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 June 30, 1998
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.
25,484,089 shares common stock, par value $.001, as of August 3, 1998
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1998
PART I - FINANCIAL INFORMATION Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for June 30, 1998 and
December 31, 1997 2
Consolidated Condensed Statements of Operations for the three
months and six months ended June 30, 1998 and 1997 4
Consolidated Condensed Statements of Shareholders' Equity for the
six months ended June 30, 1998 and the year ended
December 31, 1997 5
Consolidated Condensed Statements of Cash Flows for the three
months and six months ended June 30, 1998 and 1997 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities 18
Item 3 - Defaults Upon Senior Securities 18
Item 4 - Submission of Matters to a Vote of Security Holders 18
Item 5 - Other Information 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 20
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
June 30, December 31,
ASSETS 1998 1997
- ----------------------------------------------- -------------- --------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 21,316,739 $ 35,454,580
Short-term investments 294,357 -
Receivables:
Trade, less allowance for doubtful
accounts of $415,566 at 6/30/98,
$380,566 at 12/31/97 30,249,523 20,794,675
Other 1,617,692 1,336,282
Inventories (See Note 2) 25,936,929 16,520,154
Deferred taxes 1,059,865 1,057,383
Other current assets 2,364,200 1,088,634
-------------- --------------
Total current assets 82,839,305 76,251,708
-------------- --------------
Related party receivables 3,903,434 1,861,005
Other assets 1,103,580 2,842,767
Intangible assets, net 28,800,767 17,164,629
Property and equipment, net of accumulated
depreciation and amortization of $11,432,305
at June 30, 1998; $9,646,832 at
December 31, 1997 55,952,586 47,760,407
-------------- --------------
$ 172,599,672 $ 145,880,516
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 2,629,160 $ 1,092,442
Accounts payable 16,442,547 16,940,981
Accrued expenses and other current
liabilities 7,433,591 3,038,800
-------------- --------------
Total current liabilities 26,505,298 21,072,223
-------------- --------------
Long-term debt, less current maturities 30,751,537 13,679,052
Deferred income taxes 4,924,865 4,922,383
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:
25,690,925 shares at June 30, 1998
25,663,425 shares at December 31, 1997 25,691 25,663
Additional paid-in capital 92,417,606 91,969,830
Retained earnings 17,974,675 14,211,365
-------------- --------------
Total stockholders' equity 110,417,972 106,206,858
-------------- --------------
$ 172,599,672 $ 145,880,516
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 39,687,179 $ 33,383,196 $ 70,372,272 $ 61,250,037
Cost of goods sold 30,442,133 24,443,135 53,577,960 45,306,412
-------------- -------------- -------------- --------------
Gross Profit 9,245,046 8,940,061 16,794,312 15,943,625
-------------- -------------- -------------- --------------
Operating expenses 5,777,682 6,110,787 11,365,125 11,853,390
-------------- -------------- -------------- --------------
Operating income 3,467,364 2,829,274 5,429,187 4,090,235
-------------- -------------- -------------- --------------
Nonoperating income (expense):
Other income (expense) 683,448 200,494 1,127,361 535,862
Interest expense (218,549) (104,628) (400,753) (450,693)
-------------- -------------- -------------- --------------
464,899 95,866 726,608 85,169
-------------- -------------- -------------- --------------
Income before income taxes 3,932,263 2,925,140 6,155,795 4,175,404
Income taxes 1,527,954 1,055,000 2,392,485 1,510,000
-------------- -------------- -------------- --------------
Net income $ 2,404,309 $ 1,870,140 $ 3,763,310 $ 2,665,404
============== ============== ============== ==============
Earnings per weighted average common
and common equivalent share
outstanding:
Basic $ 0.10 $ 0.11 $ 0.15 $ 0.16
============== ============== ============== ==============
Diluted $ 0.09 $ 0.09 $ 0.13 $ 0.13
============== ============== ============== ==============
Weighted average common and common
equivalent shares outstanding:
Basic 25,273,636 17,189,106 25,263,581 16,958,023
============== ============== ============== ==============
Diluted 27,774,625 21,152,105 27,902,272 21,215,414
============== ============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Paid-In Retained
Stock Capital Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 15,952 $ 16,964,713 $ 8,372,100
Release of committed capital (Note 2) - 8,000,005 -
Issuance of 8,377,000 shares of common stock 8,377 57,045,636 -
Issuance of 722,375 shares of common stock
upon conversion of convertible debt 722 4,381,689 -
Issuance of 425,000 shares of common stock
upon exercise of options 425 1,262,075 -
Valuation and release from escrow of 344,691
shares of common stock related to the
Acquisitions - 2,984,635 -
Issuance of 187,502 shares of common stock
related to the Acquisitions 187 1,394,452 -
Income tax benefit from stock options
exercised - 969,125 -
Issuance of receivables secured by stock
related to exercise of options - (1,262,500) -
Payment on receivables secured by stock
related to exercised warrants and options - 230,000 -
Net income - - 5,839,265
-------------- -------------- --------------
Balance, December 31, 1997 25,663 91,969,830 14,211,365
Payment on receivables secured by stock
related to exercised warrants and options - 235,700 -
Issuance of shares related to the
Acquisitions - 105,376 -
Issuance of shares related to the Acquisition
of minority interest of Flanders Airpure
Products, Inc. 110 522,390 -
Repurchase of 82,500 shares under stock
repurchase program (82) (415,690) -
Net income (unaudited) - - 3,763,310
-------------- -------------- --------------
Balance, June 30, 1998 25,691 92,417,606 17,974,675
============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 5
<PAGE>
<TABLE>
<CAPTION>
FLANDERS CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ (5,446,829) $ 1,339,638 $ (9,274,989) $ 3,207,937
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of assets from BB&D & IP - (403,000) - (403,000)
Acquisitions, net of cash received (13,027,741) - (13,027,741) -
Gain/loss on sale of assets 7,767 - 7,767 -
Purchase of fixed assets (5,831,169) (4,938,763) (9,977,652) (6,679,400)
-------------- -------------- -------------- --------------
NET CASH (USED) BY
INVESTING ACTIVITIES (18,851,143) (5,341,763) (22,997,626) (7,082,400)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Release of restricted cash from escrow - - - 8,000,005
Payments on receivables secured by common stock - - 235,700 -
Short-term investments (375) (181) (294,357) 294,409
Repurchase of common stock (415,772) - (415,772) -
Net change in long-term borrowings 18,047,959 3,478,937 18,609,203 (20,351,282)
Proceeds from issuance of common stock - 236,205 - 15,881,455
-------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 17,631,812 3,714,961 18,134,774 3,824,587
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (6,666,160) (287,164) (14,137,841) (49,876)
CASH AT BEGINNING OF PERIOD 27,982,899 2,627,699 35,454,580 2,390,411
-------------- -------------- -------------- --------------
CASH AT END OF PERIOD $ 21,316,739 $ 2,340,535 $ 21,316,739 $ 2,340,535
============== ============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for income taxes $ - $ 1,605,354 $ - $ 2,055,000
============== ============== ============== ==============
Cash payments for interest $ 63,563 $ 754,681 $ 400,753 $ 952,827
============== ============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Conversion of debentures plus accumulated
interest into common stock $ - $ - $ - $ 834,798
============== ============== ============== ==============
Issuance of common stock for acquisitions $ 522,500 $ - $ 522,500 $ -
============== ============== ============== ==============
</TABLE>
See Notes to Consolidated 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
efficiency particulate air ("HEPA") filters, with at least 99.97% efficiency,
and absolute isolation barriers ("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 70% 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 some 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, 1997. 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 and six months ended June 30, 1998 may not be indicative of the
results that may be expected for the year ending December 31, 1998.
Earnings per common share: The Company has adopted FASB Statement No. 128 which
requires the presentation of earnings per share by all entities that have
outstanding common stock or potential common stock, such as options, warrants
and convertible securities, that trade in a public market. Those entities that
have only common stock outstanding are required to present basic earnings
per-share amounts. Basic per-share amounts are computed by dividing net income
(the numerator) by the weighted-average number of common shares outstanding (the
denominator). All other entities are required to present basic and diluted
per-share amounts. Diluted per-share amounts assume the conversion, exercise or
issuance of all potential common stock instruments unless the effect is to
reduce the loss or increase the income per common share from continuing
operations. The Company has applied Statement No. 128 for the quarter ended June
30, 1998 and, as required by the Statement, has restated all per share
information for the prior periods to conform to the Statement.
Note 2. Inventories
Inventories consist of the following at June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
6/30/98 12/31/97
-------------- --------------
<S> <C> <C>
Finished goods $ 10,842,281 $ 7,456,542
Work in progress 2,356,578 1,924,024
Raw materials 12,989,070 7,201,588
-------------- --------------
26,187,929 16,582,154
Less allowance for obsolete raw materials 71,000 62,000
-------------- --------------
$ 26,116,929 $ 16,520,154
============== ==============
</TABLE>
Page 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Acquisitions
Effective June 30, 1998, the Company acquired approximately 97% of the
outstanding capital stock of Eco-Air Products, Inc. ("Eco-Air"). The purchase
price was $13,000,000, plus associated expenses of approximately $250,000, plus
up to $5,000,000 payable in cash or the Company's common stock (at seller's
option) if certain performance criteria are met. The purchase price was paid by
the delivery of $13,000,000 in cash to the sellers. For financial statement
purposes, the acquisition of Eco-Air is being accounted for as having occurred
on June 30, 1998, such that the Company's balance sheet at June 30, 1998
includes the assets of Eco-Air.
Eco-Air manufactures air filters and related products for industrial, commercial
and residential air conditioning and heating systems, with products ranging from
high-end HEPA filters for cleanrooms through disposable residential furnace
filters. Eco-Air's headquarters are located in San Diego, California. Eco-Air's
locations include a total of approximately 198,000 square feet of space, and
consist of (i) sales and warehousing operations in Los Angeles, California,
Hayward, California, Phoenix, Arizona and Singapore; (ii) a manufacturing
facility in Tijuana, Mexico; and (iii) corporate headquarters and a
manufacturing plant in San Diego, California. Total manufacturing space is
approximately 94,000 square feet.
In connection with the acquisition of Eco-Air, the Company recorded $10,706,670
of goodwill, which represents the excess of the purchase price plus expenses
over the net market value of identified assets. The goodwill is being amortized
over 40 years.
Summarized below are the unaudited pro forma results of operations of the
Company as though Eco-Air had been acquired at the beginning of the six months
ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------------- --------------
<S> <C> <C>
Revenues $ 80,908,474 $ 74,271,665
============== ==============
Net income $ 3,770,728 $ 2,970,951
============== ==============
Net income per common share, basic $ 0.15 $ 0.18
============== ==============
Net income per common share, diluted $ 0.14 $ 0.14
============== ==============
</TABLE>
Page 8
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Stock Options and Warrants
The following table summarizes the activity related to the Company's stock
options and warrants for the six months ended June 30, 1998 and the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price Exercise Price
per Share per Share
Stock ---------------------------- ------------------
Warrants Options Warrants Options Warrants Options
--------- ----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1997 25,000 7,623,320 $ 9.63 $ 1.00 - 9.50 $ 9.63 $ 3.43
Granted 612,239 100,600 5.54 - 14.73 7.13 - 7.38 9.57 7.14
Exercised - 425,000 - 2.50 - 3.50 - 2.97
Canceled or expired - 6,000 - 7.50 - 7.50
--------- -----------
Outstanding at December 31, 1997 637,239 7,292,920 5.54 - 14.73 1.00 - 9.50 9.57 3.43
Granted - 155,000 - 5.38 - 8.50 - 5.58
Exercised - - - - - -
Canceled or expired - 65,000 - 1.00 - 8.50 - 2.49
Outstanding at June 30, 1998 637,239 7,382,920 $5.54 - 14.73 $1.00 - 9.50 $ 11.00 $ 3.56
========= ===========
Exercisable at June 30, 1998 237,239 7,377,420 $5.54 - 14.73 $1.00 - 9.50 $ 9.63 $ 3.37
========= ===========
</TABLE>
The options and warrants expire at various dates ranging from July 1998 through
January 2008.
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 June 30,
1998. 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>
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 -
Financial Statements". 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. From 1996 to 1998, 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 30, 1996. 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 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 BB&D
Manufacturing and Intermountain Painting and Subassembly and placed them in a
newly formed, majority owned subsidiary, Airseal West, Inc. ("Airseal West").
Airseal West sells, manufactures and distributes specialty and standard air
filter housings and HVAC systems in the western United States. As of December
1997, the Company acquired GFI, Inc. ("GFI") in a stock for stock exchange. GFI
manufactures glass-based filter media and specialty air filters. As of June 30,
1998, the Company acquired Eco-Air Products, Inc. ("Eco-Air"). Eco-Air
specializes in the manufacture and sale of air filtration products to markets on
the West Coast ranging from high-end HEPA filters through standard-grade filters
(hereinafter, CSC, Precisionaire, Air Seal, Airseal West, GFI and Eco- Air are
referred to as the "Acquisitions"). 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 June 30, 1998 Compared to June 30,
1997
The following table summarizes the Company's results of operations as a
percentage of net sales for the three months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1998 1997
------------------ ------------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 39,687 100.0% 33,383 100.0%
Gross profit 9,245 23.3 8,940 26.8
Operating expenses 5,778 14.6 6,111 18.3
Operating income 3,467 8.7 2,829 8.5
Income before income taxes 3,932 9.9 2,925 8.8
Income taxes 1,528 3.9 1,055 3.2
Net income 2,404 6.1 1,870 5.6
</TABLE>
Page 10
<PAGE>
Net sales: Net sales for the three months ended June 30, 1998 increased by
$6,304,000, or 18.9%, to $39,687,000 from $33,383,000 for the three months ended
June 30, 1997. The increase was primarily due to the Company capturing
additional market share, particularly in the Western and Central United States,
which are serviced by the Company's newly established manufacturing facilities
in Nevada and Illinois. See "Outlook."
Gross Profit: Gross profit for the three months ended June 30, 1998 increased by
$305,000, or 3.4%, to $9,245,000, which represented 23.3% of net sales, from
$8,940,000, which represented 26.8% of net sales, for the three months ended
June 30, 1997. The primary reasons for the decrease in gross profit margin were
inefficiencies associated with operations at the Company's newly established
manufacturing facilities in Nevada and Illinois, consisting of higher labor
costs associated with inexperienced personnel, start-up costs associated with
new facilities, and other inefficiencies typical of new plants. Other factors
affecting gross profit margins included ordinary variations in the timing and
product mix of orders, and the Company's ongoing automation project for stock
product lines.
Operating expenses: Operating expenses for the three months ended June 30, 1998
decreased by $333,000, or 5.4%, to $5,778,000, representing 14.6% of net sales,
from $6,111,000, representing 18.3% of net sales, for the three months ended
June 30, 1997. The primary reason for the overall decrease in operating expenses
was the consolidation of administrative activities at the various subsidiaries
to eliminate duplication, partially countered by expenses associated with
opening new facilities, developing new products and commissions associated with
increased sales.
Net income: Net income for the three months ended June 30, 1998 increased by
$534,000, or 28.6%, to $2,404,000, or $0.09 per share (diluted, $0.10 basic),
from $1,870,000, or $0.09 per share (diluted, $0.11 basic)) for the three months
ended June 30, 1997. As a result of capital raising activities during the twelve
months ended June 30, 1998, including: (i) the sale of 6,480,000 shares of
common stock at $7.00 per share; (ii) the sale of 45,000 shares of common stock
at $5.25 per share; (iii) the conversion of options and warrants into
approximately 425,000 shares of common stock; (iv) the issuance of 110,000
shares of common stock for the purchase of the minority interests in Flanders
Airpure Products, Inc. ("Airpure"); and (v) the conversion of $3,200,000 of
convertible debt into approximately 620,000 shares, the Company's average basic
and diluted shares outstanding increased to 25,274,000 and 27,775,000 shares
outstanding, respectively, for the three months ended June 30, 1998, up from
17,189,000 and 21,152,000 shares, respectively, for the three months ended June
30, 1997.
Results of Operations for Six Months Ended June 30, 1998 Compared to June 30,
1997
The following table summarizes the Company's results of operations as a
percentage of net sales for the six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------------ ------------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 70,372 100.0% 61,250 100.0%
Gross profit 16,794 23.9 15,944 26.0
Operating expenses 11,365 16.1 11,853 19.4
Operating income 5,429 7.7 4,090 6.7
Income before income taxes 6,156 8.7 4,175 6.8
Income taxes 2,392 3.4 1,510 2.5
Net income 3,763 5.3 2,665 4.4
</TABLE>
Net sales: Net sales for the six months ended June 30, 1998 increased by
$9,122,000, or 14.9%, to $70,372,000 from $61,250,000 for the six months ended
June 30, 1997. The increase was primarily due to the Company capturing
additional market share, particularly in the Western and Central United States,
which are serviced by the Company's newly established manufacturing facilities
in Nevada and Illinois. See "Outlook."
Page 11
<PAGE>
Gross Profit: Gross profit for the six months ended June 30, 1998 increased by
$850,000, or 5.3%, to $16,794,000, which represented 23.9% of net sales, from
$15,944,000, which represented 26.0% of net sales, for the six months ended June
30, 1997. The primary reasons for the decrease in gross profit margin were
inefficiencies associated with operations at the Company's newly established
manufacturing facilities in Nevada and Illinois, consisting of higher labor
costs associated with inexperienced personnel, start-up costs associated with
new facilities, and other inefficiencies typical of new plants. Other factors
affecting gross profit margins included ordinary variations in the timing and
product mix of orders, and the Company's ongoing automation project for stock
product lines.
Operating expenses: Operating expenses for the six months ended June 30, 1998
decreased by $488,000, or 4.1%, to $11,365,000, representing 16.1% of net sales,
from $11,853,000, representing 19.4% of net sales, for the six months ended June
30, 1997. The primary reason for the overall decrease in operating expenses was
the consolidation of administrative activities at the various subsidiaries to
eliminate duplication, partially countered by expenses associated with opening
new facilities, developing new products and commissions associated with
increased sales.
Net income: Net income for the six months ended June 30, 1998 increased by
$1,098,000, or 41.2%, to $3,763,000, or $0.14 per share (diluted, $0.15 basic),
from $2,665,000, or $0.09 per share (diluted, $0.11 basic) for the six months
ended June 30, 1997.
Liquidity and Capital Resources
Working capital was $56,334,000 at June 30, 1998, compared to $55,179,000 at
December 31, 1997. This includes cash, cash equivalents and other short-term
investments of $21,317,000 and $35,455,000 at June 30, 1998 and December 31,
1997, respectively. Working capital does not include available amounts on the
Company's revolving credit line.
Trade receivables increased $9,454,000, or 45%, to $30,250,000 at June 30, 1998
from $20,795,000 at December 31, 1997. The increase was due to the higher volume
of sales during the three months ended June 30, 1998, compared to the three
months ended December 31, 1997, and normal variations in the timing of shipments
to customers and receipt of payments. Included in trade receivables is
approximately $2.3 million which is in dispute. The dispute involves HEPA
filters manufactured by the Company on behalf of a customer to conform to
certain specifications. Based on independent testing performed on such filters
and other relevant information, the Company believes its receivable is valid and
collectible. Nevertheless, it is reasonably possible that the Company's estimate
of collection could be reduced significantly in the near term.
Operating activities used $5,447,000 of cash during the three months ended June
30, 1998, compared to generating $1,340,000 of cash during the three months
ended June 30, 1997, consisting primarily of earnings, less changes in
receivables and inventories. Investing activities consumed $18,851,000 and
$5,342,000 during the three months ended June 30, 1998 and 1997, respectively,
primarily for the acquisition of Eco-Air and the purchase of land, buildings,
equipment and other fixed assets. Financing activities generated $17,632,000 and
$3,715,000 of cash during the three months ended June 30, 1998 and 1997,
respectively, consisting primarily of long-term borrowings.
The Company has arranged a revolving line of credit facility with SunTrust Bank
of Tampa, N.A. 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 June 30, 1998, this
rate would be 6.75%. As of June 30, 1998, the Company had used $13,000,000 of
the revolving credit facility. In addition, Eco-Air, a subsidiary of the Company
has a line of credit agreement with a bank which allows for advances based on
80% of eligible accounts receivable up to a maximum of $2,500,000, of which $0
was outstanding at June 30, 1998. Borrowings under this arrangement are
collateralized by substantially all of Eco-Air's assets. Outstanding amounts on
the line of credit bear interest at the bank's prime rate (8.5% at March 31,
1998). Eco-Air may elect to fix the rate for any or all advances under this line
of credit agreement for a term of 30 to 90 days at the then current LIBOR rate
(90 day LIBOR rate was 5.69% at March 31, 1998) plus 2.0%. Unless the line of
credit agreement is renewed, it will expire in August 1998.
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Expansion of the Company will require substantial continuing capital investment
for the manufacture of filtration products. Although the Company has been able
to arrange debt facilities or equity financing to date, there can be no
assurance that sufficient debt financing or equity will continue to be available
in the future, or that it will be available on terms acceptable to the Company.
Failure to obtain sufficient capital could materially adversely impact the
Company's growth strategy.
As of April 1, 1998, the Company entered into a Loan Agreement and issued a Note
to the Johnston County Industrial Facilities and Pollution Control Financing
Authority and such authority issued Industrial Development Revenue Bonds (the
"Bonds") for an aggregate of $4,500,000, the proceeds of which were loaned to
the Company for the construction of a 400,000 square foot manufacturing facility
in Johnston County, North Carolina. The Note extends for a term of fifteen (15)
years and bears interest at a variable rate determined by the remarketing agent
of the Bonds on a weekly basis equal to the minimum rate necessary to sell such
Bonds at their par value which, as of July 1, 1998, was 3.25% per annum.
The Company purchased property in Momence, County of Kankakee, Illinois (the
"Illinois Property") for a 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 except for any
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 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.
Acquisition
Effective June 30, 1998, the Company acquired approximately 97% of the
outstanding capital stock of Eco-Air Products, Inc. ("Eco-Air"). The purchase
price was $13,000,000, plus associated expenses of approximately $250,000, plus
up to $5,000,000 payable in cash or the Company's common stock (at sellers'
option) if certain performance criteria are met. The purchase price was paid by
the delivery of $13,000,000 in cash to the sellers. For financial statement
purposes, the acquisition of Eco-Air is being accounted for as having occurred
on June 30, 1998, such that the Company's balance sheet at June 30, 1998
includes the assets of Eco-Air.
Eco-Air manufactures air filters and related products for industrial, commercial
and residential air conditioning and heating systems, with products ranging from
high-end HEPA filters for cleanrooms through disposable residential furnace
filters. Eco-Air's headquarters are located in San Diego, California. Eco-Air's
locations include a total of approximately 198,000 square feet of space, and
consist of (i) sales and warehousing operations in Los Angeles, California,
Hayward, California, Phoenix, Arizona and Singapore; (ii) a manufacturing
facility in Tijuana, Mexico; and (iii) corporate headquarters and a
manufacturing plant in San Diego, California. Total manufacturing space is
approximately 94,000 square feet.
In connection with the acquisition of Eco-Air, the Company recorded $10,706,670
of goodwill, which represents the excess of the purchase price plus expenses
over the net market value of identified assets. The goodwill is being amortized
over 40 years.
Outlook: Issues and Uncertainties
This Outlook section, and other sections of this 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
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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.
Additionally, while management of Flanders is optimistic about the Company's
long-term prospects, the following issues and uncertainties, among others,
should be considered in evaluating the Company's prospects.
Integration of Acquired Companies. Prior to their acquisition by the Company
in 1996 and 1998, CSC, Air Seal, Precisionaire and Eco-Air operated under
different management philosophies, management teams and marketing
strategies. These companies' operations are currently being integrated into
the Company's and 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.
Management of Growth. With the Company's recent acquisitions, the Company's
net sales increased by approximately 83.6% from the year ended December 31,
1996 to the year ended December 31, 1997, and approximately 14.9% from the
six months ended June 30, 1997 to the same period ended June 30, 1998. There
can be no assurance that the Company will continue to expand at this rate,
or at all. Additionally, the Company plans to continue opening new
facilities and has recently opened three new facilities. If the Company
continues to grow, the additional growth will place burdens on management to
manage such growth while maintaining the Company's profitability. Additional
growth may require the Company to recruit and train additional management
personnel in the areas of corporate management, sales, accounting,
marketing, research and development and operations. There can be no
assurance that the Company will be able to do so. Both the Company's growth
by acquisition and expansion may also 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 support
the Company's operations and growth.
Acquisition Strategy. 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. Additionally, an essential component of
the Company's acquisition strategy is improving the operating efficiency,
output and capacity of each acquired company, and the facilities they
operate. This process may include the repair or replacement of outdated and
inefficient equipment to improve the operations and output. Although the
Company generally has been successful in pursuing these acquisition targets,
there can be no assurance that acquisition opportunities will continue to be
available, that the Company will have access to the capital required to
finance potential acquisitions, that the Company will continue to acquire
businesses or that any business acquired will be integrated successfully or
prove profitable. The Company has no specific agreements with respect to
future acquisitions, but is continuing to investigate potential acquisition
opportunities.
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Need for Additional Financing for Future Acquisitions. The Company believes
that the revenues from current operations will provide the Company with
sufficient capital to fund continuing operations for the foreseeable future.
However, to continue its growth through acquisition, substantial additional
debt or equity financing may be needed. Failure to obtain sufficient capital
could materially adversely affect the Company's acquisition strategy.
Need for Technical Employees. The Company's future operating results depend
in part upon its ability to retain and attract qualified engineering,
manufacturing, technical, sales and support personnel for its operations.
Competition for such personnel is intense, and there can be no assurance
that the Company will be successful in attracting or retaining such
personnel. The failure to attract or retain such persons could materially
adversely affect the Company's business and results of operations.
Technological Change; New Product Introduction. For the six month period
ended June 30, 1998, approximately 27% of the Company's net sales resulted
from sales of high-end filtration products which are especially vulnerable
to new technology development. The Company's ability to remain competitive
will depend in part upon its ability to anticipate technological changes, to
develop new and enhanced filtration systems and to introduce these systems
at competitive prices in a timely and cost-efficient manner. There can be no
assurance that the Company will successfully anticipate future technological
changes or that technologies or systems developed by others will not render
the Company's technology obsolete. The Company also plans to develop new
products as part of its strategy to increase the size and customer base of
the air filtration market. There can be no assurance that the Company will
be successful in developing the new products or that any product developed
will be commercially viable.
Acquiring and Maintaining Equipment. The Company designs, manufactures and
assembles the majority of the automatic production equipment used in its
facilities. The Company also uses other technologically advanced equipment,
for which manufacturers may have limited production capability or service
experience, which could result in delays in the acquisition and installation
of such equipment or extended periods of down-time in the event of
malfunction or equipment failure. Any such extended period of down-time for
any critical equipment could have a material adverse impact on the Company,
its financial condition and operations.
Product Demand. Approximately 7% of the Company's net sales in the first
half of 1998 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
may be less in future years than previous years.
Potential Environmental Risks. The Company's business and products may be
significantly influenced by the constantly changing body of environmental
laws and regulations, which require that certain environmental standards be
met and impose liability for the failure to comply with such standards.
While the Company endeavors at each of its facilities to assure compliance
with environmental laws and regulations, there can be no assurance that the
Company's operations or activities, or historical operations by others at
the Company's locations, will not result in civil or criminal enforcement
actions or private actions that could have a materially adverse effect on
the Company.
Competition. The Company currently faces significant competition in its
business activities, and this competition may increase as new competitors
enter the market. Several of these competitors may have longer operating
histories and greater financial, marketing and other resources than the
Company. There can be no assurance that the Company will be able to compete
successfully with existing or new entrant companies. In addition, new
product introductions or enhancements by the Company's competitors could
cause a decline in sales or loss of market acceptance of the Company's
existing products. Increased competitive pressure could also lead to
intensified price-based competition resulting in lower prices and profit
margins, which could adversely affect the Company's business and results of
operations.
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Dependence on Key Personnel. The Company's success will depend in
significant part upon the continued contributions of its officers and key
personnel, many of whom would be difficult to replace. The Company has
entered into employment agreements with Robert R. Amerson, its President,
and Steven K. Clark, its Chief Financial Officer. The loss of any key person
could have a material adverse effect on the business, financial condition
and results of operations of the Company.
Distribution Channels. 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. These representatives may decide to work exclusively with some
other company for various reasons; thus, the current distribution channels
would be unavailable.
Automation. 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 50% 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.
New Markets. 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
("IAQ") 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.
Year 2000. The Company is in the process of identifying operating and
application software problems related to the "Year 2000" issue ("Y2K"), both
internally and externally. The Company's internal assessment and remediation
effort can be summarized in three categories: business information systems,
computerized control systems for manufacturing; and other devices using
embedded chips which may have a date function. The Company has completed the
initial installation of hardware and software products to make its business
information systems Y2K compliant, and has begun a program of extensive
testing before converting data and bringing down its old systems, scheduled
for January 1999. The Company has completed the replacement and testing of
timing circuits and software associated with its automated production
equipment to make them Y2K compliant, and believes it has identified and
remediated all of the issues associated with its manufacturing equipment.
The Company believes all other devices used in its plants, including those
with embedded date function chips, are Y2K compliant. The Company has
established a task force which continues to test and evaluate all systems
for Y2K compliance. The Company is currently in the process of evaluating
its primary vendors for Y2K compliance as well. The Company believes that
the costs of modifications, upgrades, or replacements of software, hardware,
or capital equipment which would not be incurred but for Y2K compatibility
requirements have not and will not have a material impact on the Company's
financial position or results of operations. However, there can be no
assurance that there will not be interruption of operations or other
limitations of system functionality or that the Company will not incur
substantial costs to avoid such limitations. Any failure to effectively
monitor, implement or improve the
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Company's operational, financial, management and technical support systems
could have a material adverse effect on the Company's business and
consolidated results of operations. The Company has identified and is
communicating with customers, suppliers and other critical service providers
to determine if entities with which the Company transacts business have an
effective plan in place to address the Y2K issue, and to determine the
extent of the Company's vulnerability to the failure of third parties to
remediate their own Y2K issues. The Company is relying on statements from
our service and goods suppliers and is not auditing suppliers' preparation
plans. Risks associated with this approach are being identified and
contingency plans are being developed as needed.
Centralize Overhead Functions. The Company is continuing to implement plans
to centralize and eliminate duplication of efforts between its subsidiaries
in the following areas: purchasing, production planning, shipping
coordination, marketing, accounting, personnel management, risk management
and benefit plan administration. The Company believes this will have a
beneficial impact upon its future operating results as these changes are
phased in during the next year.
Because of the foregoing factors, as well as other variables affecting the
Company's operating results, past financial performance should not be considered
a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
Industry Outlook
The Company believes that the semiconductor industry has been experiencing a
cyclical slowdown in capital spending for new facilities, and thus spending on
filtration products, since the first quarter of 1997. While the Company does
expect capital spending for new semiconductor facilities to increase in the
future, it does not expect this to be a significant factor in the Company's
overall business during 1998, where sales for semiconductor plants are expected
to remain flat.
Because of this slowdown, the Company has determined to utilize its excess
production capacity and development resources toward the production and
marketing of isolation environments to the semiconductor and pharmaceutical
industries. Isolating critical process steps from contaminants and the outside
environment may increase production yields and operator safety, while decreasing
the costs and risks associated with environmental contamination.
Data collected by the Company indicates that residential filter users replace
their filters, on average, approximately once per year. Manufacturers of
residential furnace and air condition systems recommend that these filters be
changed every month. A minor trend toward increased maintenance of these
residential heating and cooling systems could have a positive impact on the
Company's business.
The Company's most common products, in terms of both unit and dollar volume, are
residential "throw-away" filters, which usually sell for prices under $1.00. Any
increase in consumer concern regarding air pollution, airborne pollens,
allergens, and other residential airborne contaminants could result in
replacement of some of these sales with higher value sales, such as the
Company's anti-microbial or higher-efficiency filters for residential use, with
associated sales prices typically over $5.00 each. Any such trend would have a
beneficial effect on the Company's business.
Currently, the largest domestic market for air filtration products is for
mid-range "ASHRAE-rated" products and HVAC systems, typically used in commercial
and industrial buildings. To date, the Company's penetration of this market has
been relatively small, consisting of approximately $17 million, or 13% of net
sales, in 1997. The Company believes that its ability to offer a "one stop"
supply of air filtration products to HVAC distributors and wholesalers will
increase its share of this market segment.
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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 June 30,
1998. 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.
On April 14, 1998, the Company announced a stock repurchase program, whereby the
Company may, at the option of the Board of Directors, repurchase up to 1,000,000
shares of its common stock from time to time on the open market between the date
of announcement and December 31, 1998. As of June 30, 1998, the Company had
repurchased 82,500 shares of its common stock under this program.
On June 3, 1998, the Company issued 110,000 shares of its common stock pursuant
to an exemption from registration under Regulation D, to owners of a minority
interest in Airpure, in exchange for such minority interest in Airpure. On June
30, the closing price of the Company's common stock was $4.75 per share.
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.
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.
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.
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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 Stock Purchase Agreement between Flanders Corporation and the
Shareholders of Eco-Air Products, Inc. dated May 7, 1998, filed
with the June 30, 1998 Form 8-K, incorporated herein by reference.
10.8 Amendment dated May 20, 1998 to Stock Purchase Agreement by and
between the Registrant and the Shareholders of Eco-Air Products,
Inc. dated May 7, 1998, filed with the June 30, 1998 Form 8-K,
incorporated herein by reference.
10.9 Promissory Note from Precisionaire, Inc. to SunTrust Bank, Tampa
Bay, in the amount of $2,134,524 dated August 28, 1997, filed with
the September 15, 1997 Form S-1 (Reg No. 333-33635), and
incorporated herein by reference.
10.10 Assumption Agreement between POF Realty, Precisionaire, Inc., Polk
County Industrial Development Authority and SunTrust Bank, dated
August 1, 1997, filed with the September 15, 1997 Form S-1 (Reg No.
333-33635), and incorporated herein by reference.
10.11 Mortgage Deed and Security Agreement between Precisionaire, Inc.
and Sun Trust Bank, Tampa Bay dated August 28, 1997, filed with the
September 15, 1997 Form S-1 (Reg No. 333-33635), and incorporated
herein by reference.
10.12 Credit Agreement between Flanders Corporation, SunTrust Bank, Tampa
Bay and Zions First National Bank, dated November 10, 1997, filed
with the December 31, 1997 Form 10-K, and incorporated herein by
reference.
10.13 Loan Agreement between Will-Kankakee Regional Development Authority
and Flanders Corporation dated December 15, 1997, filed with the
December 31, 1997 Form 10-K, and incorporated herein by reference.
10.14 Letter of Credit Agreement between Flanders Corporation and
SunTrust Bank, Tampa Bay, dated April 1, 1998, filed with the Form
10-Q dated March 31, 1998, and incorporated herein by reference.
10.15 Loan Agreement between Flanders Corporation and the Johnston County
Industrial Facilities and Pollution Control Financing Authority,
dated April 1, 1998, filed with the Form 10-Q dated March 31, 1998,
and incorporated herein by reference..
10.16 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.
10.17 Stock Option Agreement between Elite Acquisitions, Inc., and Steven
K. Clark, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
10.18 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.
10.19 Stock Option Agreement between Elite Acquisitions, Inc. and Robert
R. Amerson, filed with the December 31, 1995 Form 10-K,
incorporated herein by reference.
10.20 Stock Option Agreement between Elite Acquisitions, Inc., and Thomas
T. Allan, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
10.21 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.
10.22 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.
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10.23 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Steven K. Clark, filed with the December
31, 1997 Form 10-K, incorporated herein by reference.
10.24 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Robert R. Amerson, filed with the
December 31, 1997 Form 10-K, incorporated herein by reference.
10.25 Flanders Corporation Long-Term Incentive Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
10.26 Flanders Corporation 1996 Director Option Plan, filed with the
December 31, 1995 Form 10-K, incorporated herein by reference.
10.27 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.
10.28 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.
10.29 Stock Option Agreement between Flanders Corporation and Steven K.
Clark dated June 3, 1996, filed with From S-8 on July 21, 1997,
incorporated herein by reference.
10.30 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.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Report on 8-K, dated June 30, 1998, Item 2 - Acquisition of Eco-Air. Item 7 -
Financial statements of Eco-Air for the year ended March 31, 1998 and pro forma
financial information for the year ended December 31, 1998 and the three months
ended March 31, 1998.
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 5th day of August, 1998.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
------------------------
Steven K. Clark
Vice President Finance/
Chief Financial Officer
and Director
Page 20
<TABLE> <S> <C>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 21,316,739 21,316,739
<SECURITIES> 294,357 294,357
<RECEIVABLES> 30,665,089 30,665,089
<ALLOWANCES> 415,566 415,566
<INVENTORY> 25,936,929 25,936,929
<CURRENT-ASSETS> 82,839,305 82,839,305
<PP&E> 67,384,891 67,384,891
<DEPRECIATION> 11,432,305 11,432,305
<TOTAL-ASSETS> 172,599,672 172,599,672
<CURRENT-LIABILITIES> 26,505,298 26,505,298
<BONDS> 0 0
0 0
0 0
<COMMON> 92,443,297 92,443,297
<OTHER-SE> 17,974,675 17,974,675
<TOTAL-LIABILITY-AND-EQUITY> 172,599,672 172,599,672
<SALES> 39,687,179 70,372,272
<TOTAL-REVENUES> 39,687,179 70,372,272
<CGS> 30,442,133 53,577,960
<TOTAL-COSTS> 5,777,682 11,365,125
<OTHER-EXPENSES> 683,448 1,127,361
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (218,549) (400,753)
<INCOME-PRETAX> 3,932,263 6,155,795
<INCOME-TAX> 1,527,954 2,392,485
<INCOME-CONTINUING> 2,404,309 3,763,310
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<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,404,309 3,763,310
<EPS-PRIMARY> 0.10 0.15
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