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 September 30, 1997
Commission File No. 0-27958
FLANDERS CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 13-3368271
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or 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(d) 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.
24,888,690 shares common stock, par value $.001, as of November 13, 1997
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1997
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for September 30,
1997 and December 31, 1996 2
Consolidated Condensed Statements of Operations for the
three months and nine months ended September 30, 1997
and 1996 4
Consolidated Condensed Statements of Shareholders' Equity
for the nine months ended September 30, 1997 and the
year ended December 31, 1996 5
Consolidated Condensed Statements of Cash Flows for the
three months and nine months ended September 30, 1997
and 1996 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 17
Item 3 - Defaults Upon Senior Securities 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
SIGNATURES 20
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
- ------------------------------------------------- ------------- -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,640,649 $ 2,390,411
Restricted cash (See Note 3) - 8,000,005
Short-term investments 294,442 -
Receivables:
Trade, less allowance for doubtful accounts
of $170,000 at September 30, 1997 and
$346,480 at December 31, 1996 23,638,231 17,906,879
Related party 1,981,820 905,930
Other 406,063 786,811
Inventories (See Note 2) 14,073,884 9,894,707
Deferred taxes 962,000 920,520
Other current assets 3,685,165 687,524
------------- -------------
Total current assets 47,682,254 41,492,787
------------- -------------
Other assets 282,915 909,307
Intangible assets, net 14,692,220 14,016,691
Property and equipment, net of accumulated
depreciation and amortization of $8,763,260
at September 30, 1997; $6,866,817 at
December 31, 1996 40,018,270 30,099,626
------------- -------------
$102,675,659 $ 86,518,411
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 570,634 $ 4,379,973
Accounts payable 19,123,589 11,002,587
Accrued expenses and other current liabilities 6,316,472 3,540,110
------------- -------------
Total current liabilities 26,010,695 18,922,670
------------- -------------
Long-term debt, less current maturities 14,289,842 25,776,295
Convertible debt 1,200,000 4,000,000
Deferred income taxes 4,370,000 4,466,676
Committed capital (See Note 3) - 8,000,005
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 10,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 50,000,000
shares authorized; issued and outstanding:
18,408,690 at September 30, 1997; 15,951,548
at December 31, 1996 18,409 15,952
Additional paid-in capital 43,623,146 16,964,713
Retained earnings 13,163,567 8,372,100
------------- -------------
Total stockholders' equity 56,805,122 25,352,765
------------- -------------
$102,675,659 $ 86,518,411
============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 3
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
-------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $39,232,931 $14,453,452 $100,482,968 $ 40,694,712
Cost of goods sold 29,887,975 10,552,846 75,194,387 30,326,600
------------ ------------ ------------- -------------
Gross Profit 9,344,956 3,900,606 25,288,581 10,368,112
------------ ------------ ------------- -------------
Operating expenses 6,127,824 2,440,006 17,981,214 6,988,474
------------ ------------ ------------- -------------
Operating income 3,217,132 1,460,600 7,307,367 3,379,638
------------ ------------ ------------- -------------
Nonoperating income (expense):
Other income (expense) 441,502 104,764 977,364 497,139
Interest expense (327,571) (144,913) (778,264) (290,481)
------------ ------------ ------------- -------------
113,931 (40,149) 199,100 206,658
------------ ------------ ------------- -------------
Income before income taxes 3,331,063 1,420,451 7,506,467 3,586,296
------------ ------------ ------------- -------------
Income taxes 1,205,000 555,000 2,715,000 1,372,876
------------ ------------ ------------- -------------
Net income $ 2,126,063 $ 865,451 $ 4,791,467 $ 2,213,420
============ ============ ============= =============
Earnings per weighted average common
and common equivalent share
outstanding:
Primary $ 0.10 $ 0.05 $ 0.22 $ 0.13
============ ============ ============= =============
Fully diluted $ 0.10 $ 0.05 $ 0.21 $ 0.13
============ ============ ============= =============
Weighted average common and common
equivalent shares outstanding:
Primary 21,477,692 18,685,393 21,613,188 16,396,481
============ ============ ============= =============
Fully diluted 22,297,151 19,205,086 22,389,401 16,975,351
============ ============ ============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 4
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1996 $ 11,434 $ 3,418,671 $ 4,778,312
Issuance of 3,371,204 shares of common stock
related to the Private Offerings 3,372 18,760,986 -
Less committed capital (Note 3) - (8,000,005) -
Issuance of 1,036,885 shares of common stock
related to the Acquisitions 1,037 (1,037) -
Valuation and release from escrow of 282,295
shares of common stock related to the
Acquisitions - 2,681,803 -
Issuance of 96,280 shares of common stock
upon exercise of warrants 96 240,604 -
Issuance of 13,200 shares of common stock
upon exercise of options 13 32,987 -
Income tax benefit from stock options
exercised - 37,433 -
Fair value of warrants issued with
convertible debt - 33,971 -
Receivables secured by stock related to
exercise of warrants - (240,700) -
Net income - - 3,593,788
------------ ------------ ------------
Balance, December 31, 1996 15,952 16,964,713 8,372,100
Issuance of 495,142 shares of common stock
upon conversion of convertible debt 495 3,012,710 -
Release of committed capital (Note 3) - 8,000,005 -
Issuance of 1,897,000 shares of common stock 1,897 15,675,783 -
Issuance of 65,000 shares of common stock
upon exercise of options 65 162,435 -
Receivables secured by stock related to
exercise of warrants - (192,500) -
Net income (unaudited) - - 4,791,467
------------ ------------ ------------
Balance, September 30, 1997 (unaudited) $ 18,409 $43,623,146 $13,163,567
============ ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 5
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $(1,112,099) $ 2,081,343 $ 2,684,656 $ (67,386)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of assets from BB&D & IP - - (403,000) -
Acquisitions, net of cash received - (25,653,305) - (32,361,260)
Purchase of equipment (3,601,967) (648,909) (10,281,367) (1,368,188)
------------ ------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (3,601,967) (26,302,214) (10,684,367) (33,729,448)
CASH FLOWS FROM FINANCING ACTIVITIES
Release of restricted cash from escrow - - 8,000,005 -
Short-term investments (35) - (294,444) -
Proceeds from issuance of convertible debt - 6,220,000 - 6,220,000
Net change in long-term borrowings 5,055,490 16,901,292 (15,295,792) 15,487,584
Proceeds from issuance of common stock (41,275) 3,296,600 15,840,180 11,718,492
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 5,014,180 26,417,892 8,249,949 33,426,076
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 300,114 2,197,021 250,238 (370,758)
CASH AT BEGINNING OF PERIOD 2,340,535 406,018 2,390,411 2,973,797
------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 2,640,649 $ 2,603,039 $ 2,640,649 $ 2,603,039
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for income taxes $ 1,384,350 $ 135,000 $ 3,439,350 $ 889,033
============ ============ ============ ============
Cash payments for interest $ 327,571 $ 144,913 $ 778,264 $ 290,481
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Conversion of debentures plus accumulated
interest into common stock $ 2,178,407 $ - $ 3,013,205 $ -
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 6
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements
Nature of business: Flanders Corporation (the "Company") designs, manufactures
and markets a broad range of air filtration products, including (i) high-end
High Efficiency Particulate Air ("HEPA") filters, with at least 99.97%
efficiency, and Absolute Isolation Barriers for the creation of synthesized
atmospheres to control manufacturing environments and for the absolute control
and containment of contaminants and toxic gases in certain manufacturing
processes; (ii) mid-range filters for individual and commercial use, which fall
under specifications which are categorized by efficiency ratings established by
the American Society of Heating Refrigeration and Air Conditioning Engineers
("ASHRAE"); and (iii) standard-grade, low cost filters with efficiency ratings
below 30% sold typically off-the-shelf for standard residential and commercial
furnace and air conditioning applications. Approximately 55% of the Company's
net sales are from products with high replacement potential. The Company's air
filtration products are utilized by many industries, including those associated
with commercial and residential heating ventilation and air conditioning systems
("HVAC" systems), semiconductor manufacturing, ultra-pure materials,
biotechnology, pharmaceuticals, synthetics, nuclear power and nuclear materials
processing. The Company also designs and manufactures its own production
equipment to allow for highly automated manufacturing of these products.
Furthermore, the Company produces glass-based filter media for many of its
products to maintain control over the quality and composition of such media.
Although the Company historically has specialized in HEPA and mid-range filters,
the Company has positioned itself to offer its customers a full range of air
filtration products. As a result of certain acquisitions and its operation of
various subsidiaries, the Company has the ability to design, manufacture and
market high-end, mid-range and standard-grade air filtration products and
related equipment and hardware.
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, 1996. 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 month and nine month periods ended September 30, 1997 may not be
indicative of the results that may be expected for the year ending December 31,
1997.
Earnings per Common Share: The computation of earnings per common share and
common share equivalent is done according to the treasury method, which is based
upon the weighted average number of common shares outstanding during the period.
Earnings per common and common equivalent share include the effect of the stock
options and warrants mentioned in Note 5 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 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements - Continued
Earnings per share - continued. Primary earnings per common and common
equivalent share for the three month and nine month periods ended September 30,
1997 and 1996 were calculated as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,126,063 $ 865,451 $ 4,791,467 $ 2,213,420
Weighted average shares outstanding 17,312,516 13,719,072 17,076,187 12,645,471
Add: exercise of weighted average
warrants and options reduced by the
number of shares purchased with
proceeds 4,165,176 4,966,321 4,537,001 3,751,010
------------ ------------ ------------ ------------
Adjusted weighted average shares
outstanding 21,477,692 18,685,393 21,613,188 16,396,481
============ ============ ============ ============
Net income per common share $ 0.10 $ 0.05 $ 0.22 $ 0.13
============ ============ ============ ============
</TABLE>
Fully diluted earnings per common and common equivalent share for the three
month and nine month periods ended September 30, 1997 and 1996 were calculated
as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,126,063 $ 865,451 $ 4,791,467 $ 2,213,420
Weighted average shares outstanding 18,067,106 14,037,496 17,830,777 12,777,619
Add: exercise of weighted average
warrants and options reduced by the
number of shares purchased with
proceeds 4,230,045 5,167,590 4,558,624 4,197,732
------------ ------------ ------------ ------------
Adjusted weighted average shares
outstanding 22,297,151 19,205,086 22,389,401 16,975,351
============ ============ ============ ============
Net income per common share $ 0.10 $ 0.05 $ 0.21 $ 0.13
============ ============ ============ ============
</TABLE>
Note 2. Inventories
Inventories consist of the following at September 30, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
9/30/97 12/31/96
------------- -------------
<S> <C> <C>
Finished goods $ 5,351,949 $ 3,321,713
Work in progress 1,743,862 1,490,438
Raw materials 7,029,073 5,127,556
------------- -------------
14,124,884 9,939,707
Less allowance for obsolete raw materials 51,000 45,000
------------- -------------
$ 14,073,884 $ 9,894,707
============= =============
</TABLE>
Page 8
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Capital Transactions
Secondary offering. On January 22, 1997, the Company completed an underwritten
public secondary offering dated January 16, 1997, of 1,600,000 shares of the
Company's common stock at $9.50 per share (the "January Offering"). Net proceeds
to the Company after deducting commissions and expenses from the January
Offering totaling approximately $1,720,000 amounted to $13,480,000. The Company
utilized the entire amount of the proceeds from the January Offering to pay down
long-term and convertible debt. On January 31, 1997, the Underwriters of the
January Offering exercised their over-allotment option to purchase 240,000
shares of the Company's common stock at $9.50 per share. Net proceeds to the
Company after deducting commissions and expenses from the over-allotment
totaling approximately $164,000 amounted to $2,116,000, which were also used to
pay down long-term debt. Net proceeds from the January Offering, including the
over-allotment, were $15,596,000.
Restricted cash. On January 6, 1997, a Registration Statement under the
Securities Act of 1933 was declared effective registering certain shares,
including those shares purchased by two investors through a private placement in
September and October 1996. Due to the effectiveness of the Registration
Statement, the potential right of rescission held by those two investors
expired, and $8,000,005 of cash which had been held in escrow was released to
the Company and used to pay down long-term debt.
Note 4. Stock Options and Warrants
The following table summarizes the activity related to the Company's stock
options and warrants for the nine months ended September 30, 1997 and the year
ended December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Exercise Price
Stock per Share per Share
Warrants Options Warrants Options Warrants Options
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1996 61,280 2,500,000 $ 2.50 $ 1.00 $ 2.50 $ 1.00
Granted 97,712 5,136,520 2.50 - 9.63 2.50 - 9.50 5.29 4.61
Exercised 96,280 13,200 2.50 2.50 2.50 2.50
Canceled or expired 37,712 - 2.50
---------------------
Outstanding at December 31, 1996 25,000 7,623,320 9.63 1.00 - 9.50 9.63 3.43
Granted 189,515 100,600 5.54 - 14.73 7.13 - 7.38 14.48 7.14
Exercised - 65,000 2.50 2.50
Canceled or expired - 6,000 7.13 - 7.50 7.28
---------------------
Outstanding at September 30, 1997 214,515 7,652,920 $5.54 - 14.73 $ 1.00 - 9.50 $ 12.15 $ 3.49
=====================
Exercisable at September 30, 1997 35,256 7,552,320 $ 8.11 - 9.63 $ 1.00 - 9.50 $ 9.19 $ 3.43
=====================
</TABLE>
The warrants expire at various periods through January 2002. The options expire
at various times through June 2002.
Note 5. Litigation
There were no material additions to, or changes in status of, any ongoing,
threatened or pending legal proceedings during the three months ended September
30, 1997.
From time to time, the Company is a party to various legal proceedings
incidental to its business. None of these proceedings are material to the
conduct of the Company's business, operations or financial condition.
Page 9
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Subsequent Events
On October 21, 1997, the Company completed an underwritten public secondary
offering dated October 16, 1997, of 6,000,000 shares of the Company's common
stock at $7.00 per share (the "Offering"). Net proceeds to the Company after
deducting commissions and expenses from the Offering of approximately $3,200,000
amounted to $38,800,000. The Company will utilize the proceeds from the Offering
for new facilities, expansion of existing facilities, automation, repayment of
debt and general corporate purposes. On November 5, 1997, the underwriters of
the Offering exercised their over-allotment option to purchase 480,000 shares of
the Company's common stock at $7.00 per share. Net proceeds to the Company after
deducting commissions and expenses from the over-allotment totaling
approximately $200,000 amounted to $3,160,000, which will also be used for new
facilities, expansion of existing facilities, automation, repayment of debt and
general corporate purposes. Net proceeds from the Offering, including the
over-allotment, were approximately $41,960,000.
The following unaudited pro forma balance sheet sets forth the balance sheet of
the Company as of September 30, 1997, adjusted to reflect the receipt and
initial application of the proceeds of both the Offering and the over-allotment
option:
UNAUDITED SUMMARY PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(000's Omitted)
<TABLE>
<CAPTION>
ASSETS
- ---------------------------------------------- -----------
<S> <C>
Current assets 83,707
Other assets 283
Intangible assets 14,692
Property and equipment, net 40,018
-----------
$ 138,700
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------- -----------
Current liabilities 26,010
Long-term debt, less current maturities 8,355
Convertible debt 1,200
Deferred income taxes 4,370
Commitments and contingencies -
Stockholders' equity 98,765
-----------
$ 138,700
===========
</TABLE>
On November 10, 1997, using proceeds from the Offering, the Company repaid the
entire outstanding balance of its revolving credit line with NationsBank, N.A.,
and terminated the revolving credit facility under the terms of its agreement
with NationsBank, N.A. Contemporaneously, the Company entered into a new
revolving line of credit agreement ("Credit Agreement") with SunTrust Bank,
Tampa Bay, and Zions First National Bank. The Credit Agreement is for a term of
two years and provides the Company with a line of credit up to a maximum
principal amount of $30,000,000. Outstanding balances on the credit line bear
interest at the option of the Company, at either (a) the "prime" rate of
interest publicly announced by SunTrust Bank, or (b) the "LIBOR" rate as
reported by the Wall Street Journal plus an amount equal to 1.00% to 1.95%,
depending on the ratio of total liabilities of the Company to its tangible net
worth; as of November 14, 1997, this rate would be 6 23/32% for interest periods
of one month and 6 15/16% for interest periods of three months.
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussions should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto presented in Item 1. The
information set forth in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking statements that
involve risks and uncertainties. Many factors could cause actual results to
differ materially from those contained in the forward-looking statements below.
See "Outlook".
Overview
The Company is a full-range air filtration product company engaged in designing,
manufacturing and marketing high performance, mid-range and standard-grade air
filtration products and certain related products and services. The Company
focuses on those products with high replacement potential. The Company designs
and manufactures its own production equipment and also produces glass-based
media for many of its products. During 1996 and the first quarter of 1997, the
Company experienced significant growth from the acquisition of other air
filtration related companies. The Company acquired both Charcoal Service
Corporation ("CSC") and Air Seal Filter Housings, Inc. ("Air Seal") as of May
31, 1996, and Precisionaire, Inc. ("Precisionaire") as of September 23, 1996.
The acquisitions of CSC, Air Seal and Precisionaire are sometimes referred to
herein as the "Acquisitions." CSC specializes in the manufacture of high-end
charcoal filters and containment environments, and has a service arm. Air Seal
produces customized mid-range housings and HVAC equipment. Precisionaire
manufactures air filters and related products for commercial and residential air
conditioning and heating systems. The Company also established two new
subsidiaries in 1996: Flanders International, Ltd. ("FIL") and Airpure Products
West, Inc. ("Airpure West"). FIL is a Singapore-based sales and marketing
subsidiary marketing the Company's products to customers in the Pacific Rim. In
1997, Airpure West's operations were moved to the Company's newly-opened
Henderson, Nevada manufacturing and distribution facility. As of March 1997, the
Company acquired the majority of the assets of Intermountain Paint and
Sub-Assembly, Inc., and BB&D Manufacturing, Inc. (collectively "BB&D") and
placed them in a newly formed, majority owned subsidiary, Airseal West. Airseal
West sells, manufactures and distributes specialty and standard air filter
housings for HVAC systems in the western United States. The results of
operations for the acquired businesses are included in the Company's financial
statements only from the applicable date of acquisition. As a result, the
Company's historical results of operations for the periods presented should be
evaluated specifically in the context of the Acquisitions. Additionally, the
historical results of operations do not fully reflect the operating efficiencies
and improvements expected from upgrading and integrating the acquired businesses
into the Company's operations. There can be no guarantee that the Company will
be able to achieve these objectives and gains in efficiency. The Company
believes the Acquisitions will have a positive impact on its future results of
operations.
Results of Operations for Three Months Ended September 30, 1997 Compared to
September 30, 1996
The following table summarizes the Company's results of operations as a
percentage of net sales for the three months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------------- ----------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 39,233 100.0% 14,453 100.0%
Gross profit 9,345 23.8 3,901 27.0
Operating expenses 6,128 15.6 2,440 16.9
Operating income 3,217 8.2 1,461 10.1
Income before income taxes 3,331 8.5 1,420 9.8
Income taxes 1,205 3.1 555 3.8
Net income 2,126 5.4 865 6.0
</TABLE>
Page 11
<PAGE>
Net sales: Net sales for the three months ended September 30, 1997 increased by
$24,780,000, or 172%, to $39,233,000 from $14,453,000 for the three months ended
September 30, 1996. The increase was primarily due to the acquisition of
Precisionaire, which contributed approximately $24,103,000 of net sales, and
sales from Airseal West, whose sales contributed approximately $549,000 to the
Company's net sales. Sales from subsidiaries held during both periods increased
$128,000, or 0.9%, compared to the prior year quarter. Factors impacting sales
included, but were not limited to, a downturn in demand for laminar-flow HEPA
filters for use in new semiconductor manufacturing facilities, increased sales
of Flanders Absolute Isolation Barriers to the pharmaceutical industry, and
normal fluctuations in product mix and the timing of shipments. See "Outlook".
Gross Profit: Gross profit for the three months ended September 30, 1997
increased by $5,444,000, or 140%, to $9,345,000, which represented 23.8% of net
sales, from $3,901,000, which represented 27.0% of net sales, for the three
months ended September 30, 1996. The primary reasons for the decrease in gross
margin percentage were higher than normal costs associated with opening new
facilities in Momence, Illinois and Henderson, Nevada. Other factors affecting
gross profit margins included additional shipping costs from shipping product
from plants in the Eastern U.S. to customers served by the new facilities, the
Company's ongoing automation project for stock product lines, and normal
fluctuations in product mix. See "Outlook".
Operating expenses: Operating expenses for the three months ended September 30,
1997 increased by $3,688,000, or 151%, to $6,128,000, representing 15.6% of net
sales, from $2,440,000, representing 16.9% of net sales, for the three months
ended September 30, 1996. The primary reason for the overall increase in
operating expenses was the acquisition of Precisionaire and establishment of
Airseal West, which accounted for $3,669,000 of the increase. Operating expenses
decreased as a percentage of net sales compared to the prior year quarter,
primarily due to the impact of savings associated with the consolidation of
operations of the various subsidiaries. Other factors affecting operating
expenses included an increase in sales commission expenses related to the
increase in volume.
Net income: Net income for the three months ended September 30, 1997 increased
by $1,261,000, or 146%, to $2,126,000, or $0.10 per share, from $865,005, or
$0.05 per share for the three months ended September 30, 1996. As a result of
capital raising activities, including the sale of approximately 1,897,000 shares
of common stock during the twelve months ended September 30, 1997, the Company's
average primary and fully diluted shares outstanding increased to 21,478,000 and
22,297,000 shares outstanding, respectively, for the three months ended
September 30, 1997, up from 18,685,000 and 19,205,000 shares, respectively, for
the three months ended September 30, 1996.
Results of Operations for Nine months Ended September 30, 1997 Compared to
September 30, 1996
The following table summarizes the Company's results of operations as a
percentage of net sales for the nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---------------- ----------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 100,483 100.0% 40,695 100.0%
Gross profit 25,289 25.2 10,368 25.5
Operating expenses 17,981 17.9 6,988 17.2
Operating income 7,308 7.3 3,380 8.3
Income before income taxes 7,506 7.5 3,586 8.8
Income taxes 2,715 2.7 1,373 3.4
Net income 4,791 4.8 2,213 5.4
</TABLE>
Page 12
<PAGE>
Net sales: Net sales for the nine months ended September 30, 1997 increased by
$59,788,000, or 147%, to $100,483,000 from $40,695,000 for the nine months ended
September 30, 1996. The increase was primarily due to the Acquisitions and
establishment of new subsidiaries, which contributed approximately $65,333,000
of net sales. Comparable sales from the Company's business at September 30,
1996, which included the operations of Flanders Filters, Inc. ("FFI"), CSC and
Flanders Airpure Products Company, LLC ("Airpure") were down approximately
$5,545,000, or 13.6%, compared to the prior year period. The Company attributes
this decrease to a cyclical slowdown in capital spending for new semiconductor
facilities.
Gross Profit: Gross profit for the nine months ended September 30, 1997
increased by $14,921,000, or 144%, to $25,289,000, which represented 25.2% of
net sales, from $10,368,000, which represented 25.5% of net sales, for the nine
months ended September 30, 1996. The Company has identified two major factors
having an impact upon its gross margins: (1) a decrease in gross profit margins
associated with the establishment of two new manufacturing plants, in Henderson,
Nevada and Momence, Illinois, and the resulting production inefficiencies
typical of start-up operations, additional shipping costs for product shipped to
customers in these areas from plants in the Eastern U.S., and training costs
associated with a new labor force; and (2) an increase in gross profit margins
associated with improvements in operating efficiency associated with focusing
each manufacturing facility on a particular type of product, which reduced
direct costs in the following areas: (i) reduced down time due to switching
lines between products; (ii) eliminated individual lot inventory tracking at the
Company's Washington, North Carolina facility required by regulations governing
the manufacture of nuclear and biological containment environments by moving all
containment environment manufacturing operations to CSC's plant in Bath, North
Carolina; (iii) the automation of additional production lines at several
Precisionaire facilities; and (iv) reduced training and coordination time at
each location by reducing the number of certification and training hours
required of employees by producing fewer types of products at each facility.
Other factors affecting gross profit margins included lower profit margins from
newly started facilities and differences in timing of orders and product mix
during the respective periods. See "Outlook".
Operating expenses: Operating expenses for the nine months ended September 30,
1997 increased by $10,993,000, or 157%, to $17,981,000, representing 17.9% of
net sales, from $6,988,000, representing 17.2% of net sales, for the nine months
ended September 30, 1996. The primary reasons for the overall increase in
operating expenses were the Acquisitions and the establishment of new
subsidiaries, which accounted for an increase of $10,861,000 compared to the
prior year period. Operating expenses increased as a percentage of net sales
compared to the prior year period, primarily because FFI, a subsidiary heavily
focused on providing high-end filters for use in semiconductor manufacturing
facilities, had lower sales volume compared to the prior year period while its
operating expenses remained relatively flat. See "Outlook".
Net income: Net income for the nine months ended September 30, 1997 increased by
$2,578,000, or 116%, to $4,791,000, or $0.22 per share ($0.21 fully diluted),
from $2,213,000, or $0.13 per share for the nine months ended September 30,
1996.
Liquidity and Capital Resources
Working capital was $21,672,000 at September 30, 1997, compared to $22,570,000
at December 31, 1996. This includes cash, cash equivalents and other short-term
investments of $2,935,000 and $2,390,000 at September 30, 1997 and December 31,
1996, respectively, and committed cash of $0 and $8,000,000 at September 30,
1997 and December 31, 1996, respectively. The $8,000,000 in committed cash and
committed capital which was outstanding at December 31, 1996 was released in
January 1997, and used to pay down long-term and convertible debt (see Note 3 to
"Notes to Unaudited Consolidated Financial Statements"). Working capital does
not include the unused portion of the Company's revolving credit line.
Trade receivables increased $5,731,000, or 32%, to $23,638,000 at September 30,
1997 from $17,907,000 at December 31, 1996. The increase was due to the greater
volume of sales during the period ended September 30, 1997.
Page 13
<PAGE>
Net cash used by operating activities was $1,112,000 for the three months ended
September 30, 1997, and the Company's investing activities consumed $3,602,000.
Investing activities included the purchase of equipment for certain of the
Company's manufacturing facilities. Net cash provided by financing activities
for the three months ended September 30, 1997 was $5,014,000, primarily from the
issuance of long-term debt.
As of September 30, 1997, the Company had a credit facility with NationsBank,
consisting of a working capital revolving credit facility in the maximum
principal amount of $25,000,000 which bore interest at the prime rated as
established by NationsBank plus 1% per annum. The revolving credit facility was
secured by substantially all of the Company's assets. As of September 30, 1997,
the Company had used approximately $5,935,000 of the revolving credit facility.
On November 10, 1997, the Company paid all outstanding amounts under the credit
facility from the net proceeds of $41,960,000 received in its public offering,
completed on November 5, 1997, and terminated this facility. See "Subsequent
Events."
The Company recently purchased property in Momence, County of Kankakee, Illinois
(the "Illinois Property") for a new mid-range manufacturing facility. In
connection with such purchase, the Company agreed to assume all risk of
environment liability for past, present or future conditions on the Illinois
Property other than liability for environmental problems related to ground
water. The Illinois Property had certain environmental problems which required
remediation under federal and Illinois law. The seller of the Illinois Property
has worked extensively with the Illinois Environmental Protection Agency
("IEPA") with regard to the environmental matters, and the Company has completed
both Phase I and Phase II environmental surveys with respect to the property,
and it appears that the environmental matters have been resolved, except for
certain monitoring procedures required by the IEPA. However, resolution of state
issues has no effect on any potential federal or common law claims, and there
can be no assurance that such claims will not be made.
The Company's business and operations have not been materially affected by
inflation during the periods for which financial information is presented.
Outlook
This Outlook section, and other sections of the document, contains many
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including, among others (i) results of operations
(including expected changes in the Company's gross margin and general,
administrative and selling expenses); (ii) the Company's business strategy for
expanding its market share of the air filtration industry (iii) the Company's
strategy to increase the size and customer base of the air filtration market;
and (iv) the Company's ability to distinguish itself from its current and future
competitors.
These forward looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. Important
factors to consider in evaluating such forward-looking statements include (i)
the shortage of reliable market data regarding the air filtration market; (ii)
changes in external competitive market factors or in the Company's internal
budgeting process which might impact trends in the Company's results of
operations; (iii) anticipated working capital or other cash requirements; (iv)
changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the market; (v) product obsolescence
due to the development of new technologies, and (vi) various competitive factors
that may prevent the Company from competing successfully in the marketplace. In
light of these risks and uncertainties, there can be no assurance that the
events contemplated by the forward-looking statements contained in this Form
10-Q will in fact occur.
Approximately 20% of the Company's net sales in 1996 were from high-end products
sold for use in the semiconductor industry. The Company believes that new
fabricated plant construction for the semiconductor manufacturing industry,
which typically occurs in large phases as new manufacturing capacity is brought
on line, is in a periodic slowdown. As such, the demand for the Company's
laminar flow HEPA products will be less than previous quarters through at least
the fourth quarter of 1997.
Page 14
<PAGE>
The Company believes its future results of operations could be affected by a
variety of factors, including the successful integration of CSC, AirSeal and
Precisionaire into the Company, management's ability to successfully manage the
Company's growth, the Company's ability to keep up with technological changes,
the success of the Company's efforts to automate its stock product lines, the
Company's ability to withstand increased pricing pressure from the Company's
competition, the effects of changing government regulations governing indoor air
quality, the amount of capital expenditures by semiconductor manufacturers, and
any adverse changes in general economic conditions in locations where the
Company does business.
The Acquisitions give the Company a broader product line of air filtration
products. As part of the integration of the Acquisitions, the Company has
adopted a strategy of increasing its market share by providing its
manufacturers' representatives with the ability to offer a full product line of
the Company's products and "one stop" purchasing of air filtration products to
existing and new customers. Many of the Company's representatives have indicated
a willingness to offer the Company's products exclusively now that the Company
offers a broader range of products; however, the Company does not have any
written agreements with such representatives that require exclusivity for the
Company's entire product line. These representatives may decide to work
exclusively with some other company for various reasons; thus, the current
distribution channels would be unavailable. Additionally, integration of the
Acquisitions may significantly strain the Company's management, financial and
other resources. There can be no assurance that the Company's systems,
procedures and controls will be adequate to accommodate integration of these
companies. Failure to successfully integrate these companies could materially
adversely affect the Company's business and results of operation.
The Company intends to continue to seek increased market share through strategic
acquisitions of synergistic businesses. The Company seeks to identify potential
acquisition targets with (i) dominant positions in local or regional markets,
(ii) excess or under-utilized capacity, (iii) an ability to add new product
lines to the Company's business and (iv) significant asset value to enable the
Company to obtain debt financing or non-diluted equity financing for such
acquisition. The Company is continuously evaluating acquisition opportunities in
light of the above criteria. Once a potential target is identified, the Company
commences an in-depth due diligence evaluation of the target's operations,
markets, profitability and examines all potential liabilities including
environmental liabilities and any contingent liabilities. The Company's strategy
of growth through acquisition exposes the Company to the potential risks
inherent in assessing the value, strengths, weaknesses, contingent or other
liabilities and potential profitability of acquisition candidates and in
integrating the operations of acquired companies. The Company has no specific
agreements with respect to future acquisitions, but is continuing to investigate
potential acquisition opportunities. Substantial equity or debt financing may be
needed for the Company to continue to grow through the acquisition of other
businesses. Failure to obtain sufficient equity or debt financing could
adversely affect the Company's growth strategies. In addition, there can be no
assurance that any future acquisitions will be able to be integrated
successfully into the Company, given that any future acquisitions will have been
operated under different management philosophies, management teams and marketing
strategies. There can be no assurance that the Company's systems, procedures and
controls will be adequate to accommodate integration of any future acquisitions.
The Company has begun a program to increase its gross margins by automating
portions of its production lines at FFI, Precisionaire and Airpure using
technology developed at Precisionaire and FFI. Currently, approximately twenty
percent of the Company's production lines incorporate the new automated
equipment designs. The Company will continue to implement the additional
automation for these production lines one at a time, to minimize down time. The
Company estimates the total cost for automation of its facilities will be
approximately $10,000,000, and will fund such automation from funds raised in
its recent public offering. See "Subsequent Events".
The Company intends to continue increasing production capacity for air
filtration products, and has announced plans to expand upon or build facilities
in the Asia/Pacific Basin. The Company has recently relocated its Airpure West
operations to a facility in Henderson, Nevada. Additionally, the Company has
recently opened a manufacturing facility at the Illinois Property. These new or
expanded facilities, as well as the automation of existing production lines, are
part of the Company's growth strategies and will require substantial continuing
investment in capital equipment during 1997. Although the Company has been able
to arrange equity financing or debt facilities to date, there can be no
assurance that additional equity or debt financing will continue to be available
in the future, or that it will be available on terms acceptable to the Company.
Page 15
<PAGE>
The Company intends to develop new markets and products for those markets by
applying existing technology developed for high-technology niche markets to new
applications. For each new application, the Company will first develop a line of
products to meet the needs of the specific application, and through trade shows,
technical publications, mass marketing, distributor education and other
appropriate methods, will create demand for the application in the new target
market. The Company has established the Absolute Isolation Division and the
Integrated Environmental Control Division to focus on (i) methods to manufacture
pharmaceutical and other products in synthesized atmospheres and completely
isolated and secure environments using Absolute Isolation Barriers and (ii)
Indoor Air Quality diagnosis and solutions for commercial and public buildings
and for residential application. The Company believes there will be an increase
in interest in Absolute Isolation Barriers in the future because these products
prevent cross-contamination between different products and different lots of the
same product being manufactured at the same facility, as well as increase
production yields. Additionally, the Company believes there is an increase in
public concern regarding the effects of IAQ on employee productivity, as well as
an increase in interest in standards for detecting and solving IAQ problems. The
Company will continue to concentrate its efforts on products with high
replacement potential.
Subsequent Events
On October 21, 1997, the Company completed an underwritten public secondary
offering dated October 16, 1997, of 6,000,000 shares of the Company's common
stock at $7.00 per share (the "Offering"). Net proceeds to the Company after
deducting commissions and expenses from the Offering of approximately $3,200,000
amounted to $38,800,000. The Company will utilize the proceeds from the Offering
for new facilities, expansion of existing facilities, automation, repayment of
debt and general corporate purposes. On November 5, 1997, the underwriters of
the Offering exercised their over-allotment option to purchase 480,000 shares of
the Company's common stock at $7.00 per share. Net proceeds to the Company after
deducting commissions and expenses from the over-allotment totaling
approximately $200,000 amounted to $3,160,000, which will also be used for new
facilities, expansion of existing facilities, automation, repayment of debt and
general corporate purposes. Net proceeds from the Offering, including the
over-allotment, were approximately $41,960,000.
On November 10, 1997, using proceeds from the Offering, the Company repaid the
entire outstanding balance of its revolving credit line with NationsBank, N.A.,
and terminated the revolving credit facility under the terms of its agreement
with NationsBank, N.A. Contemporaneously, the Company entered into a new
revolving line of credit agreement ("Credit Agreement") with SunTrust Bank,
Tampa Bay, and Zions First National Bank. The Credit Agreement is for a term of
two years and provides the Company with a line of credit up to a maximum
principal amount of $30,000,000. Outstanding balances on the credit line bear
interest at the option of the Company, at either (a) the "prime" rate of
interest publicly announced by SunTrust Bank, or (b) the "LIBOR" rate as
reported by the Wall Street Journal plus an amount equal to 1.00% to 1.95%,
depending on the ratio of total liabilities of the Company to its tangible net
worth; as of November 14, 1997, this rate would be 6 23/32% for interest periods
of one month and 6 15/16% for interest periods of three months.
Page 16
<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
September 30, 1997.
From time to time, the Company is a party to various legal proceedings
incidental to its business. None of these proceedings are material to the
conduct of the Company's business, operations or financial condition.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation for Flanders Corporation, filed with
the Form 8-A dated March 8, 1996, incorporated herein by
reference.
3.2 Bylaws of Flanders Corporation, filed with the Form 8-A dated
March 8, 1996, incorporated herein by reference.
4.1(a) Warrant Agreement with Gilford Securities Incorporated,
previously filed with the Form S-1 on October 21, 1996 (Reg.
No. 333-14655) and incorporated herein by reference.
4.1(b) Form of Warrant Agreement with Raymond James & Associates, Inc.
and Cleary Gull Reiland & McDevitt, Inc., previously filed with
Form S-1 on September 15, 1997 (Reg. No. 333-33635) and
incorporated herein by reference.
4.2 Form of Series A Convertible Subordinated Debentures, filed
with the September 30, 1996 Form 10-Q, incorporated herein by
reference.
4.3 Form of 10% Convertible Notes, filed with the September 30,
1996 Form 10-Q, incorporated herein by reference.
4.4 Form of Warrants, filed with the September 30, 1996 Form 10-Q,
incorporated herein by reference.
10.1 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Precisionaire, Inc., filed with the Form 8-K
dated September 23, 1996, incorporated herein by reference.
10.2 Indemnification Agreement between Flanders Corporation, Steven
K. Clark, Robert Amerson and Thomas Allan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
10.3 Guaranty Agreement between Flanders Corporation and American
National Bank of Texas, filed with the September 30, 1996 Form
10-Q, incorporated herein by reference.
Page 17
<PAGE>
10.4 Agreement and Plan of Merger between Elite Acquisitions and
Flanders Filters, Inc., filed with the December 31, 1995 Form
10-K, incorporated herein by referrence.
10.5 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Charcoal Service Corporation, filed with the
May 31, 1996 Form 8-K, incorporated herein by reference.
10.6 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Air Seal Filter Housings, Inc. (previously
filed with Form S-1, filed October 21, 1996 (Reg. No. 333-14655)
and incorporated herein by reference).
10.7 Promissory Note from Precisionaire, Inc., to SunTrust Bank,
Tampa Bay, in the amount of $2,134,524, dated August 28, 1997,
filed with the Form S-1 dated September 15, 1997 (Reg. No.
333-33635) and incorporated herein by reference.
10.8 Assumption Agreement between POF Realty, Precisionaire, Inc.,
Polk County Industrial Development Authority and SunTrust Bank,
dated August 1, 1997, filed with the Form S-1 dated September
15, 1997 (Reg. No. 333-33635) and incorporated herein by
reference.
10.9 Mortgage Deed and Security Agreement between Precisionaire,
Inc., and SunTrust Bank, Tampa Bay, dated August 28, 1997,
filed with the Form S-1 dated September 15, 1997 (Reg. No.
333-33635) and incorporated herein by reference.
10.10 Financing and Security Agreement by and among Flanders
Corporation and NationsBank, N.A., dated September 19, 1996,
filed with the Form 8-K dated September 23, 1996, incorporated
herein by reference.
27 Financial Data Schedule.
99.1 Employment Agreement between Elite Acquisitions, Inc., Flanders
Filters, Inc., and Steven K. Clark, filed with the December 31,
1995 Form 10-K, incorporated herein by reference.
99.2 Stock Option Agreement between Elite Acquisitions, Inc., and
Steven K. Clark, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
99.3 Employment Agreement between Elite Acquisitions, Inc., Flanders
Filters, Inc. and Robert R. Amerson, filed with the December
31, 1995 Form 10-K, incorporated herein by reference.
99.4 Stock Option Agreement between Elite Acquisitions, Inc. and
Robert R. Amerson, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
99.5 Stock Option Agreement between Elite Acquisitions, Inc., and
Thomas T. Allan, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
99.6 Stock Option Agreement between Elite Acquisitions, Inc., and
William M. Claytor, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
99.7 Employment Agreement between Flanders Corporation,
Precisionaire, Inc., and Gustavo Hernandez, filed with Form S-1
dated October 21, 1996 (Reg. No. 333-14655) and incorporated
herein by reference.
99.8 Amendment to Employment Agreement between Elite Acquisitions,
Inc., Flanders Filters, Inc., and Steven K. Clark, filed with
Form S-1 dated October 21, 1996 (Reg. No. 333-14655) and
incorporated herein by reference.
99.9 Amendment to Employment Agreement between Elite Acquisitions,
Inc., Flanders Filters, Inc., and Robert R. Amerson, filed with
Form S-1 dated October 21, 1996 (Reg. No. 333-14655) and
incorporated herein by reference.
99.10 Flanders Corporation Long-Term Incentive Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
99.11 Flanders Corporation 1996 Director Option Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
Page 18
<PAGE>
99.12 Stock Option Agreement between Flanders Corporation and Steven
K. Clark dated February 22, 1996, filed with Form S-8 on July
21, 1997, incorporated herein by reference.
99.13 Stock Option Agreement between Flanders Corporation and Robert
R. Amerson dated February 22, 1996, filed with Form S-8 on July
21, 1997, incorporated herein by reference.
99.14 Stock Option Agreement between Flanders Corporation and Steven
K. Clark dated June 3, 1996, filed with Form S-8 on July 21,
1997, incorporated herein by reference.
99.15 Stock Option Agreement between Flanders Corporation and Robert
R. Amerson dated June 3, 1996, filed with Form S-8 on July 21,
1997, incorporated herein by reference.
(b) Reports on Form 8-K - None
Page 19
<PAGE>
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.
Dated this 15th day of November, 1997.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
--------------------------
Steven K. Clark
Vice President Finance/Chief Financial Officer
and Director
Page 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 2,640,649 2,640,649
<SECURITIES> 294,442 294,442
<RECEIVABLES> 26,026,114 26,026,114
<ALLOWANCES> 170,000 170,000
<INVENTORY> 14,073,884 14,073,884
<CURRENT-ASSETS> 47,682,254 47,682,254
<PP&E> 48,781,530 48,781,530
<DEPRECIATION> 8,763,260 8,763,260
<TOTAL-ASSETS> 102,675,659 102,675,659
<CURRENT-LIABILITIES> 26,010,695 26,010,695
<BONDS> 0 0
0 0
0 0
<COMMON> 18,409 18,409
<OTHER-SE> 56,786,713 56,786,713
<TOTAL-LIABILITY-AND-EQUITY> 102,675,659 102,675,659
<SALES> 39,232,931 100,482,968
<TOTAL-REVENUES> 39,232,931 100,482,968
<CGS> 29,887,975 75,194,387
<TOTAL-COSTS> 6,127,824 17,981,214
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 327,571 327,571
<INCOME-PRETAX> 3,331,063 7,506,467
<INCOME-TAX> 1,205,000 2,715,000
<INCOME-CONTINUING> 2,126,063 4,791,467
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,126,063 4,791,467
<EPS-PRIMARY> $ 0.10 $ 0.22
<EPS-DILUTED> $ 0.10 $ 0.21
</TABLE>
