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, 1999
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.)
2399 26th Avenue North, St. Petersburg, Florida 33734
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 822-4411
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 (August 12, 1999).
25,435,583 shares common stock, par value $.001 per share
(Title of Class)
<PAGE>
FLANDERS CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1999
PART I - FINANCIAL INFORMATION ............................................ Page
Item 1 -
Financial Statements
Consolidated Condensed Balance Sheet for June 30, 1999 and
December 31, 1998 ................................................. 3
Consolidated Condensed Statements of Income for the three
months and six months ended June 30, 1999 and 1998 ................ 4
Consolidated Condensed Statements of Shareholders' Equity
for the six months ended June 30, 1999 and the year
ended December 31, 1998 ........................................... 5
Consolidated Condensed Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 ........................... 6
Notes to Consolidated Condensed Financial Statements ................ 7
Item 2 -
Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 10
Item 3 -
Quantitative and Qualitative Disclosures About Market Risk ............ 20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings .............................................. 21
Item 2 - Changes in Securities and Use of Proceeds ...................... 21
Item 3 - Defaults Upon Senior Securities ................................ 21
Item 4 - Submission of Matters to a Vote of Security Holders ............ 21
Item 5 - Other Information .............................................. 21
Item 6 - Exhibits and Reports on Form 8-K ............................... 21
SIGNATURES ................................................................ 23
Page 2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- -------------------------------------------------------------- ------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,470,346 $ 13,672,685
Receivables:
Trade, less allowance for doubtful accounts of
6/30/99 $531,853; 12/31/98 $551,725 34,168,989 26,670,650
Other 2,605,530 2,177,301
Inventories (See Note 2) 27,393,543 25,518,804
Deferred taxes 1,260,589 1,421,847
Other current assets 2,879,597 860,310
------------ ------------
Total current assets 81,778,594 70,321,597
------------ ------------
Related party receivables 4,414,668 4,263,409
Other assets 814,478 3,114,844
Intangible assets, net 30,492,163 28,990,924
Property and equipment, net of accumulated depreciation and
amortization of $16,773,269 at June 30, 1999;
$14,069,608 at December 31, 1998 62,241,502 61,089,420
------------ ------------
$179,741,405 $167,780,194
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 1,713,968 $ 2,565,014
Accounts payable 15,911,090 15,851,087
Accrued expenses and other current liabilities 5,905,669 3,933,918
------------ ------------
Total current liabilities 23,530,727 22,350,019
------------ ------------
Long-term debt, less current maturities 37,691,256 30,105,714
Deferred income taxes 5,715,602 5,721,647
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: 25,624,339 shares 25,436 25,624
Additional paid-in capital 90,020,663 90,077,257
Retained earnings 22,757,721 19,499,933
------------ ------------
Total stockholders' equity 112,803,820 109,602,814
------------ ------------
$179,741,405 $167,780,194
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 3
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 45,369,657 $ 39,687,179 $ 83,515,221 $ 70,372,272
Cost of goods sold 33,304,153 30,442,133 61,720,861 53,577,960
------------ ------------ ------------ ------------
Gross Profit 12,065,504 9,245,046 21,794,360 16,794,312
------------ ------------ ------------ ------------
Operating expenses 8,428,861 5,777,682 15,923,509 11,365,125
------------ ------------ ------------
Operating income 3,636,643 3,467,364 5,870,851 5,429,187
------------ ------------ ------------
Nonoperating income (expense):
Other income (expense) 71,664 683,448 273,100 1,127,361
Interest expense (274,727) (218,549) (575,375) (400,753)
------------ ------------ ------------ ------------
(203,063) 464,899 (302,275) 726,608
------------ ------------ ------------ ------------
Income before income taxes 3,433,580 3,932,263 5,568,576 6,155,795
Income taxes 1,425,000 1,527,954 2,310,788 2,392,485
------------ ------------ ------------ ------------
Net income $ 2,008,580 $ 2,404,309 $ 3,257,788 $ 3,763,310
============ ============ ============ ============
Earnings per weighted average common
and common equivalent share
outstanding:
Basic $ 0.08 $ 0.10 $ 0.13 $ 0.15
============ ============ ============ ============
Diluted $ 0.08 $ 0.09 $ 0.12 $ 0.14
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding:
Basic 25,395,225 25,273,636 25,424,282 25,263,581
============ ============ ============ ============
Diluted 26,702,985 27,385,729 26,833,682 27,513,374
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 4
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings
-------- ------------ -----------
<S> <C> <C> <C>
Balance, January 1, 1998 25,663 91,969,830 14,211,365
Issuance of 110,000 shares of common stock to acquire remaining
interest in a subsidiary from minority stockholders 110 522,390 --
Issuance of 121,264 shares of common stock upon non-cash
exercise of stock options 121 (121) --
Purchase and retirement of 731,350 shares of common stock (731) (3,284,827) --
Issuance of 461,000 shares of common stock upon exercise of
options 461 1,152,039 --
Issuance of receivables related to exercise of options -- (722,500) --
Payment on receivables related to exercised options -- 235,700 --
Income tax benefit of stock options exercised -- 253,795 --
Registration of Company common stock -- (77,487) --
Valuation and release from escrow of 7,000 shares of common
stock related to certain acquisitions -- 28,438 --
Net income -- -- 5,288,568
-------- ------------ -----------
Balance, December 31, 1998 25,624 90,077,257 19,499,933
-------- ------------ -----------
Valuation and release from escrow of 238,899 shares of common
stock related to certain acquisitions -- 970,527 --
Issuance of 94,544 shares of common stock related to certain
acquisitions 95 (95) --
Purchase and retirement of 283,300 shares of common stock (283) (1,027,027) --
Net income -- -- 3,257,788
-------- ------------ -----------
Balance, June 30, 1999 $ 25,436 $ 90,020,663 $22,757,721
======== ============ ===========
</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,
------------ ------------ ------------ ------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES $ (1,934,486) $ (5,446,829) $ (1,675,244) $ (9,274,989)
CASH FLOWS FROM INVESTING ACTIVITIES
Gain/loss on sale of assets -- 7,767 -- 7,767
Acquisitions, net of cash received (1,786,692) (13,027,741) (1,786,692) (13,027,741)
Purchase of fixed assets (1,688,208) (5,831,169) (2,447,589) (9,977,652)
------------ ------------ ------------ ------------
NET CASH (USED) BY
INVESTING ACTIVITIES (3,474,900) (18,851,143) (4,234,281) (22,997,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on receivables secured by
common stock -- -- 235,700
------------
Short-term investments -- (375) -- (294,357)
Repurchase of common stock (1,027,310) (415,772) (1,027,310) (415,772)
Net change in long-term borrowings 8,571,261 18,047,959 6,734,496 18,609,203
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 7,543,951 17,631,812 5,707,186 18,134,774
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 2,134,565 (6,666,160) (202,339) (14,137,841)
CASH AT BEGINNING OF PERIOD 11,335,781 27,982,899 13,672,685 35,454,580
------------ ------------ ------------ ------------
CASH AT END OF PERIOD (See Note 4) $ 13,470,346 $ 21,316,739 $ 13,470,346 $ 21,316,739
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid for income taxes $ 1,278,047 $ -- $ 2,102,495 $ --
============ ============ ============ ============
Cash paid for interest $ 296,337 $ 63,563 $ 590,841 $ 400,753
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING ACTIVITIES
Issuance of common stock for acquisitions $ -- $ 522,500 $ -- $ 522,500
============ ============ ============ ============
</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:
We design, manufacture and market a broad range of air filtration products,
including:
o high efficiency particulate air 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;
o mid-range filters for individual and commercial use, which fall under
specifications categorized by efficiency ratings established by the
American Society of Heating Refrigeration and Air Conditioning
Engineers; and
o 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 our net sales are from products with high replacement
potential. Many industries use our air filtration products, including those
industries associated with:
o commercial and residential heating ventilation and air conditioning
systems,
o semiconductor manufacturing,
o ultra-pure materials,
o biotechnology,
o pharmaceuticals,
o synthetics,
o nuclear power, and
o nuclear materials processing.
We also design and manufacture our own production equipment which allows us to
automate many of the steps in the air filter manufacturing process. We also
produce glass-based filter media which allows us to maintain control over the
quality and composition of media for some of our high-end products and offers
significant cost savings for some of our standard-grade products.
Interim financial statements:
The interim financial statements presented herein are unaudited, except for the
consolidated balance sheet as of December 31, 1998, which has been derived from
audited financial statements, and have been prepared in accordance with the
instructions to Form 10-Q, and consequently may not include all disclosures
normally required by generally accepted accounting principles or those normally
made in the Company's Annual Report on Form 10-K. These statements should be
read in conjunction with financial statements and notes thereto included in our
annual report on Form 10-K for the year ended December 31, 1998. 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
our 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,
1999 may not be indicative of the results that may be expected for the year
ending December 31, 1999.
Page 7
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Interim Financial Statements - Continued
Earnings per common share:
We have 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.
Note 2. Inventories
Our inventories consist of the following at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
6/30/99 12/31/98
----------- -----------
<S> <C> <C>
Finished goods $11,680,244 $12,988,501
Work in progress 3,619,903 1,036,809
Raw materials 12,187,810 11,587,908
----------- -----------
27,487,957 25,613,218
Less allowance for obsolete raw materials 94,414 94,414
----------- -----------
$27,393,543 $25,518,804
=========== ===========
</TABLE>
Note 3. Stock Options and Warrants
The following table summarizes the activity related to our stock options and
warrants for the six months ended June 30, 1999 and the year ended December 31,
1998:
<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, 1998 637,239 7,292,920 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.51
Granted - 331,850 $ - $3.94 - 8.50 $ - $ 4.69
Exercised - 611,000 $ - $1.00 - 2.50 $ - $ 2.13
Canceled or expired - 83,400 $ - $1.00 - 9.50 $ - $ 2.83
--------- ----------
Outstanding at December 31, 1998 637,239 6,930,370 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.70
Granted - 15,000 $ - $2.50 - 4.00 $ - $ 3.00
Exercised - - $ - $ - $ - $ -
Canceled or expired - 36,500 $ - $2.50 - 9.50 $ - $ 5.62
--------- ----------
Outstanding at June 30, 1999 637,239 6,908,870 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.69
========= ==========
Exercisable at June 30, 1999 637,239 6,717,020 $5.54 - 14.73 $1.00 - 9.50 $ 9.57 $ 3.68
========= ==========
</TABLE>
The options and warrants expire at various dates ranging from September 1999
through December 2008.
Page 8
<PAGE>
FLANDERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. 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,
1999. From time to time, we are a party to various legal proceedings incidental
to our business which are not material to our 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 our
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
We are 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. We focus on those
products with high replacement potential. We also design and manufacture our own
production equipment and produce glass-based media for many of our products.
From 1996 through 1999, we experienced significant growth from the acquisition
of other air filtration related companies. In April 1999, we acquired the
Tidewater Air Filter Fabrication Company, a distributor of filtration products
to customers in the eastern United States. In 1998, we acquired Eco-Air
Products, Inc. Eco-Air specializes in the manufacture and sale of air filtration
products to markets on the West Coast. Eco-Air's products range from high-end,
high efficiency particulate air filters through standard-grade filters. We have
included the results of operations for the acquired businesses in our financial
statements only from the applicable date of acquisition. As a result, you should
evaluate our historical results of operations for the periods presented
specifically in the context of these acquisitions. Additionally, the historical
results of operations do not fully reflect the operating efficiencies and
improvements we expect to experience from upgrading and integrating the acquired
businesses into our operations. There can be no guarantee that we will be able
to achieve these objectives and gains in efficiency. We believe our various
acquisitions will, over the long term, have a positive impact on our future
results of operations.
Results of Operations for Three Months Ended June 30, 1999 Compared to June 30,
1998
The following table summarizes our results of operations as a percentage of
net sales for the three months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------
1999 1998
---------------- ----------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 45,370 100.0% 39,687 100.0%
Gross profit 12,066 26.6 9,245 23.3
Operating expenses 8,429 18.6 5,778 14.6
Operating income 3,637 8.0 3,467 8.7
Income before income taxes 3,434 7.6 3,932 9.9
Income taxes 1,425 3.1 1,528 3.9
Net income 2,009 4.4 2,404 6.1
</TABLE>
Net sales: Net sales for the second quarter of 1999 increased by $5,683,000,
or 14.3%, to $45,370,000 from $39,687,000 for the first quarter of 1998.
Tidewater and Eco-Air's operations contributed approximately $6,882,000. Eco-Air
was acquired on June 30, 1998. Tidewater was acquired on March 31, 1999.
Excluding revenues of Tidewater and Eco-Air from the quarter's numbers, revenues
decreased approximately $1,199,000, or 3.0%. This decrease was entirely due to
decreases in sales of our high-end products to end users in the semiconductor
manufacturing industry.
Page 10
<PAGE>
Gross Profit: Gross profit for the second quarter of 1999 increased by
$2,821,000, or 30.5%, to $12,066,000, which represented 26.6% of net sales, from
$9,245,000, which represented 23.3% of net sales, for the second quarter of
1998. The increase in gross profit was principally attributable to the
acquisitions of Eco-Air and Tidewater, which contributed approximately
$2,425,000. Excluding the operations of Eco-Air and Tidewater, our gross profit
margin represented approximately 25.0% of net sales. We believe this increase in
gross margin percentage indicates some improvement from our ongoing automation
projects, and the first tangible signs that the operational efficiencies at our
newest facilities in Nevada, Illinois and North Carolina are gradually
increasing over time, as we expected.
Operating expenses: Operating expenses for the second quarter of 1999
increased by $2,651,000, or 45.9%, to $8,429,000, representing 18.6% of net
sales, from $5,778,000, representing 14.6% of net sales, for the second quarter
of 1998. The increase in operating expenses was primarily attributable to the
acquisitions of Eco-Air and Tidewater, which contributed approximately
$2,078,000. Excluding the operations of Eco-Air and Tidewater, our operating
expenses increased 9.9%, and represented 16.5% of net sales. The primary reason
for the increase in comparable operating expenses was increased expenditures in
central administrative areas in preparation for the consolidation of
subsidiaries' overhead operations planned for the next twelve months, after
which time these expenditures are expected to decrease compared to historical
norms.
Net income: The increased operating expenses discussed above more than
offset the increase in gross profit, and as a result net income for the second
quarter of 1999 decreased by $395,000, or 16.4%, to $2,009,000, or $0.08 per
share (both diluted and basic), from $2,404,000, or $0.09 (diluted, $0.10 basic)
per share for the second quarter of 1998.
Results of Operations for the Six Months Ended June 30, 1999 Compared to June
30, 1998
The following table summarizes our results of operations as a percentage of
net sales for the six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1999 1998
---------------- ----------------
(000's omitted)
<S> <C> <C> <C> <C>
Net sales 83,515 100.0% 70,372 100.0%
Gross profit 21,794 26.1 16,794 23.9
Operating expenses 15,924 19.1 11,365 16.1
Operating income 5,871 7.0 5,429 7.7
Income before income taxes 5,569 6.7 6,156 8.7
Income taxes 2,311 2.8 2,393 3.4
Net income 3,258 3.9 3,763 5.3
</TABLE>
Net sales: Net sales for the first half of 1999 increased by $13,143,000, or
18.7%, to $83,515,000 from $70,372,000 for the first half of 1998. The
operations of Eco-Air and Tidewater contributed approximately $12,865,000 of the
increase.
Gross Profit: Gross profit for the first half of 1999 increased by
$5,000,000, or 29.8%, to $21,795,000, which represented 26.1% of net sales, from
$16,794,000, which represented 23.9% of net sales, for the first half of 1998.
The bulk of the increase in gross profit was attributable to the acquisitions of
Eco-Air and Tidewater, which contributed approximately $4,634,000. Excluding the
operations of Eco-Air and Tidewater, our gross profit margin represented
approximately 24.3% of net sales.
Page 11
<PAGE>
Operating expenses: Operating expenses for the first half of 1999 increased
by $4,559,000, or 40.1%, to $15,924,000, representing 19.1% of net sales, from
$11,365,000, representing 16.1% of net sales, for the first half of 1998. The
increase in operating expenses was primarily attributable to the acquisitions of
Eco-Air and Tidewater, which contributed approximately $3,819,000. Excluding the
operations of Eco-Air, our operating expenses increased 6.5%, and represented
17.1% of net sales.
Net income: The increased operating expenses discussed above more than
offset our increase in gross profit, and as a result net income for the first
half of 1999 decreased by $505,000, or 13.4%, to $3,258,000, or $0.13 (diluted,
$0.14 basic) per share, from $3,763,000, or $0.14 (diluted, $0.15 basic) per
share for the first half of 1998.
Effects of Inflation
Our business and operations have not been materially affected by inflation
during the periods for which financial information is presented.
Liquidity and Capital Resources
We rely primarily upon cash flows from operations and available borrowings
under our credit facilities to finance operations. Our working capital was
$58,248,000 at June 30, 1999, compared to $47,972,000 at December 31, 1998. This
includes cash and cash equivalents of $13,470,000 at June 30, 1999, and
$13,673,000 at December 31, 1998.
Our trade receivables increased $7,498,000, or 28%, to $34,169,000 at June
30, 1999, from $26,671,000 at December 31, 1998. Days sales outstanding, the
number of days of average sales represented by outstanding receivables increased
to 69 days at June 30, 1999, from 65 days at December 31, 1998. This variation
in receivables is typical of timing differences in shipments and payments
received. Our days sales outstanding will typically range from 60 to 70 days.
Our operations used $1,934,000 of cash during the second quarter of 1999,
compared to $5,447,000 used in the second quarter of 1998. Primarily, this
difference in operating cash flows was due to differences in the amount of
change experienced in various asset and liability accounts. For example, during
the second quarter of 1999, our trade receivables and inventories collectively
increased approximately $7.9 million, and accounts payable increased
approximately $2.8 million, resulting in a $5.1 million cash drain from these
accounts. However; during the second quarter of 1998, receivables and
inventories collectively increased $3.0 million, and accounts payable decreased
$7.9 million, resulting in a net $10.9 million cash drain from these accounts.
Historically, our business is seasonal, with our second and third quarters
having higher sales than our first and fourth quarters. We attempt to moderate
swings in labor requirements and product shortages due to this seasonal variance
by building large inventories in the first quarter and second quarters. The
large inventories reduce the likelihood of stock shortages during our busy
season and smooth out our labor requirements. Hence, we expect operations to
consume cash, or generate substantially less cash than net income, during our
first and second quarters because of increases in inventory and trade accounts
receivable. During the first half of 1999, the drain on cash attributable to
seasonality was lower than in prior years because of new inventory management
systems in place at our largest subsidiary. Our financing activities during the
second quarter of 1999 generated $7,544,000 of cash, primarily consisting of
additional long-term debt, less our continuing stock repurchase program. Our
investing activities consumed 3,475,000 of cash, primarily to acquire Tidewater
and purchase manufacturing equipment.
We have a revolving line of credit facility with SunTrust Bank, N.A. and
Zions First National Bank, N.A. The credit agreement is for a term of two years
and provides us with a line of credit up to a maximum principal amount of
$30,000,000. Outstanding balances on the credit line bear interest at our
option, at either
o the "prime" rate of interest publicly announced by SunTrust Bank, or
o 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 our total liabilities
to our tangible net worth.
Page 12
<PAGE>
As of June 30, 1999, this rate was 5.94%. As of June 30, 1999, we had used
$19,820,000 of the revolving credit facility. Unless this line of credit is
renewed, it will expire in February 2000. In addition, our subsidiary, Eco-Air,
has a line of credit agreement with a bank that 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, 1999. Substantially all of Eco-Air's assets
collateralize borrowings under this arrangement, which will expire in August
1999. Outstanding amounts on the line of credit bear interest at a combination
of LIBOR plus 1.8% and the bank's prime rate. At June 30, 1999, this rate was
7.75%.
Any continued expansion of our business will require a substantial capital
investment. Although we have 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 to us in the future, or that it will be
available on acceptable terms. Failure to obtain sufficient capital could
materially adversely impact our growth strategy.
Effective April 1, 1999, we purchased the Tidewater group of companies for
$1,750,000, and spent approximately $177,000 in legal, accounting and other
expenses which were counted as part of the acquisition cost, for a total cost of
acquisition of approximately $1,927,000. Tidewater is an air filter distributor
and service organization, with some limited manufacturing capacity for specialty
products. Prior to the acquisition, Tidewater was an exclusive distributor of a
competitor's products.
In 1998, our board of directors authorized the repurchase of up to two
million shares of our common stock. As of June 30, 1999, we have repurchased
approximately 1,105,000 shares of our common stock under this authorization for
total cash consideration of $4,313,000. Thus, as of June 30, 1999, up to an
additional 895,000 shares are available for repurchase. These shares may be
acquired in the open market or through negotiated transactions. These
repurchases may be made from time to time, depending on market conditions, share
price and other factors. These repurchases are to be used primarily to satisfy
our obligations under our stock option and purchase plans or any other
authorized incentive plans, or for issuance pursuant to any future equity
financing.
We believe that funds from operations and existing credit facilities will be
sufficient to meet our anticipated working capital, capital expenditure and
general corporate requirements for the foreseeable future.
Outlook
During the past two quarters, we have seen the first signs that the
Company's newly established manufacturing facilities are beginning to complete
their start-up phases. Efficiency at these new facilities is beginning to
increase. We expect this process to continue for the next eighteen months, until
the new plants reach our goals for material utilization, labor productivity and
throughput. Critical to this process, however, will be our success in obtaining
additional sales to more fully utilize the production capacity we have put into
place.
We believe the semiconductor industry has been experiencing a cyclical
slowdown in capital spending for new facilities, and thus on spending for
cleanroom filtration products, since the first quarter of 1997. While we expect
capital spending for new semiconductor facilities to increase in the future, we
do not expect this to be a significant factor in our overall business during
1999 (only 7% of our first half 1999 and fiscal year 1998 net sales were from
high-end products sold for use in the semiconductor industry). In fact, we
expect sales for products used in semiconductor plants to remain relatively flat
through at least the third quarter.
We have collected data that indicates that residential filter users replace
their filters, on average, approximately once per year. Manufacturers of
residential furnace and air conditioning 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 our
business.
We believe there is currently a gradually increasing public awareness of the
issues surrounding indoor air quality and that this trend will continue for the
next several years. We also believe there is an increase in public concern
regarding the effects of indoor air quality on employee productivity, as well as
an increase in interest by
Page 13
<PAGE>
standards-making bodies in creating specifications and techniques for detecting,
defining and solving indoor air quality problems. We further believe there will
be an increase in interest in our Absolute Isolation Barriers in the future
because these products may be used in both semiconductor and pharmaceutical
manufacturing plants to prevent cross-contamination between different lots and
different processes being performed at the same facility. These products also
increase production yields in many applications.
Our most common products, in terms of both unit and dollar volume, are
residential throw-away spun glass 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 products with higher value products. Our higher
value products include our NaturalAire higher-efficiency filters for residential
use, with associated sales prices typically over $5.00 each. Any such trend
would have a beneficial effect on our business. We have developed new products,
such as our Arm & Hammer Pleated Filters for residential use, that are aimed
toward increasing consumer awareness of the benefits of using a more effective,
but more expensive, filter, and replacing it more frequently. We intend to
continue developing products for this purpose. We believe the dramatic and
readily recognizable difference in effectiveness between a fresh Arm & Hammer
Pleated Filter, and one which has been in place for three or more months will
encourage the public to become more aware of these issues.
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, our penetration of this market has been
relatively small. We believe that our ability to offer a "one stop" supply of
air filtration products to HVAC distributors and wholesalers will increase our
share of this market segment. We also believe that our recently developed
modular air handlers and environmental tobacco smoke systems will enable us to
expand sales to these customers. We intend our new products to serve as high
profile entrants with distributors and manufacturers' representatives, who can
then be motivated to carry our complete product line.
This Outlook section, and other portions of this document, include certain
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, including, among others, those statements preceded by, following or
including the words "believe," "expect," "intend," "anticipate" or similar
expressions. These forward-looking statements are based largely on the current
expectations of management and are subject to a number of assumptions, risks and
uncertainties. Our actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating such
forward-looking statements include those discussed below under the heating
"Factors That May Affect Future Results" as well as:
o the shortage of reliable market data regarding the air filtration
market,
o changes in external competitive market factors or in our internal
budgeting process which might impact trends in our results of
operations,
o anticipated working capital or other cash requirements,
o changes in our business strategy or an inability to execute our strategy
due to unanticipated changes in the market,
o product obsolescence due to the development of new technologies, and
o various competitive factors that may prevent us 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.
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<PAGE>
Factors That May Affect Future Results
Our Failure to Manage Future Growth Could Adversely Impact Our Business Due to
the Strain on Our Management, Financial and Other Resources
If our business continues to grow, the additional growth will place burdens
on management to manage such growth while maintaining profitability. We have no
guarantee that we will be able to do so. Due to our recent acquisitions and
expansions, our net sales increased by approximately 173.6% from the year ended
December 30, 1994 to the year ended December 31, 1996. Our net sales further
increased by approximately 116.0% from the year ended December 31, 1996 to the
year ended December 31, 1998. We do not expect to continue to expand at this
rate. Our ability to compete effectively and manage future growth depends on our
ability to:
o recruit, train and manage our work force, particularly in the areas of
corporate management, accounting, research and development and
operations,
o manage production and inventory levels to meet product demand,
o manage and improve production quality,
o expand both the range of customers and the geographic scope of our
customer base, and
o improve financial and management controls, reporting systems and
procedures.
Any failure to manage growth effectively could have a material adverse effect on
our business, financial condition and results of operations.
We Must Develop, Produce and Sell New Products That Keep Up With Rapid
Technological Change to Maintain at Least 20% of Our Revenues
As of December 31, 1998, approximately 20% of our revenues resulted from
sales of high-end filtration products that are especially vulnerable to new
technology development. Our ability to remain competitive in this area will
depend in part upon our ability to:
o anticipate technological changes,
o develop new and enhanced filtration systems that meet our customers'
needs, and
o introduce these systems at competitive prices in a timely and
cost-efficient manner.
We have no assurance that we will successfully anticipate future technological
changes or that technologies or systems developed by others will not render our
technology obsolete. Additionally, we have no assurance that the products we
develop will be commercially viable.
Our Business May Suffer if Our Competitive Strategy is Not Successful
Our continued success depends on our ability to compete in an industry that
is highly competitive. 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 we do. Additionally, our
competitors may introduce new products or enhancements to products that could
cause a decline in sales or loss of market acceptance of our existing products.
Under our current competitive strategy, we endeavor to remain competitive by:
o increasing our market share,
o expanding our market through the introduction of new products with high
replacement potential, and
o improving operating efficiencies.
Although our executive management team continues to review and monitor our
strategic plans, we have no assurance that we will be able to follow our current
strategy or that this strategy will be successful.
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<PAGE>
Our Market Share May Not Continue to Increase if we are Unable to Acquire
Additional Synergistic Businesses
In the past several years we have significantly increased our market share
by acquiring synergistic businesses. Although we intend to continue to increase
our market share in this manner, we have no assurance that future acquisition
opportunities will be available. Additionally, in the future we may not have
access to the substantial debt or equity financing that may be required to
finance potential acquisitions. Moreover, these types of transactions may result
in potentially dilutive issuances of equity securities, the incurrence of
additional debt and amortization of expenses related to good will and intangible
assets, all of which could adversely affect our profitability. Our strategy of
growth through acquisition also exposes us to the potential risks inherent in
assessing the value, strengths, weaknesses, and potential profitability of
acquisition candidates and in integrating the operations of acquired companies.
We do not currently have any binding agreements with respect to future
acquisitions.
Our Business May Suffer if Our Strategy to Increase the Size and Customer Base
of the Air Filtration Market is Unsuccessful
We are developing new products as part of our strategy to increase the size
and customer base of the air filtration market. We have no assurance that this
strategy will be successful. We have no guarantee that any new products we
develop will gain acceptance in the marketplace, or that these products will be
successful. Additionally, we have no assurance we will be able to recoup the
expenditures associated with the development of these products. To succeed in
this area we must:
o increase public awareness of the issues surrounding indoor air quality,
o adequately address the unknown requirements of the potential customer
base,
o develop new products that are competitive in terms of price, performance
and quality, and
o avoid significant increases in current expenditure levels in
development, marketing and consumer education.
We May Experience Critical Equipment Failure Which Could Have a Material Adverse
Effect on Our Business
If we experience extended periods of downtime due to the malfunction or
failure of our automated production equipment, our business, financial condition
and operations may suffer. We design, manufacture and assemble the majority of
the automated production equipment used in our facilities. We also use other
technologically advanced equipment for which manufacturers may have limited
production capability or service experience. If we are unable to quickly repair
our equipment or quickly obtain new equipment or parts from outside
manufacturers, we could experience extended periods of downtime in the event of
malfunction or equipment failure.
If The Automation of Our Production Lines Fails to Produce the Projected
Results, Our Business Will Suffer
We have only recently substantially completed a program to increase our
gross margins by automating portions of our production lines. Although the
designs have been extensively tested in the field, we have no assurance that the
new equipment will produce the expected beneficial results on our gross margins.
Additionally, we are not certain that any increases in efficiencies will not be
offset in the marketplace by competitors making similar improvements to their
facilities.
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<PAGE>
Our Centralized Overhead Functions May Not Produce the Anticipated Benefits to
Our Operating Results
We are currently implementing plans to centralize and eliminate duplication
of efforts between our subsidiaries in the following areas:
o purchasing,
o production planning,
o shipping coordination,
o marketing,
o accounting,
o personnel management,
o risk management, and
o benefit plan administration.
We have no assurance that cutting overhead in this fashion will have the
anticipated benefits to our operating results. Additionally, we have no
assurance that these reorganizations will not significantly disrupt the
operations of the affected subsidiaries.
Our Success Depends on Our Ability to Retain and Attract Key Personnel
Our success and future operating results depend in part upon our ability to
retain our executives and key personnel, many of whom would be difficult to
replace. Our success also depends on our ability to attract highly qualified
engineering, manufacturing, technical, sales and support personnel for our
operations. Competition for such personnel, particularly qualified engineers, is
intense, and there can be no assurance that we will be successful in attracting
or retaining such personnel. Our failure to attract or retain such persons could
have a material adverse effect on our business, financial condition and results
of operations.
Our Current Distribution Channels May be Unavailable if Our Manufacturers'
Representatives Decide to Work Primarily With One of Our Competitors
We provide our manufacturers' representatives with the ability to offer a
full product line of air filtration products to existing and new customers. Some
of our competitors offer similar arrangements. We do not have exclusive
relationships with most of our representatives. Consequently, if our
representatives decide to work primarily with one of our competitors, our
current distribution channels, and hence, our sales, could be significantly
reduced.
Management Controls a Significant Percentage of Our Stock
As of June 30, 1999, our directors and executive officers beneficially held
approximately 42% of our outstanding common stock. As a result, such
shareholders effectively control or significantly influence all matters
requiring shareholder approval. These matters include the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may also have the effect of delaying or preventing a change in
control.
We May be Required to Issue Stock in the Future That Will Dilute the Value of
Our Existing Stock
If we issue the following securities, such securities may dilute the value
of the securities that our existing stockholders now hold.
We have granted warrants to purchase of total of 637,239 of our shares of
common stock to various parties with exercise prices ranging from $5.54 to
$14.73 per share. All of the warrants are currently exercisable. As a result, if
the warrant holders exercise these warrants, we will issue shares of stock that
will generally be available for sale in the public market.
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<PAGE>
We have granted options to purchase a total of 6,898,870 shares of common
stock to various parties with exercise prices ranging from $1.00 to $9.50 per
share. The majority of these options are currently exercisable. Additionally,
most of the common stock issuable upon the exercise of these options is
registered on a Form S-8. As a result, if the option holders exercise these
options, we will issue shares of stock that will generally be available for sale
in the public market.
Our Shareholders May Not Realize Certain Opportunities Because of Our Charter
Provisions and North Carolina Law
Our Articles of Incorporation and Bylaws contain provisions that are
designed to provide our board of directors with time to consider whether a
hostile takeover offer is in our best interest and the best interests of our
shareholders. These provisions may discourage potential acquisition proposals
and could delay or prevent a change of control in our business. Additionally, we
are subject to the Control Shares Acquisition Act of the State of North
Carolina. This act provides that any person who acquires "control shares" of a
publicly held North Carolina corporation will not have voting rights with
respect to the acquired shares unless a majority of the disinterested
shareholders of the corporation vote to grant such rights. This could deprive
shareholders of opportunities to realize takeover premiums for their shares or
other advantages that large accumulations of stock would typically provide.
Our Business Can be Significantly Affected by Environmental Laws
The constantly changing body of environmental laws and regulations may
significantly influence our business and products. These laws and regulations
require that certain environmental standards be met and impose liability for the
failure to comply with such standards. While we endeavor at each of our
facilities to assure compliance with environmental laws and regulations, we
cannot be certain that our operations or activities, or historical operations by
others at our locations, will not result in civil or criminal enforcement
actions or private actions that could have a materially adverse effect on our
business. We have, in the past, and may, in the future, purchase or lease
properties with unresolved potential violations of federal or state
environmental regulations. In these transactions, we have been successful in
obtaining sufficient indemnification and successfully mitigating the impact of
the issues without recognizing significant expenses associated with litigation
and cleanup. However, purchasing or leasing these properties requires us to
weigh the cost of resolving these issues and the likelihood of litigation
against the potential economic and business benefits of the transaction. If we
fail to correctly identify, resolve and obtain indemnification against these
risks, they could have a material adverse impact on our financial position.
Our Operations Will be Significantly Impaired if Our Systems Fail to be Year
2000 Compliant
The Year 2000 Problem
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that assume the year will
always be less than 2000, typically by storing the year portion of the date
as just two digits (e.g., 98 for 1998), or making overly simple assumptions
regarding leap years and other "special" dates. Systems using a two-digit
year may not be able to determine whether "00" represents the year 2000 or
1900, and may fail to process other dates correctly. The problem, if not
corrected, will make those systems fail altogether or allow them to generate
incorrect calculations causing a disruption of normal operations.
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<PAGE>
Readiness Efforts
In 1997, we began a comprehensive project plan to address the Year 2000
issue as it relates to our operations. This plan was developed, approved by
our board of directors, and implemented. The scope of the plan includes five
phases:
o Awareness,
o Evaluation,
o Hardware Implementation,
o Phased Software Implementation, and
o Validation.
We also developed a project team that consists of key members of the
technology staff, representatives of functional business units and senior
management. Additionally, we realigned the duties of the director of
information technology so that the director serves primarily as the Year
2000 project manager.
We have completed an assessment of the impact of the Year 2000 issue on our
computer systems. The scope of the project also includes other operational
and environmental systems since they may be impacted if embedded computer
chips control the functionality of those systems. From the assessment, we
have identified and prioritized those systems deemed to be mission critical
or those that have a significant impact on normal operations.
We rely on third party vendors and service providers for our data processing
capabilities and to maintain our computer systems. We initiated formal
communications with these providers and other external parties in 1997 to
assess the Year 2000 readiness of their products and services. We are
monitoring the providers' progress in meeting their targeted schedules for
any indication that they may not be able to address the problems in time.
Thus far, responses indicate that most of the significant providers
currently have compliant versions available or are well into the renovation
and testing phases with completion scheduled for some time in early 1999.
However, we can give no guarantee that the systems of these service
providers and vendors on which our systems rely will be timely renovated.
Additionally, we have implemented a plan to manage the potential risk posed
by the impact of the Year 2000 issue on our major customers. We have
initiated formal communications, initiated software modifications, and
completed successful testing with several of our major customers.
Current Status
The project team estimates that our Year 2000 readiness project is 97%
complete, and the activities involved in assessing external risks and
operational issues are 95% complete overall. The following table provides a
summary of the current status of the five phases involved and a projected
timetable for completion. All of the Company's subsidiaries, with one
exception, are fully Year 2000 compliant. This subsidiary and its associated
manufacturing facility are being moved to systems which have been fully
implemented at several of our other subsidiaries. We expect this facility to
be fully Year 2000 compliant by the end of the third quarter.
Project Phase % Completed Scheduled Completion
------------- ----------- --------------------
Awareness 100% Complete
Evaluation 100% Complete
Hardware Implementation 100% Complete
Phased Software Implementation 95% September 1999
Final Validation 90% October 1999
---------------------------------------------------------------------------
Overall 97%
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Costs
We have thus far primarily used and expect to continue to primarily use
internal financial resources to implement our readiness plan and to upgrade
or replace and test systems affected by the Year 2000 issue. Our total cost
of these Year 2000 compliance activities has not been and is not anticipated
to be material to our financial position or results of operations in any
given year. In total, we estimate that our costs, excluding personnel
expenses, for Year 2000 remediation and testing of our computer systems will
amount to less than $275,000 over the three-year period from 1997 through
1999. We have not included in this estimate the cost to replace fully
depreciated systems during this period, because such costs occur in the
normal course of business and are not directly attributable to the Year 2000
issue.
The costs and the timetables in which we plan to complete our Year 2000
readiness activities are based on management's best estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. We can make no guarantee that these estimates will be achieved, and
actual results could differ from such plans.
Risk Assessment
Based upon current information related to the progress of our major vendors
and service providers, we do not believe that the Year 2000 issue will cause
significant operational problems for our computer or manufacturing systems.
Our belief is based on representations made by our vendors and service
providers that they will renovate, in a timely manner, their systems so that
products and services on which our operations rely will perform properly
with respect to the Year 2000 issue. We can give no guarantee that the
systems of these suppliers will be timely renovated.
Contingency Plan
Realizing that some disruption may occur despite our best efforts, we have
developed contingency plans for each critical system in the event that one
or more of those systems fail. While this is an ongoing process, we believe
it is substantially complete.
Because of the foregoing factors, as well as other variables affecting our
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including changes in foreign
currency exchange rates and interest rate risks. Market risk is the potential
loss arising from adverse change in market rates and prices, such as foreign
currency exchange and interest rates. For us, these exposures are primarily
related to the sale of product to foreign customers and changes in interest
rates.
The fair value of our total debt at June 30, 1999 was approximately
$39,405,000. Market risk was estimated as the potential decrease (increase) in
future earnings and cash flows resulting from a hypothetical 10% increase
(decrease) in our estimated weighted average borrowing rate at June 30, 1999.
Although most of the interest on our debt is indexed to a market rate, there
would be no material effect on the future earnings or cash flows related to our
total debt for such a hypothetical change.
Our financial position is not materially affected by fluctuations in
currencies against the U.S. dollar, since assets held outside the United States
are negligible. Our sensitivity analysis of the effects of changes in foreign
currency exchanges rates does not factor in a potential change in sales levels
of local currency prices, as the preponderance of our foreign sales occur over
short periods of time or are demarcated in U.S. dollars.
We do not have any derivatives or other financial instruments for trading or
speculative purposes.
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<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 June
30, 1999. From time to time, we are a party to various legal proceedings
incidental to our business. None of these proceedings is material to the
conduct of our 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.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
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<PAGE>
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 Flanders Corporation 1996 Director Option Plan, filed with the Form
10-K dated December 31, 1995, and incorporated herein by reference.
10.12 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.
10.13 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.
10.14 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Steven K. Clark, filed with the Form
10-K dated December 31, 1997 and incorporated herein by reference.
10.15 Stock Option Agreement between Elite Acquisitions, Inc., and Steven
K. Clark, filed with the December 31, 1995 Form 10-K, incorporated
herein by reference.
10.16 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.
10.17 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.
10.18 Amendment to Employment Agreement between Elite Acquisitions, Inc.,
Flanders Filters, Inc., and Robert R. Amerson, filed with the Form
10-K dated December 31, 1997 and 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 Employment Agreement between Eco-Air Products, Inc., and Leonard J.
Fetcho, filed with the Form 10-K dated December 31, 1998,
incorporated herein by reference.
10.21 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.
10.22 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.
10.23 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.
10.24 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 - None
Page 22
<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 13th day of August, 1999.
FLANDERS CORPORATION
By: /s/ Steven K. Clark
----------------------
Steven K. Clark
Vice President Finance/Chief Financial Officer
Chief Operating Officer and Director
(Authorized officer and principal
financial officer)
Page 23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS OF FLANDERS CORPORATION FOR THE THREE MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,470,346
<SECURITIES> 0
<RECEIVABLES> 34,700,842
<ALLOWANCES> 531,853
<INVENTORY> 27,393,543
<CURRENT-ASSETS> 81,778,594
<PP&E> 79,014,771
<DEPRECIATION> 16,773,269
<TOTAL-ASSETS> 179,741,405
<CURRENT-LIABILITIES> 23,530,727
<BONDS> 0
0
0
<COMMON> 90,046,771
<OTHER-SE> 22,757,721
<TOTAL-LIABILITY-AND-EQUITY> 179,741,405
<SALES> 45,369,657
<TOTAL-REVENUES> 45,369,657
<CGS> 33,304,153
<TOTAL-COSTS> 8,428,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274,727
<INCOME-PRETAX> 3,433,580
<INCOME-TAX> 1,425,000
<INCOME-CONTINUING> 2,008,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,008,580
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
