
ongoing, threatened or pending legal proceedings during the three
months ended March 31, 1996.
Item 2. Changes in Securities.
As part of the reincorporation merger of Elite Acquisitions, Inc.
("Elite") into Flanders Corporation ("Flanders") (See Item 4.
Submission of Matters to a Vote of Security Holders), the authorized
capitalization of the Company was changed to 50,000,000 shares of
common stock at a par value of $.001 and 10,000,000 shares of preferred
stock, with no par value.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders.
In a special meeting held January 22, 1996, holders of a majority of
the Company's common stock approved a reincorporation merger whereby
Elite would merge with Flanders, a newly formed wholly- owned company,
in a share for share stock exchange with Flanders being the surviving
company (the "Merger"). Votes recorded were: For - 7,695,160; Against -
0; Not Present - 4,238,840. The Merger Agreement and Articles of Merger
were effective as of January 29, 1996. As a result of the Merger, the
financial statements of Elite have been presented as those of Flanders
and the authorized capitalization of Flanders has been presented as the
authorized capitalization of the Company. An information statement
describing the Merger was mailed to all holders of record during the
week of February 1, 1996, and a copy of this information statement was
attached to the Company's Form 8-K filing with the Securities and
Exchange Commission.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K dated January 29, 1996:
Item 4. Change in Registrant's Certifying Accountant.
Upon recommendation of the Audit Committee of the Board of Directors of
the Company, the Company dismissed Smith & Company as its independent
public accounting firm on January 31, 1996. Effective February 1, 1996,
the Audit Committee engaged McGladrey & Pullen, LLP, as the Company's
independent public accounting firm. The prior accountant's report of
Smith & Company on the financial statements of the Company for the
years ended June 30, 1995, June 30, 1994 and June 30, 1993 and for the
period of July 2, 1986 (date of inception) to August 31, 1995, was not
qualified or modified in any matter (other than a going concern
qualification) and contained no disclaimer of opinion or adverse
opinion. There were no disagreements with Smith & Company on any matter
of accounting principle or practice, financial disclosure or auditing
scope or procedure as related to the financial statements for the years
ended June 30, 1995, June 30, 1994 and June 30, 1993 and for the period
of July 2, 1986 (date of inception) through August 31, 1995 or for the
interim period beginning September 1, 1995 through January 31, 1996,
the date of dismissal.
<PAGE>
Item 5. Other Events.
Effective January 29, 1996, the Company changed its domicile from
Nevada to North Carolina. The change of domicile was accomplished by
means of a reincorporation with and into Flanders (See Item 4.
Submission of Matters to a Vote of Security Holders). As part of the
change of domicile, the Company changed its name from Elite
Acquisitions, Inc., to Flanders Corporation. The change of domicile
will have no material effect on the shareholders of the Company. The
shareholders of the Company have been provided an Information Statement
which discusses the change of domicile and name.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated this 13th day of May, 1996.
FLANDERS CORPORATION
By: /s/ Robert R. Amerson
------------------------------------
Robert R. Amerson
President, Chief Executive Officer
and Director
By: /s/ Steven K. Clark
------------------------------------
Steven K. Clark
Vice President Finance/Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
President, Chief Executive Officer
/s/ Robert R. Amerson and Director 5/13/96
-------------------------
Vice President Finance/Chief Financial
/s/ Steven K. Clark Officer and Director 5/13/96
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 FORM 10-Q OF FLANDERS CORPORATION AND SUBSIDIARY AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 191
<SECURITIES> 0
<RECEIVABLES> 9,618
<ALLOWANCES> 148
<INVENTORY> 2,774
<CURRENT-ASSETS> 12,739
<PP&E> 11,397
<DEPRECIATION> 5,759
<TOTAL-ASSETS> 18,560
<CURRENT-LIABILITIES> 7,337
<BONDS> 1,339
0
0
<COMMON> 12
<OTHER-SE> 9,823
<TOTAL-LIABILITY-AND-EQUITY> 18,560
<SALES> 11,839
<TOTAL-REVENUES> 11,839
<CGS> 8,959
<TOTAL-COSTS> 8,959
<OTHER-EXPENSES> 1,972
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 927
<INCOME-TAX> 383
<INCOME-CONTINUING> 585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 585
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
